Q1 2022 Universal Health Services Inc Earnings Call
Thank you.
Yes.
[music].
Good day and thank you for standing by welcome to the Universal Health Services, Inc. First quarter 2022 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press.
Star one on your telephone if you require any further assistance please press star zero.
I would now like to hand conference over to our speaker today, Steve Filton CFO . Please go ahead Sir.
Thank you Mary and good morning, Mark Miller is also joining us. This morning. We welcome you to this review of Universal Health services results for the first quarter ended March 31, 2022. During the conference call. We will be using words, such as believes expects anticipates estimates and similar words that.
Present forecast projections and forward looking statements for anyone not familiar with the risks and uncertainties inherent in these forward looking statements I recommend a careful reading of the section on risk factors and forward looking statements and risk factors.
Form 10-K for the year ended December 31 2021.
We'd like to highlight just a couple of developments and business trends before opening the call up to questions.
As discussed in our press release last night. The company reported net income attributable to uhm per diluted share of $2 <unk> for the first quarter of 2022 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 UHF regularly.
Share was $2 15 for the quarter ended March 31 2022.
During the first quarter of 2022, our operations continued to be impacted by the COVID-19, pandemic as well as pressures on staffing and wage rates, specifically a surge in patients with the <unk> of the virus, which began in December of 2021 tended to peak in most of our geographies.
In January of 2022.
In our acute segment, we would note in general the omicron patients less acutely ill COVID-19 patients treated in preview surges and not displayed lower acuity.
Meanwhile, the amount of contract nursing hours used and even more importantly, the rate we have to pay for those hours increased significantly in the first quarter, both on a sequential basis as well as a year to year and a year to year comparison.
Although in our behavioral segment contract nursing costs did not increase quite as dramatically our inability to pay all of our labor vague fill all of our labor vacancies at a notable limiting the impact on our patient volumes and related revenues.
We do note that our results were benefited in the first quarter from approximately $12 million of revenues net of related provider taxes from special, Texas, Medicaid reimbursements, which related to the last four months of 2021 recognition of those revenues were deferred until formal government approval was obtained.
Our first quarter also included approximately $15 million of startup losses.
Occurred by recently opened de Novo acute and behavioral health facilities and $6 million of losses related to temporarily closed beds at two behavioral health facilities, which were impacted by natural disasters those that have since been reopened.
As disclosed in our last nights press release, our operating results for the first quarter of 2022 were unfavorably impacted by labor costs that were higher than anticipated and patient volumes at our behavioral health facilities that were lower than anticipated due to the continued uncertainties related to the COVID-19 pandemic.
As well as cost escalations related to the nationwide shortage of nurses and other clinical staff.
Although we are not changing our previously released 2022 operating results forecast at this time, we may make reductions to our forecast at a future date, if the unfavorable operating trends experienced during the first quarter of 2022 do not improve.
Our cash generated from operating activities was $445 million during the first quarter of 2022 as compared to $72 million during the same period in 2021.
We note that first quarter 2021 cash generation reflects the repayment of the Medicare accelerated payments.
We spent $200 million on capital expenditures during the first quarter of 2022, our accounts receivable days outstanding decreased to 48 days during the first quarter of 2022 as compared to 50 days in the first quarter of 2021.
Due in large part to the continued repurchasing of our shares at March 31, 2022, our ratio of debt to total capitalization increased to 42, 3% as compared to 35, 7% at March 31 2021.
Our first quarter 2022 operating results were behind our internal forecasts.
And our internal forecast were below the consensus consensus estimates.
The primary driver of the shortfall was the fact that the labor scarcity has not moderated as quickly as we were expecting.
We believe in part this is because at the height of the home across search providers, we're entering into longer term commitments for temporary traveling nurses not.
Not necessarily predicting that COVID-19 volumes will decline as rapidly as they ultimately did.
We do believe that the demand for this premium priced labor will continue to gradually decline.
In the meantime, we continue to invest heavily in recruitment and retention initiatives and has substantially increased the pace of our hiring.
Where appropriate we are also developing alternative patient care models that allow us to use a wider variety of available caregivers to render the most efficient and highest quality of care that we can.
While the pace of the recovery from the current labor scarcity is still uncertain.
We're comfortable that it will occur over time.
Combined with our confidence in the long term baseline demand in both of our business segments. Our bullish view of the underlying strength of our core businesses remains intact.
Reflective of that sentiment, we remain an active acquirer of our own shares in the first quarter repurchasing $350 million of those shares.
At the same time, we continued to reinvest organically opening the new acute care hospital in the Reno market and behavioral de Novo Andrew joint venture hospitals in Arizona, Michigan and Wisconsin.
At this time Im pleased to answer your questions.
Thank you as a reminder to ask a question you will need to press star one on your telephone to me.
You do all your question Christy pounds.
Please standby will become part of the cleaning roster.
Our first question comes from the line of Josh Raskin from Nephron Research. Your line is open.
Good morning. This is actually Mark go on for Josh Thanks for taking the question.
Just to start with the behavioral side it looks like volumes came in below expectations due to the continued capacity constraints.
