Q4 2022 Tenet Healthcare Corp Earnings Call
Speaker 2: And.
Speaker 3: And.
Speaker 4: conference call. After the speaker's remarks, there will be a question and answer session for industry analysts.
Speaker 5: If you'd like to ask a question at that time, please press star one on your telephone keypad.
Speaker 6: The tenant respectfully asks that analysts limit themselves to one question each.
Speaker 7: I'll now turn the call over to your host, Mr. Will McDowell, Vice President of Investor Relations. Mr. McDowell, you may begin.
Speaker 8: 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 Tenets' fourth quarter 2022 results, as well as a discussion of our financial outlook.
Speaker 9: Kenneth Senior Management, participating in today's call will be Dr. Sam Satoria, Chief Executive Officer, and Dan can sell me Executive Vice President and Chief Financial Officer.
Speaker 10: Our webcast this morning includes a slide presentation which has been posted to the investor relations section of our website, TenantHealth.com.
Speaker 11: Listeners to this call are advised that certain statements made during our discussion today are forward looking and represents management's expectations based on currently available information. Actual results and plans could differ materially.
Speaker 12: Tenant 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'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 Som.
Speaker 13: Thank you, Will, and good morning, everyone. To kick us off, I want to thank all of our physicians and caregivers for their commitment and attention to our patients' needs throughout 2022. Three years into the pandemic, I continue to be inspired by the people I meet who have chosen to forge ahead and find their calling and healthcare.
Speaker 14: Second, I want to take a moment to acknowledge three of our leaders who have announced their retirement this year.
Speaker 15: Roger Davis came to Conifer in 2020 planning to transition to become the CEO of a spun-out independent company. Roger has been a selfless leader, acting upon the opportunities to improve Conifer's technology, point solutions, AR operations, and global footprint, with Conifer remaining a part of Tenet rather than advancing his own personal goals.
Speaker 16: For that, we will always remember his leadership as a role model in the company. Brett Broadnax has devoted over 20 years to building today's USPI. He's a pioneer in ambulatory surgery and a rock star in his field. The relationships he has cultivated with health system partners and doctors
Speaker 17: will remain a hallmark of USPI because he has never treated them as his, but ingrained them into the fabric of USPI. He and I jointly selected Andy Johnston to return to the company after gaining additional operating experience outside of the organization, and I could not be more pleased with the way the three of us will lead this transition over a full year.
Speaker 18: his career succeeding in every role he took as he ascended to our company's CFO . At every step, Dan championed his team members, brought the perspective of the leaders in the field to our home office, and relentlessly works to be solution oriented to the problems we face.
Speaker 19: In the last few years, he's been instrumental in every aspect of our turnaround efforts, demonstrating his ability to adapt and take a fresh perspective on a company he's known his entire career. He creates value for our shareholders. Dan represents the highest model of integrity in our organization, and I'm grateful for his dedication to help onboard a new CFO at Tenet.
Speaker 20: In the last five years, we've built a model for leadership transitions that are stable and collaborative handoffs, and these should be no different. Thanks to all three of you.
Speaker 21: With that, let's turn to our 2022 results.
Speaker 22: In 2022, we recorded net operating revenues of 19.2 billion dollars and consolidated adjusted EBITDA of 3.47 billion.
Speaker 23: which translates into an attractive 18.1% adjusted EBITDA margin.
Speaker 24: We finished the year strong and delivered results in the fourth quarter consistent with or slightly above the expectations we set for all three of our businesses driven by stronger volumes and excellent cost management.
Speaker 25: For the year, USPI delivered $1.327 billion in EBITDA with strong margins at 40.9%.
Speaker 26: Importantly, in 2022, USPI had 4.6% growth in same-facility revenues in the range of our long-term goal of 4-6% top-line growth.
Speaker 27: But as we've discussed, the performance in 2022 was not consistent quarter to quarter, and same-store EBITDA growth was below our expectations.
Speaker 28: We are pleased that the fourth quarter returned to positive same-store growth and the typical seasonality of strong December volumes that we used to see pre-pandemic.
Speaker 29: USPIs M&A engine under the Tenant Umbrella continues to be an industry leading differentiator. In 2022, we added 45 centers to the portfolio through M&A and Denovo development in addition to the SCD centers.
Speaker 30: This was highlighted by our acquisition of 22 facilities in our partnership with the United Eurology Group.
Speaker 31: Turning to our hospital segment, we generated nearly $1.8 billion of adjusted EBITDA in 2019 during a challenging operating environment.
Speaker 32: Our operators navigated a cybersecurity attack as well as continued COVID-related pressures.
Importantly, we saw meaningful improvement in clinical quality and patient safety metrics, such as a 50% reduction in both MRSA infections and hospital-acquired pressure ulcers.
