Welcome to the HCA Healthcare First Quarter 2022 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, 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'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 that are 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 -- 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'll now turn the call over to Sam..

Good morning, and thank you for joining our call. The COVID-19 pandemic continued to influence our results in the first quarter with the Omicron surge, which slowed in the middle of the quarter.

More significantly, the challenging labor market pressured margins as the cost of labor increased more than we expected as compared to the first quarter of the prior year. In the face of these challenges, however, we had a number of positive volume and revenue indicators that were encouraging.

Compared to the first quarter of prior year, same-facility admissions increased 2%. During the quarter we provided care to approximately 49,000 COVID-19 inpatients, which represented approximately 10% of total admissions, consistent with prior year. Non-COVID admissions grew 2.2%. This growth occurred in February and March.

Inpatient surgeries grew approximately 1%. And across our inpatient business, acuity levels and payer mix continued to be strong. Outpatient volumes also rebounded strongly in the quarter. Same-facility emergency room visits grew 15%. Same-facility outpatient surgeries grew nearly 7%. And outpatient cardiac-related procedures grew by approximately 7%.

We continue to believe that overall demand for health care remains strong in our markets across most categories, with favorable population trends and other contributing factors that developed during the pandemic driving it. Total revenues grew 6.9% compared to the first quarter 2021. Same-facility inpatient revenues grew 5.4%.

And same-facility outpatient revenues grew 10.6%. Bill will provide more color on our revenues in his comments. I realize that our bottom line financial results were not what we expected, but these top line metrics were positive. Diluted earnings per share, excluding gains on sales of facilities, were $4.12, which was down $0.02 from the prior year.

In the quarter, we experienced higher levels of contract labor expenses than planned. As compared to the fourth quarter, we saw modest improvements in certain contract labor metrics.

We expect further improvements in the remainder of the year as we align the workforce appropriately by reducing both the utilization of contract labor and the associated hourly rates for these contracts.

In some situations, the challenges in the labor market also constrained our capacity, preventing us from delivering hospital services to certain patients. By the end of the quarter, we were able to overcome some of these capacity constraints.

And for the most part, our transfer centers were able to operate normally and move more patients to the proper setting in our networks. It is important to understand, we are doing what we absolutely have to do to take care of our patients, and we will always do that.

This past quarter, our teams continued to show up and deliver on our promise to provide high-quality care to patients who need our services. I want to thank them for their commitment and hard work during these challenging times.

We do, however, have numerous initiatives underway around retention, recruitment, capacity management and new care models that we believe will help offset some of these labor pressures. However, we now believe improvement in our labor cost will be slower than originally anticipated. This factor primarily influenced our revised outlook for 2022.

We will continue to invest in our people, in our relationships and in our networks. We believe these investments are appropriate and should help us address the long-term opportunities for growth that exists in our markets. At the end of the quarter, we had approximately 2,500 facilities or sites of care in HCA Healthcare networks.

This represents a 15% increase over last year. Recently, we published our Annual Impact Report for 2021, which highlights the tremendous impact our colleagues had on the patients and communities we serve. You can find the details on our website. Before I turn the call over to Bill, let me end my comments with this.

Over the past few years, we have demonstrated an ability to adjust effectively to whatever our realities are, and I'm confident we will do it again. With that, I'll turn the call over to Bill. Thank you..

We expect revenues to range between $59.5 billion and $61.5 billion. We expect net income attributable to HCA Healthcare to range between $4.95 billion and $5.34 billion. We expect full year adjusted EBITDA to range between $11.8 billion and $12.4 billion. We expect full year diluted earnings per share to range between $16.40 and $17.60.

And we expect capital spending to remain at $4.2 billion for the year. So let me provide some additional commentary on our adjusted guidance and 3 primary areas that we have considered. First, our cost of labor was higher than anticipated in the first quarter, primarily due to the utilization and cost of contract labor.

We now believe the disruption of the labor market and the pressure this places on labor cost inflation will be slower to moderate than we originally anticipated. Second, as I previously discussed, we saw reduced acuity and revenue from Omicron COVID patients in the quarter, and this lower acuity has been factored into our guidance as well.

And lastly, we made assumption around increased inflationary pressures and expect that to have greater impact on us going forward, including for professional fees, energy procurement, cost of utilities and other purchase services.

So let me close with a brief discussion on some of the initiatives we have underway to respond to these current market dynamics. We've spoken in the past of our resiliency efforts, which now include 3 main focus areas. First is around staffing and capacity, as Sam mentioned in his comments.