So wanted to get your view what is the ultimate solution to attracting more staff to meet the strong underlying demand youre speaking about.
I mean, it doesn't sound like raising base wages is enough at this point.
Or do you think this is just more of a structural impediment.
Behavioral care for the foreseeable future.
Yeah. So we've talked about this at some length before.
I think the solution and the Grand as I think our prepared remarks indicated we don't think this problem gets solved overnight, but we do believe it will continue to gradually improve number one I think the market dynamics and we've been through nursing shortages before in our 10 year. Although this one.
It will be probably more severe than anything we've previously experienced.
Right.
The system will generate more nurses and other clinical personnel because wages are going up and it will become a more attractive profession.
Supply of new newer nurses will be helpful. At the same time and Mark alluded to this in his remarks, we've really upped our investment in recruitment.
And hiring initiatives the number of people involved in those processes.
Sure there are.
Wage structures in every market are as competitive as they can be we're reviewing competitive wage rates in most markets multiple times a year, whereas historically that's it.
Process that took place maybe once every year. Once every other year, we're changing patient care models, even walk referred to that as well and again, we're seeing the beginnings of the improvement in those areas. So you specifically were asking about behavioral I think we've been on the behavioral side of things hiring.
<unk> and other clinicians at record rates now for a record historical rates for us for well over six or eight months. The real challenge is on the back end, where the turnover rates continue to go up.
And.
That's the challenge that I think providers around the country are facing but I think we encourage you made for us or at least in the lab.
A few periods.
Net hires are actually positive now again, I don't mean to imply that the problem has been solved but I.
I think we think it will continue to get better and as we continue to have net positive hires it should allow us to treat more patients and that patient day number which was slightly negative in Q1 compared to last year should turn positive.
In the near future that would be the hope and continue to improve from there because again as I think more indicated in his.
Prepared comments.
We believe the underlying demand is there we believe that for a long time that really that core belief has not changed at all.
Thank you.
You have a question from Matt Borsch from BMO capital markets. Your line is open.
Hi, Good morning, Thank you for taking my question.
Rossi here filling in for Matt.
Regarding the recent release of the Medicare PPS proposal contract for 2023.
I can appreciate that there are still some moving pieces, but was curious if you could provide us with the projections for your rates from that proposal and then more broadly how you feel about CMS factoring this inflationary pressure and whether you think that CMS will start to factor that in more accurately as we look out to 2024 and beyond thanks.
Yes. So as you suggest there are a number of moving parts in the release when we do the calculation to the best of our ability we think that the net blended increase for uhm hospitals will be about two 5% that is pretty much the number that we included.
Our guidance for the year beginning in October .
With the beginning of the federal fiscal year.
I think along with the rest of the hospital industry, we were disappointed.
That Medicare and CMS did not seem to acknowledge the inflationary pressures on particularly the labor inflation.
Hospitals across the country are experiencing.
Fact that in this period between the preliminary and final rates.
Medicare will come under significant.
Pressure from lobbying groups across the country, representing hospitals of all stripes and sizes now.
Now to your question here, what impact will that have on CMS. This year or next year, it's hard to know, but we certainly.
Had feedback both I think formally and informally frontiers, both for profit and non for profit peers, both in our markets and other markets across the country.
Hospitals are struggling again, particularly on the labor side.
And certainly that will be making in Medicare and CMS aware of that as acutely as they can over the course of the next weeks to few weeks and months.
Okay, great. Thank you.
Our next question comes from the line of Andrew <unk> from UBS. Your line is open.
Great. Good morning, Thanks for the questions. Steve can you provide more detail toward how labor expenses trended in the quarter relative to internal expectations in each of the segments.
Within the quarter and into April what level of improvement have you seen in contract labor rates, what are your expectations for the balance of the year.
Yeah, so the cadence of the year, so far Andrew obviously.
January still had.
Hi, Omicron volumes.
In many of our geographies and some of those geographies.
Beyond the crime volumes really didn't recede until the end of January in some cases, even early February and so labor is definitely an overarching issue.
On the first I'll call. It four to six weeks of the quarter I think what was disappointing.
In terms of our expectation was that the labor scarcity again I think we said this in our prepared remarks did not receive or ease as much as we thought.
Yes.
The final six to eight weeks of the quarter as Covid volumes receded relatively rapidly and again I think as mark alluded to in his time and we think some of that was that hospitals were making longer term commitments.
I know a number of our commitments to temporary traveling nurses instead of being four weeks four weeks, where in many cases for 88 or even 13 weeks and we've certainly heard of other hospitals made commitments for even longer than that.
So to some degree I think we found.
Labor issues could be kind of a stickier and more difficult to navigate in the back half of the quarter than we were expecting I also think it's complicated when you have a tight labor situation in March and April going through spring break.
Stern, Passover holidays, and people I think resuming their normal kind of vacation plans and this and that for the first time in a few years.
It made again sort of back filling and getting back to sort of a normal labor supply and demand dynamic a little more challenging I think in both of our business segments. The hope is that it may as the calendar sort of settles down.
As we have more success in hiring more success in sort of trimming that turnover rate become a little bit more aggressive and not entering into nearly as many longer term commitments on that.
