HCA Healthcare Inc
NYSE:HCA
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HCA Healthcare Inc
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Welcome to the HCA Healthcare First Quarter 2020 Conference Call. Today's call is being recorded. After the speakers’ remarks, there will be a question-and-answer session [Operator Instructions]. At this time, for opening remarks and instructions, I would like to turn the call over to Vice President of Investor Relations, Mr. Mark Kimbrough. Please go ahead.
Thank you, Marcella. Good morning. And welcome to all of you on today's call and our webcast. With me this morning is our CEO, Sam Hazen and CFO, Bill Rutherford. And also joining us this morning is Dr. Jon Perlin, our Chief Medical Officer. Sam and Bill will provide comments on the company's first quarter results and also the company's response to COVID-19. Then we'll open up for 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 risk, 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 those factors are listed in today's press release and our various SEC filings.
On this morning's call, we may reference measures such as adjusted EBITDA and net income attributable to HCA Healthcare, Inc., excluding losses or gains on the sales of facilities, which are non-GAAP financial measures. A table providing supplemental information on adjusted EBITDA and reconciling to net income attributable to HCA Healthcare, Inc. to adjusted EBITDA is included in today's first quarter earnings release. This morning's call is being recorded and a replay of the call will be available later today.
I will now turn the call over to Sam.
Good morning. And thank you for joining the call. I will focus my comments this morning on the COVID-19 pandemic and direct you to our earnings release for the financial results for the first quarter. In general, the first 80% of the quarter was very similar to the growth we have experienced over the past two years, and was a reflection of the momentum we had heading into the year. Then the effects of the pandemic begin to hit us in mid-March. We will answer any questions you have about the first quarter's results following our comments.
The early planning and preparations we did for COVID-19 involved updating clinical policies and operational guidance, preparing supply chain with added inventory levels for key personal protective equipment, drugs and ventilator equipment. It also included building approaches to add capacity for potential surge in patient volumes, leveraging data, initiating our emergency operations center and refining our management structure to execute.
Like most things in our company, the basic approach was to find ways to maximize unique enterprise capability, leverage financial resources and further develop corporate relationships with other to support our hospitals. HCA Healthcare has a storied history of responding well to disasters, such as natural disasters like hurricanes and floods, as well as mass casualty events like the concert shooting in Las Vegas.
We used these past experiences to guide and inform the planning and response during the crisis, which was the first one we would face at enterprise scale. This event has required us to respond differently with a structure that included a more balanced approach between corporate support, division coordination and facility execution.
As part of our plan, we developed five guiding principles that established a framework for decision making and actions through the crisis. These principles are simple yet extremely powerful and they endure today. They are as follows; first, protect our employees and physicians; second, be there for patients; third, partner with others; next, be a resource for communities and government; and last, accelerate the company through the crisis.
We started this effort and we still remain focused on protecting the safety and health of our employees and physicians as the first principle. We enhanced training, established better PPE acquisition, distribution and control systems, implemented a universal masking policy and improved lab testing turnaround time as part of this endeavor. We have cared for approximately 5,500 positive COVID-19 in-patients so far across the company. We were early to implement universal masking of care providers and to-date we have had limited exposures to employees and doctors.
A strong corporate culture is the bedrock of HCA Healthcare. This event has reinforced its importance and provided us with an opportunity to see it in action every day. Our dedicated and caring employees are the lifeblood of the company. To-date, we have not laid off or furloughed one employee as a result of the pandemic. Instead, we adopted a pandemic pay program that supports approximately 80,000 employees who are not getting their normal hours as a result of reduced overall volume.
Almost 11,000 corporate and division colleagues graciously took a salary cut of 10% to 30% for April and May, depending upon their compensation level as a show of solidarity for our caregivers in the hospital. Additionally, over 90% of our support staffs are working productively from home. This remote work model has provided insight into operational efficiencies for the future and is about one example of organizational learning from this event.
To further support our colleagues, many within the organization have contributed to the HCA hope fund, which is a 501(c)3 charity that is exclusively focused on providing support to fellow colleagues when they experience hardships in their lives. In less than one month, the fund has received unprecedented levels of contribution from employees, board members and the Frist Foundation, a true testament to our culture, mission and value. Already, the whole front has over $1.3 million in grant applications that have either been paid or pending approval from more than 1200 employees. It is times like these that test whether we honor our mission or not. We choose to honor it.
