Q1 2023 Tenet Healthare Corp Earnings Call

April 25, 2023

Telephone keypad.

Tenant respectfully ask that analysts limit themselves to one question. Each I'll now turn the call over to your host Mr will Mcdowell Vice President of Investor Relations. Mr. Mcdonald you may begin.

Good morning, everyone and thank you for joining today's call I am will Mcdowell Vice President of Investor Relations. We're pleased to have you join us for a discussion of Tennant's first quarter 2023 results as well as the discussion of our financial outlook.

Tenant senior management participating in today's call will be Dr songs, Vitoria, Chief Executive Officer, and Dan can sell me executive Vice President and Chief Financial Officer.

Our webcast. This morning includes a slide presentation, which has been posted to the Investor Relations section of our website tenant health Dot com.

Listeners to this call are advised that certain statements made during our discussion today are forward looking and represent managements expectations based on currently available information actual results and plans could differ materially.

Tennant is under no obligation to update any forward looking statements based on subsequent information investors should take note of the cautionary statement slide included in today's presentation as well as the risk factors discussed in our most recent Form 10-K and other filings with the Securities and Exchange Commission with that I'll turn the call over to song.

Thank you will and good morning, everyone.

To a nice start for 2023 strong volumes supported good results in all three business units Uspi's performance continues to accelerate given our focus on organic growth and is ahead of our expectations. So far in.

In the first quarter, we delivered net operating revenues of $5 billion and consolidated adjusted EBITDA of $832 million, which translates into an attractive 16, 6% margin as a result.

Our strong performance in the first quarter, we are now raising our full year guidance, which demonstrates the confidence we have in our operations.

Across our businesses a post pandemic environment is taking shape COVID-19 admissions are down a wider range of acuity is returning to the hospitals deferred Gi procedures are returning and our workforce is starting to stabilize we.

We have anticipated this for some time and our strategy operating efficiency and capital discipline enable us to deliver attractive performance in this environment.

We had a great quarter at USPI with $340 million and adjusted EBITDA, which represents 21% growth over first quarter 2022.

Same facility cases grew seven 9% and adjusted EBITDA margins were strong at 37, 6%.

As I've said before the continued migration of procedural services into the ambulatory setting is a sustained and significant tailwind for our business.

Growth in our active physician population as well as higher acuity service line expansion, especially Gi urology anti in orthopedic cases drove the first quarter volume strength.

We are pleased to have our organic growth initiatives, gaining traction and bearing fruit.

Our USPI development pipeline remains active and healthy we added three new centers in the quarter. We completed two additional post transaction by ups in the quarter at multiples unchanged from prior by ups progress continues in this area.

As previously discussed USPI is M&A engine under the tenant umbrella is an industry leading differentiator.

We continue to drive post synergy multiples for many of our acquisitions to below five times, we intend to invest approximately $250 million in ambulatory M&A each year and have a robust pipeline to support that level of investment.

We are also energized by the level of de Novo activity in the USPI pipeline with over 25 centers currently in syndication stages or under construction.

USPI is the preferred partner for high quality physicians as demonstrated by our organic growth and development pipeline.

The linkage to our hospital business creates a superior platform of management talent and significant scale benefits.

Turning to our hospital segment, we generated $405 million of adjusted EBITDA in the first quarter of 2023.

Same store hospital adjusted admissions grew six 7% and ER volumes grew four 8% over the first quarter in 2022.

On a non COVID-19 basis same store inpatient admissions were up 14% acuity levels remained strong as our case mix index has grown at a 3% compounded annual growth rate since 2019.

We continue to expand access to high acuity specialty services across our hospitals and enable access to cutting edge clinical technologies.

In the first quarter, we maintained our focus on cardiovascular neurosciences specialty surgical services trauma and women's health.

A few examples include a new noninvasive focused ultrasound technology to treat alzheimers patients at our Delray Medical Center certification of our Resolute Baptist Hospital as a joint Commission advanced primary stroke Center and the achievement of a level one trauma designation at our desert Regional Medical Center, which enables.

To provide total care for nearly every aspect of injury across a broad region of the southwestern United States.

Our workforce is getting stronger investments in 2022, and pay and benefits of reduced turnover and the pace of first quarter 2023 nurse hiring continues to accelerate this.

This helped to further reduce our contract labor costs in the first quarter of 2023.

All in all our hospitals have had a nice start to the year.

Conifer continues to perform well for its clients and deliver strong margins ongoing technology automation and offshoring initiatives support that performance third party revenue was up three 8% in the quarter and cash collection performance was strong in the quarter, helping to drive tenants days outstanding and <unk>.

Accounts receivable down by two days from year end.

Conifer continues to ramp up commercial activities with a strong sales pipeline for 2023.

Looking forward, we are raising our full year 23, adjusted EBITDA guidance by $50 million at the midpoint to a range of $3 to $1 billion to $3. Four 1 billion, our management discipline operational excellence and ongoing investments in talent have enabled a strong start to the year and we remain focused on access.

<unk> performance across our businesses.

At USPI strong margins organic growth tailwind and inherent capital efficiencies generate significant free cash flow.

Continuing to add centers with strong margins and attractive post synergy multiples remains a great use of cash for investments to enhance tennant's free cash flow.

These cash flows will enable us to further grow deleverage the balance sheet and return capital to shareholders in the future.

And with that Dan will provide a more detailed review of our financial results Dan.

Thanks, Tom and good morning, everyone. Our financial results in the first quarter were strong with our USPI and hospital as adjusted EBITDA and same store volumes and revenues well above our expectations.

In the quarter, we generated consolidated adjusted EBITDA.

$832 million above the high end of our first quarter guidance range.

Our results were driven by strong same store revenues and volumes continued high patient acuity for non COVID-19 patients and effective cost control.

Now I'd like to highlight a few key items for each of our segments, let's start with USPI, which delivered strong growth and continues to provide high quality care to our patients.

Twenty-three nurse hiring continues to accelerate.

This helped to further reduce our contract labor costs in the first quarter of 2023.

In the quarter USPI produced a seven 9% increase in same facility surgical cases compared to last year.

All in all our hospitals have had a nice start to the year.

With strong growth in Gi urology, E&P and orthopedic cases.

