Q2 2021 Tenet Healthcare Corp Earnings Call
[music].
Good morning, and welcome to Tenet Health Care's second quarter earnings Conference call.
All participants are in a listen only mode until the Q&A session begins.
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I'll now turn the call over to tenants Vice President of Investor Relations Regina Nethery.
Thank you and we're pleased to have you join us for a discussion of tenet second quarter 2021, yourselves as well as a discussion of our updated financial guidance for the year.
Tenet senior management participating in today's call will be Ron written Mehr Executive Chairman and Chief Executive Officer, Dr. Thomas Citabria, President and Chief operating Officer, and Dan can sell me Executive Vice President and Chief Financial Officer.
And we're webcast. This morning includes and accompanying slide presentation, which has been posted to the Investor Relations section of our website tenet health Dot com.
Nurse to this call are died that certain statements made during our discussion today.
Our forward looking and represent tenant managements expectations based on currently available information.
Actual results and plans could differ materially.
Tenet is under no obligation to update any forward looking statements based on subsequent information.
Investors should take note and the cautionary statement slide included in today's presentation as well as the risks and factors discussed in our most recent form 10-K subsequent form 10-Q filings 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 to discuss our second quarter.
Well, let's start with as we take a look at our results I wanted to offer somewhat of a look back on where we are particularly in the context of what we set out to do as part of our transformation a few years back and even how that transformation has pivoted considering COVID-19. Other challenges, we have managed through and the opportunities we captured as recently.
And second corner.
The cornerstone of our strategy remains our commitment to our 4 pillars of compliance quality service and safety.
Which drives consistent improvements resulted and the performance trajectory. We have noted for the last several quarters.
The results, thus far and provided a solid first half of this year and you can see how we are building a truly unique and diversified operations. Following the strategy. We discussed the last few years.
The results are in line with the strategy, which we have closely followed which have resulted in greater diversified EBITDA streams targeted and inflection points for growth top quality environments for our patients and the addition of highly skilled positions covering important and high demand specialties.
The output is greater financial strength with greater cash flow generation and a more agile setting overall at every level of the enterprise and importantly, we have incorporated community based programs, which have bolstered our ESG commitments, ensuring our sustainability has broad and a strong rates going forward.
The surgery quarter, and the first half of 2021 had been better than expected on many fronts.
This was largely driven by the continued commitment of our strategy. Our extensive use of data and analysis, which have allowed us to trace deviation is quickly take action as needed and thus ensured a focus on execution at every level.
We've created an environment as Covid cases decreased and which doctors and patients are comfortable coming back to our hospital and ASC.
And we continue to invest and our service lines and community relationships, which helped ensure a very accessible health system over the last year.
We certainly believe and the results support that this approach has been successful and we also believe we have more to accomplish to ensure the approach remains a solid part of our foundation going forward.
Please realize we're not claiming any victory and we're not relaxing other than to recognize the trends remained strong and importantly, consistent.
And underscore our commitment to continuing this development and ensure deeper roots are generated system wide.
I would like to take a moment to comment from our perspective on the current COVID-19 situation.
Clearly the variance coupled with Eon vaccinated individuals has resulted in an uptick certain parts of the country.
Our COVID-19 and patient numbers remain low roughly 4% of our total cases as of now and.
And while we've seen increases in selected markets given our experience, we really able to manage through this like we did when we were hit with other waves earlier last year.
We have sufficient PPE on hand, we have sufficient capacity across every market and facility and we remain vigilant to any changes that occur taking appropriate action to continue to process cases, effectively based on current and anticipated conditions.
Vaccination and continue to play a crucial role and bringing down the number of COVID-19 in patients and the number of patients once infected who become seriously ill.
We continue to support the vaccination rollout on our own employees and the public and large advocating for and communicating the significant benefits of vaccinations and other necessary precautions to everyone in our communities.
In addition, all of our Covid safety protocols remain in place and our field locations and had been highly effective and continuing to ensure staph infection rates remained low.
Focusing back from now and the second quarter performance, there are several strategic and financial highlights, which deserves some discussion.
As you can see and the numbers, we are delivering a much stronger growth trajectory on the hospital side in terms of admissions outpatient visits ER volumes and surgeries.
In particular, the higher acuity work that we had been focused on with general surgery, cardiovascular ortho neuro et cetera have been steadily progressing and key markets across the country.
For example, last week and El Paso, we announced expansion effort to increase capacity and serving growing needs along the eastern regions of the city.
