Q4 2021 Community Health Systems Inc Earnings Call
[music].
Good day, and thank you for standing by won't come to community Health Systems' fourth quarter and year end 2021 earnings call.
Please be advised that today's conference is being recorded.
I would now like to hand, the conference over to your speaker for today, Mr. Goss coma.
Vice President of Investor Relations.
Thank you Jay Good morning, and welcome to community Health Systems' fourth quarter and year end 2021 conference call. Joining me on today's call are Tim Henson, Chief Executive Officer, Dr. Lynn Simon President of clinical operations, and Chief Medical Officer, and Kevin Hammons, President and Chief Financial Officer.
Before I turn the call over to Tim I'd like to remind everyone that this conference call may contain certain forward looking statements, including all statements that do not relate solely to historical or current facts. These forward looking statements are subject to a number of known and unknown risks, which are described in headings such as risk factors in our annual.
Port on Form 10-K , and other reports filed with or furnished to the securities and Exchange Commission as a consequence actual results may differ significantly from those expressed in any forward looking statements in today's discussion.
We do not intend to update any of these forward looking statements.
Yesterday afternoon, we issued a press release with our financial statements and definitions and calculations of adjusted EBITDA and adjusted EBIT EPS for those of you listening to the live broadcast of this conference call. A supplemental slide presentation has been posted to our website, we will refer to those slides during this earnings call.
All calculations, we will discuss also exclude loss or gain from early extinguishment of debt impairment expense as well as gains or losses on the sale of businesses.
Fences from government and other legal settlements and related cost income and expense from the settlement of professional liability claims.
Which the third party insurers obligation to ensure the company for the underlying loss has been settled expenses from settlement and legal expenses related to cases covered by the CVR expenses related to employee termination benefits and other restructuring charges change in tax valuation allowance and gain on sale of equity.
Trust, and making health care LLC.
With that said I'd like to turn the call over to Tim Hudson Chief Executive Officer. Thank you Ross Good morning, everyone and welcome to our fourth quarter and year end conference call.
2021, with another strong year for CHS, we advanced key clinical and operational initiatives and made strategic investments that position the company for future growth.
Leaders across the organization executed their plans to achieve strong operational and financial performance and we finished 2021 with a solid fourth quarter.
We certainly confronted the same challenges as others in the health care industry as COVID-19 negatively impacted patient volumes and various expense categories.
Once again, our team demonstrated their ongoing commitment and resourcefulness are definitely managing through the evolving and at times unpredictable environment.
I remain deeply grateful for all of our caregivers the exceptional work of our health care team, including nurses physicians therapists and others has been essential to the delivery of high quality patient care. We are proud of the service we provide in our communities and the critical need our health care systems fulfill in cities across the country.
Hope it remains widespread in the second half of 2021 first the Delta variant peaked in the third quarter and as those cases slowly dissipated during the fourth quarter, the omicron variance spread across many of our markets eventually peaking in January .
During the fourth quarter, we provided care for approximately 8000, inpatient COVID-19 admissions or 8% of our total admissions, which was lower than the 13% of total admissions experienced in the third quarter and similar to our experience in the first quarter of 2021.
Non covered health care demand during the fourth quarter was higher than prior quarters. Despite elevated COVID-19 cases.
Looking at the fourth quarter on a same store and year over year basis.
Revenue increased six 7%.
Same store admissions decreased three 9%, while adjusted admissions were up one 7%.
Surgeries increased five 7% and ER visits were up 11, 8%.
Comparing our fourth quarter volumes to the pre pandemic fourth quarter of 2019 same store admissions were at 93% while surgery showed strengthening finishing at 98%.
Non COVID-19 related volumes continued to trail pre pandemic baselines for the industry, we expect to meet deferred demand as it returns to the health care setting over the next several quarters.
On a consolidated basis, adjusted EBITDA was $540 million in the fourth quarter, excluding pandemic relief funds adjusted EBITDA was $494 million up 7% year over year and adjusted EBITDA margin of 15, 3% was up 50 basis points compared to the prior year.
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As a reminder, we raised the midpoint of our adjusted EBITDA guidance three times last year, and we ended up slightly above the high end of our updated full year guidance.
And it's worth noting that cash flow from operations was also strong and came in above our previously increased guidance range.
Our strong financial performance is made possible by targeted operational initiatives and strategic investments, but also advance patient care enhanced competitive position and that will drive incremental EBITDA growth and general generate additional free cash flow going forward.
And over the past couple of years, we have transformed and strengthened the company.
Today, we operate across 48 specific markets in 16 states or markets are primarily suburban and medium sized metropolitan areas, mostly across the sunbelt and locations with good economic and population growth.
We've expanded our markets well beyond traditional hospital operations and now operate more than 1000 health care sites across the continuum continuum of care.
In addition to our 83 hospitals. The portfolio consists of 42 ambulatory surgery centers 17, freestanding emergency Department 60, urgent care and walk in clinics and more than 600 physician practice locations.
Scalable initiatives across the enterprise are designed to achieve clinical advancements operational improvements and growth.
Beginning with growth, we invested $469 million of capital into our markets in 2021.
Using a balanced investment approach that increases inpatient capacity, while also expanding access and outpatient services.
We have recently added new hospital beds in surgical and procedural suites in key markets, including Birmingham, and Huntsville, Alabama, Knoxville, Tennessee, and Austin, Texas among others.
New hospitals that have been opened in Fort Wayne in Laporte, Indiana and in Tucson, Arizona, where another new hospital, our fourth hospital in the Tucson market is planned to open in the first half of this year on.
On the outpatient side, we opened three new ambulatory surgery centers, and three new freestanding emergency departments and 2021.
And strategic joint venture partnerships are expanding our services in the areas of behavioral health rehabilitation services and long term acute care.
A good example of our balanced investment approach can be seen in our Naples, Florida market.
Since 2019, we've increased that capacity by 38% by expanding our two existing hospital campuses.
And in January we opened a new campus on the north side of the city at.
At the same time, we've expanded outpatient access with two new medical office buildings totaling over 130000 square feet and we've aggressively recruited physicians in this community.
The market's focus on service line development has produced organic growth in nearly every specialty with notable advances in cardiac services digestive health and urology.
We have increased market share and will grow further with an additional 80 license that on track to be added before the end of this year.
Other growth initiatives include our Acos provider outreach programs and our transfer center, which is now supporting 65 of our hospitals and continues continues to function well above our original expectations producing volumes from inbound transfers transfers from both CHS and not CHS affiliated sites of care.
Primary care growth is an important focus and supported by a centralized physician recruitment team that was able to recruit 14% more physicians to our markets in 2021 versus 2019, our pre pandemic comparison.
Our patient access centers, which offer centralized scheduling for primary care providers help patients receive appointment faster and of course, the <unk> provider productivity.
Online scheduling for primary care increased more than 90% in 2021 compared to 2020 as consumers increasingly expect this level of convenience.
And it's worth noting that our fourth quarter same store, our primary care business were up 13% versus the prior year, which bodes well for future patient volumes.
We have many focused areas for continuous operational improvement and I'll highlight a few today.
Pandemic has meaningfully increased wage rates and demand for nursing contract labor in many markets, we expect contract labor to normalize as Covid cases decline and we are accelerating strategies that help us attract support and retain our valued employees. We've expanded our centralized nurse recruitment program and that effort is yielding very good.
