Q3 2020 Tenet Healthcare Corp Earnings Call
[music].
Hello, and welcome to Tokyo corporations third quarter 2020 earnings Conference call I will now turn the call over to read you didn't nethery, Vice President of Investor Relations for tenet.
Thank you. We're pleased to have you join us for a discussion of Tenda third quarter 2020 result.
Including an update on the impact of the cope with 19 pandemic <unk>.
And its senior management participating in todays call will be well underwritten, our executive Chairman and Chief Executive Officer sounds to Taria, President and Chief operating officer.
Dan Cancelmi Executive Vice President and Chief Financial Officer.
Our webcast. This morning includes an accompanying slide presentation, which has been posted to the Investor Relations section of our website Tenet health Dot Com was.
Listeners to this call are advise that certain statements made during our discussion today are forward looking and represent <unk> management.
But patients based on currently available information.
Actual results and plan to differ materially.
Hi, This is done under no obligation to update any forward looking statement they done subsequent information and.
After should take note of the cautionary statement slide included in today's presentation as well as the risk factors discussed in our most recent form 10-K.
Subsequent form 10-Q filing and other filings with the Securities and Exchange Commission with that I'll turn the call over to Ron.
Thank you Regina and thank you everybody for joining us today.
Our third quarter results I believe underscored the operational discipline.
We've put into action on an ongoing basis.
As the pandemic has continued to evolve in waves, we have successfully met each sharp turn with a carefully coordinated and active response every step we have taken remains anchored by our commitment to the highest standards of quality and safety.
We're very pleased with the performance of each of our business segments during the quarter. This.
Despite the COVID-19 case surge, which was about 60% plus yeah.
Late July and August compared to the second quarter across our system, we delivered a solid performance in every part of our business.
While we experienced a surge we safely handle caring for covered and non covered patients, notably our performance overall for the quarter was strong in delivering EBITDA at 621 million without grant income. Additionally, our free cash flow was 26% above 2019.
Before grant and Medicare advanced dollars were considered due in part to significant improvements from our conover operation.
However, due to the new guidance issued by HHS in September which was.
Which was markedly different than the original guidance. We had in June we had to reverse 70 million from Q2 in grant dollars.
Thus lowering our reported Q3 EBITDA to 551 million, which.
We strongly believe this guidance from HHS does not recognize the structural differences across complex networks involving multiple hospitals, including mix differences and reimbursement levels.
In the different service areas capital investment made in 2019 in early 2022, effectively improve patient access and quality as well as the incredible losses experienced in a shutdown that need to be recovered to ensure sustainable operations. We continue to discuss easy deals with JJ just in hopes of a more balanced outcome.
But regardless, we remain optimistic on our performance and our ability to continue to improve.
What should be more evident is that the operational enhancements. We've highlighted on the past earnings calls have played a major role in continuing to provide benefits across the enterprise. Our continued performance should substantiate. These are not one time events, but sustainable in critical foundational improvements.
For example, enhance the analytical tools and pull through a precise real time data, which we continue to refine and develop deeper insights.
Ali sharing from Covance learnings real time across the company summarize then transmitted and technical and operational scheduled calls that have resulted in improved response to patient needs and an average staph infection rate of approximately 3.75% versus a national average of approximately 13.4% that.
Focus ensures we remain open to both covered and non covered cases safely and effectively even while dealing with the isolated markets surges such as in the third quarter.
We've also demonstrated solid sustainable controls, which include response of workforce force adjustments and tightly controlled labor market.
Management.
Continued development of our IP platform focused on delivering a streamline set of tools utilization of cloud based infrastructure and a much improved cyber platform better purchasing and contracting methodologies tighter capital controls and allocations based on defined needs by market we.
We also added a highly qualified physician groups based on community need tighter controls and the tenant position resource group and consistent improvements to ensure physicians have an efficient and effective methodology to insist and their ability to support patients.
And finally, the continued expansion of our very capable and effective global business Center in Manila has been an important enhancement to our 24 seven support model.
In the hospitals volumes for the quarter ended close to 90% of pre covered levels.
This is continuing to be a solid recovery during the time period and remains very positive.
Our operators across our markets have responded very well given the nature of the complexities of the pandemic and we continue to perform tightly aligned to the volumes presented we've.
We've experienced historically high growth in net patient revenue per adjusted admission driven in part by a higher mix of more complex procedures and a stronger commercial mix coupled with the sustained efficiencies we've gained operationally.
Importantly, this set of improvements as represented both in the hospitals and the USPI further emphasizing the critical nature of how hospitals in U.S.B. I play an integral role with each other including sharing best practices.
We realize and operate everyday with the assumption that covance spikes will be part of what we face until the vaccine becomes widely deployed we.
We've learned how to deal with these spikes and have done so effectively.
We also are aware pin them the pandemic remains a threat and our focus on staff in facility safety will continue to be Paramount in our daily approach, we continue to use resources internally and externally, including contract labor to support our operations as needed we remain engaged in securing sufficient pp supplies and.
Medications to ensure we have adequate coverage.
Most importantly, we also realized that agility speed to respond and the need for clear precise communications, coupled with a strong and response of real time analytical platform throughout our system is a critical part of remaining in control of these changes in surges.
There is no perfect equation, but we do believe our learnings from each spike improves our responsiveness, our planning and furthers our effectiveness.
At U.S.P.I. the quarter was very strong demonstrated first and foremost by solid performance, but also carried by excellent quality and service recognition service line expansion and the growth of our medical staff.
Excluding grant income USPI had a significant EBITDA growth of 10% over prior year as you.
As you can see on the volume charts surgical cases remain relatively steady in terms of volume month to month, ending with September growth at 96% of the same period last year.
