Q1 2022 Tenet Healthcare Corp Earnings Call
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As a reminder, this conference is being recorded it is now my pleasure to introduce your host will Mcdowell. Thank you will you may begin.
Good morning, everyone and thank you for joining today's call I am will Mcdowell Vice President of Investor Relations. We're pleased to have you join us for a discussion of Tennant's first quarter 2022 results as well as a discussion of our financial outlook.
Tenant senior management participating in today's call will be Ron written Meyer Executive Chairman, Dr. <unk>, <unk>, Chief Executive Officer, and Dan can sell me Executive Vice President and Chief Financial Officer.
Our webcast. This morning includes a slide presentation, which has been posted to the Investor Relations section of our website tenet health Dot com.
Listeners to this call are advised that certain statements made during our discussion today are forward looking and represent managements expectations based on currently available information.
Actual results and plans could differ materially tenant.
Tenet is under no obligation to update any forward looking statements based on subsequent information investors should take note of the cautionary statement slide in today included in today's presentation as well as the risk factors discussed in our most recent Form 10-K , and other filings with the Securities and Exchange Commission.
With that I'll turn the call over to song.
Thank you and good morning, everyone.
We had a strong quarter and exited Q1 with significant momentum for the year, our operators effectively managed through omicron and accelerated in their recovery month by month after the last surge.
We are of course pleased that Covid cases have decreased significantly and overall community health should improve as a result.
We delivered net.
Enterprise net operating revenues of $4 7 billion and $888 million of adjusted EBITDA in the quarter.
This is a 14% increase in adjusted EBITDA from prior year.
Even after normalizing for a gain on sale, Texas, Medicaid supplemental revenues and a little bit of incremental grant income, which were not assumed in our Q1 guidance, we delivered $756 million and adjusted EBITDA.
Which exceeded the midpoint of our Q1 guidance.
In a quarter marked with speculation about the sectors performance our core operations performed and delivered ahead of our expectations.
The additional items, adding to the earnings are attractive upside in the quarter.
Let's turn to the business units, we had a great quarter at USPI with $282 million and adjusted EBITDA.
Same facility system wide cases grew 8% and adjusted EBITDA grew 15% excluding grant income both from prior year.
January was challenging given the high transmissibility of omicron that drove higher cancellation rates.
Despite that there was a substantial rebound in February and March with volumes exceeding 2019 on a same store basis.
USPI has increased its portfolio by roughly 50% in the last 18 months.
Integration of our newly acquired STD encompass facilities is on track and these centers are performing well.
Physicians receptivity to our buyer offers has been very good.
And Additionally, the progress under our new partnership and New Center development agreement with SCD is ahead of our expectations.
We are truly energized by the level of development activity, we continue to have.
In Q1, USPI added six new facilities.
We have over 20 de novo's under construction or in syndication and are executing against a robust M&A pipeline.
This reinforces the long term investment thesis behind tenant.
Turning to our hospitals the hospitals maintained their track record of strong consistent performance, delivering 514 $14 million and adjusted EBITDA.
Our operators effectively balanced resources during the omicron Serge.
Maintain their cost management and drove a strong recovery. Despite the staffing challenges the industry is facing.
This was enabled by our disciplined operating processes in real time analytics.
Although our Q1.
Same store hospital adjusted admissions were one 4% below last year by early February we saw the Covid case trend line dropping and adjusted our operating platform to quickly match supply of resources and demand for services.
We kept our focus on acuity and ensured convenient access to our emergency services for all those who needed it.
We are very pleased with our performance in hospital based surgeries.
In March we had less than 10% of the Covid admissions that we had in January .
Our operators reduce length of stay by over 10%.
<unk> premium pay by over 20% and as I indicated our surgical volumes were strong and in March were about 25% higher than they were in January .
Nearly all of our markets outpaced our internal expectations in March.
Our continued investments in specialty programs enabled sustained higher acuity.
Case mix index was 177% in Q1, which is roughly 16% higher than pre COVID-19 and revenue per adjusted admission was 4% higher than prior year.
We continue to enhance high acuity services across our hospitals, including cardiovascular Neurosciences surgical services trauma and women's health.
For example in Q1. This included an expanded women's tower in San Antonio a new Cath lab and biplane capabilities in El Paso expanded procedural capacity in Palm Beach and.
And an enhanced atrial fibrillation care access protocol in South Carolina.
Our health care campus developments in San Antonio Phoenix, and South Carolina lineup are on track. This includes our new hospital in Fort Mill, South Carolina, which is slated to open in the third quarter of this year.