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We also are sponsoring a new generation of nurses through our partnership with Jersey College with four hospital base Nursing school programs Operationalized, so far and three more starting in 2022.
Pandemic requires a higher level of capacity management focus.
Several programs underway to optimize capacity by managing throughput and length of stay which not only helps keep needed thats available that can also improve patient satisfaction.
And our strategic margin improvement program completed its second full year in 2021 driving meaningful savings through the organization. This work continues to permanently reduce cost across the corporate offices and shared service centers and decreased non patient facing hospital expenses and.
In 2022, we have plans for further expense reductions and areas and putting supply chain vendor related cost rent and other expense categories.
Finally today I want to mention our investments in innovation and partnerships artificial intelligence and other technologies that can improve patient safety and clinical outcomes.
Last week, we announced a strategic partnership with cadence to deploy remote patient monitoring and virtual care solutions to support patients managing hypertension heart failure diabetes and pulmonary disease working directly with our network of primary care physicians. We anticipate this partnership will create benefits that it.
Food higher patient engagement, and managing chronic health issues better outcome and a reduction in preventable hospitalizations.
At CHF, our shared purpose is to help people get well and live healthier and initiatives like this one and make that possible.
We enter 2020 too optimistic about the opportunities ahead and determined to achieve our goals for this year and beyond.
Kevin will now provide some additional thoughts on the quarter, Andy will walk you through our 'twenty to 2022 guidance and provide an update to our medium term targets.
Kevin Thank you, Tim and good morning, everyone.
As Tim highlighted we finished the year strong with a solid fourth quarter.
During the full year, we delivered strong financial performance.
<unk> strategic progress across the organization.
And the balance sheet through the extension of debt maturities and pay down of debt and the reduction of annual cash interest.
We look forward, we are well positioned to drive incremental growth over the next several years.
Switching back to the fourth quarter net operating revenues came in at $3 billion to $233 million on a consolidated basis.
On a same store basis net revenue was up six 7% compared to the fourth quarter of 2020.
This was the net result of a one 7% increase in adjusted admissions and a four 9% increase in net revenue per adjusted admission.
Adjusted EBITDA was $540 million.
During the fourth quarter, we recorded approximately $46 million of pandemic relief funds with approximately $153 million recognized in the prior year period.
Excluding pandemic relief fund adjusted EBITDA was $494 million.
With an adjusted EBITDA margin of 15, 3%.
In terms of expenses, we have seen a decrease in salaries and benefits as both productivity improvements and the shift from employment to contract labor.
<unk> set an inflationary impact on labor.
Accordingly, we have experienced a significant increase in contract labor.
Which is reflected in our other operating expenses.
Net effect of this transition from employment to contract labor.
It was approximately 200 basis points of net revenue during the fourth quarter and 100 basis points of net revenue for the full year.
Helping to offset this headwind on earnings it's been the success of our margin improvement program, which helped deliver significant reductions in expenses across both supply and purchase services.
Moving forward, we expect the margin improvement program to continue to deliver meaningful savings in 2022 and beyond.
Turning to cash flow cash flows used in operations.
$131 million for 2021. This compares to cash flows provided by operations of $2 2 billion during 2020.
Excluding repay Medicare accelerated payments cash flows provided by operations were $950 million for 2021.
Cash flow from operations was strong during the year coming in above our initial guidance as well as guidance that we had updated following third quarter earnings.
Comparison versus prior year has several moving parts as the $2 2 billion in cash flow from operations. During 2020 included $1 1 billion of accelerated Medicare payments and approximately $700 million of provider relief fund.
That entire $1 $1 billion of Medicare accelerated payments was repaid during 2021 was $814 million of debt being repaid in the fourth quarter.
Moving to Capex.
For the full year of 2021, our Capex was $469 million compared to $440 million in 2020.
Capex was up 7% in 2021, despite operating fewer hospitals than a year ago.
In 2022, we plan to invest a higher dollar amount of capital across our existing markets as evidenced by the increase in our Capex guidance.
We see a number of high return opportunities that we expect will deliver incremental EBITDA EBITDA margin and free cash flow.
In terms of liquidity, we continue to have no outstanding borrowings under the ABL with $897 million of borrowing base capacity.
Also at the end of the fourth quarter, we had $507 million of cash on the balance sheet.
As we mentioned in the cash flow discussion and the company repaid $814 million of Medicare accelerated payments in the fourth quarter.
And as a result of Medicare accelerated payments have been repaid and we are now receiving 100%.
Medicare fee for service reimbursement.
We continue to improve our balance sheet and capital structure and make significant improvements during the year.
During the most recent quarter, we extended the ABL from 2023 to 2026.
Most recently in January of 2022, we extended one 5 billion of debt in 2025 to 2030.
Since first quarter of 2020.
We've now reduced our annual cash interest by approximately $230 million and lowered our leverage by over two times.
At the end of 2021, the company's net debt to EBITDA was five nine times going forward. We are focused on further lowering our leverage into the future.
Now I will walk through our full year 2022 guidance.
Net operating revenues is anticipated to be $12 six to $13 1 billion.
And adjusted EBITDA is expected to be.
One $825 billion to $1 billion 975.
Net income per share is anticipated to be $1 to $1 50 per share based on weighted average diluted shares outstanding of $133 million to 134 million shares.
Cash flow from operations is anticipated to be $950 million to $1 1 billion.
Capex is expected to be $500 million to $600 million.
Cash interest is expected to be 820 $840 million.
Summary, we expect 2020 to be another strong year.
We further leveraged our growth initiatives invest incremental capital.
Capital in high return projects and drive additional positive free cash flow.
In terms of the quarterly cadence of adjusted EBITDA, We expect 2022 to be Directionally similar to 2021, excluding the pandemic relief.
Coming into 2022, we've seen the peak of Covid hospitalizations occur in January .
And we've also experienced the peak of positive infections, among our hospitals back in January .
Which further constrained capacity and resulted in higher utilization of contract labor.
As such we expect the first quarter of 2020 to be our lowest adjusted EBITDA quarter of the year and similar dollar range for the first quarter of 2021.
With declining cases of Covid and the utilization and rate of contract labor moderating, we anticipate improvement in the second quarter and throughout the remaining quarters with the fourth quarter of 2022 being the highest adjusted EBITDA quarter of the year.
Finally, we would like to also provide an update on how we're thinking about the company beyond 2022.
At the beginning of 2021, we introduced our medium term financial goals, which was a two to four year plan.
This included achieving 15% plus adjusted EBITDA margins delivering positive free cash flow annually and reducing our financial leverage below six times.
In the past year, we've made significant progress on each of these goals.
As we move forward, we expect to continue to grow EBITDA and EBITDA margin drove annual free cash flow generation and continue to lower our financial leverage.
Such with full dose previous goes forward to the near term and have entered its new medium term targets, which are goals, we plan to achieve over the next two to four years.
Which include growing net revenue by mid single digits, achieving 16% plus adjusted EBITDA margins.
Continuing to deliver positive free cash flow annually, and reducing our financial leverage below five times.
We look forward to delivering additional progress across all these metrics into the future.
