Q3 2019 Earnings Call
On your telephone keypad, if you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today CFO , Steve Filton. Thank you. Please go ahead.
Good morning, Alan Miller, our C. I would also joining us this morning.
Welcome you to this review of Universal Health Services' results for the third quarter ended September 32019.
During this conference call Alan I will be using words, such as believes expects anticipates estimates and similar words that represent forecasts projections and forward looking statements.
For anyone not familiar with the risks and uncertainties inherent in these forward looking statements I recommend a careful reading of the section on risk factors and forward looking statements on risk factors in our Form 10-K for the year ended December 31, 2018, and our Form 10-Q for the quarter ended June 32009.
Team.
We'd like to highlight just a couple of developments and business trends before opening the call up to questions.
As discussed in our press release last night, our reported net income attributable to you right jazz during the third quarter of 2019 was 97.2 million at $1.10 per diluted share count.
Calculated on the supplemental schedule, our adjusted net income attributable to you Hs during the third quarter 2019 was 176.3 million or $1.99 per diluted share.
Excluded from our adjusted net income during the third quarter of 2019 wasn't an aggregate unfavorable after tax impact of 79.1 million or 89 cents per diluted share most of which related to provision for half an impairment recorded in connection with our foundations recovering network business.
On a same facility basis in our acute care division revenues during the third quarter 2019 increased 9.3% over last year's comparable quarter.
The increased revenues resulted primarily from a 7.4% increasing adjusted admissions at a 1.6% increase in revenue per adjusted admission.
Well the same facility basis net revenues in our behavioral health Division increased 2.1% during the third quarter 2019, as compared to the third quarter of 2018.
During this years third quarter as compared to last years adjusted admissions to our behavioral health facilities owned for more than a year increased 0.5% and adjusted patient days increased 44%.
Revenue per adjusted admission increased 2% and revenue per adjusted patient day increase 2.2% during the third quarter of 2019 as compared to the comparable prior year quarter.
Based upon the operating trends and financial results experience. During the first nine months of 2019, we're revising our estimated range of adjusted net income attributable DHS would be your ended December 31, 2019 to $9.60 to $9, a 90 cents per diluted share from the previously provided range.
970 to 10 40 per diluted share.
This revised estimated guidance range, which excludes the unfavorable impact of the foundations asset impairment the unfavorable impact of the current year increase in the department of Justice Reserve and related provision for income taxes, and the favorable impact of the Hay S. U 2016 data show nine decreases.
The midpoint of the previously provided range by 3%.
Contributing to an included in the revised estimated earnings guidance range for the year ended December 31, 2019 is an annualized loss of 11 cents per diluted share recorded during the first nine months in 2019, resulting from a decrease in the market value of certain marketable securities held for investment and.
Classified as available for sale.
The revised estimated earnings guidance range for the full year 2019 assumes no change in the market value of these marketable securities during the fourth quarter of 2019.
For the nine months ended September 32019, our net cash provided by operating activities increased to 1.49 billion from 949 million generated during the comparable nine month period of 2018.
Our accounts receivable days outstanding decreased to 50 days during the third quarter of 2019 as compared to 54 days during the third quarter of 2018.
At September 32019, our ratio of debt to total capitalization declined to 42.3% as compared to 42.9% at September 32018.
We spent $156 million on capital expenditures during the third quarter of 2019, and 480 million during the first nine months of 2019.
During the first nine months of 2019, we completed it opened 183, new beds at some of our busiest acute care and behavioral health hospitals.
Just this week, we broke ground on a new acute care hospital in Reno, Nevada, which will house 200 paid private patient rooms, and is expected to open in 2022.
We also broke ground on a new five storey bed tower at our Centennial Hills hospitals in Las Vegas, Nevada, which will add 56 patient beds and increase capacity in the neonatal intensive care unit, the intensive care unit and intermediate and medical surgical units.
Our behavioral health joint venture pipeline continues to be very robust in September we announced a partnership with valley children's health care in which we will build a new 128 bed behavioral health facility in Madera, California, which is expected to open in 2022.
And earlier this week, we announced a partnership with on or health in which we will build a 120 bad behavioral health Hospital in Scottsdale, Arizona, which is estimated to open in 2021.
In conjunction with our stock repurchase program during the third quarter of 2019, we have repurchased approximately 551000 shares at an aggregate cost of 79.5 million.
[noise], an average of approximately $144 per share.
During the first nine months of 2019, we have repurchased approximately 4.11 million shares at an aggregate cost of 525 million an average of approximately $128 per share and since the inception of the program in 2014 through September 32019, we have reached.
Purchased approximately 14.78 million shares at an aggregate cost of approximately 1.76 billion, an average of approximately $119 per share.
Alan I would be pleased to answer your questions at this time.
[noise] as a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound or hash key please standby, while we compiled acuity roster.
Your first question comes from Steve <unk> with Barclays. Your line is open.
Good morning. This is Andrew mock on for Steve just wanted to follow up on the strong acute volumes in the quarter. How much visibility did you have on the elevated volumes and what steps can you take going forward to better capture earnings associated with those volumes.
