Q3 2021 Tenet Healthcare Corp Earnings Call
Continue to improve surgical procedures saw an uptick from the prior year on an absolute basis cardiac interventions are recovering back to 2019 levels and we were able to perform elective procedures in our hospitals, even during the COVID-19 spikes across our markets.
During the past few months.
<unk> also been accelerating investments to remain ahead of service in our demands.
This includes robotic expansion in over 20 hospital supporting general surgery cancer services, and bone and joint programs.
Spanned at procedural room capacity.
Once we open markets, including Palm Beach and Phoenix.
Enhanced inpatient capacity for new services in multiple markets, including San Antonio and El Paso.
And expansion of trauma accreditations, most recently at one of our hospitals in the Coachella Valley.
We strengthened.
And multi physician network with new additions to established groups and cardiovascular Neurosciences and orthopedics. We also realigned reputable physicians, including the establishment of a large general surgery group in Palm Beach.
While some broader supply chain challenges remain within selected.
<unk> clinical equipment and technology orders, we are well positioned to respond and manage given the actions that we took early on.
Overall based on our multi year journey of improving performance in our hospitals I feel our platform is adapting well to higher acuity and proving that it is flexible to accommodate returning volumes in the ER.
Our <unk> as well as the ups and downs of Covid.
Let me transition to USPI USPI continues to deliver results with high margins and produced strong cash flows.
Volumes in Q3 of 2021 increased to 101% of 2019 levels.
And it's also important to note that this metric has sequentially improved each quarter of this year.
We are encouraged by the fact that net revenue per case is almost 10% higher than 2019, demonstrating that our higher acuity services are showing an even enhanced growth rate.
Whereas the <unk> X for example saw growth rates up 22% compared to a year ago.
In musculoskeletal care, we've completed more than 535000 procedures to date and joint replacement surgeries have more than doubled from prior year.
Meanwhile, our focus on efficiency at USPI has led.
Levels margins that are approximately a 100 basis points better than the third quarter of 2019.
Despite this performance the COVID-19 surge during the quarter did impact select markets we.
We saw an increase in cancellations with the Covid spike and some deferral of care as doctors' offices.
Has slowed a bit the impact of this was felt mostly in states with stronger lockdowns on the two coasts while in other markets, such as Texas, and Florida volumes grew ahead of our expectations.
As with prior recoveries, we expect to capture deferred care over the following quarters.
Our.
2021 USPI plan was originally built assuming no COVID-19. This year. After the early January February spike and that simply hasn't been the case.
The business is performing very well on all dimensions.
We continue to complement our existing USPI medical staff with new doctors, we've added a total of <unk>.
<unk> hundred new physicians to date, including roughly 580 in the third quarter. It is important to note that these are independent physicians choosing to come and work at our facilities.
Our acquisition pipeline remains active as we partner with physicians and health systems and attractive markets.
The SCD Act.
<unk> from the end of last year has gone smoothly and surpassed all of our major milestones of integration. This.
This includes the acceleration and increase in our expectation of synergies.
In addition, since the initial announcement last December we've continued to augment the portfolio with a handful of other.
Acquisition facilities to increase scale in some of our markets.
Outside of that last week, we announced the signing of a definitive agreement with compass surgical partners to acquire their interest and management responsibilities in nine Afcs. This was a competitive process in which USPI was selected.
S Cedar.
The potential for value creation as attractive as we expect we can drive the EBITDA less NCI multiple under five times by year three demonstrating the compelling cash flows we expect to deliver from this deal.
There are many other great things about this deal but in particular the partnership.
The parts, we are forming with 125 independent surgeons, who are well regarded for their expertise predominantly in high acuity procedures, roughly 60% of the case mix is coming from musculoskeletal surgery, including a focus on spine and total joints. The remainder of that mix is distributed among our typical ambulatory service lines.
The transaction includes five <unk> in Tampa, extending our presence as the leading provider of lower cost surgical air care options in the state of Florida with 48 facilities. We are also increasing our presence in North Carolina with three high quality centers and forming partnerships with some of the largest muscular.
<unk> total practices in the state.
North Carolina is the C O N state and the portfolio offers an immediate opportunity to provide access to services in the community in a market that has a higher barrier for entry.
We believe there are attractive opportunities to expand our presence further in that state.
And finally, the transaction also adds another state site to our platform in Texas, which is our largest state for ASC operations.
Importantly, the compass transaction expands USPI strategy of acquiring and growing well established facilities.
It also supports our.
<unk> and buying centers, which are more in the startup in earlier stages of development as we can accelerate the ramp up process and deliver operating efficiencies in a shorter period of time in fact six of these nine centers either opened within the last year or are expected to open.
Before the end of this year.
Altogether. This strategy further cements USPI as the partner of choice for physicians and health systems and ambulatory surgical operations.
Shifting to conifer.
As we spoke about several months ago conifer.