Even with the impact of the various shutdowns and cessation of nearly all elective care that began in the first quarter. The USPI team has remained diligent about energizing various operational programs to enhance facility offerings and expand our network. This includes adding service lines and complex procedures.
That benefit patients and physicians alike.
Despite the pandemic in its disruption we have successfully expanded our offerings at existing facilities with 54, New service line starts year to date include.
Including 24, muscular skeletal programs and outpatient joint growth of 51% year over year.
Another remarkable stat that underscores our reputation in the market is that we've added 1100, new surgeons, who have joined our USPI medical team during the first nine months of the year.
USPI facilities also continue to earn high marks for patient experience, including press Ganey Awards last month for delivering incredible patient centric care addition.
Additionally, 23 or 24 eligible USPI surgical hospitals are under four or five star rating in the July 2020, HCAP star rating as administered by CMS.
Particularly during coded we have adheres to the highest quality and safety standards out of.
Out of more than 688000, USPI surgical cases performed from mid March through September we have not had a single confirmed case of covered as a result of performing a surgical procedure at our facilities.
At the development front, we closed on the acquisition of at AMC in Washington, and the new surgical hospital and they have seen in the Central Valley of California in July together with local physicians and two of our existing health system partners.
Fresno surgical hospital is very well known in the community with a rich history and a strong reputation for quality and patient experience fact years ago. The hospital became one of the first facilities in the country to provide elective surgery and post surgical care in a non hospital setting.
Going forward, our pipeline remains active with opportunities strategic to strategically add to our network in Q4 and next year.
We're very enthusiastic about continuing our stated strategy to put muscle behind USPI to grow the platform and provide physicians and patients with more convenient options for care and to continue to evaluate our hospital portfolio for fit and make adjustments in that portfolio as we deem appropriate.
Conifer continues to execute very well, despite the pandemic providing value to its clients, where the traditional end to end solution and its newer point of service solutions. Conifer has remained focused on client satisfaction performance and liquidity I want to call out a few metrics that speak certain improve.
In its first.
First cash collections are up substantially as compared to the third quarter of last year.
Second conifer, our days ours or tenant a our days are significantly down versus the prior period third.
Third client satisfaction continues to improve maintaining a very strong positive trend and fourth expense controls remain solid with an EBITDA margin improvement of 270 basis points versus the prior year.
These steps forward are particularly notable given the extreme challenges created by the pandemic for conifer [noise].
Conifer spin remains ongoing in terms of the pre work already discussed our views the same as last quarter regarding the spin and we continue to maintain focus on the previous schedule.
We have filed the appropriate pay work on schedule with the IRS. So that important step is now underway.
Beyond that we continue to search for a new kind of for CEO and it made several meetings with several viable candidates in this process. The team overall, though is performing very well and we are pleased with the overall performance of the business.
Before turning the call to Dan to provide an overview of our financials I'll speak briefly to the critical support Weve received from the federal government related that's been demick.
The Medicare advance payments had been a critical source of liquidity, allowing us to focus on caregiving reached.
Recently, the repayment terms for these advances were amended allowing for an elongated captured period by CMS as well as a more reasonable interest rate for any balance outstanding at the end of the recapture period.
We expect to make the repayments within the allocated recapture timeframe and greatly appreciate this flexibility provided by CMS and HHS.
The cares Grand stimulus funds have also been extraordinarily helpful. As I mentioned HHS recently issued new guidance for the recognition of revenue associated with the stimulus funding.
Which has had a major impact on our results this quarter.
Due to the reversal from the second quarter.
While the change in methodology reduce our flexibility, we're taking steps to ensure the change is not negatively impact us overtime our sip.
Our system as I've mentioned as incurred a larger number of koby cases.
In general and we feel that we've taken it in stride.
And the change in methodology will place additional pressure on us in the recovery over time.
Relative to the Cobi cases, but we also believe we will continue to recover.
These care share grants stimulus funds a it will just be over a longer period of time than we thought.
We were originally going to based on the June guidance. So again, we're not concerned that have hurt us over time, we just think it is unfortunate that when we had to make the change.
So as I turn the call over to Dan I want to note. How pleased we are that we're able to take advantage of the capital markets position us even more favorably in terms of both debt maturities and interest rates well, while we do have many more hurdles you have to overcome the performance of the teams across the entire tenant portfolio remains excellent our performance in safety.
He quality and financially despite the pandemic is very positive.
And while we can sit here and parse various points and speculate on the unknown factually. We have consistently delivered we delivered results at or ahead of expectations before and during the pandemic I'm very proud of our caregivers and our support staff for their continued excellence so with those comments I'll turn it over to.
Dan for a discussion of the financials Dan.
Thanks, Ron and good morning, everyone. I also want to thank our frontline caregivers and employees across the company for their incredible efforts and exceptional execution during these difficult times.
I'll begin my remarks with slide five.
As you can see that we produce a very strong quarter from several perspectives adjusted EBITDA of 621 million before that 70 million grant income reversal.
The new government guidance was substantially above our expectations.
As for the quarter, despite the surge in Cove. It in many of our markets and also the EBITDA was about consensus estimates.
Exclude the grant numbers that were in the consensus numbers.
We generated very strong net revenue per case growth in our hospital and ambulatory businesses Debottleneck, some higher acuity cases, and a more favorable commercial payer mix.
Our continued tight control of costs mitigated the impact of incremental expenses from the pandemic.
Moving higher temporary labor premium pay and P.P. costs.
We also generated solid free cash flow in the quarter.
31 million or 26% growth, even if you exclude stimulus monies we received.
And we were pleased to be able to timely access the capital markets and eliminate any significant debt maturities until June 2023, well also reducing future annual cash interest payments by about $50 million.