The new project to be carried out over the next year and a half will include the ambition and the addition of 30 elementary units a third cath lab equipped to provide a higher level of care for patients with stroke symptoms enhanced capacity to the NICU and continued efforts to expand trauma services and robotics.
And San Antonio We will soon move forward on our plans to build a new medical campuses. The city continues to expand this multi phase project is slated to begin later this year and will include medical office buildings, and ASC and acute care hospital with the potential for additional medical and retail entities and the future development phases, we planned.
To invest and critical services, including cardiovascular maternity and surgical care at a scale that is commensurate with the needs of that area.
Oncology is another area of focus as we recently announced a new affiliation between Memphis based St. Francis Healthcare and World Class West Cancer Center, and Research Institute, which is an independent comprehensive cancer Center.
The project will include a new cancer urgent care center at Saint Francis the first of its kind and the area as well as a specialized hospital within a hospital with dedicated oncology beds and an investment and the latest treatments all staff by professionals trained and cancer care and.
In addition, St. Francis has the largest number of surgical robots and 1 location and the mid south which the surgeons of west cancer will used to perform minimum minimally invasive surgeries that can lead to shorter hospital stays and faster recoveries.
Our commitment to attracting and retaining quality physicians remains a critical element of our growth strategy.
That effort spans multiple service lines across our hospital portfolio, and especially and USPI for example, and Palm Beach, we're completing the build out of a large physician group focused on general surgery with specialization of care and a team environment to best serve the larger community and Phoenix, we have a highly talented group of physicians.
<unk> and our Biltmore Cardiology group and we've been working to significantly expand their and market presence and.
And Palm Springs, we're building a top quality multi disciplinary orthopedics and foot surgery spine and trauma group.
And with USPI.
Added more than 570 physicians, joining our medical staffs during this quarter, bringing the number now that have joined to 1100 year to date.
These are only a couple of examples and there's more to come together with the investments I mentioned earlier on expansion as these activities are actively supporting our current performance and we see a long runway in front of us.
And finally, focusing on our hospital portfolio as you know, we recently announced sale of our Miami based hospitals, which is compelling for several reasons.
We received and attractive multiple for the transaction from a credible and experienced buyer who will support the continued development of these facilities.
Conifer remains the revenue cycle provider post sale.
Florida remains a very important part of our portfolio as our 5 Palm Beach hospitals, which continue to grow and improve coupled with more than 40, Florida ambulatory assets ensures a very strong viable network and our continued in this continually growing area.
This is supported by our successful physician recruitment efforts and the state and specifically and the greater Palm Beach market as we focus investments on procedural care modernization program <unk> program manage service line development market branding and overall expansion to meet current and future community needs.
Strategically the Miami transaction also continues the objective of diversifying our EBITDA further to our ambulatory segment, which we project to be approximately 43% or so by the end of the year.
Our hospital portfolio is now positioned as the number 1 or 2 and 70% of our markets and with the Miami sale that number will edge higher.
Now, let's take a minute and moved the USPI.
<unk> had a very good quarter in line with our expectations and the mix of business continues to be weighted towards higher acuity case acuity cases and comparisons to 2019.
The integration of FCB facilities has been going well and in terms of other development activity. We added 4 facilities to USPI and Q2.
We continue to pursue the same type of opportunities and we've spoken about previously and we have a healthy and strong pipeline that we're working to deploy.
That includes Uspi's traditional 3 way model as well as a greater.
<unk> opportunities both of which foster direct code collaboration between USPI and local physicians.
And we are continuing our historical strong efforts on developing <unk>, and which we handle all aspects from syndication to first patient.
Organic growth opportunities continue to remain substantial throughout the balance of the year and beyond at USPI.
<unk> has in house, a very advanced service line and development team.
And in the second quarter. For example, we added 25, new starts for service lines across a range of specialties, bringing that total to 45 year to date.
We also remain a leader and muscular skeletal surgery and the depth of our platform across other types of procedures keeps expanding and allow.
Allowing our facilities continue to continue to hit important milestones and servicing the needs of their respective communities.
Quality remains a cornerstone of Tennant's overall mission as a company and USPI given it's more intimate patient experience continues to set a high bar and this area Uspi's patient experience results have again earned important recognition and the last year for example, all but 1 of our eligible surgical hospitals.
And a 4 or 5 star rating and the most recent and age gaps survey.
Let's take a minute and talk about conifer conifer continues to deliver strong margins remain on track with our growth plans and we've made some opportunistic hires at all levels as our pipeline has begun to expand.