Surgical cases were 107% of prepaying demick levels in the quarter.

<unk> adjusted EBITDA grew 21% compared to the first quarter of 'twenty, two and its margins continue to be very strong at 37, 6%.

Accounts receivable down by two days from year end.

Conifer continues to ramp up commercial activities with a strong sales pipeline for 2023.

We are pleased with Uspi's excellent start to the year. This strong performance is a testament to the attractiveness of the portfolio and value that we provide to our stakeholders.

Looking forward, we are raising our full year 23, adjusted EBITDA guidance by $50 million at the midpoint to a range of $3. Two 1 billion to $3 four 1 billion, our management discipline operational excellence and ongoing investments in talent have enabled a strong start to the year and we remain focused on axa.

Turning to our acute care hospital business.

First quarter same hospital adjusted admissions increased six 7% compared to the first quarter of last year.

<unk> performance across our businesses.

In total same hospital inpatient admissions increased four 3%, while non COVID-19 admissions increased 14%.

At USPI strong margins organic growth tailwind and inherent capital efficiencies generate significant free cash flow.

Continuing to add centers with strong margins and attractive post synergy multiples remains a great use of cash for investments to enhance tennant's free cash flow.

Our labor management continues to be very effective despite the cost pressures, especially temporary contract nurse staffing costs.

On a consolidated basis contract labor costs were 6% of SWM B, a significant decline from seven 3% in the fourth quarter 2022.

These cash flows will enable us to further grow deleverage the balance sheet and return capital to shareholders in the future.

And with that Dan will provide a more detailed review of our financial results Dan.

Total hospital costs were well managed in the quarter as these costs were two 7% lower.

And then first quarter 2022 on a per adjusted admission basis. When you exclude the impact in the prior year from a $69 million gain on sale of medical office buildings.

In the quarter, we generated consolidated adjusted EBITDA.

<unk> cost per adjusted admission were down five 4% compared to first quarter last year.

$832 million above the high end of our first quarter guidance range.

Our results were driven by strong same store revenues and volumes continued high patient acuity for non COVID-19 patients and effective cost control.

Our <unk> costs as a percent of revenue were 45% in the quarter.

Compared to 46% in the first quarter of 'twenty, two and 46, 2% in fourth quarter of last year.

Now I'd like to highlight a few key items for each of our segments, let's start with USPI, which delivered strong growth and continues to provide high quality care to our patients.

Our case mix and revenue yield remained strong as we continue our strategic focus on investments and higher acuity higher margin service lines.

In the quarter USPI produced a seven 9% increase in same facility surgical cases compared to last year.

Our case mix index in the quarter has grown at a 3% CAGR since 2019 before the pandemic.

With strong growth in Gi urology, E&P and orthopedic cases.

Our hospitals first quarter results included $27 million of insurance proceeds received related to last year's cyber security incident.

Surgical cases were 107% of prepaying demick levels in the quarter.

<unk> adjusted EBITDA grew 21% compared to the first quarter of 'twenty, two and its margins continue to be very strong at 37, 6%.

As we previously disclosed our guidance reflected $10 million of these recoveries in the quarter.

Which were received in January .

As a reminder.

Minder in the first quarter of last year, we recorded a $69 million gain on the sale of medical office buildings, as well as $31 million of Texas Medicaid revenue that related to 2021.

We are pleased with Uspi's excellent start to the year. This strong performance is a testament to the attractiveness of the portfolio and value that we provide to our stakeholders.

Turning to our acute care hospital business.

Let's now turn to conifer, which again delivered a solid quarter.

First quarter same hospital adjusted admissions increased six 7% compared to the first quarter of last year.

<unk> produced first quarter, adjusted EBITDA of $87 million and a strong margin of approximately 27%.

Total same hospital inpatient admissions increased four 3%, while non COVID-19 admissions increased 14%.

Also conifer generated three 8% growth in revenue from external clients compared to the first quarter last year.

Our labor management continues to be very effective despite the cost pressures, especially temporary contract nurse staffing costs.

Overall, we're off to a good start to the year in each of our businesses.

Now, let's review, our cash flows balance sheet and capital structure.

On a consolidated basis contract labor costs were 6% of SWM B, a significant decline from seven 3% in the fourth quarter 2022.

At the end of the quarter, we had $766 million of cash on hand, and no borrowings outstanding under our $1 5 billion line of credit facility.

Total hospital costs were well managed in the quarter as these costs were two 7% lower than first quarter 2022 on a per adjusted admission basis. When you exclude the impact in the prior year from a $69 million gain on sale of medical office buildings.

We generated $214 million of free cash flow in the quarter.

As a reminder, the first quarter's oftentimes, our softest cash flow generating quarter due to certain annual working capital requirements, such as our annual 401, K matching contributions for our employees and annual incentive compensation payments.

<unk> cost per adjusted admission were down five 4% compared to first quarter last year.

Conifer produces strong cash collection performance in the first quarter, which resulted in a two day improvement in our days in AR.

Our <unk> costs as a percent of revenue were 45% in the quarter comp.

Also during the quarter, we repurchased approximately 906000 shares of our stock for $50 million as part of our $1 billion share repurchase program.

Compared to 46% in the first quarter of 'twenty, two and 46, 2% in fourth quarter of last year.

Our case mix and revenue yield remained strong as we continue our strategic focus on investments and higher acuity higher margin service lines.

Since the inception of the program in the fourth quarter last year, we have repurchased approximately six 8 million shares or about 6% of our then outstanding shares.

Our case mix index in the quarter has grown at a 3% CAGR since 2019 before the pandemic.

For $300 million at an average price of about $44 per share.

Our hospitals first quarter results included $27 million of insurance proceeds received related to last year's cyber security incident.

Our March 31 leverage ratio was four nine times EBITDA slightly up from four one times at year end 'twenty two.

As we previously disclosed our guidance reflected $10 million of these recoveries in the quarter.

And as a reminder, we have no significant debt maturities until the third quarter of 2024 and have approximately $1 6 billion of secured debt borrowing capacity available if needed.

Which were received in January .

As a reminder, in the first quarter of last year, we recorded a $69 million gain on the sale of medical office buildings, as well as $31 million of Texas Medicaid revenue that related to 2021.