The temporary traveling side of things rejecting the highest rates that those temporary of traveling companies are demanding.
We will see some relief some measure of relief.
Beginning in the May call.
Yes.
Got it and can you help quantify the moderation in contract with rates that you've seen in the market thus far.
Yes, I mean again now the first quarter was a it was a quarter of escalating I'll say it dollars, especially.
On the acute side, we talked about our premium K in Q4 as being $120 million.
That increase in Q1 $250 million and compares to Q1 of 'twenty one when it was $70 million. So.
The overall dollars.
Premium pay certainly increased in Q1, we are seeing a reduction in rates.
At the very end of Q1 and into April and we presume that will continue into <unk>.
Q2, but it's difficult to say the exact pace at which they are decelerating, but certainly we're seeing decelerating rates.
Great. Thanks for the color.
Our next question comes from the line of Justin Lake from Wolfe Research. Your line is open.
Thanks, Good morning.
I wanted to start off following up on that question around labor. So Steve you talked about $1 20, you go into $1 50.
How do you expect that within the guidance.
Can you kind of play out through the year are you, assuming a pretty material decline there.
As we go through the year in terms of that.
Temp labor.
Yes, so Jonathan I think our commentary has been.
Pretty consistent really beginning with our third quarter call in October of last year into our year end call in February and that commentary has sort of suggested that the labor recovery, what's happening slower than we expected first of all was clearly set back by the omicron surge in December .
<unk> 21 in January of 'twenty two.
When we set things back from where our expectations were in the fall of last year.
But even as I said even from our.
The commentary that we made just two months ago, when we issued our guidance and ended our year end announcement.
I think the recovery is clearly slower than it is than we expected and obviously I think that's been true at least for two of our acute care peers, who I think have made similar comments in the last week or so.
Our original guidance always presume that it was certainly a different cadence than has been the historically normative cadence for our company that earnings would improve as the year went on and the fundamental driver of that sort of the cadence and that trajectory is the idea that labor pressures would ease as the year went on.
I think it's worth noting in terms of the.
The labor pressures being greater than we expected in Q1.
We certainly acknowledge that our earnings missed our own internal forecast again, Mark suggested we were off of our forecast we were about 5% to 6% of all of our forecast in Q1, we know that we were probably 11 or 12% off of consensus.
But I think we have a sense, though we may be able to recover that as the year goes on now again.
Our press release indicated if the labor recovery does not occur as fast as we think that it will.
We may have to revise that guidance later in the year, but whereas at the moment still hopeful that that improving cadence will occur as the year goes on.
Okay, but is there a number you can give us Steve in terms of why it's really helpful. You're saying $1 20, and $1 50, you know the last two quarters is there a number that you could anchor as to in terms of where you think this is going to go through the year.
Yes, I mean, what I would say is look I don't know that any of us know, where it's going to go I think what our guidance presume is that by the end of the year, we would at a minimum return to kind of last year's pace and like I said in the fourth quarter of last year.
The premium pay with sort of that $70 million range et cetera.
Really important to understand that.
That incremental let's call it $50 million.
Premium pay.
It's essentially a hit direct hit to the bottom line, because we're not getting any more nurses for that we're getting the same amount of nurses.
For the most part and just paying premium rates for them. So as those premium rates go down, but I mean, that's a premium rates have risen they've clearly.
Put a real strain on our earnings and our peers earnings, but as they come down you get that same benefit.
Youll be replacing a temporary nurse with an employee notice who's making maybe a third of what the temporary nurses banking.
Okay. So you just put some math around this and finish it up.
We're talking about 150 going down to 70 by the end of the year, but you havent seen any.
Actually it sounds like you've seen a little bit of a moderation in the in.
And the.
Payment terms, but not much of a moderation in the hours right even through April .
Is there anything you can point us to that saying you know you've got visibility here and if not why not just take down the guidance and assume some more conservative path through the year.
Yeah, So honestly, Jonathan I have to confess being a little bit frustrated you know two months ago, we issued guidance that I think it was more conservative generally than our peers.
At least from a number of quarters I think we were roundly criticized for that that we have.
We express too much caution about how quickly this labor situation would resolve itself et cetera, now two months later.
People in you in a moment are you, saying, Okay. Now you are being too aggressive law, we're suggesting I think and again I don't mean to imply that we're saying that the labor situation has turned or where we have 100% certainty that it will or when it will I think we're just suggesting that more time.
<unk> is not an unreasonable sort of requests for people to have two months after that guidance was initially issued.
I pointed to a number of metrics I said you know our net hires in the behavioral segment has turned positive in the last few periods.
I suggested that we are seeing lowering rates et cetera, again, not meaning to imply that there is a complete turnaround here, but I do think there is enough.
These sort of early indicators that things are improving to a degree that makes us think that that 6% shortfall from our own internal forecast when we experienced.
In Q1 can be maybe.
May be partially or completely recovered as the year progresses.
I appreciate all the color. Thanks.
Okay.
Our next question comes from the line of Stephen Baxter from Wells Fargo. Your line is open.
Yeah, Hi, thanks.