And the middle of a more targeted and efficient efficient tech transformation of conifer as well as the global business center, both defining and accelerating our innovation roadmap.
Technology as an offering has moved to the forefront and become 1 of our main strategic pillars, and we recently hired a new Chief Technology Officer, and conifer, who will advance these efforts significantly.
Operationally, we continue to deliver strong cash collections on behalf of our clients economy over the last year and we remain very pleased with that performance.
So in closing my remarks, the second quarter was a very tangible example of how clear indirect business fundamentals properly adjusted for the situations, we face result, and sustainable performance.
We are a data driven real time analysis company, who properly execute on a consistent trajectory.
And when you reflect on the last year as our results have been consistent and direction Directionally aligned with our strategy and above all transparent.
So with those comments, let me now turn it over to Dan for a discussion of the quarter and greater depth and discuss our guidance Dan Thanks, Ron and good morning, everyone.
Let's begin on slide 6.
Following a strong first quarter, we produced another very good quarter as we generated adjusted EBITDA and the quarter of $834 million.
Which was $109 million better than the midpoint of our expectations.
Consistent with the themes and the first quarter each of our 3 business units delivered solid results and the quarter.
Our hospital and ambulatory volumes improved across the board pay.
Patient acuity remain strong and cost continue to be well managed all of which contributed to our sequential margin improvement and all 3 of our businesses.
Looking back to the second quarter of 2019, our consolidated adjusted EBITDA. This quarter represents a compounded annual growth rate of about 12%.
And our adjusted EBITDA margin increased 170 basis points excluding grants.
As a result of another strong performance and the quarter and some additional grant income which was not forecasted.
We increased our 2021 outlook for the second time, this year, which I'll discuss further and a few minutes.
Let's now turn to slide 7 which provides more detail about the performance of our individual business segments.
I'll begin with our hospitals, which produced another very strong quarter substantially all of our 20 hospital markets exceeded our expectations for the quarter, including.
Including 14 markets that exceeded our internal EBITDA forecast by more than 10%.
Surgical volumes ER visits and outpatient visit volumes.
During the quarter returned at a faster pace and patient acuity remained and higher than normal levels and pricing yield remained strong as well.
Our case mix index and the quarter was about 10% higher than the second quarter of 2019.
These positive trends were further supported by our continuing cost control initiatives to yield further operating efficiencies to help mitigate the impact of incremental cost pressures as a result of the pandemic such as elevated temporary and contract labor and PPE costs.
Our hospital adjusted EBITDA margin, excluding grants was 10, 9% and the second quarter, which was 50 basis points higher.
And then and the first quarter of this year and 150 basis points higher than the margin, we reported and the second quarter of 2019.
As a reminder, our hospital margins do not include the results from our very strong margin ambulatory business, which is reported separately.
Turning to our ambulatory business USPI continues to deliver on its value proposition and providing high quality care and a consumer friendly low cost environment, while producing attractive financial results.
USPI generated EBITDA of $295 million and the quarter, which included $20 million of grant income.
Uspi's EBITDA and the second quarter, excluding grants represents a compounded annual growth rate of about 15% looking back to the second quarter of 2019.
Surgical volumes this quarter recovered to 100% of pre pandemic levels patient acuity and revenue yield remained strong.
And cost continued to be well managed.
<unk> EBIT margin, excluding grants of 41, 4%.
And was 190 basis points higher than the second quarter of 2019.
Also we anticipate approximately 43% of our consolidated adjusted EBITDA and the second half of 2021 will be from our USPI business.
Stemming demonstrating further progression.
Toward our goal of approximately 50% by 2023.
Turning to our revenue cycle management business conifer generated $90 million of adjusted EBITDA and continued to deliver strong margins.
Of 28, 2%, which was 50 basis points higher than the first quarter.
Also conifer cash collection performance for our hospitals continues to be an important contributor to our strong cash flow result results. So far this year.
Let's now look at volume for the quarter on slide 8.
Our hospital and ambulatory volumes improved significantly in the quarter compared to last year.
Due to the dramatic impact on volumes in Q2 last year due to the pandemic.
And as I mentioned earlier volumes rebounded stronger across the board compared to pre pandemic levels and 2019.
These volume trends demonstrate notable improvement from the trends and the first quarter of this year.
Let's now turn to slide 9 and review cash flows and liquidity.
We continue to be and our strong liquidity position.
