HCA Holdings Management Discusses Q1 2013 Results - Earnings Call Transcript

May. 2.13 | About: HCA Holdings, (HCA)

HCA Holdings (NYSE:HCA)

Q1 2013 Earnings Call

May 02, 2013 10:00 am ET

Executives

Victor L. Campbell - Senior Vice President

Richard M. Bracken - Chairman and Chief Executive Officer

R. Milton Johnson - President, Chief Financial Officer, Principal Accounting Officer and Director

Samuel N. Hazen - President of Operations

Juan Vallarino - Senior Vice President of Employer & Payer Engagement

Analysts

Justin Lake - JP Morgan Chase & Co, Research Division

Ralph Giacobbe - Crédit Suisse AG, Research Division

Albert J. Rice - UBS Investment Bank, Research Division

Andrew Schenker - Morgan Stanley, Research Division

Joshua R. Raskin - Barclays Capital, Research Division

Thomas Gallucci - Lazard Capital Markets LLC, Research Division

Christian Rigg - Susquehanna Financial Group, LLLP, Research Division

Sheryl R. Skolnick - CRT Capital Group LLC, Research Division

Kevin M. Fischbeck - BofA Merrill Lynch, Research Division

Darren Lehrich - Deutsche Bank AG, Research Division

Frank G. Morgan - RBC Capital Markets, LLC, Research Division

Matthew Borsch - Goldman Sachs Group Inc., Research Division

Gary Lieberman - Wells Fargo Securities, LLC, Research Division

Operator

Welcome to the HCA First Quarter 2013 Earnings Release Conference Call. Today's call is being recorded. At this time, for opening remarks and instructions, I would like to turn the call over to Senior Vice President, Mr. Vic Campbell. Please go ahead, sir.

Victor L. Campbell

Thank you, Jessica, and good morning to everyone.

Mark Kimbrough, our Chief Investor Relations Officer, and I would like to welcome all of you on today's call, including those listening to our webcast. With us here this morning is our Chairman and CEO, Richard Bracken; our President and CFO, Milton Johnson; and Sam Hazen, President of Operation. Several other members of the senior management team are here as well to assist during the Q&A session.

Before I turn the call over to Richard, let me remind everyone that should today's call contain any forward-looking statements, they're 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. Many of these factors are listed in today's press release and in our various SEC filings.

Many of the factors that will determine the company's future results are beyond the ability of the company to control or predict. In light of the significant uncertainties inherent in any forward-looking statement, you should not place undue reliance on these statements. The company undertakes no obligation to revise or update any forward-looking statements, whether as a result of new information or future events. This morning's call is being recorded. Replay of the call will be available later today.

With that, I'll turn the call over to Richard.

Richard M. Bracken

Thanks, Vic, and good morning to all, and thank you for joining our call. Today, the company reported first quarter earnings, which are in line with our pre-released expectations provided in our April 15 preview. Summary information concerning our first quarter performance was provided in our release this morning. And in just a moment, we'll provide a more detailed review of our first quarter performance. However, before we proceed to these analyses, let me provide a few general observations about the quarter.

As we identified in our releases, one of the most significant observations for the quarter was the slowing of patient volume growth from our recent trends. Growth in same facility inpatient admissions for the quarter was up only slightly at 0.1%, well below our historical trends. And, of course, from a more meaningful comparison, this rate needs to be adjusted for the leap year effect -- that is 1 less day as compared to last year's first quarter.

Doing so, same facility inpatient admissions for the quarter grew by 1.3%. Even though this rate has improved from the as-reported number, clearly, it was less than our recent trends. It should be noted that this is a slowdown in rate of growth also occurred in our outpatient volumes as reflected in our adjusted admissions performance.

Our analysis of first quarter volume related metrics has led us to the following general conclusions: The slowdown in inpatient volumes began mid-quarter with January's as-reported same facility admissions up 4.7%, February's down 3.6% and March's down 0.9%. Regardless of day alignment issues, performance clearly was challenged most in the month of February, and we did see some modest improvement sequentially in March.

The slower volume growth was felt across our portfolio of hospitals. However, it is interesting to note that roughly the same number of facilities did experience admissions growth in the quarter as compared to recent trends, but the growth that they did experience was generally less. And finally the slowdown in volumes was experienced across all payer classes and service lines. And Sam will provide more analysis of our Q1 volume metrics in just a moment.

Please note that we feel we're not in a position at this time to state definitively if the slowdown of volumes we saw in the second half of the first quarter is an anomaly or if it's just a start of a new trend. Additional time must pass to make this determination. Also, while typically we don't comment on current quarter metrics, given the volume issues in the first quarter, we thought it important to point out today that April's inpatient volumes, with the benefit of an additional business day, increased approximately 4% over prior year. This is more consistent with our expectations.

While our operating teams managed expense levels with the reduced volumes during the quarter, we maintain our investments in our service line strategies, technology and clinical improvement agendas. And we feel these investments are necessary for sustained growth over time.