We saw our peak in contract labor expense in September , and by December we had reduced that by almost 23 percent, exiting the year with contract labor below 6.5 percent of our consolidated SWNB expense.
We are confident in our labor management system and will continue to adjust as needed for critical patient needs.
Over the past year, we have also invested in our workforce with increased pay, bonus programs, and incremental benefits.
Importantly, our nurse retention and recruitment efforts continue to pay dividends with RN hires up in 2022 over 2021.
Retention has improved as well. In the fourth quarter, nurse turnover improved by 22% compared to the average of the prior four quarters.
Finally, Conifer had another strong year, with third-party customer revenue growth of 10%. Adjusted EBITDA margins remain strong at nearly 28%. Conifer's pipeline of sales opportunities remains robust, reflecting the investments that we have made in our commercial capabilities.
for both integrated and point solution initiatives. Let's transition to 2023 guidance.
We are projecting full year 2023 adjusted EBITDA of $3.16 billion to $3.36 billion, which represents an attractive growth rate of 7.2% at the midpoint on a normalized basis.
First, in our industry leading ambulatory surgery business, we anticipate normalized adjusted EBITDA growth at USPI of 11% at the midpoint of our guidance, based upon our expectation of 4% to 6% growth in same facility revenues, further accretion from the second SCD transaction.
and continued strong contributions from our M&A and Denouvo initiatives. Our guidance reflects a healthy 5% organic EBITDA growth rate for this year.
Let me address the second SCD transaction in same facility growth in more depth.
The most direct way to characterize the second SCD transaction is that we are behind our expected ramp up by approximately one year.
Recall, unlike the first SCD transaction where we acquired mature centers and achieved 100% in buy-ups to consolidate and deliver synergies into those centers, the second transaction had a broad range of assets, including many that were early in development.
We had some planned biops and center openings that did not happen on our original timeline in 2022.
The agenda to make progress has not stalled. Since Q3, we have completed six more biops at multiples unchanged from prior biops.
We have opened the majority of the De Novo centers with the remaining seven on track to open this year.
Collectively, the SCD transactions deliver a total of 135 centers which have margins of approximately 40% and were acquired for an average multiple under 10 times pre-synergies.
Returning to same facility growth, the continued migration of procedural services into an ambulatory setting acts as a sustained and far reaching tailwind for our business.
Looking back from 2019 to 2022, the same facility business has recovered to pre-pandemic volumes, and at the same time, our net revenue per case has risen by 12.8 percent as a testament to our ongoing addition of higher acuity cases.
We are also positioned to drive the track of growth in 2023 and beyond. Let's unpack that further given our Q422 same facility volumes and how we bridge into our 2023 guidance.
First, as a foundational element, in 2022, on a same facility basis, our active physician population grew over prior year.
Second, the impact of Hurricane Ian causing facility closures during the fourth quarter was about 0.3 percent. Those facilities are now repaired and operational in the current year.
Finally, reductions in certain lower acuity services and investment in higher acuity services are still ongoing. For example, in Q422, this impacted same facility growth by approximately 1.1%.
We will continue to seek opportunities for service line acuity enhancements into the future.
It is noteworthy that our same facility ASC total joint cases as one of the highest acuity orthopedic subservicelines grew by 13.2% in 2022 relative to 2021.
For these reasons, we have conviction in our strategy, and we are comfortable with our guidance of same facility growth, returning to 2 to 3% in 2023.
Let's turn to our USPI M&A engine, which represents the other critical value driver for tenet Sherel Folders
For many years, we have consistently acquired centers at attractive valuations and driven post-cenergy multiples for our acquisitions to below five times. And our latest 2022 vintage is estimated to do the same by the end of year two.
We intend to invest approximately 250 million in ambulatory MNA each year and have a robust pipeline to support that level of investment.
We continue to be active in the construction of new centers, originating from our USPI development team, and separately from our SCD partnership pipelines.
We currently have 22 centers that are in active syndication or under construction.
Adding centers with strong margins and attractive post-synergy multiples remains the best use of our cash for investments to enhance tenants' free cash flow.
We recently announced a new development agreement with Providence Health System, a leading innovator and healthcare services in the Western United States that will expand our strategic partnership and increase ambulatory access across new markets.
We expect this relationship will expand to 15 to 20 centers in the next two years.
Stepping back, USPI is among the best examples of value-based care in our industry.
Our services are generally 30 to 50 percent more affordable than similar services delivered in a hospital setting. USPI is the preferred partner for both high quality physicians and health systems as our teams deliver the full range of management services.
The linkage to our hospital business creates an unquestionably superior platform from which to draw talent, operating expertise, and scale benefits.
