Q3 2021 Universal Health Services Inc Earnings Call
Good day and thank you for standing by welcome to the you H S third quarter 2021 earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need a press star one on your telephone please be advised that todays call.
May be recorded if you require any further assistance. Please press Star then zero I would now like to hand, the conference over to your host today, Steve Filton. Please go ahead.
Thank you Michelle Good morning, Mark Miller is also joining us. This morning, we both welcome you to this review of Universal Health services results for the third quarter ended September 32021. During the conference call. We will be using words, such as believes expects anticipates estimates and similar words that.
<unk> forecast projections and forward looking statements for anyone not familiar with the risks and uncertainties inherent in these forward looking statements I recommend a careful reading of the section on risk factors and forward looking statements and risk factors in our Form 10-K for the year ended December 31, 2020, and our form 10.
<unk> Q for the quarter ended June 32021 word.
We'd like to highlight just a couple of developments and business trends before opening the call up to questions.
As discussed in our press release last night. The company reported net income attributable to <unk> per diluted share of $2 60 for the third quarter of 2021 after.
After adjusting for the impact of the items reflected on the supplemental schedule is included with the press release, our adjusted net income attributable to <unk> per diluted share was $2 67 times for the quarter ended September 32021.
For most of the third quarter, we experienced an escalation in the number of COVID-19 patients being treated in our hospitals in our acute segment as Covid surge resulted in measurably increased revenues due to the higher acuity and incremental government reimbursement associated with Covid patients.
Unlike previous surges, however, non COVID-19 volumes, including emergency room visits and elective <unk> scheduled procedures were not crowded out and in fact generally we're running at or near pre pandemic levels. As a result of acute care revenues in the quarter were higher and managed to offset the premium labor costs and increased.
<unk> expense associated with the Covid patients leading to an acute care EBITDA result in the quarter that was above our internal forecast.
At the same time the most recent surge created significant challenges for our behavioral segment volumes were pressured throughout the quarter due to the capping of bed capacity in some cases to properly isolate COVID-19 patients and in other cases because of a shortage of appropriate patient care personnel.
Generally behavioral patient days during the quarter ran 4% to 6% below comparable pre pandemic levels. The effect of the reduced volumes combined with higher labor costs led to a behavioral EBITDA result in the quarter measurably below our internal forecasts.
Our cash generated from operating activities was $442 million during the third quarter of 2021 as compared to $767 million during the same period in 2020.
Included in our cash generated from operating activities during last year's third quarter was approximately $400 million of additional funds received in connection with various governmental stimulus programs, most notably the cares Act.
We spent $667 million on capital expenditures during the first nine months of 2021.
At September 30, 21, our ratio of debt to total capitalization declined to 37, 4% as compared to 37, 7% at September 32020.
During the third quarter of 2021, we opened 157, new beds in our Las Vegas market, including 69, new beds at Henderson Hospital, we acquired 88, new beds through the acquisition of the Las Vegas Specialty hospital, which will serve orthopedic and surgical patients and we acquired elite Medical Center Hydro hard.
Spittle offering emergency in inpatient care adjacent to the Las Vegas strip.
In addition, we continue to grow our freestanding emergency department footprint with 19 sites expected to be operational by the end of the year in 2021, and an additional five approved and under construction, which are expected to open in 2022.
Construction also continues on northern Nevada, Sierra Hospital, a 170 bed acute care hospital in Reno, Nevada, which is expected to open in March of 2022.
Additionally, during the third quarter of 2021, we continue to be an active acquirer of our own shares based in large part on our view that the underlying patient demand for our services and particularly in our behavioral segment remains fundamentally strong and that our ability to more fully to meet to meet that demand will incrementally improve as.
Covid volumes continued to decline during the third quarter, we repurchased approximately $2 seven 8 million shares at an aggregate cost of $419 million since the inception of the current share repurchase program in 2014, we have repurchased more than 20% of the company's outstanding shares.
We will be pleased to answer your questions at this time.
Thank you if you have a question at this time. Please press Star then one on your Touchtone telephone thank.
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And our first question comes from the line of Kevin Fischbeck with Bank of America. Your line is open. Please go ahead.
Hey, good morning, this is actually Joanna <unk> filling in for Kevin. So thanks, so much for taking the question here.
So it gets very quickly.
Say that the acute.
Acute care segment our results were.
Other than expected offsetting which came in lower than your retail expectation. So how does a quarter I guess stacks up versus your internal views overall.
And also our last piece in the context of.
Any any comment.
Comment on your full year guidance.
Yeah. So.
The adjusted EPS of $2 67 in which we reported last night was very much in line with our internal forecast overall, obviously as noted in my comments.