Sure. So obviously, our acute care volumes have been strong all year long.
And frankly have been strong for the last several years I think reflecting the underlying strength of the end markets in which were located as well as our continued trends have increased market share.
Having said that volumes increased even more in the third quarter.
You'll recall that earlier in the year, we talked about an expectation that that could likely happen as we were bringing some new capital projects on in late 2018, and early 19, and I think we're seeing the impact of that as well, but as your question suggests that increased volume did create some challenges for us in the quarter.
As we tried to satisfy that volume.
We found ourselves in a position of having to use.
More premium pay that is temporary nurses registry nurses overtime shift differential et cetera, as well as other non labor costs.
Locums physicians and contract services et cetera, as was the volumes increased.
While we had some anticipation that we were gonna have to deal with those issues.
We acknowledge that were operating in most of our markets were pretty tight labor conditions, and even where.
We're anxious to fill vacancies on a permanent basis, we're not always able to do so immediately so that I think was the challenge in the quarter and why we were.
Unable to bring as much of that revenue and volume growth.
Pulled through to the EBITDA line, but I think we have a point of view that our operators. Historically have responded to the sort of challenges and will in short order drive greater efficiencies as they adjust to these higher level of volumes.
Great as a follow up is it fair to say that underlying wage growth remains within expectations in the low single digit percent range.
I think that is fair.
Okay. Thanks.
Your next question comes from Kevin Fischbeck. Your line is open.
Alright, great. Thanks, just wanted to.
I understand the guidance just a little bit.
I guess it kinda by about 30 cents and it looks like in the quarter 13 cents due to the Mcneil Securities dynamics, So Greg this guidance versus the last guidance.
17 cents I guess is operational or is there anything else. Besides EBITDA that changed in your in your view between previously today.
No I don't think so Kevin I think it effectively we were.
Adjusting our guidance as you suggest for the Miss in the third quarter and for that.
The negative.
Adjustment for the marketable securities that as you might expect we really haven't projecting [noise].
And well see what how you change the guidance you know you change the low end basically for the change in marketable securities would you change the high end by a whole lot more so can you talk a little bit about kind of I guess, maybe wasn't what the hope what's your expectation wise and I guess like what the implications for Q4.
As you kind of seems.
Optimistic that the a labor costs on those based on the acute side can be fixed.
Relatively quickly is that not going to be a Q4 dynamic.
Yeah, I mean, I think it's just the mechanical sort of exercise Kevin as you know, there's one quarter last year in order for us to get to the high end of that original guidance a the performance quite frankly, a both segments would have to have improved rather markedly I think while.
We have an expectation that we.
We can improve both of these units the underlying trends in both business segments.
You know in the next quarter. There's a you know by definition sort of almost a limited amount that we can do.
Okay and then just at the last question on the site side and I guess, we saw a slowdown in growth sequentially has there anything that you would point to there and I guess, how do you feel about the pace and timing of wrapping up back up to what you talked about a normalized growth rate.
Sure I mean, the revenue needle.
Is not moving a great deal in the behavioral segment, but I understand that people are very focused on and I think for the first three months of the year same store revenue grew by about 3%.
In the second quarter grew by about 2%. So it was a slight step down.
It was really nothing terribly extraordinary and.
In the third quarter. Some minor items, we had you know a currency headwind in the UK that was probably worth about a $3 million.
Headwind to EBITDA, we had a couple of million dollar headwind to EBITDA from the continued to ramp up and reopening of all our behavioral facility in Panama City, Florida that I've been close by hurt by Hurricane a year ago.
And we have a continued drag from our addiction treatment business, which was probably about three or $4 million negative EBITDA drag in the quarter other than that.
You know I would I wouldn't have call out anything sort of extraordinary.
I think we continued to be challenged in.
Selected markets in hospitals.
With labor shortage issues, where we're having to cap census, and turned away patients.
But I think you know over time, we think that we can correct those situations and that volume and revenue growth can be restored and the bagel segment.
Great. Thanks.
Your next question comes from Justin Lake Your line is open.
Thanks, Good morning can we talk a little bit about acute care pricing, Steve about wanting to have percent. This quarter. I know you look for closer to two and a half or same thing that might have been one of the headwinds to acute here and three Q. So can you can you walk us through what the what the.
During the quarter and go to highlight mix both on the commercial Nixon acuity, while you're doing that thanks.
Sure. So just to sort of refrain things for every one we went into the year with an expectation that acute care revenues would grow in the 5% to 6% range and we presume that that would be split pretty evenly between price and volume two and half to 3% increase in both.
Obviously from a volume perspective, we've been exceeding those numbers.
By a you know very significant amount all year long and and as I said before even increasing some in the third quarter.
On the pricing side, it's been a little volatile, but for the year on for the third quarter pricing as you know just in this sort of in that one of the half percent range, which is 100 125 basis points kind of short of our expectation I think in the third quarter, that's probably a function of maybe three disk.