Let me now turn to our outlook for this year.

As Tom mentioned, we are raising our 2023 adjusted EBITDA outlook by $50 million.

Let's now turn to conifer, which again delivered a solid quarter.

321 billion to $3 four 1 billion.

<unk> produced first quarter, adjusted EBITDA of $87 million and a strong margin of approximately 27%.

Or $3 billion $310 million at the midpoint, reflecting the strong start to the year.

Also conifer generated three 8% growth in revenue from external clients compared to the first quarter last year.

This $50 million increase includes a $20 million raise for USPI and a $30 million raise for our hospitals.

Overall, we're off to a good start to the year in each of our businesses.

Additionally, we now expect 90 operating revenues to be in the range of $19 8 billion to $20 2 billion.

Now, let's review, our cash flows balance sheet and capital structure.

At the end of the quarter, we had $766 million of cash on hand, and no borrowings outstanding under our $1 5 billion line of credit facility.

Also we expect full year adjusted diluted earnings per share from continuing operations to.

To now be in the range of $4 92.

The $6 nine.

We generated $214 million of free cash flow in the quarter.

Regarding our second quarter outlook.

We expect consolidated adjusted EBITDA to be in the range of 765 million to $815 million.

And we anticipate that USPI is EBITDA.

In the second quarter at the midpoint.

Conifer produces strong cash collection performance in the first quarter, which resulted in a two day improvement in our days in AR.

We will be approximately 23% to 24% of our full year 2023, USPI EBIT guidance of a $1 billion $465 million at the midpoint of our range.

Also during the quarter, we repurchased approximately 906000 shares of our stock for $50 million as part of our $1 billion share repurchase program.

Turning to our cash flows for 2023.

From a cash flow perspective, we are targeting another strong year of free cash flow generation and now expect free cash flow in the range of $1 1 billion to $1. Three 5 billion for 2023, an increase of $25 million over our previous expectations.

Since the inception of the program in the fourth quarter last year, we have repurchased approximately six 8 million shares or about 6% of our then outstanding shares.

For $300 million at an average price of about $44 per share.

Our free cash flow generation has improved substantially over the past several years, we have significantly reduced our leverage and pushed out debt debt maturities and we expect our business to continue to drive strong cash flows while executing on our growth plans.

Our March 31 leverage ratio was four nine times EBITDA slightly up from four one times at year end 'twenty two.

And as a reminder, we have no significant debt maturities until the third quarter of 2024 and have approximately $1 6 billion of secured debt borrowing capacity available if needed.

As we've mentioned previously these cash flows provide us with significant financial flexibility to effectively deploy capital for the benefit of shareholders.

Let me now turn to our outlook for this year.

As a reminder, our capital deployment priorities have not changed.

As Tom mentioned, we are raising our 2023 adjusted EBITDA look by $50 million to $3, two 1 billion to $3 four 1 billion.

First we continued planning on allocating approximately $250 million of capital annually to grow our USPI surgery Center business.

Or $3 billion $310 million at the midpoint, reflecting the strong start to the year.

Second enhancing our hospital growth opportunities, including the continued focus on higher acuity service offerings.

This $50 million increase includes a $20 million raise for USPI and a $30 million raise for our hospitals.

Third evaluating further opportunities to retire or refinance debt.

And finally share repurchases, depending on market conditions and other investment opportunities.

Additionally, we now expect 90 operating revenues to be in the range of $19 8 billion to $20 2 billion.

And with that we're ready to begin the Q&A operator.

Also we expect full year adjusted diluted earnings per share from continuing operations to.

Thank you, we'll now be conducting a question and answer session. As a reminder, we please ask that you limit yourselves to one question if you'd like to be placed into the question queue. Please press star one at this time.

To now be in the range of $4 92.

To $6 nine.

Our first question today is coming from Brian <unk> from Jefferies. Your line is ally.

Regarding our second quarter outlook.

We expect consolidated adjusted EBITDA to be in the range of 765 million to $815 million.

Hey, good morning, guys and congrats on a good quarter.

I guess my question. My question is how much improvement do you think you have left to bring down.

And we anticipate the USPI is EBITDA.

Temp labor I know, you're reinvesting some of that in wages for your permanent employees, but as we think about temp labor and maybe <unk> as a whole.

In the second quarter at the midpoint.

We will be approximately 23% to 24% of our full year 2023, USPI EBIT guidance of a $1.465 billion at the midpoint of our range.

What do you think is the remaining opportunity for that embedded in your guidance and even as we look into next year. Thanks.

Hey, Brian It's Dan good morning.

We do expect some additional moderation in our contract labor spend as we move through the year.

Turning to our cash flows for 2023.

The operators have done a really phenomenal job managing this obviously very difficult environment, our recruiting and retention.

Measures have been improving which is helping to mitigate some of the incremental costs associated with contract labor. So we are expecting some additional moderation as we move through the year, but as we as we've said when we.

Released our guidance in February for this year, we are not expecting our contract labor to get back to pre pandemic levels certainly.

That won't happen this year.

As we've mentioned previously these cash flows provide us with significant financial flexibility to effectively deploy capital for the benefit of shareholders.

Thank you. Our next question is coming from <unk> Chickering from Deutsche Bank. Your line is now live.

Hey, good morning, guys. Thanks for taking my questions great quarter.

As a reminder, our capital deployment priorities have not changed.

The guidance you beat the midpoint of your first quarter guidance by 57 million you raised <unk> hundred $50 million above the street.

First we continued planning on allocating approximately $250 million of capital annually to grow our USPI surgery Center business.

Only raised the full year by about $50 million. So I'm just curious should we read into the implied back half of your guidance reduction is just conservatism.

Second enhancing our hospital growth opportunities, including the continued focus on higher acuity service offerings.

The street is missing or is simply.

Did the street misunderstand the seasonality for the back half versus first half here.

Third evaluating further opportunities to retire <unk> refinanced debt.

Hey, Peter it's Dan good morning.

And finally share repurchases, depending on market conditions and other investment opportunities.

You shouldn't read into anything that listen we were off to a good start to.

For the year.

And with that we're ready to begin the Q&A operator.

We beat by $57 million.