For us at this point ill turn the call back to you. Thank.
Thank you Kevin and thank you Tim at this point, Jay we are ready to open up the call for questions. We will limit everyone to one question. This morning, but as always you can reach us at 615 or 65 7000.
Thank you.
If you would like to ask a question you will need to press star one on your telephone to with your question.
Keith Please standby, while we compile the Q&A roster.
Our first question comes from the line of Brian . Thank you.
Jeffrey Your line is open.
Hey, good morning, guys congrats on a good quarter.
I guess my question is as I think Kevin about the other operating expense line, obviously, it's up year over year as you called out increased use of temp staffing but.
If I back out what we think the attempts that contribution as it looks like that line has gone down quite a bit so how should we be thinking about kind of like the expense components that go into that and even also like what you can share with us in terms of how you think youre staffing trends would improve and then maybe segue that also into the 100 basis.
The improvement in your medium term guidance kind of like what has driven that and what gives you confidence in driving that kind of margin expansion over the next two to four years.
Sure. Thanks, Brian .
A couple things have really led to our ability to control some of those.
Other operating expenses and achieve savings so we've been talking about our margin improvement program.
Now for a number of quarters is something we launched.
Back in late 2019 continued to get traction on.
Some of the category.
We're getting savings and it's a number of different areas, but across software licensing purchased services insurance any number of initiatives that we're targeting probably not a single one that individually material, but it's just how we're going about kind of.
Doing our business in tightening up.
Yes.
Our practices.
Unable to go out and get.
Some savings we also had some benefit as we've completed our divestiture program over time.
Even this past quarter, if you think about comparisons year over year. There was some benefit as we have.
Divesting some of the lower performing hospitals going forward in terms of reaching.
Our new EBITDA margin goals.
A number of things one we believe there is continued opportunity under our margin improvement program, but also we have a real balanced approach.
Both the organic growth because the markets were in.
We believe our growing demographically, they're growing economically and we believe we're going to not only pick up our share.
That growth, but also continued to grow market share in those markets, we're making capital investments.
Over the past even two years throughout the pandemic, we haven't received the full benefit.
Capital investments, we've been making let alone.
Getting even more aggressive and as we've mentioned, adding more dollars into some opportunistic capital investments going forward. So we believe all of those things really combined will allow us to to achieve those margin goals.
Doing so and leveraging our fixed costs in those markets as well.
Thank you next question comes from the line of Josh Raskin of Nephron Research. Your line is open.
Thanks, Good morning, Mike.
My question is around the market strategy Timmy brought it up on the call. This morning, So community seems to have migrated towards slightly larger markets over the last several years I guess in light of the labor shifts in what appears to be less migration into large urban areas and I don't know if thats worked from home or other factors, but how are you thinking about the markets.
You operate in is there any thought on.
More rural versus more urban.
Good morning, Josh This is Tim I'll start this one off in terms of the portfolio. You are correct. We've been very methodical in terms of how we were shifting to I think more midsized metropolitan markets.
Smaller suburban market things along those lines, we still have some core assets in some of what would be defined rural markets, but in general really focus a bit laying out those health care delivery systems with.
Similar site.
Access points across all of the portfolio.
In terms of how we're looking at this going forward, obviously, we positioned ourselves in a place where we think there will be good growth down the road.
Are seeing population gains projected in these markets, whether it accelerates materially due to migration from larger cities into the suburban markets is still to be seen we have anecdotal information we had good growth rates.
And things along those lines that we're seeing in the near term, but we think that bodes very well for us in terms of both gist population can be served but also increasing the core group of health care talent that we need to operationalize our markets.
We also touched upon our balanced growth objective of being focused on developing inpatient capacity expanding service lines and acuity, while being very mindful of the migration of certain care lower acuity care to the ambulatory setting and our growth in those types of markets make that very very feasible marketing getting access points into those.
New neighborhoods growing parts of communities, we believe really again drives a lot of go forward opportunity for the company.
Thank you next question comes from the line of Kevin Fischbeck.
Bank of America. Your line is open.
Great. Thanks, maybe a two part question on the guidance first it seems to just be a lot of.
Confusion or uncertainty around margin sustainability.
Uncertainty about how much whether it's the Cobra relief funds public health emergency is adding to.
Earnings. This year, maybe you can give us a little bit of color or direction as to how you think about the 2022 baseline into 2023 can you grow margins in 2023.
If all of these things expire as as they are supposed to.
Today like how much of a drag is that that you have to overcome and then secondly, just quickly.
Here, what you were saying about cash flow and your guidance, because you're going to be doing about half of $1 billion of cash flow, but your medium long term numbers just positive cash flow is there something we should be thinking about a reset there.
How about the movement towards paying cash taxes or somebody in your capex.
The free cash flow should be.
Meaningfully different than what Youre doing in 2022 over the next two.
Four years.
Sure.
Thanks, Kevin let me start that off and try to catch all the components of that question. So as we think about kind of 2022 and the baseline.
Our guidance going forward, yes, we do believe we can continue to grow margin.
2022, I do think we have coming into 2022 still a little bit of a headwind.
On margin because of contract labor.
So as we kind of go forward.
<unk> 2022, certainly in the <unk>.
<unk> mid of mid to latter part of 2022, we expect that contract labor.
Headwinds to start to subside and going forward, we think we'll get past that.
So that should give us some opportunity.
We are continuing as we've talked about kind of.
Not only organic growth in our markets, we are focusing much of our capital.
Temperatures in our niche our revenue growth initiatives and higher acuity service lines.
So we believe there is opportunity there.
We continue to be in a position to increase our capital spending to chase more of those opportunities.
And if I just may be previously mentioned much of what we've invested over the past couple of years because of pandemic, we haven't realized the full benefit out so as we get out to 2022 and beyond we believe we will continue to be able to leverage that and as we grow within our existing markets.
Our fixed costs will remain relatively the same.
And so the incremental revenue that we're able to generate.
Should flow through to higher margins going forward.
Thank you next question comes from the line of Ben Hendrix of RBC capital markets. Your line is open.
You could provide a little bit more color about your length of stay in your programs to optimize capacity specifically how much of your length of stay elevated linked stays related directly to treatment of COVID-19 patients versus your ability to discharge to post acute mid labor headwinds.
Guess, what what what leverage do you have to address that.
Great. This is Tim I'll go ahead and kick us off with Kevin of course feel free to chime in on in terms of our capacity optimization or length of stay focus.
It had several off assets to the program I think we've done a good job historically of managing length of stay culvert has I think has shown us a few more headwinds than we're used to particularly as it relates to the ability to place cohort or non COVID-19 cases, and they are ready for discharge into post acute care settings or home health. So on that one is a little bit more.
Structural not as easy for us to to address in the near term until Covid cases up more definitively subside and we stabilize some of the workforce in the post acute care setting, but in terms of the hospital environment itself, we really are focusing on discharged to home as our primary lever.
Putting out more refined reporting in terms of how we manage the.
The discharge to help patients patients who are already being more efficient on making sure that we again deliver optimal quality care and then get them to their home setting as quickly as possible and we've seen some great success in that regard. So a lot of it is about prioritizing.
Kind of what type of patients we put our focus on we have also introduced new analytics and reports to support a centralized function utilization review function and that is again pretty pretty new in terms of the data and the way. We're we're sharing that with our hospital and regional operators.