We have teams working on and focused on multiple work streams in this category. These work streams is centered around investing in and enhancing employee recruitment and retention efforts and enhancing capacity management through new case management models and technology solutions.

In addition, we are exploring new delivery models through our care transformation initiatives. All of these are focused on supporting our care teams and easing some of the current labor pressures. Second, we have our original resiliency programs that are continuing.

Many of these are advancing efficiencies through our next generation of shared services. Examples of these include a consolidation and alignment of laboratory operations, facility management, environmental and food and nutrition support areas.

And then the third major effort underway is an initiative around advancing our capability to benchmark key performance metrics across the organization.

This is intended to identify variation and opportunity to see our best practices across several areas, such as supply utilization, provider support costs, discretionary spending and other similar cost area.

Many of these were factored into our original planning assumptions, and we remain focused on these efforts to help offset some of the contract labor and inflationary cost pressures we are experiencing. So with that, I'll turn the call over to Frank to open it up for Q&A..

Thank you, Bill. [Operator Instructions] Emma, you may now give instructions to those who would like to ask a question..

[Operator Instructions] Your first question today comes from the line of A.J. Rice with Credit Suisse..

Maybe just try to drill down a little bit more on -- I know within the range, you've changed your outlook for EBITDA by about $650 million at the high end, $750 million at the low end. There's a lot of moving parts in the first quarter with what's happening with Texas supplemental payments.

Can you tell us how much of that adjustment was due to what you saw in the first quarter? And how much is changing in your thinking for the rest of the year? And particularly, maybe just drill down on the labor comments about maybe what you were thinking before versus what you're thinking today in terms of use of contract labor rates and so forth, if there's anything that can be shared there..

Yes, A.J., this is Bill. Let me give that a shot. So as we're looking forward and we're trying to take what we saw in the first quarter to make some assumptions and revision of our assumptions going forward, let's talk about the 3 areas.

And first, as I mentioned, the pressure on the labor cost that what we're seeing is it's higher than we originally planned. It's primarily related to the use of contract labor. But we're also adjusting our base wage just to be responsive to the market as well.

As I would think about it, our original plans was to kind of manage our overall cost per FTE somewhere between that 3% and 3.5% level. What we saw in the first quarter is our cost per FTE was about 1.5% higher than we expected. So as we forecast this going forward for the balance of the year, it could have a $400 million to $500 million impact.

So we factored that into our guidance. The second area is regarding the Omicron variant, the less acuity in revenue, not only that we saw in the first quarter, but to the extent that we continue to see some COVID at a reduced level than what we saw in the first quarter, we factored that in.

And then lastly, as I mentioned, just some inflationary increases above what we originally anticipated. So I think the way I would characterize it, approximately 2/3 of our revision, I would apply to kind of our wage and inflationary cost pressures and 1/3 of that due to the revenue acuity primarily to the COVID patients..

Your next question comes from the line of Pito Chickering with Deutsche Bank..

Embedded on the guidance reduction, can you walk us through the contract labor percent of nursing hours in fourth quarter, in the first quarter and how you assume that rolls off throughout the year. And then the same question on the rates for contract labor.

And just because stocks had a big move today, any chance you guys can give us sort of a range for how we should be modeling 2Q EBITDA?.

Yes. Peter, let me give a shot at that. I think we talked about on our fourth quarter call, our contract labor as a percent of nursing hours was around 11%. In the first quarter, it's about that level, too. We were 11.4% specifically in the fourth quarter, about 11.6% in the second quarter.

We are experiencing elevated cost per hour of that contract labor, principally, we believe, related to the COVID surges. Our plans going forward are to continue to reduce the utilization of that contract labor and eventually moderate the average hourly rate that we're having to spend for that contract labor.

But we think that moderation will be slower than we originally anticipated. So that's what's based in our assumptions, and it's basically influenced with what we saw in the fourth quarter..

Yes. And let me add to that, Pito, this is Sam. I think as we have gone through 2 years of up and down periods with surges, short-cycle normal period surges, another short-cycle normal period, we saw in the surges an acceleration in both turnover and the use of contract labor.

As I mentioned on my prepared comments, we do what we got to do to take care of our patients. What we're anticipating is no more significant surges as we move through the rest of this year. And we -- that gives us some opportunity and some level of confidence that we can moderate the use of contract labor.