With the acute care setting.
Segment, outperforming and behavioral underperforming and largely offsetting each other as far as our full year guidance, our customary practice, which which was true this quarter as well as.
With absent any comments to the contrary, we're just maintaining and reaffirming our guidance.
Okay I appreciate that comment and I guess, that's my question here.
In terms of.
The issue do you see that in the bike segment. So obviously.
When you have a lot of.
Cause the activity of the virus with Davita.
You have to have pulled back but then I guess you also mentioned some of the labor shortages.
Could you talk about any actions, you're taking to kind of try to so.
So to speak fight that fight that trend there and also what happens to these patients if you cannot take the mortgage banking and it keeps good hospitals longer.
And also yes.
You might have on the labor shortage and then whether there's any any.
Any different between different product lines or geographies. Thank you.
Yeah.
Yeah.
You asked multiple questions there I'll try and answer.
Them, but some of them I suspect will be clarified by other people as well so as far as the labor shortage in the behavioral segment goes.
To the degree that it is caused by the Covid surge itself as you know that's largely out of our control on the other hand, we are extremely focused and have a great number of initiatives to increase the efficiency of both our recruitment and retention functions.
We're actually hiring.
Employees nurses as well as other personnel at record levels over the last several months.
The challenge is that the churn or the turnover or the number of employees, leaving at the same time for us as well as I believe most other hospitals is also quite large and I think driven in large part by the Covid.
With surge as well because many nurses in particular has the opportunity to.
Work in a more acute setting.
In an ICU and ER et cetera.
And earned 400 or 500% of their salary.
If they're willing to travel or to work in a COVID-19 environment and so that challenge I think is difficult for us to overcome.
Although we're certainly trying.
But I think that it will naturally abate as COVID-19 volumes decline as those opportunities for nurses to earn those premiums were $2 will decline and I think most nurses.
Ultimately return to their home, both literally and figuratively.
Geographically as well as back to their original jobs. Many of our nurses have told us that.
So.
We continue to be extremely focused on those activities.
To the degree I think that you had other questions I'll wait and allow others to follow up. Thank you great. Thank you.
Thank you and our next question comes from the line of Josh Raskin with <unk>.
Research. Your line is open. Please go ahead.
Good morning, this is actually Mark <unk> on for Josh Thanks for taking the question.
Just a quick one I was wondering if you had seen any impact from the vaccine mandates on the healthcare where health care workforce in your markets.
And then you talked a little bit about the trends in labor and behavioral care, but I was wondering if you could provide a little more.
Detail on.
The staffing and wages within the acute care segment.
Yeah. So we had a number of geographies the state of California, The state of Oregon, and the city of Philadelphia, and there are others that have vaccine mandates.
For the most part.
We have found that those vaccine mandates have not had a material impact on the labor situation.
Part because the mandates are pervasive so it's not like.
Yep.
At employee wants to continue working and it doesn't Wanna get backs made if they can work in somebody else's facility rather than ours.
We have not on our own mandate of the vaccine in any of our facilities, where it is not mandated by a government authority in part because given the shortage.
Of labor personnel.
We're not anxious to give people a reason to go elsewhere. Although we certainly are encouraging our employees as strongly as we can to become vaccinated. So I don't think its been a real significant factor.
As far as staffing in the acute side I mean, I think we're feeling late these labor pressures that I alluded to certainly in both business segments, but I think what we have found and I think this has been true throughout the pandemic is that on the acute side for labor shortage tends to manifest itself in higher premium hours in prime.
Liam Payne so in other words, we're able to fill most of our vacant mostly nursing hours, but we fill it with premium pay that could either be overtime from our own employees shift differential temporary nurses traveling nurses et cetera, very extensive alternative but for the most part we're able to fill most of our hours and the.
Good news on the acute side is as I indicated in my prepared remarks, the higher acuity of the higher revenue the higher volumes.
It has been effectively offsetting those higher labor cost the challenge on the behavioral side is that.
We are unable to fill a lot of those vacant hours, even with premium dollars. We're certainly spending some premium dollars, but in some cases, we're just unable to fill the hours that out as a consequence, we're having to turn patients away and therefore, we've got lower volumes again as I indicated in my prepared remarks, 4% to 6% below pre pandemic.
<unk> levels.
And not enough revenue to offset the higher labor costs. So different manifestation I think the same sorts of broad dynamics and the labor shortage in the two business segments.
Great. Thank you.
Thank you and our next question comes from the line of Andrew Mok with UBS. Your line is open. Please go ahead.
Hi, Good morning, Thanks for the question, Steve, hoping you could provide a bit more color on the revenue and volume trends in the behavioral business by geography, and geographies, where COVID-19 was present, but not surging can you give us a sense of the revenue performance there.
