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HCA Healthcare (NYSE:HCA)
Q4 2020 Earnings Call
Feb 02, 2021, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Welcome to the HCA Healthcare fourth-quarter 2020 earnings conference call. Today's call is being recorded. At this time, for opening remarks and introductions, I'd like to turn the call over to vice president of investor relations, Mr. Mark Kimbrough.

Please go ahead, sir.

Mark Kimbrough -- Vice President of Investor Relations

All right. Good morning, and thank you, Nora. Welcome to everyone on today's call. With me this morning is our CEO, Sam Hazen; and CFO, Bill Rutherford.

Sam and Bill will provide some prepared remarks, and then we will take questions. Before I turn the call over to Bill and Sam, let me remind everyone that should today's call contain any forward-looking statements are based upon management's current expectations. Numerous risks, uncertainties and other factors may cause actual results to differ materially from those that might be expressed today. More information on forward-looking statements and these factors are listed in today's press release and in our various SEC filings.

On this morning's call, we may reference measures such as adjusted EBITDA, which is a non-GAAP financial measure. A table providing supplemental information on adjusted EBITDA and reconciling to net income attributable to HCA Healthcare, Inc. is included in today's release. This morning's call is being recorded, and a replay of the call will be available later today.

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

Sam Hazen -- Chief Executive Officer

Good morning. In the face of the highest surge yet of the COVID-19 pandemic, we finished the year with strong financial results in the fourth quarter. These results were driven once again by highly acute inpatient volumes, coupled with solid cost management. In the quarter, our hospitals provided care to 56,000 COVID-19 inpatients, a 40% increase over the third quarter.

Since March, we have delivered care to 122,000 inpatients with the virus, representing 8% of total admissions. Currently, our hospitals continue to treat many patients with COVID-19. Census levels fortunately have begun to decline over the past few weeks. Revenues in the fourth quarter grew by $770 million or 5.7% over the prior year.

This increase was driven by growth in inpatient revenues, which were up 12%. Revenue per admission grew 16%, while admits were down 3.4%. As mentioned, the acuity within our inpatient business was higher as reflected in both case mix index, which increased almost 7%, and length of stay, which grew by 6%. Outpatient revenue continued to lag as volume declined across most categories.

We attribute many of these declines to the swell in COVID activity across the communities we serve, causing many patients to defer care. Outpatient revenues were down 4%. On the cost side, our teams continue to perform well. Adjusted EBITDA margin for the company grew on a year-over-year basis.

In the quarter, we experienced some upward pressure on labor costs due to challenges related to nurse staffing, which were caused mostly by demands related to the COVID-19 surge that occurred across most hospitals in the country. With respect to supply costs, we incurred increased drug costs related to the growing utilization of remdesivir and personal protective equipment costs. Diluted earnings per share increased 33.7% in the quarter to $4.13. For the year, diluted earnings per share, excluding losses and gains on sales as well as losses on debt retirement, grew 10.6% over 2019 to $11.61.

Before I provide our outlook on 2021, I want to reflect on 2020. Just like many others, this past year was clearly a remarkable year for HCA Healthcare on multiple fronts. For us, however, I believe it will be seen also as a pivotal year. Across many dimensions, we improved our enterprise capabilities, which should allow us to support our local health systems better and enhance their abilities to provide higher quality care with greater efficiency.

More importantly, we demonstrated an organizational ability to respond quickly and effectively to possibly the greatest challenge the company has ever experienced. And now I believe we are emerging on the backside of this event stronger and better positioned to grow and drive value for our stakeholders. We did this while staying true to our mission throughout the process, and we could not have made these improvements without the unwavering commitment and excellent execution shown by the 285,000 colleagues and 50,000 physicians who make up HCA Healthcare. I want to thank them for their tremendous work, compassion and service to our patients and others in their communities.

Currently, our teams are working diligently to vaccinate as many people connected to our health system as possible. To date, we have vaccinated approximately 200,000 colleagues, physicians, first responders and other individuals critical to the delivery of healthcare services. As we push forward into 2021, our overall outlook for the year remains generally consistent with the early perspectives we provided last quarter. While many aspects of our business, including the impact of the pandemic, remain difficult to predict, we believe the guidance that we are providing today is reasonable.

We also believe that, together, our growth plan and capital deployment plan, which was announced in today's earnings release, should enhance long-term shareholder value. Because of the decisive actions we took at the onset of the pandemic and the solid results we produced in 2020, our company is now in a stronger financial position. This strength allows us to deploy sufficient capital resources to both plans while still maintaining ample balance sheet capacity to use for other strategic opportunities that may develop, including acquisitions. As part of our growth plan, we continue to find ways to strengthen our position locally and nationally.

Some highlights are as follows. This past year, we acquired a 40% interest in a telemedicine company, which we believe has capabilities that can accelerate our program. We have committed significant capital to develop new and expanded inpatient rehab bed capacity in Florida, which recently eliminated certificate of need requirements in this service. And finally, we have partnered, in many instances, with marquee physicians across the company to grow programs horizontally and vertically in key services.

Our objective is still to be the provider system of choice in the communities we serve. Our strategic approach to accomplishing this goal has two overarching components: first, develop comprehensive health systems locally that deliver high quality, convenient care to our patients; and second, support these networks with our unique enterprise capabilities and economies of scale. This blended model, supported with strong execution, has served us well over the past few years as market share has reached an all-time high using the most recently available data. But we are pushing for more.

We have constructed a set of strategic initiatives that are under way and designed to deliver a better experience for our patients and improve the company's future performance. These efforts include seeking ways to utilize our network and expand into upstream or downstream business opportunities, including identifying different approaches to optimizing our portfolio of assets. We are investing more in technology to enhance quality outcomes for our patients, advance our operational effectiveness and drive efficiencies. And finally, we are finding ways to capitalize on the diverse footprint that we have by partnering with other companies to accelerate these initiatives.

