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HCA Healthcare (HCA) Q1 2023 Earnings Call Transcript

Operator Welcome to the HCA Healthcare First Quarter 2023 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.Frank Morgan Good morning and welcome to everyone on today’s call. With me this morning is our CEO, Sam Hazen; and CFO, Bill Rutherford. Sam and Bill will provide some prepared remarks and then we will take a few questions.Before I turn the call over to Sam, let me remind everyone that should today’s call contain any forward-looking statements that are based on management’s current expectations. Numerous risks and 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 and a replay of the call will be available later today.With that, I will now turn the call over to Sam.Sam Hazen Alright. Thank you, Frank, and good morning. Thank you for joining our call. The operational momentum we had at the end of the last year continued into the first quarter of 2023. The company produced solid earnings that reflected strong demand for our services and improvements in our operating costs in particular contract labor expenses.For the quarter, diluted earnings per share excluding losses on sales of facilities grew by almost 20% to $4.93. Adjusted EBITDA grew close to 8%. Same facility volumes across the company were strong in the first quarter, admissions grew 4.4% year-over-year. Non-COVID admissions were up 12%. Our inpatient business continued to be supported by strong acuity and a favorable payer mix. Inpatient surgeries increased 3.6%. Same facility equivalent admissions increased 7.5%. This was driven by emergency room visits, which grew 10% and outpatient surgeries, which grew 5%.Other outpatient categories also grew including outpatient cardiology procedures, which increased 7%. The demand increase was broad-based across most of the company’s footprint and service lines contributing to same facility revenue growth of 5%, as compared to the prior year.With respect to our people agenda, we saw continued improvements across virtually all metrics. The improvement in turnover rates accelerated from the fourth quarter and we ended the quarter close to pre-pandemic levels. Registered nurse hiring also improved in the quarter. Hiring increased almost 19%, compared to the previous four quarter average. These positive results helped reduce contract labor cost 21%, compared to last year. We continue to invest in our people through compensation programs, increased training and innovative care models. We believe these programs advanced our capabilities to provide high quality care to our patients. Once again, our colleagues demonstrated a remarkable ability to adapt and deliver value across all stakeholder groups.I want to thank them for their dedication, their hard work, and their overall effectiveness. During the quarter, we continued to experience periodic capacity constraints that prevented us from fully operating our capacity. As compared to the fourth quarter, instances where we could not accept patients from other hospitals declined 25% and represented 1.5% of total admissions in the quarter, which was down from 2% in the fourth quarter. While we are pleased with this improved trend it still remains above pre-pandemic levels.Close with this, we remain encouraged by the backdrop of strong demand that we saw in our markets. We intend to maintain our disciplined approach to executing our strategic and capital allocation plans as we push through the rest of this year. And lastly, we believe the investments we are making in our network, our people and our technology will provide us with the necessary resources to improve our services and provide high quality care to our patients. Given the strong results in the quarter and the favorable factors we expect with demand, you will see that we have increased our guidance for the year.With that, I’ll turn the call to Bill for more details.Bill Rutherford Great. Thank you, Sam, and good morning, everyone. I will provide some additional comments on our performance for the quarter. Adjusted EBITDA for the quarter was $3.17 billion, as compared to $2.94 billion in the prior year. As noted in our release, in the first quarter of this year, we recorded an increase in revenues of $145 million related to resolving certain disputed claims with a commercial payer that covered a six-year period.In the prior year quarter, we recorded an additional $244 million of revenues and $90 million of expenses that related to the Texas directed payment program for an earlier period. I will also note, as it relates to prior year comparisons, we still were experiencing high level of COVID volumes in the first quarter of 2022. COVID admissions accounted for 9.7% of admissions last year, compared to about 3% this year.In addition, in the prior year quarter, we recognized approximately $190 million of COVID-related support payments versus about $30 million in this year’s first quarter. Sam highlighted our positive volume metrics in the quarter and this was coupled with good payer mix and case mix trends. Same facility managed care and other admissions grew 4.2% during the quarter, when compared to the prior year and non-COVID managed care admissions grew 11.3% versus the prior year.Non-COVID case mix improved just under 1%, as compared to both prior year and sequentially from the fourth quarter. This contributed to our non-COVID inpatient revenue per