And some of our other initiatives should provide support, recruitment, some of our retention efforts and so forth, giving us an opportunity to wean ourselves off the high levels of contract labor. And we saw that in the short cycles to a certain degree, but we never were able to sustain it simply because it was just that, a short cycle.

So as we go through the rest of this year, we think the cycle will be longer with respect to those surge, and that will give us an opportunity to gain some traction with some of these initiatives. Our teams are working diligently across the facilities to make this happen.

And again, I'm confident, just as we've done in the past, that we can make these adjustments over time and get us to where we need to be..

Your next question comes from the line of Justin Lake with Wolfe Research..

First, just a quick follow-up on Pito's question. Can you give us a number as to where you expect to end the year on contract labor as a percentage? And just to confirm, does that sit in operating expense or other operating? Because that was the line item that looks like it was a bit off.

And then my actual question is, Sam, just as you take a step back, right, there was a huge improvement in margins during COVID. It looks like they take a step back here.

I'm just curious, do you think this is a sustainable margin or a sustainable EBITDA level to kind of think about jumping off for next year? Or do you think some of those improvements could help you close the gap versus where you were when you guided the year originally?.

Justin, this is Bill. Let me start with the first part of that. Without giving any specific numbers, you've heard us talk about, we expect to decrease the utilization. If I look before COVID, we will be hovering around 9% to 10% of ours. I don't know exactly, there are so many uncertainties, but we expect it to sequentially improve going forward.

That does come through the SWB line, not the other operating. You did mention the other operating. It was primarily influenced with the provider tax assessments that I mentioned in my prepared remarks..

Yes. This is Sam, Just. With respect to the margins in the first quarter, I think the margins in the first quarter were clearly pressured, as we've indicated here, with somewhat unprecedented levels of cost on the labor side.

We -- again, those costs were driven in some respects by the surge that we were reacting to and that pressured in a very significant way.

I do believe, over time, we can recover some of that lost margin as we continue to appropriately align our workforce with more permanent workforce or more efficient workforce coming from the contract labor category. As -- setting a target, we don't necessarily have a target for contract labor.

Obviously, in 2019, we were maybe half of what we're running today, somewhere in that zone. I don't know if that's realistic in the short run. But I'm hopeful in the intermediate run, with the number of initiatives that we have plus our Galen College of Nursing expansion program, that we can start to get back to those kind of levels.

But I do think the first quarter was uniquely pressured from a margin standpoint simply because of the elevated levels of contract labor and the costs thereof..

Your next question comes from the line of Kevin Fischbeck with Bank of America..

Just want to maybe follow up on that question there. I think last quarter, you were talking about something like a 20% to 21% margin as kind of ultimately being sustainable.

Is that the right way to think about it? Or have some of these things changed your view? And it sounds like, for the most part, you talked about recapturing margin, you're talking about cost savings.

Is there anything on the rate side that is part of that equation? And if so, does that take a couple of years to play out? Or is that something that we can think about more normalized margins as soon as next year?.

Well, Kevin, if you look at our guidance, I think it would imply close to those 20% margin levels. Obviously, we've had to adjust some of our thinking, given kind of these inflationary cost pressures that we're seeing. So we're doing everything we can to operate the company as efficiently as possible.

There's a lot of variables that we know go into margin. Volume, acuity, payer mix, continuing to manage our cost structures appropriately. So I would use that 19% to 20% level in the short run. And over time, we're going to continue to find ways to continue to operate efficiently..

On the payer contract, we are having more discussions. Obviously, the payers understand the inflationary pressures that providers have. And there's early discussions. It doesn't change our revenue mix in the 2022 period because we're largely contracted for 2022.

But as we move into 2023 and 2024, Kevin, we have opportunities to utilize our payer contracts to get some relief from the inflationary pressures.

And as we further our discussions with those commercial payers, I'm optimistic that we can gain some escalators that are more in line with the inflationary pressures of today versus the inflationary pressures of the past..

Your next question comes from the line of Whit Mayo with SVB Securities..

Bill, what are you assuming in your algorithm this year for the guidance around COVID and non-COVID? I think you were assuming non-COVID was going to be, I don't know, 2% to 3% of the total.

How has that shifted? And is there anything that you can share on how non-COVID, either inpatient, outpatient or anything, is tracking through April, that might just give us a sense of the run rate..

