Q2 2021 Community Health Systems Inc Earnings Call

July 29, 2021

[music].

Good day.

And thank you for standing by and welcome to the community Health systems second quarter 2021 earnings call.

Please be advised of the Dis conference is being recorded.

I would now like the conference over to your Speaker for today, Mr. Ross Comeaux, Vice President of Investor Relations.

Thank you Jay good morning, and welcome to the community Health systems second quarter 2021 Conference call. Joining me on today's call are Tim Henson, Chief Executive Officer, Dr. Lynn Simon President of clinical operations, and Chief Medical Officer, and Kevin Hammons, President and Chief Financial Officer before.

Before I turn the call over to Tim I'd like to remind everyone that this conference call may contain certain forward looking statements, including all statements that do not relate solely to historical or current facts. These forward looking statements are subject to a number of known and unknown risks, which are described in headings such as risk factors in our annual for.

Before on form 10-K, and other reports filed with or furnished to the securities and Exchange Commission.

As a consequence actual results may differ significantly from these expressed in any forward looking statements in today's discussion we do not intend to update any of these forward looking statements yesterday afternoon, we issued.

Issued a press release with our financial statements and definitions and calculations of adjusted EBITDA and adjusted EPS for those of you listening to the live broadcast of this conference call a supplemental slide presentation has been posted to our website.

We will refer to those slides during this earnings call all calculations, we will discuss also.

The <unk> loss from early extinguishment of debt impairment expense as well as gains or losses on the sale of businesses expenses from government and other legal settlements and related costs.

<unk> from settlement and legal expenses related to cases covered by the CVR expenses related to employee termination benefits and other.

So ex structuring charges change and change in tax valuation allowance.

With that said I'd like to the turn the call over to Tim mentioned, Chief Executive Officer.

Thank you Ross good morning, everyone and welcome to our second quarter 2021 Conference call. We are pleased with our second quarter results, especially.

Other risk as we continue to see volume recovering net revenue growth and margin improvement during.

During the first half of 2021, we further advanced growth oriented strategic initiatives that continue to strengthen the company.

Before we walk through the details we would like to thank all of our providers nurses and caregivers and our employees.

And leadership teams, who continue to continue to provide safe high quality care in the communities. We are so fortunate to serve.

And this has been great to see firsthand with more people vaccinated and because of Covid case counts had declined in the second quarter. Many of our executive leaders were able to spend time visiting our markets over the past.

<unk> of weeks, we have had the opportunity to tour capital projects that have come online witnessed the operational improvements and of course to hear heartwarming stories of patient care and positive outcomes.

There is of tremendous sense of pride across our organization, especially as we reflect on the essential services and.

The value provided to our communities, while we've worked together to fight the Covid pandemic.

We are currently seeking seeing an uptick of Covid cases in some markets, but we remain confident in our dual track operating model and the ability of our teams to safely and effectively manage COVID-19 surges, while also meeting the increasing demand for.

<unk> services and to meet the health care needs of non Covid patients.

Now switching back to the second quarter positive COVID-19 case counts were lower than the first quarter. Following the peak numbers we experienced in January.

In the first quarter, we provided care for approximately 9500 inpatient COVID-19 admissions.

<unk> in the second quarter, our inpatient COVID-19 admissions for approximately 3000, which represented about 3% of our total admissions.

And as Covid cases declined during the second quarter, we experienced a solid rebound in non COVID-19 volumes driven by our efforts to attract new patients and to Reengage.

<unk> and retain patients who have previously used our health care systems.

For the second quarter on a same store basis net revenue increased 32% year over year, driven by the easier comp, which was the result of the government restrictions on elective procedures that impacted the net revenue last year.

For the full quarter year over year of same store admissions increased 17%, while the adjusted admissions were up 28, 5%.

<unk> increased 43, 7% in the ER visits were up 39, 2% in.

In terms of our patient volumes, all volume growth rates meaningfully improved sequential.

Really compared to pre pandemic levels and looking at our second quarter results compared to the same period. In 2019, we are pleased with the improvements we've delivered over that benchmark period.

Compared to 2019 same store surgeries were slightly higher increasing approximately 1%.

Additions and adjusted admissions were down approximately 4% and 2% respectively. ER visits of strengthened throughout the quarter. The continued to lag other volume metrics compared to pre pandemic run rates now down 6%.

On a consolidated basis second quarter adjusted EBITDA came in at $453 million.

Sequentially adjusted EBITDA margin of 15, 1%.

Compared to the second quarter of 2019 consolidated adjusted EBITDA increased to $453 million from $402 million, an increase of 12, 7%, even though the company operated 23 fewer hospitals this quarter.

And it's worth noting.

What debt, we expanded our EBIT margin by 290 basis points during that timeframe.

The transformation, we began a few years ago with continuing to drive the expected growth and development opportunities across the portfolio and with very good momentum we have strengthened our organization in a wide variety of ways.

<unk> positioning the company for incremental same store growth going forward.

To highlight some of these initiatives, we introduced the company's strategic imperatives and it made notable improvements across each area of focus those bang safety and quality operational excellence connected care and competitive position.

<unk> net revenue initiatives, such as the transfer center investments into higher acuity inpatient services ongoing outpatient access point development and our Acos are generating growth.

The strategic margin improvement program is adding value across the enterprise.

And our current portfolio.

But because of this positions us in stronger markets, primarily across the southeast south and southwest areas of the country, where there is population growth and economic expansion.

Over the past few years, we have continued to deploy capital in our core markets to drive long term inpatient and outpatient growth.

With the recent investments, including debt and service line expansions in markets, including Birmingham, Naples, Huntsville in Knoxville, the opening of our 15th freestanding EDI in Gulf shores, Alabama, which is part of the fast growing Baldwin County market.

The recent opening of 2 new hospitals in Arizona.

Indiana, and we have 2 more hospitals nearing completion, 1 in downtown Fort Wayne debt is scheduled to open in the fourth quarter of this year and in other de Novo Hospital in Tucson, Arizona that we plan to open in the first quarter of 2022.

We are also excited about recently announced partnerships and joint ventures that will.

The access to post acute and behavioral health services during.

During the quarter, we opened Knoxville rehabilitation hospital and are to Nova East market in partnership with Kindred. We also announced the de Novo JV project with select medical in Tucson, which includes acquiring a 47 bed long term acute care hospital and.

Expand the break ground next week on the behavioral health facility in Fort Wayne as part of the joint venture with the Acadia healthcare and.

And we continue to invest in joint venture ambulatory surgery Center partnerships in key markets with the day novel Center opening in our East, Tennessee market in just a few weeks.

We will continue to invest in our concern.

<unk> pipeline of inpatient and outpatient opportunities over the next several quarters, which will further strengthen our core markets for the long term.

Since the start of the year, we have demonstrated progress in terms of net revenue growth expense management EBITDA growth EBITDA margin expansion as well as our capital structure.

We're certainly pleased with this progress and the momentum it provides as we execute our strategies and capitalize on all of the opportunities that we see over the next several years.