Three trends one is with the extremely high you are volumes you are visits were up six or 7% in the quarter.
We've seen an increase in uninsured you know what we've seen our uninsured volumes pick up for the quarter.
We've also seen even though we had relatively strong surgical volumes in the quarter I think overall surgeries are up five or 6% in the quarter with overall admissions were up 7.5%.
Implies that we are seeing a slight skew to more medical case was rather than surgical cases.
That also sort of tends to mute acuity, a little bit and drive down pricing.
And and finally I think we're seeing some you know more aggressive behavior on the part of our payers and we saw an elevated level of denials in the quarter. So I think those three items elevated denials.
Slightly higher uncompensated care and slightly lower acuity as a.
As the three items driving that what I'll call hundred 125 basis points shortfall in pricing for the quarter.
Okay, and then if I could just follow up you know looking ahead to 2020, Steve I know your typical framework is a you know mid to high single digit acute and you know you were pretty conservative coming into the United to greatly so long behavioral probably in a flattish Rand.
Some share repurchases that is that how we should think about the framework for 2020 or anything around that to kind of moved the needle we should be considering thanks.
Yeah, I mean, we will not formally give our guidance until fourth quarter earnings at the end of February .
But I think the way that you've framed.
The underlying assumptions for the two business segments, you know kind of the way we framed good and in 2019 is you know I don't know that will feel terribly differently, but we certainly would like the benefit of the.
And so in four or five months to give us a better perspective on how the two businesses are trending.
Again, you know my overall comment so our work we're pleased with.
The acute care volumes, and they're really sort of an extraordinary levels.
And again I think that reflects the underlying strength of our franchises but.
We also expect that we'll be able to drive more efficiencies and better margins out of those out of that level of volume and revenue growth over time. It on the behavioral side. So we continue to work in a very focused way to restore the volume and revenue growth and I will point out one encouraging trend in the quarter and.
Behavioral as we've seen some.
Stabilization and length of stay which has really been kind of a troubling dynamic for us for several years. So.
If length of stay can stabilize and remain stabilized I think we've got a bunch of strategies in place to drive higher.
Yes, but when we give our guidance in four or five months will be more explicit about that for 2020.
Alright, Thanks, a lot from car.
Your next question comes from Ann Hynes Your line is open.
Hi, good morning.
Can you give a mission trends per pair class like the uninsured commercial and Medicare and Medicaid I know you had an uptick in uninsured are there any specific states that are more troubling than other states.
So and you know I'm, just sort of broadly try and give some color you know if overall admissions are growing by 7.5% same store adjusted admissions I think Medicare admissions are growing the fastest.
Then Medicaid.
Then on insured admissions and I think commercial admissions.
Continued to be positive better probably growing in sort of a low single digits, maybe three 4% and uninsured admissions, which I have been growing maybe five 6% in previous quarters or maybe it off you know eight or 9% just given again I think it's really driven by that increased level of.
VR activity in terms of sort of the geographic geographic kind of dispersion of that.
I think we've long so to disclose that our biggest.
Uninsured markets tend to be in South, Texas on an Amarillo.
That hasn't changed but I think you know the increase and in uncompensated volumes in the quarter is pretty widespread because again the strengthen our E. R volumes are pretty widespread in the quarter.
All right and one last question I'm I'm surprised you didn't buy back more shares in the quarter given your increase authorization last quarter.
What goes into making I'm that type of position on a quarterly basis and general can you talk about the acquisition market going forward.
Yes, we continue to pursue.
A great many acquisition a potential acquisition opportunities in both the acute behavioral space as well as you know organic capital investments and I described a few of those.
In my opening comments and you know again, particularly I think on the acute side I think that the extraordinary volume growth that we're experiencing is a function of at least import some of these really well placed capacity additions in our growing market. So we feel good about that strategy a the problem with with.
Potential acquisitions as we look at a lot to it's always hard to tell what will pay off in what won't <unk>.
We'll see that happening I mean, I think from our share repurchase perspective.
We talked about.
Buying back something like seven or $800 million worth of shares for the year and I think were sort of on that on pace to do that.
Think we respond to what we consider to be buying opportunities as they arise certainly earlier in the year.
I think we responded to some softness in the stock price that we thought was driven by all protocol exaggerate as certain factors like concern over Medicare for all or some of these sort of regulatory concerns or legislator concerns that we thought were sort of not very well placed so yeah. We continue to do that and again I think if you look.
Back and I think the the metrics that I described in my.
Opening remarks are reflective of the fact that over the last four or five years, we've done a very steady buyer of all our shares and I think we'll continue to do so.
And accelerate that activity, where it seems like there's an opportunity in the market for us to do so.
Alright. Thanks.
Your next question comes from Josh Raskin Your line is open.
Hi, Thanks, Good morning, So Steve and I know I'll admit it's probably a little bit of an unfair question is I'm not sure. There is a great answer, but just the volatility in the acute segment earnings. It seems like volumes have been relatively strong the whole time your revenue.