I appreciate the commentary on the impact of behavioral volumes from Labor I was hoping you could help us think about a little bit operationally about what happened in the acute care business in the quarter. So when we look at it I guess against baseline levels. It does seem like the adjusted admissions take a step back versus where you've been running over the past three quarters I guess those quarters also had some some COVID-19 .
So I'm trying to understand was there an impact on the volume side and I guess, if there was an impact on the volume side. It does seem like you're using a greater quantity of contract labor against that.
That means for how your maybe your retention rates or performance. Thank you.
Yes, I think it's worth noting that.
The Colgate volumes again, and this is really acute care commentary were so high in the beginning of the year.
Even though they decline fairly rapidly.
Our acute care segment finished the quarter with about 14% of their admissions for the quarter being Covid diagnoses and that's about as high as we've run during the two plus years of the pandemic. So I know people tend to have sort of recency bias.
Think of Covid being behind us et cetera, but COVID-19 played a significant part in Q1 and on the acute side that is challenging because it.
It's challenging on the labor side as we've discussed it's challenging on our ability to.
How effective throughput with with non Covid cases, and procedural cases et cetera, I think by the end of the quarter most of the.
The operational sort of throughput in terms of patients etcetera had returned in large part to normal but again those labor pressures persisted.
Late into the quarter, maybe in some cases, even into April because I think of this phenomena.
I made the point that it's not only our commitment that we're in.
Locked into longer term commitments for nurses, but to the extent that the nurses, who we think will ultimately return to our facilities are locked into longer term commitments at otter facilities or other geographies that has to play out before those nurses will ultimately return to us and while we certainly acknowledge that some of those nurses probably don't.
Retirement anytime soon and are more committed to sort of that traveling or temporary nurse lifestyle. We do believe and I think both our internal and external data suggest that more and more of those nurses are not going to pursue that lifestyle indefinitely.
Okay.
Our next question comes from the line of Jason <unk> from Citi. Your line is open.
Great. Thanks, Good morning, I just wanted to go to Capex quickly just been contact focus continued kind of pressured labor environment does it change how you're thinking about the pacing or timing for future capital deployment priorities as it relates specifically to service line build out our investment in equipment or otherwise at this juncture.
Thanks.
Okay.
So what I would say is we certainly have to take that into account.
On a.
At the start of basis.
Each project, we look at and try to make the determination on market factors.
For capital equipment things like that probably no change, but for the larger projects project in general we look at them specifically.
Taken into account each factor are all the factors in a particular market that might affect that project and in some cases.
We will choose to hold at least for a period of time.
Until we feel better about what's happening in a particular market.
Thanks.
Our next question comes from the line of <unk> Chickering.
<unk> from Deutsche Bank. Your line is open.
Hey, good morning, guys. Thanks for taking my questions a couple ones here.
What <unk> seen in the first quarter it looks like labor pressures continuing into April before hopefully turning in May.
You said that the street first quarter estimates for $5, 6% higher than your own internal estimates any chance you can give us a range for how we should think about <unk>.
Sequentially or percent of the annual maintenance.
Just so we get this number right.
Yeah, So I'm not exactly sure what Youre asking me maybe as we've discussed on many occasions, we don't give quarterly guidance and that's an intentional decision on our part as I said, we were 6% short of our own internal forecast in.
In Q1 and.
I think part of the reason that we particularly enumerated some of those startup losses of nonrecurring losses.
Our prepared remarks was.
We were.
Essentially suggesting a reason why I think we budgeted for those things probably.
More accurately than the street was able to I don't know that for a fact I don't know that that's the main difference between our internal forecast in Q1 versus.
Versus the consensus, but I think its a possible explanation.
I think again, our perspective is that EBITDA basically gradually increases as the year goes on which again is different than what would be our normal historical cadence, but again getting back to this idea in order to make up that 6% shortfall in Q1, we'd have to be.
A couple of percentage points higher in each of the next quarters on average.
To still get to the midpoint of our guidance.
Again, I don't think we think thats a certainty by any stretch, it's a difficult environment, but I think we certainly don't feel at this point.
That we would say with with.
Precision that we can't get there.
Okay, Great and then can you provide some gross hires was a net hires in the fourth quarter versus a one quarter first quarter. How is it tracking in April and basically any color on turnover is it consistent is it getting better or worse, and then third tag on there as well.
Think about turnover did he means of your wages are uncompetitive.
We need to increase those rates.
Yes.
Yeah, So I mean as I said in an earlier comment.
This question of whether wages are competitive.
Is.
It's certainly far from a static question and literally.
We are doing competitive market reviews in all of our markets.
In some cases as frequently as quarterly I mean, that's how quickly.
The supply and demand dynamics are changing.
But again the point that I would make is the labor or the wage pressure that we're feeling.
I'll speak to the acute business in particular is not from the increases that we're giving from an underlying wage perspective, but it's from that premium pay.
And as that premium pay declines even.
Even if we are increasing our wages are base wages by 100 basis points or 150 basis points. The economics are such that we benefit greatly.
Again. The example that I was giving before I think in response to Justin's question, if our premium K pay goes from $150 million that we spent on acute in Q1, because this $70 million, we spent a year ago.