Turning to our hospital segment, we are expecting adjusted EBITDA growth of 4.6% on a normalized basis at the midpoint of 2023.
We anticipate this will be driven by 2 to 4 percent adjusted admissions growth, continued operating discipline, and the expectation for further moderation in contract labor costs partially offset by increases in employed labor costs.
The year-over-year core adjusted EBITDA growth rate for 2023 is higher than our long-term forecast of 2-3 percent annually because of the tailwinds created by the points I've noted and also the continued recovery of our Massachusetts market and ramp up of our hospital in Fort settling
Our portfolio transformation also continues as we recently reached an agreement for John Meere Health to purchase 10-51% interest in the San Ramone Regional Medical Center for 142.5 million slightly above a 10 times multiple.
This transaction is expected to be completed in 2023, subject to regulatory provils and customary closing conditions.
Finally, conifer is expecting a justity of a death growth of 11% for 2023 on a normalized basis for changes in tenants contract terms and client hospital divestitures, driven by new sales and a continued focus on automation and offshoring activities to realize greater efficiencies in our operations.
All in, our full year 2023 guidance of 3.16 to 3.36 billion represents an attractive recovery target that is also respectful of the continued challenges of the current operating environment.
Our management discipline has been a hallmark of our success and we are focused on accelerating efficiencies across our business segments and investing for the future.
And with that, Dan will now provide a more detailed review of our financial results.
Thanks, Tom, and good morning, everyone. We were very pleased with how we finished the year with fourth quarter adjusted EBITDA, excluding grain income, coming in at or above the midpoint of our guidance ranges for all three of our businesses, driven by renewed same-store volume growth for USPI.
Strong, same-story, justice missions growth in our hospital business and lower levels of contract labor exiting the quarter, all of which gives us momentum as we begin 2023.
In the quarter we generated consolidated, adjusted ebeta of 897 million, which included 40 million of grand income.
Our performance reflected strengthened volumes and improved management of labor costs. Additionally, our results were supported by continued focus on high acuity service lines.
Now I'd like to highlight a few key items for each of our segments, beginning with the USBI which delivered strong operating results. Now I'd like to highlight a few key items for each of our segments, beginning with the USBI which delivered strong operating results.
The USBI's fourth quarter adjusted EBITDA grew 18.7% compared to last year, excluding grand income, and its EBITDA margin continues to be very strong at 43.6%.
The surgical case volumes were 101% of 2019 pre-pandemic levels.
Also, USBI delivered a solid 2.3% increase in revenue per case and surgical cases were 70 basis points higher than 4th quarter 21 on the same facility basis.
For the full year, the USBI produced case volume growth at 2% and net revenue per case growth of 2.5%.
We continue to be pleased with the strong margins and cash flow generated by our ambulatory business.
Turning to our acute care hospital business, fourth quarter, same hospital, adjusted admissions, increased 2.9%
over the fourth quarter of 21 and total same hospital inpatient admissions increased 50 basis points while non-COVID inpatient admissions increased 4.3 percent
Our labor management continues to be very effective despite the cost pressures, especially temporary contract nurse staffing costs.
On a consolidated basis, we exited the year with December contract labor at 6.4% of consolidated SWMB providing us momentum as we move into 2023.
Total hospital costs were well-managed in the quarter, as these costs were 3.1% lower than the fourth quarter of 21 on a per-adjusted admission basis.
SWMB costs for adjusted emissions were up only 50 basis points compared to the fourth quarter of 2021 despite more severe labor pressures this year.
Our case mix index and revenue yield remain strong as we continue our strategic focus on investments in higher acuity, higher margin service lines.
Our 2022
CMI has grown at a 4% CAGR since 2019.
Turning to Conifer, which again delivered a solid quarter. Conifer produced fourth quarter EBITDA of 90 million with a strong EBITDA margin of about 28%.
For the year, Conifer resumed top-line revenue growth of about 4% in revenue from external clients increased 10%.
Next, let's review our cash flow, balance sheet, and capital structure.
As of the end of the year, we had 858 million of cash on hand.
and no borrowings outstanding under our $1.5 billion line of credit facility.
We generated 321 million of free cash flow for the year, or 1,329 million before the repayment of about 1 billion of Medicare advances in deferred payroll taxes related to the pandemic that were received or deferred in 2020.
All of these advances and deferred taxes have now been repaid.
During the fourth quarter we repurchased approximately 5.9 million shares of our stock for 250 million.
Our December 31 leverage ratio was 4.1 times EBITDA, consistent with the year end 2021.
As a reminder, we have no significant debt maturities until the third quarter of 2024 and have approximately $1.8 billion of secured debt borrowing capacity available if needed.
We have strengthened our balance sheet over the past several years and retired or pushed out debt maturities, which we believe provides us ample financial flexibility to support our growth initiatives.