We ended the quarter with about $2.2 billion.
Cash on hand, and no borrowings outstanding on our $1.9 billion line of credit.
We generated $123 million of free cash flow and the quarter.
Or about $275 million before the repayment of over $150 million of Medicare advances, we received last year at the outset of the pandemic.
Year to date, we've produced $536 million of free cash flow or about $688 million before the Medicare advance repayments.
As we previously discussed we began to repay the advances as scheduled and April this year.
Our leverage ratio at the end of the second quarter was $4, 1.7 times adjusted EBITDA and $4.8 6 times adjusted EBITDA minus NCI expense.
Also we refinanced $1.4 billion of notes during the quarter, which will result, and $13 million of future annual cash interest savings and we realized over $100 million of cash proceeds during the quarter from the sale of our urgent care centers and medical office building and some other prop.
30.
Let's now move to slide 10, which highlights key cash flow sources and uses during the quarter.
We have provided this information since the beginning of the pandemic to illustrate that we're generating net positive cash flows when you exclude non routine cash received or used related to the stimulus funding and.
And cash inflows and outflows from non routine transactions such as early retirement of debt acquisitions or asset sales.
Turning to slide 11, let's review our updated 2021 guidance.
This slide shows the key factors that have contributed to us raising our 2021 adjusted EBITDA outlook twice this year.
As you can see on the slide we raised our guidance $100 million. After the first quarter due to our strong performance and great income that we were able to recognize which was not assumed in our original guidance.
Similar to the first quarter as we are again, increasing our 2021 guidance, primarily as a result of our outperformance and the second quarter.
The other item to call out is that we are assuming the sale of our Miami area hospitals will be completed during the third quarter.
And which will result in about $55 million of earnings being removed from our previous guidance.
Our adjusted.
Good EBITDA outlook for 2021 is now projected to be $3.200 billion at the midpoint, which is $200 million higher than our original outlook at the beginning of the year.
Since we are assuming that the sale of our Miami hospitals will occur on August 1st this year.
We removed approximately $22 million of Miami EBITDA from our Q3.
EBIT to outlook and approximately $167 million of revenue.
After normalizing for the Miami sale, the midpoint of our Q3 EBITDA is slightly above the current EBITDA consensus for Q3.
And the midpoint of our revenue outlook for Q3 is also in line with the current consensus for Q3.
For the last 5 months of the year, we removed $55 million of EBITDA from our outlook due to the planned sale.
And we removed about $418 million of revenue from our outlook due to the planned sale.
Listen that's a lot of numbers, but we believe it's important to point out our Q3 guidance is in line with current Q3 consensus after you normalize for the planned sales Miami hospitals.
And to reiterate we've raised our full year 2020.1 guidance for the second time this year with our full year EBITDA midpoint, now $200 million higher than the start of the year.
We also provided various updated guidance assumptions and our press release for volumes revenues and EPS.
I want to point out that our updated outlook includes a pretax book gain.
Of about 400 million from the anticipated sale of the Miami hospitals, but this gain is not it's not included in our adjusted EBITDA or adjusted EPS guidance.
As for cash flows for the year at the midpoint, we anticipate generating free cash flow of about $1 billion 275 million and.
And adjusted free cash flow of 1 billion and $400 million. This year at the midpoint before taking into consideration the repayments, we anticipate making and 2021 of approximately $700 million per Medicare advances and the deferred payroll tax match.
While we have while we have we will have to repay the Medicare advances and the taxes. This year, we have already sufficiently reserved for that amount and our balance sheet cash.
Free cash flow for the year.
Of $1.275 million before the repayments of the advances and and taxes.
Less expected cash NCI payments of $470 million.
Results and positive net cash flows of about 800 million this year.
Also I wanted to mention our income tax payments for 2021 are anticipated to be approximately 150 million <unk>.
The increase and expected tax payments and the back half of the year is due in large part to the about $50 million of federal and state taxes related to the gain on sale of our Miami hospitals.
I do want to remind you that utilization net operating loss carryforwards for from the 2 months recent years are limited to 80% of taxable income for 2021 tax filing purposes.
The underlying free cash flow generation of the company has significantly improved over the past several years and we continue to maintain sufficient liquidity to continue to invest and growth opportunities.
Our strong second quarter results together with our ongoing enhanced operational execution and increases our confidence that we are on the right strategic path and our ability to deliver consistent results.
Before I turn it back over to Ron and I want to thank and say how proud we are of all of our patient care caregivers.