And finally, as expected, this was a quarter with a significant amount of contracting activity for health exchange products. During the quarter, we have been in conversation with most every major payer in most every market. Our approach to exchange contracting has factored in assumptions, such as anticipated participation by individuals and exchange products, Medicaid expansion activities, uninsured market share and hospital occupancy rates, to mention just a few.

Our results today are as follows: Generally, we negotiate with health plans across roughly 37 markets. To date, in 27 of those markets, we have 36 contracts with our major payers and expect to be in active negotiations for additional contracts over the next several months. Currently, 85% of our hospitals are contracted with at least 1 exchange product. We have 17 -- we have contracts in 17 of our 20 largest uninsured markets. And in 9 markets, we will participate in multiple exchange products. Of the 36 contracts, 16 include some form of network configuration. And although we are not going to comment on the specific rates associated with executed contracts, they generally can be characterized as closer to commercial pricing than Medicare. And in some cases, exchange contracts had been coupled with term extensions of other managed care agreements that we might have with any given payer.

As I stated on our last quarter's call, we believe this will be a process that evolves over time. Although we are still in the early stages of America's reform agenda, the exchange contracting results to date have been within our expectations. We are encouraged by the dialogue we have had with the payer community and believe that exchange products, over time, will create value for our organization.

And finally, yesterday, HCA signed an asset purchase agreement with Carondelet Health to purchase their 2 hospitals, St. Joseph and St. Mary's Medical Centers in Kansas City. We are pleased with the execution of this agreement and are looking forward to adding these organizations to our company.

And with that, let me turn the call over to Milton.

R. Milton Johnson

Thank you, and good morning. I hope most of you have had a chance to review our first quarter earnings release issued this morning. Sam and I will provide some additional information regarding the first quarter results and then we'll take your questions.

As Richard mentioned, our first quarter results fell short of our internal expectations, primarily due to lower patient volumes, especially outpatient volumes. Cash expenses also came in well below plan due to less volume and management actions taken in the quarter. However, we were not able to fully offset the revenue impact of the volume softness with expense management. Following my comments, Sam will provide additional observations on patient volume and management's actions.

Revenues in the first quarter increased to $8.44 billion, up 0.4% compared to the prior year's first quarter. Excluding the net favorable Medicare settlements in the first quarter of 2012 of $188 million, revenues increased 2.7% over the prior year's first quarter.

Adjusted EBITDA totaled $1.568 billion compared to $1.823 billion in the first quarter of 2012, which included a net favorable impact from the Medicare settlements of $170 million. Net income attributable to HCA Holdings Inc. totaled $344 million or $0.74 per diluted share compared to $540 million or $1.18 per diluted share in the first quarter of 2012.

First quarter of 2013 results include pretax losses from the sales of facilities of $16 million or $0.02 per diluted share. The first quarter also includes a pretax loss of $17 million or $0.03 per diluted share on the retirement of the $201 million principal amount of our 9 7/8% senior secured second lien notes due in 2017.

Volume trends in the quarter moderated from recent growth rates with same facility admissions increasing 0.1% and same facility equivalent admissions declining 0.7% as compared to last year's first quarter. Our same facility medical admissions increased 1.2%, while same facility surgical admissions declined 3.2% compared to the prior year. Excluding the extra business day due to leap year in 2012, our same facility admissions increased 1.3% and same facility equivalent admissions increased 0.4%.

During the first quarter, same facility Medicare admissions and equivalent admissions increased 1.5% and 1%, respectively. Same facility Medicare admissions include both traditional and Managed Medicare. Managed Medicare admissions increased to 12.5% on a same-facility basis and represent 28.9% of our total Medicare admissions.

Same facility Medicaid admissions were flat with prior year, while same facility equivalent admissions increased 1.2% compared to the prior year. Same facility managed care and other admissions declined 3.2% in the first quarter, while same facility managed care and other equivalent admissions declined 4.6% compared to the prior year's first quarter.

In the first quarter, uninsured admissions increased 5.4% on a same facility basis compared to the prior year. Same facility uninsured admissions represent 7.4% of total admissions in the quarter compared to 7% in last year's first quarter.

Same facility emergency room visits increased 3.8% in the quarter. Excluding the leap year effect, same facility emergency visits increased 4.9%. Same facility surgeries declined 3.6% in the quarter, reflecting a decline of 2.6% in our same facility inpatient surgeries and a 4.3% decline in our same facility outpatient surgeries. Adjusting for leap year, same facility inpatient surgeries declined 1.5% and outpatient surgeries declined 3.2% compared to the prior year's first quarter.

During the quarter, revenue rate growth per equivalent admission improved compared to recent trends. Same facility revenue per equivalent admission increased 0.8% in the first quarter. However, excluding the impact of the net favorable Medicare settlement in 2012, revenue per equivalent admission increased 3.5%. This is partially due to an increase in our average length of stay and our case mix, a measure of inpatient acuity, which increased 2.4% and 1.5%, respectively, compared to the prior-year period.