Well, we typically do not comment on consensus we realize that the level of stimulus grant income and Lincoln senses, you don't always readily apparent to everyone. We estimate the third quarter consensus estimates reflect an average EBITDA benefit.
Grant income of about 70 million.
This compares to the 70 million negative reversal agreements, we had to record this quarter due to the new guidance.
Turning to our individual business units each segment continued to execute well demonstrating the ability to operationalize the strategic direction of the company.
Despite the day to day difficulties on the pandemic.
Our hospital segment produced historically high net revenue per adjusted admission growth of 17%.
Driven by a combination of higher patient acuity more favorable commercial trends as well as negotiated rate increases.
This helped in front, the incremental labor and supply costs associated with the significant increase in carbon cases over the summer.
Our carbon emissions during the third quarter were approximately 60% higher than what we experienced in the second quarter.
Obviously, I ambulatory business generated strong top line growth with revenue for surgical case up 13%.
Same facility system wide basis, which drove surgical net revenue growth of 6.3% compared to last year.
This growth was also attributable to higher patient acuity as loans grow do procedures from newer service lines.
In terms of adjusted EBITDA USPI delivered a year over year growth rate of 10%, excluding the 13 million grant income reversal.
Despite surgical volumes being about 6% lower than last year must be <unk> adjusted EBITDA margin for the quarter, excluding the grant reversal was 40.4% compared to 39.7% last year.
Conifer also continues to exceed our expectations, especially its kass collection performance from hospitals and its other clients.
Conifer's adjusted EBITDA was 7% higher than last year and as Ron pointed out its margins increased by 270 basis points, primarily due to various cost efficiency initiatives and theyve been executing on and over the past.
No quarters.
Let's turn to slide six now.
Our volumes trended during the quarter.
Despite the surge in carbon cases.
No admissions IAR volumes and surgeries held relatively steady compared with the month of June well outpatient visits grew as patients became more comfortable with the safety of seeking elective care.
Probably more complex in emerging procedures have recovered from the pandemic at a stronger pace no less critical lower acuity care.
Yeah. Our volumes are an example of more critical care recovering at a faster rate and they are inpatient volumes during the quarter well not 93% of last year's levels, while outpatient knee our volumes were about 74% of last year's levels.
As I mentioned earlier, the higher acuity more emergent mix drove our very strong hospital net revenue per adjusted admission growth, 17% in the quarter.
Are you actually I surgical volume trends improved during the quarter compared to the month of June recovering to about 96% of last years levels in September and 94% for the entire quarter.
Similar to our hospitals U.S.B. I was more critical higher acuity cases have rebounded at a stronger rate than lower acuity cases.
This mix also drove U.S.B. I was very strong net revenue per case growth as well.
Well, they're not on the slide if you look at the supplemental materials, we posted.
Also see on page six the U.S. the eyes Nonsurgical visits grew about 8% in the quarter and that was driven by very strong growth at our urgent care centers.
Let's now move to slide seven which reflects our EBITDA trend it each month during the quarter with and without the stimulus grant funds.
As we mentioned last quarter, we are providing this monthly information externally in the interest of full transparency given the unprecedented nature of the pandemic as a reminder, the top section of the slide shows our monthly EBITDA on the quarter without the grants the middle section of this slide highlights the grant income we recognized in July.
Hi, guys before the the rules were changed and then we also went out the amount we had to reverse in September due to the new guidance.
And the bottom section of this slide summarizes our EBITDA, including the green activity.
You will see in the top section of the slide even as covered cases began to ramp back up again in July our EBITDA in July excluding the grants.
220 million, which was consistent with the month of June as.
It's kind of a cases continue to accelerate our August results did moderate but our EBITDA in September grew sequentially as we continued to adapt operationally and cobrand levels decline.
An important point is that before the grant reversal, our $220 million EBITDA performance in the month of September was above our original pre covered budget for the month, even though our volumes were about 5% to 25% lower than last year, depending on which we bought.
The metric you look at.
Overall, we were pleased with how our operators managed through these times and produced EBITDA for the quarter before the Graham reversal that was substantially above our expectations. Despite the elevated covered levels.
Next let's go to slide eight and review our liquidity.
We currently have sufficient cash resources and available liquidity under our $1.9 billion line of credit facilities.
As of Monday, we had approximately 3.3 billion of cash on hand, and no borrowings outstanding under the line.
Let me now provide an update on Medicare advances.
As you May recall, we applied for and received approximately 1.5 billion accelerated payments substantially all of which was received in the second quarter.
Originally repayment of the advances was scheduled to begin in August.
However, in the continuing resolution signed by the President on October 1st.
The repayment timeline for the advances was was extended.
The repayment period now begins next April April 21, rather than this past August and extends through September of 2022.
Also any balances not repaid by September 22 will be subject to a 4% interest rate rather than a 10.25% rate under the original repayment terms.
We certainly appreciate this government support and the repayment period being extended as it alleviates the substantial near term cash outflow providers were facing while confronting the challenges of the pandemic.
Also just an update on the amount of grant funds. We received we received additional stimulus grant funds of 178 million in the quarter and to date, we've received about 890 million of grant funds.
Of this amount 453 million has been earned so far and recognized as grant income.
Given the new guidance and the uncertainty as to the level of future carbon cases in cost it is difficult to purchase a deck with any precision how much of the remaining grants of about 437 million will be earned by us in future months.
Before I wrap up my remarks lets now turn to slide nine to discuss our noteworthy cash inflows and outflows during the quarter.
You may recall last quarter that we discussed our objective was despite the pandemic pandemic was to not burned through a material amount of cash in the second quarter, excluding stimulus funding and proceeds from issuance of new nodes.