<unk> has been focused on the growth pipeline through a point solutions model further building out the sales force and investing in technology.
In September we were pleased to enter into a new multi year service agreement with Providence health system under.
Under the terms of the agreement, which began in September conifer will provide.
<unk> select a our services for 45 hospitals in six states. We're looking forward to this partnership which will allow us to support the hospitals, primarily in the area of aged small balance inventory revenues revenue cycle management.
It's also a great example of our point solutions model that provides.
<unk> is an entry point to share our broader range of conifer capabilities.
Conifer's operating performance remained strong through Q3 delivering materially in line with EBITDA expectations.
Despite significant issues with COVID-19 in the countries, where our offshore operations are located.
Conifer team has adapted and productivity remains high in a mixed work from home or office model and we have imported vaccine through appropriate channels to support building immunity in our international workforce.
We also remain on track with the activities for conifer spin off.
At the enterprise level, our collaboration and the new leadership structure is working well and we are fully focused on executing our strategy.
And with that I'll turn it over to Dan to review, our financial results improvements and improvements and capital structure. After the successful closing of our Miami transaction.
<unk>.
And good morning, everyone. Our third quarter results continued to demonstrate our ability to manage through the challenges associated with the variation in COVID-19 cases from quarter to quarter, while keeping the safety of our patients physicians and employees at the forefront.
We generate.
<unk> net income from continuing operations for our shareholders of $448 million in the quarter compared to a net loss of $197 million in last year's third quarter.
We produced adjusted EBITDA of $851 million, excluding $4 million of grant income, which was 120.
Million better than the midpoint of our guidance for the quarter.
With very strong outperformance by our hospital business complemented by solid results for both the USPI and conifer.
Our strong hospital results were driven by high patient acuity.
Our favorite.
Single payer mix.
And cost control.
Despite continuing external cost pressures due to the pandemic such as temporary labor rates and PPE costs. Our hospital operators are partially mitigating these pressures with disciplined real time labor management other cost actions.
And a focus on growth of higher acuity higher margin services.
Our consolidated adjusted EBITDA margin in the quarter. Excluding grant income was 17, 4% an improvement of 380 basis points compared to last year's third quarter.
And one.
Favorite basis points improvement sequentially compared to the second quarter of this year.
The key driver of this margin growth was our hospitals, which produced margin improvement of 450 basis points compared to last year's third quarter, and 140 basis points sequentially compared to this year's second quarter.
As you can see on slide six based on our strong performance. This year, we have generated compound compounded annual growth rates each quarter in the range of 9% to 15% excluding grant income.
Based on our continuing outperformance.
We are increasing our 2021 adjusted EBITDA.
The outlook for the third time, this year, which I'll discuss further in a few minutes.
Let's now look at the performance of our individual business segments as detailed on slide seven and our volumes on slide eight.
As Youll see on slide seven grant income was not a meaningful factor this quarter and our hospitals or ambulatory.
Ari facilities.
As Ron and Saum pointed out the Delta Varian did impact us in the quarter as Covid admissions accounted for about 10% of our hospital admissions in the quarter compared to about 4% in the second quarter.
Despite the increase in Covid cases, and the seasonal.
Nature of the third quarter. Our hospital is still produced sequential EBITDA growth of about 11%.
As I mentioned earlier, the strong hospital performance is attributable to high patient acuity favorable payer mix and cost control.
In fact, our case mix index.
For the quarter and.
Today, it's about 11% and 13% higher than the same periods in 2019 due to our focus on higher acuity service lines and the impact of the pandemic.
Turning to our ambulatory business USPI continues to deliver stellar margins of about.
41%.
Surgical cases as a percent of 2019 volumes improved in the quarter. Despite has seen an increase in cancellation rates in Q3, as Tom mentioned due to the pandemic.
Turning to conifer, we were pleased that they continue to produce strong margins about 27%.
And year to in the third quarter.
On slide eight we provide specific detail on our volumes compared to recent quarters. Despite the spike in Covid cases, our volume performance was encouraging compared to pre pandemic levels, particularly when you look at the volumes in the third quarter compared to the last spike in Covid.
Covid cases in the first quarter of this year.
Let's now turn to slides nine and 10 to discuss our liquidity and cash flows.
You can see our liquidity remains strong our cash on hand at the end of the quarter.
Of about $2 3 billion was slightly higher than june's balance.
Balance of approximately $2 2 billion.
We also again ended the quarter with no borrowings outstanding on our $1 9 billion line of credit.
Our cash flow generation continues to be encouraging as we generated $321 million free cash flow in the quarter or about $500 million before the anticipated.
<unk> repayment Medicare advances, we received last year.
So far this year we.
We have produced $857 million of free cash flow or almost $1 2 billion.
Before the repayment of Medicare advances.
Also as Ron mentioned, we repaid $1 $1 billion of debt in September.
