Q3 2019 Earnings Call
Welcome to the H.C. healthcare third quarter 2018 earnings Conference call today's call is being recorded.
At this time for opening remarks, an introduction I will like to turn the call over time, Vice President Investor Relations Mark Kimbrough. Please go ahead Sir.
Thank you and Oh, good morning, and welcome to everyone on today's call or webcast with me. This morning, as our CEO , Sam Hazen and Bill referred her CFO , which will provide comments on the company's results for the third quarter.
Before I turn the call over to Sam Let me remind everybody that should todays call contain any forward looking statements are based on management's current expectations.
Course risk uncertainties and other factors may cause actual results to differ materially from those that might be expressed today. Many of these factors are listed in todays press release and in our various that's actually filings.
Several factors that will determine the company's future results are beyond the ability of the company's control or predict.
In light of this is significant uncertainties inherent in any forward looking statements you should not place undue reliance on these statements.
The company undertakes no obligations to revise or update any forward looking statements, whether as a result of new information or future events.
This morning's call we may reference measures such as adjusted EBITDA and net income attributable to H.C.I. health care Inc., excluding losses and gains on sales of facilities and losses on retirement of debt, which are non-GAAP financial measures.
People, providing supplemental information on adjusted EBITDA and reconciling to net income attributable to H.C. I hope you're inc. to adjusted EBITDA is included in today's third quarter earnings release.
Mornings call is being recorded in a replay of the call will be available later today I will now turn call over to Sam Hazen.
Good morning, Thank you for joining us today.
Earlier today, we reported very solid results for the third quarter.
This quarter's results were generally comparable to our performance in the first six months of the year. The results were driven by strong revenue growth and good expense management revenue increase more than $1.2 billion were 11% in the quarter. This increase was driven by a combination of the strongest same facilities.
Growth in volume, we have seen in over the past 17 quarters and the revenue from our recent acquisitions.
On a same facilities basis revenue grew by approximately $700 million were 6.3%.
We had broad based volume growth across most service categories and it was balanced across our markets with growth in 13 14 domestic divisions.
On a same facilities basis inpatient admissions grew 3.2%.
We have now grown our same facilities inpatient admissions and 22 consecutive quarters.
Equivalent admissions grew 4.2%.
Emergency room visits grew by 4.1%.
Inpatient surgeries grew 2.2% and outpatient surgeries grew by 2.6%.
The growth in revenue converted into solid earnings in the quarter with diluted earnings per share of $2.23, which excludes gains on sales of facilities and the losses on retirement of debt.
Adjusted EBITDA grew by 9% to approximately $2.3 billion.
The strategic investments, we're making in our business to expand our networks and improve our clinical capabilities are creating greater accessibility for patients to receive high quality convenient patient care and an AG healthcare facility.
The most recently available inpatient market share data again showed good growth for the company. We grew by 55 basis points to an all time high of 25.4%.
Finally, I want to thank our employees and physicians for their great work and delivering high quality care to our patients together with our employees and physicians, we use the unique capabilities and scale of health care to make a difference in the communities we serve by giving people a healthier tomorrow with that let me turn the call over time.
Bill.
Thank you Sam and good morning, everyone I will cover some additional information relating to the third quarter results as Sam mentioned virtually all of our operating statistics for the quarter was solid and I'll provide some additional information.
During the third quarter same facility Medicare admissions increased 3.1% an equivalent admissions increased 4.5%. This includes both traditional and managed Medicare.
Same facility Medicaid admissions increased 4.5% an equivalent admissions increased 4.6% in the third quarter compared to the prior year.
Our same facility managed care admissions increased 3.4% and equivalent admissions increased 3.6% in the third quarter compared to the prior year.
Same facility self pay in charity admissions increased 2.1% and equivalent admissions increased 3.5% for the third quarter compared to the prior year.
Same facility emergency room visits increased 4.1% in the quarter our level one through three visits increased 2%, while our higher acuity level for Inphi visits increased 5.8% over the prior year.
In addition emissions to the emergency room increased 3.4% over the prior year.
Same facility net revenue per equivalent admission for our domestic operations grew 2.2% over the prior year in the quarter and year to date has grown 2.7% inline with our guidance range for the year.
Same facility inpatient surgeries grew 2.2% and our outpatient surgeries grew 2.6% in the quarter over the prior year.
Now let me move on operating expenses, we had a no other solid quarter of expense management or same store margins increased 40 basis points in the quarter and our same facility operating expenses per equivalent admissions grew 1.5 person in the quarter compared to the prior year.
