Oct 29, 2026 earnings call — Raised 2026 guidance and expanded hospital capacity
Raised 2026 guidance to net operating revenue of $6.45 billion to $6.5 billion.
Revenue $1.6B (est $1.6B) · EPS $1.52 (est $1.36) · Next-quarter revenue outlook $6.5B–$6.5B
Key quotes
"As revenue grew 8.9%, adjusted EBITDA increased 15.5% and adjusted EPS increased 23.6%."
"Our pipeline of announced new hospital projects with opening dates beyond 2026 currently consists of 15 hospitals with 654 beds."
"The Q3 revenue increase of 8.9% was driven by 5.7% discharge growth and a 4% increase in net revenue per discharge."
Analyst Q&A 11
2027 headwinds and tailwinds
Q (Pito Chickering · Deutsche Bank): Analyst asked for known headwinds and tailwinds for 2027, including pre-opening losses, managed care pricing, VA penetration, and labor/turnover.
A: Management said they expect another solid year in 2027. They noted some one-time net provider tax accruals will not repeat, pre-opening and ramp costs are expected to be plus or minus $20 million, they will anniversary the last of four unit closures, and they see both opportunity and diminishing returns on reducing premium labor. They also highlighted strong VA growth and success with the Medicare Advantage admit-and-appeal pilot, plus turnover remains below historical levels.
"I'd say, generally speaking, we think that things are setting up for another solid year in 2027." — Douglas Coltharp
Hospital capacity and timing
Q (Ann Hynes · Mizuho): Analyst asked for an update on occupancy statistics and when capacity limits could free up to accelerate same-store discharge growth.
A: Management said a specific cohort of hospitals ran above 90% occupancy with average occupancy about 95% and the count moved from 65 to 60 to 58 across Q1–Q3. They said 49 hospitals were in that cohort across all three quarters and 19 of those will have bed additions before the end of fiscal year 2027, and they expect small format hospitals and a large development pipeline to help relieve constraints.
"Across those 3 quarters, there have been 49 hospitals that have been present in that cohort for each of those 3 quarters." — Douglas Coltharp
Managed care pricing and small hospitals
Q (Andrew Mok · Barclays): Analyst asked what drove the managed care pricing increase and whether admit-and-appeal contributed, and asked to confirm one small format hospital opens in 2027 and why more cannot open.
A: Management said the pricing increase includes shifts in acuity and is benefiting from VA DCM volume that pays fee-for-service, which has grown north of 20%. They confirmed one small format hospital is expected to open in late '27 and said permitting and licensing for a new format in communities slows the roll-out now, but once templates are set they expect to accelerate in 2028 and 2029.
"So I can confirm that our expectation is that one will open in late '27." — Douglas Coltharp
RCD expansion and bad debt
Q (Matthew Gillmor · KeyBanc): Analyst asked what to expect from RCD expansion to 75 hospitals and about recent bad debt increase from a system conversion.
A: Management said Palmetto will face a >10x increase in volume and they are concerned about Palmetto's administrative capacity. They noted cycle 1, starting January 1 through June 30, requires 100% prepayment claim review and if hospitals exceed an 80% affirmation rate they can move to a 5% spot check later. On bad debt, they said about two-thirds of the increase was due to the Q2 conversion from Patcom to Oracle that created a backlog for managed care and Medicare Advantage claims, and they expect the queue to be cleared by year-end and that this is a one-time issue.
"It's a requirement that during cycle 1, which will -- is slated to begin on January 1 and extend through June 30, all providers will be on 100% prepayment claim review." — Douglas Coltharp
Unit cost per discharge drivers
Q (Morgan McCarthy · Leerink): Analyst asked if provider taxes or other items skewed unit cost per discharge being effectively flat year-over-year.
A: Management said provider taxes were a negative impact on unit cost per discharge. They said SWB was favorable driven by lower group medical expense and lower turnover, EPOB and length of stay were favorable, and supplies benefited because they did not need to pre-purchase supplies this year versus Q3 '25.
"Yes. So the net impact from provider taxes was actually going to be a negative on that." — Douglas Coltharp
Acuity sustainability and Florida tax waiver
Q (Ryan Langston · TD Cowen): Analyst asked whether the recent acuity lift is durable into 2027, whether RCD expansion will change acuity, and for any update on a Florida tax waiver and impact to 2026 guidance.
