Q2 2024 HCA Healthcare Inc Earnings Call
Participants
Frank Morgan; Vice President Investor Relations; HCA Healthcare Inc
Samuel Hazen; Chief Executive Officer, Director; HCA Healthcare Inc
Michael Marks; Chief Financial Officer, Executive Vice President; HCA Healthcare Inc
AJ Rice; Analyst; UBS Equities
Ann Hynes; Analsyt; Mizuho Securities USA
Pito Chickering; Analyst; Deutsche Bank
Brian Tanquilut; Analyst; Jefferies
Ben Hendrix; Analyst; RBC Capital Markets
Justin Lake; Analyst; Wolfe Research
Whit Mayo; Analyst; Leerink Partners
Andrew Mok; Analyst; Barclays
Stephen Baxter; Analyst; Wells Fargo Securities, LLC
Scott Fidel; Analyst; Stephens Inc.
Jason Cassorla; Analyst; Citigroup
Kevin Fischbeck; Analyst; BofA Global Research
Ryan Langston; Analyst; TD Cowen
John Ransom; Analyst; Raymond James
Joshua Raskin; Analyst; Nephron Research LLC
Sarah James; Analyst; Cantor Fitzgerald
Presentation
Operator
Welcome to the HCA Healthcare second quarter 2024 earnings conference call. Today's call is being recorded. And at this time for opening remarks and introductions, I would like to turn the call over to the 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, Samuel Hazen, and our CFO, Mike Marks. Sam and Mike will provide some prepared remarks and then we'll take some 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 or 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 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.
Samuel Hazen
All right. Thank you, Frank, and good morning, to everyone. The company's results for the second quarter were positive across the board and reflected strong demand for our services. In addition, our teams continue to execute our strategic plan effectively and produce positive outcomes for our patients while also enhancing efficiencies in our facilities, including better throughput and case management.
I want to thank our HCA colleagues for their outstanding work and their continued pursuit to innovate and deliver on our mission. As compared to the prior year. Diluted earnings per share as adjusted increased 28% to $5.50. Consistent with the first quarter, we saw broad-based volume growth across our markets and service lines.
On a same-facility basis in the second quarter, inpatient admissions grew 5.8% equivalent admissions grew 5.2%. Emergency room visits increased 5.5%, inpatient surgeries were up 2.6%, outpatient surgery cases were down 2% and like the first quarter, the declines were mostly explained by lower volumes in Medicaid and self-pay categories.
Similar to the past few quarters, other volume categories, including cardiac procedures and inpatient rehab services experienced strong growth. Payer mixes improved year over year with commercial volumes representing 36.2% of equivalent admissions. And lastly, the acuity of our inpatient services as reflected in our case mix index increased slightly as compared to last year.
These factors helped generate same-facility revenue growth of 10%. Also in the quarter, we progressed further on our cost agenda and produced solid operating margins. As we transition to the last half of 2024, we are encouraged by the company's results, we believe the increased investments we are making in our people and facilities, along with our disciplined approach to operations will continue to produce positive outcomes for our stakeholders.
In closing, given our year-to-date performance and the backdrop of strong demand that we forecast for the remainder of the year, we have updated our guidance for the year, as indicated in our press release.
With that, let me turn the call over to Mike for more details.
Michael Marks
Thank you, Sam. And good morning, everyone. The second quarter showed continued solid performance with strong demand and improved margins and a balanced allocation of capital. Sam reviewed our top line results, so I will cover operating costs in the quarter.
Operating costs were well-managed, resulting in a margin improvement of 100 basis points to prior year and sequentially to the first quarter. Labor costs as a percent of revenue improved 200 basis points from the prior year, and we continued to see good results in contract labor which declined 25.7% from the prior year and represented 4.8% of total labor costs.
Supply costs as a percent of revenues improved 50 basis points from the prior year, on other operating costs as a percent of revenue, they did grow compared to the prior year, but it remained relatively consistent for the past four quarters. We were encouraged that year over year same facility professional fee calls growth moderated to approximately 13% in the second quarter, which compares favorably to the 20% increase we experienced in the first quarter.
Adjusted EBITDA was $3.55 billion in the quarter, which represents a 16% increase over the prior year and included a modest benefit from Medicaid supplemental payments. As a management team, we're very pleased with the operational performance of the company. Now moving to capital allocation, we continued to deploy a balanced strategy of allocating capital for long-term value creation.