In the medium term, we continue to target, 15% plus adjusted EBITDA margin positive annual free cash flow generation and reducing our leverage below 6.

6 times, which we believe will add value for all of the company's stakeholders.

Kevin.

Thank you Tim and good morning, everyone. This.

As Tim highlighted it was another strong quarter for the company during which we delivered solid financial performance and made progress across multiple fronts.

During the second quarter.

We delivered a strong volume recovery good expense management.

Positive free cash flow.

Further capital structure of improvement and additional progress across our strategic initiatives.

We also adjusted our full year guidance to reflect the company's strong start to the year and our outlook for the back half of.

<unk>.

Looking at the second quarter performance net operating revenues came in at $3.7 million on a consolidated basis.

On a same store basis net revenue was up 32% from the prior year due largely to the prior year impact of COVID-19.

This.

For the net result of the 28, 5% increase in adjusted admissions and of 1.3% increase in net revenue per adjusted admission.

Which faced a difficult comp from the prior year.

Excluding non patient revenue, which was lower year over year net patient revenue per adjusted admission was.

Of the year, 3.3% compared to the prior year.

During the second quarter, we drove a strong sequential recovery and non COVID-19 related patient demand and we delivered improved volume performance on a sequential and year over year basis.

Adjusted EBITDA was $453 million.

Comparing to the pre pandemic baseline period of the second quarter of 2019. This represents a 12, 7% growth in adjusted EBITDA, Despite having 23 fewer hospitals.

Excluding provider relief funds. This also represents a sequential 9.4% improvement over the first quarter of this.

It was up.

During the second quarter, we recorded approximately $1 million of pandemic relief funds. If you recall in the second quarter of 2020, we recognized $448 million of pandemic relief funds, which represented substantially all of our prior year adjusted EBITDA.

The pandemic relief funds.

This year helped to offset a portion of lost net revenue and incremental expense related to the COVID-19 pandemic.

During the past 6 quarters, we've experienced the number of ways of Covid, which have impacted our volumes and operating expenses. Our hospital leadership teams continue to adjust extremely well to this evolving operating environment.

<unk> and we expect.

To continue to utilize our dual track strategy in the back half of the year as we care for both non Covid related health care demand as well as additional COVID-19 patients.

It's also worth noting that our strategic margin improvement program has remained on plan. The program has helped to drive savings.

Savings for the past few quarters, and we expect the plan will reduce operating costs in the back half of this year and over the next several years.

Switching to cash flow cash flows provided by operations for $280 million for the first 6 months of 2021. This.

This compares to cash flows from operations of 1.

$7 billion during the first 6 months of 2020.

Excluding the received and repaid Medicare accelerated payments cash flow provided by operations were $414 million for the first 6 months of 2021 compared to $552 million in the prior period.

Looking at the year over.

For year decrease excluding the Medicare advance payments. The change was primarily due to changes in networking capital, which also included the pandemic relief fund grants.

Declining net revenue in the first half of 2020 was the benefit to working capital last year as accounts receivable declined.

While strong net revenue growth during the first half of this year.

Has resulted in a net increase to accounts receivable and therefore, a slight net working capital drag to start the year.

Moving to Capex. The first 6 months of 2021, our Capex was $212 million compared.

Decline of $192 million in the prior period.

Capex was up 10% in the first half of 2021 again, despite operating 13 fewer hospitals than a year ago.

Going forward over the next several years, we believe our current portfolio of markets is well positioned to benefit from continued.

Continued economic and demographic growth.

In addition to recent capital investments, we plan to continue investing and a strong pipeline of development opportunities in our existing markets to further strengthen our portfolio.

In terms of liquidity at the end of the second quarter. The company had $1.2.5 billion.

Compared to cash on the balance sheet, which was essentially unchanged sequentially compared to the first quarter.

During the second quarter $116 million of previously received Medicare accelerated payments were returned to CMS. This part of Cms's planned recruitment that started in April.

As of June 30.

Of 2021, the company has $947 million of Medicare accelerated payments remaining to be repaid. These are recorded as a liability on the balance sheet.

Also as it relates to liquidity, we continue to have no outstanding borrowings and approximately $762 million of.

Borrowing base capacity under the ABL with the ability for that to increase up to $1 billion.

Turning now to the capital structure, we have continued to make meaningful progress.

On slide 12 of our supplemental slide presentation. We've included our debt maturity profile at the end of 2019.

<unk> compared to the end of the second quarter of 2021.

During the past few quarters, we have significantly extended debt maturities pay down debt and lowered annual cash interest.

Most recently in the second quarter, we extended $1.4 billion second lien notes from 2024 to 2030 while.

<unk> and our interest rate 200 basis points.

This transaction further lowered annual cash interest and now our next debt maturity is not due until 2025.

Through 2020, and the first half of 2021, we lowered our debt by over $1.3 billion reduced our leverage ratio by over <unk> <unk>.

Lowering of down to 6 times compared to over 8 times at this point last year and lowered annual cash interest by approximately $210 million.

Now I would like to walk through a few updates to our full year 2021 guidance.

Net operating revenues are now anticipated to be 11.

<unk>, 9% to $12.3 billion as we never have narrowed our full year range, but maintain the midpoint adjust.

Adjusted EBITDA is anticipated to be 1.7% to $1.8 billion as we raised the low end of guidance for the second consecutive quarter.

As a reminder, our 2021 adjusted EBITDA guidance does not.

Include any previously recorded pandemic relief funds or any pandemic relief funds that may be recognized in the future.

Cash flow from operations is anticipated to be $700 million to $850 million, which is an increase of $100 million from our original guidance.

And net income per share is anticipated.

<unk> to be 60 to 80 <unk>.

On weighted average diluted shares outstanding of $129 million to $130 million.

Overall, we delivered another strong quarter as our second quarter performance came in above our internal expectations.

As we think about the balance of the year, we expect.

Our EBITDA performance.

Have similar seasonality to prior years with some seasonal softening in the third quarter, followed by a good finish to the year in the fourth quarter.

Ross I'll now return the call back to you.

Thank you Kevin and thank you Tim at this point, Jay we are ready to open up the call for questions.

We'll limit.

101 question. This morning, but as always you can reach us any time at 615 or 657000.

Thank you at this time, if you would like to ask the question. Please press Star then the number 1 on your telephone keypad. If you would like to withdraw your question Inc.

Rest of it down to the standby, while we compile the Q&A roster.

Our first question comes from the line of Brian <unk> of Jefferies. Your line is open.

Hey, good morning, guys congrats.

Congrats on the quarter.

I guess my question for you for both.

<unk> for Kevin <unk>.

As I think about the guidance I appreciate your comment on seasonality, but you.

You put up of 15% margin number in the quarter and it sounds like.

Youre seeing the recovery.

We feel confident in your ability to drive growth and you beat the number in Q2 pretty well.

Hi.

I guess for how are you thinking about that I mean is that just conservatism I guess as I look at both the back half guidance.

Medium term guidance as well and maybe if you can touch on interest some of the cost factors.

