Q1 2021 Tenet Healthcare Corp Earnings Call
[music].
Welcome to the Tenet Healthcare Corporation first quarter 2021 earnings conference call and webcast.
At this time all participants are in a listen only mode.
Russia and answer session will follow the formal presentation. As a reminder, this conference is being recorded.
Now my pleasure to turn the call over to Regina Nethery, Vice President Investor Relations. Please go ahead.
Thank you. We're pleased to have you join us for a discussion of Tennant's first quarter 'twenty 'twenty.
On a 2021 wears out as well as bad discussion of our updated financial guidance for the year tenet.
Senior management participating in today's call will be Ron written Meyer Executive Chairman and Chief Executive Officer.
On the charter Yang President and Chief operating Officer, and Dan can tell me 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.
Listeners to this call are advised that certain statements made during our discussion today are forward looking and represent tenet management's expectations based on currently available information.
Actual results and plans could differ materially.
<unk> is under no obligation to update any forward looking statements based on subsequent information.
Investors 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 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 all for joining us this morning.
Few comments on the quarter and will then turn it over to Dan for more.
Specifics on our performance and forward guidance.
Okay.
Reported on the first quarter as happens many times there were a series of events and issues that emerge.
The issue is not whether these are current happen unexpectedly.
But rather.
Whether we can develop an organization that can just flex and importantly make decisions that are immediately actionable.
Our objectives over the past few years has been focused on transforming the entire business.
To an agile and responsive unit.
Built on sustainable fundamentals, which are improved by both experience and real learnings.
This allows us to learn as we go forward and provides an actual oriented mindset to solve the not just reacting to issues that we face but cannot always anticipate.
So let me touch on a few highlights for the quarter.
First strong business fundamentals supporting the first quarter EBITDA was above the high end of our outlook.
Above consensus even excluding rent income.
Outperformance in substantially all of our hospital markets and very solid results at USPI.
Both admit amidst continued COVID-19 challenges and severe weather impacts created by winter storm Yuri.
The storm presented challenges across major parts of our system and our response was immediate.
Focused and have resulted in a quick recovery.
We are refining and bolstering our USPI portfolio to create a singular focus on surgical care and there'll be more about that in a minute.
Conifer continues to generate strong margins and made strategic moves to further evolve the revenue cycle capabilities span client offerings and build on our leadership bench.
We successfully signed a new multiyear contract with United Healthcare.
Four months earlier than the exploration of our current contract.
We maintained ongoing disciplined with respect to our balance sheet delivered strong keys key cash flow generation of $413 million, which builds on our progress from 2020.
And although based on our expectations for the balance of the year, we're raising our outlook.
Altogether, I should say where based on our expectations, we're raising our outlook for 2021.
I was going to get into those details.
In our hospital segment as I said substantially all of our markets exceeded their EBITDA budget for the quarter.
This positive budget variance was primarily due to higher patient acuity.
A favorable commercial mix and tight management control.
The outperformance was also notable given the many obstacles we had to smell in the first quarter.
First because of winter storm Yuri many markets experienced a significant impact as patients canceled then we had to manage through the related operational issues. As you know we have a major presence in Texas and other.
Southern States and those areas were somewhat halted during the stone on the ice which had a ripple effect on power and water supply.
The effect was about two weeks long on operations. So.
It was not insignificant, especially for those of US who lived and worked in the impacted areas.
The outperformance on hospital markets EBITDA.
EBITDA budget excludes grant income so that should help provide a truer sense of how we are driving improved performance across all of our businesses.
Secondly, we continued to face challenges related to the pandemic and general Covid has ramped down but the peaks while smaller remain a continued focus of our markets.
We agree the vaccines are a critical component and engage wherever possible to speed of rollout.
As of the beginning of the week, we administered more than 327000 vaccine doses.
Benefiting more than 147000 people.
We stood up countless vaccine clinics in our facilities.
And through partnerships with churches educational institutions City Council state and local governments.
We focused on enhancing accessibility and bridging the cultural disparity gaps.
Including helping families and underserved populations.
Carnival.
He has done an exceptional job once again with registration and scheduling processes, which are crucial components of our ability to vaccinate within those communities.
The team has provided a high touch level of support.
Both together with tenet and with other clients.
For now.
Covid does remain a real on ongoing threat.
And we have learned to address it as part of what we do versus the exception.
Our knowledge of the virus and its unexpected turns is also improve sustainability.
Our approach is truly centered on quality and access.
Everything from providing safe access point, the establishment of Covid infrastructure.
<unk> services, allowing visitors to see their family members maintaining constant lines of communication with our patients physicians and staff and rescheduling canceled procedures.
Very high rate.
USPI.
At a very strong quarter in <unk>.
The weighted faced many challenges lingering impacts of COVID-19 in certain geographies and winter storm Yuri.
USPI had the most significant impact related to the storm in parts of Texas, and Oklahoma with many service centers, having to shut down some for up to a week.