Our same facility labor cost per adjusted admission grew 1.9% in the quarter same facility. Our generally rate grew 2.7 in the quarter versus the prior year and we continue to see labor productivity improvements.
Facility supply cost per equivalent admission group, 0.9% over the prior year period.
Same facility other operating expenses per adjusted admission increased 0.7% compared to the prior year.
During the third quarter the company recognized a favorable professional liability reserve adjustment a 50 million based on our updated actuarial assessment. This compares to the 70 million favorable adjustment recognized in last year's third quarter.
Also during the quarter the company recorded an additional 30 million and share based compensation expense.
Our recent acquisitions also had another solid quarter outperforming our expectations. The acquisitions had an approximate 80 basis point unfavorable impact on consolidated margins in the quarter.
So let me take a moment talking about cash flow.
Cash flow from operations continues to be strong cash flow from operations totaled 2.13 billion versus 1.72 billion in the third quarter of last year.
Capital spending for the quarter was 1.14 billion in line with our expectations.
During the quarter, we redeemed 4.95 billion aggregate principal amount of senior secured notes.
Pre tax losses on retirement of debt totaling $211 million for these redemptions were recorded during the quarter.
During the quarter repaid 239 million repurchased 1.846 million shares and we had 1.5 billion repurchase authorization remaining as of September Thirtyth 2019.
Also as mentioned in our release. This morning, our board of Directors has declared a quarterly cash dividend of 40 cents per share.
At the ended the quarter, we had 2.7 billion available under our revolving credit facilities in our debt to adjusted EBITDA ratio was 3.56 times.
Earnings per share excluding gains on sales of facilities and losses on retirement of debt was $2.23 in the third quarter this year versus $2.16 in the third quarter of last year.
The adjustment to the professional liability reserve accounted for 11 cents of Vps This year versus 15 cents last year.
Share based compensation expense equated to 23 cents this year.
15 cents last year.
And we also recorded eight cents EPS in 2018 due to some hurricane tax credits and finally, the excess tax benefit for share based compensation was one cents this year versus seven since last year.
As noted in our release, we updated our full year 2019 guidance with projected adjusted EBITDA to range between 9.65 billion and 9.85 billion.
Projected earnings per share to range between $10.30 to $10.65.
And we anticipate capital spending to approximate 3.8 billion.
So that concludes my remarks, and let me turn the call back over to Sam.
Before we go to questions I want to give you some preliminary thoughts around 2020.
While it is always difficult to predict with certainty the various components of our business.
We believe the overall fundamentals in our markets in primary drivers of growth remained strong.
We also believe we are well position to capitalize on this favorable environment as we continue to execute our operational initiatives.
Improve the competitive positioning of our networks with capital spending and integrate our acquired hospitals as a result in 2020.
Subject to our usual assumptions, we believe core operations should grow organically near the mid to upper part of our long term growth expectations and we believe the acquisitions. We have completed should push our growth rate slightly above the top of our long term growth expectations.
We will be wrapping up our budgeting process over the next few few months and we look forward to sharing our detailed guidance with you at January now, let me turn the call over to Mark for questions. All right. Thank you Sam Ana you May now give instructions to those who like to ask question.
Yes. Thank you.
A question answer session will be conducted electronically anyone wishing to asking question May signal bypassing me Starkey followed by then one on your Touchtone phone.
Thank you.
From limit yourself to one question.
Individuals asking questions should not speaking.
Please let's say handset you are asking a question.
And we'll now take our first question from AJ Rice with credit Suisse.
Hi, everybody. Thanks for the question.
Just I guess I'll just jump off of Sam's comments, there so core growth toward the high end I want to just verify that the core growth target is roughly 4% to 6% and I think this year, you're talking about acquisitions contributing to that I'm pretty sure you guys had been saying that they acquisitions and then country.
And in about 3% to 4% growth I'm, assuming that would moderate next year, but can you just comment on the trajectory of how those bigger acquisitions will continue to contribute as.
We look at the next year too.
To grow because I assume there will be incremental for mission in Savannah for a couple of years. Thanks I J.A.J. This bill let me take this so yes, let me.
From as you know, we said some top sometime our long term adjusted EBITDA growth ranges between 4% to 6%. We think we haven't pretty solid track record of performing within that range and please recently we've been at the mid to high end of that range. We're also in a period where acquisition has been contributing to our growth profile as you mentioned we anticipated.