For Affiliated Physicians, we have implemented a COVID-19 response model that includes partnering with other technical experts to assist them with navigating the Cares Act and accessing certain benefits available to them. Also, HCA Healthcare is a large medical office landlord and we took a leadership position and many of our third-party developers have followed in implementing a rent deferral program, which addresses medical practice or business disruption and maintains availability of medical care and related services for patients and the community. This program, which is allowed through federal waivers, provides relief for our tenants over the next few months. We have also provided similar relief to physician partners and our ambulatory surgery centers. We have great relationships with our physicians and we wanted to help them through this difficult period.
The second guiding principle was to be there for our patients and we have been. Our employees have shown up, our physicians have shown up, they have been on the front line and they have not wavered during this pandemic crisis in meeting their responsibilities of placing patients first. We've had ample capacity across our system to serve community needs. We have used the logistical capability of our supply chain to move supplies and ventilator equipment to needed hospitals. We have increased significantly telemedicine capabilities, the key patients in touch with their physicians.
We have numerous research projects underway with our Sarah Cannon Research Institute as we continue to find ways to improve critical care medicine protocols for COVID-19 patients, lab testing methods, drug therapies and much more. And lastly, we have used our internal supplemental staffing organization to enhance personnel need when and where necessary across the enterprise. HCA Healthcare is a nation of heroes. I want to thank our colleagues and physicians for their unwavering commitment to patients, their tremendous sacrifice and hard work and their remarkable teamwork and dedication to each other. I salute them and I know their community salutes them as well.
The third principle was to partner with others and forge new relationships. We have evolved existing relationships with other companies in the industry to collaborate and solve problems. We have developed new relationships that allowed us to accelerate protocols for in-patient COVID-19 testing that have become the norm for many health systems. We have partnered with a technology company to advance monitoring of community resources and illnesses.
We believe these relationships and others will benefit us in the future as we see many opportunities for further enhancing our shared commitment and creating more value for patients and the communities we serve. I want to thank the leadership of these organizations for their collaboration and commitment to support our hospitals.
The fourth guiding principle was to be a resource for the community and for government, both local and federal .we have collaborated with local health systems, health agencies, first responders and many more. Our teams are working directly with FEMA, CDC and recently we took a leadership position in developing with the federal government and the American Hospital Association a dynamic ventilator response network that will utilize excess inventories across the country to support needs in COVID-19 hotspots as they arise.
We believe these types of public private sector partnerships are necessary and valuable in responding to a public health emergency of this type and in creating channels of understanding between sectors. And the last guiding principle was to accelerate HCA Healthcare through this crisis and position the company for success in the future. This principle means that we are focused on using this pandemic to learn more and to learn faster. It demonstrates also our capacity for improving and becoming more agile at planning, executing, communicating and processing solutions more effectively.
And finally, this principle means that we as a company take steps to navigate appropriately through this difficult and uncertain period for the benefit of all stakeholders. We view our networks as part of and fundamental to community infrastructure. Across the 43 communities we serve, our local health systems have a sacred responsibility to always be there when needed. To meet this promise, we must take prudent and necessary actions.
As part of our planning, we took a number of steps, which we believe are appropriate to protect the company and be there for the people we serve. The culture of HCA Healthcare is laser focused on the patient. Our strategy, our decisions and our resource allocation revolve around that. We also have a strong track record when it comes to making decisions that benefit our shareholders. The philosophy we have with respect to shareholder value remains.
We continue to believe that a capital allocation strategy of reinvesting in our business and repurchasing stock will generate long-term value for the company. These strategies in the past dividends have benefited our shareholders. But given the uncertainty around this unprecedented pandemic, we felt it’s prudent to adjust the company's current capital allocation strategy.
First, we reduced capital spending by delaying certain projects and postponing various initiatives. Second, we suspended share buybacks under existing programs. And third, out an abundance of caution, we suspended the dividend. We will continue to review the capital allocation strategy as we always do and plan to determine the appropriate adjustments as we get better visibility into our business. As we look ahead to the next phases of this pandemic, which starts with the reboot of core operations, we have developed various scenarios to inform the ranges of management actions necessary to respond appropriately to them. These scenarios are built around three major variables.
First, understanding the impact of the recently unemployed on payer mix is important, including how many people, either maintain existing employer sponsored insurance coverage through COBRA programs, move to coverage from products sold in the exchanges, enroll in Medicaid or become uninsured. Obviously, the timing of the economic recovery and government programs support will determine the outcome of this variable.