We were also very pleased to see ongoing improvement in clinical quality with a 46% year over year reduction in serious safety events and a continued decline in hospital acquired infections.
Turning to conifer conifer had a good quarter with a return to topline growth.
Conifer's commercial capabilities have translated into a stronger sales pipeline.
Of note, we had a new client win in Birmingham Conifer will soon begin to serve for Baptist health system hospitals that are part of the Brookwood Baptists joint venture.
A five year contract for end to end hospital revenue cycle services will start in May next month of this year.
Conifer delivered $92 million and adjusted EBITDA, which is approximately 7% growth over prior year and maintained a strong margin at 28, 4%.
We continue to enrich automation capabilities, while expanding our global footprint.
We quickly scaled offshore capabilities during the quarter and now have roughly 3500 team members, providing service to our clients from global delivery centers.
In addition, with conifer remaining part of tenant we have begun to integrate certain functions within the broader tenant enterprise as part of an ongoing commitment to efficiency and effectiveness.
In terms of our ongoing initiatives in the foundation of the business that tenant I will also briefly comment on our managed care relationships and enterprise enterprise liquidity position, both of which continue to meaningfully improve.
We are pleased to announce an extension of our nationwide relationship with Aetna through 2026, and a new four year contract with Blue Cross Blue Shield of Texas.
I am pleased with both of these as they ensure access for patients in our markets and importantly continue to support value based care initiatives, especially in site of care optimization.
Our operational performance during the quarter and prior years has led to significant increases in cash flow generation as well as effective balance sheet management.
This was recognized during the quarter with the upgrade of our corporate credit rating by all three rating agencies.
We also sold certain of our medical office buildings in Birmingham, resulting in cash proceeds of $147 million and an EBITDA multiple of approximately 19 times.
These items have allowed us to proactively reduce almost $825 million of debt. So far this year using balance sheet cash, which will save us $61 million in annual cash interest payments.
We are pleased with our start to the year and our performance and are reiterating our outlook for 2022.
In a quarter with significant omicron impact USPI delivered substantial volume growth and month over month improvements.
Hospitals executed and flexed extraordinarily well.
As well as performing very well in hospital based surgeries.
And conifer tackled the quarter with both top line growth and margin expansion.
We do have a plus or minus $100 million range on the midpoint of our guidance for the year.
Let's reflect on where we were a year ago.
Year ago. This time, we were coming off a very large COVID-19 surge in the early part of 2021 and with vaccines in place many assumed COVID-19 would melt away. Some of you probably remember those conversations.
And then the rest of 2021 was consumed with Delta and Omicron.
So at this point given we are already seeing new variance, we are simply being prudent about our priorities to keep our heads down recognized our outperformance in Q1 and operate and execute in Q2 in order to better update guidance later and better informed in <unk>.
'twenty two.
In summary, our first quarter performance demonstrates our ability to consistently perform despite ongoing challenges due to the pandemic, we remain committed to volume recovery and executing against our strategic plan.
We plan to continue to scale uspi's, leading position enhance high acuity care in our hospital segment.
And grow conifer's client base this.
This is supported by our committed team with a high level of operational discipline and a commitment to real time analytics.
I'll now turn it over to Dan for a more detailed look at our financial results. Thanks, Tom and good morning, everyone. Let's start on slide three are.
Our financial results in the first quarter were significantly above our expectations. Despite a strong COVID-19 surge early in the quarter and the continuing inflationary wage and labor availability pressure providers across the industry are facing.
As Sean mentioned, all three of our businesses performed well.
In the quarter, we generated consolidated adjusted EBITDA of $888 million.
Our strong results were driven by continued high patient acuity.
And effective cost control in a challenging environment.
Also our results included $69 million gain from the sale of certain medical office buildings for net cash proceeds of $147 million.
At a very attractive multiple as Tom mentioned.
In addition, we were able to recognize $57 million of revenue in the quarter as a result of Cms's approval of the Texas Medicaid supplemental funding programs that we assumed in our 2022 guidance.
It would be improved in the second quarter or later.
We were pleased that Texas, and CMS were able to resolve this and that CMS approved the programs earlier than we anticipated.
Even if you exclude the gain on sale and the Texas Medicaid revenue as well as a $6 million of grant income we earned in the quarter. We produced consolidated adjusted EBITDA 700.
<unk> $56 million, which exceeded the midpoint of our guidance.
Now I'd like to highlight a few key items for each of our segments beginning with USPI.
USPI continues to deliver strong growth and provide high quality clinical care to our patients.