Yeah.
Yeah, and I think what we have found the Andrew.
Is that the pressure on labor in particular, but therefore the pressure on volumes is very much tied to the level of COVID-19.
There's not.
I actually have tried to sort of see if there isn't an absolute formula and I don't know that there is but I think there is.
Very close correlation and so where we've got behavioral facilities in 37 states all around the country et cetera, it would be difficult for me to sort.
Sort of tick off literally geography by geography, where we've seen you know kind of above average levels of COVID-19 et cetera, but where we see above average levels of COVID-19, we tend to see that the labor pressures and therefore softer volumes and in those markets, where we don't.
We tend to see demand being manifested strongly we're able to satisfy that demand et cetera, which is why we remain.
Pretty bullish about the idea that it's COVID-19 volumes overall recede as they have started to do I think in the last 456 weeks, we will start to see some easing of those labor pressures may be not immediately because I do think there is the time lag associated with a lot of these commitments of traveling and temporary.
Nurses and I think we saw that in Q1, where even as Covid volumes declined as early as mid January 2021, It took a while for us to really sort of enjoyed the benefits of that so.
Still struggled come in Q1, but then Q2 with lower Covid volumes saw upticks in volumes and not nearly as much pressure on the labor side and I think we're hoping that's sort of the same trend we're likely to see now.
Got it thanks for the color and just a quick follow up we're now 20 months into the pandemic have you had an opportunity to formally assess market share shifts in the behavioral segment, whether it's geographical or by site of care.
Yes, it's a market share data on the behavioral side is not I think as robust or precise as it is on the acute side.
But our sense in both objectively to the degree that objective data is available and subjectively to the degree that we're able to talk with our competitors and the nature of the hospital industry is that an employee is particularly nurses and patient care employees tend to move in many cases from one facility to the other so.
It's relatively easy to keep track of what's happening in the market.
What we do.
We find is that.
And in markets, where we're struggling for labor it seems like all of our peers are struggling in the same way and vice versa. So.
While we're very focused on the things that we can do to improve and be more efficient from a recruitment and retention perspective.
We acknowledge that these labor pressures are sort of more broad and more comprehensive than we have control over.
But.
Certainly from a wage competitiveness issue et cetera, we're always following what the market conditions are literally changing and adjusting.
If not on a daily basis on a weekly basis, so that we're being as competitive as we can possibly be.
Great. Thanks for all the color.
Thank you and our next question comes from the line of Peter <unk> with Deutsche Bank. Your line is open. Please go ahead.
Hey, Good morning, guys. A quick guidance question for you for fourth quarter guidance can you tell us what needs to happen or at the low versus the high end of guidance and what are your direct towards the street models to sort of focus towards the midrange of the for the fourth quarter and as you think about 2022 guidance any color of how much you believe you can grow in 2022 off of it.
2019 EBITDA.
So I think that is.
The commentary as already indicated in todays call.
The most difficult.
Aspect of projecting future results is understanding the pace of Covid decline and frankly, if in fact COVID-19 continues to decline and we suspect that it will it has that feel certainly at the moment.
So how quickly that COVID-19 volumes recede and therefore, how quickly the labor pressures ease.
And again with the notion that I think there is some delay of at least a couple of months et cetera. So my sense is because we're probably.
It will be difficult to sort of have a full recovery in Q4 from the labor pressures.
It would be difficult to sort of have an outperformance in both of our business segments. In Q4 as a consequence, I think getting to the high end of our range would certainly be a little more challenging.
And I think the fact that we're reaffirming guidance is.
Indicative of the fact that we feel like getting into the.
Lower to mid range of our guidance should be achievable as long as we continue to see the Kobe trends and the labor trends that we've started to see at the very end.
Remember it into October as far as 2022 goes.
Even in.
What I would describe in quotes as a normal year, we wouldn't be giving guidance.
For the following year as part of our third quarter call and so in an environment that is as uncertain. As today is is we're certainly not going to do that either but I will say this I mean, I think as we think about.
Creating our 2022 guidance and think about.
What the business looks like next year.
Tend to use 2019, as a base 2019 being up.
Pandemic free year, and even though we don't expect 2022 to be.
Covid free.
We just think that 2019 as kind of a more a more meaningful base and I think we as we would in any normal year, we would expect to grow off that base.
And the question sort of becomes do we expect to experience sort of cumulative two or three years' growth off of that base are we do we expect to get just one year's worth of growth and I think that.
Ultimately, where we're going to spend a lot of our focus when we do sit down and do our 2022 forecasting with more precision and my gut is it's somewhere in between we will expect 2022 to grow more than just the year's worth over that 2019 base, but certainly not the full sort of three years, whereas I think that there has been.