Digging into opportunities by market in terms of observation patient management, making sure that we have authorizations in place and the front end are coordinating all of that work with the payers and again think some early success in that initiative in terms of where the real biker state challenges are I'd say again.
It's certainly driven up I'd like to stay in total but in general those macro elements of the discharge out of the hospital setting has probably been the bigger our structural headwind that we have to overcome.
Anything to add.
Those are all of the sort of thing.
I think most people are dealing with.
<unk> seen some acuity increase vertical.
Feed into some of that length of stay but again lots of opportunities as Tim mentioned.
Yes, and maybe the only other thing I would add Tim is we have made some capital investments and some joint ventures with some partners and posts in the post acute care space.
Rehab with long term acute care and all of those kind of combined I think will help us really treat patients across the continuum of care and help with that length of stay.
I think for US again capacity optimization as a high priority because we ran really fall throughout the fourth quarter and we missed I think some admission opportunities and ability to fulfill our purpose in general. So again. This is very important to us as of human capital.
<unk> is an advancement to stabilize our workforce and again Thats, where we see some really great opportunities for the organization in 2022 and beyond.
Thank you next question comes from the line of Jason Kupferberg of.
<unk> Your line is open.
Hi, great. Good morning, Thanks for taking my question.
So just from a volume perspective, the surgery number was certainly impressive in the quarter, but if I back out the COVID-19 admits in the quarter. It looks like core myths for running at maybe 85% of pre pandemic baseline. So just at a higher level can you help frame how youre thinking about underlying demand in your markets. I know you said that you believe there's some pent up volume you expect to come back.
But maybe at this point do you believe that there is some level of volume that just won't return back to the hospital and then maybe how does that dynamic around that help you inform yourself in terms of how youre thinking about the future capital deployment priorities of the company.
Sure enough.
<unk> 2019.
Our admissions adjusted admissions.
Believer are probably down in the mid single digit.
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And surgeries are probably low single digit range compared to pre pandemic levels.
<unk> certainly made some more progress on surgeries.
Going forward do we expect some of the volume not to return.
And how do we think about as we sit here today. We believe there is still significant amount of deferred demand out there that we will be getting back and we'll be coming back kind of throughout 'twenty, two and it's COVID-19 subsides.
That deferred demand will come back will there be some.
Some demand that ultimately are structurally doesn't come back.
Actually, but we think thats low acuity.
And we may be capturing that in some of our other access points like our freestanding eds.
Urgent care centers walk in clinic, so some of the low acuity emergency room business, probably ultimately doesn't come back.
But we will capture that in a lower cost of care settings, which will ultimately be accretive to EBITDA.
And then on the fees.
Thinking about just a few things thanks for the question Jason in terms of our admission. It's certainly an indicator we track very closely but we have to put it into perspective with some of the changes in healthcare delivery, particularly on the short stay surgery cases. So in addition to the lower case cost of Covid in Q4, 'twenty one versus <unk>.
For 'twenty, which kind of I guess the races. The admissions deficit for the organization. We also had a rather sizable shift of short stay orthopedic cases that were on the inpatient only list on historically that have migrated to outpatient surgery classification and those patients are still occupying a bad for their one to two day stay.
So as I said in my previous comment, we ran very high capacity and occupancy in our hospitals in the fourth quarter.
Again, all by design, we kind of know the status of those patients working very methodically to two case manage them appropriately, but when we look at those those two big shifts right. There I guess with some increases in observation cases year over year, some lower acuity business came back in and we're really satisfied with the progress of our growth initiatives working to our.
Vantage again, we have great insights into where our business is at and what our opportunities are by our internal measures, but also through our transfer center data and we have strong transfer center performance in the fourth quarter, but we know there is still more care that we could have brought in as we focus on length of stay management as we focus on optimizing.
Our staffing and as we focus on expanding capacity of our inpatient beds.
Thank you and our last question will be from Andrew Mok of UBS. Your line is open.
Hi, Good morning, hoping you could give us a sense for how contract labor is trending so far into Q1, you mentioned in your prepared remarks that you expect the contract labor to normalize can you elaborate on that with regards to contract labor usage and rates. It seems like some of the labor mix shift towards temporary labor may be semi permanent.
Nature. So just wondering if you've seen any improvement in contract labor materialize at this point thanks.
As I mentioned, we have seen kind of the peak of Covid.
Got.
Into January .
Before we started to see any moderation.
Both in terms of patient admissions as well as COVID-19 .
The impact on our employee staff.
And so certainly theres been more backfill.
Staff in January with contract labor for people paying out.
Sick and unable unable to work because of Covid.
<unk> positive.
But we do expect that we're on the downside of that now and we will continue to moderate throughout the remainder of the quarter.
In terms of rate.
Seeing.
Contract labor rates at about 3% to 400% of employee rates are.
And so thats pretty similar to what we saw kind of coming out of the third quarter.
Andrew This is Tim I'll, let tack onto that just real quickly.
I think we're experiencing anything different or materially different than our peers or what we're reading in the industry in terms of some of the the phenomenon of contract labor accrual. We are more optimistic that it is not a permanent structural change on that as the Covid cases decline.
Go back to more of a normal operating environment, what we're doing as an organization is really focusing on human capital advancements.
Building, a stronger core workforce, we have near term midterm and long term solution I believe we've talked about them in previous calls a little bit today, but in the near term our centralized nurse recruitment function thats been very successful we will have that fully rolled out across all of our hospitals in the next couple of months, we have about 61 of our hospitals on this.
Service right now and again seeing really positive results. So it really hiring has not been our biggest challenge.
We just have to certainly work hard on retention and get not having people feel that contract labor going to a travel agency is the best career choice for them Theres other intrinsic value to being part of our core healthcare team. Besides just the rate of pay and those things that we're focusing on our retention and bonus programs advancing our educational opera.
<unk> sport for our <unk>.
For all of our employees not just nursing and then really putting more energy to caring for the caregiver and some of the emotional support that is so critical as we weather. The last several waves of Covid. We've also piloted some care model designed to make it again, I guess I'll say easier to be a nurse not that it's ever an easy job to get more supportive resources to the nurse.
<unk> changed so that they can focus on the higher value services to their patients driving the best outcomes possible and the last thing I'll say to try to maybe mitigate this and then mid to near term would be an increase in international nurse recruitment I think everyone. In the industry is looking at this but we've got a really good line on expanding our international.
<unk> employment options with some of the visa relief for beef is opening up over the last several weeks. So again those are the things that we're doing to really address this to make sure we manage our workforce and the best way possible.
Thank you we will now turn the call over to Mr. Heng Chen for closing comments.
Thanks, Jay and thanks to everyone for spending the time with US today in closing I would like to mention again, just how grateful we are to all of our employees across the organization.
Physicians providers regional Presidents in hospital leadership teams continue to demonstrate our true purpose of helping people get well and live healthier by providing safe high quality care for their communities.
Also want to thank our company's leadership team for their important role in supporting our market and for their continued focus on successful execution.
We were pleased with our performance in 2021, and we look forward to updating you on our progress as we move through 2022.
Once again, if you have any questions you can always reach us at 65465 7000.
Have a great day.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
Have a great day.