Thank you, we'll now be conducting a question and answer session. As a reminder, we please ask that you limit yourselves to one question if you'd like to replace in the question queue. Please press star one at this time.

And we've raised our guidance by $50 million so.

We're optimistic.

We are encouraged by the trends that we've seen.

And that Shouldnt read anything into it.

Our first question today is coming from Brian <unk> from Jefferies. Your line is ally.

Great. Thanks, so much.

Hey, good morning, guys and congrats on a good quarter.

Thank you next question is coming from Justin Lake from Wolfe Research. Your line is now live.

I guess my question. My question is how much improvement do you think you have left to bring down.

Hey, guys. Thanks for the question is Austin on for Justin really strong quarter on the volume side, both in USPI and in the hospital. Just curious you guys had kind of talked previously.

Temp labor I know, you're reinvesting some of that in wages for your Permian employees, but as we think about temp labor and maybe <unk> as a whole.

What do you think is the remaining opportunity for that embedded in your guidance and even as we look into next year. Thanks.

Some service line flexing in the hospitals and then some COVID-19 driven interruptions in USPI, where any of those still present in the <unk> year or are we kind of at a clean comp going forward. Thanks.

Hey, Brian It's Dan good morning.

We do expect some additional moderation in our contract labor spend as we move through the year.

Okay.

On the hospital side is as Dan was just talking about with the prior one of the prior questions.

The operators have done a really phenomenal job managing this obviously very difficult environment, our recruiting and retention.

As the contract labor rates come down and I indicated a little bit in my comments it opens up the ability to.

Measures have been improving which is helping to mitigate some of the incremental costs associated with contract labor. So we <unk>.

Improve access for services.

The demand we know the demand has been there.

Expecting some additional moderation as we move through the year, but as we've as we've said when we.

Always been a bit about whether that demand at scale with serviceable with very high contract labor costs and I think in particular as the contract labor rates come down.

Released our guidance in February for this year, we are not expecting our contract labor to get back to pre pandemic levels, certainly that that won't happen this year.

It makes it easier to make decisions about utilizing contract labor versus.

The full time labor from from the perspective of <unk>.

Thank you. Your next question is coming from Peter Chickering from Deutsche Bank. Your line is now live.

Opening up that hospital capacity.

Yes, good morning, guys. Thanks for taking my questions great quarter.

<unk> taken more volume and obviously imperative in that is that we continue to have discipline in our overall cost structure productivity length of stay things that we've talked about for the past few years during the pandemic continuing to remain focused on that so that we can generate strong margins as we open up the capacity even if <unk>.

For guidance you beat the midpoint of first quarter guidance by 57 million you raised to <unk> $50 million above the street.

Only raised the full year by about $50 million. So I'm just curious should we read into the implied back half of the year guidance reduction is just conservatism.

The street is missing or is simply.

Some of the work that returns is lower acuity on the USPI side I'm really pleased with the volume strength. This is not we've talked over the last couple three quarters about things that were going on in the business certain types of low acuity business that we were strategically and otherwise having.

Did street misunderstand the seasonality for the back half versus first half here.

Hey, payouts in good morning.

You shouldn't read into anything that that listen we were off to a good start to.

For the year.

We beat them by $57 million.

And we've raised our guidance by $50 million so.

Reductions in that affected this quarter.

<unk> demonstrated growth in the services that we want to grow.

We're optimistic.

We are encouraged by the trends that we've seen.

Strong return of GI services orthopedic strength was strong and in particular I've commented about pain before the volume strength is not coming from pain, it's that business was flat year over year. So.

And that Shouldnt read anything into it.

Great. Thanks, so much.

Thank you next question is coming from Justin Lake from Wolfe Research. Your line is now live.

Hey, guys. Thanks for the question. This is Austin on for Justin really strong quarter on the volume side, both in USPI and in the hospital. Just curious you guys had kind of talked previously.

It's this isn't a volume recovery based upon kind of so to speak engineering certain service lines that we were <unk>.

Dampening our interest in but it is actual strength in many of the areas that I think most importantly, breaking through significantly the pre pandemic volume levels is a really important marker for USPI and the ASC industry because it suggests that there will be strength going forward.

Some service line flexing in the hospitals and then some COVID-19 driven interruptions in USPI, where any of those still present in the <unk>.

<unk> year or are we kind of at a clean comp going forward. Thanks.

Yes.

On the hospital side.

As Dan was just talking about with the prior one of the prior questions.

Yes.

Is the contract labor rates come down and I indicated a little bit in my comments it opens up the ability to.

Thank you next question is coming from Calvin starting from JP Morgan. Your line is now live.

Yes, hi, good morning.

Improve access for services.

I wanted to ask about the <unk> centers and how the integration is progressing there.

The demand we know the demand has been there.

You talked about slower decision by us last year and the ramping of some of the de Novo and developing centers just curious how that's trended so far just to sort of understand some of the progress. Thanks, Yes. No. Good question good update as I indicated the buy ups continue the progress in the buy ups continue.

Always been a bit about whether that demand at scale with serviceable with very high contract labor costs and I think in particular as the contract labor rates come down.

It makes it easier to make decisions about utilizing contract labor versus.

At multiples that are not changed from any of the prior multiple so.

The full time labor from from the perspective of <unk>.

That's good.

And the <unk>.

Opening up that hospital capacity.

Centers that were in development.

To take in more volume and obviously imperative in that is that we continue to have discipline in our overall cost structure productivity length of stay things that we've talked about for the past few years during the pandemic continuing to remain focused on that so that we can generate strong margins as we open up the capacity even if <unk>.

Kind of describe them somewhere from the point of having broken ground to just having opened we expect all of them from that original transaction number two to be opened up this year and Thats a good thing those partnerships are still strong and intact.

So I think I think we will see positive movement like I said.

Last night, we were.

We were about a year behind the original plan, but the original plan is still the original plan.

Thank you next question is coming from Kevin Fischbeck from Bank of America. Your line is now live.

Reductions in that affected this quarter.

Great. Thanks, just wanted to ask about your views about the volumes in the quarter.

<unk> demonstrated growth in the services that we want to grow.

It sounds like.

The volumes were stronger than we were looking for it sounds like maybe they were even stronger than you guys were looking for is there something that you would point to as to why all of a sudden 2023.