Cash flow from operations was just under $2 billion in the quarter, which is a decline of $500 million to prior year, driven by increase in tax payments and timing of Medicaid supplemental program accruals and cash receipts. Capital expenditures totaled $1.28 billion, and we repurchased $1.37 billion of our outstanding shares during the quarter, we also paid about [$7] million in dividends. Our debt to adjusted EBITDA leverage remains near the low end of our stated guidance range, and we believe we are well positioned from a balance sheet perspective.
Finally, in our release this morning, we are updating estimated guidance for 2024. For revenues our new guidance range is $69.75 billion to $71.75 billion, net income attributable to HCA Healthcare $5.675 billion to $5.975 billion. Adjusted EBITDA, $13.75 billion to $14.25 billion and diluted earnings per share $21.60 to $22.80 per share. Based on the strength of our year-to-date results and our revised outlook, we estimate the share repurchases will be around $6 billion in 2024, subject to market conditions.
With that, I'll turn the call over to you, Frank for questions and answers.
Question and Answer Session
Frank Morgan
Thank you, Mike. As a reminder, please limit yourself to one question. So, we might get as many as possible in the queue an opportunity to ask a question. Ellie you may now get instructions to those who would like to ask a question.
Operator
(Operator instructions)
AJ Rice, UBS.
AJ Rice
Hi, everybody. Congratulations on a good quarter there, maybe just two areas that people are very focused on as supplemental payments. How is that running relative to your expectations and in your back half comments? Are you including anything for Tennessee and then the other area to be in the public exchanges, what is the trend there year over year? And how much is growth in that helping for these strong results.
Michael Marks
Hey, thank you A J, this is Mike. I'll take the supplemental question. I think you are where Medicaid has historically been our most challenging payer, really other than patients without insurance, typically paying us significantly below the cost of caring for Medicaid patients. Over the last several years, most states in which we operate have implemented or enhanced Medicaid reimbursement through supplemental payment programs.
And while these supplemental programs are growing, it is important to put them in context, they can be complex variable in their impact from quarter to quarter and when taken together with historical Medicaid reimbursement are still well short of covering the costs to treat Medicaid patients. We believe it is important to understand the backdrop when discussing these programs.
But now to the quarter. In the second quarter, we recognized a year over year earnings increase of approximately $125 million related to our Medicaid supplemental payment program driven primarily by the new program in Nevada and the accrual of the Florida program, which began in the fourth quarter of 2023.
To your specific question about the new program in Tennessee. We that is with CMS for review and we do not anticipate financial impact from that program in 2024, if you want to go to the public exchanges for the first quarter and let me just kind of give commercial volumes in general first, and then we'll kind of breakout hits.
But our equivalent admissions for managed care, including our healthcare exchange volumes were up 12.5% in this quarter versus the prior year quarter. If you take our managed care volumes with health, health care changes, they were up just short of 5% on equivalent admissions. And for healthcare changes, we were up 46% over prior year for the quarter.
AJ Rice
Okay, thanks a lot.
Samuel Hazen
So, A J. On the volumes update, as I mentioned, as Mike alluded to there, I mean, our Medicare volumes were up, I think, by 6.5%. So, the volume was supported really across all payer categories. Clearly, the exchanges with the enrollment over the last three years or so has become a bigger component of the business. It's still relatively small in comparison to the other payer classes. But nonetheless, we did see good volume across all payer classes with the Medicaid, I think the only category that was down.
Michael Marks
In Medicaid were down 10% on equivalent admissions mostly related to Medicaid redeterminations.
AJ Rice
Okay, great. Thanks a lot.
Operator
Ann Hynes, Mizuho Securities.
Ann Hynes
Great and thanks. Can we talk about SW&B, it was down quarter sequentially, it is usually flat. Is that just driven by contract labor improvement? And if you can give us just any details on temporary labor as percentage of total contract labor and things like that, that would be great. Thank you.
Michael Marks
Sure, thanks. And contract labor was down 25%, 27% this quarter versus prior year quarter. As I noted in my opening comment, contract labor percentage of revenue I'm sorry, percentage of SWB was at 4.8% in the quarter. This compares to 6.8% in the second quarter of last year and almost 10% at the height of COVID in early 2022.