One example of our efforts to partner is the recent announcement we made to invest in a domestic PPE production company, which will be based in Asheville, North Carolina. This entity will supplement other supply chain sources we have for procuring sufficient PPE for our colleagues. In 2021, we plan to increase our capital spending by approximately $850 million. This step-up is expected to mostly support our growth plans.

Additionally, we have approximately $3.3 billion of other growth projects under construction that we expect to be operational this year or next. This pipeline includes capacity expansion projects at various hospitals, two new hospitals and additional outpatient facilities, mainly ambulatory surgery centers, freestanding emergency rooms and physician clinics. To round out our capital plans, our board of directors approved reinstating the quarterly dividend at $0.48 per share, while also increasing the authorization for our share buyback program. Bill will provide more details on these items and others in his comments.

We are incredibly proud of our colleagues and the company's accomplishments in 2020, which included returning or repaying early over $6 billion of CARES Act funds to the federal government. Our performance this past year gives us greater confidence to believe that we will be able to navigate successfully through future challenges as well. As we continue to honor our mission, we will remain focused on delivering high-quality care to our patients, supporting our colleagues and physicians, responding to the vital role we play in the communities we serve and creating value for our shareholders. And now, I will turn the call over to Bill.

Bill Rutherford -- Chief Financial Officer

Great. Thank you, Sam, and good morning, everyone. I'm going to walk through our 2021 guidance and then touch on our capital allocation plan, including our announcement this morning to reinstate our dividend and share repurchase program. The 2021 guidance outlined in our release this morning is consistent with our broader commentary we provided on our third-quarter call.

We anticipate our inpatient admissions to grow approximately 2% to 4% over 2020 as reported results, and this would equate to about 1% to 3% below 2019 levels. We expect our outpatient volumes to grow from 2020 levels but to track below 2019 as well. We expect our revenue per equivalent admission to be flat to down slightly with our 2020 level. This is mainly driven by expected declines in COVID activity throughout the year and loss of supplemental COVID funding.

We expect adjusted EBITDA margin to be consistent with our as-reported 2020 full-year level and range between 19% and 20%. Our adjusted EBITDA guidance is between $10.3 billion and $10.9 billion for 2021. Earnings per share is expected to range between $12.10 and $13.10 for 2021. Also, we expect interest expense of approximately $1.6 billion and an effective tax rate of approximately 23%.

I would like to share a couple of other thoughts regarding our 2021 guidance as we think about our 2020 performance and results. The COVID pandemic and the various surges we have seen had a significant effect on our operating results throughout the year. As we have mentioned previously, we expect to continue to serve COVID patients throughout 2021. And while it is difficult to predict how the future cycles of this pandemic will occur, at this point, we anticipate our COVID volume to be heavier in the first half of the year and then hopefully will decline in the second half of the year as broader segments of the population receive a vaccination.

We do expect some recovery of demand and deferred volume as the COVID activity lessens. It is difficult to predict the progression of the pandemic during 2021, but we believe our baseline assumptions are reasonable at this point. Let me speak briefly to some cash flow and balance sheet metrics, along with our capital allocation decisions. First, as a result of numerous measures we took in 2020, the cash flow, liquidity and balance sheet position of the company are in a very strong position.

We finished 2020 with cash flow from operations of $9.2 billion. After our capital spend of $2.8 billion, the first-quarter dividend of $150 million and noncontrolling interest distributions of $625 million, our free cash flow was $5.6 billion for the year. Our debt balance declined $2.7 billion from our year-end 2019 levels, and we have approximately $1.8 billion of cash on the balance sheet. Our debt to adjusted EBITDA ratio was 3.0 times at the end of the year after netting out available cash.

All of this is after returning or repaying early over $6 billion of provider relief funds and accelerated Medicare payments that we discussed on our third-quarter call. Our 2020 cash flow metrics were benefited by deferred payroll taxes of approximately $700 million, which will begin to be repaid in later 2021, as well as great working capital management by our teams. The -- for 2021, we anticipate cash flow from operations to range between $7.5 billion and $8 billion. As we evaluated our 2021 finance plan and considered our capital allocation strategies, we recognized our current position and outlook for 2021 presents an opportunity to find the optimum balance of investing capital to drive growth, position the balance sheet to execute on strategic M&A opportunities as they may present and returning value to our shareholders through reinstated dividend and share repurchase programs.

We entered 2021 positioned to execute on all of these objectives. So as mentioned in our release this morning, our 2021 finance plan calls for the following. We anticipate capital spending to approximate $3.7 billion in 2021. This represents an approximately $850 million increase over 2020.

Our board of directors declared a $0.48 dividend to be paid in the first quarter. This represents over an 11% increase from the quarterly dividend level that we suspended in the second quarter of 2020 due to the COVID pandemic. Our board of directors also authorized a new $6 billion share repurchase program. We had approximately $2.8 billion remaining on our prior authorization.

As a result, the company currently has $8.8 billion in total authorization. Consistent with our past programs, we have no defined time period to execute on the share repurchase authorization, but we anticipate executing over the next 12 to 18 months, with the majority expected to be completed in 2021, subject to market conditions. In addition to these actions, we are making an adjustment to our historical leverage target. Since 2013, we've had a stated leverage target to operate at a leverage ratio between 3.5 times and 4.5 times.

Given our current leverage position is below that range and with our outlook going forward, we are lowering our expected leverage target to be between three times and four times, and we expect to run at the mid- to low end of this range in the foreseeable future. We believe all of these actions represent a balanced capital philosophy that allows the company to continue to invest in our existing facilities to drive growth, position us well to explore strategic acquisitions as they may become available and provides the opportunity to drive long-term value. So with that, I'll turn the call over to Mark and open it up for Q&A.