We did accomplish that last quarter and we did so as well again this quarter in fact in Q3, we produced strong net cash flow growth, excluding those items I mentioned of about 231 million.
One other item I want to point out was that.
We did accelerate 105 million of interest payments into the third quarter that normally would have been paid in in October and that was due to us early retiring our notes that were scheduled to mature in 2022.
We also continue to be very diligent and thoughtful about how we allocate capital including Capex Youre.
You'll recall at the outset of the pandemic week to ensure we preserved sufficient liquidity, we dialed back our anticipated capex spend for 2020 by about 40% to 425 million from our original estimate which was 725 million.
Given the various actions we've taken over the past two quarters to enhance liquidity and our improved cash collection trends driven in large part by conifer's strong performance. We now estimate that are 2020, capex spend will be about 525 million.
These additional investments are primarily attributable to growth capital opportunities unnecessary spend for covance.
With that I'll end by saying again that we are incredibly grateful for their unwavering efforts of our patient care givers and the employees during the pandemic.
I'll now turn the call back over to Ron.
Thanks, Dan.
Really no other comments to add I think we've covered everything.
Everything can be smart if we get into questions. So we've got about half an hour.
Half an hour I guess dedicated left here couple of questions. So operator.
Thank you the kind of management team is now ready to take your questions to help ensure all those in the queue were given an opportunity.
And I ask that you. Please limit yourself to one question if you'd like to be placed in the question queue. Please press star one on your telephone keypad.
Because thats star one to be placed in the question queue and we ask that you. Please limit yourselves to one question.
Our first question today is coming from AJ Rice from Credit Suisse. Your line is now live.
Hi, everybody I understand.
You guys have obviously been trying to do it.
Do assessments of the market data analytics around these different hot spots and you sort of had a unique portfolio, where you had some markets that were hit early on.
The hard and then you're in other markets that are hot spots developed can you, maybe just drill down a little bit on how you feel you are being able to predict where the night hot spots are going to be what you've learned in terms of managing through a hot spot.
But also assessing how the community managing through that hot spots and then coming out the other end.
And recapturing deferred procedures and things like that.
Okay Big long Sherman there, Tom you want to handle it yeah sure Ajay. Thanks, Thanks for the question.
No I think we in terms of predicting where the hotspots are going to be I mean, we obviously follow very carefully.
Lot of the public health information, that's available with respect to new testing positive testing incidence rates and the you know you can really track the spread of the virus that way pretty quickly.
Obviously by the time. These cases are hitting urgent care centers or emergency departments. You know it becomes quite obvious there's going to be a surge I mean, what we've learned is generally speaking there is somewhere between four to six week a cycle that you'll go through in a market. When there was a covance search usually there is a couple of weeks or ramping up you end up spending about.
Four weeks kind of it at a high level plateau or and you know that mix includes both med surge and I see you patients.
And then it and then it sort of ramps its way down are our priority during that phase obviously is maintaining.
Very good throughput and operations within our environment separating covered from Noncovered care, our focus on you know having adequate P.P. and testing.
Ah has allowed us to make sure that you know we are able to process those patients.
Adequately, but also keep our staff safe, we've not had especially in recent surge is any need to.
Shutdown procedures or elective surgeries, that's a very important point, because we want to maintain access for the can.
For the community and then as those cases ramp back down.
No we ramp back up very very quickly that that's probably the most important thing that I focus on which is at the end of that six week period that recovery work is a playbook that we've got down from.
Having had a number of markets go through surges and our September results are very much a reflection of that you know if you look at the Cove and activity in the quarter.
It was very much.
Spiking in the first part of the quarter by the end of the quarter as those cases, it ramped back down we're very capable of getting back to normal business getting anything that was deferred on the schedule and most importantly, a working with our community and doctors to ensure.
To ensure that the patients and the community realize that they can come back into the hospital for necessary care and that really that really is is why when you look at September.
The results reflect basically our ability to get back to business as usual.
From from patient care and from an earnings standpoint.
Oh.
Okay, great. Thanks.
Thank you. Our next question today is coming from Josh Raskin from that from research. Your line is our lives.
Hi, Thank you Jack good morning appreciate that.
Second question is Iraq, I might ask about the increase in revenue per adjusted admission and just try to break out the buckets, there and how much of that is coming from actual cultivate patients. It sounds like that was a bigger impact than I expected how much of it is mix, specifically commercial and how much of it is actual acuity and then we.
Dan Matt how are you and your position are as prioritizing that patients and their procedures that come back first it sounds like you're getting what the high acuity and what the commercial back and I assume that similar [noise].
[music].
Yeah, Hey, Josh it's Dan I'll start off and then Oh, so I'm going to address the last point, but didnt listen to 17% growth in and the revenue per case was on the hospital side all three of those coupons have some element to it.
The predominant factor driving the growth and the net revenue per adjusted admit is due to the higher acuity cases, I listened to cope with part of that right, but that's not the primary driver of it you have the the mix of higher.
Acuity cases, you have a stronger commercial mix compared.
Compared to our overall volume trends, which you know it makes sense to a large degree Medicare patients and probably a little more I'm reluctant to seek care unless it's necessary. So that lead commercial trends are more favorable than the overall you over.
All trends, there's also the growth in the revenue yield due to our our contracting position you know we've been very clear about that over time.
We're very well contracted this year and into next year and you know our growth just from you know negotiated rates depending on you know the facility you can be in depending on the payer can be you know three four or 5% or so so you know they've all played a part I would say you know.
In terms of you know let me just address is you know coated and leaves the revenue yield from that I would say this before I turn it over to the song.
Yes, the in aggregate the.
Net revenue for.