The second variable relates to the rebound in volume. As directed by federal and state governments, we have suspended certain operations, especially elective business, which is mostly surgical and generally more profitable than medical business. Additionally, emergency room visits have declined significantly during this event, because of general concerns with COVID-19 and sheltering at home policies.
Our modeling includes different levels and different timelines for their rebound. We are focused on a reboot plan that places us in the best possible position for success in resuming suspended operations. The reboot will require us to work with the governors on social distancing policies, which we believe will vary by market. We have to understand what physicians need to restart their practices.
And finally, we have to respond to patients in a way that reassures them that we have the safe and protected care environment they deserve. We expect to bring on capacity in a conservative manner as markets allow and in the most efficient way possible during the reboot. At this point, we believe the reboot phase will be accomplished across most of the company by the end of the second quarter.
The third variable is our cost reduction plan. We have developed three stages of cost reductions with each one being more significant should there be a longer time to recovery. We have already executed on most of the first stage items and now we are implementing aspects of the second stage as we look to enter the reboot phase.
The third stage of our plan includes a response to a situation where we see structural changes to revenue. We will be vigilant about determining if this happens. But at this point, we believe it is too early to implement the measures in this third stage. We have demonstrated over the years the ability to respond and adjust operations to various conditions. I have faith in our team and believe that they will once again prove it in the face of this ongoing challenge.
As I've said many times in the past, I believe HCA Healthcare is incredibly resilient, because of our dedicated people, the scale we have and the ability to leverage it uniquely to capitalize on business opportunities or address challenges. We believe our resiliency is further enhanced by our diversification of markets, diversification of services and a strong asset base, which can provide a certain level of strategic optionality and flexibility. We have seen it demonstrated over our 50 plus year existence, and I believe we will see it again.
In closing, I say with confidence that we will get back to normal in time but we realize it maybe a new normal. Fortunately, I see HCA Healthcare as uniquely positioned to help define the new normal and capitalize on new opportunities. I want to thank our shareholders again for their support of HCA Healthcare. And now, I will turn the call over to Bill for a few more comments.
Okay, great. Thank you, Sam and good morning everyone. Let me provide some additional information. We reported our quarterly results this morning. But as Sam mentioned, the quarter really had two distinct periods to it; the pre-pandemic period, which was January 1st through March 15th; and the last half of March where we began to see the impact of the COVID-19 pandemic.
Our reported same facility admission growth of 0.6% in the quarter comprised of about 5% growth through March 15th. Then for the last half of March, we saw an approximate 20% decline in admissions as compared to the prior year period. Almost all of our key volume indicators reflected growth through March 15th, and contractions in the last half of March as compared to the prior year period.
Same facility emergency room visits grew about 5% through March 15th, and declined close to 30% in the last half of March as compared to the prior year. Same facility in-patient surgeries grew about 2% through March 15th and declined about 20% in the last half of March. Hospital-based outpatient surgeries grew about 2% through March 15th and declined about 30% in the last half of the month.
Generally speaking, almost all volumes statistics were adversely affected and results were comparable among the payer classes. In essence, we saw strong results across the board until the impact of COVID-19 started to materialize in the last half of March. So rather than repeating all of our typical statistics let me discuss briefly what we see as the different phases as we navigate through this event, what we are seeing in April and most importantly, the actions we've taken as a management’s team to guide the company through this period.
First, as we think about the pandemic broadly, we see three phases that we believe will likely unfold in the coming months and quarters; a response phase, a restart and recovery phase. We are in the first response phase that was highlighted started with our planning in the first quarter. We then see moving to the restart phase as governmental restrictions on elect to procedures are lifted, as we work with our affiliated physicians on clinical and operational protocols and hopefully, we begin to see some reduction of COVID-19 activity.
We are fully focused and have begun our planning for this restart process. We have multiple work streams around securing adequate laboratory testing capabilities, securing additional personal protective equipment, developing and providing surgical support and other important areas. Our focus is to be ready and have the capability to service the needs of our communities as quickly, confidently and safely as possible. We are preparing and will be ready to serve many of the procedures that have been deferred or cancelled.
While much depends on the easing of social and government restrictions, we believe this restart phase will begin towards the last half of the second quarter. After the restart phase, we believe we’ll move into a recovery phase. Our base assumption has us occurring sometime during the summer. There will be many factors that influence how long this phase will last and what the impact will be to our operating results, but we are preparing for a range of scenarios with varying durations of the recovery period.