We experienced high rates of cancellations, but we recaptured over 90% of those cases, which is very consistent with the expectations given the circumstances and also the case volume appears to continue.
The acuity levels that we've anticipated and experienced.
As I mentioned earlier, we've made some changes to the operational scope of USPI.
In addition to the sale of our urgent care platforms would you expect to complete shortly where transit is running 25 imaging centers.
Over to the hospital segment that were particularly these three managed by USPI.
Because they were trying to be linked to our integrated delivery system in those markets.
Those two moves support critical elements of our 2021 strategic priorities, including establishing a singular focus on surgical care at USPI.
We have already established USPI is the best elective specialty based surgical platform in the country.
Which we will continue to scale. Our program focuses on care that is of the highest quality <unk>.
Provided by leading clinicians in their field.
That is easily accessible and that has delivered at a lower cost than the traditional hospital study.
And of course, you're all familiar with the Sdd transaction, we completed in December which brought 45 quality centers to USPI, primarily in the higher acuity musculoskeletal space.
In Q1, we added three more CD centers, thanks to our ongoing relationship with SPD and its partner physicians.
The integration of the CCT portfolio is on track and is going very very well our.
Our new employees appreciate the comprehensive on boarding process.
Along with the additional support and resources and we've had positive feedback from our new physician partners.
USPI continues developing addressing the strong portfolio and strong pipeline, including tuck in acquisitions de novo's and other deals in various stages to keep us on schedule with our stated plans.
And in addition to the M&A activity in USPI.
We also in the first quarter and USPI at.
We had 16, new service lines starts covering a range of specialties.
Including total joint spines and robotic assisted surgeries.
In addition, about 530 physicians joined our medical staff at USPI.
These are both really clear indicators of demonstrable growth, both organically and by acquisition.
So net by every measure USPI had a great quarter.
And Dan will explain the outlook and guidance for USPI.
Clearly has upside.
So let me move on now to conifer.
Conifer had delivered another solid quarter.
And continued strong margins last.
Last year was a banner year for conifer in terms of cash and a day improvement.
Both continue to be strong in the first quarter and we also increased clients reference ability across all primary lines of business versus the prior year we.
We have early signs of progress with our new growth in quote initiative with contract extensions of existing clients like North Shore University health system and <unk> health.
Our new business pipeline is also growing as we look at how we can further differentiate conifer with point solution capabilities, which are essentially capturing opportunities on the front mid and back end of the cycle.
When you think about the overall healthcare journey.
There are roughly eight or nine points along that spectrum.
Some clients may still seek to complete end to end solution.
Others can benefit from conifer's best in class service and.
And years of expertise and other point solutions throughout the revenue cycle.
And finally conifer continues to grow its executive leadership team, adding a new <unk> transitioned from within tenant who led our GBC efforts to boost talent efforts as we prime for growth.
And enhance our global workforce and prepare for the spin.
We also created a new position of Chief Technology Officer.
Who will join conifer this week and will help accelerate our innovative <unk> patient experience and tech enabled programs.
The first quarter was another very good example.
Of how the business fundamentals properly adjusted for the situations we face.
Results in sustainable performance. These are not a result of luck but.
Rather data driven real time analysis properly executed and repeat it.
And with that I'm now going to turn it over to Dan for a discussion on the quarter and guidance stand.
Thanks, Ron and good morning, everyone.
Let's begin on slide six.
Our financial results in the first quarter came in well above our expectations. Despite a strong COVID-19 surge early in the quarter and the impact of winter storm here in February.
We produced adjusted EBITDA of $777 million.
Compared to $585 million in the first quarter of last year and $623 million in the first quarter of 2019.
This equates to a two year compounded annual growth rate of approximately 12%.
All three of our businesses performed very well on the quarter in particular our hospitals.
As Ron noted nearly all of our hospital markets exceeded our expectations.
Our hospitals are performing more consistently month to month continue to diligently manage costs. Despite a myriad of incremental expense pressures due to the pandemic.
And continue to be more disciplined and forward looking in strategy development and capital allocation decisions.
These actions are contributing to hospital margin improvement.
Our hospital margin in the quarter without grants was about 100 basis points higher than calendar year 2019 before the pandemic.
I do want to remind everyone that our hospital margins include all of our corporate overhead costs.
And do not include the results of our very strong margin ambulatory business, which is reported separately.
Although hospital volumes have not yet recovered to pre pandemic levels levels, especially lower acuity cases are focused on higher acuity service line development has been a very important driver of historically high net revenue yield per adjusted admission which increased about 19%.
<unk> year over year.
Needless to say, we're very pleased with how our hospitals are performing which gives us a lot of optimism as we think about the rest of the year and beyond.
USPI also continues to deliver strong results and the integration of the CD portfolio of centers. We acquired last December is going very well paid.
Patient acuity remains elevated as net revenue per surgical case increased about 5% compared to the first quarter of last year.
<unk> generated $257 million of EBITDA in the quarter EBITDA minus NCI expense was $165 million compared to $99 million in last year's first quarter and $109 million in Q1 19 before the pandemic.