Covered cases is higher than the overall net revenue per minute, okay, but you gotta keep in mind you half the case mix adjusted that that rate. There is obviously incremental cost caring for those type of patients and when you case mix. It just [noise] that right.
That rate eight.
It's very similar to what our overall net per admission is.
And the other thing I'd point out in terms of the mix of the covered patients.
Covered patients related to commercial payers is roughly 20% of the total total coded cases. So you know the other 80% is either on Medicare Medicaid or uninsured as you well know obviously the commercial reimbursement.
Would be a more favorable than than the other payers now, but again, it's very important to consider the fact that you need case mix adjusted those particular type of HM services and consider the costs the incremental costs associated with them.
Yeah, the dean of the profitability isn't necessarily there that a lot of people think is there.
I don't know if there's anything else you want to add on yeah.
Yeah, I mean, I'd make a couple of points to you again, just thinking about what I said, which is the most important thing to really look at it.
Is the nature of the recovery. So let me frame. It. This way you know when you think about the number of covered cases from the beginning of the quarter declining at the end of the quarter and you know were basically able to maintain and rebuild the business at a roughly 10% under prior year. The thing I would tell you is that.
[laughter] the commercial as Dan pointed out the commercial admissions performed better than that and more importantly, given our long term strategy of building a base of higher acuity procedures and services are.
Our commercial surgeries and you can see the surgery numbers look more attractive even the commercial surgeries were performing or by the end of the quarter better than and then those averages. So you haven't surgeries are not really relevant in the cobot environment. So what we did was we built back consistent with our long term strategy the strength.
In the surgical environment that we have been pursuing for the last couple of years, including having a number of markets that were performing better than prior year, especially in commercial surgeries and you know if you say, what's driving that well I mean, even over the last four or five months in primarily in the last quarter you know.
You know Weve opened up in built two new trauma programs, we have a a new and expanded neurosurgical in spine program in South Florida across multiple hospitals, that's been coordinated big push in surgical oncology and building a network in San Antonio I mean, there are just a number of things in Rio.
In rebuilding the strength in our business very specifically consistent with our long term strategy that we have continued to execute on over this period of time and that's helping to drive to strengthen the recovery. So you know.
You know as I pointed out before the.
The cobot cases may come and go.
Even on a commercial basis, because the cost of those cases are high I would never want to substitute coated commercial case for you know the types of business that we're building. We obviously do the best we can to take care of those patients but were very quick to recover in the north.
The normal lines of business that weve been strategically focused on.
All right. Thanks.
Thank you. Our next question today is coming from Justin Lake from Wolfe Research Your line is alive.
Hi, Good morning. This is Eugene on for Justin Thanks for the question.
As a follow up to Josh <unk> question earlier are you able to quantify the number of corporate related and they shipped during the quarter.
And I think you said kobin, mainly impact that July and August. So can you comment on how your admission volume in acuity, we're tracking towards the end of September and possibly early October. Thank you.
Yeah. This is Dan let me, let me address couple of his points the lean to the cobot inpatient sensors and in the third.
Third quarter was about 15000 cases, and do that as we pointed out in our remarks, you know its roughly 60% higher than than the second quarter. You know one thing. It's it's important to keep in mind with the pre.
It is conversation we were just having you know the the sequential change in earnings from August to September.
It was not due to the mirror growth and overall cases are in fact, our admissions were actually about 1% lower in September compared to August. So you see the impact of the cobot cases have on earnings in <unk>.
Yes, when the kind of the cases were higher than September or was it did it had an impact on earnings that sequential growth in EBITDA from August to September was not just due to well cases were hired and you don't normally because that sequentially what happened our IRA aggregate volumes in September were roughly.
On a 1% compared to August, but you see the growth and in the earnings from August to September as a kind of a cases HM declined.
Thank you and next question is coming from Peter occurring from Deutsche Bank. Your line is that right.
Hi, Good morning, guys. Thanks for taking my questions I'll start to ask the same question in a different way, there's obviously a pretty big debate on investment community about the sustainability of hostile EBITDA observed during third quarter. So a multipart question any chance you can give us or how much sort of EBITDA in third quarter came from Covidiens more specifically.
How much you saw in September I understand it doesn't get a whole picture at least help us or understand how that works and more importantly can you give us color on your October trends, what you've seen what are you seeing you know in November or scheduling of blocks of time, and then walk us through sort of headwinds and Tailwinds help us think about the revenues and margins over the next few months well that's.
Well, that's three questions, we'll do our best so.
Yeah no start it.
They paid US then yeah, let me, let me try to address that and they're run or something so in in terms of yeah. We obviously haven't provided EBITDA by service line, but again I'll go back to when co bid levels were much higher in August.
It had an impact on our earnings.
I guess you could see the sequential change.
Huh from August to September.
Our again, our aggregate volumes from August to September were roughly flat or down about 1%, let's just call it flat, but earnings increase and in large part that was due to cope with cases leveling off and coming down the cobot cases.
Have you know you know substantially more cost associated with them, particularly if they get is a patient ends up in the I see you.
You Didnt and I said earlier, yes, the the the revenue or the per cobot case that we've experienced heard med. So far is higher than our aggregate net revenue per admit but again, the semi or the acuity peto is.
You know those cases is higher in that brings with it an incremental costs and that's why I said when you case mix adjusted it's pretty close to what our average net per admission and so.
Now you know some amount of or anything else going on then yeah. I mean, I think couple of things that I think you know, it's it's important to realize that the.
Then the nature and mix of our cobot activity given the markets, we're in and the types of especially types of urban centers.
That we have as Dan pointed out earlier or not you know, they're not mix enriched in fact relative to our average slightly below our commercial mix. So we're dealing with a lot of work in the Medicare Medicaid and even uninsured space with respect to the cobot care that at least we're seeing in our system. It kinda cons.