3% to 4% this year, we expect them to continue to the growth of the company, but as you alluded to likely not at the same rate is this year as we had first year permission and continue to turn around some of the performance for a few others. So I think as Sam mentioned, we haven't completed or budget process more commentary was trying to give you some direction that where we see.
The operating within our long term range will provide obviously a lot more detail in specifics on our yearend call, but I think with a solid performance as a company. This year, we want to provide you a little some general comments related to early thoughts for 22 one.
Okay. Thanks.
Thank you.
Well take our next question from Whit Mayo with you via.
Hey, thanks.
Bill you've got the final 2020 impatient rates and dish Medicare does said, we've got the pending outpatient rule just sort of curious how the improved pricing environment is sort of shaping your views as you know comment on growth at the.
The high end of your long term got any any any help around just how internally you guys are thinking about.
Adequate rates next year would be would be helpful.
With this bill so we are anticipating favorable Medicare rate update again, this year pretty comparable to what we're seeing this year likely in that 2.5% to 3% rate update so we factored that in not only to our guidance, but and we'll continue to factored into our 2020, but we do see of being a generally favorable.
Environment relative to the combined Medicare pricing for its next year.
Okay. Thanks.
Yes, Thanks Whit.
Your next question comes from Josh Raskin with Nephron returns.
Hi, Thanks, good morning.
Question around sort of that capex, and and sort of impact that you guys you're getting it feels like we're kind of in year. Three of this recent acceleration in Capex, obviously this year going to be running even higher than you have in recent years and I know you've spoken in the past about sort of that 15% to 16% return on on Capex. So I'm curious is that one of the.
Drivers of sort of this improved growth rate that we're seeing in recent years and is there a way to kind of lineup growth in specific markets, where you really put some some serious dollars in terms of projects and how you guys track at so just sort of generally around the capex and how thats working.
This is Sam.
I think capital expenditures and our capital spending plan.
That's geared toward increasing capacity, adding clinical technology for physicians and really building out our ambulatory network is clearly a key component of our growth agenda, it's difficult to pinpoint specifically the value of that in the total performance of the company.
Clearly, we can look at an individual hospital.
And score whether or not we achieved our expectations on our capital, but keep in mind a lot of our capital is is for long.
Ron purposes, it's not just for a short right and so some of our projects because of the complexity of building. The project, it's really geared toward a much longer run. So it takes a while to get a full pay off on that and so we monitor our performance against our expectations generally speaking we have outperformed.
Our modeled financial returns on most of our projects. We've had a few obviously that we we don't accomplished what we had hoped but when you sort of aggregate all that we believe it's it's contributing to the performance of the company and putting the company globally in a much better competitive position we.
We're running the company today at occupancy levels of approximately 73% on the inpatient and that in in spite of a lot of capital that hit this year I think over the course of this year, we're adding more beds than we did in the previous year and I think in 2020, we're anticipating.
A similar amount coming online as we head and 2019.
So it's hard for me to point to adjust that I mean, we we have a robust physician relationship agenda, that's adding value as we continue to add.
Physicians to our network I think our clinical excellence agenda is yielding value as we continue to improve our quality performance and then ultimately our outpatient network continues to grow we will be up to roughly 145 ambulatory surgery centers.
Over 100, freestanding emergency rooms, almost 150 urgent care centers and roughly 1300 physician clinics that are connected to our 185 hospitals and all of that.
It is connected to I think the overall volume performance of the company Bill alluded to this we had the broadest based volume performance as far as positive metrics that I've seen it almost three years.
The only two areas that were flat, we're behavioral health was flat from an admission standpoint, and our outpatient surgery centers were modestly up.
Our hospital based outpatient surgeries was very strong and that's what drove our overall outpatient volumes. So we had really broad based comprehensive volume growth that I think speaks to the the overall growth agenda that the company has had for years and we think is appropriate as we look forward.
Perfect. Thanks, Alright, Thank you Josh.
Your next question will come from Peter checking with Deutsche Bank.
Good morning, guys nice quarter, just a follow up actually off on that topic of inpatient and outpatient surgeries and third quarter was was quite strong.
The first half a year it was strong as for a very challenging comps and so I guess can you talk more about.
What caused the strength of both inpatient outpatient which was it expansion a season and expansion of ours is hiring docs or what wasn't led to that strengthens our gets conviction around that continuing over the next you know you're now.
Well Pete this is Sam that that's.
