Q1 2020 Earnings Call
Welcome to the H.C. healthcare first quarter 2020 earnings conference call.
This call is being recorded.
After the speaker's remarks will be a question and answer session. Please press star one on your telephone TQL for question.
At this time for opening remarks, and instructions I would like to turn the call over to Vice President of Investor Relations Mr. Mark Kimbrough. Please go ahead right. Thank you Marcella good morning, and welcome to all view on todays call or webcast with me. This morning. It is our CEO, Sam Hazen and CFO Bill.
And also joining us this morning as Dr., John Pearland, our Chief Medical Officer Salmon Bill will provide comments on the company's first quarter results and also the company's response to cope with 19, then we'll open up for questions.
Before I turn call over to Sam Let me remind everyone that your todays call contain any forward looking statements are based on managements current expectations numerous risks uncertainties and other factors may cause actual results to differ materially from those that might be expressed today.
More information on forward looking statements and those factors are listed in todays press release and our various FCC filings.
On this morning's call we may reference measures such as adjusted EBITDA and net income attributable to H.C. Healthcare, Inc.
Excluding losses or gains on the sales of facilities, which are non-GAAP financial measures.
A table, providing supplemental information on adjusted EBITDA on reconciling to net income attributable dates the eye health care Inc. to adjusted EBITDA is included in todays first quarter earnings release.
This morning's call is being recorded on a replay of the call will be available later today.
I'll now turn the call over to sale.
Good morning, and thank you for joining the call I'll focus my comments. This morning on the Cobot 19 pandemic and direct you to our earnings release for the financial result for the first quarter.
In general the first 80% of the quarter was very similar to the growth we had experienced over the past two years and was a reflection of the momentum we had heading into the year then the effects of the pandemic begin to hit us in mid March we will answer any questions you have about the first quarter's results.
Following our comments [noise].
The early planning and preparations we did for Kobin 19 involved updating clinical policies and operational guidance preparing supply chain with added inventory levels for key personal protective equipment drugs in ventilator equipment.
It also included building approaches to add capacity for potential surge and patient volumes leveraging data initiating our emergency operation Center and refining our management structure to execute.
Like most things in our company. The basic approach was to find ways to maximize unique enterprise capabilities leveraged financial resources and further develop corporate corporate relationships with others to support our hospitals.
HD a health care has a storied history, a responding well to disasters, such as natural disasters like hurricanes and floods as well as mass casualty events like the concert shooting in Las Vegas.
We use these past experiences to God and inform the planning and response during the crisis.
This was the first one we would face at enterprise scale. This event has required us to respond differently with a structure that included a more balanced approach between corporate support division coordination and facility execution.
As part of our plan, we developed five guiding principles that established a framework for decision, making and actions through the crisis.
These principles are simple yet extremely powerful and they endured a day.
They are as follows first protect our employees and physicians.
Second be there for patients third partner with others.
Next be a resource for communities and government and last accelerate the company through the crisis.
We started this effort and we still remain focused on protecting the safety and health of our employees and physicians as the first principle, we enhanced training established better pp acquisition distribution and control systems implemented a universal masking policy.
[music].
And improved lab testing turnaround times as part of this endeavor.
We have cared for approximately 5500 positive cobot 19 in patients so far across the company.
We were early to implement universal masking of care providers and to date, we have had limited exposures to employees and doctors.
A strong corporate culture is the bedrock of 88 health care.
This event has reinforced its importance and provided us with an opportunity to see it in action everyday.
Our dedicated and carrying employees are the lifeblood of the company.
To date, we have not laid off or furloughed, one employee as a result of the pandemic.
Instead, we adopted a pandemic pay program that supports approximately 80000 employees, who are not getting their normal hours as a result of reduced overall volumes.
Almost 11000, corporate and division colleagues graciously took a salary caught up 10% to 30% for April and may depending upon their compensation level.
As a show a solidarity for our caregivers in the hospitals.
Additionally, over 90% of our support staff are working productively from home.
This remote work model has provided insight into operational efficiencies for the future and is about one example of organizational learning from this event.
To further support our colleagues many within the organization have contributed to the H. CA Hope fund, which is a fiber one C. Charity that is exclusively focused on providing support to fellow colleagues when they experience hardships in their lives.
In less than one month, the fun has received unprecedented levels of contributions from employees.
Board members and the first foundation.
A true Testament to our culture mission and values.
Already the hope for on has over $1.3 million in grant applications that have either been paid or pending approval for more than 1200 employees.
It is times like these that test, whether we honor our mission or not.
We choose to honor it.