We believe the extent of the COVID-19's impact on the company will depend on many factors. And we cannot predict the future implications this pandemic will have on our business trends at this time. As a result and highlight in our release, we are withdrawing our guidance for 2020. We do believe the impact to the company will be most pronounced during this current response phase as we continue to see volume declines in April. Thus far through April, our in-patient admissions are running about 30% below the prior year. Our emergency room visits are running about 50% below prior year as our in-patient surgeries. Our hospital based outpatient surgeries are running about 70% below our prior year as most elective procedures have been deferred.
We have started to see these volume declines stabilize over the past week. We believe we will begin to see some recovery of these volumes as different regions of the country begin to open up during the second half of the quarter. So before I talk about some of our future planning, let me highlight some of the actions and precautionary measures we have already taken to strengthen the company's financial flexibility.
First, due to our early planning, we entered into $2 billion short-term credit facility to provide the company with additional liquidity. As of March 31st, we had $3.8 billion of liquidity available under our credit facilities. In addition, we took a series of other actions to strengthen the company's financial position. We suspended our share repurchase program on March 13th. We also began to reduce the company's planned capital expenditures. And at this point, anticipate reducing our capital spending anywhere from $1 billion to $1.5 billion for the remaining part of 2020. We expect this will be accomplished from deferring new project starts, reducing some technology capital spending, as well as reducing some retained capital expenditures.
Out of an abundance of caution, we also announced this morning the suspension of our dividend program. We expect to evaluate resumption of the dividend program at a future date. Our operating teams have also implemented a series of cost management strategies, including hiring and travel freezes, reducing our variable cost structure, reducing discretionary spending among many other efforts.
In short, we believe the steps that we have implemented enhance the company's financial flexibility as we navigate these unprecedented times. In addition, we are also appreciative of the administration's recognition of the burden this pandemic is having on the nation's healthcare system and the passage of the Cares Act that will help provide some relief to healthcare providers. We anticipate that HCA will receive approximately $4 billion of accelerated Medicare payments provided by the Cares Act, and have already received sustainably all of these funds in the month of April. Stipulated in the act for our hospitals, these monies will be repaid over an eight month time period beginning in August of 2020.
During April, we have also received approximately $700 million of funds distributed from the first phase of the public health and social services emergency fund. We are working through providing the necessary at the stations that are part of the distribution process. We understand there are plenty future distributions from this fund, but do not know what future funds, if any, we might receive at this point. The Cares Act also provided deferral of the employer portion of social security payroll taxes, which we estimate to be approximately $75 million a month starting in April of 2020. These deferred amounts will has to be paid in late '21 and '22. And there were certain other aspects of the Cares Act that we believe will provide benefit to the company in the future.
In our planning for potential impacts to the company, we are running different scenarios around major variables, such as payer mix, volume rebound and cost reductions with different durations. Given this is an ongoing and unprecedented public health event there are just too many unknowns to provide any specific estimates of the impact at this time. While it is still early in the process, what we have identified is a cascading range of additional management actions available to take depending on how the business returns.
We have already implemented our stage one actions, and we are implementing aspects of our second stages as we begin the restart process. We have a third stage action plan available to execute, if we believe there's a long-term structural change to our revenue. Ultimately, we are confident in HCA's ability to manage through these phases, however they may unfold.
So before I turn the call over to Mark, let me close by saying we believe the strength, scale and resiliency of HCA, are longstanding and critical attributes that will serve us well during this time. And it is important to know that our focus remains on the guiding principles that Sam outlined in his comments, including focusing on the safety and welfare of our employees and physicians, providing high quality care to our patients and appropriately managing the financial aspect of the company as we manage through this difficult period of time.
With that, let me turn the call over to Mark to open it up for Q&A.
Well, thanks Bill. As a reminder, please limit yourself to one question so that we might give as many as possible in the queue an opportunity to ask questions this morning. Marcella, you may now give instructions to those who would like to ask questions. Marcella?
[Operator Instructions] And our first question comes from the line of Sarah James with Piper Sandler.
Can you help us better understand what the return to rebooking looks like? So do you have different procedures in place for various geographies as they may not all be affected equally? And how should we think about what that looks like overall across your portfolio?