So we're continuing to see the improvements from all the work we're doing around recruiting and around retention, and that's paying the dividends in contract labor. If you think about kind of wage inflation, wage inflation was stable and kind of continues to run where we expected it to run. So all of that, we were pleased with our labor results for the quarter.
Samuel Hazen
And seasonally, we do tend to drop from the first quarter to the second quarter, because some of the payroll taxes that we have to absorb in the first quarter are consumed by the end of the quarter or the early part of the second quarter, and that tends to improve a little bit of our metrics simply because of the timing of those tax payments.
Ann Hynes
Great. Thanks.
Operator
Pito Chickering, Deutsche Bank.
Pito Chickering
Hey, good morning, guys. Just a quick question, can you bridge us to the back half EBITDA raise for this year? What percent of the upside you're changing is coming from better volumes, what percent is coming from changes to pricing mix or acuity and how much is going from just better margin improvement coming from labor? And then finally, are there any [changes] supplemental assumptions for the back half of the year versus original guidance?
Michael Marks
Yeah, Pito, good morning. So, we are obviously really pleased with our year-to-date June performance and kind of sense are thinking about the back half of the year on the top line, our volume and payer mix for the first six months of this year were better than our original expectations. Solid labor management, as we just talked about, including the but the contract labor declines also contributed to our thinking around, kind of our results.
As we move into the back half of the year, we believe most of these trends should continue and we anticipate volume growth to be in the 4% to 6% range for the year. We expect salary, wages and benefits, supplies and other operating expenses as a percent of revenue to run mostly where we did June year to date, contract labor as a percentage of salary, wages and benefits is projected to be in roughly in the mid 4% range in the back half of 2024. And we do expect professional fee expense growth to the prior year to moderate a bit more in the back half of 2024 as well.
Specifically on Medicaid supplemental payments. As you recall, in our original guidance, we anticipated a headwind of $100 million to $200 million from the Medicaid supplemental programs. As we've noted previously, these programs are complex and have a lot of variability quarter to quarter.
But given that we are now deeper into 2024 and have better visibility into the programs across our states, we now anticipate an approximate $100 million to $200 million tailwind in 2024 from Medicaid supplemental payment programs, much of which occurred in the first half of 2024.
Pito Chickering
Great. Thanks so much.
Operator
Brian Tanquilut, Jefferies.
Brian Tanquilut
Hey, good morning, guys, and congrats on a solid quarter. Maybe Sam, just as we think about you called out Medicaid with the redeterminations kind of dragging on volumes a little bit here, but still very, very good performance. So just curious, where you stand now as you think about the sustainability of this elevated utilization trends?
Samuel Hazen
Well, as Mike just mentioned, Brian, we do expect that these volume trends will continue throughout 2024. And we have had for including 2023, really solid volume growth. I think when we pull up and we look at volume for the company and overall demand for our services, it starts with the markets that we serve. We are in markets, as we indicated at our Investor Day that we think have solid characteristics that are going to support organic growth. That's the first thing.
The second thing is the HCA network way, and that is how we build our networks, how we execute inside of that. Our inpatient bed capacity is up 2% year-over-year. When you look at us across all of our facilities, we've added a few hospitals in that as well. Really small ones that are complementary, our outpatient facilities overall are up 5%.
So our network development is a key part of our growth and we think it's part and parcel to our ability to grow our market share, which we have grown and we continue to see a metric that suggest our market share continues to be positive.
The third thing for us is capital we are investing heavily and who we are. We're investing in our networks, we're investing in our people, we're investing in clinical technology for our physicians, and we're finding ways to use our capital to make our services better and produce better outcomes for our patients. So this year, we'll invest somewhere around $5.2 billion, which is significantly up over the last couple of years, and we continue to see opportunities inside of our organization to invest capital.
The next area, it's hard for us to know this, but we do believe that coverage when people are covered, whether it's through the exchanges, mostly through their employers through Medicare, they can to purchased services and so coverage is up, so that helps elevate demand.
And we are in really unchartered territories for growth in demand in a normal environment. And it's hard to know if there's a hangover from COVID, as we've mentioned in past calls, and so forth. But we do believe the fundamental attributes of coverage help support demand growth.
And then when you start looking across, like we said earlier, the different payer classes, it's broad-based it's broad-based across the different payers. It's broad-based across our services I mean, the even obstetrics was up slightly in the quarter.