A: Management said some acuity trends appear sustainable, noting growth in neuro RIC, stroke, brain injury and major trauma and declines in lower acuity joint replacements, which has allowed backfill with higher acuity patients. They do not anticipate RCD expansion will affect patient acuity because they believe they are admitting appropriate patients with proper documentation. On Florida, they reversed year-to-date accruals because fiscal year '26 ended October 1 without CMS action; if Florida's waiver were approved in Q4 it could favorably increase EBITDA by about $8 million, and they do not expect to repeat the prior $11.5 million hit year-over-year.
"We don't anticipate that RCD expansion will have any impact on patient acuity." — Douglas Coltharp
Small format returns and acuity outlook
Q (Joanna Gajuk · BofA): Analyst asked how small format hospital returns compare to typical de novos or bed expansions and whether acuity-driven pricing might slow next year.
A: Management said de novos target mid-teens IRRs at roughly $1.25 million per bed, bed expansions have IRRs of 25% or higher at about $850,000 per bed, and small format hospitals are estimated at $1 million per bed targeting about a 20% IRR with EPOB below 3x. They also said some pricing uplift is tied to Medicare Advantage pre-authorization changes that began in Q4 of '25, so year-over-year pricing change may be less pronounced on anniversary.
"We're estimating the cost per bed on those will be right at $1 million, and we're targeting an IRR of about 20%." — Douglas Coltharp
Contract labor and new hospital ramps
Q (Brian Tanquilut · Jefferies): Analyst asked about improvements in contract FTE and how hiring, retention and the career ladder are reducing contract labor, then asked how the new hospitals are tracking versus typical ramp.
A: Management said they have had another strong quarter of hiring and turnover remains well below historical levels, but some hospitals still spend over $100 per patient day on contract labor so there is more opportunity to reduce premium labor. They said 55% of eligible nurses are on the ladder (about 31% of full-time nurses) and noncertified non-laddered nurses remain about 60% of full-time nurses. On ramps, they said recent de novos generally reach 4-wall positive EBITDA by about month 6 and exceed 70% occupancy by about month 10, with full maturity and bed-add timing usually in years 3 to 4.
"generally, what we have been seeing is that our de novo hospitals are achieving a 4-wall positive EBITDA by about month 6, and they're climbing over a 70% occupancy by about month 10." — Douglas Coltharp
Same-store discharge outlook and capital use
Q (Albert Rice · UBS): Analyst asked how to think about same-store discharge growth near term and what capital allocation may look like with 1.8x leverage.
A: Management said total discharge growth matters more than new vs same-store, and listed five factors affecting same-store: unit consolidation impact (about 40 basis points in Q3, down from 70 and 90 prior), high-occupancy hospitals with bed additions, MA pre-authorization changes, admit-and-appeal pilot success, and bed additions moving into same-store (90 beds in Q4 and 150 in Q1 '27). On capital allocation, they expect modest periodic dividend increases, discretionary CapEx to rise for the development pipeline, and continued capacity for share repurchases.
"That impact on a net basis, we estimate for Q3 was about 40 basis points." — Douglas Coltharp
Private rooms and MA pilot impact
Q (Jared Haase · William Blair): Analyst asked current percent of single occupancy rooms and how that will trend, and asked what guardrails exist on the admit-and-appeal impact to conversion or volume growth.
A: Management said at the end of Q3 they were at 58% private rooms versus 41% in 2020, and all new capacity across bed additions, de novos and small formats will be 100% single occupancy so the percentage will rise and be higher in Q4. They said the admit-and-appeal work is a positive and helps offset the tougher MA pre-authorizations, but the actual net impact on conversion or volume is not yet quantified; they are adding FTEs to scale the program.
"All of -- essentially all of the capacity that we're bringing on in all 3 modalities, bed additions, de novos and small format hospitals is going to be 100% single occupancy." — Douglas Coltharp
RCD experience and market effects
Q (Raj Kumar · Stephens): Analyst asked to reconcile experience under Alabama RCD cycles with fee-for-service strength, and for affirmation and appeal rate details to extrapolate to expanded RCD.
A: Management said it's hard to extrapolate because Palmetto has not handled this volume and there are many unknowns about reviewers and processes, but they are confident they admit appropriate patients and provide documentation. They expect cycle 1 to target an 80% affirmation rate and have high confidence their hospitals will exceed it and then move to a 5% spot check; they also said coverage requirements are unchanged and they expect bad debt to remain in the recent historical range of 2% to 2.5%. They added they do not admit borderline patients and industry compliance has been strong.
"What we do have a high degree of confidence in is that there's -- that we are admitting the right kind of patients, and we are providing the appropriate documentation." — Douglas Coltharp