Q4 2021 Universal Health Services Inc Earnings Call
Okay.
Good day, and thank you for standing by welcome to the Universal Health services fourth quarter and full year 2020 one earnings 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'll need to press star one on your telephone I would now like to hand, the conference over to Steve Filton. Please go ahead.
Thank you good morning, Mark Miller is also joining us. This morning, we welcome you to this review of Universal Health services results for the fourth quarter ended December 31, 2021. During the conference call. We will be using words, such as believes expects anticipates estimates and similar words that represent forecasts.
All 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, 2021, we'd like to highlight just a couple.
All 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 $3 for the fourth quarter of 2021 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 uhm per diluted share was <unk>.
$2 95 for the quarter ended December 31 2021.
During the fourth quarter of 2021, our operations continued to be significantly impacted by the COVID-19 pandemic, specifically, we experienced an increased wave of COVID-19 patients in December 2021, which peaked in January of 2022, the negative impact, resulting from this elevated level of Covid vol.
<unk> was primarily a function of increased labor scarcity issues exacerbated by the large number of employee sidelined by the virus itself.
Quarantine due to exposure to the virus and what.
What was already a very tight labor market. These incremental labor challenges. In addition to pressuring our salaries and wages expenses also suppressed patient volumes at our acute.
Our acute care and behavioral health facilities, while causing postponement of certain elective and scheduled procedures at our acute care hospitals.
Our net cash generated from operating activities was $884 million during the fourth full year of 2021, which includes the unfavorable impact of $695 million of Medicare accelerated payments that were received during 2020 and repaid to the government during 2021.
We spent $856 million on capital expenditures during the full year of 2021, which includes the construction costs related to a new 170 bed acute care hospital in Reno, Nevada that is scheduled to be completed and open next month, our accounts receivable days outstanding decreased to 50 days.
During the year ended December 30, <unk> 2021, as compared to 55 days during 2020.
December 31, 2021, net our net our ratio of debt to total capitalization increased to 48% as compared to 37, 9% at December 31 2020.
As of December 31, 2021, we had $854 million of aggregate available borrowing capacity pursuant to our $1 $2 billion revolving credit facility.
And our acute care segment, our ambulatory care development continued in 2021, we currently have 18 operational freestanding emergency departments and partnerships with National third party entities for further development of ambulatory surgery centers and home health operations in our <unk>.
<unk> markets.
In conjunction with our ongoing development of primary care physician networks. These initiatives are meant to create a more fulsome care delivery system in each of our markets.
Our new hospital in Reno scheduled to open Sharon will enhance our statewide presence in Nevada.
Bed tower projects, adding new capacities to hospitals in important markets are underway in Edinburg Regional Medical Center in South, Texas Henderson Hospital in Las Vegas, and Inland Valley Medical Center in California.
Planning is also underway, a new acute care hospitals, and West Henderson, Nevada, and Palm Beach Gardens in Florida.
And our behavioral segment, two new de Novo joint venture hospitals opened in 2021, and Clive, Iowa, and Cape Girardeau, Missouri.
Two more new hospitals have opened already in 2022 in Michigan.
Which is a partnership with Beaumont health and Wisconsin and another is scheduled to open later in the year in Arizona and partnership with our health.
These de Novo developments, along with an increased focus on outpatient development and telemedicine in our existing markets.
To also build out a more fulsome continuum of care in the behavioral segment as well.
In anticipation of a continued downward trajectory of COVID-19 volumes from those experienced during recent searches and relief from the accompanying pressures on our operations and financial results. Our board of directors authorized a $1 $4 billion increase to our stock repurchase program.
After the resumption of our share repurchase activity in the second quarter of 2021, we repurchased approximately one $2 billion of our shares during 2021 and close to $300 million more thus far in 2022. We currently have approximately 1.4 dollars 6 billion.
As for stock repurchases after giving effect to the recent increase approved by our board of directors.
Our 2022 operating results forecast, which was provided in last night's release assumes that the negative impact of the Covid virus will diminish in 2022, while the decline in the actual COVID-19 cases appears to be occurring rapidly. We believe the process of back filling non COVID-19 cases and most.
[noise] leave easing of workforce shortages, which dominated the healthcare landscape in 2021 will take place more gradually over the course of 2022.
We have a host of active initiatives in place to increase the efficiency of recruitment and retention of our clinical staff and also implementing innovative care models and recognition that certain changes to the healthcare staffing dynamic may last well beyond the decline in Covid cases, while the pace of recovery.