For the first quarter, same facility Medicare revenue per equivalent admission declined 3.7%. However, after excluding the Medicare settlement revenue from the prior period 2012, Medicare revenue per equivalent admission increased 3.6%.

Same facility Medicaid revenue per equivalent admission, excluding the Medicaid waiver programs, increased 0.4%. Managed care and other revenue per equivalent admission increased 5.5% over the prior year period, the highest quarterly growth rate yield on our managed care revenue in several quarters.

Same facility charity care and uninsured discounts increased $418 million in the first quarter compared to the prior year. During the first quarter, same facility charity care discounts totaled $905 million, an increase of $108 million from the prior year period, while same facility uninsured discounts totaled $1.947 billion, an increase of $310 million from the prior year period.

Now moving to expenses. As I mentioned earlier, cash expenses came in well below plan, but on a volume-adjusted basis, growth rates were greater than recent trends, primarily due to the moderation in volume growth. Same facility operating expense per equivalent admission increased 4.3% compared to the prior year. Same facility operating expense, excluding HITECH expenses and Medicaid waiver program expenses, increased 4.8% in the first quarter of 2013 compared to the prior year.

As I referenced earlier in my comments regarding our revenue rate growth, higher case mix and average length of stay also contributed to the growth in operating expense per equivalent admission.

Salaries per equivalent admission increased 4.1% on a same facility basis. Same facility productivity performance as measured by man hours per equivalent admission deteriorated 1.8% over the prior year period and same facility wage growth was 2% in the first quarter. Personnel costs associated with physician employment increased by $9 million of 3.3% from the previous year's first quarter. Noncash share-based compensation expense associated with the company's management equity plan increased $14 million in the quarter over last year's first quarter.

Same facility supply expense per equivalent admission increased 4.6% from the prior period, primarily reflecting the reclassification of nonequity member administrative fees from a reduction and supply expense to revenues. The amount reclassified was approximately $41 million and contributed 290 basis points to the growth of supply expense per equivalent admission in the first quarter. The reclassification had no impact on adjusted EBITDA for the quarter.

Same facility other operating expense per equivalent admission increased 4.6% from the prior period -- prior year period. We recognized $39 million in electronic health record incentive income in the first quarter compared to $55 million in the first quarter of last year. This is consistent with our expectations. The company also incurred approximately $26 million and $17 million in EHR-related expense in the first quarters of 2013 and 2012, respectively.

Cash flows from operating activities totaled $740 million in the quarter compared to $797 million last year. The decline was primarily due to the net impact of the $201 million less in net income, being partially offset by $50 million benefit from changes in working capital items and $50 million benefit from income taxes in the first quarter of 2013 compared to the first quarter of 2012.

Days in accounts receivable at the end of the first quarter were 52 days compared to 53 days for the same period last year.

At March 31, 2013, the company's debt-to-adjusted EBITDA ratio was 4.56x compared to 4.43x at December 31, 2012. And at the end of the quarter, we had $2.575 billion of borrowing capacity under our senior secured credit facilities.

We are in the process of repricing certain of our bank term loans. We recently closed on the repricing of our $2.373 billion Term Loan B3, which has a maturity of May 1, 2018, and reduced the credit spread on that loan from 325 basis points to 275 basis points. This will reduce our interest expense by $11.9 million annually over the life of the loan.

Additionally, we are currently in the process of repricing our $2 billion Term Loan B2, which has a maturity of March 31, 2017, and expect to reduce the credit spread on that loan from 325 basis points to 275 points as well. This repricing, if successfully completed, will reduce our interest expense by $10 million annually over the life of the loan.

I do want to spend just a moment addressing the Medicare IPPS proposed rule, which was issued by CMS last Friday afternoon. As you recall, on our fourth quarter call, we had sized a potential reduction in our Medicare disproportionate share payments under the Affordable Care Act starting in October 2013 of approximately $50 million for the fourth quarter of 2013 or $200 million annually. The proposed rule issued last week utilized what we believe is a more appropriate DSH reallocation formula, which will result in Medicare DSH payments at approximately the same level as this year.

Also, the proposed rule reduces inpatient payments for the government's fiscal year beginning October 1, 2013, by 0.8% related to a documentation and coding recruitment adjustment in accordance with the American Taxpayer Relief Act, which was passed on New Year's Eve.

During our prior call, we estimated this payment reduction at approximately $25 million for the fourth quarter of 2013 or $100 million on an annual basis. Under the proposed rule, our documentation and coding recruitment cut would be approximately $13 million in the fourth quarter of 2013 or approximately $52 million on an annual basis. I do want to remind everyone that this is still a proposed rule, not a final rule, which we anticipate would be published sometime in August.

Before turning the call over to Sam, I want to mention that Parallon exceeded first quarter expectations, and the implementation of LifePoint Hospitals for both supply chain and revenue cycle services is proceeding according to plan.

Now let me turn the call over to Sam.

Samuel N. Hazen

Good morning. I want to focus my comments this morning on the analysis we conducted on our first quarter volumes and the observations we are able to make at this point in time. Before I get into this, I want to give you a short summary of the 2012 third quarter market share performance for ATA. This summary is for the 12 months ended September 30, 2012, which is the most recent market share data available.