We are your revenues, but that's sort of in announcer the corridors I guess I'm I'm, just curious whats, creating that sort of EBITDA fluctuation I don't know if there's been big benefit design changes or you know fluor seasonality or if there's something else in the market or is it just you know it's a relatively small number of hospitals and you know quarters, you're short periods that.
Any thoughts on that would be helpful.
I I don't think it's an unfair question Josh I mean, there has been certainly more volatility, particularly in the acute care business. This year than I think we've been accustomed to historically you know in the first half of the year, we talked a lot about sort of a service line mix that.
A year started with really rather soft surgical volumes.
And that rebounded late in the first quarter and.
Continued into the second quarter and that sort of skewing of medical procedures in the first quarter and surgical procedures in the second quarter created that level of volatility.
In the third quarter or you know I. Just described you know what I've thought where the domain.
Metrics affecting kind of a slightly lower than expected.
Pricing or or revenue per unit.
Don't really know what to say you know I mean, it's a unit volatility is sort of what it is.
To the degree that that these sorts of things occur.
I think that be.
You know the business will be a little bit lumpier than we expect again I think what we view as most encouraging particularly in the acute care business.
How strong the volumes are and sort of how relatively consistently strong they banned and I think we have a point of view that as time goes on.
Our operators will be in a position regardless of some of the volatility in expenses and some of the volatility in pricing.
There's a there's a real advantage to be able to deal with those strong volumes in their real efficiencies that can be.
Garner from that and I think over time in over a more than a single quarter, we'll be able to do that.
Okay that makes a lot of sense and then just with in psych side.
Foundations, obviously hasn't worked out as expected.
Could you just give us the update on thoughts around the addiction treatment segment. Overall was just kind of more foundation specific or do you think this is sort of industry trends more consistent the industry trends are just be curious to get your perspectives on that segment specifically.
Sure well you know we made the point when we acquired foundations back in 2015 that.
This was not a new entre for us into the addiction treatment business you know for as long as we've been in the behavioral health segment, we've been in the addiction treatment business, we had dedicate dedicated I'll call them legacy facilities dedicated addiction treatment facilities, we offer addiction treatment services and units.
Many of our general psychiatric hospitals.
So.
We were really just increasing our investment in the addiction treatment business and really.
Acquiring a company that had a different model then what had been sort of our legacy model. So the foundations model was really premised on a few different things.
One was kind of direct to consumer marketing they had a very sophisticated infrastructure in which they you know advertised and on the Internet and on media and would get patients to call in contact them directly and then they would.
Process those patients for medical necessity.
And appropriate treatment locations et cetera. So yeah. It was sort of direct to consumer marketing there was kind of a blend does in and out of network pricing.
And there was a fair amount of travel for treatment for patients that I think what has really changed in terms of I'll call that that sort of a new style foundations model is that.
All of those metrics have really been challenged by the payers over the last several years. So there is much less out of network. It is really that almost now turn to you know largely in network model.
There is much less travel for tree man.
And there is also just you know I think more and more controlled by the payers and less and less by the consumers themselves about where treatment can be rendered. So it is just made in the last three or four years that underlying kind of new style model more challenging I will make the point that you know many of our legacy addiction treatment facilities.
And and vote the units within our general psychiatric hospitals have continued to function very well and respond to what I think we all recognize there's a growing.
Addiction illness issue in the U.S. and demand so.
You know the challenge that we've had and you know we were responding to is how do we adjust that foundations model and we're very focused on doing that and doing it quickly you know reducing the drag on our earnings and I think you know in short order will either revise the model or will you know envelop.
The foundations facilities more incident into our legacy model, but one way or the either I think we are committed to.
Reducing the drag on our earnings and you know in a very very short order.
Hi, there that are for the first few years after the acquisition Oh, we did very well in that business, but then the nature of the business changed as Steve pointed out.
How patients.
Were contacted contact travel and we're making adjustments to the change in the business.
Perfect. Thank you both.
Your next question comes from Scott Fidel Your line is open.
Hi, Thanks first question just might be helpful. Just given some of the different moving pieces in each of the segments just how in the third quarter. The shortfall broke down relative to the internal plan on between the acute care and behavioral business. It got sort of like a percentage breakdown of bad.
Huh.
Sure Scott so.
You know, sometimes we'll point out differences between our internal budget and the street consensus on an overall basis, our internal plan. This quarter was pretty close to the street consensus.
So obviously, we were short a plan I would say that shortfall was probably predominantly in the behavioral segment, maybe two thirds of the shortfall and behavioral and one third in acute.
On the acute side I think.
You know we were closer to our internal plan, although the sort of components of how you get there were a little bit different obviously, our volumes a lot higher than we expected and as we discussed earlier.
You know, our operating efficiencies and our pricing were little bit lower than we expected on behavioral side.
As we talked about you know.
Bargains and revenue took a slight modest step back in the quarter, but I think you know we're operating at a pretty high efficiency levels. There. So.
Even with a slight decline in revenues and volumes. It just makes a top to bring you know any further operating efficiencies out of the business.