Some development activity and growth activity that we've just lost during the pandemic.
And you know won't be sort of recapture of wholesale.
Seen some consensus numbers, which I don't look at it in great detail that show us in the sort of the high single digits, 789% above 2019.
<unk> and you know.
At the moment and this could certainly change but that doesn't feel unreasonable.
Okay, Great and then just a quick follow up here on the labor side for both acute and behavioral.
Does this cause you or do you think is short term just from COVID-19 or need us for long term pressure do you believe it normalizes in 2022, and if you had to quantify we think that inflation would be for nurses in 2022, not your opinion labor, but just your full time employees for what.
What type of inflation when you see versus your normal year. Thanks, so much.
Yeah. So.
Again, I would make the point that I think the underlying wage inflation is not what is mostly driving the wage pressure. It is the premium pay.
The use of overtime, if the payment of temporary nurses and traveling nurses and sign on bonuses and that sort of thing.
And to your point about like is this temporary or structural I think the honest answer is something in between.
Do think there is no question that a lot of demand.
Heightened demand has been created by the Covid surge itself again, if you can go online and look for nursing opportunities not that anybody on this call is necessarily going to do that but if you did you'd see that those opportunities are working in Covid unit in ICU et.
Etc, and I think as a virus receives interest become sort of settles in at what they described as endemic rather than pandemic levels could just think a lot of those opportunities will naturally sort of fall away and nurses again will sort of retreat back to their original jobs. If you will.
So that part I think youre certainly temporary I do think there is some structural changes that have been made I think there are some nurses that are permanently left to work for us either to take new job and they've been retrained and different specialties or they've just been burned out etcetera, and I think it's incumbent upon us and quite frankly either.
Hospitals in general will come up with as a result, new patient care models that rely less on rins in particular, and other caregivers LPN and texts and emts etcetera as well as.
It relies more on technology that allows us to deliver the same level of patient care without necessarily the same number particularly registered nurses. So.
Part of I think this issue of structural and will address that and part of it is temporary that I think will naturally get better as the virus numbers received.
Great. Thank you.
Thank you and our next question comes from the line of Justin Lake with Wolfe Research. Your line is open. Please go ahead.
Hi, This is Perry on for Justin.
Steve I was wondering if you could give us a little bit more color on your thoughts around 2022 seems like high single digits.
Totally unreasonable I was wondering if you can sort of breakdown what that growth will look like between behavior and acute.
Yeah.
Yeah, I don't think we're prepared to get into that level of detail on today's call and again I think a lot of it depends we won't give our formal 2022 guidance until the end of February with our year end earnings announcement.
So it's a good four months from now and in this pandemic four months feels like a lifetime.
Sense of how things can change et cetera, but I think how we think about the two business segments. How do we think about overall growth is again going to very much depend on.
Whether the cadence.
Virus frequency continues to recede as it has.
<unk> been doing over the last month or so whether there are any new variance or upticks in the wintertime et cetera, which some people expect there might be.
And then and then how the labor shortage has really affected I'm sort of getting back to the previous question. We will have a better feel for how much of this labor pressure is really temporary and gets better and how much we have to sort of address in a more structural way.
So again other than the comments that I've already made as I said, we wouldn't be giving precise guidance.
Normal predictable year and this is far from that so I don't think we're going to get into any more detail on the already.
Okay.
Maybe just one more question I think earlier this year you had said during the height of the pandemic contract nursing was about <unk>.
12% of your total nursing hours can you give us an idea.
What percentage of that was this quarter.
Yes, so so again those numbers vary by business segment pretty dramatically I would say on the acute side the percentage of premium hours. In this surge was probably in the high single digits eight 9% getting close to 10 not quite as high as it was back in January <unk>.
One period because of the Covid numbers themselves were not as high.
But it's still pretty high on the behavioral side I think our premium in hours.
Only run about 2% of our overall hours.
Harkening back to comments I've already made it because we can't get enough of those premium of ours to satisfy the need that we have we wish we could quite frankly, and that's why it's been more of a challenge on the behavioral side because filling those hours is more difficult to keep in mind that.
Employees into behavioral setting, particularly nurses are generally making less than they would otherwise make it an acute setting I think that has always been true.
And when there's been a small differential I think there's always been sufficient reasons why many nurses prefer to work in a behavioral setting it's very different in every nurse as it sort of a different view of what theyre looking for in a patient care experience when a nurse has the opportunity to make for a 500% of her base salary all of a sudden I think a lot of those.
Other <unk>.
Factors become less important and the financial dynamics, just overwhelm everything else and I think that's what we're seeing.