Beginning of of this volume.

Yeah.

It's this isn't a volume recovery based upon kind of so to speak engineering certain service lines that we were <unk>.

Rebound.

And maybe to go back to that earlier question about the guidance because it is kind of you've raised for the beat it sounds like it's conservatism, but is there any reason to believe either based upon how volumes progressed through Q1 or so far in Q2 that these higher volume numbers wouldn't persist.

Yes. This is Tom so a couple of things.

I think I think the volume strength.

At this point.

We really we really have our information and what we've read.

Thank you next question is coming from Calvin starting from JP Morgan. Your line is now live.

Publicly about HCA is information I think I think there is some industry recovery going on is as we kind of enter this post COVID-19 post pandemic anyway environment, where people are getting more comfortable returning to health care, we know that from our physicians offices there.

Yes, hi, good morning.

I wanted to ask about the <unk> centers and how the integration is progressing there.

Now all the ones that we employ and Ron are now all running at full throughput in.

In the outpatient environment, obviously that helps to create.

Demand I think that we've in our case gotten much more effective and efficient with our ER throughput and operations across the board that was a big focus area last year that we didn't talk much about but with the staffing shortages, having adequate throughput having fast track.

At multiples that are not changed from any of the prior multiple so.

That's good.

And the <unk>.

Centers that were in development.

Kind of describe them somewhere from the point of having broken ground to just having opened we expect all of them from that original transaction number two to be opened up this year.

Setups in our <unk> and things to improve that.

Throughput is important to be able to service the demand and then for US in particular, I think that as we get into this post pandemic environment.

And that's a good thing those partnerships are still strong and intact.

So I think I think we will see positive movement like I said.

Hospitals are going to naturally be able to hold on to and deliver.

Last night, we were about a year behind the original plan, but the original plan is still the original plan.

When they have put in the right infrastructure doctors and technology for higher acuity services that don't have a substitute location to go to and for US that is that's an important.

Thank you next question is coming from Kevin Fischbeck from Bank of America. Your line is now live.

Piece of the recovery puzzle.

Great. Thanks.

Across the board look the other thing from a tenant portfolio perspective, as we indicated in our portfolio has a pretty broad range of exposure to markets that handled states that handled COVID-19 differently and we always had a little bit more recovery to go in some of the states that were more locks.

Wanted to ask about your views about the volumes in the quarter.

Sounds like the.

[noise] rebound.

Down and I'm pleased to see that we're seeing some volume strength in those in those markets as well at USPI.

Maybe to go back to that earlier question about the guidance because it is kind of you've raised for the beat it sounds like it's conservatism, but is there any reason to believe either based upon how volumes progressed through Q1 or so far in Q2 that these higher volume numbers wouldn't persist.

I think there's a couple of things one is.

We put a lot of focus and reengineered some of our processes incentives as well as service line priorities.

Yes. This is Tom so a couple of things.

I think I think the volume strength.

Yeah.

In the third quarter of last year.

At this point.

Third quarter and fourth quarter of last year going into this year.

We really we really have our information and what we've read.

To focus a bit more on some of the things that we wanted to grow rather than just some of the things that we were trying to optimize out as the low acuity service and I think getting that balance right is helped create some momentum at USPI with respect to organic growth and yes. There is really no reason.

Publicly about HCA is information I think I think there is some industry recovery going on is.

As we kind of enter this post COVID-19 post pandemic anyway environment, where people are getting more comfortable returning to health care, we know that from our physicians offices Theyre now all the ones that we employ and Ron are now all running at full throughput.

I see looking forward.

At this point that that should change.

My commentary to the to the guidance look we're pleased to have delivered a good quarter and we're pleased to have raised our guidance at this point in time.

The outpatient environment, obviously that helps to create.

Demand I think that we've in our case gotten much more effective and efficient with.

We're optimistic about the future and we'll revisit as we look forward depending on what the results look like.

Our ER throughput and operations across the board that was a big focus area last year that we didn't talk much about but with the staffing shortages, having adequate throughput having fast track set.

Thank you next question is coming from a J rice from credit Suisse. Your line is now live.

Hi, everybody I wanted to just ask.

Setups in our <unk> and things to improve that throughput is important to be able to service the demand and then for us in particular, I think that as we get into this post pandemic environment.

Two other areas that have been touched on.

You've done your analysis on the <unk>.

Ready determinations were getting sort of different views as to as people roll off of Medicaid get picked up on public exchanges are hopefully on the commercial roles, whether that's a neutral event for you guys or a pause they have how have you factored that into guidance and then any update on your generally on your managed care contracting.

Hospitals are going to naturally be able to hold onto and deliver when they have put in the right infrastructure doctors and technology for higher acuity services that don't have a substitute location to go to and for US that is that's an important.

I know this year you got a little help.

It seemed like from labor rates.

Piece of the recovery puzzle.

And labor pressures rather is that following through in your discussions 424, do you think youll get.

Ross The board look the other thing from a tenant portfolio perspective, as we indicated in our portfolio has a pretty broad range of exposure to markets that handled states that handled COVID-19 differently and we always had a little bit more recovery to go in some of the states that were more locked down.

Some help on the labor side.

They're in rates for 24.

Hey, Jay it's Dan.

Let me try to address those in terms of the Medicaid Redetermination.

I would say at this point, we haven't seen anything any substantive impact.

And I'm pleased to see that we're seeing some volume strength in those in those markets as well at USPI.

From the Redetermination, which really just began but I would tell you that we have conifer in our hospitals, we have dedicated resources.

I think there's a couple of things one is.

We put a lot of focus and reengineered some of our processes incentives as well as service line priorities.

To address this as the Redetermination occur state by state, we have communications across the enterprise through all levels of conifer and the hospitals, we're doing other types of communications.

In the third quarter of last year.

Third quarter and fourth quarter of last year going into this year.

Webpage banners with links to state enrollment websites.

We've been going through and revising our screening scripts and re enrollment questions updating various resource documents.

<unk>.

Messaging, a registration point of entry.

What I see looking forward.

And broader.

<unk> campaigns.

At this point that that should change.

Across across our facilities and then also working with community members.

My commentary to the to the guidance look we're pleased.