That benefit.
Drops almost directly to the patient to the bottom line now again not going to happen immediately we will take some time, probably gets offset a little bit by underlying wage increases.
There's still an enormous amount of leverage that comes from being able to reduce that number the challenge that all of the hospitals in general have had is that number has been increasing and the sense is I think at the moment that we're getting pretty close to the peak if we're not there.
And now I think the focus in all of our calculations or how quickly can it be reduced.
I don't think Theres, a sense that that number is likely to go up anymore in any significant way.
Okay, Great and then.
Two quick follow ups here.
Supply inflation, you know, where we're going to hear.
From suppliers about sort of pushing costs on hospitals I guess, what are you seeing from suppliers and then from <unk>.
Medical devices are you guys seeing inflationary pressures getting pushed to you on the supply side.
Yes look I think you know like every.
Both business and personal consumer we're seeing.
Inflation affecting all of our spend.
But the labor inflation.
Again, I'm not even sure I would describe it as inflation per se, but what I would describe as the reliance on this premium pay is so much the dominating dynamic in the space that even with inflation.
Two things I think if if.
If we see those premium rates come down we will get a direct benefit from that and I think as we see those premium rates come down we will also see our own hiring improve and particularly on the behavioral side that will allow our volumes to increase and that will provide a pretty significant offset to those <unk>.
Right. So again inflation definitely a factor, but I think we have a point of view that if we can solve the labor scarcity problem.
That more than overwhelm the pressures that we're feeling from increased inflation.
Great. Thanks, so much.
Our next question comes from the line of Ann Hynes from Mizuho. Your line is open.
Hi, good morning.
Can you, let us know what is embedded in guidance for base labor wage rates and what that compares to them on a historical basis and your estimate tracking in line with.
Your estimates and then how should we think about that in 2023 I know, it's early but just giving wages beg your big biggest cost structure.
We probably want to assume the right pressure points for next year. Thanks.
Yes, sorry, and we talked I think about this a little bit in the Q4 call I mean, I think if pre pandemic our wage inflation was.
Let's say on the acute side, 335% on the behavioral side. It was probably 2% to 5% I think post pandemic.
Thinking those rates are up 100, 150, maybe even 200 basis points.
I think we think those rates ease some in 2023.
For a number of the reasons that we've already talked about but again I think when we do that math.
We are replacing.
Terraces, who were making 65 or $70 an hour with temporary or traveling nurses, who are making $225 an hour that's really the drag on our earnings in the current period, if we ultimately ripley's replace those those nursing hours that we were paying 225.
<unk>, 4% at $75, even though that's a reasonable increase from what we had been paying pre pandemic, it's still an enormous improvement over where we're sitting right now.
Alright, and then just a follow up question when I think about the nursing issue like the acute care seems very obvious you have the premium rates you had covered spikes and that should come down, but I struggle more with the behavioral side and whether there are some structural shift in nursing.
I'm, calling on I guess, what is your view on that and is there anything you can do to reduce your reliance on nurses and if it is more structural in nature or would you consider portfolio rationalization like sort of markets.
Your clothing units right now.
And maybe.
I know you are getting a lot of nurses staff, but do you have like an absolute number of nurses you had pre pandemic and what it is first is now in the behavioral business I'm, just curious to see how much your nursing staff.
It has been reduced and what you have to overcome to return to growth.
Yes.
Yeah. So you know again, we've talked about this the most difficult position generally to fill during the pandemic has been a registered nurse position on both the acute and the behavioral side.
And we're experimenting.
That experiment I think we are implementing new newer models of patient care that rely less heavily on the R&D and more heavily on LTM, and <unk> and paramedics and and all sorts of other.
Folks who are rendering care and not what I always want to make this point very clear.
We're not having people.
Practice the phrase that gets used in the profession is above their license. When we're trying to do is relieve our rins from doing more clerical and administrative work.
And then maybe somebody else can answer the phone somebody else to speak with families.
If somebody else can change the sheets in a room whatever it may be less allows the nurses to do the things that are again at the top of their license.
Doing psychological assessments available care and delivering medications and all those sorts of things. So that's really a big focus of ours now again to be fair those sorts out patient care model changes take some time.
Take some time to hire the other non RN positioned takes some time to train people.
Take some time for people to get oriented etcetera, but we think we're making incremental improvement in those areas and we will continue to do so.
As far as portfolio rationalization.
We're not really I think were.
<unk> NAND capacity temporarily when we don't have sufficient clinical staff to treat patients, but I think we've talked about this again in previous calls we are I think rationalizing our capacity to a degree as we're negotiating our managed care contracts. If our managed care payers are not giving us sufficient increases.
To recognize this this elevated level of.
Labor cost, we're canceling some of those contracts were changing payer mix et cetera. So I think we are rationalizing.
Capacity, where the portfolio in that way.
And.
I think I said this earlier, we're also saying no to some of the really really egregious.
Perry and traveling rates, where we're just saying look it doesn't make sense for us to pay X y Z for nervous if we're only getting paid ABC from a payer and so I think unlike some some providers. We don't have the point of view that we're going to pay whatever it takes for a nurse I think in some cases, we believe.