For this period, inpatient market share for ATA increased to 23.5%, an improvement of 58 basis points over the previous year. Overall, inpatient demand in our markets was flat on a year-over-year basis. We had share gains in 14 out of 17 service lines. The company gained share in 29 out of 37 markets, with gains in 8 of its top 10 markets. In the commercial segment, market share grew by 38 basis points. And finally, within the in-migration segment of our business, market share improved by 53 basis points.

During this 12-month period, the gains in the third quarter of 2012 accelerated, as compared to the other quarters in the study. Now let me move to the first quarter volumes.

We conducted a thorough analysis of the 5 major factors that drive our volumes to see if we could identify any significant issues that would indicate an adverse change in market share performance. In short, we could not.

As is typical, there were situations in a few markets where we believe our market share declined in the quarter, but there were also situations in other markets where we are confident that we gained share. The factors that we evaluated were as follows: First, we evaluated our managed care network contracts. There were no changes in our managed care contracts that reduced our access to commercial or governmental business, nor do we believe managed care companies are steering their business away from HCA facilities. To date, HCA has contracted for approximately 60% of 2014 managed care revenue and 40% of 2015 managed care revenue at rates consistent with the past few years.

The second factor that we analyzed was the number of physicians on our active medical staff. In the first quarter, the number grew by almost 1% as compared to the end of the last year. This is consistent with past periods. The company continues to invest significantly in its physician integration initiatives and in its clinical improvement initiatives.

The third factor we assessed was our core operations and organizational efforts that support our growth agenda. For example, we studied the average wait times in HCA emergency rooms. They were essentially identical to those in the fourth quarter. Our outreach resources and efforts were as planned, so there were no indications of problems in these areas of our evaluation.

The fourth factor we reviewed was a portfolio performance analysis for our domestic operations, which we adjusted to reflect the effects of leap year. In 2012, 69% of our hospitals had growth in inpatient admissions. In the first quarter of 2013, 62% of our hospitals had growth. There was a slight weakening overall, but it was not material, nor was it concentrated in a particular market.

To give you some perspective on the trends across the company's markets, the only state among our top 15 volume states that had a positive relationship between first quarter growth rates and 2012 growth rates in inpatient admissions was California. The growth rates in both Florida and Texas decelerated at a comparable level. When we conducted the same portfolio analysis for adjusted admissions, it is clear that the trends in outpatient volumes changed the most. In 2012, 77% of our hospitals had growth in adjusted admissions. In the first quarter of 2013, only 56% of our hospitals had growth in adjusted admissions.

The final factor we analyzed was our competitors' actions. In general, there were no changes identified that would have caused an overall trend change for the company. There were a few specific markets where certain investments by our competition related to new hospitals had an adverse impact on our volumes, but these situations were limited and not broad based.

As a result of this analysis, we believe the first quarter calendar changes related to leap year, Easter and New Year, had a pronounced effect on our volumes and explain much of the deceleration in growth. In particular, outpatient surgery volumes, outpatient diagnostic volumes and to a lesser degree, commercial admissions were most affected by this calendar change. Most of these volumes are generated on weekdays. Also, our behavioral and rehab businesses tend to be more weekdays oriented. The growth rate in these service lines slowed in the first quarter also.

With respect to expense management, the company started responding to soft volume trends in late February. These efforts were accelerated in early March when it became apparent that the trends were not improving. Our actions included appropriate flexing of variable staffing and reductions in the use of premium labor. In certain situations, we reduced our workforce with more permanent measures.

And finally, the company has redoubled its efforts to limit overhead additions, postpone certain initiatives and restrict discretionary spending. Our management teams have been very effective in the past with implementing these type of measures and we are confident in our ability to execute.

And with that, I'll turn the call back to Vic.

Victor L. Campbell

All right, Sam, thank you. And if we can move to Q&A, Jessica, you want to come back on?

Question-and-Answer Session

Operator

[Operator Instructions] We'll go first to Justin Lake with JPMorgan.

Justin Lake - JP Morgan Chase & Co, Research Division

So question on exchange contracting. Can you talk specifically about Blue Cross Blue Shield contracting given the expectation they're likely to have significant market share on exchanges? And then you also said your rates look more like commercial than Medicare. As a level set, can you tell us how your current commercial rates compare to Medicare on average?

Victor L. Campbell

Milton, you want to lead and then, Juan?

R. Milton Johnson

Sure. Generally, probably half of our contracts would be with Blue Cross entities. And with respect to the pricing, our revenue per equivalent admission averages, with commercial, probably around $18,500 to $19,000, and Medicare is usually around $10,000 to $10,500 per equivalent admission.

Victor L. Campbell

And Juan anything to add?

Juan Vallarino

No, I'm good.

Operator

We'll take our next question from Ralph Giacobbe with Credit Suisse.