For affiliated physicians, we have implemented at covert 19 response model that includes partnering with other technical experts to assist them with navigating the cares act and accessing certain benefits available to them.
Also ha healthcare is a large medical office building landlord.
And we took a leadership position and many of our third party developers have followed in implementing a rent deferral program, which addresses medical practice, we're business disruption and maintains availability of medical care and related services for patients and the community.
This program, which has allowed through federal waivers provides relief for our tenants over the next few months.
We have also provided similar relief to physician partners and our ambulatory surgery centers.
We have great relationships with our physicians and we wanted to help them through this difficult period.
The second guiding principle was to be there for our patients and we have been our employees have shown up our physicians have shown up they have been on the front line and they have not wavered. During this pandemic crisis in meeting their responsibilities of placing patients one.
We've had ample capacity across our system to serve community needs.
We have used the logistical capabilities of our supply chain to move supplies and ventilator equipment to needed hospitals, we have increased significantly telemedicine capabilities to keep patients in touch with their physicians, we have numerous research projects underway with our Sarah cannon.
Research Institute as we continue to find ways to improve critical care medicine protocols for cobot 19 patients lab testing methods.
Drug therapies and much more and lastly, we have used our internal supplemental staffing organization to enhance personnel needs when and where necessary across the enterprise.
Hey, healthier as a nation of heroes I want to thank our colleagues and physicians for their unwavering commitment to patients there are tremendous sacrifice and hard work and the remarkable teamwork and dedication to each other.
Salute them.
And I know there community salute them as well.
The third principal was to partner with others and forge new relationships.
We have evolved existing relationships with other companies in the industry to collaborate and solve problems. We have developed new relationships that allowed us to accelerate protocols for inpatient cobot 19 testing that have become the norm for many health systems.
We have partnered with a technology company to advanced monitoring of community resources and illnesses.
We believe these relationships and others will benefit us in the future as we see many opportunities for further enhancing our shared commitment and creating more value for patients and the communities we serve.
I want to think the leadership of these organizations for their collaboration and commitment to support our hospitals.
The fourth guiding principle was to be a resource for the community and for government, both local and federal.
We have collaborated with local health systems health agencies first responders and many more our teams are working directly with FEMA CDC and recently, we took a leadership position in developing with the federal government and the American Hospital Association.
A dynamic ventilator response network that will utilize excess inventory across the country to support needs in cobot 19 hot spots as they arise.
We believe these type of public private sector partnerships are necessary and valuable in responding to a public health emergency of this type and in creating channels of understanding between sectors.
And the last guiding principle was to accelerate HCV health care through this crisis and position the company for success in the future.
This principle means that we are focused on using this pandemic to learn more and to learn faster. It demonstrates also our capacity for improving and becoming more agile at planning executing communicating and processing solutions more effectively and finally.
This principle means that we as a company take steps to navigate appropriately through this difficult in uncertain period for the benefit of all stakeholders.
We view our networks as part of in fundamental to community infrastructure.
Across the 43 communities, we serve our local health systems have a sacred responsibility to always be there when needed to meet this promise, we must take prudent and necessary actions as part of our planning we took a number of steps, which we believe are appropriate.
Protect the company and be there for the people we serve.
The culture of HCV healthcare is laser focused on the patient.
Our strategy, our decisions and our resource allocation revolve around that.
We also have a strong track record when it comes to making decisions that benefit our shareholders. The philosophy, we have with respect to shareholder value remains we continue to believe that a capital allocation strategy of reinvesting in our business and repurchasing stock.
We'll generate long term value for the company.
These strategies in the past.
Dividends have benefited our shareholders.
But given the uncertainty around this unprecedented pandemic.
We felt it prudent to adjust the company's current capital allocation strategy.
First we reduced capital spending by delaying certain projects and postponing various initiatives.
Second we suspended share buybacks under existing programs.
And third out on an abundance of caution we suspended the dividends.
We will continue to review the capital allocation strategy as we always do and plan to determine the appropriate adjustments as we get better visibility into our business.
As we look ahead to the next phases of this pandemic, which starts with the reboot of core operations.
We have developed various scenarios to inform the ranges of management actions necessary to respond appropriately to them.
These scenarios are built around three major variables.
First understanding the impact of the recently unemployed on payer mix is important including how many people either maintain existing employer sponsored insurance coverage through Cobra programs move to coverage from products sold in the exchanges enroll in Medicaid or.
Become uninsured.
Obviously, the timing of the economic recovery in government programs support will determine the outcome of this variable.
The second variable relates to the rebound in volume as directed by federal and state governments, we have suspended certain operations, especially elective business.
Which is mostly surgical and generally more profitable than medical business.