Obviously, a solid question for us given some of the trends and and we indicated that we expected our procedure volume in the third quarter to be a little bit stronger because we did have a slight calendar.
Tailwind and when you score that town tailwind it did contribute some.
Modestly we think to the overall performance, but I think our surgical growth initiative has been one that we've spoken to over the past number of years as we continue to improve our operating room processes as we continue to respond to what our physicians need and then as we continue to invest.
In.
Technology within our surgical suite.
Robotics is an example of that adding deeper capabilities in cardiovascular care and so forth is driving.
Surgical performance for the company our cardiovascular surgery on the inpatient was was was very strong almost 7.5% up or orthopedic volume in total our total joints were up 7%.
We had strong robotics performance, our vascular surgery was performance. So some of this is clearly supply and that we're adding more awards, but it's also our physician strategy. It's our program strategy. It's our performance improvement strategy, our clinical initiatives. All this is really sort of the foundation as.
I mentioned previously.
For us as we think about our growth prospects and we detail our surgical performance very carefully we detail our physicians in the marketplace very carefully so we understand what their needs are and then we monitor our best performance is and best practices across the company to share those broadly.
And we think Thats, a very successful formula in one that's yielding a success not just in this quarter, but over time and and we believe it will continue to pay.
Dividends for the company as we move into the future.
Alright, thank Peter.
Our next question comes from Gary Taylor with Jpmorgan.
Hey, Gary Hi, Good morning had a couple of questions I think I'll settle on.
This one could you give us a little update on how you're approaching.
Physician recruiting physician employment acquisition.
Physicians, there seems to be I'm sort of renewed piece of.
The private equity others, making.
Acquisitions are rolling up some the.
Position space and just wanted to see if your strategy is going to have to change to any degree in terms of outright employment and acquisitions.
I don't see a change this is Sam again, Gary Thank you.
Don't see a change in our strategy per se.
We have been about.
Recruiting.
We have been about.
Employment, we have been about other methods of alignment.
With that clinical relationship and leadership and program development and those continue to yield success for us we're growing our medical staffs at about 1.5% to 2% per year, it's coming through all of those channels I just spoke to.
We believe.
That across the Companys portfolio of facilities that are physician development initiatives are gaining momentum in the face of some of these issues that you alluded to and it's because folks are seeing the investments that we're making the improvements in overall quality and nursing that we're making.
And it's attracting physicians, we have 45000 physicians, who practice at 88 facilities. We employ about 7000 of those we are growing our employment ranks that probably 8% to 12% per year. So it is a more common tactic within.
Our physician.
Ranks, but it's not a sole strategy for us as we look to.
The future.
Thank you.
Thanks, Gary.
Your next question comes from Justin Lake with morphine Terence.
Thanks, Good morning, I appreciate the commentary on 2020 guys.
Question here on balance sheet.
Came out of the it looks like you're going to come out of the or I should say a with a debt to EBITDA at the low into your ranch in about three and a half or side, if I kind of just through some math on the implied guide.
You'd be more like three in a quarter. So yes, I know your long term target three and have performed a half it looks like you have $70 billion of room, just to get back to the midpoint. So just curious as to how you're thinking about that opportunity kind of going into 2020 would you think via M&A pipeline share repurchase opportunity et cetera. Thanks, yeah.
Justin Thanks for the question. This is bill you're right our leverage ratios at the low end over a range and we're obviously very pleased with that we think this continues to give the company a lot of flexibility and optionality into the future as far as a longer term range. This obviously, so we'll give a lot of thoughts soon we'll continue to evaluate it not making any.
Changes to our range at this time, but as you know we're going into our planning cycle. We continue to evaluate our capital policies. We do have a couple of smaller acquisitions that hopefully will close towards in the year will likely funds through that we've stated for some time, we think the strengths of our cash flow position in the balance sheet.
Obviously, an important attribute for the company, we think we've got a pretty balanced and disciplined approach to capital allocation from our capital investments to share repurchase to dividends as well as managing the balance sheet. So again I think we're very pleased with the result, I think the level, where we are right now continues to give us a lot of flexibility as we can.
We need to see potentially high value acquisitions come into the fold, we've got to capability to execute on those.
Alright, thanks, Justin Thanks for the color Yep.
Next question comes from Kevin Fischbeck with Bank of America.
Great. Thanks, I just want a follow up I guess Q2 was a little bit surprising to people and it seemed like it with you guys called the revenue.
Issue I guess in particular kind of commercial volumes being weak.