Let me be clear.
Even though USPI recognized $13 million of grant income due to the impact of the pandemic, which was not in our guidance USPI produced a strong quarter, especially in light of the challenges from the winter storm in February the closed many of our centers for up to a week.
We remain confident in USPI is robust guidance for 2021 and its future growth opportunities.
Let's now turn to conifer per minute.
<unk> EBITDA for the quarter exceeded our expectations and they produced another strong margin of 27, 7%.
Also conifer continues to deliver very effective revenue cycle performance for us and other customers.
Our cash flows were another bright spot in the quarter as we generated $413 million of free cash flow.
Conifer's cash collection performance for our hospitals was an important contributor to our strong cash flow in the quarter.
Also as we previously announced we early retired $478 million of 7% debt in March with cash on hand.
Turning to slide seven here, we summarize our EBITDA by quarter for our three business segments over the past year. So you can see how our operations have been managing through the peaks and valleys of Covid cases, with and without the stimulus funding.
Despite the increase in Covid cases in the early part of Q1 and the impact of the winter Storm. We delivered strong first quarter results built on the positive momentum we produce in the back half of last year.
Let's now look at volumes for the quarter on slide eight.
Overall volumes held relatively steady compared to the third and fourth quarter of last year. When you consider the significant spike in Covid cases in January and the impact of the winter storm.
As a result of the storm some of our USPI facilities had to close for a brief period of time in certain of our Texas and Memphis hospitals were also adversely impacted by the storm net.
The less all of our facilities were back up and running soon thereafter, and a large portion of the delayed elective procedures or rescheduled.
Let's now turn to slide nine and review cash flows and liquidity.
We continue to be in a strong liquidity position.
We have over $2 billion of cash on hand, and no borrowings outstanding under our $1 9 billion revolver.
As I mentioned earlier, we retired our 7% unsecured notes, which will save us over $30 million of interest going forward.
Our cash flow generation continues to strengthen we produced over 400 million of free cash flow on the quarter compared to negative.
Cash flow of $53 million last year and negative $182 million in the first quarter of 2019.
Our leverage ratio at the end of the first quarter was 437 times EBITDA.
And five times EBITDA minus NCI expense.
We will receive about $80 million of cash proceeds from the sale of most of our urgent care centers, which we expect will close by the end of April.
Also we recently renewed the $400 million upsizing, our revolver capacity to $1 9 billion.
And we now have almost $3 4 billion of available secured debt capacity.
Slide 10 highlights key cash inflows and outflows during the quarter, we've been providing this analysis since the outset of the pandemic to illustrate we have generated net cash net positive cash flows when you exclude non routine cash from stimulus funding and cash used for non routine.
Transactions such as the early retirement of debt.
I want to remind you that in April we did begin repaying the Medicare advances we received last year.
Payment of those advances as well as a payroll tax match are included in our cash flow outlook for 2021.
Yeah.
Turning to slide 11, let's review our updated 2021 guidance.
As we disclosed in our press release, we have increased our EBITDA guidance for the year by 100 million to $3 1 billion at the midpoint.
Slide 11 provides a walk forward of our 2020 annual EBITDA.
So the midpoint of our expectations.
For 2021 by business unit.
Several key changes to this walk forward since we initially previewed during our Q4 earnings call on February include.
The elimination of the Medicare sequestration revenue reduction that was scheduled to be reinstated April one as youre, probably aware the president signed legislation last week that extends a suspension of sequestration.
Through the end of 2021, which will provide us additional revenue this year.
You may recall in February we indicated sequestration would be a $46 million headwind this year.
We added a line to the slide that shows the stimulus grant income of $37 million, we weren't able to recognize in the first quarter due to lost revenue as a result of the pandemic.
We have not projected any granting we'd had not projected any grant income in our original guidance due to the uncertainties as to the realization of grants this year.
As a result of these uncertainties, we are not incorporating any additional grant income and our guidance for the remainder of the year.
Also we have realigned our imaging business under our hospital teams effective April <unk>. There was that were previously operated by our USPI team.
This will result in a shift of about $25 million of EBITDA from USPI to our hospital business the.
The transfer of the imaging business to our hospitals is the reason why we reduced uspi's 2021 revenue guidance by $100 million.
As for cash flows at the midpoint, we anticipate generating free cash flow from about $1 billion.
$250 million this year before taking into consideration the repayments will make this year of approximately 700 million from Medicare advances in a deferred company payroll tax match.
After subtracting expected cash NCI payments of 470 million results in positive cash flows of approximately $780 million this year.
As I mentioned in February while we will have to repay the $700 million of Medicare advances and deferred payroll taxes. This year, we have already sufficiently reserved for that amount in our balance sheet cash.
The recurring underlying free cash flow generation of our business has significantly improved over the past several years.
Yeah.
We delivered strong results in Q1, which gives us more confidence about the year as we move into the second quarter.
Before I turn it back over to Ron I want to thank all of our caregivers physicians and employees, who are devoting exceptional service to support the delivery of quality care for our patients during these very challenging times.