Additionally, emergency room visits have declined significantly during this event because of general concerns with Covance 19, and sheltering at home policies.
Our modeling includes different levels and different timelines for their rebound.
We are focused on a reboot plan.
That places us in the best possible position for success in resuming suspended operations. The reboot will require us to work with the governors on social distancing policies, which we believe will vary by market.
We have to understand what physicians need to restart their practices and finally, we have to respond to patients in a way that reassures them that we have the safe and protected care environment. They deserve.
We expect to bring on capacity in a conservative manner as markets allow and in the most efficient way possible during the reboot.
At this point, we believe the reboot phase will be accomplished across most of the company by the end of the second quarter.
The third variable is our cost reduction plan, we have developed three stages of cost reductions with each one being more significant should there be a longer time to recovery.
We have already executed on most of the first stage items and now we are implementing aspects of the second stage as we look to enter the reboot phase.
The third stage of our plan includes a response to a situation where we see structural changes to revenue we will be vigilant about determining if this happens but at this point. We believe it is too early to implement the measures in this third stage.
We have demonstrated over the years the ability to respond and adjust operations to various conditions I have faith in our teams and believe they will once again prove it in the face of this ongoing challenge.
As I've said many times in the past I believe ha healthcare is incredibly resilient because of our dedicated people. The scale, we have and the ability to leverage at uniquely to capitalize on business opportunities or address challenges.
We believe our resiliency, it's further enhanced by our diversification of markets diversification of services and a strong asset base, which can provide a certain level of strategic optionality and flexibility.
We have seen it demonstrated over a 50 plus year existence and I believe we will see it again.
In closing I'd say with confidence that we will get back to normal in time, but we realized it may be a new normal Fortunately I see ha healthcare as uniquely positioned to help define the new normal and capitalize on new opportunities.
Want to thank our shareholders again for their support of HCV healthcare and now we'll turn the call over to Bill for a few more comments.
Okay, great. Thank you Sam and good morning, everyone. Let me provide some additional information.
We reported our quarterly results this morning, but as Sam mentioned in the quarter really had two distinct periods to it the prepaid debit period, which was January onest through March 15th than the last half of March where we began to see the impact of the Cove and 19 pandemic.
Our reported same facility admission growth a 0.6% in the quarter comprised of about 5% growth through March 15th and then for the last half of March we saw an approximate 20% decline in admissions as compared to the prior year period.
Almost all of our key volume indicators reflected growth through March 15th and contraction in the last half of March as compared to the prior year period.
Same facility emergency room visits grew about 5% through March 15th and decline close to 30% and the last half of March as compared to the prior year.
Same facility inpatient surgeries grew about 2% through March 15th and declined about 20% in the last half of March.
Hospital based outpatient surgeries grew about 2% through March 15th and declined about 30% in the last half of the month.
Generally speaking most all volume statistics were adversely affected and results were comparable among the payer classes in essence, we saw strong results across the board until the impact of Cobot 19 started to materialize in the last half of March.
So rather than repeating all of our typical statistics, let me discuss briefly what we see as a different phases as we navigate through this event.
What we're seeing in April and most importantly, the actions we've taken as a management team to guide the company through this period.
First as we think about the pandemic broadly we see three phases that we believe will likely unfold in the coming months and quarters. A response phase a restart and recovery phase. We are in the first response phase that was highlighted started with our planning in the first quarter.
We then see moving to the restart phase as governmental restrictions on the elective procedures are lifted as we work with our affiliated physicians on clinical and operational protocols and hopefully we begin to see some reduction of cobot 19 activity.
We are fully focused and have begun our planning for this restart process.
We have multiple workstreams around securing adequate laboratory testing capabilities, securing additional personal protective equipment, developing and providing surgical support and other important areas. Our focus is to be ready and have the capability to service the needs of our communities as quickly confident.
Only and safely as possible, we are preparing and we'll be ready to serve many of the procedures that have been deferred or canceled.
A much depends on the easing of social and governmental restrictions. We believe this restart phase will begin towards the last half of the second quarter.
After the restart phase, we believe will remove into a recovery phase our base assumption has this occurring sometime during the summer.
There will be many factors influence how long this phase will last and what the impact will be to our operating results, but we are preparing for a range of scenarios with varying durations of the recovery period.
We believe the extent of the cobot Nineteens impact on the company will depend on many factors and we cannot predict the future implications as pandemic will have on our business trends at this time.
As a result and highlighted in our release, we are withdrawing our guidance for 2020.
We do believe the impact to the economy to the company will be most pronounced during this current response phase as we continue to see volume declines in April.