Have delivered a good quarter and we're pleased to have raised our guidance at this point in time.

The tenant community members on the community in and working with them and tracking some of those statistics so.

We're optimistic about the future and we'll revisit as we look forward depending on what the results look like.

So far nothing significant.

I think we are on top of it and we're monitoring it closely in terms of your question in terms of the guidance for the year.

Thank you next question is coming from a J rice from credit Suisse. Your line is now live.

As we said in February we haven't assumed any significant.

Hi, everybody I wanted to just ask about two other areas that have been touched on.

<unk>.

Upside or downside from the Redetermination that we think it's premature at this point.

You've done your analysis on.

Were you determinations were getting sort of different views as to as people roll off of Medicaid get picked up on public exchanges are hopefully on the commercial roles, whether thats a neutral event for you guys or a pause they have how have you factored that into guidance and then any update on your generally on your managed care contracting.

Obviously, the exchange enrollment statistics were very encouraging.

In terms of the growth of some of the individuals who may.

Transition off of Medicaid rules.

So you would expect that many of those would potentially reach out and try to obtain exchange coverage, but again, we haven't.

I know this year you got a little help.

It seemed like from labor rates.

Factored anything significant into our guidance this year in terms of.

And labor pressures rather is that following through in your discussions 424, do you think youll get.

The commercial.

Contracting I would say consistent with our previous messages on this.

Some help on the labor side.

We think we're very well positioned.

They're in rates for 24.

From a contracting perspective, we're essentially 95% contracted this year.

Hey, Jay it's Dan.

Let me try to address those in terms of the Medicaid Redetermination.

And.

I would say at this point, we haven't seen anything any substantive impact.

Around 85% next year and even the.

In 2005.

The Redetermination, which really just began but I would tell you that we have conifer.

A fair amount of our business is already contracted and analysts in the terms.

In our hospitals, we have dedicated resources.

We've been clear with <unk>, it's not like we've been getting CPI type of increases in every contract negotiations.

To address this as the Redetermination occur state by state, we have communications across the enterprise through all levels of conifer and the hospitals, we're doing other types of communications.

We have seen.

Obviously the levels of inflation are top of mind, they always have been but certainly more pronounced now in the conversations obviously, you're being held with the plans and I would say some of our more recent negotiations.

Webpage banners with links to state enrollment websites.

We've been going through and revising our screening scripts and re enrollment questions updating various resource documents.

It's a little bit better than what maybe we historically would have.

Negotiated.

Okay. Thanks, a lot.

Messaging, a registration point of entry.

Thank you next question is coming from Josh Raskin from Nephron Research. Your line is now live.

Broader.

Messaging campaigns.

Alright. Thanks, Good morning, just wanted to get back to USPI and that at 9% plus same store revenue growth number I was wondering if you give us some more color on maybe perhaps geographies and whether these were legacy centers or some of the newer ones that are ramping up and then did you give a number for the buy ups for the second FCB transaction and then lastly I.

Across across our facilities and then also working with community members.

The tenant community members on the community in and working with them and tracking some of those statistics so.

So far nothing significant but we're we think we're on top of it and we're monitoring it closely in terms of your question in terms of the guidance for the year.

Hate to keep harping on this guidance, but the guidance for USPI specifically.

Sort of implies a lower growth rate for EBITDA over the next three quarters than what you saw in the first quarter any any changes to seasonality anything to think about that or just sort of consistent with the overall message on guidance.

As we said in February we haven't assumed any significant.

Sure.

Upside or downside from the Redetermination that we think it's premature at this point.

Hey, Josh its Dan Let me, let me start now in terms of the guidance. So we obviously USPI is off to a great start to the year.

Obviously, the exchange enrollment statistics were very encouraging.

In terms of the growth so some of the individuals who may.

We increased the guidance 2000 $20 million.

The transition off of Medicaid rules.

For EBITDA.

Strong volumes, we also increased our volume guidance.

You would expect that many of those would potentially reach out and try to obtain exchange coverage, but again, we haven't.

Guidance assumptions from 2% to 3% to 3% to 4%.

So we're obviously encouraged.

Factored anything significant into our guidance this year in terms of the commercial.

Again.

You mentioned too.

Another question.

<unk>.

Contracting I would say is consistent with our previous messages on this.

Nothing to read into this it's early in the year and we like what we're seeing and we will.

We think we're very well positioned.

<unk> two.

From a contracting perspective, we're essentially 95% contracted this year.

Obviously reevaluate.

Where things stand at the end of the second quarter and make any guidance changes if appropriate.

Around 85% next year and even.

At that point in time the bid the USPI business continues to generate incredible margins.

In 2005.

So a fair amount of our business is already contracted and that'll listen the terms.

So we're.

Very pleased with the start to the year.

We've been clear, it's not like we've been getting CPI type of increases in every contract negotiations.

Thank you next question is coming from Ann Hynes from Mizuho Securities. Your line is ally.

We have seen.

Alright. Thanks.

We'll talk about that no surprise billing act is that having any negative impact on charge any volume.

USPI.

Yes.

Okay.

<unk> seen in check suggests that maybe anesthesiologists.

It's a little bit better than what maybe we historically would have.

<unk> as much money. So they are gravitating more towards inpatient or outpatient departments that reimbursement is higher. So I guess this is having an impact and if so what do you think it is on the dragon volumes.

Negotiated.

Okay. Thanks, a lot.

Thank you next question is coming from Josh Raskin from Nephron Research. Your line is now live.

Hey, just a couple of comments there I'm not I'm not sure that.

<unk>.

Im not sure I could credibly answer that question with data.

It's an interesting question and something that we'll look into.

To see if we can identify any trends there.

But what I would say is that the pressures.

That we've talked about before in the staffing arena for.

Hate to keep harping on this guidance, but the guidance for USPI specifically.

Hospital based store ASC based physicians in particular in anesthesia.

Is certainly an area that is requiring a lot of work I mean.

Your commentary about.

The activity in revenue intensity for anesthesiologists in hospitals versus afcs.

Hey, Josh its Dan Let me, let me start now in terms of the guidance. So we obviously USPI is off to a great start to the year.

It is certainly true.

<unk>.

We increased the guidance $20 million.