Ralph Giacobbe - Crédit Suisse AG, Research Division

I guess just on the exchange topic. Can you maybe help us talk about what happens in the event that you aren't included in a narrow network product on exchange. Would you just bill at the out-of-network rate for anyone that comes to you, I guess? And then secondly, are there provisions in your existing contracts that would allow you to exit an existing managed care relationship if you weren't included in exchange product or would you have to wait for that contract to end?

Victor L. Campbell

All right. Juan, you want to take that?

Juan Vallarino

Ralph, good questions on both. On the out-of-network, we would get out-of-network payments and we would bill it -- bill charges, we were not in the network. And to answer the second question, we'd have to wait. We'll have to issue a notice of, what is it, 180-day -- whatever the contract allows for.

Operator

We'll go next to A.J. Rice with UBS.

Albert J. Rice - UBS Investment Bank, Research Division

I guess I'll ask a more mundane, immediate question and leave the 2014 questions to others. The cost initiative that you put in place, can you expand on that a little bit more in terms of what it might mean? I know you guys had a big cost reduction program back in the second quarter of 2011 after a tough quarter. Is what we're talking about, that you implemented something similar to that, maybe use that as a way to gauge it?

Victor L. Campbell

All right. Sam?

Samuel N. Hazen

Well, I think there are similar elements to what we've done this year versus what we did in the past, A.J. I think the thing that we dealt with in the quarter is typically you have seasonal labor related to certain traveler contracts and so forth to deal with expected volume levels, you have to make commitments to those contracts in advance and you tend to have a runoff on those contracts. So we had to work our way out of those contracts first and foremost as quickly as we possibly can to get rid of the premium labor that was there to take care of the volume that did in fact show up as expected. From there, we approach it as we typically do. We make sure our headcount is consistent with where our expectations are related to volumes as we see them over the remaining portion of the year. Again that required some adjustments, both in our variable staffing, as well as some fixed staffing in certain situations where we made some judgments that the volumes had trended down more than we anticipated, and we're going to take a conservative view on that. And we have been able to significantly impact our headcount per patient over the last 45 to 60 days as compared to where we were in January. And it's important to understand we had record census in January at many of our hospitals. And as the flu burned off, we had dramatic drops in census 10%, 12% in inpatient census for some of our facilities. And it's not easy to adjust downward that quickly when we see that kind of migration out of our hospitals because of one particular condition. With respect to our other cost initiatives, they continue to be productive for the company, and we think they will continue to produce some incremental benefit as we move through the year. Those involve supply chain initiatives as you know, there are certain clinical initiatives that we think will enhance our cost structure. And so we anticipate similar transitions between quarter-over-quarter performance as we've seen in the past to line up with the volume expectations for the remaining portion of the year.

Richard M. Bracken

The only thing -- this is Richard. The only thing I would add to that, A.J., is that in addition to the sort of the real-time actions that Sam described, we have made some significant structural changes in our approach to expense management that tries to move our best practices across the enterprise. You might recall we refer to this as our performance improvement program. We started this almost 5 years ago. We have now 60 dedicated employees that are on the road to targeted hospitals throughout the year. We typically get to, not quite 20, around 15 to 20 hospitals. These teams stay at the facility sometimes 3 months. They monitor on a detailed basis any number of variables, labor staffing, best practices, supplies, and even our clinical agenda and improvements in our clinical variation are also included in these reviews. So in addition to the daily work that our management teams do that adjusts variable expenses, we have a system in place that deals -- tries to deal with pulling out more structural costs and has been very successful for us.

Operator

And we'll go next to Andrew Schenker with Morgan Stanley.

Andrew Schenker - Morgan Stanley, Research Division

So the acquisitions in Kansas City have been in the works for a while here, but can you just kind of remind us of your views on uses of capital going forward? And maybe how the acquisition pipeline is looking?

Richard M. Bracken

Let me just comment on acquisitions -- this is Richard again -- for just a second. Milton might want to add some more on our other uses of capital. But relative to acquisitions, we, of course, remain very interested in pursuing strategic acquisitions. And as we have mentioned many times in the past, following reinvestment in our existing assets, strategic acquisitions are considered a priority use of our capital. We continue to consider these opportunities as they present themselves. And as you know, this is an unpredictable process. They mature in the marketplace at different rates and in different markets and we have to consider them all independently. We prefer acquisitions or even partnership opportunities that are complementary to our existing strategy. Large urban markets, for example. We like acquisitions that can maximize benefit from our existing infrastructure. For example, domestic versus international. And we really are looking towards acquisitions and markets where over time, we believe that we could achieve a meaningful share presence. So having said all of that, and those are sort of our desires, we are aware of most all material opportunities that might present themselves in the marketplace. And as such, we're able really to take a look at most everything. Just to close on sort of growth through development. Our primary strategy, as you know, has been sort of based on the organic capacity within our markets, and in investing in those markets, we are pleased that we're in markets that tend to grow faster and have a lot of population concentration. We now have 4 hospitals under construction in Salt Lake City area, Orlando, Houston and Fort Worth. And typically, and including these kinds of developments, we add somewhere between 400 and 500 beds a year of capacity. So this, in combination with a robust operating strategy that Sam mentioned, has really resulted in positive share gains. But we think about acquisitions, we have tuned up our acquisition development department. We're looking at everything that's out there and we're -- we proceed as we think we can make sense out of them.