In the quarter USPI produced a strong 8% increase in surgical cases compared to last year, demonstrating continuing volume recovery from the pandemic, particularly orthopedic and Gi cases, and their volumes improved as we moved through the quarter.
Surgical cases were 100% of pre pandemic levels. Despite the surge in COVID-19 early in the quarter due to <unk>.
USPI is adjusted EBITDA, Excluding grant income grew 15% compared to Q1 last year and its adjusted EBITDA margin. Excluding grant income continues to be very strong.
At 37, 9%.
Turning to our hospital business, our hospitals delivered another very good quarter, despite the continuing challenging environment.
Our labor management continues to be extremely effective despite the cost pressures.
Especially temporary contract nurse staffing costs.
As you can see in our numbers, our consolidated salary wages and benefit costs as a percentage of revenue in the quarter were flat compared to last year's first quarter, despite increasing labor pressures over the past year.
Our case mix index and revenue yield remained strong as we continue our strategic focus on investments and higher acuity higher margin service lines.
Our hospital performance was especially impressive given the impact from the surge of <unk>, which contributed to a one 4% decline in our adjusted admissions.
And as Tom mentioned, we're also pleased to announce that we recently signed a new multiyear national contract with Aetna and a multiyear statewide contract with Blue Cross of Texas.
Both contracts cover all of our hospitals ambulatory facilities physicians and other providers.
Let's now turn our conifer, which also delivered a nice quarter conifer resumed top line revenue growth of 5% also the adjusted EBITDA of $92 million represented 7% growth over the first quarter last year and Conover continued to produce strong EBITDA margin of 28 four.
4% overall, we're off to a good start to the year in each of our businesses.
Moving to slide 10, let's review, our cash flows balance sheet and capital structure.
We generated $267 million of free cash flow in the quarter before the repayment of pandemic related Medicare advances that we received in 2020.
As a reminder, the first quarter is oftentimes, our softest cash flow generating quarter due to certain annual working capital requirements, such as our annual 401, K matching contributions for our employees.
We continued to maintain more than sufficient cash resources.
And available liquidity under our $1 5 billion line of credit facilities.
As of the end of the quarter, we had approximately $1 4 billion of cash on hand.
And no borrowings outstanding under our line.
As previously announced in the quarter, we retired $700 million of our seven 5% secured notes due in 2025. Additionally.
Additionally, so far this year, we purchased $124 million.
Of our six and three quarter unsecured notes due in 2023 in the open market.
Together these actions will save us $61 million annually and future cash interest payments.
As a result of our continued growth and focus on deleveraging. Our March 31, 'twenty two leverage ratio was three nine times adjusted EBITDA compared to $4 One times EBITDA at December 31.
As a reminder, if you look back to 2017, our leverage ratio was about six times EBITDA.
Also our secured debt borrowing capacity is.
Is currently approximately $4 billion.
Let me now turn to our outlook for this year as Tom mentioned, we are reiterating our adjusted EBITDA outlook.
For 2022 of $3 billion $475 million at the midpoint of our range.
We are pleased with our start to the year, but it's early and there are uncertainties related to the impact of the pandemic. We will continue to reevaluate our guidance as we move through the year.
From a cash flow perspective, we continue to target another strong year of free cash flow generation of $1.558 billion at the midpoint of our guidance, excluding the repayment Medicare advances and deferred payroll taxes.
Our cash flow generation has improved substantially over the past several years and we expect our business to continue to drive strong cash flows even as we continued to reinvest to support growth and innovation.
As we've mentioned previously these cash flows provide us with significant financial flexibility to effectively deploy capital for the benefit of shareholders.
We plan to continue allocating capital to grow our surgery center business enhance our hospital growth opportunities.
Evaluate further opportunities to retire and refinance debt.
And possibly in 2023 or beyond evaluating share repurchases, depending on market conditions and other investment opportunities.
And with that we're ready to begin the Q&A operator.
Thank you we.
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As a reminder, we ask that you. Please limit to one question. So that we may respond to all the questions in the queue.
One moment, please while we poll for questions.
Our first question comes from Josh Raskin with Nephron Research. Please proceed with your question.
Hi, Thanks, Good morning, I heard some of the commentary around value based care and so I know tenet and Morris at legacy Vanguard had some risk based entities, even health insurers I think in the past.
But as tenants really focused since acute care footprint in the market continues to look for more and more value based care is there a strategy in place.
Tenant broadly now to test more ACO like arrangements to use all of your assets in sort of these targeted markets or other sort of risk based ideas.
Hey, Josh.