That it just makes sense to you.
Rationalized and using your term some of the capacity and just run a lower volume for a period of time until rates come into a more normalized range.
Alright. Thanks.
Our next question comes from the line of Sarah James from Barclays. Your line is open.
Yeah.
Thank you.
Please go ahead.
Can you just talk about your 5% to 6% off internal forecasts in Waikiki.
So for $20 million.
Premium pay went up 30 and can you give us.
What's like why is that.
Last quarter, you said it was about 25 to 30.
I'm still on pace for the year and done well there.
Positive offsets.
Because it seems like there is there one to talk to that.
I think some of those markets.
Yeah, So Sara I mean, we've talked about before is that.
The premium pay on the behavioral side is much less of an issue than it is on the acute side, it's probably.
A third are lower and.
When you talk about premium pay as well as things like retention bonuses sign on bonuses et cetera.
The real issue on the behavioral side is insufficient volume and revenue growth. So.
In Q1, our adjusted patient days were I think 1% below the prior year, while our overall revenue growth was three 5% to 4%.
Clearly those that level of growth in both volume and revenue is not sufficient.
To support the increased labor inflation, and just general inflation, we're experiencing but it's not the issue on the behavioral side is not to get rid of the premium pay that's certainly our goal as well, but the real issue on the behavioral side just to hire sufficient clinical staff and to change the patient care model.
As to hire sufficient clinical staff, so that our patient days are growing at least at their historical norm levels of three years to 4% a year.
Okay, and then earlier in the call you talked about and considering alternatives.
Alternative care model and what do you mean.
Like outpatient methadone clinics can you be more specific.
Yes.
What it means I think are.
Sure.
The folks who are delivering patient care or less R&D intensive.
And more.
Lower license level people, whether that's L P and her lv and or tax or whatever.
And again, what it's really designed to do is to allow the RN to practice at the top of his or her license and allow other people to do the more administrative and clerical activities and as a consequence deliver the highest efficiency and.
Quality of patient care that we can.
Way that allows us to treat.
Many patients safely as we can.
Got it.
Last question is just a follow up for Ann.
And so when you.
Shang canceling some payer contracts or shift in payer mix is there any other detail you can.
Provide on that of what payers are.
Correct.
Yeah, so you're breaking up a little bit fair I'll try and answer what I think you asked.
Again I think.
The detail that I would offer around that is if you look at our Q1.
Behavioral results our revenue per adjusted day.
Five plus percent.
I think that's reflective of the fact that we're doing a pretty judicious job of negotiating increased payer rates and choosing in.
Trying to engineer Payor mix so that.
Where we're not.
Dealing with payers, who are sort of refusing to give.
Give us the.
The sorts of annual rate increases that we would need to compromise you know I think we're being very successful at that I think we're very pleased with that five plus percent of revenue per adjusted day on the behavioral side of the business again now the real challenge for US is to move.
Move from a negative 1% patient day growth two of the historical normative three of 4%.
Even above that.
Thank you.
Our next question comes from the line of a J Rice from credit Suisse. Your line is open.
Hi, everybody.
Just a couple of questions.
On the behavioral side I know, we're mainly talking about the labor component here, but.
I just want to make sure that you're still feeling like the underlying demand for the service is still strong I know your biggest heart hospital Pier, which has behavioral health units reported that they were actually down year to year, two and behavioral so I.
I Wonder if it is still so strong where are these patients going do you have a sense of what's happening to them.
Yes look I think the reality a J is that.
In many cases theyre going untreated.
And many of our markets.
Yeah.
You definitely have a sense that.
Where we are unable to take a certain number of patients because we don't have sufficient clinical staff. It's not like we believe that all our peers in the market are able to do something were not so I think some of those patients wind up not getting the care that they really need and sort of back to your appointment. We've made this point I think very soon.
Italy.
During the entire pandemic and that is the ways that we measure of the underlying demand I think we measure them in a number of different ways, but one of the ways. We measure the underlying demand is what we describe as inbound activity. These are the phone calls that we get to our 800 numbers the internet inquiries, we get through our websites et cetera.
And those the volume of those inbound inquiries have been doing nothing but generally consistently rising during the pandemic and our conversion rate.
A number of those inbound inquiries that ultimately result in admissions.
That percentage has declined pretty dramatically during the pandemic really primarily because of the labor scarcity issue that we've been talking about so.
To answer your initial question, which again I think mark addressed in a broader way in his comments earlier is we have a lot of confidence that the underlying demand for both of our business segments has not changed in any fundamental way.
Okay.
I know one thing.
Relative to your other public peer in.
And behavioral that you're a little different is that you have.
Some markets like in Massachusetts, and Texas, where you have multiple.
Gabriel health facilities, and one metropolitan area or a cluster of them.
When you look at that is are those presenting specific challenges do you have more labor issues. How do you manage the fact that one very real health facilities not competing against the other behavioral health facilities for labor do you coordinate that any thoughts.
Yes, I think the reality is you know obviously, having multiple facilities in a market, which we do in a number of markets you mentioned, Boston Philadelphia Atlanta.