The quants of some of the markets that we're in and so.
So when you look at September again, I don't have any other way to do this but to just continue to give additional examples of what we're doing to drive the recovery. So in addition to some of the stuff I mentioned before I mean, you know Weve had expansions in many of our surgical service lines very consistent with our.
Our strategy over the last couple of years, we've we've built the robotics and and Uro Gyne program in El Paso, We've got you know rehab facilities that Weve expanded.
South Carolina, we've got a you know see T. surgery program that has gone through material expansion in parts of Texas I mean, our our point ER has been continuing to advance this strategy.
Of expanding surgical service lines for the community as a.
As a way to drive and be prepared to manage the recovery over time, recognizing that some of the lower acuity business that was in hospitals, let's say very low acuity your visits.
[noise] may take a long time to come back and so we're not trying to replicate create a replica of what 2019 looked like from a mix. We're looking at where the market is headed and we're trying to address that market as part of our as part of our recovery and you know not surprisingly the comments that Ron made earlier about U.S.P.I.
We're tracking exactly the same way you know the expansion of our physician staff. There has been in primarily higher acuity specialties number of orthopedics programs and even the number of worth it.
Orthopedics cases for example in that environment has grown materially because we're we're basically servicing where the demand is rather than trying to create a replica of 2019 I think that's going to end up serving us well over time, rather than trying to wish for everything that was in the hospital.
Including the low acuity business to come back in and it ought to drive an enhanced earnings profile because of the case mix intensity in that revenue per case that becomes more sustainable.
[noise] then allianz.
Like any color on the October and November trends are on schedule. Thanks.
You mean art <unk>, we don't we don't show any signs of a shift from the strength that we saw in our September recovery as I look forward and I can look at that at any metric whether it be our scheduling of cases at USPI or hospitals or from a surgical standpoint or or high acuity.
Service standpoint that.
That we're looking at at this point at all at this point in time at all.
[noise] that go next question today is coming from Whit Mayo from you. Yes. Your line is now alive.
Hey, Thanks, Good morning, I wanted to shift topics, a little bit and go back to U.S.P.I. It maybe for summer or breadth that the 1100, new Doc adds I was wondering if you could frame that relative to your current base and I think I heard some say that in terms of specialties I think or so was.
Certainly you know an additional.
Benefit there and are you re syndicating more equity to these doctors or are these doctors that are just moving their business I guess I'm trying to sort of frame how sustainable you think the volume as from the new 1000 sockets. It's yeah, Brett Please comment yeah.
Yeah, Yeah, Hey, how's it going with so just to backup a little bit we've.
Certainly see any increase in the number of physicians that are interested and operate in a setting that's without question and.
As Ron mentioned, we've added over 1100 physicians to our medical staff just this year and that's partly as a result of covered but I think the increase is more related to our ongoing business development and service line expansion activities and getting there is no question. Some physicians are moving more of their business to assay is as a result of patient preference.
Yes.
Related to covert, but others are simply a can.
Continuing to find it's a simple.
A more efficient side of care for their surgical patient. If you if you going back to your question related to how how much of an improvement that is over our base [noise].
I think we'd have about 10000, we had about 4000 physician partners.
Across the portfolio about 10000 physicians on our medical staff so.
This represents in the nine month period over a 10% improvement and the number of physicians on our medical staffs overall I don't have a specific breakdown in terms of you know how many of those are partners versus non partners. As you know some most physicians joyner medical staffs are they make sure. It's a good fit for them good fit for their patience good.
For the overall partnership and then at some point down the road they I exercise the opportunity to actually buy into a partnership but that's not our you know that's not our focus day, one our focus is making sure that we bring in the right high quality physicians.
To our medical staffs that they're happy with the service that we're delivering to them in their patient and then over time, we add those physicians potentially as partners to our.
To our facility. So I think the the number and the amount of physicians that we've added to our medical staffs over the first nine months is clearly better than we have in historical years and again, primarily I think are a result of our business development activities and our service.
Line expansion activities and and two to two minimal minimal degree a result of the Kobe drilling related activity.
Perfect. Thanks, a lot.
Uh huh.
Thank you. Our next question is coming from Brian <unk> from Jefferies. Your line is now live.
Hey, good morning, I guess I'll follow up on that comment from Brad and Tom's comment earlier question too I think that there is a structural change that's happening it's actually not a bad thing, where you're pushing anymore procedures ER visits either today as the weather's joint replacement or E. R visits that are low acuity going to.
Urgent care and how do you think that if that's the case.
What should be that margin going forward.
Yeah that that's a good question and let me, let me clarify what I said before which is what we're focused on is understanding where the demand is today and making sure that we're leading the charge in helping to service that demand by shifting our focus into the areas.
Where we see that activity happening in other words, the higher acuity surgical higher acuity emergency department, even our we track very carefully even our emergency department visits by acuity level and at the higher acuity levels, we're performing better than we were in prior years. So you know those data have some lag to them.
But when we look at our own data you know, we're convinced that in our high acuity IAR business, we may be moving market share and and so again, we're very focused on that the clarification I would offer is look I'm not I'm not yet committed to saying that there is a major shift in the demand pattern that's permanent.
As a result of Cove, it, especially in the lower acuity areas when I look at the areas lower acuity areas in particular that are.
Down quite a bit for example, they're much more they're much more down in pediatric visits than in other services, especially in the emergency department. Okay I.
Schools are not back on line sporting programs that kids are in are not back online I don't know that that's some sort of a a shift from you know the E. R to the urgent care setting I just think demand is down because activity is down because of you know partial stay at home orders that are still active in many of the markets. We're in.