Obviously, our prominent concern is the is the.
Quality of care to why patients. So we're not going to compromise that any way to put some pressure on them all.
Got it that's helpful. And then just as my follow up Steve I know there were some recent changes in taxes in the uncompensated care pool, but I know that there are some puts and takes around how that sort of translate that can you, maybe just sort of walk us through.
Now that increase will flow through them and then what some of the offsets are and how you're thinking about that on that basis. Thank you.
Yeah. So I you know I'm doing this a little bit of this from memory, Scott, but I believe you know that sort of the headline news was that Texas was increasing their pool of uncompensated care funds for the next fiscal year.
By about 25%.
But when we sort of ramp through the calculations on the allocations.
I think our perspective was that are you know our uncompensated care reimburse would increase by about eight or 9% in Texas in the coming here.
Okay. Thank you.
Your next question comes from Steve touched off your line is open.
Good morning, guys. Thanks for taking the question. So maybe I'll just ask a couple of quick ones maintenance things that maybe one on strategy I guess on acute could you give us a sense for what you think the impact of those new capital projects, where Steve that you'd called out on adjusted admissions and then maybe just the extra business day do you think that had any impact or is there any way to think through that.
Yeah.
So I'll take the second one first the but you know I know that lots of companies talk about et cetera, we tend to ignore these calendar impacts I think not because they're not real or they might not.
I have a short term impact, but I think our point of view is that over an extended period of time, you know extra week day in a quarter extra holiday anikas or whatever it is you know really doesn't make a difference in doesn't enter into the way we're managing the business.
You know as far as its difficult.
You know to say, sometimes precisely the impact of.
You know, we're adding capacity, we're adding new York capacity exactly how many of our you know incremental youre patients are related to new capacity or new beds or new Cath labs are new all ours.
But I think we definitely have a perspective and I think we talked about earlier in here you know I think in the first and second quarter people looked at the ramp up that we had in the back half of year, you know and question to little bit of a logic of why we were expecting stronger growth, particularly on the acute side in the back half of year on I think we responded at the time that we had.
A number of kind of while called a medium size 20 $535 million projects coming on things like an expanded emergency room at our manatee.
Florida Hospital or an expanded emergency room in inpatient capacities are Texoma facility index, Dennis in Texas, and again I think that.
You know the uptick in admissions for the quarter is reflective of some of that but in terms of being able to precisely.
Identify sort of you know exactly how much of the incremental admissions in the quarter are related to the capital as it's a little hard to do.
Fair enough and then just dish payments, where did those come in in Q3, and total and how that compared to a year ago their swing there.
Yes, so I know you're among those most focused on this schedule that we have in the 10-Q and 10-K that.
Describes our supplemental payments and so you know that because this will be more clearly more clear to see when we file our Q in a couple of weeks, but I think that our supplemental payments increased by about 24 million in the third quarter of 2019.
Nation of Texas, Uncompensated care in California, you Peel.
That compares I think to about a $19 million increase in the third quarter of last year. So the net tailwind was about $5 million.
In this years third quarter versus last years.
Perfect. Thanks, and then one more maintenance and then maybe one one question on strategy sorry, but the guidance just the just to confirm any maintaining guidance revenue and adjusted EBITDA heard irrs suspending what's the what's that either.
Yeah, I think mechanically it's always been interest in our practice too.
Kind of mid year, we revised our EPS guidance and we just sort of assume that people were revised revenue and EBITDA guidance proportionally.
Our enough Okay, and then finally, just the last on air sorry for the length there but.
Just for the overall trends and behavioral and kind of the reasons you cited in the release on it for the impairment charge and obviously just stellar results an acute continuing how are you guys think about capital allocation and expansion kind of between the businesses is because there isn't a start prioritizing acute expansion or do you think it's early to make such as determination just more strategically.
I would appreciate that thanks a lot.
Yeah look.
I've been doing this for a long time analysis and doing a lot longer than I have and I think you know we are sometimes amused because over the years. The tone of questions change you know we've gotten questions for years, you know why would we ever investment acute care business behavioral business is doing so much better and.
In recent years, you know maybe the tone of that as has changed a little bit I think we tend to view, our two business segments on a much longer term basis I think we believe that they are both very sound.
Growth oriented business is that you know each have faced challenges in the short term.
But you know and look I think that when you think about the behavioral business and you think about our.
Integration or joint venture strategy, it's reflective of the fact.
When we started this process of talking to acute care hospitals.
Taking over there a behavioral business as we kind of assumed that many of these not for profit acute care hospitals with just sort of turned over there acute care businesses I mean, there behavioral businesses to watching a lease beds to us sell their facilities to us and I think we've found that they remain.
Extremely bullish about these businesses, even though they haven't done a great job of managing them and they haven't been terribly efficient they acknowledge that the demand for behavioral services is doing nothing but growing and they are seeing more and more behavioral patients and their acute care he ours and so instead.