It's difficult to predict we remain confident in the fundamental underlying demand in both of our business segments. The early signs of which has already been emerging in the last few weeks Mark and I will be pleased to answer your questions at this time.
To ask a question simply press star one on your telephone keypad again that is star one. Our first question comes from the line of Kevin Fischbeck with Bank of America.
Great. Thanks.
So it gets to your guidance for this year it looks like it has the margin.
Degradation can you talk a little bit about how you're looking for the margin outlook in both segments.
Yeah. So I think Kevin is the remarks in my opening remarks indicated.
I think that's premised on the idea that.
The stabilization of the labor markets will be a more elongated process than the volume recovery.
So I think we have a notion that while our volumes and revenues.
Will increase.
And at a pretty decent pace in 2022.
So we'll salary.
Salary expense both the continued use of premium pay in the short run and then the underlying wage rate inflation.
I think it's a bit of a trade off obviously, we have hopes that we can do better and make more progress on the salary front then.
More quickly than our guidance has presume, but I think at the moment that seems to be the most prudent sort of outlook.
I guess as both are both segments seeing the same type of pressure or would you say one is seeing more of it and would you expect one division to kind of come out of this.
Margin pressure earlier than the other.
I think we have made the point throughout the pandemic that while both business segments and see the impact of the labor shortage.
It gets manifested in different ways. So on the acute side for the most part we're able to fill most of our vacancies, but we have done so.
Through the use of premium pay significant amounts of premium pay as an example.
We incurred about $120 million of premium pay in the acute division in Q4.
Alternatively.
On the behavioral side, I think we've only incurred about 25% or $30 million of premium pay expense for the full year. The bigger issue on the behavioral side has been just an absolute inability to fill some of those vacancies and as a consequence, the labor shortage on the behavioral side really manifest itself on the volume side.
More so than an actual salary expense and.
We expect that those both those dynamics to continue into 2022, although they begin to recede as COVID-19 volumes begin to be seen.
Okay, great. Thanks.
Your next question comes from the line of Andrew Mok with UBS.
Hi, Good morning, Steve can you walk us through the different growth outlooks between the segments for 2022 with respect to volume and price and how much new store revenue contemplated in the guide.
Yeah. So I think Andrew that the same store growth in both segments are anticipated to be.
And this sort of mid single digits.
And that sort of 5%, 6% range, which quite frankly, you know.
Normal year, we would be relatively unremarkable I think on the acute side, that's kind of a mix shift away.
Away from higher acuity COVID-19 volumes and more towards.
Back filling up all this non COVID-19 activity, which has lagged somewhat we've been running at levels that are sort of 95% to 100%.
Pre COVID-19 levels of emergency room visits and elective and scheduled procedures et cetera, we presume that those percentages will increase in 2022 as the COVID-19 volumes decline.
But overall the impact on revenue kind of mid single digits, and again sort of Harkening back to Kevin's first question.
The increase in salary costs outpacing that a little bit on the behavioral side our volumes have been.
Sort of flatter in Q4, our patient data I think were relatively flat compared to the previous year's Q4, I think we're assuming again that same sort of mid single digit revenue growth.
But.
More of it's coming from an actual increase in patient days, rather than any sort of patient shift mix.
As far as the amount of.
Revenue growth is coming from non same store I think its a couple of percentage points.
More ticked off I think a lot of the major additions and the two business segments that are driving that.
Great and then as a follow up you did about $320 million of EBITDA in the behavioral business, but there are a few out of period payments, even beyond Kentucky, I think there might have been some dollars from Florida. There. So how did the core behavioral business performed in the quarter and is that a good run rate to think about for 2022.
Yeah, So we called out the Kentucky, Medicaid reimbursement, which a little over $30 million in the quarter, because I think we thought that was what really extraordinary item in the quarter.
There were other sort of kind of one timers, but I think they largely offset each other.
And I will say this about Kentucky.
We recorded a $30 million roughly of Kentucky reimbursement in the fourth quarter that represented two quarters of earned activity.
In 2022 that reimbursement has already been approved for the full year. So there'll be a much more ratable recognition of roughly 55 or $60 million of that Kentucky reimbursement in 'twenty two and that's included in our guidance, but other than that Kentucky item I think we purposely did not highlight.
Anything else in the quarter, because we generally felt like they were offsetting puts and takes.
Great. Thanks for all the color.