And I would say that's true for a variety of other activities that result in any our visits and you're not going to get a broken bones fixed and said you know necessarily at urgent care centers permanently in the future or another centers. So I actually think some of that demand will come back as the communities fully open back up.
Schools fully open back up and other things, but it may take some time and so my point was you know attempting to work that side of the equation right now it doesn't make a lot of sense, but again I'm I'm not yet committed to the concept that that demand is gone forever from hospitals, you know well, we'll see how that plays out.
Out over the next year or two and it's it's clear the tele medicine won't be able to service a lot of those types of injuries and stuff that drive a lot of low acuity our visits it'll.
It'll go somewhere it's just a question of how much will come back to hospitals.
Does that help.
Yeah, I know that that's exactly thank you [laughter].
Thank you. The next question today is coming from Kevin Fischbeck from Bank of America. Your line is that a lot.
Great. Thanks, I want to get a sense of how you're thinking about.
You know the incremental profitability volumes returning back to normal I guess, obviously, usually getting away like the volumes coming up with a nice a fixed cost leverage, but if we're talking about lower acuity volumes coming in.
You know how should we think about that and then I guess incrementally you've been able to manage labor does that get more difficult as volumes come back I, just trying think about the interplay of.
Acuity and potentially labor cost pressures lines come back and how we should think about incremental margin on speaker normalized growth.
Yeah, It's a good question.
Yeah, I can start and Dan you can maybe that all right. Good question, because you know as you move to a higher acuity mix.
Mix, obviously, you're going to need more support and staff, especially in the I see you in critical care units and and other things you know thus far we have a we have not.
Seen a tremendous amount of pressure related to the work that we're doing more strategically in expanding in those areas I would point out again that you know as covance or just come through a we have had to use a fairly significant amount of contract labor in the quarter, especially in the first couple of months in the quarter that affected.
Our our costs, but you know we've been very very disciplined about using a question that was asked earlier I think by AJ about the predictability of these cobot surges in declines Weve basically gotten pretty good at just yes.
Estimating how much contract labor, we're gonna need for how many weeks and then shutting it off or sometimes in advance of the surge disappearing because we know what the curve is going to look like and that really is reflected in our September results. You know from from the standpoint of managing margins. So look the other thing I would say is there's no question about the fact that the.
And we've laid over the last couple of years to have a more data.
Daily driven management process in our not just labor productivity, but labor mix.
Or that we are utilizing for patient care has has served us well and probably has accelerated.
Some of our recovery and we have no intention of changing from that approach to management, even if the cobot you know activity.
Paid or goes away more permanently with the vaccine.
No. It's our responsibility to continue to drive efficiency in that setting probably.
Probably the more important opportunity looking forward for US is also in the area of purchase services in many cases.
Which our labor based right. So many of the services that we have either partnered with Outsourcers are others, where we're really working on managing the productivity of that staff at the same time.
And that will result in incremental opportunities for you know for savings.
As we rightsize effectively to the portfolio of of cases that were seeing in the hospitals. These days.
[noise] I'd I'd, just add to that that it also spills all the way through the.
The whole concept, Tom just talked about also spills through that we talk a lot about all the way back to overhead and our overhead operations.
And our our global business Center will continue to play a major rule.
In better allocation of overhead.
And better allocation of support since that's a 24 seven type operation and its staffed accordingly, and it can be very responsive and it's done a great job through the pandemic. We've actually you know more than doubled the size of it to the pandemic.
Even while it was going on so that has has proven to us to be a great source of balancing workload and balancing that in the right places.
We had a really good talent, but at the same time being able to be much more responsive to.
To our facilities on a 24 seven basis so.
Dan do you have anything else one of them.
Not exactly the thing I'd add met Kevin as you will recall before the pandemic occurred that you know we had been focused on over the past several years, realizing about 450 million.
Cost efficiencies since I'm really we started this back in 2018 and we're fully on track for that for this year and do what we do is we talked about last quarter too.
You know is there as a result of the pandemic, we've dug deeper we've identified.
More efficiencies that we'd been realizing we're real realize and into the future and it's really across all the you know the cost elements of our cost structure, whether it's a labor management supplies or other operating expenses Tom's point about some providers that.
You know were in other operating expenses weve been renegotiating contracts, improving Esa laser service level requirements and you know it's had it's had an impact and you know we also at times, we'll take actions to terminate the contract even if it costs a little bit of money to get out of it if long term.
The return is going to be better. So I will you know obviously, we'll keep them working on this and we feel very good about our ability to continue to manage costs as well.
The last point I'd add too Kevin is that we've added a significant amount.
Of analytics, and we look now in a much more.
Database, driven finite level at where we have people with what are they doing what's the impact of that is there a better way to do it where do we automate we're don't we automate so.
We approach all of this I think with a much clearer vision and the pandemic to Dan's point has enhanced and pushed us.
Pushed us to question just about everything so I think we've become much more effective at this and you know over the next year, we'll even continued going deeper so.
I hope that answers your question.
Perfect. Thanks.
Thank you. Our next question is coming from Ralph Giacobbe from Citi. Your line is our lives.
Great. Thanks, good morning.
Just wanted to ask about the EBITDA trajectory, a you know you've been running at a monthly level about 220 million for I think three at Atlanta.
Once and then dip in August I think you mentioned was related to some of the cobot activity and maybe seasonality I guess the question is you know typically we see a seasonal ramp into the fourth quarter do you still expect that to be the case and higher EBITDA run rate or is that maybe unlikely to move.
From that to 20 odd just given the underlying circumstance. Thanks.
It's a good question, Dan you want to jump first.
Yeah hero.
Certainly you know throughout the last four quarters have been in that you know 220 million dollar.