Yes, I did refer to value based care and.
In my comments related to managed care in particular, so let.
First explain what I was referring to a primary strategy for us in value based care of courses site of care optimization not surprisingly, we embrace the utilization of the most efficient site of care in many cases, thats outpatient care not only in our hospitals.
But of course the.
The entirety of USPI has an enormous value based care.
Opportunity because of the cost the lower costs.
That are incurred in performing surgeries and procedures and a very high service outpatient based lower cost environment and that is.
Our primary value based care strategy for us nationwide.
In addition to that.
We are active in the Medicare advantage space, we do have certain markets larger more integrated markets.
That have risk based arrangements with payers accountable care organizations that that exist, but we participate in those selectively where the risk is balanced and it is not a transfer of risk entirely from one entity onto us.
Perfect. Thank you.
Our next question comes from Justin Lake with Wolfe Research. Please proceed with your question.
Thanks, Good morning wanted to ask you about the labor inflation environment, specifically, what did you see as you went through the quarter, especially.
As Covid started to moderate and then you mentioned a couple of new managed care contracts one of the big questions, we've gotten out there.
<unk> managed care contracting.
You are right <unk>.
Might start to increase to reflect some of the inflationary pressures that are out in the market. Today. So maybe you could tell us how those how those newer contracts might have changed versus what you've been signing over the last few years to reflect that.
Hey, Justin Thanks for the questions, Let me address labor and then I'll pass to Dan on the managed care question.
The primary driver of our performance and labor costs. During the quarter was really our continued focus on day to day operating discipline and length of stay management productivity management.
And.
Month to month.
Our goal of improving the utilization of premium labor costs.
Contract labor market in particular didn't moderate that much little bit didn't moderate that much as the omicron as the omicron cases dropped pretty precipitously.
After the end of January so again, our performance was really more driven by the operating platform that we've described over the past few quarters that we're utilizing to keep our total swg costs in check as the volume recovery occurs.
And Justin this is Dan.
We were obviously very satisfied that we were able to enter into.
New contracts with Blue Cross of Texas, and Aetna. It was I would describe it as very collaborative.
Process negotiations.
Your point about inflation, we always take inflation.
Expectations into consideration when were negotiating contracts.
These are multiyear contracts across the country and covers all of our facilities and providers.
For a number of years as Sean mentioned in his remarks, we're obviously very pleased to have concluded.
And signed new agreements with both of those parties.
Thanks.
Our next question comes from a J Rice with credit Suisse. Please proceed with your question.
Hi, everybody.
I might just say it try to.
I understand some of the comments, you're making about how you saw trends developed in the quarter and it sounds like you perceive there is at least the surgery area. Some backlog of volumes I know in some of your slides you showed that admissions and outpatient visits step back in the first quarter versus.
What you saw in the fourth quarter, but alternatively in your prepared remarks, you are talking about surgery volumes being strong in overall volumes.
February and March being better than pre pandemic.
Can you give us a sense of.
What's the trajectory is.
For the end of the quarter how was OLED.
Dynamics January .
As though what the business looks like both from a surgical perspective than overall volumes.
I mean do you need a further step up to make to.
To hit your volume targets for the rest of the year are you on.
Glide path to get there given what you saw as you exited the quarter.
Hey, Jay Thanks, Thanks for the question and I'll reiterate.
In both the hospital segment and the USPI segment.
We were pleased to see month over month over month improvement in our in our performance our focus on surgeries is consistent with our long term strategy related to acuity and.
In high acuity procedure based care, we were we were pleased to see both.
Emergent and elective surgeries, and obviously, mostly elective surgeries in the USPI environment continue to grow and improve.
Each month.
In that in that environment. So we feel good about the way we're exiting the quarter I'm, particularly pleased at how rapidly USPI recovered.
In their surgical case volume I would say it's been.
Ben.
The fastest of prior Covid surges in.
In terms of the ability to really recover those cases and continue to move forward.
We also.
From a volume standpoint, I would highlight that.
Emergency Department visits were in particular, where we saw the environment lagging in terms of recovery through the quarter as opposed to our high acuity strategic service lines and that was correlated once again less.
Two the omicron cases disappearing, but more.
To the states, which were more locked down.
Rather than those which were less locked down and as the state lockdown.
Have continued to abate the recovery has improved.
Hey, Jason Hey, Brad.
Oh, I'm, sorry, Ed just real quick a little bit more color on USPI has some and Dan mentioned, we are obviously very pleased to see 8% year over year growth in our cases, especially considering we had one of the highest cancellation rates we've ever seen at 22, 8% in January .