Ron Thanks, Dan.
Excuse me.
I live in the parlance.
Capital of the World.
The.
Look the quarter was a good quarter, we feel we delivered and delivered well and overcame the challenges of course.
You don't anticipate just by definition.
I think with that Regina, we'd be more serve to get into questions.
See if we can give ample time to the question period.
Rather than any more comments.
Thank you wind up with <unk> question.
Thank you Regina.
I'll be conducting a question and answer session. We ask you. Please ask one question and then return to the queue.
That to be at placement the question queue. Please press star one on your telephone keypad.
Confirmation tone will indicate your line is in the question queue. Once again Thats star one to be placed in the question queue in front of a speakerphone you may need to pick up on handset before pressing star one and we do ask that you ask one question. Then please return to the queue. Our first question is coming from Josh Raskin from debt from research. Your line is now live.
Hi, Josh Good morning, Hey, good morning, guys. So.
We keep hearing more and more about these new sort of from.
Baidu organizations that are focused on value based care and sort of every single one of them just points to the significant reductions in bed days per thousand and that sort of one of their one of their key so I know, it's still early and I feel like we haven't really seen an impact for tenet. It may be that speaks to your sort of higher acuity focus on the service line expansions that you guys have been trying to proactively seek.
But what's the strategy in terms of taking share of debt.
In the hospital segment and then maybe Conversely, how are you working with these companies to accelerate the growth on the ambulatory side.
Hey, Josh It's Tom Let me, let me start first and foremost.
Our commitment to value based care.
Is is very strong I mean, we.
Obviously operate very efficiently, we provide a very good value to both commercial and government payers.
On the basis of the efficiency, and obviously quality and safety of the care we provide.
Substantial participants across the country in Medicare advantage, which is probably the most mature value based program that exists and as we've mentioned before.
We are if not the largest among the largest participants in the <unk>.
Program and continue to remain very relevant and successfully relevant in that space.
I think I think there's a couple of things.
With respect to your question specifically around bad days per thousand look.
Seniors population, obviously over this decade is growing and going to grow substantially I mean youre talking about.
In excess of 2000 $25 million, new Senior's, most likely in the environment and aging from that perspective. So the demand is going to go up and how we use hospital beds is going to be pretty important there is a lot of variability in bed days per thousand.
Around the country somewhat based upon health status demographics, and somewhat based on value based care and in every one of the markets in which we participate when we do our strategic planning, we're very cognizant of that we think about the capacity needs. We think about it with respect to the capital we deploy to expand our capacity if.
We need to expand our capacity and obviously with USPI, we're at the leading edge of embracing the outpatient environment and and seeing what things will move into the outpatient setting now last comment I'll make is the other thing that Brett and team are very engaged in.
Our direct to employer value based contracts, which give access and utilization to the surgery centers.
We're early stages in that type of thing the market is early stages and that type of thing, but again because of the value. We can offer at USPI, we already participate in those types of programs, we feel pretty good about them.
It brings USPI centers and doctors patients from more distant geographies based upon employers that are looking for high quality and high value. So.
I think that touches on four or five ways in which we're we're kind of active in this market.
Perfect. Thanks.
Okay.
Thank you. The next question is coming from John Ransom from Raymond James Your line is now live.
Hey, John.
Good morning.
Are you seeing in USPI.
<unk>.
A material uptick in total joints, given the new Medicare rates.
Hey, John It's Brett Brodnax. Thanks for the question, Yes, I mean, just to kind of give you a sense of our growth in Q1, our total joint business grew 110%.
Over Q1 of last year now a portion of that is related to Medicare hips.
But obviously not.
Not a large portion of it I would say that if you think about kind of going forward do you think about the number of total hips.
Debt, we do in a given year. My guess is our guess is that approximately 30% of those are going to be Medicare Medicare hips, the recipe and the commercial hubs.
We're also seeing because the.
The total knee was approved and ASC last year. We've also seen a nice uptick in total needs on our business as well, including Medicare.
Thanks, a lot and just as a follow on for that.
And going back to Tom's comments about value based care.
Where are you using the inning analogy I mean to me the simple relatively simple thing to do for our Medicare advantage is to package on outpatient total joint with post acute heavily focus on home care.
Yes.
Where are you at all or weighted dreaming that this is actually going to happen or is it not going to happen over the next year.
[laughter].
This is Tom again I think.
A couple of things first of all we partner with our physicians in both the acute care setting and in the ASC setting.
To provide options that are best for the patients, but ultimately the doctor patient relationship is something that we value greatly and the physicians when they bring the patients into the ASC setting in particular.
They have a very structured approach to thinking about what post surgical care upon discharge might be needed and we participate with them in helping to facilitate that and I would tell you that it varies greatly today in terms of the type of post acute care. The post surgical care that is actually needed. So.
I'm not I'm not sure how to answer the question.
Proportions or numbers.
But more more to say that really the physicians are very thoughtful about this before they bring patients into the ASC setting.