So we have seen just sort of a lift across all aspects of our business. And again, the diversification of HCA from market to market as well as the diversification from services, service allows us to participate in this demand growth and we're pretty encouraged by what we see year to date and what we expect over the balance of this year.
Brian Tanquilut
Awesome Sam, thank you.
Operator
Ben Hendrix, RBC Capital Markets.
Ben Hendrix
Thank you very much. I was wondering if you could comment a little bit more on the sources of acuity strength that you continue to see, when [we parse] that out between maybe the two midnight rule investments and higher acuity capabilities or if there's a we like we heard some MCOs talk about higher acuity and continuing Medicaid books and then maybe even some pull through pull forward of acuity ahead of members being re-determined off. I just wanted to get any indication of kind of where you're seeing that acuity growth? Thank you.
Samuel Hazen
Well, this is Sam. Let me speak to sort of our core strategy. Our core strategy is to create sort of a one-stock capability within our systems. And by that, I mean the ability to take care of a patient's need regardless of what their condition happens to be. So, we over time, have built a complexity in the services that we've offered.
So we've enhanced trauma programs. We've enhanced transplant programs, we've enhanced neonatal services, we've opened up our infrastructure with our transfer centers with helicopters with ground transportation. We've interacted with the rural community in a way to support the health care needs there, which typically tends to be more acute care service requirements, there not.
And so all of that has been part and parcel of thought toward our network strategy over the years. I will tell you again, we had broad-based service growth in trauma in the number of ambulance deliveries that occurred at our hospitals. Our cardiac care or cardiac surgery was up. So, we had neonatal admissions were up all of these components that I mentioned that are essential to our network strategy saw growth. And so that has naturally lifted the case mix and the acuity of the patients that we serve.
The two-midnight rule is actually dilutive when it comes to our case mix on the inpatient side. So, we jump over the implications of the two-midnight rule because those are lower acute patients, the observed deserving to be in an inpatient status, but nonetheless, less than average acuity by comparison. So our quarter suggests that the acuity and the complexity of the services that we offer is even more than what it reports out simply because of the dilutive effect of the two-midnight rule.
Ben Hendrix
Thank you.
Operator
Justin Lake, Wolfe Research.
Justin Lake
Thanks. Good morning. Sam I wanted to get your view on one of the bigger questions we're all getting from investors heading into the elections, which is the potential for exchange disruption, should be a chance to subsidies be allowed to expire at the end of 2025?Had the company run any scenario analysis of what happens to these volumes and hospital economics, should those subsidies expire?
And if not, maybe you could just share with us what you think happens of patients in terms of coverage we might drop from the exchanges today become uninsured, do you think they move to other payer types? And then if I could just squeeze in one number question, can you tell us what same-store ASC revenue growth was in the quarter. Thanks.
Samuel Hazen
On the exchanges, Justin, obviously, there's a lot to play out here politically between now and the end of the year. So, it's a little premature for us to our forecast, what's going to happen politically with respect to the exchanges, it's no secret that they are scheduled to expire at the end of 2025 and many of the participants are in states that we serve. Obviously, you're seeing that in the data that's available. We don't have a great line of sight on which participants in the exchange have what level of subsidies and how that will play out?
It's really difficult for us to know precisely what that is. We are starting to drive that study as much in (inaudible) study and we're hopeful that in 2025, we'll have some sense of the policies that might be put forth a better sense of the economics around the exposure, if the subsidies go away.
But at this point in time, it's way too early for us to make any judgments on that. But we will be as transparent as we possibly can be with you all around it once we have information that we feel we can support and share appropriately.
Michael Marks
Hey, Justin. On same-store ASC revenue growth is about 8%.
Justin Lake
Great. Thanks, guys.
Samuel Hazen
Thank you.
Operator
Whit Mayo, Leerink Partners.
Whit Mayo
Hey, thanks. Sam you've talked a lot in recent quarters around the efficiencies and the throughput initiatives that you have the ER, any numbers that you can share around any of those productivity gains that puts this in perspective, maybe we see it on the back end with length of stay? And just if you could comment on the commercial our growth in the ER this quarter? Thanks.
Samuel Hazen
Okay. Let me start with the commercial ER our growth. Our commercial volumes in the emergency grew almost 18%, a really strong growth in that category. Again, we are focused on throughput, patient satisfaction and high clinical performance with what we call our ER revitalization program and our ER revitalization program has produced really positive results for us, our throughput.