All markets in which we have a pretty significant market share and a multiple facility presence.
Honestly that affords us some luxuries of being able to move employees.
Amongst facilities that allows you to centralize some of the recruiting and HR functions and be more efficient in that regard et cetera. So.
There is some benefit to that but the real issue is that.
Some geographies are just more challenging than others in terms of the labor scarcity.
And I think what we find is that when a market is challenging all of the providers in the market are challenged and you.
That's just the way. It is now again I will tell you we have certain facilities that are fully staff that are not struggling we have other facilities that struggle to hire our and we have other facilities that have a sufficient number of RMS, but struggled a higher mental health technicians, who are unlicensed professionals. So.
It really varies.
And I wouldn't say that.
Having multiple facilities is either more or less difficult I think it just really depends on the geography.
Okay, and maybe just one final question. So obviously your step up pace of share repurchase as an important part of the UHF story for this year I guess.
How should we think about that activity you did about $350 million in Q1 on the one hand the <unk>.
Markets, giving you an opportunity here, where there's a significant selloff in our stock today, and so you get an opportunity to buy it cheaper than you could yesterday Alternatively, you're talking about the fact that you know you got to see some improvement or you may adjust guidance at mid year.
Think that you would step up to try to take advantage of the pullback here or do you sort of hesitate until you get better clarity on whether theres going to be a need to adjust guidance, what's your thinking about share repurchase activity going forward.
Yeah. So we indicated in our initial guidance that.
Our plan for share repurchase for 2022 was roughly $1 $4 billion with the $350 million in Q1, we're right on track to get to that number to your point obviously the market has changed a great deal just in the last few days.
To be fair about it we.
You haven't made any firm decisions about how to think about that.
We will try and accelerate share repurchase et cetera.
We certainly will think about that but the comment I guess I'd make today is simply that I think we have every intention of fulfilling the the annual share repurchase amount or something close to it.
That was in our original guidance that certainly our view hasn't changed and again I think for all the reasons that mark articulated in his prepared comments are.
The confidence that the labor scarcity situation will get resolved.
And that the underlying demand is still quite strong in both of the businesses, but just to go a bit further what Steve said. This when we are going to look at this and so we're right on track for our previous guidance.
If our shares continue to be this undervalued.
Would be a pretty fair bet that whether we go above that 1.4, we haven't made a decision yet, but we're certainly going to look very carefully at Duke.
Something.
When our shares are undervalued given with C. Just said about our belief in the business.
The demand is there.
Labor issue will subside at some point, so we know that fundamentally will be in a good position. So we can take advantage of.
The undervalued share price, we'll certainly.
Consider that and probably do that.
Okay, great. Thanks, a lot.
Alright.
Our next question comes from the line of Jamie Paris from Goldman Sachs. Your line is open.
Hey, good morning, Mark and Steve.
Can you give us any color on profitability by months in the acute care segment, even directionally. It seems like the labor environment and similarly challenged across all the mines, but the big difference in January you had a lot of COVID-19 .
March looked a lot more normal and I'm, just trying to understand the trajectory of profitability in that type of mix shift happening.
Yeah. So I think there's we have found.
Throughout.
The pandemic the acute business.
Benefits to some degree from the Covid surge as.
The COVID-19 patients historically have been more acutely ill that I think that was a little bit different in this most recent surge.
We got the benefit of the 20% Medicare Anna for Covid patients, we had the benefit in the quarter of the hearse of reimbursement for <unk>.
Uncompensated or uninsured COVID-19 patients, although that has pretty much been exhausted. So I think the acute care business whether is the COVID-19 surge in December and January better than the behavioral business, where they're really on the behavioral side of things is no benefit from the Covid surge.
Theres only pressures that sort of a company is I think the dynamic of the quarter is that we assume that as COVID-19 volumes declined the labor scarcity issue would ease more than it did and would benefit both of our segments in.
More.
More than it did so I would say that acute <unk>.
<unk> ability didn't change all that much during the quarter I think our budget increase so often our budget shortfall increase as the quarter went on.
Although profitability only change much I would tell you that on the behavioral side profitability was really challenged in January when the Covid volumes were as high as they were and got better as the quarter went on.
Okay. That's helpful. And then just we've talked a lot about all the money you're spending on premium labor today I'm, just trying to think about as rates and utilization in premium labor come down if that gives you an opportunity to redeploy some of that into base wage rates just thinking about the recapture ability of some of those excess cost right.
Is it all recap here ball or two thirds half just any any thoughts on that would be helpful.
Yes, I think that the reality is there's not a lot.
I forgot the term you used but sort of transferability between the two you know I've made this point before when the nurse comes.
To her supervisor to a hospital chief Nursing officer, whatever and says she he or she is leaving to make $10000 a week.
It was probably four or five times, what his or her salary is theres really no counter we can make to that and raising base wages by 100 basis points 200 basis points is not an effective counter to that sort of an offer so.
That those opportunities really have to diminish in number in order for those nurses to come back we're not going to entice those nurses to come back with again 100 base 100 basis point increase in wage rates, which again I think he is y.