Timber with the proceeds from the sale of our Miami hospitals, which will save us approximately $50 million of annual interest in the future.
From a leverage perspective, we ended the quarter with a leverage ratio of <unk>.
About three five times.
An improvement from six four times if.
If you go back four years ago to the third quarter of 2017.
Even if you normalize this leverage ratio for the grant income we recognized in Q4 last year.
The ratio would be about 393 times using our projected full year 2021 EBITDA of $3 three.
$3 billion.
Let's now turn to slide 11, and review our updated 2021 EBITDA guidance.
Similar to last quarter. This slide shows the key factors that have contributed to us raising our 2021 adjusted EBITDA outlook each quarter this year.
As you can see we've.
At the midpoint of our guidance by 100 million each quarter.
Our adjusted EBITDA outlook for 2021 is now projected to be $3 3 billion at the midpoint.
Which is 300 million higher than our original outlook at the beginning of the year.
Yeah.
Let me now preview 2020.
<unk> for a minute.
Although it is premature to discuss our thoughts on 2022 in detail at this point.
We do feel confident in our ability to generate continuing consolidated EBIT growth next year.
I did want to mention there are two items that will impact our 2022 guidance when we share with you next year.
As we've previously discussed our Miami Hospital sold in August.
Added approximately $75 million of EBITDA in 2021, which will not recur next year.
Additionally, should Congress not act to extend the moratorium on sequestration. We project that would result in approximately $80 million of lower revenues next year.
Obviously, it is difficult to say, how the pandemic will impact next year, but as we've demonstrated throughout the pandemic.
Nick we have risen to the challenges during each Serge.
We believe we will effectively respond again should we experienced similar challenges next year and be able to generate consolidated EBITDA growth.
We look forward to sharing more information about next year when.
Please see our fourth quarter.
2021 results next February.
Our consistently strong quarterly results together with ongoing enhanced operational execution increases our confidence that we are on the right strategic path and in our ability to deliver on.
When we reflected results.
Before I turn it back over to Ron I want to thank and say how proud we are of all of our patient caregivers and their colleagues in non clinical roles across the company.
Their teamwork and the level of devotion continues to be exceptional.
Brian.
Thanks, Dan.
Much more to add it's been it was a very good quarter I think we've covered the key points and we'll just operator open it up for questions, which I think will be more efficient and effective.
Okay.
Okay.
Okay.
Operator.
Thank you ladies and gentlemen at this time, we will.
A question and answer session, if you'd like to ask a question you May press star one on your telephone keypad.
<unk> total indicate your line is in the question queue. You May press star two if he would like to remove your question from the Q4.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing this.
Starkey.
Our first question comes from the line of Jamie Paris with Goldman Sachs. Please proceed with your question.
Hey, good morning, guys I wanted to start with the staffing situation that that's obviously on a lot of People's minds. These days can you give us a sense just across license level scale level pain level, where you are.
In the most stressed in the marketing and also cross setting.
These differences between ICU E. Our operating rooms that sort of thing and Bottomline, maybe should we be penciling in more wage growth.
The model going forward.
Hey, Jamie it's Tom.
A couple of things.
From a.
From a traveling wage perspective.
It's really the areas of the ICU, a little bit the E ours and some of the specialty areas like operating rooms, and procedure rooms, where you don't have as much reserve in the in the staff where the pressure.
Sure as highest but you know I would say that this past quarter.
Even though the Covid spike wasn't what we saw back in January February the labor market was much more disrupted across the board in clinical staffing and in particular, with our and and and and that's why I highlighted our work.
Mostly in how we thought about deploying that premium and contract labor as well as as well as length of stay management I don't I don't think you can overturn the market you just have to manage the operations.
Okay, Thanks for that and I'm going to ask about the ER volume trends it rebounded to 97.
10% of pre Covid levels, that's actually ahead of where admissions in hospital synergies harbors for 2019, there's been some concern that that low acuity volume comes back and pressure your margins, but that seems king occur and just looking at the Q not happen. So how should we be thinking about the margin rate going forward at these various types of volumes.
We returned to normal.
Yeah, I mean, you're right that your volumes have rebounded pretty quickly and you know to the extent there is an analogy to draw between length of stay management. The low acuity work that comes into the E. R.
You know at least in our operations and in our emergency departments is handled and fast track.
<unk> settings, so that we minimize.
You know the the intra E. Our length of stay and cost and you got to I mean, you have to accommodate that right. I mean, I think we all knew that low acuity work would come back in the E. R and the the impact of it is dependent on two things how much low acuity and what's the payer mix and.
Volume as that comes back into the fold and becomes a normal part of 2022, we're just gonna have to deal with it.
And manage it.
And find offsets you mean youre right.
That that that puts pressure on the revenue line on a relative basis, given the cost of staffing today.
Alright, thank you for that and congrats on the quarter.
<unk>.