That I've, just leasing dads and taking over these units. So many of these projects have turned into new joint capital projects No building, new hospitals and building new beds with our acute care hospital partners to build new behavioral beds and I think it's just a reflection of of there.
There and our bullishness about the idea that this business is just the demand for it is just going to continue to grow for the foreseeable future. So we have no desire to.
In any way sort of reduce our exposure to this business, which you know certainly doesn't mean that we're not going to make selective decisions to.
You will reduce our exposure to businesses, whose model may not be working like foundations and increases in other areas, but overall, we remain very bullish about the behavioral business, let me just as a.
We make our investments.
Basically food for longer run and ER.
He.
Nonprofit sector on ourselves on looking long term for population health I think that's created a great news on their part.
For ability in the behavioral health sector, which they haven't had so we have a number of opportunities.
Before joint ventures, and Steve has enumerate or a few in his opening remarks.
And I just see that continuing.
Perfect. Thank you guys.
Your next question comes from AJ Rice Your line is open.
Hi, everybody I'm just.
Couple of things still sort of given some of the areas that have been already talked about middle of acute care. Obviously, the topline was strong but there was sort of this negative expense leverage that.
At the earnings from the Division. So if I think about the reasons did you get that kind of leverage I mean, obviously can be expenses are growing more rapidly just in another themselves. It doesn't sound like you're pointing to that sounds like you, maybe 20, a little bit to price and mix is an issue there. But then there's also this adjusting for the.
Increase in Miami, and I live in any way to breakout or give a little more cars, how much might be pricing mix versus the adjusting to the volumes, but I'd also be interested whether when you look at that adjusting staffing et cetera into the volumes do you think that is just the way. It goes in Oh evolve a period, where in the numbers are bound.
Thing around from quarter to quarter or do you look and say hey, maybe we don't have the timely data coming up to our operators that we need and we need to do some investment there or maybe our operators are flat footed responding I guess I'd be interested in your perspective on on how you assess that is that something you just got to live with or is there. Thank you can do.
Yes for it.
Okay.
So I think fundamentally AJ. The reason that the hospital business has always been one where there's a decent amount of operating leverage as volumes and revenues increase is because ultimately and I think it's particularly true in the queue business a good chunk of our expenses and cost structure is.
Fixed and semi fixed so when a new patient you know an incremental patient comes to the hospital in theory, the only really variable and incremental cost.
Is the nurse at the bed side, and whatever specific supplies and drugs at that patient consumes and so as a consequence in theory, there's a great deal of operating leverage that should be available as you get more and more incremental business and we've gotten a lot of incremental business in that.
You know in the last quarter and frankly over the last year. The challenge has been.
We're getting that business in a pretty robust economy with very low unemployment basically full employment and I think in our markets, maybe even more robust employment than than in the national average.
And as a consequence were filling a lot of that variable costs with much more expensive variable costs with overtime with temporary nurses registry nurse pay et cetera, and even you know locums physicians and all that sort of stuff and so you're I think mitigating a lot of.
What would be the traditional benefit over time and I don't think it's an over an extended period of time, but over time.
We'll solve that problem by filling vacancies more permanently by negotiating with vendors more effectively et cetera, but.
That's the challenge that's the short term challenge is that we're reducing what would otherwise be the traditional operating leverage with a lot of premium pay.
And sort of related expenses, but overtime, we should be able to solve that problem and I think our operators have demonstrated the ability to do that over long periods of time.
Great many times.
Okay, and then on a on the behavioral side.
Obviously, it's not a huge swing from approaching 3%.
Comparable growth same store growth to 2%, but obviously it had a meaningful impact on the trajectory of the province.
So I guess I'm wondering there we've heard about things like Medicaid dis enrollment the Medicaid numbers are down I know they rule gets a decent amount from state programs I know third quarter in particular can be volatile seasonal quarter for behavioral is this maybe just some more.
Abroad swing and seasonality the normal I guess, you've talked about for a couple of quarters now is linked to stay stable lives you need to be.
More aggressive and getting them.
Admissions through and that does it a little bit of an offset damaging to compensate for any flavor on those other items and how much. They may have I mean is this just an unusual seasonal swing that sometimes you get or is Medicaid attrition, having any impact.
So look I think you make it a decent 0.3rd quarter I think particularly in behavioral tends to always be our softest quarter, particularly in the adolescent business when kids are not in school.
We tend to get fewer referrals from.
In our adolescent business.
But that's I think you know true see every third quarter.
You know look the challenge and you sort of described it as you frame. The question is you know revenue grow drop from 3% in the first six months to 2% in the third quarter, it's a pretty.
Small decline.
I highlighted a few items earlier in the call that I thought contributed to that decline you know the currency.
Impact in the UK and the foundations business and.
The Panama city facility, but other than that I mean, there was nothing that I think we are operators could identify in the quarter that.
It was really a specific.
Negative trend in the quarter et cetera, which is why I think we have a point of view that.
We will rebound more in the next few quarters to the levels, we had been running.
Okay. Thanks, a lot.
Your next question comes from Sarah James Your line is open.