Victor L. Campbell

Milton, do you want to talk more on...

R. Milton Johnson

I think that's a good description.

Operator

We'll go next to Josh Raskin with Barclays.

Joshua R. Raskin - Barclays Capital, Research Division

The volumes -- I just wanted to clarify, when you gave the monthlies, those were not adjusted for leap year, right? So that February comp of down 3.6%, would that be closer to flat with leap year?

Victor L. Campbell

None of those were adjusted. Those were as reported. So you sort of have to go through and apply your leap year. Everybody sort of does it a little bit differently, so we'll let you have the actuals that we've given you for those months. But clearly, there were moving parts in all of them.

Joshua R. Raskin - Barclays Capital, Research Division

Got you. And then the 5 factors that Sam went through, you mentioned the managed care contracting and no changes, et cetera. But are you seeing any changes in benefit design or deductibles or things like that, that you think may be impacting the consumer as opposed to the actual managed care contract itself?

Victor L. Campbell

Sam, you want to lead?

Samuel N. Hazen

Well, I think there are some indications that there are more co-pay and deductible responsibilities out there with our patients than in the previous year. Is it materially different on a year-to-year basis? We're not seeing that in a material way in our accounts receivable activity. Milton, I think we had some increase in the amount of co-pay and deductible per account. But it wasn't yet so significant that it would suggest that it's the primary reason around deceleration in the market. There are reasons to believe that the outpatient volumes are more under pressure with respect to deductible and co-pay changes than inpatient volume. But it's not so material in our look inside of our receivables that would suggest that, that's a primary reason for any deceleration.

R. Milton Johnson

Yes. And maybe I can just give you a few numbers on what Sam's referencing. So I can just give you some of the collection numbers as well. So in the first quarter of this year versus last year, we actually collected 2.9% more in patient cash collections than we did in the first quarter of 2012. As far as upfront collections, we were up 1.1% over last year. When you look at the upfront collection rate, in other words, the average payment per account, it did go up, but Sam's referencing 7.9%, so the average is about $257 versus $238 a year ago. And -- but generally, our collection efforts are going well. Again, patient cash collection's up almost 3%, upfront collection is still up. So it's really the volume of upfront collections did decline a little bit, about 6%, in accordance with some of the volume changes.

Operator

We'll go next to Tom Gallucci with Lazard Capital Markets.

Thomas Gallucci - Lazard Capital Markets LLC, Research Division

I guess just 2 quick ones. One, can you remind us of some of the nuances to consider and difference in the characteristics as you shift from traditional Medicare and you see those patients more and more in Managed Medicare? And then just on the exchanges, to the degree you're in networks, are you exclusive with that payer or you can -- can you sign up other payers and be in their networks as well?

Victor L. Campbell

Okay, Juan, do you want to take those?

Juan Vallarino

We're not exclusive to any payer, let's put that one aside. And the shift from Medicare to Medicare Advantage, the payment schemes are usually the same. So it's really -- well medical management the plan may or may not play from that patient. But from our perspective there's very little difference.

Thomas Gallucci - Lazard Capital Markets LLC, Research Division

From a volume standpoint, very little difference or do you see some sort of an impact typically?

Samuel N. Hazen

It's hard to judge that with 28% of the total population and in some markets it's even significantly less than that. In other markets a little bit higher especially in South Florida. That -- the overall demand for Medicare business changes. Hard to see it on that small piece of the overall equation. I think it's reasonable to believe that there are some impact on demand when it moves from a traditional book of business to a managed book of business. But it's hard for us to quantify that and see that given the influx of new patients into the Medicare population. So it's very hard to discern that.

R. Milton Johnson

And I think typically the Managed Medicare population is the younger Medicare population, which may just have less demand by nature of their age.

Operator

We'll go next to Chris Rigg with Susquehanna Financial Group.

Christian Rigg - Susquehanna Financial Group, LLLP, Research Division

Just a follow-up on Josh's question earlier. And one of your peers commented on this earlier this week with regards to the high deductible plans. I mean, can you talk bigger picture maybe if you've seen any change in sort of the seasonal pattern of earnings over the last couple of years, not just as it relates to this year because of the sort of the adoption rate in the high deductible side?

Victor L. Campbell

Okay. Sam, do you want to address that first?

Samuel N. Hazen

I do think we have seen over the past 3 or 4 years a slight movement into the latter half of the year, especially on outpatient volumes. We have seen our outpatient activity in the fourth quarter, in particular, third quarter, a little bit less, but some. A lot of activity in those areas, more on the commercial side. We tend to see a lot of commercial activity in our outpatient business to begin with. Our outpatient surgery as a whole runs about 50% commercial business. Our emergency rooms run around 30% and our outpatient imaging tends to have a pretty good payer mix as well. So as you look at the trends over the past few years, you do see more of a shift towards the latter half of the year on the commercial book of business in the outpatient segment. So can you attribute all that to deductibles and co-pay? Possibly. It's hard to really know, but we have seen some movement. I don't know that I can sit here and quantify it for you exactly, but I think it's fair to say that there has been a shift.