Yeah.
Okay.
Our next question comes from the line of a J Rice with credit Suisse. Please proceed with your question.
Thanks, Hi, everybody.
First of all maybe just to ask about the.
I know you're not ready for 'twenty two guidance.
At least comment on the Q4 outlook.
I think you're even if you normalize for the loss of the Florida Hospital as Youre looking at EBITDA stepping down $100 million to $120 million or so.
Is the assumption just that theres not much COVID-19 volume and it's slow to backfill with the non COVID-19.
Have you made any unusual assumptions about labor or was there any unusual items in the third quarter, either state payments or other accrual adjustments.
It may be won't recur in the fourth quarter, just give us a little bit more on your perspective, because it seems like youre being conservative and that may be the right way to be in this environment, but I just wanted.
But any more color there is on the fourth quarter outlook.
Hey, a J, it's Dan good morning.
To your question about whether there's anything unusual that doesn't necessarily repeat.
No theres nothing like that here's listen the hospital's turned in a great quarter.
Ben.
I'll get it forming incredibly well during the year.
The the cost control remains very diligent and tight.
Pricing the yield has been strong.
Driven by the growth in higher acuity services as well as the pandemic, let's be clear about that that drugs.
Incremental revenue per per case, although there are extra costs associated with those those cases.
We're in a very strong contracting position from a managed care perspective.
Also helping on the revenue line listen we outperformed by over $100 million.
<unk> in the third quarter and when we look to the.
The fourth quarter.
We're not ready quite at this point to declare victory and say, we're going to outperform 100 million again in the fourth quarter, but we feel very good about how our our hospitals are operating and you know when we looked at it.
Came in about $125 million ahead of our you know the.
The midpoint of our guidance of about $100 million above the high end of our range and we felt it was appropriate to increase our guidance about $100 million.
For the full year, we feel good about how all three of the business segments are performing.
Okay, and maybe just a quick follow up.
Congratulations on getting the leverage below four times, it's been a while so you are now on a path to have that on a sustained basis. It looks like with enhanced financial flexibility I know, adding in the ASC business and development on that side has.
Priority do you see that accelerating now that you have more financial flexibility are there other priorities for capital dollars are.
Going forward.
Hey, Jay just a couple of comments there first of all.
As I indicated we have not stopped investing through the pandemic in our and our strategies.
It's been approved capital from a high acuity service line standpoint, that's the first thing I mean, we're very nimble with deployment of clinical technology.
In particular, when their service needs in in our communities and Thats been an important driver of our growth and frankly improvement in margins.
Which include that we see.
Remember, we do have and have announced a couple of pretty significant market expansion building projects on the hospital side in.
In particular in Fort Mill, South Carolina, and in San Antonio So there are important and from our perspective a very.
Better vetted capital priorities on the hospital side, where we are very happy with the potential returns that we'll get from those.
And then obviously on the ambulatory side with USPI, we're pleased with the strong pipeline. We have we're confident about how we deploy capital there and again I would I would highlight.
Highlights are the nuance in this deal that we announced with Compass surgical partners, which is the operating model that USPI is at this point so advantaged in our view in the industry that our ability to go deploy capital on both mature centers and centers that are still developing but actually generate returns.
Faster as a better natural owner that is going to expand the set of opportunities for us.
At USPI and it comes on the basis of the confidence we've built in building an operating model that USPI over the past few years that has taken one that was really good and made it even better and now that we have that confidence.
We're expanding our aperture for the types of centers. We go after and again I think that's going to allow us to increase the deployment of capital into the USPI segment.
Great. Thanks, a lot.
One other point a J on the capital deployment, we have various tranches of debt.
<unk>.
That we can retire including $700 million of seven 5% notes that we issued at the outset of the pandemic. So we'll obviously be looking at that those are higher interest rate notes.
We could obviously.
Target them in terms of from a capital deployment perspective.
Okay. Good point, thanks, a lot.
Yeah.
Okay.
Our next question comes from the line of Brian 10.
Ken <unk> with Jefferies. Please proceed with your question.
Hey, good morning, guys Congrats again.
Just a follow up I guess on the guidance.
Guidance comment.
Made for 2022, however, we should be thinking about that.
I guess, Dan if I think of them I think it was the right way to take out the Miami hospitals, and then you think you can grow.
If I take out sequester or is that with the sequester and there the $80 million.
Now without without the sequestration deferral.
Right now, we're assuming that the sequestration deferral will not be extended.
We obviously believe it should be but right now where we're assuming that it will not be and that would as I mentioned in my remarks that would reduce revenue next year 80 million, but even with those headwinds.
<unk> now we're looking at it is we believe we can continue to deliver consolidated EBITDA growth.
Got it and then just to follow up on your last comment on the USPI kind of like model right. So is it.
Right to think that going forward the focus will be more on that.
So Iraq pursuing some of these acquisitions that are.