Thank you you mentioned that there were some increased in miles from payers on that side can you provide more color I'm not was there a pattern for the type of service that was seen Tonight and is it just a few payers or is it more of a widespread trend.
So I would say and again this is certainly not the first time that we mentioned the fact that our payers on frankly, both sides of the business have.
Got more aggressive in the last several years.
About admission criteria and medical necessity et cetera, I would say that probably the most common.
Area of denials on the acute side is over the issue of inpatient status versus observations. So it's really not so much an issue of whether a patient belongs in the hospital is as it is an issue of whether they should be categorized as an indication or an observation patient, obviously and as an inpatient they would.
Merit, a higher reimbursement.
I don't know whether the third quarter activity is really reflective of a change in behavior on the part of payers or just sort of.
Kind of a coincidental thing I will say Sarah is not.
Specific to a a specific payer or a specific geography.
It is something that we're seeing relatively widespread and to be fair.
It's not terribly new and we have a lot of interest infrastructure in place to deal.
With the issue of proper classification of patients we engage.
Third party expertise to crude to lend some objectivity to the process.
And some weight towards two to the degree that we're having disputes with our payers. So we continue to be focused on that but as I was just describing a little bit of the softness in pricing for the quarter I thought that the elevated level denials did contribute at least partially the that.
That's very helpful and one more clarification you you've talked a lot about that you know the mechanics, that's bringing on temporary staff when volume growth.
Hi, I'm wondering if you could help size the impact it might have had to expenses in the third quarter to keep also talked about it kind of subsiding in the next couple of quarters to just wondering how impactful it was on the third quarter specifically.
Well I guess, just broadly I would point to the fact that.
The expectation would be that and revenues are growing by 9% or over 9% as they were in the third quarter you would expect your expenses to be growing.
At a slower rate and particularly I think on the salary and the other operating expense line, because that's where you have a lot of your fixed and semi fixed costs I think supplies tend to be much more variable and I think if you look at the quarterly results.
Those expenses are growing you know all as fast if not faster than revenue and I think again. The main reason for that and the main reason, we're not able to drive more efficiencies are the dynamics I described before.
I don't know that I can size it any more precisely when that I think if it's just kind of that that brought impact you'll see on the financial statements.
Thank you.
Yeah.
Oh, Yeah before that question comes and let me.
Hello, everyone, a couple of things that I've been thinking about.
Number one the whole question of video Jay is largely completed and we've had very few to no questions about that Steve discussed or addiction treatment.
And he discussed a little bit about a in the UK or the value of the pound et cetera. There is a the government reports in the UK shortage or behavioral health beds, and we are growing there. So that's very positive and then addition at some point Brexit will be resolved.
Sure and that will stabilize the commentary I'm on the other thing is that go we have about a billion dollars available for stock repurchase and if I suspect we have a buying opportunity. We will certainly employ that show I just wanted to cover those showing.
We'll take the next question.
Your next question comes from Ralph a G. a kabi your line is open.
Thanks. Thanks. Good morning, he could you just remind us what percentage of admissions are uninsured at this point and then you just any general thoughts on what you do attribute that sort of creep or jump in the ER and the uninsured to at this point I know AJ asked about sort of the re verification.
Redetermination on the behavioral side do you think theres any sort of impact on that as Medicaid rolls maybe are under some pressure as it relates to sort of the acute care side of the business. Thanks.
Yes, I mean, I think I said earlier that.
And our admission growth was 75% for the quarter I think uninsured admissions probably grew by eight or 9%.
You know I think it's largely driven by emergency room activity, which tends to be a little bit more skewed to the uninsured I think most uninsured patients and or the U.S. health care system through acute care emergency room. So to the degree that are you at par activities, increasing I don't think we find that surprising that we're seeing more uninsured patients.
I think the other thing is there's been a fair amount of speculation that seems reasonable that.
Has the elimination of the individual mandate.
There are fewer people who.
Find it necessary to have.
Insurance, there, particularly exchange insurance under the CIA. So I think there is there probably is an uptick nationally and the number of Uninsureds, who are no longer concerned about the individual mandate and that's being reflect a little bit in our payer mix.
Okay Fair enough and then just to clarify Steve I. Just I was hoping you can give us just the percentage of admissions that are uninsured. So what percentage you for your admissions are uninsured at this point not necessarily the growth just what percentages.
Yes. So I think you know, we're just not connecting here, Ralph and what I said.
So I think.
You know probably somewhere in the seven or 8% range of our total admissions our uninsured.
Okay, sorry, Okay, Alright fair enough and then you know pop a little bit of maybe an unfair question. We're obviously less than a month into the fourth quarter, but you did this sort of in the first quarter. You did we're willing to sort of mentioned or any early indicators on either the surgical volume or the uninsured or just general mix at this point.
Yeah, I mean, the comments in the first quarter I think we're a little bit different because the main issue was this sort of you know the main issue that was sort of I think a drag in the first quarter was this negative medical surgical next and I think we were simply indicating that towards the end of the first quarter and into the second quarter.