As well that we should be thinking about.

Sure, Brian and thank you very much so let me touch on a couple of things.

There.

So first as we I guess think about.

<unk>.

In the beginning of the year, and we kind of expected and did our guidance.

Expecting a recovery from Covid.

End of extended throughout the year and as we sit here today.

Today, we have a little more insight of <unk>.

<unk> net recovery occurred a little bit quicker in the second quarter than we anticipated and we have a low more insight into the third quarter and we see some things again, returning to a little more normal.

<unk> is.

People are getting <unk>.

Back active again school will be starting up and so forth.

In terms of kind of net revenue, we think kind of our net revenue per adjusted admission will look somewhat similar in the back half of the year to where we exited the second quarter.

And then in terms of kind.

Improvements in our margin improvement program.

As I mentioned is on plan and we believe that there is still some opportunities.

With margin improvement and cost savings opportunities and initiatives that were.

Working on to deliver further cost improve.

The cost in the back half of the year as well as in <unk>.

<unk>.

Into next year.

Beyond so.

As we're looking at that all.

Things equal, we're pretty comfortable with where we're at in that guidance range.

And then the big unknown and certainly included in.

<unk> tightened our number of scenarios around what may happen with Covid case counts.

Yes, Brian This is Tim I'll add on just real quick I think Kevin summed it up very nicely I'll add on some of our investments back into the business some cash.

Going back to that seasonality, we've talked about historically, but we have about.

30% more employed doctors coming into the portfolio in the third quarter. So there'll certainly be some investment into that as we ramp those practices up but that's all for the long term growth and development of the entire portfolio all along our service line strategies in our primary care development strategy. So again, that's factored into our guidance as well, but we believe it's a good.

That GAAP long term prospects of the business.

Thank you. Our next question comes from the line of Frank Morgan RBC capital markets. Your line is open.

Good morning, I guess I'll stay on that same subject so.

Yes.

I guess.

Before I go back to the cost side.

You are.

The color around the utilization across your service segments versus the pre pandemic levels.

Across the.

For the quarter in its entirety, but could you give us any color on really how you exited the quarter relative to some of those 2019 pre pandemic.

Levels of utilization, whether it's admissions or <unk> surgeries, those kind of things.

And I guess, just the part of clarification I guess, what Im hearing you say is is that the reason the seasonality here is probably going to the board driven by the cost side than the volume side is that correct.

Yes.

Sure, let me kick that off and then Tim may weigh in here as well and thanks, Frank for the question.

I guess.

Starting off here I would say that the the <unk>.

Second quarter, we started off with low higher Covid case counts.

And those came down throughout the quarter in the non Covid cases increased throughout the second quarter. So as we exited the quarter, we were probably fairly even or a little bit above that 2019 base period exiting the quarter.

I agree Kevin.

And thanks for that and then Frank Good morning in terms of the volume progression. We certainly did see throughout the course of the previous waves of the pandemic when inpatient Covid cases subsided, we were able to bring back the elective or non COVID-19 care back and we saw that trend continue into the second quarter.

Frankly, with a really strong.

Kevin down some.

<unk> of May and throughout June and heading into July So we're pretty optimistic in terms of our ability to manage surges of COVID-19 maintain our access for our non COVID-19 patients through that dual track strategy we referenced.

Working to demonstrate that our priority is obviously to be there when.

Of our communities need us, but we'd become more proficient at managing elective care to the point that we would hope that governments wouldn't feel the need to restrict our ability to do so we'll kind of be the arbitrator. If we can of of where we put our resources to make sure we take care of both Covid and non Covid care.

And then maybe the.

<unk> circle back on the last part of your question in terms of the third quarter.

I think the seasonality what we typically see.

As a little bit lower volume in the third quarter.

And then picking up in the fourth quarter and through the end of the year and net.

That's kind of what we're.

Expecting to see in terms of the return to maybe a more normal seasonality of our seasonal softening in the third quarter, but we believe we will still have a good strong expense management throughout the remainder of the year.

Thank you.

Our next question comes from the line of Josh Raskin of Nephron Research. Your line is open.

Hi, Thanks, Good morning, guys, just a quick clarification on the Medicare repayments I heard the $947 million remaining.

Is that the $125 million or so of quarter going forward until it's repaid or.

I guess, what's the number of quarterly.

Yes, that's about right I think we were estimating $400 million to $450 million. This year with the remainder of paid back in 2022.

Thank you our next question.

From the line of EQ price of Credit Suisse. Your line is open.

Hi, everybody.

If I just take a minute to ask you about the law.

Labor dynamics, we are hearing a lot of about that across the.

The provider World what are you seeing in terms of turnover rates.

Comes from use of the contract labor.

And how about just thinking about wage increases over the next year or so for your permanent employees.

Do you have an early read is that going to step up or is that sort of consistent with where it's been.

Sure. Thanks AJ. This is Kevin let me start this 1 off.

We are seeing a little bit of higher inflation costs with respect our labor.

This does kind of vary market by market and it's been a little bit above maybe what we've experienced.

Previous years, but at the same time, we are seeing.

Some easing on both the rate and utilization of contract labor that came down.

Pretty significantly from the first quarter to the second quarter.

Sequentially were up.

Also seeing some improvement in our.

The employed labor.

Pension.

So we saw improvement in retention sequentially as well so net net I think we believe we will be able to kind of manage through this.

Through the current environment without any material impact on margin through the back half of the year.

Good morning, a J. This is Tim I'll, just add onto what Kevin mentioned in terms of our management.

But of labor throughout the quarter as Kevin said sequentially improved from the first quarter.

Some of that decrease in Covid case, count reduction of of our contract labor expenses and improve retention of the hiring of our core staff. We plan to continue obviously with that going forward into the future with some very specific.

The initiatives.

<unk> is here at CHF first of all we've had some centralized or in recruitment success in a few of our markets that we piloted in 2019 and 2020, we're now scaling that across the organization by the end of this month, we'll have about half of our hospitals up on the centralized nursing recruiting support function.

And by the end of the year of about 90% of our hospitals and what that entails is really leveraging the digital marketing and in sourcing of nurses from.

From a corporate standpoint, similar to what we do for physician recruitment handing over qualified candidates to the local HR teams and having them complete the hiring process and.

Then on the backend working with some very specific preceptorship and orientation programs. The other thing that we're doing the support the supply side of nursing in particular I believe we mentioned this in our first quarter earnings call, but we've initiated a relationship with Jersey College, we now have 2 fully functioning nursing programs.

Our markets that are fully staffed and half of full enrollment of new nursing of students. We have 2 more programs launching by the end of the first quarter of 2022 and by the end of 2023 about half of our hospitals will be supported by our own affiliated nursing program. The other benefit of this.

Not just on the supply side, but as these candidates. The students are going through the nursing program. They are getting experience in our hospitals in support of care functions as certified nursing assistant the patient care technicians of what have you, which we believe again give them an early entry into our health care system. So that when the completed with their program.