Thus far through April our inpatient admissions are running about 30% below the prior year.
Our emergency room visits are running about 50% below prior year as our inpatient surgeries.
Our hospital based outpatient surgeries are running about 70% below our prior year as most elective procedures have been differ.
We have started to see these volume declined stabilize over the past week.
We believe will begin to see some recovery of these volumes has different regions as the country begin to open up during the second half as the quarter.
So before I talk about some of our future planning, let me highlight some of the actions and precautionary measures, we have already taken to strengthen the companys financial flexibility.
First due to our early planning we entered into a 2 billion dollar short term credit facility to provide the company with additional liquidity.
As of March 30, Onest, we had $3.8 billion a liquidity available under our credit facilities.
In addition, we took a series of other actions to strengthen the Companys financial position.
We suspended our share repurchase program on March 13th we also began to reduce the company's planned capital expenditures and at this point anticipate reducing our capital spending anywhere from 1 billion to $1.5 billion for the remaining part of 2020.
We expect this will be accomplished from deferring new project starch, reducing some technology capital spending as well as reducing some routine capital expenditures.
Out of an abundance of caution we also announced this morning, the suspension of our dividend program.
We expect to evaluate resumption of the dividend program at a future date.
Our operating teams have also implemented a series of cost management strategies, including hiring and travel freezes, reducing our variable cost structure, reducing discretionary spending among many other efforts in short we believe the steps that we have implemented enhance the companys financial flexibility.
As we never navigate these unprecedented times.
In addition, we are also appreciative of the administrative administrations recognition of the burden. This pandemic is having on the nation's healthcare system and the passage of the cares Act that will help provide some relief to health care providers.
We anticipate that HCV will receive approximately $4 billion of accelerated Medicare payments provided by the carex and have already receive substantially all of these funds in the month of April.
As stipulated in the act for our hospitals. These monies will be repaid over an eight month time period beginning in August of 2020.
During April we also received approximately 700 million a bunch distributed from the first phase of the public health and social services Emergency fund.
We're working through providing the necessary at to stations that are part of the distribution process. We understand there are planned future distributions from this fund, but do not know what future funds if any we might receive at this point.
The cares Act also provided deferral of the employer portion of social security payroll taxes, which we estimate to be approximately $75 million a month starting in April of 2020.
These deferred amounts will have to be paid in late 21, and 22 and there are certain other aspects of the cares Act that we believe will provide benefit to the company in the future.
In our planning for potential impacts to the company, we're running different scenarios around major variables, such as payer mix volume rebound and cost reductions with different durations.
Given this is an ongoing an unprecedented public health event. There are just too many unknowns provide any specific estimates of the impact at this time.
While it is sterling still early in the process. What we have identified is a cascading range of additional management actions available to take dependent on how the business returns we have already implemented our stage one actions and we are implementing aspects of our second stages as we begin.
The restart process.
We have a third stage action plan available to execute if we believe there is a long term structural change to our revenue.
Ultimately, we are confident and HCS ability to manage through these phases. However, they may unfold.
So before I turn the call over to Mark Let me close by saying we believe the strengths.
Scale and resiliency of H.C.J., our longstanding and critical attributes that will service well during this time.
And it is important to note that our focus remains on the guiding principles at Sam outlined in his comments, including focusing on the safety and welfare of our employees and physicians, providing high quality care to our patients and appropriately managing the financial aspect to the company as we manage through the still.
Fickle period of time.
With that let me turn the call over to Mark to open it up for QNX alright. Thanks Bill.
As a reminder, please limit yourself to one question so that we might give as many as possible in the queue and opportunity to ask a question. This morning.
So you may now give instructions to those who would like to ask question.
Marcello.
Marcella.
[music].
We can't hear.
That your bill they hear me.
Thank you for your patience and so I thought you may have you might ask a question to please.
And the number one on Youtube okay.
Well pause for just about where we can run the company will.
So.
No.
Your first question comes lot of Sarah James. Please proceed maam. Your line is open. Please go ahead.
Hey, Sir thank you.
Hey, good morning, and thank you for all the detail.
Can you help us better understand.
What did return to Rebooking looks like city of different procedures in place for very geography that they may not be affected equally and and how should we think about what that looks like overall across your portfolio.
Yes.
Yes. This is Sam let me give you a sense of what we're seeing in what we're calling the reboot. That's that's our term and obviously we have each state implementing different policy decisions about social distancing elective care when certain businesses start and so forth thats the first point.
The second point I would add is that we are working with our physicians to understand their needs as they reboot also we've got a task force with surgeons and others on our team developing a work stream to assist them. So once we get a better sense of their backlog a better sense of what's allowed.