Let me now turn to our outlook for this year.
Our projected consolidated just the but for the year is in the range of 3.160 billion to 3.360 billion.
As we have discussed previously, there are a number of items that impact the comparison of our 22 results to our 2023 outlook, which are outlined on slide 7 of our investor presentation.
Let me summarize them.
First, we are assuming consolidated organic EBITDA growth at the midpoint of approximately 6% over 2022 after normalizing for various items that I'll discuss shortly.
The organic growth is anticipated to be driven by stronger ambulatory and hospital volumes, lower levels of contract labor, and other cost efficiencies.
negotiated commercial rate increases, and continued investments in hospital higher acuity service lines.
Second, we anticipate the USP will drive 65 million of organic EBITDA growth, which is about 5% growth.
This organic growth, coupled with approximately $78 million of additional earnings related to USPIs acquisition and development activities, is anticipated to result in normalized EBITDA growth of about 11% for USPI.
Third, we anticipate year-over-year able to grow from about 100 million due to the estimated impact of the cyber attack on our hospitals last year and an additional 10 million of earnings from proceeds related to the attack that we received this year.
No other insurance proceeds for this matter have been assumed in our 2023 guidance. There are also several other items impacting our 2023 EBITDA guidance compared to last year, many of which we previewed on our third quarter earnings call.
First, we recognize 194 million of grain income in 2022 related to the pandemic.
Our guidance for 2023 does not assume any noteworthy amount of grants this year.
Second, we realize 114 million of gains on asset sales completed in 2022.
Next, there was $31 million of Texas Medicaid supplemental funding revenue related to 2021 that we recognized early last year when the program was approved.
Also, there are various revenue reductions this year that total almost 200 million for reimbursement changes substantially related to the pandemic.
The 340B outpatient issue and the ACA that are detailed at the bottom of the slide.
Finally, our 2023 guidance assumes a $14 million reduction in EBITDA due to our planned sale of the San Ramon facility that we announced last month. And a 27 million reduction in Conifer's EBITDA this year due to transition contract explorations related to the sale of our former Miami hospitals.
and CHI's divestiture of certain Iowa facilities. After adjusting for these items, our 2023 outlook represents a year-over-year normalized consolidated EBITDA growth of 7.2%.
A few additional assumptions related to our outlook. We are assuming 2023 same hospital admissions increase 1 to 3% and adjusted admissions increase 2 to 4%.
COVID admissions of approximately 3% down from 6% in 2022, same facility USBI surgical cases are projected increased 2 to 3% and USBI's net revenue per case.
is also projected to increase 2 to 3%.
Another assumption I want to mention is that we are revising the rates and scope of services under the Revenue Cycle contract between Conifer and our hospitals.
The revised contract continues to be on a commercially reasonable basis and is anticipated to result in an approximately 40 million EBITDA reduction for Conor for this year and is corresponding 40 million increase in our hospital segment EBITDA. This has no net impact.
to consultate a revenues, EBITDA, or margins.
Finally, we would expect first quarter 2023 consolidated adjusted EBITDA to be $775 million at the midpoint of our range. And we anticipate the USPI's EBITDA.
In the first quarter this year at the midpoint will be approximately 22% of our full year 2023 USBI EBITDA guidance.
Turning to our cash flows for 2023. From a cash flow perspective, we continue to target another strong year of free cash flow generation. We are expecting cash flow from operations of 1,850 million at the midpoint of our range. We are expecting cash flow from our range.
and capital expenditures of 650 million at the midpoint. We anticipate this will result in free cash flow of 1,200,000,000 at the midpoint.
which does incorporate an estimated 170 million increase in income tax payments this year compared to 2022 due to us nearly fully utilizing our tax NLL carry forwards as a result of our improved profitability over the past several years
This free cash flow will be used in part to fund approximately $560 million of anticipated cash payments to non-controlling interests.
I do want to point out that our 2023 guidance does not reflect the use of any capital deployment for share repurchases or debt repayment.
However, this is not to say that we won't deploy capital for these items. It's just that we have not reflected any 2023 Sherry purchases or debt retirement in our guidance.
Our free cash flow generation has improved substantially over the past several years, and we expect to continue to draw on, drive strong cash flows while executing on our growth
As a reminder, our capital deployment priorities have not changed.
First, we plan to continue allocating approximately 250 million of capital annually to grow our USPI's Surgery Center business.
Second, to enhance our hospital growth opportunities, including the continued focus on higher-acuity service offerings.
Third, evaluate further opportunities to retire and or refinance debt.
And finally, sharey purchases, depending on market conditions and other investment opportunities.
And with that, we're ready to begin the Q&A, operator.
Thank you.