Let me give you a sense of what we're seeing and what we're calling a reboot that's our term. And obviously we have each day implementing different policy decisions about social distancing, elective care when certain businesses start and so forth that's the first point. The second point I would add is that we are working with our physicians to understand their needs as they reboot also. We've got a task force with surgeons and others on our team developing a work stream to assist them.
So once we get a better sense of their backlog, a better sense of what's allowed from local government and state government, we’ll be able to start a scheduling process and ensure that we have the resources necessary to address their needs. We also have a work stream around our patients and making sure that we can reassure them that we have a safe environment. We've implemented universal precautions. We've implemented advanced lab testing. We've stepped up our PPE controls and patient cohorting processes. So again we can reassure them.
And then finally I think it's about how we bring on capacity. We won't immediately reopen with the existing capacity that we had in the middle of May. So we're determining ways to reopen our capacity very efficiently. We think this will result in some early consolidation of existing operations until we get to the next phase. As I've said in my comments, we're hopeful that the reboot process will be accomplished across all of our markets by the end of the second quarter, but that’s still to be determined based upon some of these other hurdles that have to be cleared.
And your next question comes from Pito Chickering of Deutsche Bank. Your line is open. Please go ahead, Pito Chickering. We’ll move to the next question. We’ve got Joshua Raskin of Nephron Research. Please go ahead. Your line is open.
Good morning. And obviously big thank you to the entire organization and especially the clinical staff at HCA. Question just on cash flow initiatives, and appreciate the comments that both Sam and Bill made. But what are you asking payers to do? And if you look at sort of April as a proxy for what life looks like under the current environment. Sort of how do you think about cash flow needs, and how long does this last until you have to do something external? And again to sort of keeping -- using April as kind of your base?
Well, first as Sam mentioned, we think partnerships was a good, was an important guiding principle for us. And we've been in active discussion with our payers, and we are very pleased with their support during this process. And I think our normal kind of AR process is continuing on there. So we're thankful for their efforts on that. Relative to cash flow, I don't know if April is a proxy. As we've said, we think the second quarter will be probably the most pronounced quarter and then hopefully we will begin to see some recovery throughout the quarter.
I think the steps that the company has taken and I mentioned regarding liquidity, position the company very well not only from where we finish the first quarter. But you look at the additional actions that we've taken with the share repurchase program, adjustments to our capital spending. And then as I mentioned with the administration support to the Cares Act, our cash position is very strong from where we sit right now. So, we believe we're in a very strong position from a liquidity standpoint and our focus has really been working through providing the necessary response during this timeframe.
Let me add to that Bill, if I may. This is Sam. I would like to acknowledge a number of the payers. In particular, I'd like to acknowledge United Health Group. I think they took a very significant leadership position in relaxing some of their claims edits and so forth and sped up payables in a very significant way, for our company as well as for the whole industry. Also other components of the health insurance industry, I think relaxed aspects of their pre-authorizations and other type of controls to allow for a smoother process in a more efficient turnover of payables on their side as well. And that helped I think the industry as a whole. It helped us as well and we will continue to work with them, I think in a very collaborative way to address issues that we have as well as issues that they have.
Your next question comes from the line of Ralph Giacobbe from Citi.
Just hoping to understand a little more, when you say restart in the back half of 2Q. Sounds like that just mean kind of states opening up and allowing elective procedures back. I don't know if there's any more sort of details you can provide on that. And then when you say recovery in the summer. Can you just give us a little bit of a sense of what that means? Is that just, you'll be sort of fully go to sort of see patients, or should we think of it as we're 60%, 70%, 80% sort of there in terms of volume that's been lost, any willingness to give detail there’d be helpful? Thanks.
I don't think we're in a position to give you any kind of percentages at this particular point. When we defined the first phase as the reboot that's basically getting over the hurdles that our state requirements getting over some of the backlog, if you will, on the elective cases that have been postponed and helping our physicians and others get back in business, that's what we mean by the reboot. The recovery period is really difficult to determine at this point. We don't know what the full effect and the damage to the economy are going to be. We don't understand clearly what the uninsured levels are going to be. So we anticipate the effects to vary by market.
We also believe that there will be major areas that influence our business results. As we've talked about, we think patient confidence is very important and it's incumbent upon all health systems to create that reassurance that patients can come to a health system as they did just two months ago with confidence and that their safety can be protected. So we have universal precautions, as I mentioned, patient cohorting sufficient PPE, different lab testing capabilities to support this effort.