Your next question comes from the line of a J rice with credit Suisse.
Hi, Thanks, everyone.
First of all just maybe looking at the pace of the share repurchase activity.
Rather than one two to $1 4 billion.
You're generating good cash flow, particularly as now you get past the repayments to the feds, but still it's probably a faster pace than you're generating free cash flow can you just comment do you think youll continue at that pace and then also I assume if you do that the leverage will pick up.
Over the course of this year I mean, you ended at two two times debt to EBITDA, how how much are you willing to let leverage sort of creep back up to two.
To fund the repurchase.
Yes.
Sure James So as you indicated we repurchased about $1 $2 billion of shares in 2021 that was over the course of just three quarters since we didn't resume our share repurchase activity until April .
If we continue with that pace.
We'll be repurchasing somewhere in the neighborhood of $1 4 billion, which is the amount.
Share repurchase authorization increase that our board granted yesterday.
And that's our plan and that quite frankly is what's in our guidance. Obviously, we're doing this on an opportunistic basis as we have historically done. So we are leaving ourselves the flexibility to respond to market conditions and other deployment capital deployment opportunities etcetera, but our current plan is pretty much.
As the board.
Authorization increase would indicate over the course of the next year and to your point.
It would certainly we'd be buying back shares at a pace above our free cash flow generation. So our leverage would go from approximately the low twos 2122 at the end of 2021 to the high twos at 2728 at the end of 2022.
To make the point I mean, we're very comfortable with that if the stock remains undervalued and.
That's.
Calculation that we've made so depending on where the stock is.
We believe is the right amount at this time certainly at this at this level of our share price.
No that's great I think our shareholders, obviously I appreciate that.
Maybe my follow up question you know, we often asked about geography, and then were there any differences.
I'll answer that again about the acute business, where we usually ask but I would also ask.
And the dynamics Youre seeing in the behavioral business is the labor challenges, particularly acute in specific geographies where were.
For some reason you have a little more of a challenge than in other geographies. So.
Anything about the geography despair.
Differences.
Most regions for both sides of the business.
So the way that I would answer the question a J is first by saying that I think what we've experienced certainly in the most recent I'll call. It six to eight months is that.
The most significant labor pressures are closely correlated to the level of of Covid frequency in the market. So markets that are hard hit by Covid, clearly feel greater labor pressures for a variety of reasons.
Particularly because I'm a crime you know more of our own employees out sick et cetera on the sideline, but it'll also employees, leaving and particularly in the behavioral space to work for premium rates and more acute settings, all that sort of thing and I think what we have found in the last few surge and as you know again at least with the back half of <unk>.
'twenty one into 'twenty.
Those.
Surgeons have been pretty widespread geographically obviously at any point in time, we may be getting hit in one market worse than another but I would say broadly the performance is pretty geographically diffuse.
Although from a timing perspective, one market may be under pressure, one month and not so much. The next in the next month, but it's really much more COVID-19 related than any other sort of underlying geographic issues.
Okay, alright, thanks, a lot.
Your next question comes from the line of Matthew Borsch with BMO capital markets.
Hi, Good morning. Thanks for taking my question you have been ROTC filling in for Matt here.
Regarding patient acuity.
Same facility basis, you reported some good numbers for adjusted admissions revenue per adjusted admission.
Also showing some sequential decreases in overall occupancy rates and length of stay in both acute and behavioral just curious if that is a reflection of the type of security case like you saw this quarter, whether that trend is continuing in <unk>.
Thanks.
Yeah.
So look acuity is really an issue.
Acute care segment not in not in the behavioral segment in the sense that reimbursement doesn't change on an acuity basis for the most part in the behavioral segment I think a leak in the acute segment, what we have largely experienced during the COVID-19 surge is.
In 2021 is that as Covid has surged acuity goes up to tobi patients are sicker.
But for the most part we've been able to maintain a reasonable.
Level of non Covid business, as well, which is really sort of led to these really high acuity and revenue rates in the acute business, which for the most part.
Overwhelmed.
Or offset the higher salary costs, which we alluded to earlier that became more challenging I indicated in the fourth quarter, we had about $120 million of premium pay the acute business.
Highest we've experienced to date I mean compared to just sequentially I think we had around $80 million in the third quarter of this year and I think we had about little over $50 million in the fourth quarter of last year. So it gives you an indication of how much does that premium pay has really pressured the margins in the acute business I think the other dynamic that we've known.