I can't say April, Whit, at this point. But we said in our prepared remarks, non-COVID was up 2.2%. And that was really in February and March. In February and March, we were seeing 4.5% to 5%, potentially in those levels. So again, that's why I said we're encouraged by those trends.

I don't think really what we saw in the fourth quarter really in broad terms affect our volume outlook. We still see good volume demand in the marketplaces. So originally, we said 2% to 3% volume growth, COVID still being between that, maybe 3% to 5% of our total admissions.

And I think right now, I think that's mostly in line with our current expectations..

Your next question comes from the line of Ben Hendrix with RBC Capital Markets..

Just a real quick follow-up on the comment you made just a second ago, Sam, about improving efficiency of contract labor. We've always kind of characterized this as kind of the labor backdrop as the contract being the kind of transitory piece and wage inflation being more permanent.

Is that -- can we read that kind of improving efficiency comment is maybe your expectation that contract labor utilization at higher rates is more of a permanent construct now going forward in the labor market?.

Well, I think it's hard than it was in 2019. I don't think it will be hard than it was in the fourth quarter or the first quarter. I think rates will naturally come down as the surges subside and as workforce is aligned with more permanent staff and so forth.

And so we're dealing in the first quarter and the fourth quarter and a little bit in the third quarter as well very high cost per hour for contract labor. And we do not believe that is sustainable. And so we're anticipating improvements in that. Additionally, I think we will see reductions in the number of contract labor personnel that we use.

Again, as our initiatives gain traction, we've invested heavily in our recruiting function and really improved the candidate experience inside of that. We have some improving retention efforts and compensation programs that we think are going to support that component of our set of initiatives.

So all of that leads us to believe that we can get the cost per FTE down from where it was in the fourth quarter and the first quarter. And so that's our thinking..

Your next question comes from the line of Ann Hynes with Mizuho..

Can you tell us -- when I look at inpatient admissions and adjusted admissions versus 2019, they're still down about 3%.

Can you tell us what's embedded in guidance for 2022 versus the 2019 baseline trends, please?.

Ann, this is Bill. So as I mentioned before, we still believe we'll end up seeing 2% to 3% admissions for the full year '22. You're right, we are down a little on '19. I'd have to take a moment to see what that represents in ‘19, it's about 1% is what I think that would be our '21 number versus the baseline '19, would be down about 1%..

Yes, let me color that a little bit more, Bill, if I may, please. I think a couple of things when it comes to our same-store 2019 versus our same-store 2021. Our uninsured volumes are down 11% from 2019. So that's a very significant point.

The second point I would say is we've had a fairly significant shift of orthopedic total joint surgeries go from inpatient to outpatient from 2019 to 2022. Again, that's put pressure on the admissions. Our surgeries were actually up over 2019.

And then again, with our emergency room visits, if you look at the categories that are the paying categories were slightly up, but our uninsured activities were way down. So I think you got to look at the components of the business and understand the different components.

And so the mix, slightly better shift inpatient to outpatient, which we've talked about over the last couple of years, and that influences the 2022 to 2019 comparison..

Your next question comes from the line of Gary Taylor with Cowen..

Wanted to think about seasonality of revenue and EBITDA if -- if you can here.

Do we go back to sort of pre COVID and think about first quarter, fourth quarter EBITDA always being higher? Or do we think about J&J and some of the other device companies have said all-time high cancellations in January, things really started improving in March and April.

And then obviously, you've got some anticipation that labor cost could ease a bit sequentially. So are we back to normal EBITDA seasonality yet? Or is the year still more complex? And can you help us a little..

I think a couple of things, Gary. Thank you for that question. The seasonality, we talked about this in the fourth quarter call, was really difficult for us to discern because, again, we were weaning ourselves off the Delta variant and then ramping up on the Omicron variant.

I think the seasonality again, with our volume, is a bit uncertain to us right now. My sense is this could be a more normal period on seasonality for volume in 2022 than any that we've had over the last 2 years, obviously. But the seasonality on our costs, as we've indicated, I think are going to be different.

And they're going to be different because we're at a high watermark on labor cost per FTE in the first quarter. And typically, our costs would go up seasonally. But we think as we work through the initiatives and the alignment of our workforce, we'll have a different pattern to our cost in 2022 than what we've had in previous years.

And then hopefully, 2023 gets back to normal. So that's how we're thinking about it. Obviously, there's still months to come here for us to understand, in fact, if that does play out, but that's our thinking at this point..