We will now be conducting a question and answer session.
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One moment please while we poll for questions.
Our first question comes from Kevin Fishbeck with Bank of America. Please proceed with your question.
Great, thanks. I appreciate all the color on the USPI side of the equation and the expectations for improvement there. This would love a little bit more color as you do the postmortem on what happened in 2022 and why you're behind them at first.
The second part of the transaction, how much visibility do you have in that normalizing? What went wrong then? Why do you have visibility in improvement this year? Is there anything you're going to be doing differently around future deals or de novo developments? Thanks.
It's just real quickly on that. I think this goes back to the commentary that I made about a wide range of the types of centers that we purchased, many of which were much, much in earlier stages of development ramp up. And again...
Some of them, you know, were literally just breaking ground. And so when you couple that with the disruption from COVID to physician practices that would impact ramping centers, you look at some of the supply chain issues we faced in getting centers opened and running with the right equipment and infrastructure.
on time, the ramp up of those centers being slowed, slowing potential timing for buy-ups. I mean all those things, you know, kind of played into a bit of a perfect storm on a great set of assets. As we noted, the center level asset performance...
on the ones that were more mature, we're doing just fine. But when you look at all of that put together, um Moving to the next
You know, we had a set of assumptions that entered
not expecting a lot of that disruption.
And it just didn't play out that way. And that's why I figured it's just easier to just be clear. It's the year behind the expectations, but we still feel great about the portfolio.
Next question comes from Jamie Perse with Goldman Sachs. Please proceed with your question.
Hey, good morning guys. I was wondering if you could just spend a minute on what's in guidance for reimbursement, particularly on the commercial side. What kind of success are you getting in renegotiating contracts and what visibility does that give you in terms of the read-up that you'll see over the next two to three years, the contract duration?
Hey, Jamie. It's me. Good morning. We're in. We believe we're in a very good position from a health plan contracting perspective, whereas essentially fully contracted this year by 95%. And in terms of the negotiated.
terms and provisions. We negotiate contracts for all of our facilities, hospitals, usbi facilities, our physicians on a national basis with the national plans and on a statewide basis for the blues.
So we feel very good when we're at, we get asked a lot about in terms of percentage increases and we have conversations about giving the inflationary environment, we absolutely are. We talk about rate increases.
Typically, in the 35 percent range, and more recent negotiations, we've obviously been discussing the inflationary aspects and I think we've been making progress on that too. So we feel really good where we're at from a contracting perspective. That too.
Our next question comes from Justin Lake with Wolf Research. Please proceed with your question.
Thanks. Good morning. One of the questions on USPI. I appreciate all the detail. Dan said I think 22% of EBITDAF for the year in the first quarter. That looks like it's up about 6%. Year of a year if I'm measuring that correctly versus 11% for the year. So what's driving that? What do you think is going to drive this significant ramp through the year to get to?
about the NCI. You know, our NCI expense assumption for the year, when you look at it on a, we refer to it as sort of like a flow through basis, EBITDA minus NCI. It's roughly, it's 64%.
anticipated for this year, which is consistent with, with prior years, 2022 is roughly 65%. So the flow through is really consistent between the air. You're right, there is, you know, obviously some buyups are completed that can have an impact too, but the flow through in aggregate is very consistent. And, um, um,
You know from year to year in terms of You know the first quarter we obviously laid out our for first quarter assumptions on consolidated basis 775 175 million at the midpoint and your your point about the USP I've been 22%
Keep in mind as USP moves through the year, fourth quarter is typically seasonally the strongest quarter for USP. So we feel comfortable with where we've set our guidance at this point.
Okay, but the seasonality wouldn't be impacted on a year-to-year basis now. I'm just saying, am I right that it's up 6% in the first quarter, but 11 for the year, and if so, which rise, the ramp through the year to get to the 11? Thanks.
Yeah, again, we feel comfortable with the growth. Obviously, the percentage can move around a bit depending on various factors. But again, we feel good with where we set guidance for the first quarter as well as a full.
organic growing your growth of 3% you did give some detail on the call backing into it it would be 4.3% 1% being the reduction of lower QD services. Can you tell me what ending you are in that process? How much of a headwind of growth is that will that be next year?
And also, is there anything else that you think is currently impacting the company's ability to get back to that mid-single digit growth target and maybe other things you're doing to achieve that in 2023? Thanks!
First of all, just so that we characterize it the right way, I don't consider it a headwind to growth in the sense that what we're really trying to do is enhance security and focus on not only net revenue growth, but over time profitability from those higher end services. I mean, the case counts.
It's a headwind to case counts in some respects more than it is what we're trying to do and build and grow. And really we're talking about the lower end of services that you find in the ASC setting which are going to migrate over some time anyway.