It is where it has been a noticeable in the acute space is that the omicron patients.
Reported I think more broadly are less acute Lee L band the Delta patients. Before then the problem is I don't know that we've been really able to take advantage of that and you make the point that I would like to stay has remained pretty stable I think in theory.
Should have been able to discharge some of those omicron patients more quickly. The challenge is as we try and discharge those patients.
Gets to which we would normally discharge them.
Long term care skilled nursing nursing homes home health.
Are struggling with their own labor challenges and as a consequence, we actually we havent really seen the benefit of being able to discharge the less acutely ill patients.
Foster.
Again, I think all of that will tend to work itself out as COVID-19 volumes decline will return to kind of a more stable referral network.
Discharge.
Pattern, that's more reflective of what we've historically been used.
Got it thank you.
Your next question comes from the line of Jason Cazorla with Citi.
Great. Thanks, good morning.
You talked about volume and labor backdrop, largely improving throughout the year, but is there any way to help frame that from frame the cadence from an EBITDA perspective, I mean, if you look back you did about $425 million of EBITDA and <unk> 21 is that the right bogey to think about <unk> or maybe how you would frame that thanks.
Okay.
So uhm intentionally has never given quarterly guidance and we are certainly not about to begin that.
This year when it grew.
Greater uncertainty than than it has historically the case.
We're looking at.
At a cadence that is certainly not what.
He has been the historic norm normally the first quarter is our strongest quarter, we come out of the gate really strong in both business segments et cetera. This year, we come out of the gate with our highest COVID-19 volumes to date and the pandemic now they decline pretty quickly.
Had been declining and continues to decline and Thats encouraging.
As ive alluded to in some previous comments you know the labor pressures are declining more slowly etcetera. So I think broadly we've tried to indicate that I think we think the first half of 2022 will certainly be more challenging.
<unk>.
Labor pressures diminish more slowly than COVID-19 volumes decline I think the second half of 2022, we'll begin to look a lot more like a pre pandemic year like the back half of 2019 might have mode.
Got it Okay fair enough.
And maybe just go to your Capex guidance.
At the midpoint, so just to call like a 20% increase over 'twenty, one and where you ended up spending there you made some comments in your prepared remarks around some new powers acute facilities and the like but maybe could you just help flush out your capex priorities for both segments on where you're looking to invest those dollars for 'twenty two.
Yes.
As Mark commented on in.
His remarks, and I think also as he has led to a response earlier.
I think what really informs our whole approach.
In terms of what we're dedicating to share repurchase and where we're dedicating to capex et cetera is our view that the underlying demand fundamentals in our two business segments remains strong and so from a capex perspective, we're going to invest in projects.
That we think make sense and are economically compelling.
Mark alluded to our de Novo development, and we know we had a small community hospital in Reno, but this really I think will position us as a much more competitive player in the Reno market, but even more broadly is the pre eminent statewide player in the state of Nevada.
Same thing in South, Texas, and important market to Us Riverside County, California, We've invested both in physical capital we acquired.
A significant physician practice in the southern California market, So we like our franchises.
Both our acute and behavioral segments, we're continuing to reinvest in those and.
And then again as I think Mark pointed out we have a view that we think.
We understand why but you know that those investments in that underlying the strength of the underlying demand is somewhat unappreciated in the market and while that's the case. We also intend to be an active acquirer of our shares which we think are really well valued at this point in time.
Got it alright, thanks for all the color.
Your next question comes from the line of Peter Chickering with Deutsche Bank.
Hey, good morning, guys. Thanks for taking my questions on the acute side and the script you quantified writing to Kevin's question, you quantified about 120, <unk> premium pay in fourth quarter, how did that track versus <unk> and as for you for all of 2021 and if you think about converting that to a sort of a more of a normalized level. How much was premium pay cost San Francis normal fulltime employee in the fourth quarter.
Yeah. So I think I can imagine Peter that the $120 million in Q4 compared to about $80 million in the previous quarter in Q3, and a little over $50 million in the fourth quarter of last year and the point that you raised is a good one honestly.
The rise in that expense.
Is I think driven more by rate than by volume, meaning we're not necessarily using more nurses more hours, we're using some greater number but the rates are just going crazy as I think has been written about and instead of the reported on broadly across the country. So normally I would say.
Do you that.
We'd replace premium pay temporary traveling nurses with our own employees nurses, who would make.
50% less or something like that but I think in some cases, we're able however, when you look at it either we're paying three times more for.