I guess, where I was going and I'll get off. After this is are you able to create bundled packages or you can go to a payer.
Player and say gosh, we'll do the whole surgery post acute care for this bundle price and then you contract downstream with.
Post acute provider.
Invest get invested along with the payer in terms of yes.
Steerage to a much lower cost probably equal quality cytosorb.
John as I described earlier in the in the earlier question there are employers today that.
We are engaging with in what I would describe as early stage pilots in those sorts of models, but the fact is.
It is not something that we're focused on broad based within this within this business nor is there market demand for that type of focus in this business from what we're seeing today yeah on the only other thing I would add John is we have talked to a couple of different payers about this and quite honestly they would like to do it.
They have a vision of being able to bundle the joint going forward, but right now they're having problems in terms of how they administrator adjudicate the claims.
From all the different providers that are a part of the bundle so until they figure out the technology to do that maybe some of them have but others haven't I think it's going to be really hard to get a lot of traction.
With with the bundled with the bundled joints.
Thank you. Our next question is coming from Brian <unk> from Jefferies. Your line is now live.
Hey, good morning, guys and congrats on the good quarter. So I just have one question. So as I think about your Q2 guidance, obviously pretty strong I think you mentioned that we haven't really seen much of the recovery at or Covid was still an issue in Q1, how are you.
Are you thinking about.
The recovery pace as we think about the Q2 guidance and maybe what you can share with us in terms of scheduling.
Are we getting people coming in to schedule delayed procedures from last year already thank you.
Why don't I start and then Dan can comment on the guidance look the thing I would say as you know December and more and more so January.
We are probably among the highest COVID-19.
At least in patient months that we have seen in <unk>.
I won't get into all of the details from a month to month standpoint on what's going on in April what I would say is that as the Covid cases declined.
Substantially declined through the quarter and to where we are today, we feel very good about the strength that we're seeing in the non COVID-19 business.
Recovering we had talked before about how we put a lot of effort into building a recovery playbook when COVID-19 cases decline from their peaks in.
That has been pretty effective for us and we feel very good about the non COVID-19 business and I would tell you with particular strength in in surgeries.
In our acute care setting and it goes without saying in our USPI setting so.
People have asked about air pockets at least for now we're not seeing an air pocket post Covid right now and the fact that we haven't seen those air pockets gives us confidence with some of the assumptions that we built into our.
Look Brian when we develop the outlook at the beginning of the year, we we assumed debt as we move through the year, particularly in the second half that volumes would continue to recover further from the levels that we saw in the third and fourth quarters.
The first quarter was relatively steady from a volume perspective, but COVID-19 cases really spiked early on as we mentioned and then on there was also the impact on the storm in February so what we're seeing.
Still feel very comfortable with our volume assumptions as we move through the year, the commercial volume trends continuing to be more favorable than the AUM.
Overall on volume trends, particularly on the surgical side.
So we feel good about.
Our outlook for the rest of the year.
Yes, Brian the only thing.
I got on the only other data point I would add is and it's a very relevant data point, especially on the <unk>.
AFC side of the business on the surgical side of the business as our.
On the cancellation rates for Q1, and obviously a significant result of Covid cancellation rates were about 19, 4% for the overall quarter, but in March the normalized down to 16%. So I think that's a pretty good indication that.
We're getting a little bit more comfortable once they schedule a case, keeping the case, which should play to play well as we move into the second second quarter.
Awesome. Thanks.
Thank you. Our next question is coming from a J Rice from credit Suisse. Your line is now live.
Hi, everybody and thanks for all the detail.
Looks like cost trends were well contained but I might just if its okay drill down a little bit more and have you talk about what you're seeing on the labor front in terms of <unk>.
Wage updates turnover rates, we hear about nurse burn out wondering if you've seen any of that and use of temporary staff.
And then maybe also related to labor on a little broader question. The administration seems very poor.
Pro Union.
And I'm wondering how that's translated into any discussions you're having or see activity Youre seeing are you seeing a little more union activity of unionization activity than you previously had.
I'd seen maybe under the previous administration as a result of.
Maybe I'm feeling encouraged by what they get the hearing in Washington.
Hey, Jay It's Tom let me start and I'm going to take your questions in reverse order.
First of all.
Look we realized that in many ways, we lead in nursing organization of substantial scale. We respect we respect our nurses we respect.
The tremendous work that they did last year and actually we respect the fact that many of them choose to be.
Members of unions and.
Actually our track record shows both during the pandemic and before the pandemic and even in the last few months with the vast majority of unions that we work with we maintained very positive relationships have had successful negotiations and and very successful contract renewals.
On that have benefited both parties as we look forward. So in aggregate I feel very good about that.
<unk>.
Look in terms of contract labor as we talked about back in the fourth quarter 2020 call contract labor rates had increased substantially the COVID-19 cases, obviously had spiked to their highest levels.
And.
We like others, we're very focused on making sure that we had adequate nursing for the for the care that needed to be provided both covered and non COVID-19.