And overall cancellation rate at 19, 3% in the quarter compared to 17, 8% in Q1 of 2021.
So our volume levels.
We have returned to pre pandemic levels at 100% of 2019 volume levels with your acuity normalizing when we think about volumes going forward. We think we will continue to increase our volumes compared to pre pandemic levels.
Just really because of the addition of 500.
New physicians across our portfolio this year and of course, we continue to focus on service line expansion activities across the portfolio as well that said, we believe the volume growth will be consistent with our full year guidance at 3% to 4% for the year.
And a J the only other thing I'd add is in addition to volumes improving as we move through the quarter earnings improved as we moved through the quarter right.
That was the point I was going to add.
Commercial.
Percentage improve improved in the quarter and year to year.
Was that more the January COVID-19 volume or is that more of the volume you are talking about here with the surgeries coming back.
And the commercial mix.
It's a little bit above as well as.
That line item also does include that Texas money.
<unk> does get routed to managed Medicaid based on the structure of the program but.
The commercial volumes have been solid I would say.
We're not back to pre pandemic levels, but they've been they've been those trends have been.
Have recovered stronger really throughout the pandemic.
But Medicare volumes are beginning to continue to strengthen so that's nice to see as well.
Thanks, so much.
Thanks.
Our next question comes from Jamie per Se with Goldman Sachs. Please proceed with your question.
Hey, good morning, guys.
Suddenly.
You touched on your approach to guidance just being prudent given all the factors there that are going on I just wanted to get a sense. If there is any particular areas that you're leaving yourself some more room, whether that's more persistent labor pressures.
Asking for a bit longer than previously anticipated recovery dynamics, maybe being a little bit behind where.
You might have thought you were at this point or just the comment on having more information before your updated guidance. What are you looking for to have a little bit more confidence in the trajectory.
Yes, thanks, Jamie.
Appreciate the question look the.
The approach here is to be as transparent.
And straightforward as possible.
We recognize the outperformance in the quarter and we recognize that we will need to update guidance.
At some point and again I would tell you. The primary driver is goes back to what I said around the best approach to making assumptions around that guidance and.
Exactly a year ago, we all sat around talking about how COVID-19 .
With the vaccines in place and the surge disappearing from the holidays.
It could be the end of the Covid environment in 2021 was dominated by Delta and then surprisingly after that omicron. So yes. I think this is just more about prudence and transparency around.
What may lie ahead, given that there are other variance that seem to be circulating the globe already the.
The only the.
Only area, which we have noted.
That we are obviously watching carefully as we would've expected contract labor rates in the labor market to have to have normalized a bit more.
By the end of this quarter relative to where we are today again, our response to that of course is operating discipline, which we have demonstrated in this first quarter, but I think our until we see that materially improving as I said keep our heads down and operate with the same discipline.
Q2, and update the guidance coming out of the second quarter.
Our next question comes from <unk> Chickering with Deutsche Bank. Please proceed with your question.
Hey, good morning, guys. Thanks for taking my questions a few ones on the ASC side of the business I guess looking at the first quarter of 'twenty, one how much revenue and EBITDA came to urgent care business in the diagnostic imaging business, just looking understand the baseline growth how do you sort of care due in the first quarter versus your expectations and then just digging on <unk> questions on volumes can you remind us what you're assuming for <unk>.
<unk> volume for 2022, and what was the exit rate versus those assumptions.
Hey paid outs than in the first quarter last year as a reminder.
The USPI.
Urgent care business was in the numbers and in terms of the revenues.
Associated with the urgent care business that we ultimately sold in the second quarter as well as the imaging centers of ours were under the USPI.
Umbrella last year in the first quarter as well, we subsequently transferred those to the hospital business.
In the second quarter of last year. So in total those two businesses in the first quarter last year had over $50 million.
Revenue associated with them. So that's in Q1 'twenty one's numbers.
Last year that obviously.
And in.
This year's first quarter.
And then on <unk>.
Search Center I guess, how did that do in the first quarter versus expectations and then.
To <unk> question on the volumes what are you assuming in your guidance for 2022 for ASC volumes and kind of where did you exit the quarter with that thanks. So much.
Yeah, Hey, Peter related to the SCD facilities that like the portfolio is performing.
As planned and the physician interest as Tom mentioned in the buy ups within the portfolio is strong we already completed a significant number of buy ups and we have a large pipeline of buy ups to complete in Q2.
And as importantly, we remain confident about achieving the year three multiples, we communicated when we announced the transaction.