A temporary traveling nurse when we went for a base pay or if we can replace that nurse with an employee will be paying a third.
Difference is quite significant.
Have you seen the premium paid begin to inflect at all I know, it's still early in the year, but any color on for nurse vacancies. What are you seeing on the hourly wage rates those are now as well as the hours you guys are using.
Yes, I mean look I've made the point that the decline in Covid volumes has really been occurring really short period of time at this point I mean, it was only in the latter half of January then we starting to see those declines so we're into this for four or five weeks.
And I think as the surge really worse than hospitals, we're making longer term commitments to these nurses, we were making some longer term commitments, but I think the other piece of this is the nurses themselves, we're making longer term commitments, even if we werent, they might've been making longer term commitments with others. The other issue.
Is that look nurses have made a lot of money those who have sort of thought these premium rates in the last six or eight months and as a consequence I think they have some greater flexibility and so what we're seeing is that some nurses are taking some time off et cetera before they return to work in.
It's early entitled to that but that's I think all of those reasons are why I think it takes some time. So I would say to you that I think we've seen again. It's my remarks are indicated we've definitely seen encouraging signs of volume recovery in both business segments in the last four or five weeks I would say we've seen the early.
As signs of labor pressures easing, but I think we've got a long way to go on the labor side.
Okay, Great and then one quick follow up there on the behavioral side. If you look at 2021, how much of a revenue is impacted by the lack of staffing.
And how do you think that evolves in 2022 do you think you can recapture for those loss behavioral revenues into between two from staffing. Thanks, so much.
As we've indicated I think on a number of occasions. We think the single biggest reason that behavioral volumes and therefore behavioral revenues have lagged pre pandemic levels.
Is the labor shortage a lot of it has been exacerbated by the Covid volumes and again the idea that some subset of our employee population has been seeking these premium rates in a more acute setting and by the way.
Because I can tell and you know talking to colleagues in other service industries et cetera, It's a pretty standard.
And widespread phenomena.
Any sub acute setting nursing homes home health agencies skilled nursing long term care facilities are all saying the same thing and as I indicated in a previous response.
We're finding that on the acute side to be true because as we're trying to discharge patients were being told by all these sorts of facilities that they simply don't have the capacity because of a lack of.
So the question about how do you quantify what the loss revenue and it's difficult to do.
What we have said before is that every indication we have of underlying demand has continued to grow I would say for the last several quarters, our inbound activity incoming phone calls and incoming internet inquiries et cetera are up 15% or 20%.
I don't think we are taking the position that we could satisfy all that demand, but there is a certainly a significant amount of demand out there to be satisfied and again I think our guidance presumes.
Sort of mid single digit revenue growth, which gets us back to sort of three or 4% volume growth just over the prior year.
We certainly don't think that's the top end of the potential growth in volume.
But we'd be pleased if we can get there and if the labor situation resolves itself. So we can get.
Great. Thanks, so much.
Your next question comes from the line of Jamie Paris with Goldman Sachs.
Hey, good morning, guys I just wanted to start with the revenue per adjusted admission. If you can give any color on assumptions for for 2022, and we're obviously way above the 2019 trended gross line.
Sustainable about that.
Versus you know as things start to normalize in terms of payer mix and acuity.
That's starting to come back down.
So Jamie I think the answer again is different in the two business segments and I think in the acute care segment. There is certainly is an expectation that revenue per adjusted admission will come down from the very high levels that it's been running during particularly during these high COVID-19 surges, but we believe that.
That'll be replaced in large part by.
Non colgate treated more and more.
Traditional non COVID-19 .
Surgical and other procedural admissions that had lagged some during <unk>.
During the pandemic I'll also make the point that.
As that business mix shift occur as.
Some of the cost pressures will alleviate as well because.
While the Covid patients had very robust revenue. They also had very high expenses.
Generally more ICU utilization more supply utilization of all of that sort of stuff on the behavioral side.
There's not nearly I think is big.
Shift or change in acuity.
I'll make the point just cause I asked this question last night it looks like our revenue per adjusted day in the fourth quarter is quite high in the behavioral segment, but if you adjust for the Kentucky reimbursement that we talked about earlier I think you can get to us.
How much more historically looking reasonable number.
Again, so I think on the behavioral side.
Just the general sense is that as the labor situation eases, we will simply be able to admit more patients patient days will grow over the previous year instead of the flat patient to use for instance that we saw in Q4.