admission increasing 2.2%, as compared to the first quarter of last year. We remain pleased with our team’s management of operating cost even with the backdrop of higher inflation.Our consolidated adjusted EBITDA margin was 20.3% in the quarter. Labor cost as a percentage of revenue improved both sequentially and when compared to the prior year and our supply costs continue to trend favorably as well. We have discussed previously other operating expenses have been subject to some inflationary cost pressures and increased approximately 20 basis points as a percentage of revenue, when compared to the prior year.So let me speak to some cash flow and capital allocation metrics as they remain a key part of our long-term growth and value creation strategies. Our cash flow from operations increased $458 million in the quarter from $1.35 billion in the prior year to $1.8 billion this year.Capital spending was just under $1.2 billion. We paid $175 million in dividends and repurchased just under $850 million of our stock during the quarter. Our debt-to-adjusted EBITDA leverage ratio remains near the low end of our stated leverage range of 3 times to 4 times.As noted in our release this morning, we are updating our full-year 2023 guidance as follows. We expect revenues to range between $62.5 billion and $64.5 billion. We expect net income attributable to HCA Healthcare to range between $4.75 billion and $5.16 billion. We expect full-year adjusted EBITDA to range between $12.1 billion and $12.7 billion. And we expect full-year diluted earnings per share to range between $17.25 and $18.55. And lastly, we expect capital spending to approximate $4.6 billion during the year.I will mention that our updated capital spending guidance is based on opportunities we believe exist to continue to invest growth agenda, and it also considers some land acquisitions we are planning for future development. In addition, we are seeing some inflationary increases in construction costs that we have factored into our guidance as well.Finally, I will mention, in early April, we closed on a transaction to increase our ownership interest in the Valesco joint venture with Envision. We will consolidate this venture, beginning in the second quarter and expect the venture will generate approximately $1 billion of annual revenues with no material impact to adjusted EBITDA.So with that, I’ll turn the call over to Frank, and we’ll open it up for Q&A. We look forward to your questions.Frank Morgan Thank you, Bill. As a reminder, please limit yourself to one question so that we may give as many as possible an opportunity in the queue to ask a question.Rob, you may now give instructions to those who would like to ask a question.Question-and-Answer Session Operator [Operator Instructions] And your first question comes from the line of A.J. Rice from Credit Suisse. Your line is open.A.J. Rice Hi, everybody. Maybe obviously, there’s a lot of positive trends this quarter, both on the volume side, as well as what you’re seeing particularly expenses with labor. When you sit here and look at the rest of the year, I know your updated guidance and updated a little further than just the beat in the quarter. What are the variables that you see could swing either more positive or negative? Are there open questions with respect to how labor trends the rest of the year? Or how volume trends the rest of the year? Or maybe some other metric that I’m not highlighting that you see as putting you at different points within the range, or offering variability? Can you maybe flash that out a little further?Bill Rutherford Yes. A.J., this is Bill. I’ll start and Sam can add in. I think as we said in our comments, we believe there is momentum that we’re seeing in the market. We saw that late ‘22, but we are fortunate that continued into the first quarter. We continue to see good volume expectations in the market. You saw our same-store admissions. Our non-COVID volume was pretty robust, emergency room activity remains busy. So we feel reasonably positive on our volume outlook that we’ve given.Our revenue per unit, we’re pleased with. We’re pleased with the payer mix trends in acuity and case mix. They are stable and maintained in the levels that we anticipated. And then on the cost side, we believe the teams have managed cost very well. We knew that labor improved throughout ‘22. Obviously, first quarter of last year was a high mark — high watermark for us in labor, so we’re pleased with where it is today. We hope there’s continued improvement to be made, especially around the utilization of contract labor. And so generally, we’re feeling pretty good about the cost metrics.There are some inflationary cost trends we’re seeing, as I mentioned in other operating that tends to show itself around our professional fees and some of those fixed-cost items that we don’t have as much input over. But generally speaking, we think our revised guidance and our outlook reflects our view for the balance of the year.A.J. Rice Okay.Bill Rutherford Thanks, A.J.Operator And your next question comes from the line of Whit Mayo from SVB Securities. Your line is open.Whit Mayo Hey, thanks. I was just wondering if you guys could unpack some of the growth that you’re seeing in outpatient surgeries between the ASCs and HOPD, and maybe comment on any particular pockets of strength or weakness across some of those surgical service lines? And it’s kind of a