This quarter, it looks better, but I wonder if you could maybe.
Hey, it's still kind of toward the lower end of your long term view on pricing so.
Where we are on that and if there's any postmortem on what happened in Q2 and why it seems to be getting better now.
Yes, Kevin Thanks US So yes, Q2 was a little soft we attributed some case mix some.
Isolated issues and a few markets. We were pleased to see it bounced back up obviously were very good payer mix with the commercial volume growth year to date as we mentioned, we're at 2.72 and a half range. If you will which is right in the midpoint of our range. So again I think with.
For the inner contracts will continue to have great visibility into our commercial contracts. We continue as Sam mentioned invest in some of our higher acuity services that I think second quarter, just pose some softness for us and pleased with where we already year to date and rebounded here in the third quarter as well.
Thank you Kevin.
Well take our next question from Ann Hynes with Mizuho Securities.
Hi, good morning.
You gave some color on the acquisitions, but I love some more color just on the margin profile.
2017 early 2018, you acquired $2 billion revenue.
Let us know what the margin profile of those acquisitions are right now and mission as well thanks.
Yes, as a as a portfolio if you will see the margin of those acquisitions are running high single digit.
Right now and that's where we anticipated we knew each of them have a little bit different story to when we knew memorial in Savannah would take some time to recover very pleased with the performance of where that stands mission. Obviously, we're in the first year. So I think I characterize the margin performance of those acquisitions is high single digit.
Contributing to the growth this year as we've mentioned, we think they'll continue to contribute to growth next year, we knew those would be multiyear process for us. So that's how I would characterize the margins high single digits right now.
Thanks.
Thanks, Dan.
Your next question comes from.
Goldman.
Thanks, guys good morning.
I guess one quick question.
Hey, Mark just the managed care adjusted admissions growth is was really strong it and the compare year ago look, particularly tough so kind of just thinking through that kind of wanted to get your thoughts on the macro environment, obviously Medicaid adjusted admissions are still growing faster than commercial but commercials really solid an absolute rates and so how are you all thinking about payer mix.
These dynamics pretty get I mean is that a headwind in your mind or.
Any commentary there if you have the acuity mix number that would be great to the index. Thanks guys.
Yes.
I think the environment, we still read is very positive we continue to see solid economic indicators in or markets unemployment numbers.
We had anticipated commercial growth in that 1% to 2% range Weve, where we're running on a year to date basis. So I think would characterize the overall markets still as as favorable for US we know in any one period. They are subject to some some trends here or there very pleased with the.
Commercial volume trends in the second quarter, but overall and we look at the economic indicators, we look at the employment indicators, we look at or access to contracts. We've we still think thats, that's a pretty good environment for a for the network.
Relative to intensity.
Our case mix was basically flat for the quarter, we think theres. Some factors that are contributing to that we continue to see that are our clinical improvement initiatives are paying dividends as we've seen reducing sepsis, reducing ventilator days for critical care patients improving end of life.
All of these clinical initiatives do have some impact on our case mix metrics, but obviously brings a lot of value to our patients. So we think theres. Some probably a few other service line areas, but again I think the revenue clearance that we had in the quarter was very strong and inline with our expectations.
Thanks, Dave.
Well now picky question from Frank Morgan with RBC capital markets.
Good morning, you referenced a couple of smaller acquisitions that you may wrap up before the end of the year in terms of capital deployment.
I think I've seen some press accounts on some of those but I'm more curious about the opportunity for larger systems like you did with mission with Dent in Savannah.
Just curious are you seeing any change in the landscape there that might suggest some of those kind of opportunities maybe more likely thanks.
I don't know that the landscape per se. Frank This is Sam it's changing I think we are having.
For discussions I will say with systems, whether or not any those discussions materialize into a transaction that works for the seller for works for us is yet to be determined.
We as Bill indicated have a balance sheet that we think is positioned to absorb.
Hum.
Decent size acquisitions, we think our organizational capability and chassis. If you will is built to take on more and so.
We're looking we're talking but we don't know if anything will necessarily surface as we go through the next few years.
Obviously the market place is generally good for most of the not for profits that are out there and it will be forward thinking board that makes a decision in my estimation to want to do a strategic decision or transaction with us and looks.
Beyond sort of the short run so what does have to see how those discussions go.
We're excited about the acquisitions that we've done as Bill indicated we're seeing a progression in performance. We're accomplishing what we had anticipated internally with our modeling for the most part and we still see opportunities for improvement in them. So that gives us confidence that our capability and assimilating acquisitions.