From.
Local government and state government will be able to start a scheduling process and ensure that we have.
The resources necessary to address their needs. We also have a work stream around our patients and making sure that we can reassure them that we have a safe environment, we've implemented universal precautions, we've implemented advanced lab testing.
We've stepped up our pp controls and patient cohort in processes. So again, we can reassure them and then finally I think it's about how do we bring on capacity, we won't immediately reopen with the existing capacity that we had in the middle of May So we're determining ways.
Two.
Reopened our capacity very efficiently.
We think this will result in some early consolidation of existing operations until we get to the next phase.
As I said in my comments were hopeful that the reboot process will be accomplished across all of our markets by the end of the second quarter, but thats still to be determined based upon some of these other.
Hurdles that have to be clear.
Thank you.
Alright, Thanks Sara.
[music].
And your next question comes to Peto Tiering of Deutsche Bank. Please let us open.
Please go ahead, please go to green.
His line that.
Next question.
But just from basket of Mitra Research. Please go ahead your line is.
Hi, Thanks, and good morning, and obviously a big thank you to the entire.
It's Asian, especially the clinical staff in HCV.
Question, just on cash flow initiatives and appreciate the comments that boats and bill made but what are you asking payers to do and if you look at sort of April as a proxy for wed like looks like under the current environment.
Sort of how do you think about cash flow needs and.
How long does this last until you have to do something external.
And again sort of keeping it using April is kind of your base.
Yes, Josh This is bill let me start well first as Sam mentioned, we think partnerships was a good it was an important guiding principle for us and we've been active discussion with our payers and we're very pleased with their support during this process and I think our normal kind of HR processes continue.
Doing on there. So we're thankful for their efforts on that you know relative to cash flow I don't know of April is a proxy as we've said we think the second quarter will be probably the most pronounced quarter in and hopefully we will begin to see some recovery throughout the quarter I think the steps that the company has taken that I mentioned regarding will occur.
Entity.
Position the company very well not only from where we finished the the first quarter, but you look at the additional actions that we've taken with the share repurchase program.
Adjustments to our capital spending and then as I mentioned with the administration support to the carriers Act our cash position is very strong from where we sit right now. So so we believe we're in a very strong position from liquidity standpoint, and our focus has really been working through.
To provide an unnecessary response during this timeframe.
Let me add to that Bill if I may that Sam I would like to acknowledge a number of the payers in particular I'd like to acknowledge United Health Group I think they took a very significant leadership position and relaxing some of their.
Claims edits and so forth and sped up payables in a very significant wave for our company as well as for the whole industry also other components of the health insurance industry, I think relaxed aspects of their pre authorizations and other type of controls to allow for smoother process.
In a more efficient turnover of payables on their side as well.
And Thats helped I think the industry as a whole it's helped us as well and we will continue to work with them I think in a very collaborative way to address issues that we have as well as issues that they have.
Thanks, Josh.
Next question please.
Our next question comes from the line of Ralph Jacoby from Citi. Your line is open.
Thanks, Good morning, and thanks for all the details.
Just hoping to understand a little more when you say restart in the back half of two Q sounds like that just means you're kind of states opening up and allowing elective procedures back I don't know if there's any more sort of details you can provide on that and then when you say recovery in the summer.
Can you just give us a little bit of a sense of what that means is that just you'll be sort of fully go to sort of see patients or should we think of it as we're 60 70, 80% sort of there in terms of volume Thats, but that's been lost any willingness to detail there would be helpful. Thanks.
I don't think we're in a position to give you any kind of percentages at this particular point when we define the first phase as the reboot, that's basically getting over the hurdles that our state requirements getting over some of the backlog. If you will on the elective cases that have been postponed.
And helping our physicians and others get back in business. That's what we mean by the reboot. The recovery period is really difficult to determine at this point, we don't know what the full effect.
In the damage to the economy are going to be we don't understand clearly what.
The uninsured levels are going to be so we anticipate the the of the effects to vary by market. We also believe that there will be major areas that influence.
Our business results as we've talked about we think patient confidence is very important and it's incumbent upon all health systems to create that reassurance that patients can come to a health system as they did just two months ago with confidence and that their safety can be protected so we have universe.
So precautions as I mentioned patient cohort thing.
Sufficient pp different lab testing capabilities to support this effort. We've also got to manage through the possibility of Akovaz 19, recurrence. So we're maintaining our surge capacity. So all of this converges on trying to understand a recovery process and we don't feel like we can.
Predict that at this particular point in time some of that is going to be determined of factors way outside of our control whether or not there's antiviral therapies that work or a vaccine that's developed at a time line.