Operator

We'll go next to Sheryl Skolnick with CRT Capital Group.

Sheryl R. Skolnick - CRT Capital Group LLC, Research Division

On the heels of a difficult quarter, you all have put together a really terrific set of prepared remarks across everyone who spoke. You answered a lot of questions and addressed a lot of issues and I thank you for that. It makes it a lot easier. So my question is this. We've not talked about your guidance, which you've reiterated. Can you walk through with us how you get from the weakness in the first quarter to guidance being maintained? And specifically, if you wouldn't mind commenting on whether or not you're still including or guiding us to include the same level of DSH cut affecting fourth quarter given your commentary about the proposed rule? And, yes, I get that it's proposed and not final.

Victor L. Campbell

All right, Sheryl. And Milton, I think, is prepared for that comment.

R. Milton Johnson

Sure, I'll be happy to bridge our February 2013 guidance that we gave on the fourth quarter call to how we see it today. Of course, we're not revising our range of EBITDA guidance for the year. But we may get there on a slightly different pathway. For example, we gave guidance that our adjusted admission growth in 2013 would be 2% to 3%. I would say now we're -- our belief is that we will most likely come in at the low end of that range. With respect to our revenue rate, we gave guidance that we thought that we would have growth in 2013 between 1% to 2%. I would say now we think that, that number would be more in the 2% to 3% zone. So our -- when you look at our revenue growth overall, I think we're still looking at the same level of revenue growth, just a little less volume, but a little more rate. And then with respect to expenses, we had, I think, given guidance that we thought we would come in, all in, around 2.5% growth. And I would say now based on the first quarter performance, adjusting for HITECH, we reported 4.8%. I think now we're looking more at -- even after the cuts and action plans that we put in place, somewhere probably around 3% to 3.5% would be an expectation. We gave guidance at our overall Medicare rate for 2013, including sequestration, including what we thought the DSH cuts would be, including what we thought the productivity and coding adjustments would be. We said we thought it would be down in 2013, 1.2%. We now believe that would be closer to being down 0.6%, all in. And so with all of those -- there's some movements with the details, that still puts us within our EBITDA range for the year.

Operator

And we'll go next to Kevin Fischbeck with Bank of America Merrill Lynch.

Kevin M. Fischbeck - BofA Merrill Lynch, Research Division

And so I guess when we think about the cost initiatives and just trying to think about how -- it was helpful, that last comment about bridging the gap, but is there a thought that you kind of think Q2 here on that run rate or should we expect an acceleration of the cost saves as the year goes on?

Victor L. Campbell

Sam or Milton?

Samuel N. Hazen

Most of our actions were accomplished by the end of March. We had some residual actions that would affect us in the second quarter because of certain timing of events and so forth. So the majority of our efforts to adjust our costs to line up with what we felt our volumes were going to do for the rest of the year were accomplished by the end of March. And so you should see a full benefit of that as we move through the second quarter, assuming we get the volume we're anticipating. Obviously our per-unit metrics are very dependent upon volume because of the fixed cost nature of our business. Therefore, if it were little better we should see better cost per unit obviously and obviously a little worse if we don't get the volume. So the actions that we've taken were 80% implemented by the end of the quarter, and there's maybe 20% or 25% that wasn't implemented that most likely will be implemented sometime in April and we'll get the benefit of that going forward.

Operator

We'll go next to Darren Lehrich with Deutsche Bank.

Darren Lehrich - Deutsche Bank AG, Research Division

Just was hoping you might be able to update us on your process to evaluate the ACA impact. I know you've said that, that'll come later in the year. I guess just given all the uncertainties that still remain uncertainties, I'm curious about how that process is coming along. And if you've got any updates for us in terms of timing and format of that?

Victor L. Campbell

Milton, you?

R. Milton Johnson

Sure. Ralph -- Darren -- I'm sorry, Darren. We're not going to set a date for that information just yet. You referenced still a lot of uncertainties. Quite frankly, earlier in this year, late last year we thought there might be more certainty. Take, for example, expansion of Medicaid. Still, I think, a lot of uncertainty around that. And so -- and as we're making progress on our exchange contracting that's been helpful. But we're going to remain, I guess, uncommitted with respect to a date. But as we continue to get more clarity, we do expect either later this year, certainly no later than probably the time that we would issue 2014 guidance that we would be giving a multi-year view. But I'm not going to set an expectation for a certain date today.

Richard M. Bracken

And I'll just add, as we go, we're trying to -- each quarter we're trying to update with the relevant information as we did this morning, so as it unfolds for us over each quarter, we'll try to update you on key points.

Operator

We'll go next to Frank Morgan with RBC Capital Market.