Your next question comes from the line of Brian Tanquilut with Jefferies..

Sam, just to -- follow-up some questions on labor rate? So one question we're getting asked is, why now? Like you guys have done a great job managing through labor over the last 1.5 years? And maybe any color you can share on what you're thinking in terms of turnover on your perm nurses.

And then I guess for Bill, to follow up to that, is you called out acuity as a driver of the revenue guidance cut.

But as we pull back on temp staff, is there going to be an impact in labor -- or on volumes that we should be thinking about?.

So the first half of last year, our costs were not in what I call an elevated state from the labor. And we mentioned this on our third quarter call, we also mentioned it again on the fourth quarter call and now we're mentioning it on the first quarter call. So we're working ourselves out of some comparisons, number one.

But our costs of labor were dramatically disrupted in the Delta variant for a couple of reasons. One, we jumped our census from the second quarter to the third quarter by 8.5%. We had record census levels in the company in the third quarter. Not for the third quarter, but forever. And that forced us to respond to those patients in an appropriate way.

The market -- the labor market was being tremendously impacted during the summer of 2021. And we had to use more contract labor at that time than we had in previous periods. Well, that's continued into the fourth quarter and then to the first quarter. Again, we think some of that is influenced significantly by the surges.

So that's part of what reoccurred. As Bill alluded to it, the Delta variant was the most intense revenue patient population that we had. So the third quarter covered a lot of that cost because the revenue intensity of the Delta patients was quite high. The fourth quarter had a blend of Delta and Omicron and it still was higher than the first quarter.

And so the labor costs really haven't changed per FTE in 3 quarters. I'm considering that to be a good thing. And I'm also considering it to be the opportunity because we're using too much contract labor and it's still at elevated outsized rates. And so our rate trend has continued in the quarter to be reduced.

I think our contract labor cost per hour in the first quarter was down 5% from the fourth quarter. And within the quarter -- within the first quarter, it was better each month, month over month. Again, it gives us some confidence that the assumptions we're making for the remainder of the year are reasonable.

So that's part of why it doesn't look like we manage through it in historical ways. Our productivity is at a very efficient level when it comes to employees per patient. So we're managing on that front as well as we possibly can.

And as, again, we get these other underlying initiatives into a normal period hopefully of no COVID surges, we're going to gain ground on the pressure that we've experienced over the past 3 quarters..

Yes. Brian, you got a follow-up question. As I think Sam mentioned, too, in his comments, there's always the potential where the labor pressures could affect your volume.

What we've seen now is in COVID surges as we manage through transfers, again, I think as Sam alluded in his comments, at the end of the quarter, we were really back to our normal levels, but we're continuing to manage through that dynamic..

Your next question comes from the line of Scott Fidel with Stephens..

So we just had the Medicare IPPS proposal [contract] for 2023 and certainly had a couple of different moving pieces on that. So I thought it would be helpful if you can give us the gross versus net sort of projection for your rates from that proposal.

And then just more broadly, how you feel about CMS sort of factoring in this inflationary pressure and ultimately if you think that CMS will start to factor that in more accurately as we look out maybe to FY '24 and beyond..

Yes, Scott, this is Bill. I mean, obviously, we're still assessing it. But I think on first blush, we thought kind of the gross increase we saw would be hovering just under 2%. That's pretty consistent with what we've seen. But I think to your point, it does get netted out when we see the delay in the sequestration cuts out there.

So we'll still assess that. So it may move it closer to flat net-net all-in, but we're seeing at the top line just under 2% growth on that. And so we'll see how the final rule comes out as we go through comments..

Yes. And in forward years, typically, it takes a little bit for the wage index to be adjusted to reflect what's going on in the industry. So I think as '21 and '22 start to get baked into the formula for inflation around the wage indexes of the hospital industry, it will start to influence the reimbursement in slightly different ways..

Your next question comes from the line of Andrew Mok with UBS..

Just wanted to follow up on the revenue commentary. Can you take us through the components of the lower revenue guidance in more detail, maybe help bucket the $500 million decline between volume, acuity and mix.

And are there any other government-related items that you would call out in that revenue decline?.

Yes, Andrew, this is Bill. I would tell you it's principally related to the drop in the COVID acuity that I mentioned in my comments. And we're estimating it to be approximately $150 million in the quarter. COVID, obviously, was higher at 10% of our admissions than we expect in the full year.