In the organization are getting better.
And so as opportunities present themselves.
We're hopeful that we'll be able to take advantage of those.
Thanks, Brian .
Thank you.
Your next question comes from Steven valid claims with Barclays.
Alright, thanks, good morning.
So certainly lots of strong operating trends. This quarter. This was touched on a little bit, but obviously the same store revenue per adjusted admission you improved slightly from last quarter I didnt quite the snap back in Threeq you to the three into have to 4.5% trends at the company posted for about six quarters in a row before that metric softened up a little bit with the twoq.
So I guess I'm just curious if there's any just additional color around potential improvements in the variables that are hitting that you actually touched on the commercial surgeries, but curious if there's anything else kind of hitting that a little bit and do you see a glide path to that getting back to 4% near term just based on.
How things are progressing right now thanks.
Yeah. Thanks. This is bill so we've said, we anticipate 2% to 3% in that in our area and we said our year to date performance is right in the middle of that.
Confident that we saw the improving from the second quarter to third quarter. We look at our inpatient revenue per admission grew 4.2%, so really solid inpatient growth and that coupled with our outpatient revenue growth I'd tell you, we really don't see any structural or major factors that influence that there you know with the complexity of our revenue there are a lot of variables that impact.
Between mix and service acuity and so for us, but I think I characterize we're pleased with where we are on a year to date performance and again I don't see any really major changes.
Structural changes that should impact that materially.
Thanks, Okay, Alright appreciate extra color. Thanks.
Well now begin question from China.
That's.
Question, just one of your peers that have Arden reported that talked about being a bit more aggressive posture from some of the payers in threeq you in terms of denials on inpatient admission verse observation just wanted to see it doesn't look like yet from some of the fundamentals that you reported on commercial volumes and pricing, but just.
I want to see whether have you seen any of that similar dynamic in any of your marketing recently or not in the case.
Yeah. This is bill so those are always factors that.
We deal with in the administration of health, we called out observation in the past and we see that kind of cycle around the country in terms of utilizing observation in patients status thing.
Aisles is a challenge for the industry that we spent a considerable amount of time and effort appealing and making the clinical case and we we have seen that activity increase.
I'll characterize it as that material driver for us we've got strong operating indicators that we can overcome that but I.
I think the industry continues to deal with patient status seen an observation as well as denials and the adjudication of claims that we spent a considerable amount of time effort and resources and we think HC is well positioned to to advance our case when we do have those denials, but it's a factor for us than we have to deal with let me add to that bill.
I think we have efforts underway with a number of the major payers to take advantage of our technology their technology our size their size to create a more friction free environment for our patients and not have sort of the confusion that that centers around some of the billing processes both for them in.
Our members and for us and our patient and I'm optimistic that some of these major payers are going to move toward a more technology friendly capability for both organizations that yield a better answer for the patient in the member and so thats part of what we're attempting to do.
With our parallon capabilities and integrate that appropriately into some of the claims shops that these big payers have so that it's a much more efficient low cost transaction.
Environment for both organizations.
Thanks Scott.
Well now minutes, you, Matt Borsch with BMO capital markets.
Let me kick on the team that Scott was asking about different.
Slightly different.
I think which is we've heard that one of the largest payers is instituting a rule where all.
Hospital cited outpatient.
Teachers are going to have to go through.
Precertification at some sort I'm curious if you're if thats something on your radar screen in and whether you think that we'll have the impact in the fourth quarter.
Well this is Sam I don't anticipate any fourth quarter impact from that particular policy that you're referencing we have provisions inside of most of our contracts that speak to how the network will function the network being our inpatient facilities are outpatient hospital facilities and are able to Tory fussy.
All of these and so typically speaking we protect that network in a way that is appropriate.
For the payer in the patient and our physicians and ultimately we have dealt with a lot of these policies and procedures in the past around site selection and so forth and we'll continue to work with the payers on those to find the right location for the patient so they get the clinical outcome they want.
It's at the price point, that's appropriate and we're not anticipating any significant change in sort of the composition of our business as a result of that.
Yes.
Thanks, Matt.
We'll now move to Lance Wilkes Sanford Bernstein.
Yeah I was wondering for the.
For the quarter can you talk a little bit about the share taking in market and how much of that is payers strategy is maybe changes in steers networks and things like that as opposed to maybe physician directed with your owned or affiliated physicians and other sources strategies.
Okay. Thanks.
Sam.