Thats more.
Current than than than what's out there today. So all of this is part of what we're calling the recovery phase so as we get some visibility into the variables associated with that we can make adjustments in them and in a more informed manner and that's how we're thinking about it's we're not in a position at all to estimate per se.
Vintages or timelines.
So thats why we had to pull our guidance. That's why we took some of these other capital preservation tactics to ensure that we have the flexibility to make those adjustments in at appropriate way.
Okay. Thank you Ralph.
Next question please.
Next question comes from the line Scott Fidel Your line is open.
Hi, Thanks, and good morning.
I had a question just on on one of the specific reimbursement provisions in the cares funding, which was the the 20% bump to the Medicare DRG codes for koby related treatments and just interested in terms of how youre seeing in terms of discussions or already in terms of actions.
That's flowing through towards increased reimbursement that are type DRG or not.
The other payer classes, so specifically thinking about how is that it made plans commercial plan that also with.
Medicaid is doing anything similarly in terms of what they are evaluating on it on improving the reimbursement rates tied to cover related treatments backs.
Hey, Scott. This is bill let me, let me try and answer that one we are appreciative of that 20% add on for co with patients as part of the carriers Act I don't think in net net of all the things were experiencing that will be that material I think the most significant part of the cares act or the items.
I mentioned regarding the accelerated Medicare payments as well as distributions from the fun and there's other aspects of that I think will be beneficial for us. So we are appreciative of that 20% add on I can't tell you, we've actually seen it yet, but I fully expect it will play out in our claims as we adjudicated.
I think the M&A plans will adopt similar reimbursement programs at the federal government does I do not know about Medicaid programs, a yet we can follow up on that but given the code activity that we've seen and that amount I don't view that being that material I think the most significant things going on with the care Act.
Sure things that we've been in discussion with the policymakers about understanding just the overall impact to the health care system and the additional costs at health care providers are experiencing in preparation and and just as potential movement with uninsured patients. So so thats, where our focus has been.
Thanks Scott.
Next question please.
Your next question comes from the line of Kevin Fischbeck from Bank of America. Your line is open.
Great. Thanks.
Just wanted to follow up maybe on that one a little bit can you quantify.
Other provisions of the 700 million was good but I guess this.
And the sequestration impacts and then as far as that 700 million goes.
How and when would you expect to be able to kind of book that show up as revenue and is it show up in Q2 or does that have to phase in the as the year progresses.
Yes.
Thank you so anschel laddered, yes, I think the 7 million once we go through our processes will show up in revenue in Q2.
And and we'll see what other fund distributions may occur.
Regarding the other aspects, obviously I mentioned the two significant the sequestration aspect, we believe will be approximately $100 million force between the balance of the year at historical Medicare volume, So well that number would be adjusted with our Medicare volumes being a little shorter than where they've historically ran the dish was.
Really just to continue deferral, which we had already in our plans anticipated that would be deferral. So so I think the sequestration.
The fund distributions in the accelerated Medicare payments would be the most significant things we call out.
All right. Thanks, Kevin.
Next question.
Next question comes from the line Frank Morgan from RBC capital markets. Your line is open.
Good morning, I think you guys. Some news yesterday, a number of states that are important to utilize Texas in Tennessee.
Were some of the first states that are likely to reopen so I'm curious what your conversations have been like with the state agencies and those stage and then separately.
Curious of the physicians in the surgeons that you talk to what is their thought process right now in terms of the the start back or are they make anxious to go are they still has an any color there would be appreciated. Thank you.
Right. Thanks Spring Sam.
I think the health.
System industry in Tennessee, Texas, Florida, Colorado, All these different states is connected to the Governor's office. If you think about social distancing in the objective around social distancing. It was to prevent an over run of the healthcare system well in many of our markets.
The initial forecasts were sick sobering to be honest with you and they are they have come in significantly less and so we have ample capacity and we've learned a lot over this past five or six weeks and thats, what we shared with the different governors offices in local officials offices is that.
There has been significant learnings already that have come from this particular experience theres been increases in lab testing capacity. There has been improvement in PE supply chain inventory levels and there is a better understanding by our teams in our physicians on how to manage Cove at night.
18 patients so all of that is going to serve us well.
We believe and serve our communities well.
Down the road as we battled this particular event.
With respect to our physicians, it's mixed as you would expect many of our physicians are eager to go and want to address their backlog others still have questions around patient safety their own personal safety and how all of that is going to be managed again, we have a very specific work.
Extreme of a multi disciplinary team that includes surgeons on there to ensure that we have the right procedures in place to deal generally with the issues that we have but we're excited about the reopening in Texas.