The fact is that we made a lot of effort to improve our length of stay over the third and fourth quarter and into this year.
In order to ensure that patients got good care, but we did not have excessive length of stay which resulted in excessive use of contract labor and that's been a good strategy to manage the demand and also better for the patients and we continue to focus on that our contract labor has obviously been more expensive.
Than anybody would have anticipated in a non pandemic situation, but we've tried to manage it well rates are coming down.
Our contract labor standpoint, as the market moves more towards.
I wouldn't say totally normal, but certainly in a direction.
That is more normal and that's a good thing because I think the nursing community is settling settling down into more full time and less traveling.
Type of roles.
Okay.
Okay, and your own wage updates with your own Labor force.
Pretty steady at this point.
It's in line with our expectations same with unions.
We look at the total Labor Force I would say we are.
Were within line were in line with at least as of now with our expectations and relationships.
Okay. Thanks, a lot.
Thanks.
Thank you. Our next question today is coming from Justin Lake from Wolfe. Your line is now live.
Thanks, Good morning.
Wanted to follow up on some of the questions around pricing and acuity in the quarter on what Youre seeing out there.
I think you mentioned that commercial volumes are better. So maybe is there anything you could tell us in terms of.
Growth in commercial versus overall I know you give back commercial but it includes commercially managed Medicare.
On Medicaid.
You kind of exclude debt and tell us what growth is doing there or maybe how that looks relative to 2019 same thing with higher acuity cases, maybe kind of.
Talk about the low acuity versus 2019 versus the high acuity versus 2019 anything like that would be helpful. Thanks.
Hey, Justin stand out I can start.
The commercial trends.
On that we have been seeing.
Really since the middle part of last year.
Overall or on a more favorable.
Then the overall aggregate volume trends, which may.
It may not necessarily be surprising.
Given.
The Medicare population may have been a little bit more reticent about seeking.
Seeking care, particularly before vaccines.
Were started to be delivered but the commercial trends have been positive.
In terms of.
In comparison to overall trends.
In particular as I mentioned earlier.
Commercial surgical trends are.
Particularly encouraging over the past several quarters and not only the.
USPI business, but also in our hospital business in particular, which has been a key driver of our net revenue growth from a yield perspective. So when we look at our commercial book of business.
We're essentially fully contracted for this year about two thirds contracted next year. So we have very good visibility into pricing.
From a commercial side.
Across the entire portfolio and continue.
Continued focus on higher acuity service line development should continue to generate.
Strong yield as we move through this year and into next year.
Got it thanks.
Thank you. Our next question is coming from Peter Chickering from Deutsche Bank. Your line is now live.
Good morning, guys and thanks for taking my question.
The very strong free cash flow generated this quarter is helping push your leverage ratios down.
It's crazy and asked this but once you are in the Forex leverage range, we continue to Delever.
Or will you begin to deploy free cash flow into things like share repo at there on.
Aggregate acquisition candidates.
I would say, we're going to continue to delever for now.
But obviously we are.
We've got a good pipeline at USPI and we're going to continue to look at.
Potentials there.
We've already talked about our hospital strategy. We've got a couple of small things, we've got Fort Mill online and we'll probably do something in San Antonio.
But.
That's more market driven than any other reason.
We're going to continue to trim net portfolio. So the strategy has not changed.
But I don't think at this stage share repurchases on the list.
I think we're more focused on.
Deleverage on ourselves to a better position and then acquisitions.
Do you have a.
Leverage ratio, where if youll have enough deal flow you will actually start to convert into repo or how should we think about sort of where that leverage ratio sort of stopped at this point.
Right now I would tell you that we said we book below five we are below 5%.
There was a time where people looked at us when I said that like we were in la La land.
Are there some of that is by performance some of Thats by.
How we restructure our entire capital.
Portfolio. So look I don't want to give you a number because in every quarter, you'll be asking me, how we're doing against four point.
Thank you Blake.
The reality is we're focused on staying below five.
And we just need flexibility within that range then to go do the things we think are right.
The.
Last USPI acquisition I think it was a great example of them.
When you have a lower ratio more capacity.
<unk>, we have options and I want to use those options to grow the basis of the business in line with the strategy that we've talked about which is clearly a higher.
Base in USPI.
And maintain the best hospital markets and actually run them.
Most efficiently and effectively we can and.
And make sure we stay strong in those markets. So look we're going to deploy capital in the best way possible to get a return to the shareholders.
Over the long term.
Great. Thanks, so much.
Thank you. Our next question today is coming from Ralph Giacobbe from Citigroup. Your line is now live.
Okay.
Great. Thanks, good morning.
There's been a lot of headlines around COVID-19 spikes in Michigan, just given your presence in Detroit was hoping maybe you can give us a sense of trends in that market, both COVID-19 related and core and then more broadly if you can just give us what COVID-19 admissions were in the first quarter.
Hey, It's Tom let me start and then Dan pest sedan. So.
You're right to note that.
Net.
Covid cases have increased in Michigan, while in most of our markets.