We've also got to manage through the possibility of COVID-19 recurrence, so we're maintaining our surge capacity. So all of this converges on trying to understand a recovery process, and we don't feel like we can predict that at this particular point in time. Some of that is going to be determined about the factors way outside of our control, whether or not there's antiviral therapies that work, or a vaccine that's developed at a timeline that's more current than what's out there today. So all of this is part of what we're calling the recovery phase.
So as we get some visibility into the variables associated with that, we can make adjustments in a more informed manner, and that's how we're thinking about it. So we're not in a position at all to estimate percentages or timeline. So that's why we had to pull our guidance, that's why we took some of these other capital preservation tactics to ensure that we have the flexibility to make those adjustments in an inappropriate way.
Your next question comes from the line of Scott Fidel.
I had a question just on one of the specific reimbursement provisions in the cares funding, which was the 20% bump to the Medicare DRGs for COVID related treatments. And just interested in terms of how you're seeing in terms of discussions, or already in terms of actions that flowing through towards increased reimbursement that are tied to DRGs or not across the other payer classes. So specifically, thinking about is MA plans, commercial plan and then also if Medicaid is doing anything similarly in terms of what they are evaluating on improving the reimbursement rates tied to COVID related treatments? Thanks.
Scott, this is Bill. Let me try and answer that. One, we are appreciative of that 20% add-on for COVID patients as part of the Cares Act. I don't think in a net-net of all the things we're experienced and that will be that material. I think the most significant part of the Care Acts are the items that are mentioned regarding the accelerated Medicare payments, as well as distributions from the fond and there's other aspects of that that I think will be beneficial for us. So, we are appreciative of that 20% add-on. I can't tell you we've actually seen it yet, but I fully expect it will play out in our claims as we adjudicate it.
I think the MA plans will adopt similar reimbursement programs that the federal government does. I do not know about Medicaid programs that yet, we can follow-up on that. But given the COVID activity that we've seen in that amount, I don't view that being that material. I think the most significant things going on with the Cares Act are things that we've been in discussion with the policymakers about understanding just the overall impact to the healthcare system and the additional costs that healthcare providers are experiencing in their preparation, and then just this potential movement with uninsured patients. So that's where our focus has been.
Your next question comes from the line of Kevin Fischbeck from Bank of America.
Just want to follow-up maybe on that one a little bit. Can you quantify the other provisions? So the $700 million was good. But I guess the DSH and the sequestration impact? And then as far as that $700 million goes. How and when would you expect to be able to kind of book that? Is that show up as revenue and is it show up in Q2, or does that have to phase in as the year progresses?
So I think the [$7 million] once we go through our processes will show up in revenue in Q2, and we’ll see what other fund distributions may occur. Regarding the other aspects, obviously I mentioned the two significant. The sequestration aspect, we believe will be approximately $100 million for us between the balance of the year at historical Medicare volumes. So that number would be adjusted with our Medicare volumes be in a little shorter than where they historically been. The DSH was really just a continued deferral, which we had already in our plans anticipated that would be deferral. So I think the sequestration, the fund distributions and the accelerated Medicare payments, would be the most significant things we call out.
Your next question comes from the line of Frank Morgan from RBC Capital Markets. Your line is open.
I think you got some news yesterday a number of states that are important to you like Texas and Tennessee were some of the first states that are likely to reopen. So I'm curious what your conversations again like with the state agencies in those states. And then separately, I'd be real curious of the physicians and the surgeons that you talk to. What is their thought process right now in terms of the start back? Are they anxious to go, or are they still hesitant? Any color there would be appreciated. Thank you.
I think the health system industry in Tennessee, Texas, Florida, Colorado, all these different states is connected to the government's office. If you think about social distancing and the objective around social distancing, it was to prevent and overrun of the healthcare system. While many of our markets, the initial forecast were to sobering to be honest with you and they have come in significantly less. And so we have ample capacity and we've learned a lot over this past five or six weeks, and that's what we shared with the different governor's offices and local officials' offices is that there has been significant learnings already that have come from this particular experience. There has been increases in lab testing capacity. There has been improvement in PPE supply chain inventory levels. And there is a better understanding by our teams and our physicians on how to manage COVID-19 patients. So all of that is going to serve us well we believe and serve our communities well down the road as we battle this particular event.