corollary to this question two is just the supply cost look very good even with the surgical growth. So if you could maybe elaborate on that dynamic, that would be helpful. Thanks.Sam Hazen Whit, this is Sam, Thank you for your question. We had strong activity in both settings. Our surgical volumes in our hospital outpatient units were up actually slightly more than what was inside of our ambulatory surgery centers. Across all service categories within both settings, we saw really solid volume growth. So it was broad-based, as I mentioned in my comments. We continue to invest in both. We have a more significant investment in our ambulatory surgery center development pipeline with a number of new developments, as well as some possible acquisitions that are complementary to the networks that we have across the company. So we’re really pleased with our surgical activity. We are also very pleased with our inpatient surgical activity, as we’ve seen growth in both our emergency surgeries, as a result of our emergency room activity, as well as elective surgeries across different disciplines.The only category that was down actually our C-sections where we didn’t have as much obstetric volume as we did in other parts of our business. And so if you normalize for that dynamic, we were actually up more significantly in the more acute categories of our service lines. So very solid result for us from a surgical volume standpoint. Our supply costs have continued to perform incredibly well. We have a great supply chain capability in our company, and we utilize it to leverage best practices, contracting, logistics, inventory management and so forth. And we continue to maintain even with increased acuity, increased surgical activity, good metrics around our supply cost.Operator And your next question comes from the line of Justin Lake from Wolfe Research. Your line is open.Justin Lake Thanks. Good morning. I wanted to follow-up on the labor side. I think you said temp labor costs were down 21% year-over-year. Can you confirm that for me? And then just give us a little color in terms of the percentage of hours — nursing hours that came from temp labor — you know, temp labor as a percentage of SWB or temp labor as a percentage of SWB dollars. And anything else, kind of, in terms of trends that you’re expecting in temp labor through the year that’s implied in guidance? Where do you expect to come out-of-the year on some of those metrics? Thanks.Bill Rutherford Yes. Thanks, Justin. This is Bill. So yes, I’ll confirm, our contract labor was down about 20% year-over-year. And again, we’ll continue to be pleased with the trends in there. It’s really rooted in the fact that our recruitment is up and turnover is down, so a lot of effort in that front.For the quarter, our contract labor was about 7.1% of our SWB. That compares to about 9.5% last year, and we were running mid-7s through the last half of ‘22, so good trends. You know, as a contract labor as a percent of hours was about 10.3%, where this time last year, we were 11.5%, almost 11.6%. So again, continued improvement in that area, really just rooted by a lot of efforts we have in the recruitment and retention.As we go through the year, we hope we’ll continue to see favorable trends in that I hope and we can get in that 6.5% to 7% by the time we finish this year. So a lot of the effort continues by the teams to focus on that.Operator Your next question comes from the line of Ben Hendrix from RBC Capital Markets. Your line is open.Ben Hendrix Thank you. Could you comment a little further on the same-facility revenue per admission and the equivalent admission comps? It looks like maybe lower year-over-year rates in the outpatient volume offset inpatient rate growth. Perhaps you could flush out the dynamics there for the first quarter and how that could play out for the balance of the year. Thank you.Bill Rutherford Yes. I’ll make a first step, Ben. I think, first, you have to recognize on the year-over-year comparisons, the COVID activity has a significant influence on the year-over-year comparisons. When our COVID emissions went from 9.7% last year to 3%, and COVID revenue per admission runs much higher than our non-COVID, is really influencing the as reported. So why in my prepared remarks, I talked about our non-COVID revenue per admission was 2.2% growth. We’ve seen sequential improvement in case mix.I think overall, I’d say we’re pleased with where the performance is and our acuity in our payer mix and the revenue yield we have when we look at sequentially especially on that. So that was the main thing affecting the as reported, was the COVID volume. When we exclude COVID, we’re really pleased with the revenue per unit ramps. Outpatient growth was heavy during the quarter, driven, as we talked about, with the emergency room. So that is influencing the per equivalent admission statistics while we broke down the per admission as well.But again, very pleased with the outpatient growth demand that we’re seeing as well as the inpatient. So we’re pleased with the top line metrics that we’re seeing.Ben Hendrix Just as a quick follow-up. Can you parse out the degree to which your — the acuity that you’re seeing is just kind of normalization in terms of admission patterns versus kind of some of the investments you’ve made to expand your network capabilities? Thanks.Bill Rutherford It’s hard to parse it out. I mean it’s all-inclusive. I