And Peter the surgical case growth that we're assuming for this year the entire year is three years to 4%.
Obviously, we did a lot better in the first quarter.
Thanks, guys.
Our next question comes from Kevin Fischbeck with Bank of America. Please proceed with your question.
Great. Thanks, just wanted to follow up on that labor a point that you were making there.
Contract Labor I guess I think you said it was down 20% by March.
Got it sounds like as you thought why do you think that it hasnt come down.
As you thought so far and are you still.
Still confident in that.
Gary as far as year end and I guess, what has to happen between now and year end for that.
To get to where you originally thought it might go.
Yes, Hey at some and then I will I'll start and I'll pass to Dan I mean, I think it's hard to speculate exactly.
Why the.
While the contract labor market isn't normalizing more quickly.
One reason that we've thought about is that.
Over the past four or five months some of the contract labor terms have involved 12 to 13 week contracts and we may be just on a cycle of coming off of those.
Assignments before we start to see even more moderation.
In the contract labor rates.
Yes, again I think.
This is a situation where.
We would have hoped that the contract labor rates would've come down faster the thing about it is when the contract labor rates come down that will reduce the incentive for nurses to travel, which will then help to settle down local market nursing supply relative to demand, which will allow more hiring.
And more permanent placements.
Placements into the markets and so these things are linked together and the way that it seems to be working.
And Kevin It's Dan.
Just a couple of numbers and just so you have them.
Before the pandemic our contract labor as a percent of our.
<unk> was typically in the 2% to 3% range.
Last year for most of the year.
It was running around 5%.
5% to 6% in the first quarter due to the <unk>.
Surge from from Omicron what.
What we saw for the entire quarter was about 6% to 7%.
Contract labor cost as a percent of consolidated SWM b.
Well listen we did see some moderation, it's just we'd like to see.
More of it obviously.
And as we move through the rest of the year.
I just want to confirm you guys Havent changed your view about where labor ultimately settles out this isn't a sign in your new bed.
But it might end up settling out at a higher rate it just a delay in getting there.
Not at this point now.
Alright, great. Thanks.
Our next question comes from Jason <unk> with Citi. Please proceed with your question.
Great. Thanks. Good morning, guys. There is a number of moving pieces between the contract labor that you're discussing now on the inflationary cost backdrop and the continued cost management performance, but I guess I was hoping you could help with maybe just a margin progression expectation for the hospital segment as we move through the rest of 2022 and then just a follow.
Up on that as we lapped many of these cost pressures in 'twenty two how should we think about the longer term margin opportunity for the hospital segment, specifically in 2023 and beyond do you have any commentary there that'd be very helpful. Thanks.
Hey, Jason Stan.
Obviously, we were we were very pleased with how we manage costs in the quarter.
All three of our business units.
As I mentioned in my remarks are.
SWM because as a percentage of revenue were flat year over year. Despite I think it's fair to say a much more difficult labor environment. This.
This year that's.
The attribute to saum, and the operators and very effectively managing our labor spend as well as Brett and his team and our conifer team.
Listen margins have improved significantly.
And even.
Even if you exclude the.
The $69 million gain on the sale of the medical office buildings.
Obviously, we are optimistic about our ability to drive margin improvement.
As.
As volumes continue to recover.
And our focus on higher acuity service lines, whether that's in the hospital business or the ambulatory business and our ability to effectively manage costs.
We are.
So we optimistic that.
Theres opportunities there for further margin improvement.
Great. Thanks.
Our next question comes from Whit Mayo with SBB Securities. Please proceed with your question.
Hey, thanks.
Dan just looking at the composite pricing in the quarter, 4% growth in the hospital revenue per adjusted admission I mean, it's a good number but I think that's a little bit distorted based off the timing of some of these <unk>.
Medicaid supplemental programs is there a good way to kind of wrap our head around a clean number to have a better understanding of sort of like a normalized underlying.
Pricing revenue per adjusted admission number.
Hey.
Yes.
Certainly the the Medicaid monies coming through.
<unk> had somewhat of an impact on our net revenue per adjusted admission.
But one thing to keep in mind, we did have some of that money in last year's first quarter.
Well, but so how I would think about it is.
Probably.
We've been talking about in terms of our revenue growth on a.
Per adjusted admission basis is probably.
3% type of area.
Driven by our managed care contracting strategy as well as our focus on higher acuity service lines.
Okay.
That's helpful case, I'm going to squeeze one quick one and I'm just curious like looking at the return and the EDI visits can you just maybe comment on.
Level 1234, or five you know what.
