Q3 2025 Earnings Call: Contradictions Emerge on Medicaid Volumes, State Supplemental Payments, and Elective Surgery Projections

Date of Call: October 24, 2025

Financials Results

• Revenue: increased 9.6% year-over-year (no absolute quarterly revenue figure provided)
• EPS: adjusted diluted EPS increased 42% year-over-year (no absolute EPS provided)

Guidance:

• Revenue for full-year 2025 expected to be $75.0B–$76.5B.
• Net income attributable to HCA expected $6.50B–$6.72B; adjusted EBITDA expected $15.25B–$15.65B; diluted EPS expected $27–$28.
• Capital spending expected to be approximately $5.0B.
• Supplemental payment net benefit for full-year 2025 expected $250M–$350M favorable vs 2024; updated guidance excludes potential impacts from additional pending grandfathering approvals.
• At the midpoint, guidance assumes a $120M decline in supplemental payment net benefit in Q4 vs prior year; hurricane markets expected to add ~ $100M adjusted EBITDA in 2025 (mostly in Q4).

Business Commentary:

* Strong Revenue Growth: - HCA Healthcare reported a 9.6% increase in revenue for Q3 2025, with 42% growth in diluted earnings per share. - Growth was driven by broad-based volume growth, improved payer mix, increased utilization of complex services, and additional revenue from Medicaid supplemental programs.

• Operational Performance and EBITDA Margin:
• The company saw an improvement in adjusted EBITDA margin, driven by good performance in labor and supplies.

• The improvement was supported by contract labor expenses remaining flat and increased efficiency from contract negotiation and management.

• State Supplemental Payment Programs:

• HCA Healthcare experienced an approximate $240 million increase in net benefit from state supplemental payment programs in Q3 2025 compared to the prior year.

• This was primarily due to approvals in programs like Tennessee and Texas, which drove half of the overall increase in net revenue per equivalent admission.

• Volume Growth Across Payer Categories:

• Same facility equivalent admissions increased 2.4% over the prior year, with commercial and Medicare visits increasing by 3.7% and 3.4%, respectively.
• This growth was supported by strong commercial exchange growth, improved dispute resolution results, and increased utilization of complex services.

Sentiment Analysis:

Overall Tone: Positive

• Management reported '42% growth in diluted earnings per share as adjusted' and 'Revenue increased by 9.6%,' said they 'raised our guidance for the year,' highlighted improved margins and operational execution, and increased adjusted EBITDA midpoint by ~$450M driven by supplemental payments and operations.

Q&A:

• Question from Ann Hynes (Mizuho Securities USA LLC, Research Division): Can you remind us which states are still pending for grandfather programs and any quantification of potential incremental impact?
  Response: Pending grandfathering reviews include Florida, Georgia and Virginia; reviews are active but the company is not quantifying potential impacts and excluded pending approvals from the updated guidance.

• Question from Albert J. Rice (Credit Suisse): Are you seeing early scheduling of elective surgeries ahead of open enrollment and can you re-enroll patients via special enrollment if coverage lapses?
  Response: Too early to size any elective-scheduling effect; company will update at the Q4 call; Parallon provides financial-counseling support to help patients navigate Medicaid/exchange enrollment (not on-site reenrollment).

• Question from Pito Chickering (Deutsche Bank AG, Research Division): How should we think about the implied Q4 growth and bridge from Q3 to Q4 considering hurricanes and supplemental payments?
  Response: Implied Q4 growth is high-single-digits (~7%), with hurricane recovery and a decline in supplemental payments the primary offsets; sequential growth is in line with historical trends.

• Question from Benjamin Hendrix (RBC Capital Markets): How much of the SDP benefit in Q3 and guidance relates specifically to Tennessee and Texas?
  Response: Tennessee was the largest driver with cash received and accruals; Texas approval contributed one month of impact; Kansas added roughly nine months of impact—combined with other program variances produced the ~$240M Q3 net benefit.