mean, obviously, with a good surgical volume that we had that helped fuel that. We do continue to see a recovery of demand in the marketplace, but we continue to invest in growing our service offerings and our higher acuity services. So it’s hard to parse out and attribute that from one or the other. But both I think are factors and the trends we’re seeing.Sam Hazen Yes. And Bill, I think it’s important to understand that our acuity or our case-mix index, the composite view of that is holding strong and actually up over 2019 when you consider we’ve lost a really high case mix component in total joint surgery. So I think that speaks to the underlying acuity mix within our remaining inpatient portfolio. We also had total joint surgery growth when you look at inpatient and outpatient again in the quarter.But nonetheless, those cases are now in the outpatient setting and out of our inpatient mix, but yet, we’ve been able to sustain a really strong acuity mix in total. And that’s due to again, program development as Bill alluded to specific efforts in certain markets and certain facilities to advance their clinical capabilities. And it’s yielding what we hoped. Next question?Operator Your next question comes from the line of Gary Taylor from Cowen. Your line is open.Gary Taylor Hi. Good morning. One of my favorite expressions is when Sam starts talking about EBITDA clearance rates. So I was disappointed not to hear that catchphrase this morning, but otherwise, really solid quarter.My question is about commercial rate cycle. I think with all the moving parts with COVID, even when we see the Q, it’s going to be hard to sort of tease out what’s happening there. So just wanted to see if you could just update us on how you’re doing on your commercial rate renewals. Is there any material activity on off-cycle renewals? Does this $145 million settlement say anything about the environment in terms of how you’re positioned with the payers? Or is it just completely sort of a one-off? Thanks.Sam Hazen So, Gary, not to disappoint, our EBITDA clearance in the quarter was 36%. So that’s a really good metric for us recognizing operating leverage in the face of really inflation. So it sort of proves the model when we can drive activity into our facilities where we have embedded fixed cost, we’re able to turn that into earnings in a very productive way. Again, it speaks to our management team’s ability to manage their operations effectively.We’re pleased with what’s going on in our payer contracting cycles. As we said, we’re targeting mid-single-digit increases, and we are achieving that in most circumstances. And I think the payers recognize again the pressures in the marketplace for providers and are allowing, sort of, responsible increases. So we are roughly contracted for 2023. We’re 93% of the way there. We’re about two-thirds of the way through 2024 and about a quarter of the way through 2025. And at this particular point in time, we’re able to maintain the trend that we feel is necessary and appropriate for today’s circumstances.The one payer settlement that we talked about, we have processes in place in our Parallon organization, which we believe is a best-in-class revenue cycle capability. And through their efforts and through our support efforts of other components of our business, we were able to resolve some claims that we felt were underpaid in previous years, and those payments were recognized in particular quarter. I don’t know that it’s reflective of anything in the marketplace other than the specifics around that particular circumstance.I will say that we are focused on making sure that we have the right controls in place, the right relationships in place and the right procedures around ensuring that we get the reimbursement that we have earned. And if there are underpayments or denials that we think are not appropriate, then we will make sure that we work our way through those disputes to get to the answer that we think is appropriate for the company. And I wouldn’t say that’s anything new necessarily, but it continues to be an ongoing opportunity.Operator Your next question comes from the line of Pito Chickering from Deutsche Bank. Your line is open.Pito Chickering Hey, good morning, guys. Thanks for taking my questions. Any color on how full-time nurse wage inflation is tracking so far this year versus your expectations? And are you seeing any competitors increase their wages again in 2023? Or is it pretty stable at this point? And on the non-nursing staff, where is that tracking? And can you reflect us on what you assume for nursing and non-nursing wage inflation for 2023 in your guidance?Sam Hazen Peto, this is Sam. I think our overall compensation per hour across all aspects of our workforce are trending where we expected them to trend this year. And we’re pleased with the progress. And that’s in the face of us making some fairly significant increases over the latter part of ‘22, and we continue to make modest increases in certain market circumstances in ‘23, responding to new data or new understandings around what’s happening from one market to the other.As I mentioned on our call, our turnover was down. Our nursing turnover was approaching pre-pandemic levels. We were running about 15% — 14.5% to 15% in 2018 and 2019. We’re running about 17%, when you look at the last six months annualized. So a very good trend happening, and we think it’s, again, a factor of the