Happened within the quarter, where youre seeing pockets of strength or weakness.
He waited some I mean, obviously the.
Higher acuity ER volume is less quote elastic right.
And.
So that's that's the case I mean, we track that obviously through hospital admissions that go through the emergency department and surgeries, but even those were slow a little bit slower.
In the quarter in.
In particular, when there was that mostly kind of as you came out of the omicron.
Serge I think consistent with what we've seen over the past year and a half markets, which opened up quickly and I mean opened up kind of the overall economy not health care economy.
Recovered more quickly even in emergency department volume and those that were more locked down.
<unk>.
Uh huh.
Are recovering more slowly including in lower acuity ER volume.
As a reminder, we ask that you. Please limit to one question. So that we may respond to all the questions.
Our next question comes from John Ransom with Raymond James. Please proceed with your question.
Hey, there.
The Texas Medicaid payments September to now.
Was that just basically accrued on a level basis per month, and then what's the go forward accrual of that for the rest of the year. Thank you.
Hey, John its Dan.
The Texas Medicaid monies.
In our guidance we assume.
Programs will be approved.
But we did not assume it was in Q1.
As I mentioned on our last earnings call.
The previous program funding for US was roughly $75 million and then as we thought about.
Our guidance for this year.
We did assume.
That the program would be approved retroactive back to September one so our guidance did include.
The four months of revenue.
That we were not able to recognize.
In 2021.
So if you would.
Look at $57 million it covered a seven month period.
So the annual funding on a go forward basis.
Roughly.
Little less than $100 million.
Our next question comes from Brian <unk> with Jefferies. Please proceed with your question.
Hey, Good morning, guys, Hey, Brad just a quick question just on the ASC side right.
Any color you can give us in terms of where youre seeing the most growth and then what the backlog looks like by specialty maybe and then I guess kind of follow.
Follow up to the STD questions now that you've had.
Full asset for a few months how are you what are you seeing in terms of the synergy opportunities that remain in whether it's purchasing or.
On the labor side or just any color you can give us on the progress you're seeing with FCB.
Sure.
Yes.
Brian So just a little bit on some of the recovery in cases, we continue to see strong recovery in cases around.
Musculoskeletal mek or those fine I think of particular interest was the recovery in some of the lower complexity cases in Q1, specifically E&P for example increase the cases increased 34% year over year, and our GI cases increased 14% year over.
A year and we also saw pretty significant similar increase in our ophthalmology in retina cases in Q1 as well so when we think about the 8% growth we saw in Q1.
Lot of that was driven by some of those lower complexity cases coming back.
Compared to Q1 of 2021, when we saw some really saw some.
More complex cases come back.
And the lower acuity cases, just took a little bit more time to recover.
What was your second question Brian .
FCB side I mean, obviously, there's a lot of focus on that you put up a good same store number and people are looking at kind of top line performance and margin performance as a whole. So maybe any color you can give on what youre seeing in LCD and then the synergy opportunities.
Are you finding more whether it's supply chain or other operational items.
Hey, Brian in terms of synergies.
Based on our experience so far.
Very comfortable with our synergy estimates.
We talked about when we announced the transaction there's been no negative surprises there at all then the only other thing.
Brian It's just related to the integration more broadly.
Integration of the first tranche of FCB facilities that was completed at the end of 2020 is essentially complete and they're operating in the same fashion as the legacy USPI facilities. The integration of the tranche completed at the end of 2021 is going very smoothly. We continue to hit key milestones and really overall is dancing.
I'm pleased with how the facilities are operating and the good news is.
There hasnt been any significant surprises and I think thats largely a result of the due diligence that was done on the portfolio prior to.
I'm proud of both transactions being completed.
Our next question comes from Stephen Baxter with Wells Fargo. Please proceed with your question.
Hi, Thanks, I wanted to ask your initial thoughts on the proposed Medicare inpatient Rolling I guess thoughts on the initial obtain itself and then obviously, there's a number of moving parts and one of these seem to be some confusion about whether the publicly traded hospital companies are actually seeing a benefit from the higher outlier payments in 2022. The Tms is describing so I guess any color on that.
Would be helpful. And then in general how you're thinking about the prospects for making potential approval as we get to the final. Thank you.
Hey, Stephen it's Stan.
In terms of the Medicare update us as you saw.
Market basket adjustment.
That was announced was roughly three 2% for hospitals.
However.
There are two other items.
Somewhat offset that namely the outlier threshold was increased quite a bit which was surprising.
As well as the.
The disproportionate share.
Estimated funding levels so all in.