And their colleagues and non clinical roles across the company.
Their teamwork and level of devotion and continues to be exceptional.
Ron.
Thanks, Dan.
And many other closing comments I think we've covered the waterfront here. So I think we ought to just move to questions and the time remaining so.
Operator.
Thank you at this time, we'll be conducting a question and answer session.
If you would like to ask a question. Please press star 1 on your telephone keypad.
A confirmation tone will indicate your line is and the question queue.
You May press Star 2 if you would like to remove your question from the queue.
For participants using speaker equipment, and it may be necessary to pick up your handset before pressing the star keys.
As a reminder, tenet asks that callers limit themselves to 1 question to allow for as many people to get through the queue as possible.
Yes.
Our first question today and from Peter Chickering Deutsche.
Deutsche Bank. Please proceed with your question.
Good morning, guys. So I guess 1 question here.
And 1 question here can you talk a little bit more about the.
The normal <unk> seasonality.
Are you guys, assuming and your guidance.
Versus sticking, let's say 2018, and importantly kind of what are you seeing in June and July and any sort of color on or a scheduling and August.
Thank you so much.
Hey, Peter Stan and good morning.
A couple of things on that.
From a sequential standpoint from the second quarter and the third quarter.
When you look at our numbers and Q2 versus.
The midpoint of our outlook for Q3.
The 1 element that results in us.
Sequential decline and the EBITDA is due to the sale of our Miami hospitals. That's planned on August 1 so thats about $22 million of EBITDA and then we.
Yes, we have assumed some normal seasonality patterns with Q3 being.
And being somewhat softer than historically, what Q2 looks like and so that has been embedded in our Q3 outlook.
And then like any color on June and July and or scheduled for August.
Hi, Peter its June and July June looks.
And the numbers was was strong and we had improvement through the quarter and we feel very good about where July looks now and on a forward looking basis as well across the hospitals and USPI.
From a surgical and procedural standpoint. In addition to just general admissions and continued positive trends and the outpatient and emergency department areas.
So then is it fair to say that the seasonality that you're assuming is more maybe conservative versus what you're actually seeing and the marketplace today.
Although we're assuming peyto is there is what we're assuming there is some typical seasonality impact and in the third quarter listen the business units are running very well.
That's pretty evident.
And we're very confident and we obviously raised our outlook for the second time this year.
And we feel good we have obviously increases our confidence as we think about the back half of the year.
Great. Thanks, so much.
Thanks.
The next question is from Justin Lake of Wolfe Research. Please proceed with your question.
Thanks, Good morning.
Things on the ambulatory side first can you give us an idea of how things progressed through the quarter as you as you saw it kind of ramp up for the quarter to 100% of 2019 and.
And and then what Youre thinking in terms of versus 2019 for the rest of the year and then secondly.
The sale of the Miami facility. The proceeds there can you give us an idea of how and how you how you're thinking about deploying that in terms of are there do you see a pipeline out there of ambulatory deal that will help you get to that 50% number you are talking about versus potential debt pay down.
Hey, Justin it's Tom So as I indicated on the.
And the hospital side and the USPI side, we saw a nice progression through the quarter in terms of our volume surgeries and.
And the USPI portfolio, specifically I'm, sorry, if that wasn't clear, it's both for the hospitals and USPI surgical portfolio.
Portfolio that strengthening continues and the comments about feeling good about.
July and MLR bookings looking forward included both business units as well.
And Justin in terms of the and anticipated proceeds from the sales and Miami hospitals.
And what we've been what we've been talking about and what we've been thinking about internally is obviously.
And then there's a couple of different alternatives.
We have.
Some debt.
That can be called at <unk>.
Reasonable premiums we continue we will continue to look at investment opportunities.
And the ambulatory business as well as <unk>.
And in the hospital per.
Portfolio in terms of continuing to make investments to grow.
And our higher acuity service lines and in all markets.
But as far as is there is there a robust pipeline there is a robust pipeline.
And USPI, but like all things, it's a function of price and timing and.
And.
We are very active like we always have been.
And obviously, we're not going to disclose that activity and nouns and verbs, but the reality is we're very active we're always on the hunt.
We have people who do it full time and are very good at it.
So the proceeds first we got to get them and I always believe you ought to have and first before you decide and tell people, where youre going and then the second point is there is there is obviously opportunities to pay.
Pay down selected debt if we wanted to do that and then go get fresh money. If we wanted to use more debt.