So we actually, I'd reiterate, we're going to continue to look for those opportunities. Now I think your question of what ending are they in, in particular for USPI is a good one. And one of the reasons that we feel comfortable with this year's guidance is that the impact of the strategic...
and other initiatives, as well as some of the reductions from those type of migrations that we saw in 2022, we expect to slow in 23. That's not to say that sometime in the year or in the future we won't look at other opportunities for transitions, but we expect them to slow, which is why I called that out.
as a bridging item into the 2023 guidance. Our next question comes from AJ Rice with Credit Suisse. Please proceed with your question.
Hi, everybody. Thanks for all the detail on USPI. I might pivot over to labor. If you're saying in December , contract labor was about 6% of
total SW and B. Is that a good run rate that you're taking into 23 with guidance on where you think that would be? And then I know your experience of contract labor throughout 22 was a little different in pattern than some of the other public peers. How much of a tailwind growth spaces would that represent if you're...
In terms of contract labor, contract labor peaked as a percent of SWMB in September . And as we moved through the quarter, it declined sequentially each month. And we exited with December at 6.4%. As we move into this year, we have
placing contract labor to the greatest extent possible with employed.
colleagues. And so we obviously we've been focused on that we're going to continue to do that as we move through this year. And so yes we have built some moderation in aggregate contract labor into our guidance this year.
So, Ned, Ned, what you're doing with the permanent side, is it a, it is, you have some in there?
Yes, we've obviously taken into consideration the incremental investment with our employees when we think about the reduction in contract labor. It obviously will be replaced by some form of employed costs, right?
Okay, all right, thanks a lot.
Our next question is from John Rantom with Raymond James. Please proceed with your question. Hey, just a little confused about the cyber issue. How do we think about that last year versus this year in terms of a good guy to organic growth?
Hey John , Stan. So obviously in terms of the EBIT, we've sized that approximately 100 million and we did receive insurance proceeds in January of 10 million and that is reflected in our guidance this year but we have not reflected.
any additional insurance proceeds in our guidance this year. Obviously, we're working that with the insurance carriers, but we have not assumed any additional proceeds. And obviously, in terms of the impact on volume, it did have an impact on volume. And we obviously took that into consideration.
when we built our volume assumptions for this year. Just to remind me, what was the total that you collected last year from insurance?
Total was about 10 million in terms of the net impact on the P&L. That's part of it. We rolled that into the net $100 million number.
That's it. So in other words, just to be clear, it's about a $90 million good guy if we think about the organic growth.
That's it. So in other words, just to be clear, it's about a $90 million good guy if we think about the organic growth. Help this year.
Well, now we view it as a hundred million. That's what we put on the slide. Again, the cyber estimate, that was an estimate, and it took into consideration some of the insurance proceeds that we received. OK, I got you. That's what I'll get you to do. All right. Thanks so much.
Our next question is from Josh Raskin with Nefron Research. Please proceed with your question. Hi, thanks. Just a first a clarification. I think the baseline that you guys were talking about last quarter was about $3.15 billion in EBITDA for 2022 and now it's $2.5 billion.
3.03 so I'm just curious what changed in the baseline assumption and then my real question I was interested in the comments that the saw made around value-based care and USPI I'd be curious if to build out of your ASC portfolio in the past couple of years has changed anything with respect to those You know contracts on a national or
state level with the blues, with the big payers. And specifically, are they looking at ways to move more volumes to ASCs and how's that sort of impacting your negotiations?
Hey Josh, it's Dan. Let me address in terms of some of the funding reductions and compared to what we talked about on the call on October . A couple of things. One, there is, we did recognize 40 million of additional grain income.
in the quarter. That number through the end of the third quarter was roughly 154 million. We ended the year with 194. But also at that time we didn't have visibility, clear visibility in terms of when some of the pandemic supplemental funding for the Medicare 20% add-on.
the FMAP, the Medicaid additional FMAP funding. So, when, you know, obviously, we know now when the public health emergency is anticipated to expire and we have visibility into how the FMAP will be phased down during the year. Those are the primary differences.
Yeah, hey, Tom, on the second part of your question.
You know, this is another reason why the continued push into what I described strategically around higher-acuity services in the ambulatory surgery setting is important because, you know, on a differentiated basis relative to the cost in a hospital, that continues to be a very attractive
value-based care initiative, I can't think of other than the ASC setting.
a stronger side of care efficiency in the system that would exist relative to the alternative cost structure. And so, yeah, we do see that as not only attractive to commercial payers, but also to government payers.
from the standpoint of the work that we do there, and also the ability to do it with high patient satisfaction and safety levels. So.
I think over time as we continue down this path of innovating and higher and higher acuity things in our ASCs, I think we can continue down this path of innovating and higher acuity things in our ASCs.