Mark Kimbrough -- Vice President of Investor Relations

OK. Thank you, Sam and Bill. Nora, would you give directions on getting into the Q&A, and remind everyone please to ask one question

Questions & Answers:


Operator

[Operator instructions] We have a question from the line of Kevin Fischbeck with Bank of America. Your line is open.

Kevin Fischbeck -- Bank of America Merrill Lynch -- Analyst

OK. Great. Thanks. I just wanted to get a little bit more color on how you were thinking about, as volumes normalize, how the margins look on that volume returning just because this year, you benefited -- last year, you benefited from higher acuity payer mix benefited as the volumes return? Is it going to be lower acuity, worse payer mix? How are you thinking about how that all comes together when you think about incremental margin, not volume?

Mark Kimbrough -- Vice President of Investor Relations

Yeah, Kevin. Thank you.

Bill Rutherford -- Chief Financial Officer

Yeah, Kevin, this is Bill. Let me take first stab at that. We recognize we've been running high margins in the last half of the year. And as you stated and as we've said previously, that's largely due to the acuity that we've seen, the higher COVID activity, and a favorable payer mix going forward.

We said in my commentary that we expect margins to range between 19% and 20%. The midpoint, obviously, will be 19 and a half, which is where we finished full-year 2020. And we do believe that as COVID declines throughout the year and we begin to see return of our historical volumes that, that will settle out. And we see that in our revenue per adjusted admission commentary that I gave as well.

So it really is a matter of timing of when that occurs. But as we look forward -- and this year, we've been benefited by the acuity and the payer mix in terms of our commercial volume declines lower than our Medicare volumes, I think that will eventually settle out and return to maybe what our historical norms have been.

Sam Hazen -- Chief Executive Officer

Let me add to that comment. This is Sam, Kevin. I think one thing, as I mentioned, we're pushing for more with respect to growth. We're also pushing ourselves with respect to resiliency and finding ways again to leverage economies of scale inside of HCA, giving us opportunities possibly to sustain this.

That's our management challenge. We're obviously not there yet, but we have opportunities, we believe, inside of our financial resiliency program to advance that initiative. The second thing I would tell you is our investments and our advancing of technology is another opportunity for us to find more profitability within our existing revenue base. We have a lot of variation.

We have a lot of opportunities to create more timely decisions and ultimately drive more efficiencies and better patient outcomes. And so technology and economies of scale continue to present opportunities for us to improve profitability across the organization. I don't know exactly where that lands, to Bill's point, but we do see certain initiatives yielding certain value for us over time.

Mark Kimbrough -- Vice President of Investor Relations

Kevin, thank you. Nora, we'll take next question.

Operator

Your next question comes from the line of Gary Taylor with J.P. Morgan. Your line is open.

Mark Kimbrough -- Vice President of Investor Relations

Hey, Gary. You're on mute?

Operator

Gary Taylor, your line is open.

Gary Taylor -- J.P. Morgan -- Analyst

I'm sorry. Can you hear me now?

Sam Hazen -- Chief Executive Officer

Yes.

Mark Kimbrough -- Vice President of Investor Relations

Yeah, you're good.

Gary Taylor -- J.P. Morgan -- Analyst

OK. I'm sorry. I'm going to ask two questions in case I strike out on the first one. The one I wanted to get after, if -- Bill, if you had any comments on just EBITDA progression for the year, whether that looks like sort of what we're used to normal kind of first quarter and fourth quarter being highest.

Obviously, I listened to your comments about margin and how COVID might normalize. If I don't get anything on that, I just wanted to ask about on the labor front, if you had any views on how the Biden administration plan to raise the minimum wage, how that might impact you and if any of that was incorporated in the guidance or could be accommodated in the guidance.

Sam Hazen -- Chief Executive Officer

OK. Let me -- Gary, this is Sam. We'll just swing and miss on your first one because like Bill said, we -- we're trying to judge the pandemic and the implications of the pandemic, and it's been variable as you have seen over 2020, and we expect more variability with it. Our belief is, generally speaking, the latter part of the year will hopefully be a situation where we have a rebound in normal care and that some of the deferral of care, which we know has taken place over the past year, will start to surface in a more noticeable way.

With respect to minimum wage, HCA has a living wage policy that it implemented approximately two years ago or actually advanced two years ago where we have different levels of minimum wage established based upon the cost of living. So for example, in San Jose, California, the cost of living is much greater. Our minimum wage threshold in that particular market would be well north of $15 per hour. But in El Paso, Texas, as an example, it's lower because the cost of living in El Paso, Texas, is much lower than San Jose.

And our floor on that program is $12.50 per hour, adjusted again to local market conditions. So we have a number of markets that are above $15 per hour already and others that are approaching it, but our floor for everybody is $12.50. In addition to that, we obviously have to be competitive with the marketplace as it relates to service workers or whatever the case may be. And our competitive wage program and our compensation programs are embedded in that.

And in many instances, they are above the floor also. As it relates to a global $15 per hour federal policy on the wages, it's a minimal impact on the company because of the program that we already have in place.

Gary Taylor -- J.P. Morgan -- Analyst

Thank you.

Mark Kimbrough -- Vice President of Investor Relations

All right, Gary. Thanks so much. Nora?

Operator

Next question is from Frank Morgan with RBC Capital Markets. Your line is open.

Frank Morgan -- RBC Capital Markets -- Analyst

Good morning. I'll move away from guidance. Maybe two more detailed questions. Where do you stand today on deferred procedures in light of the surge? And hopefully, that's rolled over now.

And are you starting to see any kind of change in the Medicare or any of the government mix now that the surge had rolled over -- is starting to roll over nationally? Or are you seeing this rollout in the vaccine increasing? Thanks.

Mark Kimbrough -- Vice President of Investor Relations

Thanks, Frank.

Sam Hazen -- Chief Executive Officer

Let me give you some general progression on COVID in the fourth quarter. Obviously, the first two months in the quarter, we were ramping up COVID activities. October was the low point. November was higher, and then December was almost 50% of our COVID activity in the quarter.