Passed their test them, they're already ingrained into our health care delivery systems will come on full time of nurses.

Yes.

Thank you next question comes from the line of Ralph Giacobbe.

Your line is open.

Thanks.

Thanks, Good morning.

Just I guess wondering with Covid cases up recently with the self variant I was hoping you could give us the expense.

What youre seeing in your markets in terms of the magnitude of that lift of.

Covid, specifically and whether youre seeing any corresponding slowdown in non COVID-19 volume and surgery and then just to clarify is the volume.

All of the seasonality quarter of your expectation or are you already sort of seeing some of that of late whether it's sort of in core or related to COVID-19.

Thanks.

Good morning, Ralph I'll start this off of them and then hand it over to Dr. Simon for some more color around the car.

Current COVID-19 experience in terms.

While the current searches the impact on elective business. We've obviously been monitoring that very closely and we have not seen a material impact and it goes back to our our I guess experience with managing the previous waves of Covid that dual track strategy. Our staff is really well equipped in terms of.

How to manage Covid care safely.

Stinker leave from the elective care and our physicians and caregivers again very grateful for their commitment to this but believe they've really made our communities and our patients still safe. So we have not seen wide drops in elective care. So in terms of the actual pandemic I'll turn over the Doctor Simon.

Thanks, Tim So the current surge that we're seeing is.

We're seeing an increase in cases, but still running at a lower rate than we were seeing last July so not quite up to those levels I think the people have much more confidence now in managing the protocols and how these patients are treated.

We continue.

Continue to.

Half of our corporate command center running and then we continually reach out to our teams to make sure that they have the support that they need as.

As we see these COVID-19 cases increase.

Thank you next question comes from the line of Stephen.

Even with all the kids from Barclays. Your line is open.

Great. Thanks, good morning, everybody.

So a lot of key topics have been touched on already in relation to the acuity mix margin trends for the remainder of 'twenty 1.

It's a little early to talk about 'twenty, 2 but I guess I'm just curious that given all the puts and takes in your upcoming pivoted from.

This year to next year.

If we do ignore the the $83 million of government stimulus relief that you received this year is there any preliminary view on whether you would expect EBITDA to grow next year for.

The 21 base just given your growth initiatives for curious of any directional thoughts around that at this early stage thankfully.

Sure it's probably.

The little early we haven't given out any guidance on 2022, yet, but I would say a couple of things.

Relative to that 0.1 that we're now that we're done with our the Divesture program and I think we've said we've turned 100% of our attention towards growth, we're making a.

The number of investments.

In both inpatient and outpatient areas and a number of service line enhancements.

To really grow our net revenues and if you look at our medium term.

Goals that we've put out and I think it's on page 15.

1 of our slide deck.

Our goal is to grow net revenue to increase our margin above 15% and to reduce our.

Leverage below 6 times.

Medium term being over the next 2 to 4 years, but if you think about kind of of the trajectory to get there.

Hopefully you can use that to the kind of give us some idea about the direction of 2022.

Thank you next question comes from the line of the Kevin Fischbeck.

Bank of America. Your line is open.

Great. Thanks.

Once the.

That's about the the volume expectations for the back half of the year I think if I heard you right. You said that you expected the rate took the largely be similar to the first half of the year I guess.

You know.

We we might expect that as volume because of normalized.

A lot of it would be low acuity volume and that it seems like the government volume has been more depressed so that would be the the volume that comes back. So I guess I just wanted to I guess first.

Touch on that dynamic. The then secondly, how are you thinking about it if you agree with that comment the has the ability to kind of maintain.

Jane the gross margins, if you're bringing in the low acuity of government volume, which historically is a lower volume of lower margin.

The volume sourced.

Sure.

And I'll be happy to start that off so there's a lot.

Pack, there and there's certainly been a lot of noise.

In the prior periods.

As we have.

Of our coming.

And sing.

Declines in Covid cases.

But if you look at our net revenue per adjusted admission compared to.

2019, we're up about 10%.

Over the 2 year period and I.

I think that if you think about maybe normal rate lift.

And a little bit of acuity lift off that.

We're pretty comfortable that we can kind of maintain.

That level of net revenue per adjusted admission going into the back half certainly.

Youre.

Youre right Theres, probably some lower acuity service.

Debt.

Isn't back yet.

However, there is still some higher acuity services and we've been over the past couple of years, making investments and higher acuity service lines and making other improvements in and adding services that we think will offset.

That.

Some of that what might be some downward pressure as we continue to grow.

Yes, Kevin This is Tim I'll, just to add onto what Kevin said in terms of our prospects for growing net revenue.

We really have had a very balanced approach to how we want to build out the business expand our markets and.

Balanced approach being investments in the ambulatory care settings or access point strategies are freestanding eds. As we mentioned continue to expand we of another 1 that will be opening up yet this year, we of our pipeline that has additional ones in place.

While some of those visits may be lower acuity of it is an expansion of some of our higher.

The acuity service lines of on the orthopedic and cardiac service line. So it is all meant to really help us further bolster that inpatient side of the business and some of the core markets, where we're adding beds, we still see tremendous opportunity to expand and augment service lines growing more of that inpatient business, taking more of the inpatient market.

So we again, we see that balanced approach of serving us quite well and making sure we're positioned well to where carriers migrating on the ambulatory side, but still being able to drive the of higher acuity inpatient services.

Thank you and our last question comes from the line of Josh.

Josh Raskin of Nephron Research your line is open.

Yes, I appreciate the follow up the <unk>.

Real question I had was just the.

Changes that Youre seeing and I know, we just talked about sort of COVID-19 and delta, but I'm curious on the treatments and.

Cost per <unk>.

Patient and sort of.

The impact on.

<unk> share issue. So are you seeing differences in the treatment of the Delta variant patients relative to others that there are differences in length of stay difference in cost of treat I'm assuming you.

You don't have PPE issues and other impacts on the in the <unk>.

Rest of the facility, but I'd be curious on the inpatient cost per per patient.

Sure Josh This is Tim I'll kick it off with more.

More of the operational side and have Kevin weigh in on the cost side, but in terms of the operation side of your theory is correct. We're not having the same pressures on PPE as we pointed out in the second quarter, we saw a drop in contract labor.

We are bringing in more contract labor. So you may see some increase in and that spend as we.

We support our caregivers are full time and part time caregivers with more nursing resources to manage the surge and maintain that dual track of elective non COVID-19 business coming into the hospitals and.

In terms of any other expenses in terms of drugs or lack of those are relatively stable to what we saw in the previous wave.

Yes.

I would say, it's a little early but right now what we're experiencing is not a significant difference in the cost of treatment.

For the current wave of Covid patients compared to previous waves.

And I'll just add with this way of like everyone is talking about seeing a little younger patient.

<unk> and probably less ventilated patients so thats a trend at least now that obviously is subject to change, but that's what we've been seeing recently.

Great point.

Thank you we will now turn the call over to Mr. Hanson for closing comments.

Thank you Jay and thanks to.