The ASC business in USPI in particular will be viewed as a real value-based care enterprise.
Our next question comes from Stephen Ballochette with Barclays. Please proceed with your question.
Great, thanks, good morning everybody. So the details on the flow by 7 for the adjustments to the normal ID, but for 22, right, if we held helpful. Yeah, I guess from that, it seems like the normalized ID margin for the total company interest points to is right around 17%, you know, for doing the math properly. And then 23.
by any of them are within the same guy and we wanted to study better at risk, 18, 24%. So it's funny for him that we're thinking about that part, for we at least are gradually, you know, in terms of a little bit even that margin expansion in 20p versus 22, I don't know why they have bases. And then in South of Contra, we've been prepared to be part of that, is there any else we're calling out?
If you're pointing to you as far as variable, like a drive, and some margin expansion, at least on gross space is a for 23. Thanks.
Hey Steve, we were having a hard time here and you were cutting out. I think you were asking about the margins on a normalized basis. When we look at the margins in 22 versus 23 projections on a normalized basis in 2022, I heard that the margins on a polarized axis
15.9% call it 16% and for 2023 it would be roughly 16.3% on a consolidated basis after you've normalized for those various items. So there is some margin expansion and that's obviously continue to be a focus. 13.35% total income won't work.
of ours to continue to expand our margins as we move through the year and into 24 and beyond. Not sure I heard exactly on contract labor, but as I mentioned, we exit the year at 6.4%.
It saw nice improvement. The operators did a really good job managing those costs down. And we have assumed some moderation as we move through this year in contract labor that has been reflected in our guidance. So hopefully that addressed.
your questions that we were having a hard time hearing you. Yeah, I'm better now, but yeah, I was really just, 20s or even more so it's made.
Steve, you're breaking up entirely for us, probably better to follow up with Will offline. We really can't hear you. We're kind of catching every other word. Our next question is from Whitmail with SBB Securities. Please proceed with your question.
I think maybe to ask one more on USPI, sorry about this, but what actually did SCD contribute in 2022 that might be helpful? And what do you have in your plan for this year? Do you think you get back to that $140 million target, the 175? And then...
Maybe just a quick follow up, looking at the bridge, it kind of does strike me as odd that you expect USPI to generate the lowest organic growth of all the segments this year and the prepared comments sound a lot more bullish and encouraging than maybe the percent that you're guiding to. So maybe just a...
challenge you a little bit on the 5% number, like, you know, why that is the right number. Hey, Wed, it's Dan. In terms of SED, as Sam mentioned in his prepared remarks, we were basically a year behind. And what we said for 2022 for SED was we would
terms of that. In terms of the organic growth, the USBI's organic growth, we're projecting that to be 5% on a normalized basis. And the hospital growth is, you know, there's it's, it's, saw him again, mentioned in his, um, uh,
that that growth is a little bit higher than what we historically project for the hospitals. But it also being supported by further improvement in our Massachusetts hospital as well as our new facility outside of Charlotte.
Okay, thanks guys. Our next question is from Andrew Mock with UBS. Please proceed with your question.
Hi, good morning. Hoping you could provide an update on the BIOV activity in the second C.D. transaction. How many S.D.D.2 BIOVs did you complete in 2022 versus your expectation? I think of 30 plus to start the year. And what are you assuming in your guide for 2023?
Hey, Andrew, it's Dan. In terms of we have assumed some buy-ups in 2023.
I would say we have very good visibility into them and we feel very comfortable with the assumptions that we have built into our guidance for this year for those anticipated buy-ups.
And do you have the number you did in 2022?
So the entire 35, roughly 35.
Okay, great. Thanks.
Our next question comes from Pito Chickering with Deutsche Bank. Please proceed with your question.
Hey guys, there's your questions. A couple of questions on the hospital side just some number of questions. Can you quantify the nurse to peace and rescue you as had the back-off at 22? Now we should think about that for 23. On the same topic, can you quantify the turn or resale of the back-off at 22?
and any details around nurse recruiting and how it's tracking you versus your expectations. Hey, Peter. We don't report our nurse-to-patient ratio. They're different state to state, and some states have regulations and others don't. And, you know, it really depends heavily on the acuity. I'm not even sure how
In an aggregated way, one could describe a nurse to patient ratio given the differences in ICU med-surg force, tele, et cetera, and we don't plan on reporting on that. The second part of your question, you know, it's important, obviously, I took the time to mention it and I appreciate you're highlighting it. We're very focused on our nurse, but I'll...
investments we've made in the workforce, our turnover rates have come down, which is important from a retention perspective. And you know, I think you could legitimately attribute those reductions to the investments we've made stabilization of the operating environment coming out of a pandemic surges, the recurrent surges.
workforce environment in 2023. As Dan noted, we hope to make further reductions in our reliance on contract labor and expect that to moderate through the year. So it is a very important agenda item as we look forward.