Okay. That's helpful. And then just one follow up on kind of longer term margin expectations. It seems like there might be a lot of temporary costs in your in your cost structure for 'twenty two in terms of.
Premium pay and things like that.
How should we think about the longer term margin expectations can you get back to the end of 2019 levels.
A couple of years or ads as things are.
To normalize or just any thoughts you can share on where things go after this maybe transition here.
Yes, and again I think we've said a number of times I don't believe we feel like the fundamental economic model in either of our business segments has changed meaning what the historical model has been is that if you can achieve revenue growth in sort of the mid single digits.
Generally youre going to see EBITDA growth and margin expansion over time.
As you characterize it and I think we're viewing 2022 is a bit of a transition year, particularly the first half of 2022 that you know.
As volumes recover those labor pressures are not going to ease as near as quickly and therefore, we're going to see some margin compression at least in the first half of 2022, but I think over time, we have an expectation that the models will work as they have worked in the past and if we can achieve mid single digit growth maybe in.
<unk>, it's particularly wage inflation has increased by 100 125 basis points post pandemic, but the model hasn't been turned upside down.
And as a consequence is that underlying demand is out there and theres been a significant amount of unmet postponed deferred demand in both of the business segments over the last several years, which we firmly believe then I think revenue growth.
I think beginning again towards the end of 2022 should be relatively robust.
Should see EBITDA growth, we should see margin expansion after we'd get over these labor pressures and it'll look like the way. It was can we get back to 2019 margins. The answer I think is yes. The question is how quickly.
We're certainly not going to get back there in a year, but we certainly believe that we can get back there and go beyond that quite frankly.
Okay. Thanks for the detail.
Your next question comes from the line of Josh Raskin with Nephron research.
Hi, Thanks, Good morning, I wanted to follow up on the comments, but you would mark made on the outpatient development and I'm curious what types of facilities. Do you think are most useful to you Hs in the next couple of years and I'm thinking more specifically in the acute care segment and maybe how does that outpatient development work.
In the broader segment strategy for the acute care segment.
Well I think it's.
There's a lot of areas that we're looking at specifically freestanding emergency departments. We have had a lot of success with that we.
We continue to evaluate a number of opportunities on the F&B side, I think we're going to be very positive as a standalone business as well as what they can refer into the acute care hospitals on top of that we're doing a lot more work with physician clinics.
And.
Again, being able to open and drive business from those clinics.
In some part to the hospitals.
And we see a lot of opportunity in a number of our markets.
We had a significant acquisition in California earlier I.
I guess a few months ago.
A large physician group, which we had been working with for many years, but acquiring them now.
And.
Just increasing the synergies and the things that we're able to do with them.
As an owner of the practice.
That's been a little bit of enlightening to us and so we're looking for more opportunities. There. In addition to that I would say the traditional outpatient radiology services as well as surgical hospitals.
It's been a little bit.
Tougher for us to get deals that we like on the ASC front.
But we are currently evaluating probably at all we're just about all of our acute care markets right now.
Partnering with a large.
Surgery Center company to do that.
For the last couple of years, and so I think we're going to gain more traction with that as we go forward in the next.
Three to four quarters certainly.
Got you and just a follow up on that Mark then the ASC.
I'm curious how you think about that shift from inpatient to outpatient care and how important you think that versus the what sounds like maybe not the most rational market I won't put words in your mouth, but it sounds like it's more of a pricing issue than a strategy issue is that right.
Yes.
As far as I look at it look it's definitely a trend it's definitely something that we're very cognizant of as far as the desire to move certain business out of the inpatient setting to outpatient and that's driven by the insurers.
For a number of reasons.
I'm not sure I would categorize it the way you you said, but I do think we have great opportunities.
Not only partner and create.
New outpatient surgery center businesses that are advantageous on their own but also to decamp. Some of the business that is taken up.
Space in our inpatient settings, and then have higher acuity higher paying business replace that lower end outpatient business.
Yeah, that's perfect. Thanks.
Your next question comes from the line of Justin Lake with Wolfe Research.
Hey, good morning, it's Austin on for Justin here.
Steve I was just kind of curious on the full year.
You can maybe help us size or give some color on the impact of kind of a direct COVID-19 reimbursement programs.
The benefit from sequestration that 20% bump in HRS, a and then kind of what is embedded in the assumption for 'twenty two related to those programs.
Yeah, So we've disclosed.
The impact of CCAR.