Centers that are still ramping up and like I said, it's a natural home for these assets and we're shifting away from true de Novo developments is that a good way to think about that where it's a higher a quicker ramp and higher ROIC.
No not at all I mean.
So what's interesting is that.
The way I the way I described it is for US it's broadening the aperture right. So there are mature centers that.
Obviously, we can deliver synergies and growth into their health system partners that we continue to develop centers with many of which are de novo their true two way de novo partnerships that are part of our development pipeline and now we're.
On the developing a fourth segment that we have built some confidence in being able to ramp up and.
Importantly for US we look at the world from the standpoint of what is the multiple.
On a post ramp up in synergy basis. So if it you know.
Years, two and three we're generating multiples that are below six.
Six or whatever that's very attractive up Brett you may want to add some color at all that how youre thinking about yes. Thanks, Bryan I would say to your point, though our pipeline outside of outside of the acquisitions that saum was alluding to.
<unk> and acquisitions, New health system relationships remains as strong or stronger than it's ever been.
And as a result of that we're actually increasing the number of resources. We have on our development team just to keep up with the level of activity. We have in the company and of course, we're very focused on making sure that we're executing against our pipeline going into Q4, but as importantly make sure that we have a stronger pipeline as is possible.
So that we can deliver on a significant amount of growth in 2022.
We're also chasing quality higher quality.
Opportunities.
Absolutely.
All right got it thank you.
Yeah.
Our next question comes.
Comes from the line of Kevin Fischbeck with Bank of America. Please proceed with your question.
Okay, great. Thanks.
Just to go back to the labor cost for a minute.
I guess you mentioned the shortage that you were seeing I guess what are your thoughts broadly speaking about what that NIPA market backdrop looks like do you expect it to.
It is elevated for this long or do you think that you will see.
Moderation in labor pressure into next year.
As Covid wave.
I'll give you my observation you know.
In the earlier phases of Covid when there were COVID-19 spikes in the labor market was distorted.
Or did the impact of short and it correlated with the Covid Spike and so when that Spike came and went the labor market normalized more quickly that didn't happen during this delta spike or it hasnt happened, yet, we're still kind of living through it and as.
As Ron described despite the Covid cases still being there but being.
<unk> little bit less than half of what the Spike peaked at.
The labor market really hasnt improved that much it did.
It has forced us to go even further.
In our approach to trying to manage the operations and identify offsets look.
Sources for nursing think about some longer term contracts at better rates.
That we would be able to put in for traveling nurses into certain markets. I mean, you just got to diversify the approach and tightened up the operations I'm sure, we'll see some inflationary pressure.
From this.
Look at other them this prolonged.
Traveling nurse market going into the fourth quarter and next year I mean, I think our plan is we're just got to accept that and figure out how to manage through it.
Okay, and then maybe just a last question.
On cost generally and then your ability to price for that and I think I think it's pretty clear.
Clearly over time and hospitals can get sufficient rates, but I guess.
Worried that equation you can start to pick up wages are starting to pick up.
How do you think about the potential lag between when you see those pressures and when you are able to.
Get Medicare Medicaid.
Promotional rate updates.
But the underlying cost growth.
Well, let me let me make one comment and then I'll pass to Dan One thing that we did at the beginning or kind of it kind of March April of 2020, as we set up our what I called our Covid operating model back then.
Are you kind of establish different work tracks within the company one of which was.
Begin to look at longer term savings opportunities.
On the theory that we were going to have to generate more efficiencies because we saw so much volume contraction in the early days of Covid and that involved our global business Center in Manila, It involved a broader supplies and purchase services agenda.
<unk> you.
Can't turn that stuff overnight.
And other physician staffing contracts and other things, we've just deepen partnerships with fewer vendors so.
I think youre right.
In in the thesis behind your question.
For us.
That track of work that began.
Again back in the Middle of 2020 is paying dividends now in 'twenty, one and looking into 'twenty, two as we re sign contracts or narrow our vendors with deeper partnerships at better rates and so we're going to see the benefit of some of that longer term cost management approach hopefully into 'twenty two.
Agenda. Our next question comes from the line of Justin Lake with Wolfe Research. Please proceed with your question.
Thanks. Good morning couple of things here first can you talk a little bit about the.
The headwinds that you talked about in terms of sequestration and the.
So Miami sale or in the hospital.
Business. So do you think you can grow the hospital business in 2022 from an EBITDA perspective, and then do you is there any other offsets to the good.
We're thinking about in terms of for instance, I know you bought some.
Surgery centers recently that could kind of help offset that $1 50 of headwind.
Hospital pay Justin's, Dan Let me, let me start off on this one.
As I mentioned in my.
My remarks, we do believe we can drive consolidated EBITDA growth next year.
We are anticipating.
Obviously managing through <unk>.
Sequestration being.
And then.
As well as the loss of the Miami EBITA.