Lying base wage rate inflation, while it's up in both acute and behavioral is not off by hundreds and hundreds of basis points, but just by 100 or 150 basis points, because theyre not really being changed to meet those.
That premium pay but we just can't do that I'll make one more point on this.
What we're trying to do we're doing Steve already mentioned earlier, we do market surveys and we're doing adjustments on a quarterly basis and a lot of our markets trying to understand exactly what the correct base rate is for a market.
One of the things I want to make sure people recognize is that a lot of traveling nurses don't actually travel anywhere so in certain markets I've seen traveling nurses up to 50% of those quote unquote travelers or people that live within four or five miles of where they're traveling to so a lot of them.
Are people that have actually not gone anywhere, they're taking traveler contracts in their home market and what is happening now is going to continue to happen is that those opportunities for the travelling contracts are going away and so hopefully sooner than later a lot more of those.
Morning, Paul traveling nurses, if they want to stay in their home market, which they clearly do because they haven't gone anywhere they're going to have to go back to the local hospitals at the local wage rates.
Now to traveling rates that they were getting for those contracts previously and we're already starting to see that and hopefully that's going to accelerate in the next couple of months.
Alright, thanks, guys.
Our next question comes from the line of Kevin Fischbeck from Bank of America. Your line is open.
Hey, good morning, actually this is Joanna <unk> filling in for Kevin.
Couple of follow up questions. So you mentioned on.
On the psych business the pricing is very strong and I guess you are managing your contracts. There can you talk about the.
On the acute care side.
Or are the commercial rates now in contracting there are you are you.
Pushing.
Wait there also to get some.
I'll sit on that inflation on what the success rate is that kind of any any way you can frame it for us.
The piece of the business on that Chris.
Marshall.
<unk>.
Yes, Joanne I mean, I think we're doing the same thing on the acute side I think it's a little bit harder to see on the acute side.
I think on the acute side revenue per adjusted admission tends to be impacted by.
Other variables, besides just pure pricing and especially during the pandemic, probably acuity has had a bigger impact on acute care revenue per adjusted admission then than anything else, including the underlying pricing, but yeah. I mean, we're making those same judgments for the same reasons quite frankly.
You know with payers are unable to.
Give us sufficient rate increases at a minimum to sort of.
Zoo or at least a portion of this inflation and particularly the labor inflation that I think we are willing to.
Cancel contracts terminate contraction of move and move into.
You know trying to ship Payor mix to other more reasonable players.
Great. Thank you and I guess on the Psych side. When you talk about the 5% increase you experienced in the quarter is that kind of how you think about this going forward is this.
I assume in your guidance.
Inc.
Yeah. So you know what we had said.
Is that pre pandemic, our behavioral pricing.
For a number of years tended to go up about two or 3% a year during the pandemic.
You've seen it up in that 5% to 6% range, which is what we saw in Q1 I think it settles out as we emerge from the pandemic kind of in between and maybe that sort of 3% to 4% range.
Because I think some of.
The payer behavior, which got a little bit less aggressive in terms of denials.
Things like that during the pandemic, probably re emerges post pandemic. So yeah I think again.
I think we think favorable pricing settles into more of a like a three or 4% range again, what's really needed to turn in the behavioral segment.
Around that start meeting our expectations has got to increase those adjusted patient days from your negative one two up three or four or beyond that.
Right exactly I guess, that's a that's the bigger issue we talk further last hour.
But I guess in terms of the volumes on the acute care segment. So did I hear right right.
You said that the volumes return to normal I guess towards the end of the quarter or did you mean kind of the.
Pre COVID-19 levels or any kind of commentary.
In terms of the types of volumes and what are you seeing there.
Thank you Chris.
Yeah. So you know one of the most important metrics that we track during the pandemic as surgical volume because it encompasses a lot of those elective procedures are surgical volume in Q1.
Was above our pre pandemic surgical volume to be fair slightly but not by a lot, but I think it was the first time during the pandemic that our surgical volumes.
Actually exceeded the pre pandemic are significant 19 level. So again another encouraging sign.
That again once we get some of these labor pressures at least partially behind us should help in the recovery.
Great. Thank you so much.
Our next question comes from the line of Whit Mayo from VEB Securities. Your line is open.
Hey, Thanks, just one more question on premium pay the take the 150 billion.
What did it look like the very first three quarters of 2021, I'm just trying to get a better comparison here.
Yes, so I don't necessarily have those numbers in front of me, where I think that what we said, which I know last quarter was that in the fourth quarter of 'twenty, one it was $70 million.
I think in the first quarter of 'twenty. One it was $50 million. So you know I think you could sort of.
Okay.
Bridge that gap.
Yeah.
Perfect.
Just one other follow up question, just the DRG add on and the Horace a payments can can I get that those two numbers from you.
Yes, so I think we have disclosed all along that the impact of those numbers.
In 2021 was about $11 million a quarter each.
In.
Each herson toward the 20% now.
Okay.
That's it thanks.
And Mary were going to have to make that our last question because we have some other commitments here.
Thank you.
So I'd like to thank everybody for their time. Thank you.
This concludes today's conference call. Thank you everyone for participating you may now disconnect.
Okay.
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