But again remember our payer mix in the ASC is significantly better and that creates a draw to the ASC environment and in particular in <unk> the way, they're set up so while while theres some pressure there we're managing through it.

For EBITDA.

Strong volumes, we also increased our volume guidance.

Guidance assumptions from 2% to 3% to 3% to 4%.

So we're obviously encouraged.

And.

Again, as I mentioned too.

Again, I would have to say that we'd have to take a look.

Another question in there is <unk>.

Nothing to read into this it's early in the year and we like what we're seeing and we'll continue to.

At the data more carefully to answer your question in any kind of statistically relevant manner, but it hasn't bubbled up as a major driver of the volume issues that we saw in particular last last year in the third quarter.

Obviously reevaluate.

Were things stand at the end of the second quarter and make any guidance changes if appropriate.

Alright, perfect and then Dan I know.

At that point in time the bid the USPI business continues to generate incredible margins.

Free cash flow guidance, which is good and can you remind us do you have any share repurchase any incremental debt repayments.

So we're <unk>.

Very pleased with the start to the year.

At this point.

No no additional share repurchases are assumed in the guidance and that was consistent with how we started the year with our guidance.

Thank you next question is coming from Ann Hynes from Mizuho Securities. Your line is now law.

Okay, great. Thank you.

Hi, Thanks, I just want to talk about that no surprise billing act is that having any negative impact on charge any volume.

Sure.

Thank you next question is coming from John Ransom from Raymond James Your line is now live.

USPI.

Hi, there.

Yes.

David.

Kind of in the weeds question because all the governments have been asked if we look at.

C N N checks suggest that maybe anesthesiologists.

King as much money. So they are gravitating more towards inpatient or outpatient departments that reimbursement is higher. So I guess this is having an impact and if so what do you think it is on the dragon volumes.

None of the rest of the year on USPI and you look specifically at revenue per procedure.

Going on there in terms of rate versus just mix I mean, we assume there is some natural lift as you get more ortho and less pain, but if you could kind of help us understand what's going on in that line item that would be great. Thank you.

Hey, just a couple of comments there I'm not I'm not sure that.

Yeah, No John I appreciate it and that is still a good question. So.

<unk>.

Im not sure I could credibly answer that question with data.

It's an interesting question and something that we'll look into.

<unk>.

David.

Listen I think there's a couple of things as I indicated.

To see if we can identify any trends there.

And I think we've talked about this a bit before but maybe not as specifically there are there are certain areas of health care services that were deferred or more actively deferred and I think in our ASC business.

But what I would say is that the pressures there.

That we've talked about before in the staffing arena for.

Hospital based store ASC based physicians in particular in anesthesia.

In particular, we saw dampened utilization.

Is certainly an area that is requiring a lot of work I mean.

<unk>.

Your commentary about.

Of procedures that might have preventative value.

The activity in revenue intensity for anesthesiologists in hospitals versus Asc's.

And in particular in the Medicare population for Us in General Thats, a good sign that it's coming back even if there is some impact on the net revenue per case, because ultimately as the asc's become fuller will get benefit from capacity utilization and we had prepared for this a bit we werent sure when it.

It is certainly true.

<unk>.

It's going to come back to be honest, but we had prepared for this a bit by looking.

And.

Like we would in an acute care hospital environment for efficiencies within our ASC is.

Again, I would have to say that we'd have to take a look.

That would help to maintain our margins. So we've been focused on knowing that this business is going to come back knowing that some of the mix.

Would be a little bit more challenging.

And.

Doing the preparatory work to ensure that we maintain our margins by by finding efficiencies in advance of it coming back and it happened to come back a bit this quarter and I think I think again I think thats a good sign.

Alright, perfect and then Dan I know.

Free cash flow guidance, which is good.

You remind us do you have any share repurchase any incremental debt repayments.

At this point.

No no additional share repurchases are assumed in the guidance and that was consistent with how we started the year with our guidance.

Our independent physician partners office is running at full throughput similar to what we're seeing with our employed physician practices if that happens across the board I think that'll be a nice tailwind.

Okay, great. Thank you.

Sure.

Thank you next question is coming from John Ransom from Raymond James Your line is now live.

It will give them the confidence sometime this year to maybe recruit new partners to their practice and continue to grow their own businesses, which again will represent some long term tailwind in our partnerships with them at USPI. So I think this is a good cycle.

Hey, there.

Kind of in the weeds question because all the governments have been asked if we look at.

Kind of the rest of the year on USPI and you look specifically at revenue per procedure.

Going on there in terms of rate versus just mix I mean, we assume theres. Some natural lift as you get more ortho and less pain, but if you could kind of help us understand what's going on that line item that'd be great. Thank you.

B and even if some of the mix and other things in the short term will be a bit more challenging we will stay focused on the margin performance.

So I take from that is a big big colonoscopy quarter is what im hearing.

Yeah, No John I appreciate it and that is still a good question. So.

That's the way to think about it.

I appreciate it.

[laughter].

Listen I think there's a couple of things as I indicated.

Yes.

Thank you. Your next question is coming from Sarah James from Cantor Fitzgerald. Your line is now live.

Yeah.

Thank you.

I was hoping you could walk us through how you think about margin evolving as we start to come out of it.

In particular, we saw dampened utilization.

<unk>.

That's off of the peak.

Of procedures that might have preventative value.

Labor shortage.

And in particular in the Medicare population for Us in general that's a good sign that it's coming back even if there is some impact on the net revenue per case, because ultimately as the asc's become fuller will get benefit from capacity utilization and we had prepared for this.

So how much.

Margin leverage can you get from scale as Youre able to staff up and then how do you think about some of the.

Pay rate increases.

Constantly fine tuning to margin.

Hey, Sarah Stan and good morning.

A bit we werent sure when it was going to come back to be honest, but we had prepared for this a bit by looking.

Listen obviously.

We've strengthened our margins significantly.

For the past several years.

Like we would in an acute care hospital environment for efficiencies within our ASC is.

Not only.

Through USPI.

Hospital margins as well and we're very mindful of that and.

That would help to maintain our margins. So we've been focused on knowing that this business is going to come back knowing that some of the mix.

As additional volumes.

Are treated and cared for.

Would be a little bit more challenging.