macro trends, some of our specific actions around compensation program efforts to really increase resourcing and capabilities for our nurses and other caregivers. So we’re really encouraged by the efforts of our teams, the recruitment metrics that we’re seeing and where we are competitively in the market.Will there be a market here or there we have to adjust to as we move through the year? Yes. We believe that’s factored into our guidance appropriately, and we should be able to manage through those changes as the year progresses.Operator Your next question comes from the line of Joshua Raskin from Nephron Research. Your line is open.Joshua Raskin Hi, thanks. Appreciate taking the question. Could you speak to the increase in CapEx guidance for the year? And I’m curious if you accelerated anything specifically in 1Q as that came in a little bit above where we were thinking? I’m specifically interested in the types of projects that are getting funded and especially the ones that have been that weren’t contemplated maybe three months ago? And then lastly, I heard real estate purchases. I’m assuming those are for new inpatient hospital facilities over time.Sam Hazen Yes. This is Sam. Thank you for the question. We have a number of communities that we serve where we believe, over time, we’re going to need to add to our hospital network, we’re obviously adding significantly to our outpatient network. We have approximately 2,500 outpatient facilities that support our 180 or so hospitals across our communities. But we believe that over time, as our communities continue to grow, and we believe that’s one of the differentiating attributes of HCA, that are — we’re in great markets that have great growth prospects in and of themselves, before we get to share gain possibilities in those markets, that is going to require us to build out some new hospital facilities.We do have a new hospital opening in — or under construction in San Antonio — actually two in San Antonio. As we speak, but San Antonio is one of those markets where we have uniquely high occupancy. That market, for example, we run approximately 90% occupancy, and we think it’s better for us to open up new hospitals as opposed to keep adding on in every circumstance in that particular community. But we do own land in Austin, Texas for new hospitals, we own land in Dallas for new hospitals.We just recently purchased in the first quarter land for new hospitals in Las Vegas and Salt Lake City. We have land for new hospitals in a number of Florida markets. So that’s part of what you’re seeing in our capital spending, is that we are acquiring land for future network development. In addition to that, we have significantly advanced our outpatient facility development. That doesn’t put too much pressure on our capital spending, but there are some elements of it that are in the increased guidance.And then finally, I think it’s important for everybody to understand, we are still in a situation where we have a lot of facilities that have high levels of occupancy. In the first quarter, the company ran approximately 73% to 74% occupancy in its inpatient facilities. And we need to have sufficient capacity as we build up our staffing over time. We need physical capacity to accommodate what we believe to be the demand for health care. So the projects are really mixed among those three things: land acquisitions for future hospital development; outpatient network development; and then relieving capacity constraints on the existing platform of facilities that we have today.Bill Rutherford And Josh, this is Bill. I’ll add, we obviously can accommodate that increasing capital within the resources we’re generating and within our overall capital allocation philosophies that we have. And we also continue to see really strong returns on invested capital. So we have confidence that these investments will continue to generate growth for us into the future.Operator Your next question comes from the line of Brian Tanquilut from Jefferies. Your line is open.Brian Tanquilut Hey, good morning. Bill, maybe just a question on how we should be thinking about the moving pieces or considerations for the second quarter? I know you called out the envisioned contribution to revenue and then maybe the New Orleans Hospital. But anything that we should be thinking about just sequentially in year-over-year? Thank you.Bill Rutherford Yes. Brian, nothing material. I mean, once we kind of anniversary the high COVID volume, which is principally first quarter, second quarter of last year, we began to see the start of normalization. Obviously, we’re coming off some continued high labor costs in the first quarter. We saw some improvement in the second quarter and obviously improvement as we went through the balance of the year. So I can’t say there’s anything material, I can call out, especially one quarter to the next. We typically wouldn’t do that. But for the balance of the year, now that we’ve got the majority of the high COVID behind us in terms of the year-over-year comparisons, things should begin to normalize for the most part.Operator Your next question comes from the line of Andrew Mok from UBS. Your line is open.Andrew Mok Hi, good morning. You provided some breakeven metrics on Medicaid redeterminations in the past. Hoping you could provide an updated view on how you expect that to play out over the next 18 to 24 months? And what sort of impact that could