I would say the COVID-19 volumes are about a fourth to a fifth.
Of the peaks that we saw before.
In Michigan, we are about half of the peak that we saw before.
The Covid Spike in Michigan, maybe one of the reasons, we're hearing a lot of noise about it is that.
Unlike the first two spikes, which really did hit.
Much more downtown Detroit and some of the more vulnerable communities. While that is the case. This time, we've put a lot of effort into vaccination and other things. There I think this spike is hitting a little bit more on the suburbs.
And our operations at the Detroit Medical center throughout all of the hospitals, both the adult children and rehab facilities are open we're not deferring or delaying or canceling any types of procedures at this point and obviously as those suburban.
Hospitals are more affected.
We represent a great choice for patients who need care to come too.
Because our operations are more seamlessly open.
Hey, Ralph it's Dan in terms of the.
Covid admissions as a percentage of our total admissions.
Over the past three quarters, they've been running in the 10 I'll call it the 10% to 12% range.
Each quarter I would tell you in terms of how it evolved during the first quarter of this year on.
Obviously COVID-19 cases were at their highest peak in January and have steadily declined.
Two roughly 5% in the month of March.
That's helpful. Thank you.
Thank you. Our next question today is coming from Kevin Fischbeck from Bank of America. Your line is that a lot.
Great. Thanks.
Wondering if.
You can get kind of your latest thoughts.
On the pent up demand I guess, you mentioned that.
Not really seeing air pockets as far as COVID-19 dropping in core utilization.
Going back.
Wanted to see what your thoughts on how this will all play out either in your guidance if things come back normal Covid continues to drop but what are you seeing as far as your doctors in their backlog and.
Interesting to see some of those.
Percentages, but any other color you can give there as far as how.
How do you think pent up demand places that going to be.
Overall positive or should we not expect volume to get above normal by the end of the year.
Hey, This is Tom I'll start and then.
Others can pile on so a couple of things in the acute care segment.
I do think we're seeing some effect of either whether it's pent up demand or just people, who had chronic illnesses that deferred or delayed their care.
And some of the higher acuity that we're seeing is probably related to the fact that their underlying conditions got a little bit worse because of the pandemic.
<unk>.
Debt to some extent is not surprising I mean, it's the reason that we put a lot of effort into.
Maintaining access for the community in these acute care hospitals and keeping them open.
Throughout the pandemic I don't see.
So a major surge of higher acuity business at this point that is going to come washing in to the acute care hospitals, our surgical hospitals.
From that standpoint now.
I think the lower acuity business, that's being deferred.
It remains to be seen what happens there because I think that falls into two camps. The example, I use every time is one camp is simply that demand that doesn't exist right now because schools aren't open or.
There's less people on the road Theres less trauma Theres less sports injuries as those activities get back to normal you would expect that demand to return and then there is the demand in the second camp or bucket that is.
You know what people are avoiding because of the fear of of the emergency department due to Covid and I think that's going to be a much longer ramp back to normal as as people get comfortable from that standpoint.
Okay, I guess, what does that mean, though I guess as.
As volumes come back we should be expecting really youre, saying, if theres going to be pent up demand is really going to be on the outpatient side not been on the inpatient side.
Specifically, what it means is that if I had to guess and this is purely a guess that as we get into the fall and for example schools and other things or most likely fully open around the country I expect there to be an uptick in for example, outpatient emergency department volume at outpatient visits and other things to some extent.
Closing the gap between where we are right now and what we saw in 2019 for the remainder of the GAAP I expect, especially those things where people have to get more comfortable coming back to the acute care hospital I expect it's going to be a longer ramp for that for that to come back in.
One of the things at least from our standpoint that we try to focus on is not necessarily replicating or trying to achieve the exact volume and patient mix that we saw in 2019, because we're a believer that some of that business.
Either won't come back or will take a long time to come back from a low acuity standpoint. So more important is that we put our energy into building a business, where we see the demand growing market share in those areas focusing on the high acuity and using that as a way to deliver on the earnings expectations that we have.
Ourselves and that investors have for us rather than trying to do it by.
Tempting to mimic the 2019 volumes two different approaches.
And we also believe children's hospitals will pick up volume to a school goes back.
<unk>.
Et cetera that right now we're not seeing as much of.
And Kevin the only thing I would add just related to the ASC business.
I agree with some I don't think were going to see a big surge.
And 2021, I do think we will start to see some recovery and some of the lower complexity business that we haven't seen recovered as the higher complexity business, especially like <unk> and pain to a lesser degree ophthalmology and Gi those havent recovered as quickly as the higher acuity business like the MSR.
Specialty so we would anticipate some of that business start starting to come back.
In Q2, and the rest in the rest of the year, but I would not describe it as a huge pent up demand, where we're going to see some massive surge.
And business.
Okay. Thanks.
Thank you. Our next question is coming from Frank Morgan from RBC Capital markets. Your line is now live.
Good morning, So it's sort of a two part question here just just to go back to the the recovery in volumes that you saw on the month of March is there is there any way to parse out how much of that was due to say weather.