That continued into January, which is even higher census levels for COVID in December. We have proven that we can manage through COVID surges, and I'm immensely proud of our teams and how they've responded to the pressure points from one facility to the other, from one community to the other. And so we continue to manage through that. As part of our management process in responding to the communities in an appropriate way, we have to manage the intake process with respect to transfers into our facilities at times and elective care at times.

Those are dialed up, dialed down as needed. And we've told our teams that we expect you to manage that activity conservatively so that we can respond to people in need whenever they need our services. And that's been our approach. So during December and also January, we had to manage down the intake into our facility so that we could deal with the COVID surge that we were experiencing.

We have relaxed that over the course of the first part of this year as our census levels, as I mentioned in my comments, have declined over the past few weeks. And it's too early, Frank, to know exactly what the recovery is going to be within Medicare population or other services and so forth. And we will just have to wait and see exactly how that plays out. But to Bill's point, we expect the first part of the year to be still more COVID activity than the last half.

And the last part of the year to be, hopefully, a recovery in the certain levels of deferred care that, again, we know has taken place.

Frank Morgan -- RBC Capital Markets -- Analyst

Any way to measure that deferred volume?

Sam Hazen -- Chief Executive Officer

No. No.

Bill Rutherford -- Chief Financial Officer

Any way to measure? No.

Frank Morgan -- RBC Capital Markets -- Analyst

OK. Thanks.

Mark Kimbrough -- Vice President of Investor Relations

Thank you, Frank. Nora?

Operator

Next question is from AJ Rice with Credit Suisse. Your line is open.

AJ Rice -- Credit Suisse -- Analyst

Hi, everybody. Just -- I want to just piggyback off of some of the comments that Sam and Bill made during their prepared remarks. You expressed some interest, Sam, I think in looking at upstream and downstream opportunities. I know we mentioned the Florida rehab opportunity.

Just trying to understand exactly what you're talking about there. I know people are talking about things like behavioral on the downstream might be of interest on upstream. I don't know whether you're referring to maybe even start to think about taking some risk or what that involves. But -- and Bill mentioned strategic deals.

Usually, when you talk about strategic deals being a possibility, that's bigger than a one-off hospital. So I think when I think about capital deployment, I'm wondering what you guys are talking about, if you could flesh it out a little more when you're referencing those types of upstream, downstream and strategic deal opportunities.

Mark Kimbrough -- Vice President of Investor Relations

OK. Thank you, AJ.

Sam Hazen -- Chief Executive Officer

AJ, this is Sam. Let me give you some sense of how we're thinking about our provider system. It's not necessarily a new thought, but it's one that we have advanced over the course of this year. Our provider system model, which we like to term the HCA flywheel, it's been very consistent in how we think about it, how we plan, how we resource and how we hold ourselves accountable over the past decade, has served us incredibly well, as I mentioned in our comments.

And we have challenged ourselves to understand what else is available to us as a result of that flywheel in that system. And we believe that -- and we've proven it in certain categories. We have as a classic example in markets where we didn't have certificate of need that we have been able to integrate that service. When a patient needs rehab, we've been able to internalize that patient in our system and deliver value for the patient and value for our system as we build out that service line.

We see other opportunities in post acute in certain markets and maybe even beyond certain markets. We see opportunities again in behavioral health where we have delivered value in that category. It's not really post acute. But again, it's connected to our system.

A lot of our patients have behavioral health needs, many of which we can take care of, but there are opportunities for us to add programs and add capacity in some markets to deal with some of the mental health challenges that exist across the country. With respect to upstream, where we see opportunities is with telemedicine. We see a lot of opportunities upstream with telemedicine. Obviously, it's creating a new access point for patients as they interact with telemedicine and physician offices, but we also see inside of telemedicine other value chains that exist within that particular platform.

And again, we took an interest in what we believe to be an incredibly well-run organization that has already done some work with HCA, but we see opportunities to use our footprint, their capability to create a better solution for telemedicine. We think that can enhance delivery of in-hospital medicine with better physician coverage, more efficient physician coverage and ultimately, better outcomes for our patients. So we see a value there. And for many of our physicians, we see an opportunity to attach them to this telemedicine platform and create an opportunity for them to be a service to other non-HCA facilities.

So that's an example of telemedicine that we are approaching. With respect to strategic opportunities, I think people don't fully understand how many different components we have inside of HCA Healthcare. There are clearly a portfolio of services, of markets and facility types. And when we look inside of our portfolio of offerings, we see opportunities to create more strategic value with aspects of our portfolio that are outside of the normal hospital.

We see opportunities to create new strategic relationships with other entities that we believe can help us accelerate our initiatives, and we, at the same time, accelerate their position. So strategic partnerships are available to us. We learned a lot about that during COVID. And then finally, we have opportunities, we believe, to create financial value with certain transactions because these assets are potentially worth more outside of HCA than they are inside of HCA.

And if we can secure strategic value or a certain relationship that allow us to accelerate our initiatives, there may be opportunities for us to co-venture or something else even with those assets. So that's what we're referring to. We have a number of initiatives and analyses under way. I don't know exactly where all of those are going to land, but that's what we're talking about.

Mark Kimbrough -- Vice President of Investor Relations

All right, AJ. Thank you so much for your question. Nora?

Operator

Next question is -- comes from the line of Joshua Raskin of Nephron Research. Your line is open.

Joshua Raskin -- Nephron Research -- Analyst

Hi, thanks. Good morning. Thanks for taking the uestion. Hey.

Mark Kimbrough -- Vice President of Investor Relations

Hey, Joshua.

Joshua Raskin -- Nephron Research -- Analyst

So maybe playing a little bit on that last question around risk, but are you starting to see any impact of physician alignment with payers and sort of other large MSOs? I'm thinking about markets like South Florida, maybe Texas for you. Is this just more of a Medicare Advantage phenomenon? Are you seeing some impact in the commercial segment? Are you being presented with opportunities to take risk?