have on near and intermediate-term operating results? Thanks.Bill Rutherford Yes. Thanks. I mean, obviously, this is an area we continue to pay attention to. We’ve got a fairly formalized approach inside of the company. We haven’t seen any impact yet as those redeterminations are just beginning to occur, but we are keeping very close to state plans. We’ve also made outreach to our Medicaid patients to help them look at alternative coverage in the event they find themselves displaced to Medicaid. We continue to be encouraged with some of the third-party studies that we read that a relatively high percentage of those individuals potentially qualify for employer-sponsored coverage or through enhanced subsidies coverage within the health insurance marketplace.So we are staying very close to that. We are increasing our efforts to help people identify coverage that are available to them, trying to work with states and other community agencies where necessary to help people land coverage. So too early to be able to quantify what the impact of that may be. But ultimately, I believe when people can find coverage in the exchanges or through their employer. We wouldn’t really anticipate any material downside, and hopefully, there could be some upside benefit to that over the long run.Operator Your next question comes from the line of Scott Fidel from Stephens. Your line is open.Scott Fidel Hi, thanks. Interested if you could talk about how you’re thinking about the sustainability of the surgical growth trends over the balance of the year, both in inpatient and outpatient. And interested if — was there any catch-up just as COVID really diminished in the first quarter? Or do you see those types of growth trends are sustainable over the course of the year?Bill Rutherford We’re looking — one, we’re pleased with the trends. It’s hard to parse exactly the contribution of that. I think overall, we’re pleased with the demand and the activity we see in the market. We continue to see — believe that we’re going to return to normal historical volume patterns. And if that does show itself, we should see continued growth in both inpatient and outpatient surgical volume. We continue to invest in our outpatient footprint. That should help drive reasonable outpatient surgical growth. Our program development in the inpatient side should help continue to show good inpatient surgical growth as well. So we’ll just have to see that. I think, typically, we would see 1% to 2% type of surgical growth. And as the year goes on, hopefully, we’ll continue to see that.Sam Hazen Yes. And just to add to that, Bill. I think as we continue to increase our staffing capacity, it also affects our surgical capacity, because we do have instances we’re not able to open all of our operating rooms as sufficiently as we would prefer also. And so as our labor situation continues to get better, we think that will allow us to open up more surgical capacity, and we believe the demand in the market is still there. So we’re encouraged by where we are with our surgical volumes, and we think we have some things that should prop it up, if you will, as we move through the year with our staffing agenda and our human resource strategies.Operator Your next question comes from the line of Lance Wilkes from Bernstein. Your line is open.Lance Wilkes Actually, that’s a perfect lead into my question. Could you talk a little bit about your outlook for staff growth? And in particular, obviously, you had the shift from temporary to permanent which has been great. Can you talk about how your staff has grown or maybe registered nurse staff or something like that over the last year? And then as you’re looking forward, are there any particular impediments to continued levels of growth?Sam Hazen Well, our total headcount was up around 2% when you look at this first quarter against last first quarter, And let me make sure that — actually, it’s more like 3% when you factor out the two lane divestiture. So we’re up 3% quarter-over-quarter, which is obviously solid improvement in the market.As we’ve mentioned in the third quarter and the fourth quarter of last year, we were starting to see some momentum with our hiring, some momentum with our retention programs and so forth. And that’s carried through into the first quarter really well. I think our overall hiring was up 13% or something like that. But in the quarter compared to the running average, it was up 19% and that’s mostly in nursing. I don’t know that it will run that hot as we move through the rest of the year nor will we need it to run that hot as we move through the rest of the year.So our efforts with our recruitment, our efforts with retention will continue. We’re encouraged by other programs that we have to support our people and put them in the best position to succeed and deliver high-quality care. We have a significant investment we’re making in clinical education. Our Galen School of Nursing continues to grow, and we’re really encouraged by what those programs will do for our facilities and our people over time. So those things are all part and parcel to a very comprehensive effort to make sure we have the right amount of staff, they’re supplied with the right technology and resources to deliver high-quality care and they can be successful in growing our company. So we’re pretty encouraged by where we are.Operator Your next question comes from the line of Calvin Sternick from