Theres deferrals from Texas, and Oklahoma versus.
Our return of volumes that were say Covid induced and then the second part of the question on cabinets as we think about pricing and this whole concept about how the mix of the business where does it stabilize it sounds like youre, saying that theres, a good chance debt pricing at least realm.
Relative to historical average is.
We're probably not going back that low either because of the debt.
The slowdown in this recovery of low acuity or better pricing and higher.
<unk> complex procedures, so I'm, just curious to verify that as well thanks.
Hey, Frank it's Dan.
In terms of the volumes and margin and how much those volumes may have included K.
Cases from from February.
Delayed because of the store I'm sure. There was some of that not only in the hospital side, but also on the USPI side as well, yes. There was there is no question about that.
Because as you know it takes oftentimes several weeks or more for.
On patients and physicians to.
We have cases rescheduled and haven't fit into their their calendars so to speak.
But we're optimistic again as we've been talking about it.
Terms of our volumes as we move through on the remainder of the year in terms of your question a point on on.
On pricing in <unk>.
Terms of we're not going to stay at 19% growth in perpetuity.
The lower acuity.
From cases come back, but I think here.
Certainly in the near term and until.
In a more lower acuity business does come back.
Youre going to see stronger levels of net.
Net revenue yield on a per adjusted admission basis again as I mentioned earlier, we have very very good visibility into our contracting positions across the portfolio, whether it's the hospitals, whether it's our physicians, whether it's USPI centers.
We are essentially fully contracted this year next year or two it's about two thirds contracted so we know where we're at from a pricing perspective.
And we continue to focus on growing to Sam's point.
The higher complexity cases.
Should be.
A tailwind in terms of net revenue yield growth down the road.
Okay.
Thank you.
Thank you. Our next question is coming from Jimmy <unk> from Citi. Your line is now live.
Hey, good morning.
I wanted to just follow up on a revenue per adjusted EBITDA guidance.
You're guiding to minus 3% minus 5% previously just confirming if you're updating that or any changes day.
This debt.
The first piece and then just on EBITDA.
You beat by about $100 million this quarter, you're raising guidance by 100 million or so on.
Can you talk to the hospital outperforming in particular.
Sequestration the contract labor rates coming down on all these positive things.
I'm just curious if your touch point to either one can beat and that's about it and not expecting continued outperformance are on.
Or if you do think there could be continued outperformance.
This is Dan let me, let me address that.
In terms of the net revenue growth.
As I mentioned we.
<unk> delivered 19% in the first quarter again this is on the hospital side.
USPI was 5%, but on the hospital side that 19%, we're assuming that comes down.
As the lower acuity business comes comes back, but I would tell you that.
That metric is going to fluctuate over the course of the year as volumes ebb and flow due to the pandemic.
And the recovery.
Particularly if lower acuity cases rebound stronger than we assumed.
Where we could be.
It could be.
Mid single digits in terms of.
On the pricing growth for the full year, we'll see it really is dependent on the primary driver will be the rebound in lower acuity cases and.
Non level in terms of our.
Our guidance, we increased our guidance $100 million kind of we had a very strong first quarter.
As I pointed out we did get a benefit we will receive a benefit from sequestration.
On being.
Suspended through the rest of the year.
As we pointed out.
That was helpful and.
And we did recognize from grant income.
And we did have an outperformance in the first quarter. It's early in the air but what it does give us is a lot of optimism as we move through the year.
And then as we think about the year that.
We have a wide range and we.
We continued delivering and performing like us we can be above the midpoint.
We feel very good about where we're at right now.
Alright, thank you.
Yeah.
Thank you one more question operator go ahead.
Okay.
Our last question today is coming from Scott Fidel from Stephens. Your line is now live.
Hi, Thanks. Good morning, just had a question I know this just happened last Friday, so not sure. If you have any visibility into this yet but just if you are expecting in the business impact from <unk>.
CMS, we're sending the long term waiver in Texas and then if we assume that they may do the same thing in Florida as well thanks.
Hey, Scott it's Dan.
We really don't.
Within the current waiver expires in September of next year. So there's not an immediate threat to current funding.
CMS.
On understanding based on our read.
Their correspondence was.
<unk> has rescinded the 10 year extension, which is rather long period of time for an extension.
That was.
Rescinded based on procedural grounds, we fully expect the state will undoubtedly apply for <unk>.
Extension in the coming months and so we think it's premature.
At this point, an unreasonable to assume that it's going to result in a significant loss of funding.
We're obviously, we'll be following it in and then providing our input to the appropriate constituents on that matter.
Thank you we've reached end of our question and answer session I would like to turn the floor back over to management for any further or closing comments.
Yes.
We just appreciate everybody joining and as usual we're available for follow ups. So Regina.
Thank you everyone for joining us.
Look forward to chatting with you again.
Good day bye.
Thank you that does conclude today's teleconference and webcast you may disconnect. Your lines at this time and have a wonderful day, we thank you for your participation today.