Sure.
Listen.
<unk>.
We feel very confident in the hospital <unk> ability to continue to perform well control cause we have we have very good visibility into.
Implementing next year from a commercial perspective, 80% of our commercial book is already under contract as you've probably seen.
Recently, we just.
Extended our contract with Cigna, we didn't we get renegotiated a new contract with <unk>.
Now you did earlier in the year, So we know where we're at.
From a contracting perspective, we feel really good about that from.
Medicare perspective, and between in a patient the rate updates or about 1% to 2%.
Listen we're going to continue to.
Efficiently manage the business and.
The focus on in capital deployment into the higher acuity service lines will help to mitigate some of the pressures from sequestration going back into effect.
As well as the.
Miami earnings on not necessarily repeating next year.
As Brett and Saum mentioned.
Pipeline for the the USPI ambulatory business is strong and the existing business is performing well, we feel confident in our ability to continue to drive organic growth within that book of business.
So, we'll obviously share more specific.
Vic detail in February next year, but.
You know that's you know that's sort of a high level summary of how we're thinking about next year at this point.
Okay. So overall flat to up seems reasonable in the acute business.
I'm not going to comment about guidance by by segment Johnston.
Okay got it and then.
The question I've been getting this morning, you've gotten some questions on the fourth quarter and I think it's reasonable that you are saying, we don't know that the strength of Covid and everything else is going to continue in the acute business from Q3 to Q4.
But it does seem.
But at odds versus you know you're talking about and the ability to grow through almost a 5% headwind on EBITDA in your acute business I'm talking about consolidated now, but if the if you're if you're I guess can you explain why you're kind of cautious on Q4 and the continuation of these trends but.
I think that it's not going to present, a tough comp and you can grow through it.
Into 2022.
Well, let me as I mentioned earlier, here's how we looked at the guidance for the rest of the year, we outperformed them.
In the third quarter, a 100 million above the high end of our range.
When we look at the fourth quarter listen, we don't know for sure how Covid will evolve.
Evolve and the impact as we move into the winter season.
So as I mentioned, we're not going to declare victory quite yet and say we're going to outperform.
Again in the hospital business by $100 million.
In the fourth quarter.
We increased our guidance of 100 men, we feel that's appropriate at this point in time, but we feel really good about how our hospitals are performing.
Alright, thanks for the color.
Our next question comes from the line of Sarah James with Barclays. Please proceed with your question.
Question.
Thank you.
Continue on this topic of trying to understand the step down here. So.
Thank you.
Some of your Texas competitors like Scott, Texas Medical shutdown their elective procedures you guys did not.
Was that a contributing factor to the strength in <unk> and is there.
Any assumption.
That it doesn't continue and <unk> is that part of the step down.
Hey, sorry, it's Dan Let me, let me start off and then summer break and win.
In terms of.
That having any significant impact.
On our facilities.
The the you know.
The USPI centers in Texas are performing well and they've been performing well.
This pandemic time period, and and so you know was there some impact of that and there probably was some I'm not sure how significant it was but you know the the USPI centers and as part of the country are doing very.
Yes, Dan the only thing I would add that if you think about our on the USPI side. This is Brad our overall same store growth was up six 8% year over year and that represents 13 of our 17 markets, reflecting positive case growth over prior year and then if you dig a little bit deeper into specific markets. DFW for example, same.
Well volume increased by 7% Houston same store volume increased by 15, 2% year over year. So you asked specifically about Texas I've, just given you a little bit of color on how those specific markets, which of course two of our largest where they actually are our two largest markets in the company are performing from a from.
From a growth perspective.
Solid.
Great.
And then just reading into your conservatism in guidance and for Q relating to Covid does that have implications on what the cadence could look like for 'twenty two.
Being different than 'twenty, one given the.
The COVID-19 pressure might be more in the first half of the year.
Hey, it's Dan.
Well, we'll have to see that's obviously.
Variable and unknown at this point.
We're optimistic that.
Yeah.
Don't see quite the same type of surgery, but we.
We don't know yeah. If you go back several months I don't think many people thought we were going to experience the surge that we saw in the third quarter.
So that's one of the things when we think about our guidance assumptions for next year. We obviously are taking that into consideration as Tom mentioned from a labor.
Perspective from a traveling.
<unk> perspective.
<unk> likely will be a rate pressures continuing into next year, yes. The other thing I would add is.
I think to Dan's point, it's not just the Covid. It's I don't think we ever predicted this variant and how quickly it took hold in.
So you know obviously there is some cost you know one would think about the winter months and be uncertain about where that goes and then the labor market you know as I indicated before it look it we view it as acuity and mix.
May change may change into 'twenty, two and you know we've got an operating platform that is going to manage through that.
And whatnot.
And it's the labor market and then the uncertainty around Covid.
We're just thoughtful of because we did not predict delta.
Thank you.
Okay.