Sequestration waiver and hurts the reimbursement and the 20% add on I think historically.
The last few quarters, it's been running in the sort of $30 million.
Plus or minus.
Right.
<unk>.
The way, we've incorporated that in our projections or guidance for 2022 is based on the current knowledge the Medicare waiver lapses in the first half of the year the public health emergency.
Which drives the 20% add on I think it lapses in early in the second quarter, the hurt somebody who seem to be running out. So we've assumed all of that.
Again, the tricky part of this is.
It looks like and this will be a good thing.
Reimbursement will largely tail off as the Covid volumes tail off you know a month or two ago. We were concerned that maybe we'd be facing significant COVID-19 volumes and the loss of that extra reimbursement, but.
It appears that the two we'll see more naturally, but yes, we've assumed those things go away.
Relatively you know for the most part of the first half of the year again.
That syncs up with guidance, which presumes that our overall COVID-19 volumes go down in the first half of the year that the expenses associated the really high expenses with those COVID-19 patients go down et cetera, So that it's really not a <unk>.
Significant drag on our earnings.
Awesome. Thank you and maybe just a quick follow up there just kind of curious maybe on a percent basis, where COVID-19 admissions have kind of trended early and omicron and kind of where they are settling out here and then maybe for the full year is.
Is there kind of a given range that you guys are assuming COVID-19 volumes to continue to run at.
Yeah. So during the Covid surge is I think at the height of the Covid surge is on the acute side I would say somewhere in the 15% of our admissions were COVID-19 related you know doing the delta surge during the omicron surge et cetera, and he took the length.
The stay of the Covid patients is about twice what our average length of stay is COVID-19 patients were taking up a third of our beds across the portfolio again during the surge and so but you know it was a significant number I think the assumptions that we've made for particularly the back half of 2022.
Is that will be and there is kind of what has been described endemic environment in which something like 3% to 5% of our.
<unk> admissions will be co.
Covid related and probably less acute than we've seen in some of the earlier surgeons.
Great. Thanks.
Your next question comes from the line of Whit Mayo with SBB Leerink.
Hey, Thanks, Good morning, I Havent heard about.
Sig net or your U K operations and sometimes so was hoping maybe to get an update on I think the broader question and maybe this is frame more for Mark is just thinking about a broader portfolio review for behavioral them at some point does it make sense to get smaller to get bigger and maybe making some decisions.
Pandemic is ill advised but just any update strategically operationally anything that you guys are deploying it and internally that's different this year that gets you excited that we should be probably paying more attention to.
Yeah, I mean, well I'll I'll start with the portfolio review I mean, we do that all the time and I'll tell you we've really done that during the last few years during COVID-19 .
And to your point, we have scaled down.
A few places some operations a couple of leased facilities and a couple of others, where we just saw the changes in those markets. They werent.
Big players in the portfolio and we've jettison them.
We continue to look to pair down if possible while at the same time, we're doing a lot to grow the division as well. So we're trying to always improve the assets one of the comments I'll make is our JV opportunities on the behavioral side continue to be robust and I wanted to just make the point.
On that all JV opportunities in all JV partners are not created equal. So there are a lot of JV opportunities situations that we look at that we pass on.
Yet others that others do because we just don't see the merit long term.
Notice the ones that we do for the most part.
Recognize a bowl nationally known names or they're very strong regional players and Thats purposely done.
So we're very excited when you say what could we offer as far as getting you all excited.
And Steve has already mentioned this but.
With the demand being where it is we're very excited that one we get the staffing stabilized and it is stabilizing and.
And it will continue to stabilize throughout this year.
We should be able to pump because we know we track every week we're talking.
Very specifically about which beds are closed due to staffing due to COVID-19 and as we see that start to turn and it's already starting to turn and Thats all upside for us in regards to Sigma Sigma has really been.
Terrific.
Hedge for us.
They are growing.
There are a number I speak with them very often weekly in fact.
Our team over there is very strong.
They are competing quite well against historical and in fact larger players in that market we're competing.
Much much better than we have in the past.
Others are having some some hiccups. So we're very excited that the list of opportunities just in the U K.
Is incredibly impressive.
And along with that.
We'll look at things outside the U K, if they present and we think it makes sense, but right now we have a number of areas just within the U K that we think we cannot does either to existing facilities or or some new facilities and our relationship with the NHS has never been stronger so we're quite.
Positive about that business and where it's going to go going forward.