You know the surgical mix that clearly strength and was continuing to strengthen into the second quarter.
You know I would say theres nothing extraordinary in our early.
View of October which is almost exclusively on a volume basis. I think you know the trends have largely continued in both businesses, but I think it's way too early to make any judgments about.
Yes, but the ultimate direction of the quarter at this 0.3 weeks into October .
Okay fair enough. Thank you.
Your next question comes from Peto Chickering Your line is open.
Good morning, guys. If I can go back to ages question on behavioral.
Well I understand the headwinds from FX and Panama City in the <unk> like addiction treatment programs.
So for FX. The other two issues are already embedded in the second half growth or you know in first half growth rates. So trying to is definitely down in all the move from 3% to 2% isn't a big move.
Neither is a move from 2% to 1%. So can you give us a little more detail into why you're confident it will bounce back you have good visibility and staffing being added Sony to treat patients away to new beds coming online is forgive US you know.
More reasons why you feel confident.
Yes look.
I mean, it's a fair comment, but I think I know our perspective is we had been growing the behavioral business in that sort of three 3.5% range for a relatively extended period of time. So I think we're viewing the third quarter performance as more anomalous.
But to your point I mean, you know, we certainly can't guarantee that and.
But our expectation and are confident as we move forward is based on.
Looking back on the last five or six quarters, where.
More often than we were hitting that three 3.5% more art than than the lower 2% Mark.
Okay fair enough on something not payments you talked about Texas.
I, just think about sort of fourth quarter and 2020 any changes in California, where all the states we should be aware of.
I mean that will again be clear when we file our Q and have the schedule, but I think.
We're expecting a a slight increase in supplemental payments in Q4, not not terribly material number.
Okay, and then last question, yes stocks are off today, because it would consider doing and accelerated share repo.
Yeah, I think we consider sort of all the alternatives again, I think one of the things that.
Makes us a bit reluctant to pursue sort of a big Bang kind of a strategy like that is we do like to keep our flexibility.
To respond to external operative other external opportunities as they arise, but I think where you know I think we're always open to consider what we think makes the most sense again I think we've done pretty well we view it as a as an opportunistic repurchasers of a pretty substantial number of shares over the last several years.
Great. Thanks, so much.
Your next question comes from Peter Costa Your line is open.
And operator, we're gonna here is our last question.
Good morning Erad Peter.
Outpatient seen stronger.
Hard to tell you know given gross to net and also related to the ongoing move into services. There are maybe perhaps the insurer denials of year volumes you capacity adds but one of the thing is I'm curious about is could you tell was there any kind of it increase related to patients being over their deductibles such that you might be then accelerate into the fourth quarter.
Sure.
Yeah, So Peter it's a good question.
The challenge for Us is.
That's a difficult information for us to really.
Kind of synthesize in a meaningful way I think the payers are in a much better position to kind of be able to answer that question I will say that historically.
I think this issue of.
Patients ex sort of accelerating activity as they satisfy their deductibles tends to be more of a fourth quarter.
Issue, but but again.
We tend to have to speculate about those trends because we just don't have enough.
Other database of information to read to be able to really.
On.
So to be able to evaluate that in a meaningful way.
And then the second question you outlined new openings from your capital expenditure programs and also higher labor costs due to agency from the higher volumes I'm curious if you some of those new openings from your capital spending programs, we're operating below capacity and so as you feel capacity there they will.
Come on line or is really the labor cost as you all tied to agency and then just new hires.
I think it's more the latter Peter I think just as you know the volumes increase obviously, we've got to have qualified clinical personnel to treat.
Bolus of incremental patients, which is quite significant.
And.
It's just expensive to do so.
Because we're we're paying a fair and overtime and registry pay again is what we call. It premium pay because we truly is that oftentimes, a 50 or 60 or 70% premium over.
Base pay so to the degree that you're using that sort of pay it can eat up your margins pretty quickly.
Okay. Thanks last question just more for Alan.
You talked about Brexit a little bit.
The impact of currency, but there's been so much uncertainty over there.
The Brexit right now is there any kind of slow down a volume or slowdown in referrals that you're getting or your business, there and could that accelerate if there is a brexit decision in the short term.
And then when that gets worst down the road is the.
Sort of the issues kind of become more clear.
I'll answer the question Peter I mean, I think the reality is that I think that demand for behavioral services in particular is really pretty insensitive to.
It's going on with Brexit.
You know that seems relatively intuitive.
Sort of issues that create demand for behavioral services are really going to be pretty independent of that those sort of exaggerates factors I do think the way in theory the business does get affected is.
If theres a change in the labor environment as a result of Brexit or if there's a change and you know NHS funding as a result of Brexit pressures that kind of a different story, but in terms and we don't necessarily anticipate those things happening, but in terms of demand I think we've seen really no impact as a result of the overarching Brexit uncertainty in the country.
Sorry.
Thank you.
Okay, operator, we'd like to thank everyone for their time and look forward to.
Our fourth quarter call in February .
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.