We're excited about.
Tennessee, and we anticipate other states starting to relax some of these procedures and policies just as we mentioned over the course of the next few weeks, allowing us to start back on some of the care that's needed in the community. So we'll just have to wait and see how all.
That ramps up again its variable.
We'll just have to process of Franken, and hopefully have it behind us at the end of the second quarter.
Thanks, Brian Thank you.
Next question please.
Your next question comes from the line of Whit Mayo from FBR. Your line is open.
Hey, Thanks, Hey, Thanks. Good morning appreciate all the comments San can you maybe just go back and elaborate a little bit more on the comments you made around structural changes.
Any any thoughts on how you're thinking about it I know, it's a really big multi dimensional topic and then if you could comment on the aspects of the care sector. You set might provide long term benefits Bill just curious what you're you're referencing thanks.
I'll, let bill answer the question on the care sector, where would we think about structure, we are thinking about.
The demand side of the equation in the supply side of the equation.
And on the demand side, we're trying to judge fundamentally has there been a demand curve shift as a result of coven 19 by that we mean have income levels drop because of unemployment in uninsured that starts to influence buying patterns in health care services demand do patient.
Preferences with respect to concerns about cobot 19 caused patients tool to avoid the health system.
Pads telemedicine structurally changed.
Certain buying patterns, we don't have a sense of that yet, but those are variables that we're trying to understand on the supply side, we're trying to understand what happens with certain providers Willie actually exit the marketplace and start to again think about a shift in the supply curve will physicians changes occur and create changes to the.
Supply side of equation, there could be government regulations that create implications also on the supply side. Many of these we think create opportunities for HCP as we move forward and so those are the big structural variables with that we're trying to study stay close to.
Have responses in our are different phases of our plans, allowing us to respond appropriately and capitalize as well and opportunities as they develop a.
Bill.
On the Cures Act to sorry, if I said long term I didn't mean long term I think we view.
The cares act activity that we've seen really being more immediate term clearly through the accelerated payment program. We receive that was in a short term item to reckon that recognize the impact to the industry and we know those funds have to be repaid starting in August over an 18 month period of time I think the distributions from the pellet.
Public health fun is a great for storm and his recognition of the impact on there. So so we see most of the cares act activity being much more of an immediate term impact to recognize the disruption is going on with health care providers across the country.
Helpful. Thank you yes.
Your next question comes from the line of AJ Rice from Credit Suisse. Your line is open.
Hi, everybody.
Thanks for all the zones and commentary rapidly changing situation.
Just one clarification to your answer to with Theres been some talk about.
Switching room inpatient outpatient more as a result of all this or outpatient diocese I wondered about your comment there and it also on your.
Cost reduction programs sounds like the first two phases are well in hand.
And in the third one is sort of on hold if things continue at a tough pace.
Anyway to quantify at all how much.
Order of magnitude on the savings that you're trying to get in those programs.
Let me answer the first question I'll, let bill answer the second question AJ, we do have substitute settings as a variable on the demand side that we're studying does that mean, our womens hospitals across the organization or better positioned than commingled women services, we have.
Across many of HCV market dedicated women's hospitals that are separately controlled if you will and does that create advantage for us in obstetric services, possibly.
Well, we see more activity in ambulatory surgery centers again, thats, a possibility, but it's incumbent upon us in our hospitals to create the same kind of safe circumstances safe environment for outpatient surgical patients outpatient cardiology patients and so forth, but substitute settings are something that we are still.
And we are thinking about as we go through this transition and obviously, we believe we're already well prepared to respond to those and again it may create opportunities down the road, but there are levels of risk as well. So we have to balance all of that out, but we think again hgh diversification of.
Services diversification of facilities.
Diversification of markets give us opportunities to navigate through that transition better than most.
In Asia and this is bill on the cost side I think it's too early to try to quantify the impact of all of these clearly identified some of the stage one actions, which is really more focused around some of our immediate discretionary spending in our stage two that we're in now as we begin the review process basically goes deeper into our cost.
Structure, mostly around discretionary spend given our commitment to our employees and then you'd look at the stage three which we really aren't implementing yet, but we'll be prepared to if the circumstances require really get more into some of this changes to our fixed cost structure and going deeper into our cost side, but all of that and we'll we'll pace and will be depend.
And on how we see the volume returning as we go through these different phases.
Right A.J. thinking okay.
Your next question comes from the line.
Brian Tanquilut from Jefferies. Your line is open.
Hey, good morning, guys.
The question is for either Sam or Bill you guys have both been at the company through the past couple of recession.
So as we think about you just mentioned diversification.
How are you thinking about the ability.