Ladies.
And in the interest of plan could you. Please limit yourself to one question. So we may get to as many people as possible.
Our next question comes from the line of Josh Raskin with Nephron Research. Please proceed with your question.
Josh.
Sorry about that can you guys hear me okay, yes.
Yes, we can now.
Ari I got I got thrown off by that one question only so USPI was impacted more by the Covid deferrals it sounded like in the quarter, but yet you know you're still move from 100% of pre pandemic levels to 100.
And gentlemen stance from <unk> so does.
Does that mean for Ikea were kind of whenever we see a cleaner quarter sort of force you to date, so far should we be expecting that number to be sort of well ahead of 100 at this point just built on that and then is the sort of thinking about the quality of that 101% isn't that already significantly battery.
One there's been a huge increase in acuity and mix has gotten a little bit better as well.
So you're you're definitely right about that latter piece I mean at the 101% of 2019 level with the kind of as I pointed out the net revenue per case and the acuity.
The growth in those areas and that mix improve.
Feel like man is terrific and by the way that's why we pointed out that despite.
Despite the Covid surge the margins continue to improve impressively at USPI. So I agree with that I know, Brad if you want to comment on the first harder.
The only thing I would add saum.
Improvement in Josh Good to talk to you at first you know, it's always worth noting that going into Q4 that is obviously, our busiest quarter of the year and the midpoint of the guidance assumes 32% of our annual EBITDA in this quarter, which is very consistent with prior years and as Tom mentioned earlier, we're very encouraged by the performance of a significant number of our markets.
Is it are in regions that opened up earlier than others and we believe some of those markets are an indication of the type of performance, we should expect system wide as other markets reopen to the same level. So.
We're very encouraged that very encouraged about that and also as you alluded to with and continuing to increase.
<unk> net revenue per case throughout the year, we expect those those trends to continue as well, that's giving us comfort with the revenue projections.
Our next question comes from the line of Peter Chickering with Deutsche Bank.
With your question Hey, good morning, guys.
Kris and stay in the fourth quarter hospital guidance bucket as.
Specifically about how would you think about.
The I guess like acuity durability versus payer mix versus labor inflation for the fourth quarter and.
And any color on that for 2022, and just say, yes, or no question just to be Super clear will 2022.
<unk> EBITDA growth into 2021.
Yeah, Hey, Peter it's Dan So let me get them.
Second question, there will will 2020 to EBIT.
The higher that's what I said.
We expect to grow consolidated EBITDA.
From 'twenty, one to 'twenty two.
I ended up your first point about payer mix acuity levels.
Et cetera.
One of the things that's been pretty consistent this year from a payor mix perspective is it the commercial trends have been.
Positive more more positive than the aggregate.
Our overall metric and.
That's that's obviously encouraging it's also attributable to the fact that.
You know some of the service lines that we've been focusing on.
Contributed to that as well.
But let's be clear as we've mentioned many times.
As in the past.
Some of the Medicare business Hasnt necessarily recovered at the same levels as the commercial mix. So you know we were you obviously think about that as we move through the fourth quarter.
And ended into next year, you know the overall acuity.
As I mentioned in our case mix up.
We can double digits, 11% to 13% depending on what time period, you look at back to.
I'm comparing that to 2019, not last year and and so we'll see I think it's fair to say that we're not going to.
To see double digit case mix and growth in.
In perpetuity I mean, it's not you know you know that so is the lower acuity business does come back we'll see some moderation in our in our overall case mix.
All right.
Next question comes from the line of John Ransom with Raymond James. Please proceed with your question.
Hey, there.
Dan I just wanted to understand the math on the sequester headwind.
Next year, if I look at the proposed rule with a two 8% increase and so plus 2.8 minus two I know, there's some other adjustments but.
Let's just say for argument's sake, Medicare revenue next year is kind of flat ish to maybe up a half a percent.
Is that really a headwind.
Well do you have the the the fee for service rate update of for US is Hum about 1.3.
Percent overall, that's that's our projection.
That adds about $25 million of additional revenue just on the fee for service.
There would be a corresponding additional lift on the the DMA or the Medicare advantage side.
What I was talking about the 80 million. That's just in isolation just related to the sequestration impact if if the deferral is not extended.
Our next question comes from the line of Ralph Giacobbe with Citi.
Please proceed with your question.
Great. Thanks, Good morning, just quickly back to the 2022 commentary I guess I guess I'm, a little surprised you only called out Miami, the Miami cell and sequestration as headwinds.
What about Covid contribution and government funding, including Hearts of payments in the 20% add on I mean, do you expect that to continue.
Or is it just that rollover of Covid tailwind. This year essentially is going to be totally offset by non COVID-19 or core all the way back next year.
Hey, Ralph then.
The the Hearst funding if.
Covid cases continue to be there we would certainly hope.
Patients who present with with Covid.
So you know.