Frank G. Morgan - RBC Capital Markets, LLC, Research Division

I'll follow up on the question related to Medicaid expansion in Texas. Let's just say for now Texas doesn't opt in. I'm wondering if you've had a chance to really look at the opportunity in Texas in the subsidy -- subsidized part of the market. My understanding is that 139% up to about 250% of the federal poverty level would actually qualify for essentially full subsidized coverage. So, I wonder what -- have you looked at that for you in Texas, like if we don't get Medicaid expansion, does that -- is that a big opportunity -- what segment of the market would that be for you and then how would you go about the process of outreach to sign that market up?

Victor L. Campbell

All right. I think, Milton, you win that one again.

R. Milton Johnson

Yes, if we don't see Medicaid expansion, and this is true for Texas, but also other states. We do expect you'll see more uptake from that population, especially at the lower wage rates and poverty level and they would come into the exchange a certain amount. So that, I think, would be a positive for us to help offset having fewer lives covered in a market. So I do agree with that and that's how we're thinking about it from a modeling standpoint, if, in fact, you don't see expansion.

Richard M. Bracken

And I would -- on that last piece of your question, where you said you know what, about enrollment in the marketplace. Let me just give you more general comment about how we're thinking about that. Of course, enrolling in these plans is important. And we've thought a lot about how we should proceed in this. We -- to that end, we engaged an outside group that's been working with us. Doing a lot of focus groups in key markets, understanding what activities might be in the given markets. We don't want to duplicate anything, make sure that any efforts that we would take would be complementary in nature. We're infusing that logic with all the quantitative research that we've done about the uninsured. And so we have a pretty robust set of analysis going on to figure out how we should participate in this effort. But we haven't obviously put anything out yet and we're continuing to fine-tune that effort. So more on that as we work through our processes.

Operator

We'll go next to Matt Borsch with Goldman Sachs.

Matthew Borsch - Goldman Sachs Group Inc., Research Division

Just not to beat the volume topic to death, but let me just try one more. Have you looked at the pattern of prior serious flu seasons and, I guess, looking back -- I guess you had to go back 10 years ago, maybe, to that 2003, '04 season. Did volumes drop off as the flu abated there? Just wondering if there's some precedent on that front?

Victor L. Campbell

Sam, we're going to test your memory here.

Samuel N. Hazen

I can't give you any specifics on the flu from 10 years ago. I'll tell you this. For the quarter, our inpatient activity was positive by 0.5 point related to the flu. Our emergency room activity was down 0.5 point because of flu activity on a year-over-year basis. It's important to understand for HCA -- I was telling the team this before the call, our admission activity, our average daily census and our ER volumes in the first quarter of 2013 was the highest volume the company has had in 17 consecutive quarters. And probably if I had data in front of me beyond that, it would be even more -- it's probably the highest we've had since the Columbia/HCA days when there was over 300 hospitals in the portfolio. So our overall volume was at a peak. Now it wasn't on outpatient activity that are dependent on calendar days and/or surgical activities, which depend on calendar days, but our overall volume was very strong in aggregate. And so how the flu reacts, I mean, December in the fourth quarter for HCA of 2012 was a record year-over-year kind of growth on both inpatient activities and adjusted admission activity. A lot of which was driven by the flu we were seeing early in December in a lot of our states. So there was that kind of dynamic going on, too, where it straddled both 2012 and 2013. So it's really hard for me to give you any sense of it, but the flu does affect our business and it comes and goes, and it can be very short, it can be protracted. It's hard to say exactly how it's going to change from one period to the other.

Victor L. Campbell

Thank you. I'm debating with myself right here. We've had 12 questions. Do we do number 13 or not? I'm going to take a chance. We're going to take one last question. Just don't throw me a curveball.

Operator

We'll go last to Gary Lieberman, with Wells Fargo.

Gary Lieberman - Wells Fargo Securities, LLC, Research Division

I guess 13 is my lucky number today. I hope this isn't too much of a curveball. Maybe going back to the Medicaid expansion. Would be interested in your observations and maybe your thoughts on how you see the politics or the process playing out in Florida and Texas and how they decide on what they're going to do.

Victor L. Campbell

So you did throw the curveball, it came to me. We're all reading the same press. We obviously have folks in both places. I think, clearly, if you look at Florida and Texas, it's probably greater odds for something to happen in Florida, but it's getting down to the wire and they've got, I guess, until the end of the week for this session to end. And so again, it's a moving part and I don't want to place any bets one way or the other there. Clearly, we're supportive, we would like to see it go in that direction. But we'll just see that play out. There's always the opportunity for a special session. Whether or not that would happen or not, again, is anyone's best guess. Texas is probably a little -- maybe a little more political at this point. There are folks down there that would like to see it move forward. You also have a situation where that session, they meet every other year, so if they don't get something done here pretty quick, we're not going to likely see a special session until the year after next. So I'd say, coin tosses, maybe a 2-headed coin in 1 state. And with that, I want to thank everybody for your participation. I know Mark is excited to take all your calls this afternoon, and I will be here as well. Thank you for participating.

Operator

This does conclude today's conference. Thank you for your participation.

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