Mark Kimbrough -- Vice President of Investor Relations

All right, Josh. Thank you.

Sam Hazen -- Chief Executive Officer

Well, let me speak to physician alignment in general. I think that is our wheelhouse. We are a very physician-friendly, customer-oriented organization with respect to physicians. We have almost 50,000 physicians who are affiliated with HCA in some form or fashion.

Some of those relationships are through MSO relationships. Some of those relationships are -- as it relates to institutional providers when the physicians are taking risk. Our fundamental approach to physicians are to give them voice inside of HCA, to make sure we have the clinical capabilities, nursing, technology, subspecialty support that they need, number two; number three, to be efficient in taking care of their patients; and then number four is to prove to them that we can help them grow their practice. That's been our model.

That will continue to be our model in the future. And we believe that's a winning formula when executed at a detailed level. As it relates to certain opportunities with risk, we do have some of our physicians taking risk in certain specialties or certain categories. That's not large scale across our organization, but it does happen.

As we think about the future in managed care relationships, I will tell you, we have advanced our payer relationships. We're roughly 90% contracted for 2021, over 50% contracted for 2022, again, continuing at similar trends to the past few years. We have structurally advanced our relationships with HICS payers this past year. We're in a much better position with HICS access.

And as the Biden administration continues to push on the Affordable Care Act as the solution for uninsured, which we believe is the right solution, we should be in a strong position as a result of the improvements in contracting. So managed care is not a one-size-fits-all for 43 different markets. Health care is still local at some level. We think we're advantaged because of national capabilities within our local systems, and we will adjust to each market condition appropriately to deal with risk relationships, other type of relationships needed in order to drive value for our organization.

Most of the risk, to your question, is in Medicare Advantage. It hasn't spilled over in any significant way to commercial. Thank you.

Mark Kimbrough -- Vice President of Investor Relations

All right, Josh. Thank you so much. Nora?

Operator

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

Pito Chickering -- Deutsche Bank -- Analyst

Good morning, guys. Thanks for taking my question. On capital deployment, I understand the 3% to 4% range that you're guiding for and that you're running at the midpoint to low end of that range. So a multipart question.

Is it safe to assume that all free cash flows will be going to share repos? And if EBITDA grows, that you'll lever up to maintain those ratios? Will you get investment-grade credit if you're running at the low 3s on leverage? And how much share repo is assumed in the 2021 guidance?

Mark Kimbrough -- Vice President of Investor Relations

All right, Pito. Thank you.

Bill Rutherford -- Chief Financial Officer

Pito, this is Bill. Thank you. Yes. At a current level, you could probably assume most, if not all, of our free cash flow will be dedicated to share repurchase.

But as we've said, we have ample capital capacity ending the year, both in terms of cash on the balance sheet as well as access to our short-term revolvers and bank commitments on there. So we've got capacity to execute, as I said, on the majority of the share repurchase, and then we'll evaluate the market conditions as they present to fine-tune the cadence of that. As we said, we believe lowering the leverage ratio is the right thing to do given where we are today and what our outlook is. And we do anticipate running at the mid- to low end of that as we execute on all of our capital philosophies.

And I think that leaves us in a very strong position to pursue any acquisitions that may present themselves, as Sam talked about. So I think all of those are part of our comprehensive plan.

Pito Chickering -- Deutsche Bank -- Analyst

So just a sort of follow-up, how much share repo do you assume in your 2021 EPS guidance? And do you think you guys can get to investment-grade credit at these current leverage ratios?

Bill Rutherford -- Chief Financial Officer

Yes. So our range in our EPS guidance provides accommodation that we can accomplish, and we'll accomplish the majority of our share repurchase program. In terms of investment-grade rating, we're just going to have to continue our positive discussions with the rating agencies. As you know, our secured credit facilities are already at the investment grade.

In terms of getting the whole company upgrade, we'll just have to wait to see. I think the agencies are expecting us to state a range and commit to that area, and we'll have to see how they evaluate it relative to investment grade going forward. I can tell you is we have ample access to the market, and we believe at reasonable rates. And so we're generally comfortable with our position today.

Mark Kimbrough -- Vice President of Investor Relations

Pito, in the earnings release this morning, there is a supplemental non-GAAP disclosure on the guidance piece, which gives you the weighted average shares for the year. So you can kind of use that as your starting point, understanding that share repo will take place throughout the year, obviously, and that's a weighted number.

Pito Chickering -- Deutsche Bank -- Analyst

Great. Thank you so much guys.

Sam Hazen -- Chief Executive Officer

Thanks, Pito.

Mark Kimbrough -- Vice President of Investor Relations

All right. Nora?

Operator

Next question is from Scott Fidel of Stephens. Your line is open.

Scott Fidel -- Stephens Inc. -- Analyst

Hi. Thanks. Good morning.

Mark Kimbrough -- Vice President of Investor Relations

Hey, Scott.

Scott Fidel -- Stephens Inc. -- Analyst

Interested if within the 2021 guidance, obviously, there's a lot of impact from mix around the revenues per adjusted admission. So just would be interested if you could walk us through maybe the average underlying rate update assumptions that you're thinking about for commercial, Medicare and Medicaid. Thanks.

Mark Kimbrough -- Vice President of Investor Relations

Good. All right, Scott. Thank you.

Bill Rutherford -- Chief Financial Officer

Yes. Scott, there's always a lot of variables in that. As Sam mentioned, we've got good visibility into our commercial contracting and at comparable rates within our historical trend have been. Our Medicare rates probably is in that 1% to 2% level as we've seen going forward, maybe a little north of that, depending on how some of the specifics fall out.