To deliver growth as you had an impact market pull backs.
Also you have more specifically, there's a lot of see right now about Texas Houston to 10% Mark are you guys.
What do you.
He there how are you thinking about the oil industry impact on your business.
Alright, Thank you Brian.
Well, obviously this crisis is not.
A parallel necessarily to any other recession that we've been through its got public health connected to it as well as the economy. It's in the third variable as you just mentioned its energy. So we have three pressure points. If you will that we're trying to sort out I don't know that we have.
A read on the energy implications for Texas at this particular point in time again.
Texas is more diversified today than it's ever been obviously energy and that particular industry plays a huge part in the economy, but not as much as it did 10 years ago, and clearly not as much as it did 20 years ago.
For us we have 43 markets in the us.
Texas is clearly significant and we will continue to pay attention to those details.
But across the portfolio one market in Houston is less than 10% of the the company it won't necessarily fully influence the company's results, but those are difficult for us to ascertain at this point in time, and we really don't have any visibility into it and cannot speak to the implications just yet.
[music].
Right.
Thank you Brian.
Your next question comes from the line of Gary Taylor from JP Morgan Your line is open.
Hi, Good morning, guys, Yes, I would like to add my thanks to the Eightys leadership and its clinicians out there in the real world managing through this earnings and.
EBITDA side I.
I think the U.S. is really fortunate to have companies like yours for sure. So we really appreciate you.
At this point I just have a couple.
Items for Bill just to clarify.
On the 4 billion of accelerated Medicare payments for April presume that the cash flow only item not a piano item and then on the 75 million a month FICA tax.
Deferral is that also cash flow only since you ultimately have to pay will you still be accruing that in the stepping be buying or is that EBITDA benefit for 2020.
Yes, Gary first thanks for your comments and yes, you're correct on both of those are cash flow items, only there will be no piano impact of the accelerated Medicare payments or the deferral of the FICA.
Taxes, we will continue to accrue the expenses associated with the employer sponsored FICA taxes therapy analogies to payment gets deferred and the accelerated payments will just go on the balance sheet and until we go through the repayment cycle.
Great. Thank you. Thank you figure or sell we've got I think time for one more question. Please.
Last question comes from the line of Stephens allocate from Barclays. Your line is open.
Great. Thanks, Good morning, everyone and let me also a commend you and all the work you're doing during the pandemic.
So couple of questions here just on the first wave of $30 billion industry, leading pay that once we get beyond that when we think about the remaining 70 billion.
The total 100 billion from the care that.
Thank you mentioned at the visibility in that will not clear at the moment on timing et cetera, but is there any color at least on formulaically, how that might be paid out. Thanks.
Lastly, going to be tied to the Medicare fee for service Formula.
The AJ with AFFO talking about.
That amount.
$25000 previously that could change carry for the formula there.
Second quick follow up would just be around.
Payer mix comment.
Prepared remarks.
In the potential for people to move from commercial health insurance exchanges or Medicaid.
I guess just based on the timing of that sort of change I'm curious if thats something that might be more impactful. This year in 2020 or would that be something that maybe a bigger variable for 2021 in what you're thinking about that right.
Thanks, Dave Yes, Steve Let me, let me try to address at the end of the we do not have visibility into the formula of the distribution of the remaining funds we stay connected we've.
Given our views of different formulas, we understand there's all theres a lot of constituencies that are also doing the same so as of today. We just don't know without formula will be we understand or some discussion.
On on different metrics that will be tied to either going disproportionately to certain areas as a country and or considering uninsured or considering some disruption on there we think.
Physician, we've outlined is that almost every institutions impact to regardless of the number co with patients. So we'll just have to wait to see on that.
I think on the payer mix changes you're right that is obviously an important variable that we are modeling I think today is different maybe than in past areas, where because we have some states that have expanded Medicaid and that we have subsidies available for people to purchase coverage in the health insurance exchanges those are two.
Two different dynamics today that were in place the last time, we went through.
And economic cycle. So we'll have to see how that plays out my sense is those are longer term implications much more than they are shortage shorter terms, even as Cobra gets extended and as we are working with various community agencies to try to help people understand the potential coverage options in the event they find themselves unemploy.
For a period of time, so I do believe that will be on longer term impact and we'll just have to wait to see how that plays out.
All right Steven Thank you so much.
Marcella I think we're finished with the call listen I want to again, thank everyone for joining us today those of you shareholders of the company on the call and want to thank you for your support of the company.
And I will be around obviously to answer additional questions that you might have so feel free to give me a goal.
I have one for week. Thank you.
This concludes today's conference call you may now disconnect.
[music].