In this current surge and I think the other thing that's worth noting is the current surge related to the Delta Varian is the first surge we've seen during the pandemic in which many of the nurses are vaccinated. So pursuing these very lucrative financial opportunities I think nurses view as a less risky proposition.
And then they might have a year ago, where 18 months ago before they were back then.
Great. Thanks.
Thank you and our next question comes from the line of Frank Morgan with RBC Capital markets. Your line is open. Please go ahead.
Good morning.
On the topic of the Covid volumes as a percentage of total admissions in the acute side of the business could you talk a little bit about how that affected the rest of your business in terms of in an outpatient surgeries. Your overall payor mix.
EDI volumes those kind of things that that's my first question and then the second one is.
Just with regard to all these issues since the end of the quarter have you seen.
Any incremental changes anything.
Our Covid are you seeing COVID-19 volumes going down are you starting to see the use of temporary labor star.
Start to change and are you seeing any kind of changes in the in the overall mix of your patients yeah from a payer standpoint. Thanks.
Sure Frank So the percentage of our acute care admissions that had a COVID-19 diagnosis during the third quarter was around 14%.
Keep in mind that because of the length of stay is probably on average about twice where COVID-19 patients.
Non COVID-19 patients.
Something close to 30% of our patient days.
Presented by patients with a COVID-19 diagnosis, so pretty significant impact, but as I indicated in my earlier remarks.
We did that that same crowding out dynamic for most of the quarter for most of the quarter.
ER traffic.
<unk> been scheduled procedures were really have recovered had rebounded to pre pandemic levels, maybe a little maybe a little below.
September we saw some surgical and elective deflections, and postponements it feels like and you know I don't have all the all the data, but it feels like we've already recaptured a lot of that in October.
So it doesn't it doesn't feel like there is a real.
Sort of permanent loss, there and again the sense as I've now said a few times as koby volumes clearly been declining for the last four.
Five six weeks.
We're seeing some early indications of that leading to some also easing of the labor pressures although again.
Repeat what I've also said again, a number of times I think there is a time lag there and because a lot of these commitments both that we make to nurses traveling nurses and temporary nurses and that nurses make two other facilities.
Have a a sort of time lapse associated with them, we don't feel the impact of those declining coke volumes on the labor pressures that immediately but we've certainly seen the first early signs of it and I think they'll certainly continue during the quarter if the COVID-19 volumes continue to decline.
Anything you would call out on surgery relative inpatient versus outpatient did you see any more impact on one versus the other and I will hop. Thank you.
Yeah.
When we talk about postponements and deferrals they have tended to be in inpatient surgeries.
Because of the concern has always been.
Do we have enough beds. If there is a kind of an unexpected surge in COVID-19 patients.
I'm sure that anecdotally, we canceled or postponed and outpatient surgery here or there, but for the most part to the degree that there were postponements and deferrals and I don't think there was a material amount of them in Q3, but to the degree there were I think they were mostly in the in patient care.
Thank you.
Thank you and our next question comes from the line of Matthew Borsch with BMO capital markets. Your line is open. Please go ahead.
Good morning, Thanks for taking my question, you've been Rossi filling in for Matt here.
Regarding payer mix.
A little bit about utilization by payer across commercial Medicare and Medicaid and whether youre seeing differences in acuity or utilization between them. Thanks.
Yes, I think the interesting thing I think is that payer mix has remained relatively stable during the pandemic.
Obviously, there is some government assistance there so that's hurt the program.
Pays hospitals for uncompensated patients or patients, who have COVID-19, but our uninsured and that's been helpful to to keep down.
Uncompensated volumes and bad debt expense, we've seen I think is most hospitals have reported.
Shifting COVID-19 patient in this most recent surge.
A bit of a younger cohort because I think such a large proportion of the Medicare age population has been vaccinated and because so many of the COVID-19 patients now are unvaccinated, they tend to be younger more patients in their <unk> and <unk> they tend to be a little bit more commercial than Medicare, but again honestly I.
I don't think the payer mix.
I mean, the stability of the payer mix has been helpful. But the slight improvement in the payer mix is in my mind, not what's driving the strong acute care resolved. It's the combination of the acuity the reimbursement et cetera associated with the COVID-19 patients combined with the relatively.
<unk> strength and recovery in the non Covid volumes I think is much more of an impact than actually.
Slightly improved payer mix.
Gotcha. Thank you so much.
Thank you and our next question comes from the line of a J Rice with credit Suisse. Your line is open. Please go ahead.
Hi, everybody.
Quick questions here I guess first of all the debt to EBITDA down below two times, which is obviously stands out.
This sector to see somewhat dropping that low leverage can you comment.