With respect to our physicians, it's mixed as you would expect. Many of our physicians are eager to go and want to address their backlog. Others still have questions around patient safety, their own personal safety and how all of that is going to be managed. Again, we have a very specific work stream of multidisciplinary team that includes surgeons on there to ensure that we have the right procedures in place to deal generally with the issues that we have. But we're excited about the reopening in Texas. We're excited about Tennessee and we anticipate other states starting to relax some of these procedures and policies just as we mentioned over the course of the next few weeks, allowing us to start back on some of the care that's needed in the community. So we'll just have to wait and see how all that ramps up again. It's variable and we'll just have to process it Frank and hopefully, have it behind us at the end of the second quarter.
Your next question comes from the line of Whit Mayo from UBS.
Sam, can you maybe just go back and elaborate a little bit more on the comments you made around structural changes? Any thoughts on how you're thinking about it? I know it's really a big multi-dimensional topic? And then if you could comment on the aspects of the Cares Act that you said might provide long-term benefits, Bill. Just curious what you're referencing? Thanks.
I'll let Bill answer the question on the Cares Act. When we think about structure, we're thinking about the demand side of the equation and the supply side of the equation. And on the demand side, we're trying to judge fundamentally has there been a demand curve shift as a result of the COVID-19. By that, we mean have income levels drop because of unemployment and uninsured that starts to influence buying patterns and healthcare services demand. Do patient preferences, with respect to concerns about COVID-19 cause patients to avoid the health system? Has telemedicine structurally changed certain buying patterns? We don't have a sense of that yet, but those are variables that we're trying to understand.
On the supply side, we're trying to understand what happens with certain providers. Will we actually exit the marketplace and start to again think about a shift in the supply curve? Will physician changes occur and create changes to the supply side of the equation? There could be government regulations that create implications also on the supply side. Many of these we think create opportunities for HCA as we move forward. And so those are the big structural variables with that we're trying to study, stay close to, have responses in our different phases of our plans, allowing us to respond appropriately and capitalized as well on opportunities as they develop.
On the Cares Act, if I said long-term, I didn't mean long-term. I think we view the Cares Act activity that we've seen really being more immediate term. Clearly, through the accelerated payment program we received that was in a short-term item to recognize the impact to the industry. And we know those funds have to be repaid starting in August over an eight month period of time. I think the distributions from the public health fund is a great for start and is recognition of the impact on there. So we see most of the Cares Act activity being much more of an immediate term impact to recognize the disruption that's going on with healthcare providers across the country.
Your next question comes from the line of A.J. Rice from Credit Suisse.
Just one clarification to your answer to Whit, there's been some talk about switching from in patient outpatient more as a result of all this or outpatient into ASCs. I'm wondering about your comment there? And then also on your cost reduction program, it sounds like the first two pages are well in hand and then the third one is sort of on hold if things continue at a tough pace. Is there any way to quantify at all how much order of magnitude on the savings that you're trying to get in those programs?
Let me answer the first question, I’ll let Bill answer the second question, A.J. We do have substitute settings as a variable on the demand side that we're studying. Does that mean our women's hospitals are across the organization are better positioned than commingled women's services we have across many of HCA markets dedicated women's hospitals that are separately controlled, if you will and does that create advantage for us in obstetric services? Possibly. Will we see more activity in ambulatory surgery centers? Again, that's a possibility. But it's incumbent upon us in our hospitals to create the same kind of safe circumstances, safe environment for outpatient surgical patients, outpatient cardiology patients and so forth.
But substitute settings are something that we are studying, and we are thinking about as we go through this transition. And obviously, we believe we're already well prepared to respond to those. And again, it may create opportunities down the road, but there are levels of risk as well. So we have to balance all of that out. But we think again HCA's diversification of services, diversification of facilities, diversification of markets give us opportunities to navigate through that transition better than most.
On the cost side, I think it's too early to try to quantify the impact of all of these. Clearly, we identified some of the stage one actions, which is really more focused around some of our immediate discretionary spending in our stage two that we're in. Now as we begin to reboot process basically goes deeper into our cost structure, mostly around discretionary spend giving our commitment to our employees. And then you look at the stage three, which we really aren't implementing yet but we'll be prepared to if the circumstances require. We really get more into some of the changes to our fixed cost structure and going deeper into our cost side. But all of that and we'll pay some will be dependent on how we see the volume returning as we go through these different phases.
Your next question comes from the line of Brian Tanquilut from Jefferies.