The we're projecting for us is roughly about a two 3%.
Net increase.
Under the existing.
Proposal that would go into effect October one however.
We and others will be working with the appropriate parties.
There can be any further improvements to that given the environment that we're operating in.
Our next question comes from Ben Hendrix with RBC capital markets. Please proceed with your question.
Thanks.
If you could give just a little bit more detail on specific labor cost management measures that have helped you keep <unk> flat in this increasingly difficult backdrop in <unk> and also the extent to which those measures could present, a run rate tailwind going forward in a more normalized neighbor, our baseline labor backdrop. Thanks.
<unk>.
Yeah, Hey, it's Tom I'll comment on that briefly and then pass it to Dan for anything he may want to add obviously, it's it was our intention a few years ago, as we redeveloped or operating strategies in the company, including deployment of.
<unk>.
Hospital by hospital floor by floor analytics for our cost structure, including labor.
We were building a foundation to utilize for the long term I mean this wasn't this is not a.
A platform that is somehow COVID-19 specific.
Utilization of the platform during Covid has been very very helpful. Because.
As you know the labor environment became more complex very quickly with the utilization of contract labor with high rates and then a lot of other premium pay and retention strategies that were required as well as active decisions about which capacity to staff and which to take down.
When the volume may not have been available so yes.
Yes look I appreciate the question because it is very much our intent to continue to operate with this kind of discipline and utilization of the analytics platform. That's been built in order to manage a complex swg line in the hospital segment in the short term until the contract labor rates begin to normalize.
<unk>, we will continue to employ the strategies that we have around productivity length of stay management and ultimately.
Some proactive decisions not to bring capacity back online yet.
When the marginal cost of that labor is incredibly high.
Our next question is from Sarah James with Barclays. Please proceed with your question.
Thank you.
So your guidance implies a little bit more front end loaded EBIT that than consensus was expecting and I want to make sure I understand some of the assumptions transitioning one Q2 Q. So you talked about a month over month improvement surgical volume in February and again in March do you expect that to continue.
Ill touch on.
Monthly.
Second quarter, and then on the temp labor utilization being the 7% to 8%.
Are you assuming any kind of improvement on that in your Q2 guide and what are you assuming for supply cost pressure.
Hey, It's Dan Let me, let me try to address that.
Yes, we are assuming.
Further moderation and contract labor as we move through the year. The question ultimately becomes the timing of that but assuming there is no other significant.
Covid surges that we would we would expect that there would be moderation as we move through the year. It's just in our minds. It's a question of timing.
When we get back to pre pandemic levels by the end of the year.
We haven't said that and we're not we're not assuming that but.
But we do expect some moderation as we move through the year.
And in terms of the pie.
Surgical volume.
Well obviously.
We're off to a good start from a surgical volume perspective, particularly on the USPI side.
As I mentioned.
We're assuming 3% 4% growth this year, we outperformed that in the first quarter and so we'll keep you obviously keep.
Evaluating that and once we close the second quarter.
We will certainly reevaluate our guidance at that point.
Okay.
And in China.
Operator next question.
Question.
Our next question comes from Andrew Mok with UBS. Please proceed with your question.
Hi, Good morning, maybe just a follow up to the SCB question can you quantify the inorganic revenue contribution from the second F&B deal in the quarter and how should we think about the timing and progression of SCD revenue synergies for the balance of the year.
Hi, Andrew its Dan.
We're not going to get into specific numbers related to each one of our centers are a group of centers.
As we mentioned at the beginning of the year that.
We're estimating approximately $140 million this year of EBITDA related to the NCD centers and as Brett and some have mentioned.
Integration is going well and we remain very optimistic about the synergies ultimately those centers once they are fully ramped.
We're sticking with our.
Sure.
Estimate that it will be roughly $275 million of EBITDA. Once incentives are fully ramped by year three to four so I'm very pleased with was a great transaction in this five year partnership and development agreement is also very.
Optimistic as well.
Yeah, and Dan towards that point.
Actually we said at the beginning of the year when the transaction was done that we expected to.
Probably 10 centers de Novo centers, a year in partnership with SCD without.
Without getting into specifics. We're ahead of our already ahead of plan at the end of Q1 as it relates to those 10, so very pleased with not only the number of facilities, but the quality of.
Facilities that <unk> is bringing to us.
As potential partnership opportunities.
Great. Thank you.
We have reached the end of the question and answer session. This concludes today's teleconference. You may disconnect. Your lines at this time and we thank you for your participation.
Thank you everyone have a nice day.
Yeah.