The rest of our acuity is going to be impacted just by the decline in COVID, as we've talked about, that's brought a higher acuity. And then we do receive some supplemental funding for COVID, the DRG add-ons and some of the HRSA and some of the other things that may have delayed some sequestration cuts that we don't anticipate continuing throughout the entire year. So all of those are our factors when we talk about our revenue per equivalent admission discussion. I'll also say that if we hold where we are in '20, it still represents about a 10% growth where we finished '19.

So we think our estimates are reasonable at this point.

Mark Kimbrough -- Vice President of Investor Relations

Thank you, Scott. Nora?

Operator

Your next question is from Ralph Giacobbe of Citibank. Your line is open.

Ralph Giacobbe -- Citigroup -- Analyst

Thanks. Good morning. Hey, I just want to go back to the labor side of things. I thought you managed it pretty well, but your commentary suggests greater pressure.

So just hoping you can give us a little more detail on sort of wage growth, turnover competition and maybe what you've embedded into guidance for 2021 and maybe just how the acquisition or investment in Galen perhaps is helping that line item.

Mark Kimbrough -- Vice President of Investor Relations

All right, Ralph. Thank you.

Sam Hazen -- Chief Executive Officer

This is Sam. Yes. In my comments, I was referring to the fourth quarter, vis-à-vis, the third quarter as it related to the marketplace and some of the dynamics of the marketplace with -- specifically for nursing, but secondarily, even for respiratory therapists. Obviously, when the whole country is in a respiratory distressed mode because of the COVID surge that was occurring on a broad-based level, it put pressure on nursing.

There were opportunities for nurses to go from one community to the other as it related to travelers and special pay programs and all that kind of stuff. So we were seeing a bit of velocity inside of our flexible staffing categories that we hadn't seen before and that required us to respond. And so we did experience some cost per FTE pressure in the fourth quarter that we didn't have in the third quarter and the surges that occurred more recently then. As we think about 2021, we have advanced our cost per FTE assumptions somewhat, and we expect the marketplace to be a little bit more advanced than it has been historically.

We think that will moderate as COVID moderates because of the fact that there will be less sort of national demand for nurses across the country as COVID moderates over the course of the year. We do believe we have a robust agenda. We have to execute on that agenda. That includes better retention.

That includes better recruitment and sourcing. And it also includes advancing our Galen strategy. We acquired Galen at the beginning of 2020. We have been limited in our ability to expand it because of the Department of Labor requirements where it imposed upon us a one year moratorium on expansion.

We have an expansion strategy that we will execute over the next two to three years, and we think that will create the continuum of nursing education that we want that will solidify our sourcing and training of nurses on the front end and then coupled with the clinical education programs that we've advanced over the past few years. Once a nurse is in our system, we can continue to develop their skill sets, their competency, their confidence and hopefully create an environment where nurses feel that they can be even more successful inside of an HCA facility.

Ralph Giacobbe -- Citigroup -- Analyst

Thank you.

Mark Kimbrough -- Vice President of Investor Relations

All right, Ralph. Thank you so much. Nora?

Operator

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

Justin Lake -- Wolfe Research -- Analyst

Thanks. Good morning. Got a couple of numbers questions here. First, you guided to about 5% revenue and EBITDA growth at the midpoint year over year, but you mentioned 2% to 4% volume and flat pricing and margins.

So I'm wondering if I'm missing something here in the components to get to 5% versus that, call it, 3%. And then you did a great job of managing costs in a tough 2020 environment. I'm just curious how much flexibility do you think you still have here into 2021 given the uncertainty you talked about around volume and acuity and payer mix. Thanks.

Mark Kimbrough -- Vice President of Investor Relations

OK. Thank you, Justin.

Bill Rutherford -- Chief Financial Officer

Yeah. Justin, that volume was on the inpatient admissions, and we do anticipate recovery of the outpatient volume and revenue. So I would tell you that our revenue expectation is more in that 4% to 6%. And that, I think, lines up more with the midpoint of where our expectations are in terms of the EBITDA range.

So I think it lines up pretty well, and we can talk further about that. In terms of room and the management costs, we've talked about before of our resiliency plans. And as Sam mentioned in his commentary, we continue to search for every way we can to improve efficiencies out there. We are well into kind of our stage 2 of our resiliency plans that are looking at longer-term impacts, whether it be how do we use technology, automation is an example of some initiatives that we have going on that front.

We have initiatives around support structures that we have throughout the organization. We have some call center discussions and optimization efforts. And we have a whole host of what I would call stage 2 resiliency that we are going to continue to focus on and execute throughout 2021. And I think that can provide upside and protect a little bit buffers if we continue to see some upward pressure on the labor cost.

So we do see continued opportunity for efficiency gains within HCA in a lot of our areas. Our supply chain teams continue to find opportunities to improve supply chain and utilization, our revenue cycle teams as well as a host of other efforts going around the support structure of the enterprise.

Justin Lake -- Wolfe Research -- Analyst

Thanks, Bill. Can I just follow up with the...

Bill Rutherford -- Chief Financial Officer

Sure.

Justin Lake -- Wolfe Research -- Analyst

Can you give us a view on adjusted admissions then for 2021 that you kind of built in the guidance that would include the outpatient?

Bill Rutherford -- Chief Financial Officer

Yeah. So that would be more in that 4% -- 3% to 5% level.

Justin Lake -- Wolfe Research -- Analyst

OK. Perfect. Thanks for the help.

Mark Kimbrough -- Vice President of Investor Relations

All right, Justin. Thank you so much. Nora?

Operator

Your next question comes from the line from Whit Mayo with UBS. Your line is open.

Whit Mayo -- UBS -- Analyst

Hey, thanks. I was just looking at the ER numbers, and I don't think the trends are terribly surprising to many of us, but I'm just curious how you're thinking about the ED, maybe not this year, but next year, and maybe more specifically how you're reorienting how you manage the ED for the lower volumes. I just have to imagine there's some fundamental changes you guys are thinking about in terms of how you approach the ER moving forward.