• Question from Brian Tanquilut (Jefferies LLC, Research Division): When do supplies contracts reset and when will resiliency initiatives to mitigate future Medicaid cuts begin to flow through the P&L?
  Response: Supply contracts generally run 2–3 year cycles; ongoing efforts cover contract renewals, technology mix and utilization management; resiliency is active and being accelerated with further commentary planned at the Q4/2026 guidance.

• Question from Benjamin Mayo (Leerink Partners LLC, Research Division): Preliminary thoughts on 2026 capital deployment — buybacks/dividends/capex mix?
  Response: No finalized 2026 capital plan yet; expect capital allocation discipline similar to prior years and will finalize after planning and federal policy clarity.

• Question from Justin Lake (Wolfe Research, LLC): How much did dispute resolution contribute and what's the expected DPP/supplemental payment run rate into 2026?
  Response: About half of net revenue per equivalent admission growth in Q3 was from state supplemental payments; updated guidance implies a $250–$350M favorable full-year 2025 net benefit versus 2024; company did not include potential additional pending approvals.

• Question from Andrew Mok (Barclays Bank PLC, Research Division): Update on the previously underperforming geographic divisions outside hurricane markets?
  Response: One of the two challenged divisions has recovered; the other remains underperforming but management expects improvement as they push into 2026.

• Question from Matthew Gillmor (KeyBanc Capital Markets Inc., Research Division): Which surgical service lines improved this quarter?
  Response: Outpatient general surgery and urology were strong; inpatient neurosciences, orthopedics and cardiac improved; outpatient gyne and some neurosurgery were modestly down.

• Question from Scott Fidel (Goldman Sachs Group, Inc., Research Division): Please break down Medicare volumes between Medicare Advantage and fee-for-service and comment on case mix/acuity.
  Response: Medicare Advantage admissions +4.8% YoY; traditional (fee-for-service) admissions up ~0.9 percentage points; traditional Medicare case mix rose modestly while Medicare Advantage case mix was largely flat.

• Question from Ryan Langston (TD Cowen, Research Division): How are AI initiatives progressing in revenue cycle and what runway do you see?
  Response: Pilots and rollouts focus on denial/underpayment mitigation in revenue cycle and ambient-AI documentation for clinicians; case mix index largely stable (+30 bps YoY), and digital initiatives are being scaled.

• Question from Raj Kumar (Stephens Inc., Research Division): How did professional fees trend YoY and how is Valesco expected to trend into 4Q and 2026?
  Response: Same-facility professional fees rose ~11% YoY (notably anesthesia and radiology); Valesco integration is progressing with improving financial and clinical results and management expects continued improvement into 2026.

• Question from Benjamin Rossi (JPMorgan Chase & Co, Research Division): Characterize incremental cost to manage additional throughput and market variance in ramping capacity.
  Response: No material capacity constraints; net headcount has improved, surge planning and length-of-stay reductions create capacity, and additional capital in 2026 will add physical capacity—incremental throughput is manageable cost-effectively.

• Question from Jason Cassorla (Guggenheim Securities, LLC, Research Division): How should we think about recovering the remaining hurricane-related headwind versus the $250M impact in 2024?
  Response: Expect to recapture about $100M of the prior hurricane EBITDA impact in 2025 (mostly in Q4); lingering effects—particularly deteriorated payer mix and premium labor in North Carolina—remain and will be evaluated for 2026 guidance.

• Question from Stephen Baxter (Wells Fargo Securities, LLC, Research Division): What gives you confidence in achieving the long-term 2–3% volume growth range if exchange volumes are uncertain?
  Response: Eighteen consecutive quarters of volume growth, growing ambulatory footprint, more capital coming online and physician relationships underpin confidence that the 2–3% long-term volume range is achievable despite exchange uncertainty.