Great. That's helpful and maybe just one quick follow up for Steve If you could maybe give an update on.
What youre contemplating for Texas disrupt UCC as this program, presumably will continue now in your 10-K has.
And update that there is I guess, you guys expect $391 million from state supplemental payments and that number hasnt historically been that reliable. So I guess I'm just trying to make sure that we're thinking about any of the major puts and takes with some of the state supplemental.
Programs this year thanks.
Yeah. So first of all I'll make I'll make a few broad comments you alluded to the 10-K, which was filed last night I do think you HIV is a rather expansive disclosure on these state programs. So.
People are really interested in the details I would suggest that they spend some time reading the <unk>.
10-K disclosure on this subject because.
I think it is rather informative.
You know broadly.
As it regards Texas there are a couple of different programs in Texas I think the one.
One that is sort of most uncertain at the moment is the directed payment program.
Which the state and in CMS are sort of in dispute over.
We had about 12 or $13 million of reimbursement related to that program, which we did not recognize in the last four months of 2021, although we remain hopeful that it will be approved and we will wind up getting recognized retroactively in 2022.
Compensated care program, which people have expressed some concerns over et cetera.
Looks like it is moving forward. The next I think payment is actually scheduled to occur within the next week or two.
I just saw.
Our communication to that.
Regarding from the Hh.
HHS or the health Department in Texas, So it seems like that moving forward. So.
And then.
Finally, one last time and look there is some choppiness associated with these state reimbursement programs, we tend to be conservative about how we account for them tending to wait until they are approved either at the state or the federal levels and sometimes that means that we're not recording the income or revenue rapidly.
But if you look at the trends over time.
The trajectory of those programs tends to be increased.
And then I think they are because the hospitals really rely on these programs a lot of the hospitals that rely on these programs our safety net hospitals within each of the states et cetera, and so the program has really become an important part of both state and federal funding. So yes, there is some uncertainty and some volatility in how these things Kevin.
Recorded but I think our general sense is that.
The programs will remain.
Equal to historical levels again, with the one exception that I would note that we didn't really get into it in detail but.
We recorded on the Kentucky reimbursement essentially 18 months worth of reimbursement in 2021.
In other words six months when the reimbursement that we recorded really related to the last half of 2020. So that's a bit of a headwind going into 2022, because we will only record 12 months of Kentucky reimbursement in 2022, but that's clearly baked into work.
Okay, great. Thanks, guys appreciate it.
Our final question comes from the line of Sarah James with Barclays.
Thank you for squeezing me on.
When you talked earlier about getting back to the pre 19 margins how much of that is cost control versus more of a change in the rate environment.
Honestly say I think that the real driver as I think mark and I, both alluded to just volume recovery.
You know look we're certainly looking at cost controls and a good cost controls.
Focused on the.
The elimination of this really expensive labor.
Component that we've been incurring for the last.
During the pandemic.
But but again.
I don't think we anticipate sort of wringing efficiencies out of the business in order to get back to those margins you know what I was saying before is we're going to get back to this model of mid single digit revenue growth.
If you combine that with efficient operations, which we have historically always had been I think you sort of get back to that model.
I don't think were either cost cutting our way.
Back to 2019 margins, nor getting therefore, I'm extraordinarily rate increases, although we would hope.
That both from our government and commercial payers over the next year or two you know there is more and more recognition of the inflationary pressures on labor and other costs.
Okay. That's helpful and as you think about that recognition across your different types of payers.
How do you think about that.
The timing of that.
With Medicare Act first you know when you think about Medicare and Medicaid.
Harry.
Where do you think that recognition.
Right.
So it's a great question, Aaron obviously, you know from our Medicare and Medicaid perspective, that's largely out of our control meaning.
There are bigger for us is bigger lobbying groups both at the federal and state level. We're active participants in those groups. So we're not we're sort of not driving that but again I think the inflationary pressures put the not for profit hospitals in particular are at a disadvantage.
So that will be great pressure on that as far as the commercial payers, we have a much more active role there and I think we're playing that active role and pressing more and more of our payers for what we believe to be reasonable rate increase and then if we don't get them I think we're more willing today than we have been in some time.
Terminated contracts to walk away from business that doesn't have a reasonable reimbursement rate.
That's helpful. Thank you.
I will now turn the conference back over for any closing remarks.
We just like to thank everybody for their participation and look forward to talking again at the end of the first quarter. Thank you.
Thank you all for joining today's meeting you may now disconnect.
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