Mark Kimbrough -- Vice President of Investor Relations

All right. Thank you, Whit.

Sam Hazen -- Chief Executive Officer

Whit, let me speak to that. I think just as our inpatient population of patients this year is more acute, our emergency room population of patients is more acute. We have seen less declines in our upper level acuity categories for emergency room patients than we've seen in previous years. We have lost some lower acuity business.

Of the total business that we lost, almost 70% of our declines have been in uninsured patients or Medicaid patients. So it's been interesting to me that the payer mix on a relative basis is actually slightly better, even though all categories are down. And then within the categories, it's more acute. As a company, I will tell you, we have sufficient ER supply beds at this particular juncture.

We do have some pocketed opportunities, as I mentioned in my call -- my comments rather, around certain freestanding emergency rooms in certain markets where we see opportunities to serve the community better. And we will push on those. I think, today, we have roughly 125 or 130 freestanding ERs. We'll add another 12 to 15 over the next year or so.

And those are very strategic with respect to certain markets. The emergency room is a very important component of our system, and it will remain that for really high-end care, trauma, burn, stroke, cardiac and so forth. Our patient satisfaction, it has been stable this year. It's been a difficult year in the emergency room.

Our throughput continues to be reasonable given some of the pressures we've seen with the acuity of patients. So we continue to be optimistic about the purpose and the role that our emergency rooms play to our system, but we have seen some change in overall mix, and that will put downward pressure on capital needs that we had historically, and we'll be able to utilize those capital capacity for other strategic opportunities or other components of our programs as we move through the next few years.

Mark Kimbrough -- Vice President of Investor Relations

All right. Thank you, Whit.

Bill Rutherford -- Chief Financial Officer

Hey, Mark, let me correct something I said with Justin's question. Our AA guidance would be more 4% to 6%. I misspoke saying 3% to 5%. So I wanted to correct that.

Mark Kimbrough -- Vice President of Investor Relations

OK. Thank you, Bill. Nora?

Operator

Your next question comes from the line of Lance Wilkes with Bernstein. Your line is open.

Lance Wilkes -- Sanford C. Bernstein -- Analyst

A little bit about how you're looking at drug costs and revenues going forward, and I'm particularly thinking of three points. One would be policy and transparency sort of risks or headwinds those might present. Second would be sourcing initiatives you may have under way. And the third might be opportunities you see, whether it's adding capabilities, etc.

Mark Kimbrough -- Vice President of Investor Relations

All right, Lance. Thank you so much. Bill?

Bill Rutherford -- Chief Financial Officer

Yeah. I missed the first part of that question, but it was regarding -- around drug costs and revenue and opportunities that we have. So our HPG teams do a great job in the sourcing of our pharmaceuticals, and I think that was clearly evident as we navigated the challenges of 2020. We actually have several initiatives going on around pharmacy procurement and sourcing of that.

And so that's ongoing. We continue to work with our clinical teams as we have pharmacy optimization through our efforts as we've, over the years, consolidated a lot of our pharmacy supply chain. So we continue to see opportunity to advance in the supply chain of that. I don't really see material changes on the revenue side relative to pharmaceutical cost given what our Medicare reimbursement structures are as well as some of our commercial side.

We are optimistic that there's going to be some revenue support of some of these COVID drugs that we've seen increased utilization, as Sam mentioned, the use of remdesivir in his comments. And so I think it's pretty much fairly stable in that environment for us. Relative to transparency question on the pharmaceutical costs, we'll have to see. We have other price transparency.

I'm not just sure if your question went in there that we continue to work on complying with the federal price transparency regulations and posting through those. But in terms of drug cost transparency, I don't see that having much of an impact on us going forward.

Mark Kimbrough -- Vice President of Investor Relations

Does that answer your question, Lance?

Lance Wilkes -- Sanford C. Bernstein -- Analyst

Yeah, yeah. That's perfect. Thanks, guys.

Mark Kimbrough -- Vice President of Investor Relations

All right. Thanks so much. Nora?

Operator

Next question is from the line of Brian Tanquilut with Jefferies. Your line is open.

Brian Tanquilut -- Jefferies -- Analyst

Good morning, guys and congrats. Sam or -- I guess I'll ask about the capex, right? I mean, it's up $850 million year over year. You're already spending an elevated amount of capex prior to this. So you called out ASCs and freestanding EDs, among others.

But how are we thinking about your long-term strategy in terms of continuing to ramp up capex? And then is there a goal in terms of kind of like penetration on freestanding EDs and ASCs in terms of number of units or percentage contribution that you set? And I guess last part is from a returns perspective, how long do you normally see the investments before they yield in terms of growth or hitting your internal metrics?

Mark Kimbrough -- Vice President of Investor Relations

All right, Brian. Let me see if we can hash that one out for you.

Brian Tanquilut -- Jefferies -- Analyst

Sorry about that.

Mark Kimbrough -- Vice President of Investor Relations

It's all right.

Sam Hazen -- Chief Executive Officer

Let me speak generally to capital expenditures and where we are at this particular juncture, and then Bill can speak to the returns and how we analyze our capital spending from that standpoint. We are increasing our capital spending from 2020 level. We spent about $2.8 billion, $2.9 billion this past year. We're going to approximately $3.7 billion.

We believe, as I mentioned in my comments, that a lot of this increase is going to some of our growth plan initiatives that we have. I think one thing that's very important to HCA Healthcare, and I hope you all appreciate and understand, is that we have a unique portfolio of markets that we serve. And when we look and score objectively the HCA markets that we serve compared to the national average with respect to certain economic indicators, roughly two-thirds of our portfolio of top markets outperforms, and in many instances, outperforms the national averages as far as forecast very significantly. So we still have growth opportunities embedded in our portfolio.

That's the first thing I would tell you. Secondly, we are investing in our outpatient facility development. A reasonable point of reference is roughly every one of HCA's hospitals has 10 to 12 outpatient facilities attached to it. That's not exactly symmetrical from one institution to the other.