Let's start with time to see a patient is down to minutes, that doesn't sound like that much. While we're moving from 11 to 9 minutes, that's the starting point. Our length of stay for patients who have been discharged is down, I think about 15% to 20% to around 160 minutes or something in that zone. Again, throughput getting the patient through the system communicating with them effectively and then getting them out when they're ready to be out.
Then we have patients who are admitted for those patients, we've also improved the whole time in the emergency room so we can get them up to a floor and in a proper setting for care. And that also has improved markedly on a year over year basis, we have room to go and we're continuing to invest in our leadership development, we're continuing to invest in our technology.
We put our Care Transformation and Innovation team inside of our ER processes to help them think about different approaches. Our patient satisfaction has improved in our emergency room. And I want to say over 8 out of 10 patients would highly recommend or recommend an HCA emergency room.
In addition to that, we're adding capacity. We've added capacity on our hospital campuses, but we've also added capacity off-campus to really meet the needs of different communities, and that's been part of our growth as well. And we continue to invest in both aspects from a supply standpoint and then we're investing heavily in our process standpoint with to make sure that we're delivering the services that our communities need and that our patients deserved. And I'm really proud of the ER efforts that our teams have put forth. Thank you.
Whit Mayo
Thanks.
Operator
Andrew Mok, Barclays.
Andrew Mok
Hi, good morning. One clarification and a question of first, can you just give us the exchange admissions as a percentage of total in the quarter. And then on the question, outpatient surgeries were down about 2%. Can you elaborate on some of the trends you're seeing there and maybe break that out between hospital outpatient and ASC volumes? Thanks.
Samuel Hazen
Yes. So, on exchange volumes, they're just right at 7% of admissions and ER visits as well for exchange as a percentage of total. What was second question?
Andrew Mok
It was on the outpatient surgery.
Samuel Hazen
I've got it right. So, we were down in the quarter 2% in the hospital in the same way back up to the non-same stores here, sorry. Yeah, we're a little over 2% on same stores and a little over 1% on ASC and that weighted out to about the 2% that we mentioned again.
It's exclusively in Medicaid and uninsured, so our overall revenue growth in our ASCs and hospital outpatient surgery platform was up, our profitability on that segment was up and, yes we have a volumetric that's down, but the implications to our business really aren't there as a result of it.
Andrew Mok
Great. Thank you.
Operator
Stephen Baxter, Wells Fargo.
Stephen Baxter
Hi, thanks. Just a couple more on the guidance. I was hoping to hear if you've updated your thinking on core wage inflation as part of this guidance revision, wondering if that's a contributor potentially not due to the higher volumes are starting to? And then if there's any impact of M&A in the guidance, you remember have an [EBITDA decreased to know too]. Thanks.
Michael Marks
If you look at wage inflation. You know, we kind of came in this year, we were thinking then 2.5% to 3% range. And that stayed consistent as we think about where we are here and how we're going to, kind of close to the back half of the year. So, as we're thinking, wage inflation will be fairly steady.
Samuel Hazen
And then it's more into M&A.
Michael Marks
So there were some questions on M&A that kind of run through that. So, you have $400 million of revenue in new stores that $250 million of that is from Valesco the rest are from the acquisitions in Texas. You heard us talk about the healthcare system acquisition a couple of others.
And that's the revenue side of that it was diluted to earnings, though, at about 1% negative impact to EBITDA for the quarter. So, the M&A trends don't really impact or did not really impact our year over year EBITDA growth in any material way.
Stephen Baxter
Thank you.
Operator
Scott Fidel, Stephens Inc.
Scott Fidel
Hi, thanks. Good morning. Was hoping to just circle back on the Medicaid supplemental payments. And maybe if you could just sort of talk about how your Medicaid margins have evolved from maybe where they were a couple of years ago to where they are currently inclusive of the Medicaid supplemental payments. I know that you had mentioned how this is really just trying to get the business still Medicaid back closer on to breakeven or maybe not even there yet.
So helpful if you could sort of walk us through that. And then just looking out to the elections, there is a level of investor uncertainty around the sustainability of Medicaid supplemental payments. If there was a switch off in the White House, although I do think it's notable that we do see many of the states that are sponsoring are these payments are from red states. So, it feels like these payments likely would be quite sustainable but there is a lot of investor uncertainty around this topic, so we certainly appreciate your thinking on that? Thanks.