No I don't.
I think if you go back to the comments. This is Sam that I made about our growth model and how we think about our growth model.
That model has been consistent for us over the years and we find that it resonates in the marketplace with the patient that resonates with the physician and it resonates with the payer and so the combination of those.
Component of our model, we think is yielding the market share gains that we have sustained over time in our most recent.
Information, we gained market share in 20 to 25 service lines that we monitor and we gained share in 73% of our markets, where we get information. So the basic elements of our growth model appropriately detailed appropriately resourced and.
Really well executed by our employees and our teams is yielding what we believed to be the value inside of this growth model again its value for our patients. We believe its value for our positions and ultimately we think its value for the payers and so our approach it's hard to sort of deconstruct one item.
To say that this item is what's driving it because it varies a little bit from one market to the other depending on the circumstances, but when we pull up in aggregate the performance of the company aggregate the strategy of the company and start to point to it. We think it takes all components of sort of the AC a flywheel if you will ultimately.
Rob this kind of consistent growth that we've been able to sustain for.
Extended periods of time.
Thank you Lance.
Well now take a question from Sarah James with Piper Jaffray.
Thank you.
Volumes are pretty strong across the board in the quarter did that putting pressure on using temporary staff, where do you guys sit down 10 staff usage and how impactful.
On your expense would then what broadly on expense control last quarter, you mentioned ongoing effort for supply chain and IP savings revenue cycle management. How are you thinking about how much further you can push these initiatives how much saving his left.
Thanks.
Sarah Yes. There. This is bill so we continue to be pleased with the operating cost performance of the company. Obviously, when we get good volume, we can leverage some of our fixed cost structure and pleased with the performance. We have as you probably know initiatives throughout all aspects of the company.
From continuing to manage labor costs to supply cost improvements to other operating and I think that yielded and showed itself in the third quarter. So we're very pleased with the performance very proud of our teams in terms of what they do to manage the cost structure of the company regarding temporary.
Labor that was an area we called out that we saw some really good improvement over the past call. It you know year year, and a half as were operators reduced or turnover and we reduced or contract labor tell you thats pretty stabilized on US right now year to date pleased.
When we do have volume peaks, we sometimes have to use that temporary labor, but we manage it within the whole context of of the labor line. So again I think for the quarter, we're pleased with where we stand and year to date, we continue to manage that 2% to 3% range. That's a solid number for us.
Thank you Sarah Thank you.
Well now mid teen Peter Costa with Wells Fargo Securities.
Good morning nice quarter.
Looks like in Washington, a lot of the healthcare issues are being sort of kicked into early next year things like surprise billing and dish. These delays going are you guys in any way or do you think it gives you just more tied to repair and is there any one of those that we should focus on more than some of the others in terms of some of it could have more of an impact given that.
Delays.
Well I think this is Sam again, I think obviously there are a lot of discussions going on in Washington about health care within the Democratic primary in within the legislative process.
Currently within.
The Washington, DC area and even in some states, we're seeing some healthcare policy discussions that we're having to engage in.
Obviously, we said this before we are supportive of legislation that protects the patient.
Whether thats up protecting the patient from a surprise bill as defied or in making sure that the patient has the transparency around their out of pocket cost. So we're supportive of those elements I think moving beyond those elements. We do have concerns and we don't believe that they're going to accomplish.
More than.
And what they need to accomplish around the patient. So those two pieces of legislation the surprise billing and the transparency again as it relates to the patient.
Being protected and getting the necessary information, we're supportive neither of those present any unusual challenges for us.
As we think about the future it's just that we.
I think if they overreach, if you will in some of those areas. It could create some challenges here or there as it relates to the dish I think we're still waiting for the final outcome on that but we don't anticipate that having a very significant impact on our Medicare revenue as we as we move into the 2020.
Thanks, Hi, thanks.
Okay, and we're going to take three more and then we're going to.
Close it off.
Okay perfect. Thank you Sarah will now take a question from Brian Tanquilut with Jefferies.
Hey, good morning, guys, congratulations on a great quarter.
Just really quick and simple question for me so as I think about the qualitative comments made about 10 to 2020 outlook, how should we be thinking about your views on margin expansion.
Factoring it obviously the improvement in the acquired hospitals from 2017, and then what percentage or is there M&A baked into that expectation as well incremental over what's already been announced thanks.
This is Sam obviously.
If we grow our volumes and we can keep our revenue on the high side of our guidance. We said this before.