All of you for spending time with us today in closing I want to once again, thank our physicians caregivers employees and hospital leadership teams, who consistently demonstrate their true purpose and commitment and service to their communities. Each and every day I also want to thank our regional presidents and the company's entire leadership team for.

The continued strong support of our markets. We are pleased with our strong first half of the year and we look forward to updating you on our progress throughout the rest of 2021. Once again, if you have any questions you can always reach us at 615 for 65.7000.

Have a great day.

Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

A great day.

Yeah.

[music].

Yeah.

[music].

Good day, and thank you for standing by welcome to the community Health systems.

The second quarter 2021 earnings call.

Please be advised for today's conference is being recorded.

I would now like to hand, the conference over to your speakers for today, Mr. Ross Comeaux, Vice President of Investor Relations.

Thank you Jay good morning, and welcome to the community Health systems.

Second quarter 2021 conference call joining me on today's call are Tim Henson, Chief Executive Officer, Dr. Lynn Simon President of clinical operations, and Chief Medical Officer, and Kevin Hammons, President and Chief Financial Officer.

Before I turn the call over to Tim I'd like to remind everyone that this.

The conference call may contain certain forward looking statements, including all statements that do not relate solely to historical or current facts. These forward looking statements are subject to a number of known and unknown risks, which are described in headings such as risk factors in our annual for report on form 10-K, and other reports filed.

The furnished to the Securities and Exchange Commission.

As a consequence actual results may differ significantly from these.

Expressed in any forward looking statements in today's discussion, we do not intend to update any of these forward looking statements yesterday afternoon, we issued a press release with our financial statements and definitions and calculations.

Filled with turns of adjusted EBITDA and adjusted EPS for those of you listening to the live broadcast of this conference call a supplemental slide presentation has been posted to our website.

We will refer to those slides during this earnings call.

All calculations, we will discuss also exclude loss from early extinguishment of debt and Perm.

<unk> expense as well as gains or losses on the sale of businesses expenses from government and other legal settlements and related costs expenses from settlement and legal expenses related to cases covered by the CVR expenses related to employee termination benefits and other restructuring charges change and change in tax valuation.

<unk> allowance.

With that said I'd like to the turn the call over to Tim Henson Chief Executive Officer. Thank.

Thank you Ross good morning, everyone and welcome to our second quarter 2021 Conference call. We are pleased with our second quarter results, especially as we continue to see volume recovering net revenue growth.

Margin improvement during.

During the first half of 2021, we further advanced growth oriented strategic initiatives that continue to strengthen the company.

Before we walk through the details we would like to thank all of our providers nurses and caregivers and our employee and leadership teams, who continue to continue to provide safe high quality.

Quality care in the communities, we are so fortunate to serve.

And this has been great to see firsthand with more people vaccinated and because of Covid case count declined in the second quarter. Many of our executive leaders were able to spend time visiting our markets over the past several weeks, we have had the opportunity to tour of capital.

The projects that have come online witnessed the operational improvements and of course to hear heartwarming stories of patient care and positive outcomes.

There is of tremendous sense of pride across our organization, especially as we reflect on the essential services and value provided to our communities. While we've worked together to fight the COVID-19.

Time, Inc.

We are currently seeking seeing an uptick of Covid cases in some markets, but we remain confident in our dual track the operating model and the ability of our teams to safely and effectively manage COVID-19 surges while.

I'll also meeting the increasing demand for our services and to meet the health care needs of non Covid patients.

Dependent.

Now switching back to the second quarter positive COVID-19 case counts were lower than the first quarter. Following the peak numbers, we experienced in January and the first quarter. We provided care for approximately 9500 inpatient COVID-19 admissions in the second quarter, our inpatient COVID-19 admissions.

For approximately 3000, which represented about 3% of our total admissions.

And as Covid cases declined during the second quarter, we experienced a solid rebound in non COVID-19 volumes driven by our efforts to attract new patients and to re engage and retain patients who have previously used our health care systems.

For the second quarter on a same store basis net revenue increased 32% year over year, driven by the easier comp, which was the result of the government restrictions on elective procedures.

Net revenue last year.

For the full quarter year over year same store admissions increased 17.

<unk>, 2%, while adjusted admissions were up 28, 5% surgeries increased 43, 7% and ER visits were up 39, 2%.

In terms of our patient volumes, all volume growth rates meaningfully improved sequentially compared to pre pandemic levels and looking.

At our second quarter results compared to the same period in 2019, we were pleased with the improvements we've delivered over that benchmark period.

Compared to 2019 same store surgeries were slightly higher increasing approximately 1%.

Additions and adjusted admissions were down approximately 4% in.

17% respectively.

ER visits of strengthened throughout the quarter. The continued to lag other volume metrics compared to pre pandemic run rates now down 6%.

On a consolidated basis second quarter adjusted EBITDA came in at 453 million with adjusted EBIT margin of 15, 1%.

Timeframe.

Net revenue initiatives, such as the transfer center investments.

And the higher acuity inpatient services ongoing outpatient access point development and our Acos are generating growth.

The strategic margin improvement program is adding value across the enterprise.

And our current portfolio of hospitals because of this positions us in stronger markets primarily across.

Southeast South and southwest areas of the country, where there is population growth and economic expansion.

Over the past few years, we have continued to deploy capital in our core markets to drive long term inpatient and outpatient growth with the recent investments, including debt and service line expansion.

The end markets, including Birmingham, Naples, Huntsville in Knoxville, the opening of our 15th freestanding EDI in Gulf shores, Alabama, which is part of the fast growing Baldwin County market.

The recent opening of 2 new hospitals in Arizona, and Indiana, and we have 2 more hospitals nearing completion 1.

In downtown Fort Wayne that is scheduled to open in the fourth quarter of this year and another de Novo hospital in Tucson, Arizona that we plan to open in the first quarter of 2022.

We are also excited about recently announced partnerships and joint ventures that will expand access to post acute and behavioral health services.

During.

<unk>, we opened Knoxville rehabilitation hospital and are to Nova East market in partnership with Kindred.

We also announced the de Novo JV project with select medical in Tucson, which includes acquiring a 47 bed long term acute care hospital and we will break ground next week on the behavioral health facility in Fort Wayne as.

As part of the joint venture with the Acadia healthcare.

And we continue to invest in joint venture ambulatory surgery Center partnerships in key markets with the day novel Center opening in our chip to Nova East, Tennessee market in just a few weeks.

We will continue to invest in a considerable pipeline of inpatient and outpatient opportunities over the next.

Next several quarters, which will further strengthen our core markets for the long term.

Since the start of the year, we have demonstrated progress in terms of net revenue growth expense management EBITDA growth EBITDA margin expansion as well as our capital structure. We are certainly pleased with this progress and the momentum it provides as we execute.

Execute our strategies and capitalize on all of the opportunities that we see over the next several years and.

In the medium term, we continue to target, 15% plus adjusted EBITDA margin positive annual free cash flow generation and reducing our leverage below 6 times, which we believe will add value for all of the company's stakeholders.

Kevin.