[music].
[music].
[music].
Yeah.
Good day, and thank you for standing by welcome to community Health Systems' fourth quarter and year end 2021 earnings call.
Be advised that today's conference is being recorded.
I'd now like to hand, the conference over to your speaker for today, Mr. Goss coma Vice.
Vice President of Investor Relations.
Thank you Jay Good morning, and welcome to community Health Systems' fourth quarter and year end 2021 conference call. Joining me on today's call are Tim Henson, Chief Executive Officer, Dr. Lynn Simon President of clinical operations, and Chief Medical Officer, and Kevin Hammons, President and Chief Financial Officer.
Before I turn the call over to Tim I'd like to remind everyone that.
This conference call may contain certain forward looking statements, including all statements that do not relate solely to historical or current facts. These forward looking statements are subject to a number of known and unknown risks, which are described in headings such as risk factors in our annual report on Form 10-K , and other reports filed with or furnished.
Due to the Securities and Exchange Commission as a consequence actual results may differ significantly from those expressed in any forward looking statements in today's discussion.
We do not intend to update any of these forward looking statements.
Yesterday afternoon, we issued a press release with our financial statements and definitions and calculations of adjusted EBITDA and adjusted EBIT EPS for those of you listening to the live broadcast of this conference call. A supplemental slide presentation has been posted to our website, we will refer to those slides during this earnings call.
All calculations, we will discuss also exclude loss or gain from early extinguishment of debt impairment expense as well as gains or losses on the sale of businesses.
Spencers from government and other legal settlements and related cost income and expense from the settlement of professional liability claims for which the third party insurers obligation to ensure the company for the underlying loss has been settled expenses from settlement and legal expenses related to cases covered by the CVR expenses relate.
To employee termination benefits and other restructuring charges change in tax valuation allowance and gain on sale of equity interest in making healthcare LLC with that said I'd like to turn the call over to Tim Henson Chief Executive Officer. Thank you Ross Good morning, everyone and welcome to our fourth quarter and year end conference call.
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2021 was another strong year for CHS, we advanced key clinical and operational initiatives and made strategic investments that position the company for future growth.
Leaders across the organization executed their plans to achieve strong operational and financial performance and we finished 2021 with a solid fourth quarter.
We certainly confronted the same challenges as others in the healthcare industry as COVID-19 negatively impacted patient volumes and various expense categories.
Once again, our teams demonstrated their ongoing commitment and resourcefulness are definitely managing through the evolving and at times unpredictable environment.
We remain deeply grateful for all of our caregivers the exceptional work of our health care team, including nurses physicians and therapists and others has been essential to the delivery of high quality patient care. We are proud of the service we provide in our communities and a critical need our healthcare systems to fulfill in cities across the country.
Hollywood remains widespread in the second half of 2021 first the Delta variant peaked in the third quarter and as those cases slowly dissipated during the fourth quarter. The omicron bearing are spread across many of our markets eventually peaking in January .
During the fourth quarter, we provided care for approximately 8000, inpatient COVID-19 admissions or 8% of our total admissions, which was lower than the 13% of total admissions experienced in the third quarter and similar to our experience in the first quarter of 2021.
Non covered health care demand during the fourth quarter was higher than prior quarters. Despite elevated COVID-19 cases.
Looking at the fourth quarter on a same store and year over year basis net revenue increased six 7% same store admissions decreased three 9%, while adjusted admissions were up one 7%.
Surgeries increased five 7% and ER visits were up 11, 8%.
Comparing our fourth quarter volumes to the pre pandemic fourth quarter of 2019 same store admissions were at 93% while surgery showed strengthening finishing at 98%.
Non COVID-19 related volumes continued to trail pre pandemic baselines for the industry, we expect to meet deferred demand as it returns to the health care setting over the next several quarters.
On a consolidated basis, adjusted EBITDA was $540 million in the fourth quarter, excluding pandemic relief funds adjusted EBITDA was $494 million up 7% year over year and adjusted EBITDA margin of 15, 3% was up 50 basis points compared to the prior year.
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As a reminder, we raised the midpoint of our adjusted EBITDA guidance three times last year, and we ended up slightly above the high end of our updated full year guidance.
And it's worth noting that cash flow from operations was also strong and came in above our previously increased guidance range.
Our strong financial performance is made possible by targeted operational initiatives and strategic investments that also advanced patient care enhanced competitive position and that will drive incremental EBITDA growth and general generate additional free cash flow going forward.
And over the past couple of years, we have transformed and strengthened the company.
Today, we operate across 48 specific markets in 16 states or markets are primarily suburban and medium sized metropolitan areas, mostly across the sunbelt and locations with good economic and population growth.
We've expanded our markets well beyond traditional hospital operations and now operate more than 1000 health care sites across the continuum continuum of care.
In addition to our 83 hospitals. The portfolio consists of 42 ambulatory surgery centers 17, freestanding emergency Department 60, urgent care and walk in clinics and more than 600 physician practice locations.
Scalable initiatives across the enterprise are designed to achieve clinical advancements operational improvements and growth.
Beginning with growth, we invested $469 million of capital into our markets in 2021.
Using a balanced investment approach that increases inpatient capacity, while also expanding access and outpatient services.
We have recently added new hospital beds in surgical and procedural suites in key markets, including Birmingham, and Huntsville, Alabama, Knoxville, Tennessee, and Austin, Texas among others.
New hospitals have been opened in Fort Wayne in Laporte, Indiana, and in Tucson, Arizona, where another new hospital, our fourth hospital in the Tucson market is planned to open in the first half of this year on.
On the outpatient side, we opened three new ambulatory surgery centers, and three new freestanding emergency departments and 2021.
And strategic joint venture partnerships are expanding our services in the areas of behavioral health rehabilitation services and long term acute care.
A good example of our balanced investment approach can be seen in our Naples, Florida market since.
Since 2019, we've increased bed capacity by 38% by expanding our two existing hospital campuses and in January we opened a new campus on the north side of the city.
At the same time, we've expanded outpatient access with two new medical office buildings totaling over 130000 square feet and we are aggressively recruited physicians in this community.
The market's focus on service line development has produced organic growth in nearly every specialty with notable advances in cardiac services digestive health and neurology.
We have increased market share and will grow further with an additional 80 license bet on track to be added before the end of this year.
Other growth initiatives include our Acos provider outreach programs and our transfer center, which is now supporting 65 of our hospitals and continues continues to function well above original expectations producing volumes from inbound transceiver transfers from both CHS and not CHS affiliated sites of care.
Primary care growth is an important focus and is supported by a centralized physician recruitment team that was able to recruit 14% more physicians to our markets in 2021 versus 2019, our pre pandemic comparison.
Our patient access centers, which offer centralized scheduling for primary care providers help patients receive appointments faster and occurs trees provider productivity.
Online scheduling for primary care increased more than 90% in 2021 compared to 2020 as consumers increasingly expect this level of convenience.
And it's worth noting that our fourth quarter same store primary care business were up 13% versus the prior year, which bodes well for future patient volumes.
We have many focused areas for continuous operational improvement and I'll highlight a few today, but.
The pandemic has meaningfully increased wage rates and demand for nursing contract labor in many markets.