• Question from Craig Hettenbach (Morgan Stanley, Research Division): Progress vs the $600M–$800M resiliency target and levers to extend it (tech/AI)?
  Response: Resiliency is an ongoing program of piloting and scaling initiatives (including AI, automation and shared services); management reports margin improvement since 2023 and continues to identify new ideas to reach the $600M–$800M target.

• Question from Joshua Raskin (Nephron Research LLC): What is driving higher EBITDA-to-free-cash-flow conversion and is it sustainable?
  Response: Drivers include strong adjusted EBITDA, improved revenue-cycle and working-capital management (inventory, receivables), and a year-to-date $1.3B federal tax-payment deferral; revenue-cycle and working-capital programs support continued strong cash conversion, though the tax deferral is a timing item.

Contradiction Point 1

Medicaid Volume Trends

It involves differing statements about the trend in Medicaid volumes, which can impact financial performance and strategic planning.

Do you anticipate volume increases from potential step-up in elective surgeries? Can you reset coverage for off-cycle enrollment? - Albert J. Rice (Credit Suisse)

2025Q3: Medicaid equivalent admissions are down 1.5% year-to-date, which is a better performance than the first half of the year, but we are still below prior year. - [Mike Marks](CFO)

How is commercial volume trending, and what are your expectations for end-year activity considering potential loss of enhanced premium subsidies? - Benjamin Hendrix (RBC Capital Markets)

2025Q2: Medicaid is down 1.2% year-to-date, and self-pay is up only 1.5%. - [Mike Marks](CFO)

Contradiction Point 2

State Supplemental Payments and Guidance Impact

It relates to the impact of state supplemental payments on financial guidance, which is crucial for investor expectations.

Which states still have pending grandfather programs? Are there any quantifications of the incremental impact? - Ann Hynes (Mizuho Securities USA LLC)

2025Q3: About half of the $300 million increase in guidance at the midpoint is from state supplemental payment programs. - [Mike Marks](CFO)

Is the new Tennessee DPP program included in the updated outlook? Is there commentary on underlying volume demand? - Albert Rice (Jefferies)

2025Q2: About half of the $300 million increase in guidance at the midpoint is from state supplemental payment programs. - [Mike Marks](CFO)

Contradiction Point 3

Medicaid Expansions and State Programs

It involves differing expectations regarding the impact of Medicaid expansions and state programs, which can affect financial projections and operational strategies.

Which states remain pending for grandfather programs? Is there any quantification of incremental impact? - Ann Hynes (Mizuho Securities USA LLC)

2025Q3: States like Florida, Georgia, and Virginia under review for grandfather programs. - [Mike Marks](CFO)

Have you noticed changes in MA plan behavior, denials, dispute resolution, or length of stay? - Whit Mayo (Leerink Partners)

2025Q1: We have Governor Lee in Tennessee. Signed a Medicaid expansion bill in April. We have 280,000 Tennesseans that have gained eligibility. We expect that to be profitable for us. We have cash in our hands today, a billion dollars plus. - [Sam Hazen](CEO)

Contradiction Point 4

Elective Surgery Volume Impact

It concerns the expected impact of deferred elective surgeries on volumes, which can affect revenue projections.

Are volume increases expected from higher elective surgery volumes? Will coverage be adjusted for off-cycle enrollment? - Albert J. Rice (Credit Suisse)

2025Q3: We are hearing from a lot of our own physicians and from a lot of third-party data sources that the pent-up demand that was there appears to be dissipating. And so I would expect that as we get into next year, that once we get past January, we will see some bounce back, but I'm not sure that we will see the same type of growth that we've seen through the first 6 months of this year. - [Samuel Hazen](CEO)

How do you expect the commercial mix to progress and changes in utilization review and denial rates? - Albert Rice (UBS)

2024Q4: We are 80% contracted for 2025 and 60% for 2026. There is no growth in denials being a material impact for the company. The contracting process is on target with no significant concerns about denials. - [Mike Marks](CFO)