Thank you, Tim and good morning, everyone.

As Tim highlighted it was another strong quarter for the company during which we delivered solid financial performance and made progress across multiple fronts.

During the second quarter we.

We delivered a strong volume recovery good expense management.

Management positive free cash flow further capital structure improvement and additional progress across our strategic initiatives.

We also adjusted our full year guidance to reflect the Companys strong start to the year and our outlook for the back half of the year.

Looking at the second quarter performance.

Net operating revenues came in at $3.7 million on a consolidated basis.

On a same store basis net revenue was up 32% from the prior year due largely to the prior year impact of COVID-19.

This was for the net result of the 28, 5% increase in adjusted.

And of 1.3% increase in net revenue per adjusted admission, which.

Which faced a difficult comp from the prior year.

Excluding non patient revenue, which was lower year over year net patient revenue per adjusted admission was up 3.3% compared to the prior year.

During the second quarter, we drove a strong sequential recovery and non COVID-19 related patient demand and we delivered improved volume performance on a sequential and year over year basis.

Adjusted EBITDA was $453 million.

Comparing to the pre pandemic baseline period of the second quarter of <unk>.

2019. This represents a 12, 7% growth in adjusted EBITDA, Despite having 23 fewer hospitals.

Excluding provider relief funds. This also represents a sequential 9.4% improvement over the first quarter of this year.

During the second quarter, we recorded approximately.

<unk> $1 million of pandemic relief funds. If you recall in the second quarter of 2020, we recognized $448 million of pandemic relief funds, which represented substantially all of our prior year adjusted EBITDA.

The pandemic relief funds have helped to offset a portion of lost net revenue and incremental expense.

<unk> related to the COVID-19 pandemic.

During the past 6 quarters, we've experienced a number of ways of Covid, which have impacted our volumes and operating expenses. Our hospital leadership teams continue to adjust extremely well to this evolving operating environment and we expect to continue to utilize our dual track strategy.

In the back half of the year as we care for both non Covid related health care demand as well as additional COVID-19 patients.

It's also worth noting that our strategic margin improvement program has remained on plan the <unk>.

Program has helped to drive savings for the past few quarters and we expect the plan will reduce operating.

<unk> in the back half of this year and over the next several years.

Switching to cash flow cash flows provided by operations for $280 million for the first 6 months of 2021.

This compares to cash flows from operations of $1.7 billion during the first 6 months of 2020.

Excluding the received and repaid Medicare accelerated payments cash flow provided by operations were $414 million for the first 6 months of 2021 compared to $552 million in the prior period looks.

Looking at the year over year decrease excluding the Medicare advance payments.

Cost of the change was primarily due to changes in networking capital, which also included the pandemic relief fund grants.

Declining net revenue in the first half of 2020. It was the benefit to working capital last year as accounts receivable declined while strong net revenue growth during the first half of this year.

Has resulted in a net increase to accounts receivable and therefore, a slight net working capital drag to start the year.

Moving to Capex. The first 6 months of 2021, our capex was $212 million compared to $192 million in the prior period.

Our capex.

Year up 10% in the first half of 2021 again, despite operating 13 fewer hospitals than a year ago.

Going forward over the next several years, we believe our current portfolio of markets is well positioned to benefit from continued economic and demographic growth in.

In addition to recent.

X was all investments we plan to continue investing and a strong pipeline of development opportunities in our existing markets to further strengthen our portfolio.

In terms of liquidity at the end of the second quarter. The company had $1.25 billion of cash on the balance sheet, which was essentially unchanged sequentially.

Capital to the first quarter.

During the second quarter $116 million of previously received Medicare accelerated payments were returned to CMS as part of Cms's planned recruitment that started in April.

As of June 32021, the company has 947.

Of Medicare accelerated payments remaining to be repaid. These are recorded as a liability on the balance sheet.

Also as it relates to liquidity, we continue to have no outstanding borrowings and approximately $762 million of borrowing base capacity under the ABL with the ability for.

For that to increase up to $1 billion.

Now to the capital structure, we have continued to make meaningful progress.

On slide 12 of our supplemental slide presentation. We've included our debt maturity profile at the end of 2019 compared to the end of the second quarter of 2021.

During.

The past few quarters, we have significantly extended debt maturities pay down debt and lowered annual cash interest.

Most recently in the second quarter, we extended $1.4 billion second lien notes from 2024 to 2030, while lowering our interest rate 200 basis points.

This transaction.

We lowered annual cash interest now our next debt maturity is not due until 2025.

Through 2020, and the first half of 2021, we lowered our debt by over $1.3 billion reduced our leverage ratio by over 2 turns a day.

1 to 6 times compared to over 8 times.

And further at this point last year and lowered annual cash interest by approximately $210 million.

Now I would like to walk through a few updates to our full year 2021 guidance.

Net operating revenues are now anticipated to be 11, 9% to $12.3 billion as we never have narrowed our.

At the range, but maintained the midpoint adjust.

Adjusted EBITDA is anticipated to be 1.7% to $1.8 billion as we raised the low end of guidance for the second consecutive quarter.

As a reminder, our 2021 adjusted EBITDA guidance does not include any previously recorded pandemic relief funds or any pandemic.

Relief funds that may be recognized in the future.

Cash flow from operations is anticipated to be 700 day $850 million, which is an increase of $100 million from our original guidance.

And net income per share is anticipated to be 60 to 80.

Based on weighted average.

Full year shares outstanding of 129% to $130 million.

Overall, we delivered another strong quarter as our second quarter performance came in above our internal expectations.

As we think about the balance of the year, we expect our EBITDA performance.

To have similar seasonality to prior.

Prior years with some seasonal softening in the third quarter, followed by a good finish to the year in the fourth quarter.

Ross I'll now return the call back to you.

Thank you Kevin and thank you Tim at this point, Jay we are ready to open up the call for questions.

We'll limit everyone to 1 question this morning, but as always you can reach us any time.

<unk> at 605 or 657.

Thank you at this time, if you would like to ask the question. Please press Star then the number 1 on your telephone keypad. If you would like to withdraw your question Chris.

The town.

Please standby, while we compile the Q&A losses.

Yeah.

Our first question comes from the line of Brian tanks of it of.

Jeffrey Your line is open.

Hey, good morning, guys.

Congrats on the quarter.

I guess my question for you for both I guess for Kevin.

Primarily as I think about the guidance I appreciate.

And then on seasonality, but.

You put up of 15% margin number in the quarter and it sounds like.

Youre seeing the recovery.

Do you feel confident in your ability to drive growth and you beat the number in Q2 pretty well.

How are you thinking about that I mean is that just conservatism.

Yes.

As I look at both the back half guidance.

The medium term guidance is low maybe if you can touch on interest some of the cost of factors.

Well that we should be thinking about.

Sure, Brian and thank you very much so let me touch on a couple of things there.

The first is we I guess think.

About.

<unk>.

In the beginning of the year, and we kind of expected and did our guidance.

Expecting a recovery from Covid.