I know you guys were active on the share repurchase in the quarter.
Is your as you are articulating that you think this is an unusual situation that converged.
To depressed results, a little bit, especially on the behavioral side and you see that turning around any thoughts on doing anything even more aggressive in terms of share repurchase to take advantage of what sounds like at least in your mind.
Hopefully a temporary pullback in the shares.
Yes, so I think it's worth noting a J that.
Our original guidance for the year and then even our revised guidance, we presumed we'd be repurchasing about $750 million worth of our stock pretty much radically over 223 and four.
Through the end of Q3, we've already repurchased over $750 million of stock for the reasons that we articulated in our opening comments.
I suspect, we'll continue to be an active acquirer.
Particularly if there is.
Any sort of weakness in India.
Further weakness in the stock et cetera.
We remain pretty bullish on the prospects of both of the business segments.
Our very comfortable investing in our own shares and I think we'll continue to do so unless the dynamics change and some measurable way.
Okay.
You know there had been some discussion obviously you have the firepower to do it about the potential coming out of the pandemic that both on the acute.
Even potentially on the bay real side, there might be increased deal opportunities as people look to maybe align with someone with deeper pockets.
The acute side and then obviously not only acquisition, but jbs with acute care.
Employers.
Behavioral side can you just comment on have you seen any pickup in discussions or dialogue around any of that.
Any reason to think Youll see an accelerated pace coming out of the pandemic here.
So on the acute side I actually think in retrospect that you know this.
Significant amount of infusion of government.
Subsidies reimbursement mainly in the form of the cares Act funds has helped support.
Not for profit hospitals that might have otherwise felt more financial to rest during the pandemic.
So I don't think youre seeing a real robust deal flow.
No not for profit hospitals looking for it.
An exit strategy or partner et cetera, but there are deals that we're always looking at I mean I highlighted in.
In my opening comments.
We've done a couple of smaller deals and the buying a micro hospital and specialty hospital in Las Vegas.
Continuing to invest in our freestanding emergency room development and I would add that those freestanding emergency rooms have really performed very well I think they performed very well from the outset, but I think have done, particularly well during the pandemic there seems to be the willingness of patients to.
To potentially get their care at a freestanding apd and feel somewhat safer or less threatened than they do in a large hospital emergency room. So all thats good stuff I think on the joint venture initiative side of behavioral we didn't talk about it this quarter, but I think we mentioned last quarter that we've opened joint venture.
Hospitals with acute care partners in Iowa, and Missouri This year.
We're scheduled to open in the next few months in Michigan.
In Wisconsin, our first behavioral hospital, Wisconsin, So that deal flow. These joint venture opportunities continues and I think we think of as a source of significant growth for us. So we will continue to pursue those and then there are other deals out there in behavioral.
I think we view it as a.
An indication of the fundamental strength of the behavioral business that these deals attract a lot of interest both from.
Strategic player.
Players as well as financial sponsors.
So.
There can be pretty pretty frothy auction processes, but we look at a lot of those as well and we'll continue to do that.
Alright, Thanks, a lot.
Yes.
Thank you and our next question comes from the line of Jamie Paris with Goldman Sachs. Your line is open. Please go ahead.
Hey, good morning, Steve and Mark I wanted to follow up on some of the comments on the acute care side. It sounds like you said.
In a number of categories you are at or near pre pandemic levels.
The big crowding out from Covid. This quarter, so I wanted to dig into that a little bit. It does seem like adjusted admissions took a slight step back versus 2019 compared to the second quarter. So where are you seeing some of these at or near pre pandemic levels.
Setting or by category versus where things still lagging a bit.
Okay.
Yeah, So I do think Jamie that.
The higher the Covid levels.
The more challenging we are in sort of back filling that non COVID-19 business.
And to your point I think we had less issues with that in the second quarter, which was probably our lowest COVID-19 quarter certainly.
For several quarters than we did in the third quarter, which I think is probably our highest quarter.
So that dynamic and I mentioned it before that even though we mostly ran at pre pandemic levels. We did have some deferrals and postponement.
<unk>.
Particularly in the September timeframe, and particularly on the inpatient side I think our point of view is that as COVID-19 volumes declined the demand.
For non Covid.
Activities will be.
We will be able to backfill.
The sort of the loss of Covid with those non COVID-19 activities as long as the labor situation allows us to do that I think again in both of our business segments I think we're more focused.
On our ability to meet the demand and whether the demand is really going to be there. We have every indication that demand for both business segments remains quite strong.
Okay. Thanks for that.