Toward the 5% to 6% on revenue growth, which is what weve generally had over the past six or seven quarters. We believe we should be able to increase our same stores operating margin with that kind of revenue growth whether it comes in volume or in unit price combination.
We think that high enough to where we should be able to grow or operating margin all things being equal as it relates to the low end of the range. Our belief is that we should be able to maintain margins thereabouts with respect to our same stores portfolio is built spoke to a minute ago. Our models for all of our acquisition.
Have a steady improvement in margins over time. These are large institutions. They have a lot of people connect it to them and we have to be appropriate in how we.
Adjusted them to a more efficient environment and as we make those adjustments, we do anticipate margin improvements as to how that affects the company's overall performance I don't think it will call or the margins of the company as much as the same store performance, but our belief is that if we can grow.
Lower revenue in the upper side of our range, we should be able to incrementally generate.
Margin improvement I think in this quarter our revenue.
Clearance to EBITDA was roughly one of the half times, our average margin and Thats a good metric for us we.
So thats at 6.3% same store revenue growth, we were able to clear that revenue at about 1.5 times, our average margin heading into the quarter. So thats a pretty good sort of.
Microcosm of how we think about it there are puts and takes to that and they have to be considered from one quarter to the next but overtime.
That would be our approach and our thinking right.
Brian .
We'll now move Tim Matthew Gilmore with Baird.
Hey, Thanks for the question the self pay volume growth seem pretty moderate this quarter, even with the stronger our visit number I was hoping you could give some color on what drove that lower growth and self pay. It was was that just normal fluctuation quarter to quarter or anything new to call out that's helping to moderate that.
Well, we have been pleased with our performance to say the one thing I would call allows Virginia expanded Medicaid this year, so thats impacting some of that as we see conversions from self pay into Medicaid. So that's that's having a positive impact on that self pay trend, even if we normalize for that I tell you it's still within what our expectations are within.
In this.
Mid to higher single digit growth, even outside in Virginia Medicaid expansion.
Got it thanks very much.
Take care.
Last will now take on.
Yes that will be from John Branson with Raymond James.
Hey, good morning.
John I think are.
Pretty wide range in your Fourq you guide.
Do you think will continue to see more seasonality for elective procedures into Fourq, you and how did you and if so how did you factor that into your implied guidance.
Yeah. John This is building as I look at our guidance you know our full year numbers pretty much in line with what we're running generally close to that 9% on consolidated basis. Once you adjust for a few things do remind everyone fourth quarter of last year was a really strong quarter for us as well as in terms of seasonality.
Hey, you know there are always tends to be a little bit I tell you right now that hasn't been a major factor in our thinking we've seen that level out over the past several years. So we've just continue to look at the progression of the quarters throughout the year and our fourth quarter guidance is where that Weve, obviously, we've been changing.
Improving our guidance each quarter as we've gone through the year, where we stand right now looks to be pretty much consistent with what our year to date performances. So.
That's where we stand for 2019.
And just kind of as a follow up to that I know marks one of the cut me off but this it really doesn't question.
Yeah.
The Mercer Mercer survey showed another 300 Beps of high co pay plan growth for fiscal 20.
How are you guys thinking about if at all your patient engagement and financing strategies, just with this continue relentless growth and patient out of pocket.
Yes, John I think we handle that reasonably well I tell you from our view, we haven't seen a change that dramatically from what we've seen over the past several years, we're very pleased with our revenue cycle on our apparel on teams to to address that from our view I don't know if I see it accelerating as much as some of those headlines so its just.
Within the context of our total revenue clearance that we we manage through and one thing. This is Sam that bill and his team have done is I think create industry, leading patient protection policies to help the patient deal with some of the burdens that come with high deductible plans and in many instances.
Patients don't fully understand what they signed up for and then they hit the system and we have to work with them to understand explain to them their plans and so forth, but we've built I think a very.
Patient friendly protection policy, that's probably.
One of the most comprehensive ones in the industry to ensure that our engagement and our understanding with our patients is fair to them in a way that helps them get through some of the challenges that exist with these policies.
Great. Thanks, so much.
Thanks, John .
That does conclude our question and answer session for today I'd like to turn the presentation back over to our presenters for any additional or closing remarks.
Alright. Thanks, Thanks, I want to thank everyone for joining us today on the call.
As always them available if you have additional questions or clarification that you would need.
Just feel free to give me a call but anyway. Thanks again.
And once again that does conclude today's conference and we thank you all for your participation you may now disconnect.