So I think we have a lot of opportunities here, where we're heading in that expect but it is really reinvesting in the company and I think as are our biggest objective at this point so.
Got it thanks.
Yes.
The next question is from a J rice of credit Suisse. Please proceed with your clay Adrian.
Hi, everybody.
Just maybe I'll ask about the labor markets I know, we've got some crosscurrents, where some of the premium rates page and cover COVID-19 surges or sort of abating. It sounds like theres still a pretty tight supply and you gave us a sense of what youre seeing and in terms of turnover rates wage increases.
Vacancy.
And the agency rates or whatever and the labor market and just how you're thinking about the rest of the year from that perspective.
Hey, Jay.
Thanks, and thanks for the question and first of all.
As I've said before.
This is a challenging time for all caregivers and.
And we are very focused on ensuring that we have a safe high quality environment of care not only for our employees and caregivers, but also for our patients that dictates that we need to be very thoughtful and partnership with our caregivers to think about how we manage our staffing and what is clearly a tight mark.
<unk> nationally and so our approach to this has been to balance our core staff with additional and incremental staff that we have contracted with to bring in from a contract labor standpoint, as well as putting in place incentives for our existing staff.
Who may choose or want to work additional hours.
In the hospitals and.
And if you look at what we have accomplished in this area based upon good safe productivity management partnering with our caregivers to think about length of stay improvement opportunities, which by the way is better for patient safety and also at the same time reduces the demand for contract labor those strategies have been effective.
Despite the market tightness, we have remained consistent and have not had increases on.
And on a relative basis for contract labor and our numbers. So we feel like we're managing this very actively very tightly but in a way that is partnered with our caregivers and focused on quality and safety and we will continue to do that going forward through the balance of this year.
Okay, great. Thanks.
The next question is from John Ransom of Raymond James. Please proceed with your question.
Hey, good morning.
Just wanted to ask you about conifer.
Is your multiple is and fleet.
And yes, just the asset continues to do well in terms of your own business and and generate high margins and high cash.
Has there been any any rethinking that may be keeping conifer, Andy and Mike might be the best way to go versus try to spin it out.
This is Ron and John I would say that.
Look we're still on the pathway that we've announced publicly and that's the pathway, we're going to keep on at this point.
We don't live and a bubble so we always have new thinking and new looks and new.
And our new discussions, but the reality is we're committed to the pathway that we have.
And we've stated and.
And all the moves we're making are directionally and net in that direction. So I mean, we.
I don't know how to answer that other than to tell you that.
And we're going down the same path if something would change we will obviously discuss that but as of right now.
I would say that the company has openly committed to the.
Statements that we've made and the pass and I don't I don't see any need to change it at this point.
Okay. Thanks.
The next question is from Jamie parts of Goldman Sachs. Please proceed with your question.
Hey, good morning, guys.
Wanted to see if I can get you to talk about what youre seeing in different regions and the country here, Obviously, and Texas, Florida, California. If you can comment on some of those market, Michigan and Dan you've called out from some geographies, where youre outperforming from an EBITDA perspective as well.
And just wondering if you can comment on what you're seeing regionally, but from a volume perspective and what's <unk>.
And EBITDA outperformance in certain markets.
Yes, Hey, Jamie it's some.
It's a really good question because as you know not all parts of the country.
Are opening up at the same pace and and and the same manner.
And in addition, the impact of Covid was not exactly equal through the country. So yes, we do have a portfolio we have a portfolio of states and markets that are operating differently.
Probably the most important signals from my perspective, as we think about the strength of the business and the comments. We've made is that the markets that have been most open have performed very very well and if you think about the averages that we've put out there. We don't report market specific volumes or market specific earnings, but if you think.
About the portfolio and the markets that have opened up.
You can safely assume that our performance is above average there and in the states that have been slower have had more of a prolonged lockdown.
Or.
And have had.
Perhaps in some cases, some more difficulties with vaccination and urban areas and things like that they are probably a little bit behind the average we feel great about the month to month improvement in the volumes and we feel very confident about the fact that our highest performing markets are performing well.
Our expectations given the recovery and so that means over time as the economy recovers more fully we actually expect the full portfolio to continue to move in that and that direction of being ahead of.
Anything that we saw in 2019.
And if I could just follow up on that comment for 1 second if you think about the level of openness that youre, describing did that did the delta between areas of the country that were more and myself and did that change much across the months of the quarter in other words.
More similar by the end of the quarter than at the start and the quarter. Thanks.