We expect contract labor to normalize as Covid cases decline and we are accelerating strategies that help us attract support and retain our valued employees.
We've expanded our centralized nurse recruitment program and that effort is yielding very good results.
We also are sponsoring a new generation of nurses through our partnership with Jersey College with four hospital base Nursing school programs Operationalized, so far and three more starting in 2022.
The pandemic requires a higher level of capacity management focus. So we have several programs underway to optimize capacity by managing throughput and length of stay which not only helps keep needed beds available that can also improve patient satisfaction.
And our strategic margin improvement program completed its second full year in 2021 driving meaningful savings through the organization. This work continues to permanently reduce cost across the corporate offices and shared service centers and decreased non patient facing hospital expenses in 2022, we have planned for further expense.
Reduction in areas and putting supply chain vendor related cost rent and other expense categories.
Finally today I want to mention our investments in innovation and partnerships artificial intelligence and other technologies that can improve patient safety and clinical outcomes.
Last week, we announced a strategic partnership with cadence to deploy remote patient monitoring and virtual care solutions to support patients managing hypertension heart failure diabetes and pulmonary disease working directly with our network of primary care physicians. We anticipate this partnership will create benefits that in <unk>.
Higher patient engagement and managing chronic health issues better outcome and a reduction in preventable hospitalization.
At CHF, our shared purpose is to help people get well and live healthier and initiatives like this one and make that possible.
We entered 2020 too optimistic about the opportunities ahead and determined to achieve our goals for this year and beyond.
Kevin will now provide some additional thoughts in the quarter, Andy will walk you through our 'twenty to 2022 guidance and provide an update to our medium term targets.
Kevin.
You, Tim and good morning, everyone.
As Tim highlighted we finished the year strong with a solid fourth quarter.
During the full year, we delivered strong financial performance and considerable strategic progress across the organization.
Strengthen the balance sheet through the extension of debt maturities and pay down of debt and the reduction of annual cash interest.
As we look forward, we are well positioned to drive incremental growth over the next several years.
Switching back to the fourth quarter net operating revenues came in at $3 $233 million on a consolidated basis.
On a same store basis net revenue was up six 7% compared to the fourth quarter of 2012.
This was a net result of a one 7% increase in adjusted admissions and a four 9% increase in net revenue per adjusted admission.
Adjusted EBITDA was $540 million.
During the fourth quarter, we recorded approximately $46 million of pandemic relief funds with approximately $153 million recognized in the prior year period.
Excluding the pandemic relief fund.
Adjusted EBITDA was $494 million.
With an adjusted EBITDA margin of 15, 3%.
In terms of expenses, we have seen a decrease in salaries and benefits as both productivity improvements and the shift from employment to contract labor.
As offset inflationary impact on labor.
Accordingly, we have experienced a significant increase in contract labor.
Which is reflected in our other operating expenses.
Net effect of this transition from employment to contract labor.
Was approximately 200 basis points of net revenue during the fourth quarter and 100 basis points of net revenue for the full year.
Helping to offset this headwind on earnings has been the success of our margin improvement program.
Which helped deliver significant reductions in expenses across both supply and purchase services.
Moving forward, we expect the margin improvement program to continue to deliver meaningful savings in 2022 and beyond.
Turning to cash flow cash flows used in operations were.
$131 million for 2021. This compares to cash flows provided by operations of $2 2 billion during 2020.
Excluding repay Medicare accelerated payments cash flows provided by operations were $950 million for 2021.
Cash flow from operations was strong during the year coming in above our initial guidance as well as guidance that we updated following third quarter earnings.
The comparison versus prior year has several moving parts as the $2 2 billion in cash flow from operations. During 2020 included $1 1 billion of accelerated Medicare payments and approximately $700 million of provider relief fund.
That entire $1 1 billion of Medicare accelerated payments was repaid during 2021 was $814 million of that being repaid in the fourth quarter.
Moving to Capex for the full year of 2021, our capex was $469 million compared to $440 million in 2020.
Capex was up 7% in 2021, despite operating fewer hospitals than a year ago and.
In 2022, we plan to invest a higher dollar amount of capital across our existing markets as evidenced by the increase in our Capex guidance as we see a number of high return opportunities that we expect will deliver incremental EBITDA EBITDA margin and free cash flow.
In terms of liquidity, we continue to have no outstanding borrowings under the ABL was $897 million of borrowing base capacity.
Also at the end of the fourth quarter, we had $507 million of cash on the balance sheet.
As we mentioned in the cash flow discussion and the company repaid $814 million of Medicare accelerated payments in the fourth quarter.
And as a result, all Medicare accelerated payments have been repaid and we are now receiving 100% of Medicare fee for service reimbursement.
We continue to improve our balance sheet and capital structure and make significant improvements during the year.
During the most recent quarter, we extended the ABL from 2023 to 2026 and most recently in January of 2022, we extended one 5 billion of debt in 2025 to 2030.
Since first quarter of 2020, we've now reduced our annual cash interest by approximately $230 million and lowered our leverage by over two turns.
At the end of 2021, the company's net debt to EBITDA was five nine times going forward. We are focused on further lowering our leverage into the future.
Now I will walk through our full year 2022 guidance.
Net operating revenues is anticipated to be $12 six to $13 1 billion.
And adjusted EBITDA is expected to be.
$1 $825 billion to $1 billion 975.
Net income per share is anticipated to be $1 to $1 50 per share based on weighted average diluted shares outstanding of $133 million to 134 million shares.
Cash flow from operations is anticipated to be $950 million to $1 1 billion.
Capex is expected to be $500 million to $600 million in cash interest is expected to be 820 $840 million.
In summary, we expect 2020 to be another strong year as we further leverage our growth initiatives invest incremental capital and high return projects and drive additional positive free cash flow.
In terms of the quarterly cadence of adjusted EBITDA, We expect 2022 to be Directionally similar to 2021, excluding the pandemic relief.
Coming into 2022, we've seen the peak of Covid hospitalizations occur in January .
And we've also experienced the peak of positive infections, among our hospitals back in January .
Which further constrained capacity and resulted in higher utilization of contract labor.
As such we expect the first quarter of 2022 to be our lowest adjusted EBITDA quarter of the year and similar dollars range to the first quarter of 2021.
With declining cases of Covid and the utilization and rate of contract labor moderating, we anticipate improvement in the second quarter and throughout the remaining quarters with the fourth quarter of 2022 being the highest adjusted EBITDA quarter of the year.
Finally, we would like to also provide an update on how we're thinking about the company beyond 2022.
At the beginning of 2021, we introduced the medium term financial goals, which was a two to four year plan.
This included achieving 15% plus adjusted EBITDA margins delivering positive free cash flow annually and reducing our financial leverage below six times.
In the past year, we've made significant progress on each of these goals.
As we move forward, we expect to continue to grow EBITDA and EBITDA margin drove annual free cash flow generation and continue to lower our financial leverage.
Such we had full dose previous goes forward to the near term and have entered a new medium term targets, which our goals we plan to achieve over the next two to four years.
Which include growing net revenue by mid single digits, achieving 16% plus adjusted EBITDA margins.
Continuing to deliver positive free cash flow annually, and reducing our financial leverage below five times.
We look forward to delivering additional progress across all these metrics into the future.
Rob at this point ill turn the call back to you. Thank.