Switching over to the behavioral side, you talked about the caffeine in bed capacity in the clinical and then libre two components driving that pressure in the quarter. Just wondering if you can tease apart those two I mean, which was more impactful in the quarter and more importantly, looking forward into <unk> is it fair to say.
The first one the bed capacity improves a little bit and the labor stays kind of where youre at just would love any thoughts on the progression of those two factors into the fourth quarter.
Sure.
First I'd make the point that to a degree although we sort of talk about these factors is being discreet and separate they often sort of interplay with each other so when we have a COVID-19 surge and the facility we're likely to have more COVID-19 patients. We're likely to have more of our employees, who are either out with the virus or out because.
They've been exposed to the virus.
And so whenever there's a COVID-19 surge.
We're going to face incremental challenges and sometimes we will say that we've kept the beds because we've got COVID-19 patients and sometimes we say, it's because we can't find enough staff often it's both in a combined way.
But again I think we are checking them multiple times I think what we find and it found every time in the second quarter I think it was reflective of this that as we cope with volumes decline both of those pressures tend to be but if I had to say one was more prevalent than the other I'd say that the labor shortage is.
Been a more pervasive.
Tactfully issue than the actual sort of isolation of the patient tissue.
Alright, thank you.
Thank you and our next question comes from the line of Whit Mayo with SBB Leerink. Your line is open. Please go ahead.
Hey, Thanks, So you guys rarely talk about your your health plan, which I think is in Reno, maybe I'm incorrect or your ACO or are there any trends there developments any changes in network coverage that we should be aware of and I believe the performance of the.
MSS P. ACO has been pretty strong in prior years. So just wondering if this is something that you guys think differently about strategically you may be more broadly across the portfolio.
Yes. Thanks, it's a good question I mean, I think the reason that we don't specifically address our ACO activity or the activity of our insurance plan is because I think we view it as integrated very closely with the overall strategies of our hospitals in there.
Market. So we don't operate the insurance plan anywhere where we don't have hospitals, we have.
Some sort of accountable care organization and every acute care market in which we operate.
In some cases, a majority equity ownership as in Las Vegas, and other cases.
Equity ownership.
But we view sort of an ACO strategy, sometimes the presence in the Medicare advantage insurance product is integral to those to those markets and I think they've been very helpful. And again, we don't really talk about our insurance company.
A separate entity because at the end of the day.
It largely exists.
As sort of an adjacency or a corollary to the strength of ours kind of fully integrated.
Delivery network in a market and we tend to talk about the markets themselves rather than the individual components you know same.
Same thing really with our freestanding eds.
Mentioned in today, because I think it's worthwhile, but for the most part we view them again as a as an integral component of our broader.
The integrated network.
Okay.
That's helpful. Then.
Steve I think you recorded a few million dollars of the Kentucky Medicaid program in the quarter is that.
Is that a prior period prior period number and then just maybe refresh us on expectations for for CMS approval, and then maybe any comments around Texas just rip. Thanks.
Yeah, So just to.
To remind everyone. We recorded in the second quarter $55 million spur.
Special Kentucky Medicaid reimbursement.
That was approved during that quarter.
As the state did it sort of.
Final calculations et cetera, we realized that there was an additional $7 million to be recorded as part of that program, which went from July of 2020 to June of 2021. So we recorded that additional $7 million in Q3 that related to the previous state fiscal year.
Program, we are expecting the state has applied for CMS approval for a similar program, which will cover the period from July of 'twenty, One to June 22.
We're expecting that program to be approved by CMS, we're expecting the benefit for our Kentucky hospitals to be something comparable to what we recorded in the previous fiscal year, but we'll wait to record that until the final CMS approval is granted we are hoping and expecting that that'll be before the end of the calendar year, but.
It didn't no guarantee of that but we will record it when when we can as far as disrupt goes.
I think that.
Texas District program, we'll either see they're going to continue for a period of time or will be replaced by a comparable program and therefore, I think the amount of district dollars.
<unk> not really changed significantly going forward.
Okay. Thanks.
Thank you and our next question comes from the line of Ralph <unk> with Citi. Your line is open. Please go ahead.
Great. Thanks, good morning.
Excluding COVID-19, Steve do you think underlying acuity is still up and I only ask because when I look at the absolute dollar of revenue per adjusted admission was up but obviously, there's a lot more COVID-19. This quarter. So just interested in I guess your thoughts on.
For acuity and how you think about the pricing stat going into next year.
Yeah.
Yeah, I think it's a reasonable point, Ralph I mean, I think what we've seen throughout the pandemic is that the lowest acuity procedures that we would tend to have as part of our emergency room traffic et cetera.
Those that fell away.
Early on and to a degree I think remain those that have not returned so while I think the increase in acuity is driven mostly by the COVID-19 patients themselves I do think that when you look at the non COVID-19 cohort of patients.