Michael Marks
Yeah, thank you. I'll take the second one first, we do see good sustainability around the Medicaid supplemental payment programs. As you noted, they're well supported historically both in red states and blue states. And you know, frankly, two of our biggest programs are in Texas and Florida.
So that will give you a sense of those things. The new rule that came out earlier this year on sustainable programs on a Medicaid supplemental programs, we found to be positive and supportive of and actually good for the provider industry.
If you think about kind of margins over time, if you go historically back in time with Medicaid margins. And you're right, I mean, supplemental payments are really just core to Medicaid, they were pretty significantly below the cost of caring for Medicaid patients in the past over the last several years, they have grown some and more states have added programs or enhanced programs.
But even now if you look at where we are in 2024. And you think about the historical kind of base Medicaid reimbursement plus a supplemental payment reimbursement, it's still pretty well short of the cost of caring for those patients. So, and that's the context that we would provide on that.
Operator
Jason Cassorla, Citigroup.
Jason Cassorla
Great, thanks. Good morning. I just wanted to ask on CapEx, sounds like you're maintaining your outlook there. But just in context of the higher 2024 revenue and EBITDA outlook, I guess curious if there's anything to call out on the CapEx side.
Apologies if I missed this, but it sounds like maybe perhaps you're expecting to use the excess free cash flow and the guide raised just for share repurchase? Or how should we think about that? Thanks.
Michael Marks
We are not really revising our CapEx, as we started this year, we talked about $5.1 billion to $5.2 billion, we think [Silgan] generally be in that same range. As noted in our in our comments, we do expect based on the improved outlook in the updated guidance that we're going to spend about $6 billion in 2024 on share repurchase. So being the bulk of the increase from the improved results would be going towards share repurchase.
Samuel Hazen
And let me add, Mike, if I may too be same to the capital. I think it's important to understand that we operate on an inpatient occupancy level in the mid low to mid 70s even in the second quarter, which is in addition to the fact we added 2% inpatient beds as I mentioned. So, our inpatient occupancy continues to grow reflecting the acuity of our patients, reflecting the overall demand, then reflecting the market share gains that we believe we're experiencing.
The second piece is our ambulatory network development. Again, we have about 2600 outpatient facilities and clinics across the company up 5% from where it was last year. Those are a component of our capital spending as well. And we will continue to look for opportunities from one market to the other to build out a network that serves our patients as we need to serve them.
And the third piece is infrastructure. I mean we are in the infrastructure business; it requires us to have facilities that have the appropriate environment for our patients. We have to upgrade a basic element of those facilities and so forth and so a lot of that is maintenance. So half of our capital goes towards maintenance to keep our facilities where they need to be.
And then the last thing for us is technology, we are investing more in our technology agenda because we see opportunities for it to support the companies next generation growth and allow us to serve our patients even better. So, our technology component of our CapEx as it continues to grow.
All of this is in the backdrop of our long-term view on demand as we indicated in November at our Investor Day, we expect long-term demand to be in that 2% to 3% zone as well. And so, we have to build the necessary capabilities in our networks, in our facilities to be able to serve that demand and that's where our capital expenditure plan is intended to accomplish.
Michael Marks
And let me clarify really quick. I said $5.1 billion to $5.2 billion is actually $5.1 billion to $5.3 billion in capital spending for 2024.
Jason Cassorla
Thank you.
Operator
Kevin Fischbeck, Bank of America.
Kevin Fischbeck
Great, thanks. It sounds like you believe that the volume and the demand support this volume as a kind of a base for the future. Wanted to see if you could give a little color on the margin side of things.
Is this the right way to be thinking about the base and we think about next year, is there anything puts or takes that you would point to I know sometimes when volume comes in stronger than you plan for maybe a little bit more margin leverage than you would expect and maybe that might moderate or whether you mentioned the timing in the past about some you have a lot of payments.
Is there any obvious headwind from timing from this year into next year we should be thinking about as we think about margins and EBITDA sustainability. Is this a good base for thinking about next year's growth?
Samuel Hazen
Kevin this is Sam, speak to 2025. I will tell you that we do not have any unusual events thus far through first six months of this year. This is core operations on enhanced, as Mike said, slightly by the the Medicaid supplemental programs. So as a sort of a core operational level of performance.