Thank you Kevin and thank you Tim at this point, Jay we are ready to open up the call for questions. We will limit everyone to one question. This morning, but as always you can reach you said six five or 657.
Thank you.
If you would like to ask a question you will need to press star one on your telephone to withdraw.
Your question press the pound key please standby, while we compile the Q&A roster.
Our first question comes from the line of Brian . Thank you.
Jeffrey Your line is open.
Hey, good morning, guys congrats on a good quarter.
I guess my question is as I think Kevin about the other operating expense line, obviously, it's up year over year as you called out increased use of temp staffing but.
If I back out what we think the temp staff contribution as it looks like that line has gone down quite a bit so how should we be thinking about kind of the expense components that go into that and even also like when you can share with us in terms of how you think your staffing trends would improve and then maybe segue that also into the 100 basis.
Improvement in your medium term guidance is kind of like what has driven that and what gives me confidence.
Driving that kind of margin expansion over the next two to four years.
Sure. Thanks, Brian .
Couple of things have really led to our ability to control some of those.
Other operating expenses and achieve savings so we've been talking about our margin improvement program.
Now for a number of quarters something we launched.
Back late 2019 continued to get traction on.
Some of the category.
We're getting savings and it's a number of different areas, but across software licensing purchased services insurance any number of initiatives that we're targeting probably not a single one individually material, but it's just how we're going about kind of.
Doing our business in tightening up.
Yes.
Our practices.
Unable to go out and get.
Some savings we also had some benefit as we've completed our divestiture program over time.
Even this past quarter, if we think about comparisons year over year. There was some benefit as we have.
Divesting some of the lower performing hospitals going forward in terms of reaching.
Our new EBITDA margin goals.
A number of things one we believe there is continued opportunity under our margin improvement program, but also we have a real balanced approach.
Both the organic growth because the markets were in.
We believe our growing demographically, they're growing economically and we believe we're going to not only pick up our share.
That growth, but also continued to grow market share in those markets, we're making capital investments.
Over the past even two years throughout the pandemic and we haven't received the full benefit of <unk>.
Capital investments, we've been making.
Let alone.
It's getting even more aggressive and as we've mentioned, adding more dollars into some opportunistic capital investments going forward. So we believe all of those things really combined will allow us to to achieve those margin goals.
In doing so and leveraging our fixed costs in those markets as well.
Thank you next question comes from the line of Josh Raskin of Nephron Research. Your line is open.
Thanks, Good morning.
My question is around the market strategy Timmy brought this up on the call. This morning, So community seems to have migrated towards slightly larger markets over the last several years I guess in light of the labor shifts in what appears to be less migration into large urban areas and I don't know if thats work from home or other factors, but how are you thinking about the markets.
You operate in is there any thought on.
More rural versus more urban.
Good morning, Josh This is Tim I'll start this one off in terms of the portfolio. You are correct. We have been very methodical in terms of how we were shifting to I think more mid sized metropolitan markets.
Smaller suburban market things along those lines, we still have some core assets in some what would be defined rural market, but in general really focus on building out both health care delivery systems with.
Similar site.
Access points across all of the portfolio.
In terms of how we're looking at this going forward, obviously, we positioned ourselves in a place where we think there will be good growth down the road.
We are seeing population gains projected in these markets, whether it accelerate materially due to migration from larger cities into the suburban markets is still to be seen we have anecdotal information we have good growth rates.
And things along those lines that we're seeing in the near term, but we think that bodes very well for us in terms of both gist population can be served but also increasing the core group of healthcare talent that we need to operationalize our markets.
We also touched upon our balanced growth objective of being focused on developing inpatient capacity expanding service lines and acuity, while being very mindful of the migration of certain care lower acuity care to the ambulatory setting and our growth in those types of markets make that very very feasible marketing getting access points into those.
New neighborhoods growing parts of communities, we believe really again drives a lot of go forward opportunity for the company.
Thank you next question comes from the line of Kevin Fischbeck.
Bank of America. Your line is open.
Great. Thanks, maybe a two part question on the guidance first it seems to be a lot of.
Yes, confusion or uncertainty around margin sustainability.
And uncertainty about how much whether it's the Cobra relief fund public health emergency is adding to.
Earnings this year, maybe you could give us a little bit of color or direction as to how you think about the.
2022 baseline into 2023 can you grow margins in 2023.
If all of these things expire as as they are as opposed to.
Today, how much of a drag is that that you have to overcome and then secondly, just wasn't really clear what you were saying about cash flow and your guidance because you're going to be doing about $1 billion of cash flow, but your medium long term numbers just positive cash flow is there something we should be thinking about a reset there.
You bet the movement towards paying cash taxes or somebody in your capex that.
The free cash flow should be leaning.
Meaningfully different than what Youre doing in 2022 over the next.
Two to four years.
Sure.
Thanks, Kevin let me start that off and try to catch all the components of that.
Question, So as we think about kind of 2022 and the baseline.
<unk> of our guidance going forward, yes, we do believe we can continue to grow margin.
Past 2022, I do think we have coming into 2022 still a little bit of a headwind.
On margin because of contract labor.
So as we kind of go forward.
<unk> 2022, certainly in the <unk>.
<unk> mid mid to latter part of 2022, we expect that contract labor.
Headwinds to start to subside and going forward, we think we'll get past that.
So that should give us some opportunity.
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We're continuing as we've talked about kind of.
Not only organic growth and our markets were focusing much of our capital expenditures and our niche our revenue growth initiatives of higher acuity service lines.
So we believe there is opportunity there as we continue to be in a position to increase our capital spending to chase more of those opportunities.
And as I, just maybe previously mentioned much of what we've invested over the past couple of years because of pandemic, we haven't realized the full benefit out so as we get out to 2022 and beyond we believe we will continue to be able to leverage that and as we grow within our existing <unk>.
Markets are fixed costs will remain relatively the same.
The incremental revenue that we're able to generate should flow through to higher margins going forward.
Thank you next question comes from the line of Ben Hendrix of RBC capital markets. Your line is open.
You could provide a little bit more color about your length of stay in your programs to optimize capacity.
Pacifically how much of your linked to stay elevated linked stays related directly to the treatment of COVID-19 patients versus your ability to discharge to post acute mid labor headwinds.
And I guess, what what what.
Leverage do you have to address that.
Great. This is Tim I'll go ahead, and kick us off and Kevin of course feel free to chime in on in terms of our capacity optimization or length of stay focus it had several off assets to the program I think we've done a good job historically of managing length of stay culvert has I think has shown us a few more headwinds than we're used to particularly as.
As it relates to the ability to place cohort or non Covid cases online, they're ready for discharge into post acute care settings or home health. So on that one is a little bit more structural not as easy for us to to address in the near term until Covid cases, more definitively subside and we stabilize some of the workforce in the post acute care.
Setting, but in terms of the hospital environment itself, we really are focusing on discharged to home as our primary lever put.
Putting out more refined reporting in terms of how we manage.
The discharge to help patients patients who are already being more efficient on making sure that we again deliver optimal quality care and then get them to their home setting as quickly as possible and we've seen some great success in that regard. So a lot of it is about prioritizing.