But when you look at the total outpatient facility network capabilities we have, it's roughly 2,200 to 2,500 outpatient facilities on top of 185 hospitals. So it's roughly 10 to 12 times the number of hospitals. We will continue to build on that because we believe that our patients deserve a convenient offering of facilities in our network. That doesn't require, fortunately, as much capital as the inpatient components of our spending.

On the inpatient side, we have a handful of projects out there that we felt still made sense. Most of them are in these high-growth markets: Dallas, Texas; Austin, Texas; Nashville, Tennessee; Jacksonville, Florida, places like that, that are on par with respect to demographic changes that appear to be occurring across the company. We don't want to miss those opportunities. Fortunately, a lot of our investments are long-life assets, and we're in a situation where some of the historical capacity that we put into the market will serve us well in the future.

And then as we look at what's already in the pipeline, the $3.3 billion that I referred to, those are going to supplement our capacity. And then by then, hopefully, we're starting to get better visibility into what's happening with demand, and then we can adjust accordingly. So at this particular point in time, we're not giving any additional long-term guidance on capex, but we believe we're in the zone of what we need in the near term to be responsive to the marketplace, competitive, provides the patient safe environment that we want and ultimately achieve our overall objectives. So Bill, you want to speak to...

Bill Rutherford -- Chief Financial Officer

Yeah. I'll just mention briefly, I think for all of you following us, you know we have a very robust process for vetting and evaluating and validating assumptions in our growth capital projects that Sam talked about. In addition, we've got a very robust process where we do retrospective analysis after those projects have been completed and come online to evaluate our assumptions. And really, I think, the takeaway, those retrospective assessments say that we achieve the majority, a very high percentage of our returns.

So we're very confident in the assumptions that we use. In terms of time frame for returns, each project is a little bit differently, as you might imagine. So your outpatient, maybe your freestanding EDs, the returns come very quickly. Your new hospitals are maybe longer-term returns and long-lived assets.

Many times, your expansion projects on a hospital campus are dealing with pent-up demand. So we can -- once we get through the construction and the opening, those returns come in a reasonable level. So each project is a little bit different, but we have a really strong process to evaluating our assumptions and taking those into account as we approve projects going.

Sam Hazen -- Chief Executive Officer

And let me just add to that. Even on our acquisitions, I think we had a strong year with respect to the company's acquisitions. So the portfolio of acquisitions we have done over the past three or four years was solidly accretive. The margins continue to grow.

They're into the low double digits at this particular point. Our tax-exempt assets that we acquired in Savannah and North Carolina are ahead of models. And then we have a host of other outpatient acquisitions that we've integrated effectively. So here, again, to Bill's point, we're doing retrospective analysis on our organic growth capital.

And then at the same time, we're studying what's worked well and what hasn't worked well with our acquisition portfolio and continuing to refine that in a way that I think is very productive for the company. As we think about acquisitions, the point Bill made in his comments, we've created balance sheet capacity for that. We think -- we don't know when, that there's going to be nice opportunities for us to capitalize on that balance sheet capacity and build out more capabilities across the company. So we will be very opportunistic with respect to that given the position of the balance sheet and the performance and the confidence we've gained with respect to our acquisition integration.

Mark Kimbrough -- Vice President of Investor Relations

All right. Thanks, Sam, Bill. Nora, we've got time to squeeze in one last question, please.

Operator

All right. Your last question comes from the line of Jamie Perse of Goldman Sachs. Your line is open.

Mark Kimbrough -- Vice President of Investor Relations

Hey, Jamie.

Jamie Perse -- Goldman Sachs -- Analyst

Hey, can you hear me guys? Hey, good morning. Just wanted to follow up on your inpatient and outpatient guidance for the year. You talked about that being below 2019 levels. I'm curious if in the back half of the year, fourth quarter, you're anticipating getting back closer to flat or even growth.

And then any breakdown by medical or surgical, the cadence you're expecting throughout the year in that recovery? Thanks.

Mark Kimbrough -- Vice President of Investor Relations

Yeah, thanks.

Bill Rutherford -- Chief Financial Officer

Yeah. This is Bill. As we said, we do anticipate as the COVID volumes decline, that we'll start to see return of our historical volume and maybe capture some of that pent-up demand. So many variables at this point.

It's hard to call and give you specifics in terms of timing of the year. Obviously, we have some comparable issues as we go through the last half of '20 versus '21. So we'll have to see how that plays. But generally speaking, our broad commentary early on says that we expect our volume to recover but still run slightly below 2019 level.

Mark Kimbrough -- Vice President of Investor Relations

All right. Thank you, Bill. Thank you, Jamie. Nora, I think we're finished here.

Listen, we want to thank everyone for participating on today's call. As always, feel free to reach out and contact me if you have further questions. Thank you so much. Have a great day.

Duration: 62 minutes

Call participants:

Mark Kimbrough -- Vice President of Investor Relations

Sam Hazen -- Chief Executive Officer

Bill Rutherford -- Chief Financial Officer

Kevin Fischbeck -- Bank of America Merrill Lynch -- Analyst

Gary Taylor -- J.P. Morgan -- Analyst

Frank Morgan -- RBC Capital Markets -- Analyst

AJ Rice -- Credit Suisse -- Analyst

Joshua Raskin -- Nephron Research -- Analyst

Pito Chickering -- Deutsche Bank -- Analyst

Scott Fidel -- Stephens Inc. -- Analyst

Ralph Giacobbe -- Citigroup -- Analyst

Justin Lake -- Wolfe Research -- Analyst

Whit Mayo -- UBS -- Analyst

Lance Wilkes -- Sanford C. Bernstein -- Analyst

Brian Tanquilut -- Jefferies -- Analyst

Jamie Perse -- Goldman Sachs -- Analyst

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