Territory. As you mentioned is we've talked about in August I'm numbers are more moderate because of coated it certainly as you know we we obviously haven't provided guidance, but you know we're we're certainly working towards that and then some fourth quarter. As you know is typically you know sequentially stuff.
Longer.
Particularly on the ambulatory side.
As well as the hospital side is patients.
I have met their deductible in any given particular calendar year now you know sometimes you know you have seen a little bit you know that over the past couple of years ago people and you know maybe managed through that a little bit differently than in the past, but you know last year in the fourth quarter was incredibly strong.
Well have to see we don't know right, we'll have to see how it plays out. This year. We are obviously working toward driving incremental volumes in the fourth quarter and you know you've seen the trajectory with yeah.
The ambulatory business and some improved nicely and again.
Just putting cobot aside for a second because you know weve there so.
There are significant spikes that obviously will have some type of impact, but we're you know we're going to be working for sequential growth and I think the big variable is ultimately going to be two things one level coated and to.
You know the <unk> comfort and level of 'em patients returning to facilities or hospitals or surgery centers.
For elective care.
Okay fair enough. Thank you.
[noise]. Thank you next question today is coming from Gary Taylor from Jpmorgan. Your line is now live.
Hi, good morning, Thanks for taking the question I'm just a quick one is what sung who you know looks so all the you know.
Okay. So that impact on all the operating metrics et cetera, just trying to get a sense of the.
Underlying recovery in the commercial business that you talked about you know it's difficult to look at the revenue mix because that includes any business. It also includes cove. It so oh personal details to provide just on.
Commercial adjusted admissions that split it into the commercial case mix index. Excluding so that is there any additional philatelic to provide on that.
Yeah, Hey, Gary Stan.
As I pointed out earlier, our cobot cases related to commercial payers.
Or exchange buyers is roughly 20% of the total cat cover cases come which is some pointed out is slightly lower than our normal pure commercial mix.
The other 80% is either uninsured Medicaid or Medicare. So that's the mix the volumes from a cousin perspective, the Oh, no commercial I'm, sorry, I'm sorry.
I'm, sorry, I was saying if you exclude totaled only look the underlying commercial adjusted admissions growth excluding till then.
Is that you know up down or flat year over year, I'm, just trying to parse out maybe unpack that a bit.
Yes, yes.
Yeah, but again as I said earlier.
The commercial trends.
Our more favorable than the overall trends.
For the hospitals.
So you see the monthly you know per cent of recoveries for the overall admissions. The overall visits surgeries the commercial trends are more favorable than the overall trends.
Well that's helpful. But if we exclude those admissions are down 20%, so muscle as well.
Less than 20%, yes, that's.
Yeah, that's yeah that definitely won't get too okay.
Yeah, I mean like again.
Like again the.
These obviously, though the hospital volume trends in aggregate have not recovered to pre covered levels and that is the same thing with commercial it but because the commercial rebound has been stronger than the overall rebound.
Paul.
Yeah, the only answer the only additional point I would add there is that the point I made before which is you know I look more at surgeries and because that's not really covered related activity and the strength in surgeries and in particular in commercial surgery.
It's probably the best.
It's probably the best area to really look at with respect to the recovery and as I pointed out earlier our.
Strengthen surgeries and in particular to Dan's point commercial recovering better in commercial surgeries.
Is the strongest marker I have when I look at a comparison across different lines of business. There I feel very good about that.
And some to that point I know Gary wasn't specifically asking about USPI, but we obviously had very favorable payer mix with our commercial makes outpatient government outpacing governmental more specifically.
Q3 commercial was up 34, Bips, while Q3 governmental was was down about 30 bips. So overall a positive trend in that regard.
Oh those revenue that's right.
Correct.
Thank you.
Okay, and then one when you want to do more and more.
Sure.
Let's do one more and then we'll wrap it so certainly how better to one or more certainly our final question today is coming from Frank Morgan from RBC capital markets. Your line is allies.
Hi, Good morning, just one just went real quick Dan you called out your acceleration in your Capex program. How do you have those numbers and I think one of the things you called out was Kobin related Capex I'm, just curious what what that would be thanks.
Hi, This is Dan yeah, Yeah, certainly the incremental investments or we're gonna make is roughly 100 million, it's predominantly related to growth capital opportunities, let me be clear, but there is some additional spend that you know we believe is a mess.
Sorry.
Three appropriately care for.
Good patients and you're not on as long as there's anything else you want to add to that said no. I mean examples of that would be you know there there are just.
Just equipment and supplies and things some of which are more capital related you know think about.
Some of the purchases of ventilators and other things that.
Might be relevant in that space. The other infrastructure, there's a little bit of infrastructure spend in there just because we as the as we pointed out earlier, we've been so disciplined about making sure that we minimize our infections of our own staff.
Because that is again that is the probably the most important marker in my mind to being able to maintain support in the hospital for always continuing elective work. So you know we've put infrastructure into some of our hospitals separation of Cove. It from Noncovered care areas and things of that nature, So that it's more structural and.
Yeah, It's it's all in the spirit of key.
Keeping that environment safe and also creating an important perception for everybody who's in and out of the hospital.
That they're not going to be exposed.
Kind of has the added value of worsening so [noise].
Just good.
Okay.
I think that's it we appreciate everybody joining I'm sure there'll be some follow ups.
But we think again, we had a we feel we had a very good quarter in.
I appreciate the time you gave us to ask your questions. Hopefully, we're clarifying then and straightest could be so.
With that I guess, operator, we'll conclude the <unk> session.
Thank you. It does conclude today's teleconference and webcast you may disconnect. Your line at this time and have a wonderful day, we thank you for your participation today.
[noise].