Kind of what type of patients we put our focus on we have also introduced new analytics and reports to support a centralized <unk> function utilization review function and that is again pretty pretty new in terms of the data in a way, where we're sharing that with our hospital and regional operators and we're really digging into opportunities by market in terms of.
Observation patient management, making sure that we have authorizations in place and the front end are coordinating all of that work with the payers and again think some early success in that initiative in terms of where the robot. The stage challenges are I'd say again, COVID-19 uncertainty driven up the length of stay in total.
But in general those those macro elements of the discharge out of the hospital setting has probably been the bigger our structural headwind that we have to overcome.
I think that.
None of those are all of that sort of thing.
I think most people are dealing with.
<unk> seen some acuity increase withdrawal.
We did some of that length of stay but again lots of opportunities as Tim mentioned.
Yes, maybe the only other thing I would add Tim is we have made some capital investments and some joint ventures with some partners and posts in the post acute care space.
Rehab with long term acute care and all of those kind of combined I think will help us really to treat patients across the continuum of care and health of that length of stay.
But I think for us again capacity optimization as a high priority because we ran really fall throughout the fourth quarter and we invest I think some admission opportunities and the ability to fulfill our purpose in general. So again. This is very important to us that the human capital investments and advancements to stabilize our workforce and.
That's where we see some really great opportunities for the organization in 2022 and beyond.
Thank you next question comes from the line of Jason Kupferberg.
Of Citi. Your line is open.
Hi, great. Good morning, Thanks for taking my question.
So just from a volume perspective, the surgery number was certainly impressive in the quarter, but if I back out the COVID-19 admits in the quarter. It looks like core admits were running at maybe 85% of pre pandemic baseline. So just at a higher level can you help frame, how youre thinking about underlying demand in your markets.
I know you said that you believe there's some pent up volume, we expect to come back, but maybe at this point do you believe that there is some level of volume that just won't return back to the hospital and then maybe how does that dynamic around that help you inform yourselves in terms of how youre thinking about the future capital deployment priorities of the company.
Sure.
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Our admissions adjusted admissions, we believer are probably down in the mid single digit.
Range.
And surgeries are probably low single digit range compared to pre pandemic levels.
Certainly made some more progress on surgeries.
Going forward do we expect some of the volume not to return.
Alright, and how do we think about as we sit here today. We believe there is still a significant amount of deferred demand out there that we will be getting back and we'll be coming back kind of throughout 'twenty, two and it's COVID-19 subsides.
That deferred demand will come back and will there be some.
Some demand that ultimately is structurally doesn't come back.
Generally, but we think thats low acuity.
And we may be capturing that in some of our other access points like our freestanding eds.
Urgent care centers walking clinics, so some of the low acuity emergency room business, probably ultimately doesn't come back.
But we will capture that in a lower cost of care, setting, which will ultimately be accretive to EBITDA.
And then thinking about just a few things. Thanks for the question Jason in terms of our admissions certain indicators, we track very closely but we have to put it into perspective with some of the changes in healthcare delivery protect particularly on the short stay surgery cases.
In addition to the lower case cost of Covid in Q4, 'twenty, one versus Q4, 'twenty, which kind of I guess erases the admissions deficit for the organization. We also had a rather sizable shift of short stay orthopedic cases that were on the inpatient only list on historically that have migrated to outpatient surgery.
Classification and those patients are still occupying a bad for their one to two days day. So as I said in my previous comment we ran very high capacity and occupancy in our hospitals in the fourth quarter.
Again, all by design as we kind of know the status of those patients working very methodically to two case manage them appropriately, but when we look at those those two big shifts right. There I guess, maybe some increases in observation cases year over year, some lower acuity business came back in and we're really satisfied with the progress of our growth initiatives working to our.
Managed again, we have great insights into where our business is at and what our opportunities are by our internal measures, but also through our transfer center data. We had strong transfer center performance in the fourth quarter, but we know there is still more care that we could have brought in as we focus on length of stay management as we focus on optimizing.
In our staffing and as we focus on expanding capacity of our inpatient beds.
Thank you and our last question will be from Andrew Mok of UBS. Your line is open.
Hi, Good morning, hoping you could give us a sense for how contract labor is trending so far into Q1, you mentioned in your prepared remarks that you expect contract labor to normalize can you elaborate on that with regards to contract labor usage and rates. It seems like some of the labor mix shift towards temporary labor may be semi permanent.
Nature. So just wondering if you've seen any improvement in contract labor materialize at this point thanks.
As I mentioned, we have seen kind of the peak of Covid.
And into January .
Before we started to see any moderation.
In terms of patient admissions as well as COVID-19 .
The impact on our employee staff.
So certainly theres been more backfill of staff in January with contract labor for people being out sick.
Sick and unable unable to work because they have been COVID-19 positive.
But we do expect that we're on the downside of that now.
And we will continue to moderate cat throughout the remainder of the quarter.
In terms of rate.
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Contract labor rates at about 3% to 400% of what an employee rates are.
And so thats pretty similar to what we saw kind of coming out of the third quarter.
Andrew This is Tim I'll, let tack onto that just real quickly.
I think we're experiencing anything different or materially different than our peers or what we're reading in the industry in terms of some of the the phenomenon of contract labor accrual.
We are more optimistic that it is not a permanent structural change on that as the Covid cases decline. We go back to more of a normal operating environment.
What we're doing as an organization is really focusing on human capital Advancement building.
Building, a stronger core workforce, we have near term midterm and long term solution I believe we've talked about them in previous calls a little bit today, but in the near term our centralized nurse recruitment function has been very successful we will have that fully rolled out across all of our hospitals in the next couple of months, we have about 61 of our hospitals on this.
Service right now and again seeing really positive results. So really hiring has not been our biggest challenge.
We just have to certainly worked hard on retention and again not having people feel that contract labor going to a travel agency is the best career choice for them Theres other intrinsic value to being part of our core healthcare team. Besides just the rate of pay and those things that we're focusing on our retention and bonus programs advancing our educational.
<unk> for our <unk>.
For all of our employees not just nursing and then really putting more energy to caring for the caregiver and some of the emotional support that is so critical as we weather. The last several waves of Covid. We've also piloted some care model redesign to make it again I guess of that.
Easier to be a nurse nothing is ever an easy job to get more supportive resources to the nursing teams. So that they can focus on the higher value services to their patient driving the best outcomes possible and the last thing I'll say to try to maybe mitigate this and then mid to near term would be an increase in international nurse recruitment I think every one of them.
The industry is looking at this but we've got a really good line on expanding our international nurse employment options with some of the visa relief for beef is opening up over the last several weeks.
The things that we're doing to really address this to make sure we manage our workforce and the best way possible.
Thank you we will now turn the call over to Mr. Heng Chen for closing comments.
Thanks, Jay and thanks to everyone for spending the time with US today in closing I would like to mention again, just how grateful we are to all of our employees across the organization.
Physicians providers regional President in hospital leadership teams continue to demonstrate our true purpose of helping people get well and live healthier by providing safe high quality care for their communities.
Also want to thank our company's leadership team for their important role in supporting our market and for their continued focus on successful execution we.
We were pleased with our performance in 2021, and we look forward to updating you on our progress as we move through 2022.
Once again, if you have any questions you can always reach us at 615 or 657000.
Have a great day.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
Have a great day.