It's really quite clean by comparison to some of the choppiness that naturally occurs with COVID with them with the supplemental payment timings and so forth. With some of the challenges we experienced last year with just the inheritance of Valesco and so forth.
But when we look at the first six months and we think about the balance of the year. This is really a solid operational performance, supported by strong volume and not really unusual items benefiting or dragging the business in any material way. That's how I'd answer that question.
Kevin Fischbeck
Thanks.
Operator
Ryan Langston, TD Cowen.
Ryan Langston
Hi, good morning. I just want to go back to labor for a second, obviously, impressive results. Is there anything particular in recent achievements driving these results maybe past throughput and length of stay reduction and maybe how to think about that carrying forward over the next few quarters?
And then just there is some potential M&A, larger deals in the market, both on the hospital and the ambulatory side understand in markets tends to be where you focus, but can you maybe just remind us of the parameters that you would need to entertain maybe a more larger market or national expansion? Thanks.
Michael Marks
Yes, labor as we've already said, the biggest driver, if you think about our performance in the first half of the year compared to prior year, was this reduction in contract labor and that kind of comes through all the work we've been doing over the last several years, improving our recruitment activities and really working on retention.
On the recruitment side, you've heard us talk about our academic affiliation work, our work around the game and School of Nursing. And all of that is kind of producing crude supply of nursing into our markets, which has been super beneficial. I do think from a contract labor perspective, as I noted in my comments, we're down to 4.8% contract labor as a percentage of salary wages and benefits?
Yeah, I do think that the go forward improvement, we'll still have some we've got it, as you've noted from our comment on guidance that we think will run probably in the mid four range in the back half of the year. So, there's some improvement in the future.
But I think the big move on contract labor from the height of COVID really have been reflected now and what's to come is more incremental improvement as we continue to work on recruitment and retention. So that would be my, I don't see anything other than, that's material related to driving labor trends, productivity remains good, wage inflation has been stable, especially kind of coming off COVID and into 2024. So those are the major things that we think about when we think about from now to the back half of the year.
Samuel Hazen
Mike, let me just put a wraparound that I mean, our focus now is finding ways to help our employees succeed even more what they do. So, we are investing in education of our existing workforce just as much as we're investing in education and new nurses and so forth. We are improving our processes around supporting our caregivers so they can deliver better care.
We have a number of initiatives that are connected to our nursing operations and so forth that really make sure that we have resources and support for our caregivers on a day in and day out basis. And we're investing heavily in our leadership because good leaders produce good outcome for our patients and good outcome for the organization, so those things are wrapped around to what Mike just alluded to.
With respect to M&A, we have added to our platform this year with some tuck-in acquisitions from one market to the other in Texas, as Mike alluded to we added a number of hospitals to our North Texas market, small, but very complementary and we're starting to see good results out of them. In Houston as an example, we added an outpatient business to our network there that has produced a very good outcome.
We are built to be bigger; we know that, and we have the balance sheet to support that. But we're very selective and around making sure that an acquisition fits the model and can produce the returns that we expect from acquisitions. Will we enter new markets? Hopefully, yes, but those opportunities haven't necessarily presented themselves.
I don't know that we'll deviate from our model, our model is more centered on making our system, our local system work better, work better for the community, work better for our patients and work better for other stakeholders that are connected to it. We obviously could do that, but we don't think that's the best answer for the company and that's been part of what we define as the durability of HCA Healthcare.
It's staying true to the model in ways that produce a really good outcomes for our stakeholders. It's possible that something will cause us to deviate from that, but we haven't really seen it up to this point. So, our focus is on investing back in our business, doing selective strategic acquisitions that complement our networks where we can and really advancing our position in these great markets that we serve.
Michael Marks
And one more [covenant-light]. The other thing that was very helpful for us in not only in the quarter and year to date, is this 2% reduction in length of stay. So if you think about kind of how did we service is almost 6% growth in inpatient volume on the admission side, 2% reduction only to say, Sam mentioned this when we had a 2% increase in our bed count from our capital investment program.
And then our occupancy levels were up 2%, but that that 2% drop in length of stay and the ER efficiency that Sam mentioned earlier also supports our labor cost and efficiency in the way we're managing our labor. So, I wanted to add that as well.
Ryan Langston
Thank you.