I think when you look most places are opening up a bit more all the time, but the delta between some of those areas still remains I mean, it's not.
And I mean, the difference in their recovery path still remains.
And it's incremental it's always incremental.
Alright in terms of and how we move forward.
The next question.
And is from Josh Raskin of Nephron Research. Please proceed with your question.
Hi, Thanks, Hey, guys good morning.
So and USPI volumes, you mentioned you're back to pre pandemic levels.
For the full quarter, maybe even trending slightly above I guess later in the quarter. So do you expect USPI volumes to exceed the 2019 levels and the second half and I guess, if so is that is that just continued movement of sort of that pipeline of pent up demand or do you think this has something to do with patients and providers just being more.
Interested or feeling better about care and an outpatient setting and.
And then if I could just sneak in any impact on the changes and the inpatient only procedures role.
Yeah, Hey, Josh it's Brad So, yes couple of things I would say that.
We saw in 2020 as you probably heard we saw.
The addition of 3700, new physicians and our portfolio last year and some of that a good part of that quite honestly was a result of.
Physicians determining that.
They had a preference for a lower cost setting and the ambulatory environment, either they did specifically as physicians or the patients did so we saw quite a bit of physician additions to our portfolio last year as a result of that we're seeing it seeing that in 2021 as well as you heard from.
Dan and Ron we've added over 1000 physicians to the portfolio. So far this year, we think that will continue.
As we as we enter into the second half of the year and.
In addition to that.
<unk> significantly.
New service line additions to.
And to the portfolio and Thats, some and in some of the higher complexity business, such as spine and ortho and total joints, which approved over 100% quarter over quarter. So again, I think a combination of all those things.
<unk> and and that's feeling really good about the second half of the year from a volume perspective and outpacing the.
The volume that we saw in and 2019.
And as it relates to CMS.
CMS is.
Guidance.
<unk> over the last couple of days I would say that for us that's going to be quite honestly, a slight net positive as opposed to a negative we only saw about 130 procedures, representing 100 to $200000. It will be impacted that on the ASC side on the flip side.
Some of the inpatient.
The outpatient procedures that are going and to go back to inpatient.
There is actually a nice tailwind so the net of that for a surgical hospital. So the net of that is actually going to be a positive.
For USPI and and 2022.
And interesting thanks.
Yeah.
The next question is from Kevin Fischbeck of Bank of America. Please proceed with your question.
Great. Thanks, just wanted to follow up maybe on the volume commentary I guess, specifically, we are seeing companies start to rebound and certain markets and is there any.
And that Youre seeing today about Macquarie utilization in those markets for Covid and spiking versus the.
And the return to volume and market correct.
Hey, Kevin It's Tom no.
At this point, while the Covid inpatient cases have increased a little bit there's been no impact on.
And our ICU capacity total hospital capacity stress on the testing or or or frankly, even access points to the emergency department and otherwise.
We've learned how to manage this the volumes are not really.
That high at this point and.
And so we're very vigilant about it we're making sure that we continue to put back in place all of our care protocols on and active basis locally and nationally, but we're not seeing any impact on our ability to schedule or even looking forward scheduling.
Other types of elective care.
Okay.
Obviously, your ability to manage the cost and cash and utilization and capacities.
Effective yet, but youre, saying that the patient demand without seeing any downstream cancellations or issues with your physicians or anything like that.
And again.
That's correct, we're not seeing any increased.
Either patient demand for cancellations or physician concern leading to cancellations 1 of the things that is different.
Now then and the last Spike of course is that in our facilities across the board USPI and and the hospitals and our physician practices. Our vaccination rate of our staff is very very high and so that's led to a pretty significant change and the tone around our ability to manage this and then the other thing.
Is unlike and the rapid sequential phases of the pandemic starting in early 2020, there's been a bit of a break.
And with Covid and so the entire company's staff is very well aware of the stockpile of all forms of PPE that are available. So there are no concerns amongst staff physicians et cetera about potential shortages that.
Might occur and that we didn't have shortages through the pandemic, but of course people read about them and hospitals, which created some concern.
But I think now people are very comfortable with the fact that all of the available supplies are there with stockpiles of many months of supplies available.
And then given R. R.
And number of patients that have showed up with COVID-19 to I think some is equally.
It's just not a big enough number across our whole system to have created.
Some of the concerns you mentioned and at this point.
Okay, great. Thanks.
The next question is from Brian <unk> of Jefferies.
Please proceed with your question.