JPMorgan. Your line is open.Calvin Sternick Thanks for the questions. Wanted to ask about capacity. I know you said 1.5% for the quarter but still above pre-pandemic levels and labor improving. So just want to get a sense, what are some of the other key variables for getting the declination rate back down to historical levels? And where do you think you can get to by year-end? Thanks.Sam Hazen Well, hopefully, we get back to pre-pandemic levels. We benchmarked a lot of our metrics against where we were in 2019, so that we can have a comparison of, sort of, more normalized environment. But obviously, our leverage, and as I just mentioned, is very important to our abilities to open up all of our bed capacity and surgical capacity and so forth. Even in our emergency room capacity sometimes can be constrained, because of staffing levels and such.I think it will continue to get better as we went through the first quarter, March was better than January as an example. So that’s a positive trend within the quarter. We’re hopeful that, that will sustain itself as we move through the balance of the year. And as we look at some of our hiring and the timing of that hiring, that should line up with some continued improvement as we sequentially move through the year.So those are the main things. Some — we have capital that will come online over the course of the year, as we always do. That will help in certain circumstances. But I think the most important variable is staff and getting sufficient staff into our facilities, allowing us to open up our beds and so forth appropriately.Operator Your next question comes from the line of Steven Valiquette from Barclays. Your line is open.Steven Valiquette Great, thanks. Good morning, everybody. So really one main question here. When looking at some of the hospital-related volume commentary from medical device companies over the past week or two, at least one of them suggested from their view that hospital volumes were the strongest in January and February, then normalized in March. And I know no one really likes questions on the monthly performance. So really just my more high-level question is if you could just comment on whether or not the momentum in your overall operations was generally pretty consistent throughout the quarter?And then also, is the full-year ‘23 guidance increase meant to reflect mainly just the upside witnessed in 1Q? And is the rest of the year outlook is generally unchanged from your prior view? Or should we all expect strong momentum from the first quarter to continue into 2Q? Just kind of an all of thoughts around all that for just the overall operations would be helpful. Thanks.Bill Rutherford Well, again, I think we’ve seen momentum on there. So yes, the guidance is, I think, is referenced by a few others, principally the performance in the first quarter that we saw. But as we look at volume through the quarter, I think it was pretty consistent on there. We’re feeling positive with some of the trends we’re seeing, it’s hard to call exactly what may happen and exactly what period they will. But we continue to see good demand in the markets. We continue to add our capacity, continue to be able to serve that. So we think we’ve incorporated all reasonable assumptions into the guidance going forward. And that’s where we stand right now and we’ll continue to monitor as the year goes on.Operator Your next question comes from the line of Jason Cassorla from Citigroup. Your line is open.Jason Cassorla Great, thanks. You noted favorable payer mix in the quarter. I was hoping you can give us a sense on commercial — on core commercial volume growth split out between exchange-related volumes and then just pure commercial. And perhaps if you saw in 1Q or are currently seeing any commercial volume pull forward perhaps ahead of potential coverage changes later this year? Or do you think that commercial volume trend is just more broad-based? Any color on that would be very helpful. Thanks.Bill Rutherford Yes. I mean, as I mentioned in my comments, our non-COVID commercial volume was up a little over 11%. So obviously, that’s a stat we’re very pleased. We’re very pleased with the exchange enrollment. We saw really good enrollment across our states. Some of the publicly released data that you’ve seen, we’ve seen exchange enrollment in Florida, up 18%, Texas up close to 30%. And that [Technical Difficulty] pretty well with where we would expect exchange volume to be. Our exchange volume just year-over-year was up, what, 19% or so for the quarter. It’s hard to make some of those comparisons pure on the non-exchange because COVID has such an impact on that.But if I back up and look at the non-COVID growth of managed care at 11, it is still pretty strong. And even overall, we were up 4%. So again, we’re thinking that there’s good payer mix will continue, good demand. We still see basically full employment in most of our markets. So we’ll see where that plays out. But we are pleased with the health insurance exchange activity that we’re seeing across the markets.Operator Your next question comes from the line of Sarah James from Cantor Fitzgerald. Your line is open.Sarah James Thank you. I’m trying to piece together a few of the comments that you made on contract labor. You talked about getting down to about 6.5% to 7% exiting the year. Is that in line with what you’ve been thinking before? I thought you guys were a little bit