But if you run that out, I would say the vast majority of that revenue decline would be due to the lower acuity that we're seeing with the Omicron variant and expect to see going forward. And outside of that, there's no other really major item that I would call out, just the ebb and flow of kind of normal volume patterns..

Your next question comes from the line of Stephen Baxter with Wells Fargo..

Just wanted to ask another one on the labor market. So I'm sure part of your process around this issue involves a great degree of competitive intelligence about what's going on in our markets.

I was hoping you could share a little bit about what you're seeing from your local market competitors and whether there are strategies around contract labor or employed labor forward, so even maybe potentially putting certain service lines on pause or maybe exacerbating some of the pressures you're feeling.

I guess, big picture, do you think they're being as disciplined as you are? And if not, how should we think about the longer-term implications of that?.

So from a competitive standpoint, I mean, obviously, our wage programs have to be competitive. And that means different things in different circumstances. And we have made adjustments to our compensation programs, really starting back in the third quarter of '21, to respond to some of the market dynamics.

We continue to be very fluid in that particular area of our business in responding to the different circumstances from one market to the other. I would say that we think we're in a pretty good spot. We haven't seen any unusual maneuvers broadly.

We are fortunate again to have competitors that tend to be only local and in 1 market or 2 markets at the most. So we don't see sort of patterns that permeate all 43 markets for HCA Healthcare. And so that's a positive on that front. But we haven't seen anything unique yet from the competitive landscape with contract labor and so forth.

But I've got to believe that they are facing many of the same challenges as we do. And I believe over time we've been able to use our operating discipline, use our systems, use the learnings that we have across the company to create advantage for us. And I believe we will continue to do that..

Your next question comes from the line of Joshua Raskin with Nephro Research..

Quick follow-up on contract labor.

How long are those typical contracts in place? And then my real question is, are you having any issues with discharges, post-acute discharges? Is that impacting length of stay, driving up cost and, obviously, the same DRG, the same payment?.

Yes, Josh, it's Bill. Typically, those contracts range around 13 weeks. So it takes time to adjust. But given the size, they're always flowing through our system on there. And relative to post-acute and discharge planning, I would say, yes. I think that's part of our case management initiatives that I spoke to in my prepared comments.

I think the supply and demand dynamics in post-acute, whether it be skilled nursing or other post-acute settings, from time to time can cause a backup in our discharges.

And that's why we're trying to advance and utilize some technologies, advance a common organizational structure around case management so we can continue to focus on that and improve that length of stay when patients are ready to go home and there's appropriate levels of discharges. That is a dynamic out there. There's no doubt about it.

But I think we're focusing a lot of effort and energy and resources to try to continue to improve in that area..

Your next question comes from the line of Jason Cassorla with Citi..

I just want to go back to your comments around the initiatives for retention recruitment capacity management and new care models. Can you just help in terms of what is different with these initiatives today maybe compared to perhaps how you utilized these initiatives back in 3Q '21 when labor was picking up.

Is it just more intensity there? Or are you leveraging incremental levers that maybe weren't considered or previously -- utilized back then? And then if possible, can you help quantify the offset of these programs or initiatives related to the $400 million to $500 million net pressure regarding the higher wages and costs with the revised guidance?.

Yes. I'll start and I'll let Sam kick in. I think it's a mix of both escalating existing initiatives and new ones. One, I'll give an example, and Sam mentioned this earlier, around recruitment. We've increased our investment in recruiter significantly. And that's been a really intentional effort. Same around retention.

We're putting common retention strategies across the organization on there. And then the case management that I mentioned in my comments, we recently approved an effort to really align organizationally around our case management strategies.

And we're investing in new technologies to give us better predictive assessments of patients' needs at discharge. So it's a combination of accelerating and emphasizing existing efforts as well as implementing new ones. And it kind of touches all bases, if you will, between recruitment, retention, capacity management.

And new care models, as you know, can we -- can we bring new support staff to support the care teams, whether it be through patient care techs, through patient safety attendance and the like. So we've got a number of initiatives to try to just, as I said in my comments, continue to support the team and ease those pressures.

I would say in our guidance, in our original guidance, we had already factored in some impact of those. And we're going to continue to focus on those to try to, I think, counter some of the market pressures that we are seeing..

Your next question comes from the line of Jamie Perse with Goldman Sachs..

Question on volumes. Last year, the timing of the COVID wave was pretty similar to what it looked like this year. You had a really nice acceleration in 2Q last year in terms of volumes across the board.