Hey, good morning, guys and congrats on linked quarter.
And so my question is just on the ASC any color you can share with us in terms of what youre seeing with the SCB assets that you've acquired and then kind of related to that as we think about and the opportunities from the ASC rules over the last 2 years right win MSA and and cargo how are you positioning to drive.
Growth and expansion and your MSA capabilities, and maybe expanding further into arguing to the ASC.
And this is Tom let me start and then I'll pass to Brett first of all and SCD.
We continue to.
March forward.
Very much in line with our expectations on the on the integration of those facilities were not reporting SCD and any way separately from the total portfolio of USPI, but the strength of those facilities the quality of those facilities.
<unk> that are partnered and those facilities.
Continued to perform very nicely.
Just like the overall USPI portfolio, we're very pleased with.
The assets that we received and we're also very pleased with the opportunities we see looking forward to work with those assets to grow and diversify them. So we're happy all around Brent can comment.
More specifically on that.
The second point is.
Is is it's important to just and I'll just lay the foundation and pass to breath, but.
USPI prior to the <unk> acquisition was already the leader and musculoskeletal care on and ambulatory basis.
And this is really just added to that to that to that capability and obviously with some of the specific numbers that we put into the slide deck you can see how rapidly we're expanding our portfolio and those areas.
Yes, Thanks, Tom I don't know how much more I have to add after that answer but.
And I would say just to echo Tom's comment the integration with <unk> has gone very smoothly, we continue to hit our integration milestones and overall very pleased with how the facilities are operating there hasn't really been any significant surprises.
For us and that's largely I think a result of the significant level of due diligence that was done on the portfolio prior to closing is.
As it relates to the second question about <unk>.
Work and pulling a number of different levers in order to continue to growth.
And out of MSA revenue and our business, 1 of which we've talked quite a bit about and Thats just our service line development activity a good part of the 45, New service lines, and we added and first half a year and and the 73 that we added in 2020.
And were related to MSA specialty specialty.
Type procedures, whether its total joint whether it's fine.
<unk>.
Other types of high complexity orthopedic procedures, just to kind of give you a sense of that just the and Q2.
2021.
The growth and our total drawing business was over 100, 120% over Q2.2020 spine was up 21% and then if you look at some of the other specialties like bariatrics is up over 100% and.
And we had and E&P procedure thats relatively new that was up quite honestly almost 1000%, although on smaller numbers and.
So that's 1 lever we're pulling in terms of increasing.
The amount of MSA business and Thats, Our service line development activity and then of course, we continue to look for acquisition opportunities with physicians that are driving those businesses that are high quality.
Great positions from our reputation perspective.
And second lever and then of course the <unk>.
Third level is just the amount of de Novo activity, we have and MSA space that we'll continue to.
Produce nice improvements and MSA revenue quarter over quarter, we see for the for the remaining part of this year as well as next year.
Awesome. Thanks, guys.
Your final question is a follow up from John Ransom at Raymond James. Please proceed with your question.
Hey, Dan Thank you.
Remind us.
Med Mal.
And how you think that's going to trend Nsls, and Philadelphia Hospital set to help but.
Where are we and the baseball analogy inning wise us, bringing med Mal costs out and can you put a dollar number on that as we're thinking about it and the out years.
Hey, John.
And certain line some of the facilities that we've divested and.
And the past.
Had higher then.
The company average and in terms of med Mal type of experience.
And so that's been helpful listen.
There's been positive trends in that area.
The costs have been coming down.
And we diligently manage that.
Not only from a financial perspective from <unk>.
Quality perspective.
Clinical perspective root cause analysis, and so we've been spending a lot of time and there's a lot of attention and focus on it and we think thats and.
And opportunity for continued upside.
And we move into the future.
Whats embedded in your guidance this year versus last year from Med Mal.
And we haven't we haven't set a specific number John just for some obvious and recently, but.
And listen the wood.
I would say is when.
And when we put out our 10.
10-Q, the med Mal numbers are and then we'll be in there, but we don't we don't want to project.
<unk> publicly for some obvious reasons.
Med mal costs could be but.
And I would just say reiterate the trends have been and proven in terms of claims.
Alright. Thanks.
Okay.
And there are no additional questions at this time I'd like to turn the call back to management for closing remarks alright.
Alright, and just run it Meyer. Thank you very much I think we covered everything and of course, we're available for any follow up.
And so thanks and have a good day. Thank you operator will disconnect.
Thank you Sir.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
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