lower. And then how do you think about reinvesting the savings of that? So how much is going to wage inflation versus actually increasing headcount? Or is any of it falling to the bottom line as sort of a margin relief?Bill Rutherford Well, I mean, there’s a lot of moving parts in our labor side. And obviously, our focus has been reducing the utilization of our premium labor, and that has allowed us to continue to invest in our employed workforce. And we continue to invest in our existing employees both through wage rates, as well as hiring that was spoken about earlier on the call. And so when we roll it all up, we kind of look at the overall impact. And yes, we are fortunate that as we’ve been able to reduce contract labor, that’s allowed us to make the investments into our employed workforce. I think that will continue.I think our commentary around our expectations has been reasonably consistent. If you looked at where we ran kind of pre-COVID, it was probably in that 6% range. We think we can continue to make progress on that. So it’s fairly consistent. But again, we are investing much of the benefit of contract labor back into our existing employees.Operator Your next question comes from the line of Stephen Baxter from Wells Fargo. Your line is open.Stephen Baxter Hi, thanks. I just wanted to follow-up on another question. You mentioned having a pretty decent amount of visibility on 2024 contracting at this point. I mean, can you just remind us how the two-thirds, compared to where you might have been in a more typical pre-COVID environment? And I think you also alluded that the commercial rate dynamics continuing to be acknowledged by payers at the same general magnitude. Just want to confirm if that was what you meant by those comments? Thanks.Sam Hazen I’m not sure I understood the second part of that question. But the first part of the question, we’re, like I said, running mid-single-digits on our renewed contracts. We were running 3.5 or so prepandemic with our commercial contracting. So it is up a little bit. Again, it’s reflective of, I think, the overall inflationary environment that most organizations find themselves. But we think it’s a responsible ask and it’s been received reasonably well by the payers that we’ve renewed. What was the second question?Bill Rutherford Well, I think the other one was around the percentage of our contracts that are completed for ’24? Is it consistent with where its historical.Sam Hazen Oh, yes, it is.Bill Rutherford And if it is consistent with where we would have historically been.Operator Your next question comes from the line of Jamie Perse from Goldman Sachs. Your line is open.Jamie Perse Hey, thank you. Good morning. I wanted to ask a question about the procedure shift to outpatient. First, can you help us quantify what the headwind from that shift has been to revenue and EBITDA over the last couple of years?And then two, categories like knees and hips, so a little bit more homogenous, how do we think about the shift of categories like cardiology? You mentioned that was up 7% in the outpatient setting in the quarter. Are there big categories in cardiology that are analogous to total joints that you think are a big category that is amenable to that shift out patients that we should be thinking about impacting the transition in the near-term? Thank you.Sam Hazen We don’t see any particular procedural category facing the same type of pressure as total joints did. I think our company is somewhere around 80% of our total joints today are done as an outpatient with 20% done as an inpatient. That was reversed pre-pandemic. So we’ve absorbed all of that. And it was a headwind with respect to a P&L impact over this time period. The rest of the categories are not as discrete as total joints. And in cardiac, particularly, a large piece of our cardiac volumes today are already in the outpatient setting. And so we don’t anticipate anything in that particular category shifting like total joints have shifted.We’ve seen some shift over time in spine, and that’s more incremental than it is holistic like total joints. We’ve seen some in cardiac over the years. We’ve seen some with our robotics platform. Those continue, sort of, on the margin. They’re not structurally repositioning like total joints did. And so our company has effectively navigated that transition. Again, we have a multifaceted offering for patients and physicians, both in our facilities, outpatient within our facilities, ambulatory surgery centers so forth. And that’s — one of those settings is the right setting for just about every patient.And I think our organization has been able to grow as a result of that multifaceted offering. And our total joints, like I said earlier, are actually up year-over-year and they were up last year, compared to the previous year, so we’ve seen good growth in our orthopedic programs, and we continue to work with our surgeons and our service line leaders to advance our capabilities as well.Operator And there are no further questions at this time. Mr. Frank Morgan. I turn the call back over to you for some final closing remarks.Frank Morgan Rob, thank you for your help today, and thanks for everyone for joining the call. We hope you have a great weekend. I’m around this afternoon. If we can answer any additional questions you might have for this. Thank you.Operator This concludes today’s conference call. Thank you for your participation.