Kind of extended throughout the year and as we sit here today and we have a little more insight of course that recovery occurred a little.

Bit quicker in the second quarter than we anticipated.

And we have a little more insight into the third quarter and we see some things again, returning to a little more normal.

<unk>.

Or getting back active again school will be starting up and so forth.

In terms of kind of net revenue, we think kind of our net revenue per adjusted admission.

Look somewhat similar in the back half of the year to where we exited the second quarter.

And then in terms of kind of cost improvements in our margin improvement program.

Debt.

As I mentioned is on plan and we believe that there is still some opportunities.

With margin improvement and cost savings opportunities and initiatives that were.

Working on to deliver further cost improvements in the back half of the year as well as into.

<unk>.

Sir.

And beyond so.

As we're looking at that.

All things equal, we're pretty comfortable with where we're at in that guidance range.

And then the big unknown and certainly included in that guidance or a number of scenarios around what may happen.

With Covid case counts.

Yes, Brian This is Tim I'll add on just real quick I think Kevin summed it up very nicely I'll add on some of our investments back into the business.

Kind of going back to that seasonality, we've talked about historically, but we have about 30% more employed doctors coming into the portfolio.

<unk> in the third quarter, so there'll certainly be some investment into that as we ramp those practices up but that's all for the long term growth and development of the entire portfolio along our service line strategies in our primary care development strategy. So again, that's factored into our guidance as well, but we believe it's a good thing for the long term prospects of the business.

Thank you. Our next question comes from the line of Frank Morgan RBC capital markets. Your line is open.

Good morning, I guess I'll stay on that same subject so.

I guess before I go back to the cost side.

I appreciate the color around the utilization across your service segments.

The pre pandemic levels.

Across the <unk> for the quarter in its entirety, but could you give us any color on really how you exited the quarter relative to some of those 2019 pre pandemic.

Levels of utilization, whether it's admissions or E. R surgeries, those kind of things.

Versus I guess just for a clarification I guess, what Im hearing you say is is that the reason the seasonality here is probably going to be more driven by the cost side than the volume side is that correct.

Sure, let me kick that off and then Tim may weigh in here as well and thanks, Frank for the question.

<unk>.

Sure.

I guess.

Starting off here I would say that the.

The.

The second quarter, we started off with low higher Covid case counts and those came down throughout the quarter and the non Covid cases increased.

Throughout the second quarter, so as we exited the quarter, we were probably fairly even or a little bit above that 2019 base period exiting the quarter.

Yes, I agree Kevin Thanks for that and then Frank Good morning in terms of the volume progression, we certainly did see.

For the course of the previous waves of the pandemic when inpatient Covid cases subsided, we were able to bring back the elective or non COVID-19 care back and we saw that trend continue into the second quarter, frankly, with a really strong bound some.

In the months of May and throughout June and heading into July So we're pretty optimistic.

Terrific in terms of our ability to manage <unk>.

The COVID-19 maintain our access for our non COVID-19 patients through that dual track strategy we referenced.

Working to demonstrate that our priority is obviously to be there when our communities need us, but we'd become more proficient at managing elective care to the point that we would hope that.

<unk> wouldn't feel the need to restrict our ability to do so we'll kind of be the arbitrator. If we can of of where we put our resources to make sure. We take care of both COVID-19 of non Covid care.

And then maybe the.

Finally, we circle back on the last part of your question in terms of the third quarter.

The government I think the seasonality what we typically see.

As a little bit lower volume in the third quarter.

And then picking up in the fourth quarter and through the end of the year.

That's kind of what we're.

Expecting to see in terms of the return to maybe more normal.

Seasonality of seasonal softening in the third quarter, but we believe we will still have a good strong expense management throughout the remainder of the year.

Thank you. Our next question comes from the line of Josh Raskin of net.

For research your line is open.

<unk>.

Hi, Thanks, Good morning, guys, just a quick clarification on the Medicare repayments I heard the $947 million remaining.

Is that the $125 million or so of quarter going forward until it's repaid or.

I guess, what's the number of quarterly.

Yes, that's about right I think we were estimating.

$400 million to $450 million this year with the remainder of paid back in 2022.

Thank you.

Our next question comes from the line of EQ price of Credit Suisse. Your line is open.

Hi, everybody.

Let's just take a minute to ask you about the labor dynamics, we are hearing a lot about that across the.

The provider world.

What are you seeing in terms of turnover rates.

The use of contract labor and.

And how about just thinking about wage increases.

And the next year or so for you.

Your permanent employees.

Do you have an early read is that going to step up or is that sort of consistent with where it's been.

Sure. Thanks AJ. This is Kevin let me start this 1 off.

Are saying a little bit of higher inflation.

Of course.

With respect our labor.

This does kind of vary market by market and it's been a little bit above maybe what we've experienced.

In previous years, but at the same time, we are seeing some easing on both the rate and utilization of contract labor.

It came down.

Pretty significantly from the first quarter to the second quarter.

Sequentially.

Also seeing some improvement in our.

The employed labor.

The retention so we saw improvement in retention sequentially as well so net net I think we believe we will.

Be able to kind of manage through this.

Through the current environment without any material impact on margin through the back half of the year.

Good morning, a J. This is Tim I'll, just add on to what Kevin mentioned in terms of our management of labor throughout the quarter as Kevin said sequentially improved from the first quarter.

Tied to some of that.

The decrease in Covid case, count reduction of of our contract labor expenses and improve retention of the hiring of our core staff. We plan to continue obviously with that going forward into the future with some very specific.

Initiatives here at CHS are first of all we've had some centralized or in recruitment success in a few.

Markets that we piloted in 2019 and 2020, we're now scaling that across the organization by the end of this month, we'll have about half of our hospitals up on the centralized nursing recruiting support function and by the end of the year of about 90% of our hospitals and what that entails is really leveraging the digital.

Of our marketing and in sourcing of nurses.

From a corporate standpoint, similar to what we do for physician recruitment handing over qualified candidates to the local HR teams and having them complete the hiring process and then on the backend working with some very specific preceptorship and orientation programs.

It'll none of the thing that we're doing the support the supply side of nursing in particular I believe we mentioned this in our first quarter earnings call, but we've initiated a relationship with Jersey College, we now have 2 fully functioning nursing programs at our markets that are fully staffed and have a full enrollment of new nursing of students.

The 2 more programs launching by the end of the first quarter of 2022 and by the end of 2023 about half of our hospitals will be supported by our own affiliated nursing program. The other benefit of this is not just on the supply side, but as these candidates. The students are going through the nursing program. They are getting.

We experienced in our hospitals in support of care functions as certified nursing assistant the patient care technicians of what have you, which we believe again give them an early entry into our health care system. So that when the completed with their program passed their test them, they're already ingrained into our health care delivery systems and will come on full time.

As nurses.

Yes.

Thank you next question comes from the line of Ralph Giacobbe.

Your line is open.

Thanks, Good morning.

Just I guess wondering with Covid cases up recently with the Delta Marianne I was hoping.

Hoping you can give us a sense of.