I would tell you one last piece of color on this, that over the past couple of years, I had mentioned a few times that we have built a lot of relationships at the ground level with nursing schools and our ability right now to bring on new graduates into our environment. It's better than I've seen.
in a long time and that's helping those investments in relationships that we made over that time. I think we'll serve us well in 2023.
and that's helping those investments in relationships that we made over that time I think will serve us well in 2023. Great, thanks so much.
Our next question comes from Brian Tantquillet with Jeffries. Please proceed with your question.
Good morning guys. Dan, thanks for the color on your capital-deployed views, but maybe just thinking about the buyback announcement from last quarter and your views on debt paid down as well. Where do you think the right leverage ratio is or have you set leverage targets? Maybe just to clarify, as we think about buybacks.
Curious to your thought or philosophy and using debt at some point to buy back stock or are we avoiding that altogether? Just want to clarify all those things.
Yeah, in terms of leverage, we've obviously made substantial progress over the past four or five years. If you go back to 2017, we were north of six times and we've brought it down to approximately four times since then.
reducing leverage is obviously a very important focus of ours. As we make all capital decisions, we take into consideration what's it going to mean to our margins, what's it going to mean to our free cash flow generation, what's it ultimately going to mean to our leverage. So it's top of mind always.
and we'll continue to look for opportunities to reduce leverage in the future. In terms of the mix of debt retirement versus share repartuses, as I mentioned in my remarks, we have four key priorities. Debt retirement is...
is one of them as well as share repurchases. We look at, obviously we'll look at where market conditions are at and as well as various investment opportunities that we have and balance our capital allocation based on what we think will drive a best return for shareholders.
All right, thank you. Our next question is from Steven Baxter with Wells Fargo. Please proceed with your question.
On the volume outlook, so on the hospital side, it looks like if you achieve the growth you're targeting, I think you'll be in the upper 80s range compared to the 2019 baseline. I guess how should we think about the volume that you haven't recovered? I guess how much of that do you view as a real opportunity if labor pressure eases? And how much do you think, you know, could be service lines that might not make sense for the company going forward? And then just on the USP side.
Do you think the volume growth on USPI is going to be pretty consistent throughout the year or do you think maybe that's going to be ramping a little bit throughout the year maybe as the environment continues to normalize? Thanks.
Yeah, hey, I'm happy to start it, Sam.
So, I'm on the hospital side.
from a volume perspective. I would say that...
You know, it really, the year really depends on the assumptions that we've moved past, significant disruption from COVID-related activity. You know, obviously it's the last three years of proven that can be somewhat hard to forecast, but I think...
There's a lot of good reasons at this point to believe that that will in fact be the case this year. Even the acuity of the COVID that we're seeing and even during the winter, the amount of COVID we saw has come down. It's been quicker to treat. Easy.
short stay in and out type of cases with much lower impact on acuity and importantly for us given our strategy it had a lot less effect on disrupting surgical scheduling and other things in the acute care in the acute care hospital environment so anyway I that's just
I think a good sign overall. Look in terms of USPI as I mentioned you know we're bridging from
In inconsistent quarter to quarter set of results in 22, into 2023 with a very thoughtful bottoms-up comprehensive examination of our portfolio. It's, this is,
really important. We took the time to understand the physician additions, the initiatives, the service lines, etc. Before coming to our guidance and we expect
to see more consistency through the year. This year, then, we did in the prior year. And, you know, look, if there's a range on the guidance for a reason, if post-pandemic recovery is more attractive, the upper end of the guidance contemplates that. And obviously, we would love to deliver that. So that's what we're working towards.
generated in the first quarter, which is great when you look at the first quarter last year, its growth of close to 13 percent. You have to take into consideration there is some headwinds in the first quarter this year compared to last year related to sequestration at 340b.
But still, even with some of that, there's still nice growth year over year in the first quarter. And obviously the fourth quarter is the strongest quarter for USPI.
We have reached the end of the questions at this time. This concludes today's teleconference. Tenant Investor Relations is available for follow-up questions. You may disconnect your lines at this time. We thank you for your participation.
which is great when you look at the first quarter last year. It's growth of close to 13%. You have taken the consideration. There is some headwinds in the first quarter this year compared to last year related to sequestration at 340B. But still, even with some of that, there's still nice growth year over year in the first quarter. And obviously the fourth quarter is the strongest quarter for USPI. We have reached the end of the questions at this time. This concludes today's teleconference. Tena investor relations is available for follow-up questions. You may disconnect your lines at this time. And we thank you for your participation. you you you