What are you seeing now in terms of volumes? And is last year's experience a good proxy for how we should be thinking about the acceleration into 2Q? And then just one quick follow-up.

Can you guys give us what percent of your Managed Care contracts are in place for 2023?.

So February and March, which were obviously months post Omicron surge, behaved similarly to the holiday surge that occurred at the end of 2020 and on into the first part of 2021. Again, we had solid non-COVID admission growth in February and March, as Bill alluded to, in the mid-single digits. So we're encouraged by that.

There's nothing to suggest that the patterns will be different. But again, we're learning, obviously, as we go through these patterns and we're hopeful that we won't have any more surges and we'll be able to judge some of these patterns more effectively.

With respect to our payer contracts, we're about 50% contracted for 2023 and about 30% contracted for 2024. Again, those capacities in each of those years give us opportunities to adjust some of the inflationary expectations to the realities that we have today..

Your next question comes from the line of Sarah James of Barclays..

You've been talking about the majority of the pressure being on temp labor, but I was hoping you could unpack that a little bit. Are you talking about 2/3, 1/3 temp labor to kind of the longer-tailed items like wage inflation and bonuses or a more extreme split? And you guys are in a unique position owning a nursing school.

So are you seeing any shift in what field students are selecting? And how is that influencing your strategy?.

I don't know, Bill, if we -- if I have the split right in front of me to be able to answer the first question, but let me speak to the second question. We can get back to you on that first question with a little bit more specificity if we can. It's still early for us with the Galen College of Nursing programs and expansions.

But just looking at some of the new schools that we've opened, Austin, Texas, Nashville, Tennessee, parts of South Carolina, the enrollment in a couple of those situations is record level enrollment in nursing program in the Galen College of Nursing. So we've seen a really robust initial enrollment. That gives us confidence.

We also believe that we have an opportunity to integrate those students into our organization to support current needs as well as hopefully create synergy as they graduate the program and want to come to work for HCA Healthcare. So we're really encouraged by the prospects.

But again, that's more intermediate run, kind of a gain, although there will be some short run with nurse externs and rotations and so forth that we can utilize, hopefully effectively, to support current day needs.

But the initial enrollment in a number of these new schools would suggest that there's still a reasonable supply of students who want to go into nursing schools. Maybe circle back to -- I guess -- I think you'll have an answer to your second question..

No, no, I don't have an answer, Sarah. We'll have to get back with you. I think our overall labor mark is a combination of the temporary labor and some of the base wage inflation. I can't split it for you exactly. We'll get back with you on that. But it's a combination of both..

Just to clarify on the nursing school. I was trying to understand like the structural shift that's going on, if your graduating nurses are selecting one field like surgical versus home health versus like if you're seeing just like a structural shift in where graduating nurses are going..

No, no, we're not..

Your next question comes from the line of Matt Borsch with BMO Capital Markets..

Question is off topic for the quarter, but there's -- I have been following this closely, but there's been obviously an ongoing dialogue around compliance with the price transparency regulations. And I know there's a lot of complexity to the implementation.

But can you just address where, from your standpoint, you are with that? And what -- when you would expect to get, if not already, to full compliance on that?.

Well, I was going to say, we believe we are compliant with the CMS rules, which are tremendously complex and in many ways difficult to implement because of the variations that exist from one commercial contract to another and from one market to another.

So we have, through our -- an internal process, established a program that we believe and CMS has validated in certain circumstances, is compliant. And we continue to try to refine those presentations in ways that, again, satisfied CMS' evolving interpretation as well as our ability to adjust some of our postings to meet the evolving requirements..

Thank you very much. I'll turn it back over to Emma..

Your last question today comes from the line of Ben Hendrix with RBC Capital Markets..

Just to get to that 1/3 of the guide down that's related to the lower acuity on COVID volume, is there any way to give us an idea of the margin differential between the lower acuity patients you've seen through Omicron versus COVID patients historically and then versus a non-COVID inpatient admission?.

No. I think we'd have to follow up off-line on that. I don't have any specifics in front of me of the specific margins. But I do know when we have the acuity drop like we did, the revenue does flow through pretty much down to margin. But I don't have exact percentages that I could share with you between these various variants that we've seen..

Okay. Emma, I think that's about it now..

That concludes today's question-and-answer session..

All right. Thank you, everyone..

This concludes today's conference call. Thank you for attending. You may now disconnect..