Operator
John Ransom, Raymond James
John Ransom
Hey, good morning. Great job. Just curious, a question we're getting is if you look at the back half. Do you happen to have the DPP compare of '23 versus '24? And you're back half.
Michael Marks
Here's what I would say about the guidance on the back half of the year we talked about when we came into this year that we thought we would have a headwind of $100 million to $200 million from Medicaid supplemental payment programs. As we've gotten deeper into this year, we're now kind of changing that or updating that to a $100 million to $200 million tailwind.
So if you think about that slip of $200 million to $400 million, I would tell you that much of that already occurred in the first half of '24. So, if you think about the back half of '24. What we're expecting for supplemental payment programs will look pretty similar to what we had in the back half of 2023.
John Ransom
Okay. And if I could just take one more M&A. What is the year over year M&A contribution to EBITDA? Because it looks like in your cash flows, M&A has been quite modest, but it looks a little bigger in your tables. So, can we kind of was that fully in your guide the M&A effect when you guided for '24? Thanks.
Michael Marks
It is, I mean, I said earlier, if I think about M&A or another way to think that it's kind of new stores, it was through the second quarter is about a 1% dilution to EBITDA for the quarter in terms of the impact from M&A activity, that includes, by the way, Velasco.
I would note that the Velasco moves into same-store in 2025. And so you'll see us kind of stopped talking about Velasco next year, but that M&A was not a material impact related to our earnings for the quarter.
Samuel Hazen
And Mike, as it moves through the last half of the year, it gets slightly better and we're hopeful that by the end of the fourth quarter, it's not dilutive.
John Ransom
Great. Thank you.
Operator
Joshua Raskin, Nephron Research.
Joshua Raskin
Hi, thanks. Good morning. Just getting back to the exchanges. I heard 7% of admissions now are coming from patients with ACA exchange coverage. What does that translate into revenues? And should we assume that those patients carry margins that are typical of the broader commercial population.
Michael Marks
What we typically say about our healthcare exchange, there's a payer category is our second-best player. It's below from reimbursement level is below commercial, it's above Medicare. So, it's in between those. So, it would have margins less than your typical commercial margins that better than Medicare would be roughly what we're talking about. So, on the 7% of admissions, if you look at revenue or something like 8% to 9% of revenues.
Joshua Raskin
Perfect. Thank you.
Operator
Sarah James, Cantor Fitzgerald.
Sarah James
Yes, thank you. Sorry about that. Can you give us some clarity if the commercial outpatient surgeries that were delayed related to holidays in 1Q were rebooked. And then and just taking a step back, if I look at outpatient surgical trends in the first half last year was kind of mid-single digit redeterminations started and it dropped down to low single digits now to negative two for first half of this year.
So is that like full change from the mid-single digits first half last year to now the negative two all related to Medicaid. And should we start to see that fall off in the back half of this year then. And as we start to anniversary some of the impact?
Samuel Hazen
Again, the volume declines on outpatient surgeries are associated with Medicaid declines in that category as well as the uninsured self-pay category. So, both of those categories explain here today, pretty much, 100% of volume declines. I mean there's the thesis inside of our company it's not proven yet that the patients who migrated from Medicaid into the exchanges through the redetermination process may be in a different seasonality category with respect to when they access services.
So that's a theory we have we'll have to see how that plays out as we move through the balance of the year. But I think it's important to understand that the revenue growth, the service level growth that we've seen in our outpatient surgery business has been solid and produced a pretty good financial outcome for the company.
And if in fact, our thesis is accurate, it should be up better in the second half of the year in the first half of the year. But again, we don't know that for sure, we need to experience this change in our business with this movement from one payer class to the other before we can land on that being the situation.
Michael Marks
Here, I would just add on Medicaid redeterminations. You know, we're about one year into the redetermination process in most of our states. But you remember from last year you really started to gain speed towards the end of last year. So, I don't think you'll sunset our anniversary year into the full Medicaid year over year comparison period until you get closer to the end of the year.
Operator
This now concludes our question-and-answer session. And I'd now like to hand back over to Mr. Frank Morgan for final remarks. Thank you.
Frank Morgan
Elle, thank you so much for your help today, and thanks for everyone joining our call. We hope you have a great week and a successful earning season. I'm around this afternoon, if I can answer any additional questions you might have. Thank you.
Operator
Thank you, everyone, for attending today's conference call. You may now disconnect. Have a wonderful day.