We'll see you know there it's not definitive whether that funding would continue or not but we're optimistic and hopeful that it.
Did it it does.
As we move into <unk> and into next and into next year.
In terms of your other point about the other COVID-19 business.
You know.
Ultimately the the.
The economics on caring for Covid patients or obviously depends on the payer mix commercial mix.
Mix is obviously more attractive from an economics perspective, then then uninsured or government, but we are caring for all patients.
And Covid cases, there are incremental costs associated with providing that care.
Our next question comes from the line of Frank Morgan with RBC Capital markets. Please proceed with your question.
Good morning, Yes, just a clarification you had made some comments about looking at changing how Yukon you structure your contracts with.
Travelers or agency labor just curious if you could provide.
Color on what that would look like and what kind of terms you would be looking for.
And then just related to that Bob you mentioned.
Recently negotiated contracts with both Cigna, and United where those at a point in time, where you were able to reflect in that pricing. Some of this wage inflation youre starting to see thanks.
Some more.
This is Dan.
I'll address the managed care contract negotiations or the new contracts.
Yes, listen we were very pleased to be able to early renew.
Our contracts with both United and Cigna.
<unk> this year.
It gives us very good visibility into them.
Hum contracting positions in service lines.
Focus and what we.
Believe the yield will be.
Over the next several years.
We think about how we will continue to manage.
The business I'm not going to get into specific rate increases in those particular contracts, but we were obviously we were pleased to wrap up.
Those negotiations and continue to partner with those.
As an organization.
This is Tom to your first question.
The primary.
So that would maybe help illustrate what I was speaking about.
We've had pre pandemic, what we call the TRA the tenant resource agency that we've invested now and building up in what we do what we can do with that is that you know there are a segment of nurses that seek let's just call.
Call it more stable type travel arrangements months at a time et cetera.
That we can invest in and bring on board and then deploy it.
Into our markets when we have a need you know obviously that helps with the stability it helps with.
In a market where the price fluctuation.
<unk> is is high helps to stabilize that give us a little bit more predictability. So that that would be the primary example, I would give you.
Our next question comes from the line of Whit Mayo with SBB Leerink. Please proceed with your question.
Hey, Thanks, I've got just a quick one Dan I just wanted to make sure I get these numbers right how much would be repaid if we want to call. It that on the accelerated payments year to date and what is the expectation. This year and then also the Baylor put call have you funded that and is there a number that you can share and then.
And that sort of piece of the question is just given some of the cash commitments should we expect that the cash balance can grow in 2022. Thanks.
Okay.
In terms of the Medicare advances.
That we've repaid at this point it's.
It's about.
About $350 million.
And in aggregate them and you know by the end of the year.
We've talked about between the Medicare advances.
And paying half of the deferred payroll tax we will have paid off this year about $650 to 700.
The line between.
Those two.
In total in terms of the the Baylor, but we haven't provided any specifics in terms of.
The specific dollar amount will obviously.
Having conversations with Baylor.
Hunter Mountain will come to certainly a mutually agreeable.
Our solution on that in.
Totally fair value for that.
That interest and we do have intention to exercise one third of our.
Their interest in.
And purchase out from them.
In terms of what your other question about specific cash.
<unk> next year, I am not going to get into that but hopefully everyone can see that we're generating.
Pretty strong free cash flow.
<unk>.
From.
Our business.
We are paying back the Medicare advances and the payroll taxes that were deferred last year, but we have that cash on the balance sheet and it's already reserved for so.
We would anticipate to continue to generate continue to generate growth.
And our free cash flow.
We have time for one last question. Our last question comes from the line of Andrew Mok with UBS. Please proceed with your question.
Great. Thanks for squeezing me in here I wanted to follow up on some of the labor comment that you made earlier I understand that you are managing labor productivity and contractor usage, well, but it sounds like youre planning for higher.
Our underlying wage inflation as well can you speak specifically to the trends in underlying wage inflation and what level of wage increases you are expecting as you look ahead to 2022.
Okay.
I'm not going to comment specifically you know we have union negotiations and other things I'm not going to comment specifically on those.
Over the course of the pandemic, we've we've settled over 25 different contracts, which play out into the coming years, including 2022 and over the course of the next year or two we'll have a few more to work through you know.
Look it's our nurses.
Are critically important.
To us it's the reason that we've worked so diligently in those 25 plus situations to settle fairly and amicably.
In in those contracts and will continue to work towards that.
In in other situations.
There's going to be some wage inflation and some wage pressure.
We are.
In that in that segment and also you know in other clinical frontline segments that will occur, but you know again with good relationships with multi year arrangements.
We think that.
We think that we can manage through that.
There are no further questions in the queue I'd like to hand, the call back to management for closing remarks.
Well, thank you everyone for joining us and enjoy your day.
Thank you.
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation.
You may disconnect your lines at this time.
Wonderful day.