That that acuity has also increased slightly and I'm not sure. It's because we're seeing more acute procedures as much as we're seeing sort of the absence of some of that really lower acuity stuff and honestly I'm not sure we know exactly where that's gone, but it seems to have.
Fallen away from the hospital emergency rooms.
Yeah, Okay fair enough.
And then just maybe can you talk about the pricing backdrop with payers maybe.
Can you remind us what the average rate increases you've been getting.
On the acute care side, and whether you think you can sort of price up more going forward given sort of just the labor inflation dynamics and I guess, both for the acute and behavioral we don't talk about it a lot on the behavioral side, but maybe if there is any leverage there given the current circumstances.
Yeah, I mean, I think that our.
Contractual managed care, where insurance contractual activity has sort of continued at around the same level I would say our average price increases on the acute care side or in that sort of 4% to 6% range annually on the behavioral side, 2% to 4%.
I think specifically talked in previous quarters about having had some success on the behavioral side.
Getting some managed Medicaid contractual increases in some cases on contracts, where we have not seen increases in multiple years.
We continue to sort of work at that.
But I don't envision.
That the managed care pricing dynamic has really changed a great deal during the pandemic or is likely to change significantly coming out of the pandemic.
Got it okay. Thank you.
Thank you and our next question comes from the line of Sarah James with Barclays. Your line is open. Please go ahead.
Thank you I wanted to.
Go back to paying premium and Mike leading to record hiring we saw that in our research.
Shifts in bonus strategy, but are you, saying that because of churn the net head count of like nurses isn't higher.
We wouldn't see higher patients being served or bed openings in <unk> as a result of the strong <unk> hiring and then bigger picture wise. When you think about recruiting new grads into site as opposed to acute do you think the hourly wage gap between those two segments have fishing.
Yeah, I mean, again I'm going to make the point that I've made before.
Think that the.
Yes.
Covid crisis has created an opportunity for nurses, both acute and behavioral nurses to earn wage rates that are just beyond anything that has been previously comparable.
Again.
It sounds like you've done a lotta research you know you're going to have to do with time, but if you go online and look for nursing opportunities you can see that there are nursing opportunities and which nurses can easily earned $10000 a week working in a COVID-19 environment. So these are nurses who.
Navy, earning 70 or 80000 hours a year, maybe two years.
$90000, a year, but now they're they're earning at a rate of $500000 a year. So when you have those sort of opportunities.
There is no way, we can close that gap that gap will be closed by the elimination of those opportunities.
So that I think is the issue.
And again I think the comment that we were making before I was making before is while we hired a record number of and not just nurses by the way. This includes therapists and mental health Tech et cetera.
We're seeing quite a bit of churn again as you know I mean I think the the.
The American Labor Force in general is seeing quite a bit of churn, obviously I think it's more exacerbated in healthcare and in hospitals, but.
Is a bit of a.
A dynamic that we're seeing across the labor landscape. So.
We.
In every market.
We've always spent time.
Making sure that our wages are competitive and performing compensation studies et cetera, we're more attuned to that now and they are doing it more frequently than we've ever had before.
And we certainly acknowledge that particularly.
We've got to be competitive with our peers with other behavioral hospitals et cetera, but.
Behavioral theirs is always going to be able to make more money in an ICU setting or EUR setting than in a vehicle setting again I've talked to many many nurses both acute and behavioral over the years and I think for the most part they work where they work because they enjoy the patient care dynamics in <unk> in the setting in which they work.
And again, when there is a 10 or 20%.
PE differential I think nurses can convince themselves that they want to work where they're happier.
When theres, a 4%, 500% differential that becomes a tougher argument to make.
Got it and then last question can you speak to how we should think about cadence for 'twenty two because some of your acute peers have been.
Hinting at a backend loading of 'twenty two with some of the labor pressure lightning.
Sure.
Pressure lightening in the back half of the year. So how should we think about uhm seasonality first half versus second half.
In a normal year.
And again, my apologies, but I think that the level of detail and precision that were not prepared to talk about today not because we don't want to talk about it and we know how we're thinking about it but because we don't know how to think about it just yet.
Again, I think a lot of this is dependent on how the next few months unfold in terms of Covid volumes of labor shortages I think it's way too early to talk about the cadence for 2022 at least from our perspective to a degree our peers are comfortable doing that more power to them.
Okay. Thank you very much.
Operator any more questions.
I'm showing no further questions at this time.
Okay, we'd like to thank everybody for their time and look forward to speaking to everybody on our year end call. Thank you.
This concludes today's conference call. Thank you for participating and you may now disconnect everyone have a great day.