I guess the question is for either Sam or Bill. You guys have both been at the company through the past couple of recessions. So as we think about, you just mentioned diversification. How are you thinking about the ability of HCA to deliver growth as you had in past market pullbacks? And also more specifically, there's a lot of fear right now about Texas, Houston's a 10% margin for you guys. What do you see there or how are you thinking about the oil industry’s impact on your business?
Well, obviously this crisis is not a parallel necessarily to any other recession that we've been through. It's got public health connected to it as well as economy. And the third variable, as you just mentioned, is energy. So we have three pressure points, if you will, that we're trying to sort out. I don't know that we have a read on the energy implications for Texas at this particular point in time. Again, Texas is more diversified today than it's ever been. Obviously, energy in that particular industry plays a huge part in the economy but not as much as it did 10 years ago and clearly not as much as it did 20 years ago.
For us, we have 43 markets in the U. S. Texas is clearly significant and we will continue to pay attention to those detail. But across the portfolios, one market in Huston is less than 10% of the company and won't necessarily fully influence the company's results. But those are difficult for us to ascertain at this point in time and we really don't have any visibility into it and cannot speak to the implications just yet.
Your next question comes from the line of Gary Taylor from JPMorgan. Your line is open.
Good morning, guys. I would like to add my thanks to HCA's leadership and its clinicians out there in the real world managing through this earnings and EBITDA side. I think the U.S. is really fortunate to have companies like yours for sure, so we really appreciate you. At this point, I just have a couple of items for Bill, just to clarify. On the $4 billion of accelerated Medicare payments for April, I presume that's a cash flow only item not a P&L item. And then on the $75 million a month of FICA tax deferrals. Is that also cash flow only since you ultimately have to pay, will you still be accruing that in that as we see you buying, or is it EBITDA benefit for 2020?
Gary, first thanks for your comments. And yes, you're correct on both of those. They're cash flow items only. There will be no P&L impact of the accelerated Medicare payments or the deferral of the FICA taxes. We will continue to accrue the expenses associated with the employer sponsor FICA taxes or P&L, it just the payment gets deferred and the accelerated payments will just go on the balance sheet until we go through the repayment cycles.
Your last question comes from the line of Steven Valiquette from Barclays. Your line is open.
Good morning everyone. And let me also commend you and all the work that you do on the pandemic. So couple of questions here, just on the first wave of $30 billion in industry leading data, once we get beyond that. When we think about remaining $70 million out of the total $100 billion from the Cares Act, I think you mentioned that the visibility and that's still not clear at the moment on timing, et cetera. But do you have any color at least on formulate that we have might be paid out. Is it still a think possibly going to be tied to the Medicare fee for service formula? I know the AHA was also talking about a per bed amount, $25,000 previously that could change. I’m curious about the formula there. And the second quick follow up, which is around your payer mix comments in your prepared remarks and the potential for people to move from commercial health insurance to exchanges or Medicaid. I guess just based on the timing of that sort of change. I'm curious if that’s something that might be more impactful this year in 2020, or would that be something that maybe a bigger variable for 2021 as we think about that?
At the end of the day, we do not have the visibility into the formula of the distribution of the remaining funds. We stay connected. We have given our views of different fomulas. We understand there is a lot of constituencies that are also doing the same. So as of today, we just don't know what that formula will be. We understand there’s some discussions on different metrics that will be tie to either going disproportionately to certain areas of the country and/or considering uninsured or considering some disruptions on there. We think position we've outlined is that almost every institution is impacted regardless of the number of COVID patients. So we'll just have to wait to see on that.
I think on the payer mix changes, you're right, that is obviously an important variable that we are modeling. I think today is different maybe than in past eras were, because we have some states that have expanded in Medicaid and that we have subsidies available for people to purchase coverage in the health insurance exchanges. Those are two different dynamics today than were in place the last time we went through an economic cycle. So we'll have to see how that plays out.
My sense is those are longer term implications, much more than they are shorter terms. Even as COBRA gets extended and as we are working with various community agencies to try to help people understand the potential coverage options in the event they find themselves unemployed for a period of time. So I do believe that will be a longer term impact, and we'll just have to wait to see how that plays out.
Steven, thank you so much. Marcella, I think we're finished with the call. Listen, I want to again thank everyone for joining us today. Those of you who are shareholders of the company on the call, I want to thank you for your support of the company. And I will be around obviously to answer additional questions that you might have. So feel free to give me a call. Have a wonderful week. Thank you.
This concludes today's conference call. You may now disconnect.