What youre seeing in your markets in terms of the magnitude of that lift of.

Covid, specifically and whether youre seeing any corresponding slowdown in non COVID-19 volume and surgery and then just to clarify is the volume seasonality.

What are your expectation or are you already sort of seeing some.

Some of that of late whether it's sort of in core or related to.

Covid.

Good morning, Ralph I'll start this off and then hand it over to Dr. Simon for some more color around the coker.

Our current Covid experience in terms of the current searches the impact on elective business, we've obviously been monitoring that very.

And we have not seen a material impact and it goes back to our our I guess experience with managing the previous waves of Covid that dual track strategy. Our staff is really well equipped in terms of how to manage COVID-19 care safely.

Simply from the elective care and our physicians.

Clothing, caregivers again very grateful for their commitment to this but believe they've really made our community is in our patients feel safe. So we have not seen wide drops in elective care. So in terms of the actual pandemic I'll turn over to Dr. Simon Thanks, Tim So the current surge that we're seeing as well.

We're seeing an increasing.

Increase in cases.

Running at a lower rate than we were seeing last July so not quite up to those levels I think people have much more confidence now in managing the protocols and how these patients are treated.

We continue to.

Half of our corporate command center running and then we continually reach out.

And in terms of make sure that they have the support that they need.

As we see these COVID-19 cases increase.

Thank you next question comes from the line of Steven Valiquette from Barclays. Your line is open.

Great. Thanks, good morning, everybody.

So a lot of key topics have been touched on already in relation to the acuity mix margin trends for the remainder of the 21.

It's a little early to talk about 'twenty, 2 but I guess I'm just curious that given all the puts and takes in your upcoming pivot from this year to next year.

If we do ignore the the $83 million of government stimulus relief that you received this.

Our team of preliminary view on whether you would expect EBITDA to grow next year.

From the 21 basis, just given your growth initiatives for curious of any directional thoughts around that at this early stage.

Sure, it's probably low early and we haven't given out any guidance on 2022, yet, but but I would say.

The year is there a couple of things.

Relative to that 0.1 that we're now that we're done with our the Divesture program and I think we've said were turned 100% of our attention towards growth, we're making a number of investments.

In both inpatient and outpatient.

There is an.

A number of service line enhancements.

To really grow our net revenues and if you look at our medium term.

Goals that we've put out and I think it's on page 15 of our slide deck.

<unk>.

Our goal is to grow net revenue.

To increase our margin above 15% and to reduce our leverage below 6 times the.

Medium term being over the next 2 to 4 years of but if you think about kind of the trajectory to get there.

Hopefully you can use that to the kind of give some idea about the direction of 2022.

Thank you next question comes from the line of the Kevin Fischbeck.

Bank of America of your line is open.

Okay. Thanks.

1 day.

That's about the.

The volume expectations in the back half of the year I think.

Could you right you said that you expected the raw.

Took the largely be similar for the first half of the year I guess.

We we might expect that as volume because the normalize it would be low acuity volume and.

And that it seems like the government volume has been more to.

That would be the the volume that comes back so I guess I just wanted to I guess first.

Some of that dynamic and then secondly, how are you thinking about if you agree with that comment.

The ability to kind of maintain or grow margin that you're bringing in the low acuity volume, which historically is the lower volume lower margin.

Perhaps the volume sourced.

Sure.

And I'll be happy to start that off so there's a lot.

Pat there and there's certainly been a lot of noise.

You know in the prior periods as we you know.

Are coming.

And sing.

Clines in Covid.

Covid cases.

But if you look at our net revenue per adjusted admission and compared to.

2019, we're up about 10%.

Over the 2 year period, and I think that if you think about maybe normal rate lift.

And a little bit of acuity lift off that.

We're pretty comfortable that we can kind of maintain.

The debt level of <unk>.

Net revenue per adjusted admission that going into the back half certainly.

Youre right Theres, probably some lower acuity service.

Debt isn't back yet.

Some of that what might be some downward pressure as we continue to grow.

Yeah, Kevin This is Tim I'll, just to add onto what Kevin said in terms of our prospects for growing net revenue.

We really have had a very balanced approach to how we want to build out the business expand our markets and the balanced approach being investments in the ambulatory care settings or access point strategies are freestanding eds.

As we mentioned continue to expand we of another 1 that will be opening up yet this year, we of our pipeline that has additional ones in place.

While some of those visits may be lower acuity as it is an expansion of some of our higher acuity service lines of on the orthopedic and cardiac service line. So it is all meant to really help us further bolster that.

Patients side of the business.

And some of the core markets, where we're adding beds, we still see tremendous opportunity to expand and augment service lines growing more of that inpatient business, taking more of the inpatient market share. So we can we see that balanced approach of serving us quite well and making sure we're positioned well to where carriers migrate.

Riding on the ambulatory side, but still being able to drive the of higher acuity inpatient services.

Thank you and our last question comes from the line of Josh Raskin of Nephron Research. Your line is open.

Yes, I appreciate the follow up the.

The real question I had was just the.

The.

Changes that Youre seeing I know, we just talked about sort of the coke and delta, but I am curious on the treatments and.

The cost per.

Patient and sort of impact on operations. So are you seeing differences in the treatment of the Delta variant patients relative to others are there differences in length of stay.

Day difference in cost of treat im assuming.

You don't have PPE issues and other impacts on the.

For the rest of the facility, but I'd be curious on the inpatient cost per per patient.

Sure Josh This is Tim I'll kick it off with more of the operational side and have Kevin weigh in on the cost side, but in terms of the operation side of your theory is correct.

We're not having the same pressures on PPE as we pointed out in the second quarter. We saw a drop in contract labor, we are bringing in more contract labor. So you may see some increase in and that spend as we support our caregivers are full time and part time caregivers with more nursing resources to manage the surge and maintain.

That dual track of elective non COVID-19 business coming into the hospitals.

In terms of any other expenses in terms of drugs or lay out those are relatively stable to what we saw in the previous waves.

Yes, so I would say, it's a little early but right now what we're experiencing is not any significant difference.

The cost of treatment.

For the current wave of Covid patients compared to previous waves.

And I'll just add with this way of like everyone is talking about seeing a little younger patient and probably less ventilated patients. So thats a trend at least now that obviously is subject to change but.

But that's what we've been seeing recently.

Point.

Thank you we will now turn the call over to Mr. Hanson for closing comments.

Thank you Jay and thanks to all of you for spending time with US today in closing I want to once again, thank our physicians caregivers employees.

And hospital leadership teams, who consistently demonstrate their true purpose and commitment and service to their communities each and every day I also want to thank our regional presidents and the company's entire leadership team for the continued strong support of our markets. We are pleased with our strong first half of the year and we look forward to updating you on our progress.

Throughout the rest of 2021 once again, if you have any questions you can always reach us at 615 for $65.7000 have a great day.

Okay.

Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.

Have a great day.

Q2 2021 Community Health Systems Inc Earnings Call

Request a DemoDemo

CYH

Community Health Systems

Earnings