Given the efficiency of our hospital platform, we think there is opportunities for margin expansion.

And.

Doing the preparatory work to ensure that we maintain our margins.

By finding efficiencies in advance of it coming back and it happened to come back a bit this quarter and I think I think again I think thats a good sign.

And obviously the USPI is margins are phenomenal.

Depending on the quarter from the high 30% and 40% territory.

But yes certainly.

Adding additional volumes can help in terms of given.

At least on the hospital side, there are certain fixed costs and so we can take on additional volumes and be profitable within and have a nice margin associated with it.

The operators do vary.

Okay.

They've done a really just a phenomenal job during.

Several years.

And driving efficiencies and incredibly.

Things in the short term will be a bit more challenging we will stay focused on the margin performance.

Highly inflationary and challenging.

So I take from that is a big big colonoscopy quarter is what im hearing.

Environment and you see it in.

Our cost statistics clearly.

Because that's the way to think about it.

In terms of commercial pricing as I mentioned earlier.

[laughter].

Yes.

We feel very good where we're at from a contracting perspective.

Thank you. Your next question is coming from Sarah James from Cantor Fitzgerald. Your line is now live.

In more recent negotiations.

Yeah.

We've been able to negotiate.

Thank you.

I was hoping you could walk us through how you think about margin evolving as we start to come out of.

Rates with annual escalators that are a little bit higher than historically, we may have negotiated so we feel good about where we're at from a contracting perspective.

That's off of the peak.

Labor shortage.

Thank you.

So how much.

Margin leverage can you get from scale as Youre able to staff up and then how do you think about some of the.

Thank you next question is coming from Ben Hendrix from RBC capital markets. Your line is now live.

Pay rate increases.

Hi, Thank you very much certainly appreciate the sequential color on improvement in agency cost NSW B, but could you talk a little bit about how that impacted inpatient capacity constraints specifically your peer HCA noted decline in re admission declines.

Possibly flying two two margin.

Okay Fair, it's Dan good morning.

Listen obviously.

We've strengthened our margins significantly.

Over the past several years.

Not only.

Percentage of inpatient volume and I hope you can give us an idea of how that has trended for the acute segment now you see that progressing this year given your labor strategy. Thank you.

Through USPI.

Hospital margins as well and we're very mindful of that and.

As additional volumes.

This is Tom I mean I think.

Are treated and cared for.

Probably as I as I indicated before I think probably the most important marker that we look at is the.

Given the efficiency of our hospital platform, we think there's opportunities for margin expansion.

Contract labor rate.

We're building up our workforce, we have been focused on that for over a year. It has been slow going its improving quarter over quarter over quarter, which is a good thing in terms of recruiting and retention.

And obviously the USPI is margins are phenomenal.

Depending on the quarter from the high 30% and 40% territory.

But yes certainly.

But ultimately the structural shortages in the market from a labor perspective haven't just disappeared.

Adding additional volumes can help in terms of given.

We moved from 'twenty two to 'twenty, three and so contract labor is still an important resource, but as those contract labor rates.

At least on the hospital side, there's certain fixed costs and so we can take on additional volumes and be profitable within and have a nice margin associated with it.

Begin to normalize you can use that contract labor more freely to open up capacity.

The operators do vary.

For us.

They've done a really just a phenomenal job during.

<unk>.

Math equation, if you will on where we open up capacity and how varies a bit because our markets are in different stages of recovery different kind of cost structures, even different contract labor rates that we face in different markets and so we kind of take that market by market I think part of the volume strength that you saw in Q1 reflected the fact that we.

Several years.

And in driving efficiencies and incredibly.

Highly inflationary and challenging.

Environment and you see it in.

Our cost statistics clearly.

As we indicated opened up access to some of our services a bit more than we had in the past and that's good because.

In terms of commercial pricing as I mentioned earlier.

We feel very good where we're at from a contracting perspective.

It's not only testing whether the demand is there, but it's also our ability to service it at healthy margins.

In more recent negotiations.

And that ended up being a good test for this quarter and so we'll keep pushing on that but we are also very focused on <unk>.

We've been able to negotiate.

Rates with annual escalators that are a little bit higher than historically, we may have negotiated so we feel good about where we're at from a contracting perspective.

Trying to drive contract labor unit rates.

Back towards pre pandemic levels, though they won't get all the way there, perhaps we're driving in that direction. This year.

Thank you.

Thank you next question is coming from Ben Hendrix from RBC capital markets. Your line is now live.

Thank you.

Thank you next question is coming from Andrew Mok from UBS. Your line is now live.

Hi, Good morning, adjusted admits were up six 7% in the quarter and outpaced outpaced inpatient admissions by about 240 basis points can you help us understand what's driving that spread there werent any obvious drivers in the outpatient stat would blend adjusted admin higher thanks.

Percentage of inpatient volume and I hope you can give us an idea of how that has trended for the acute segment now you see that progressing this year given your labor strategy. Thank you.

Yes, Andrew it's Dan it's a mix of the.

The intensity.

The outpatient volume the gross revenue in relation to the inpatient side.

This is Tom I mean I think.

Probably as I as I indicated before I think probably the most important marker that we look at is the.

That's the primary driver there.

Obviously, we got our volume our volume strength in the quarter was very strongly we're pleased.

Contract labor rate I mean, where.

With what we saw and it was consistent throughout the quarter, which was which was encouraging too.

Got it so it's a mix and acuity on the outpatient side was also was.

But ultimately the structural shortages in the market from a labor perspective haven't just disappeared.

A driver of the strength there.

Yes.

We moved from 'twenty two to 'twenty, three and so contract labor is still an important resource, but as those contract labor rates.

A contributor to.

And as I said was encouraging and not only on the hospital side, but also on the USPI side. The volumes were generally speaking of strong throughout the quarter.

Begin to normalize you can use that contract labor more freely to open up capacity.

Got it thank you.

For us.

<unk>.

Thank you next question today is coming from Jason Cazorla from Citigroup. Your line is allied.

Great. Thanks, just wanted to ask about uncompensated care trends it looks like bad debt in the quarter was up pretty decently year over year and that can be accomplished here, but any color on what drove that bad debt expense higher and just overall uncompensated care up call it 12% year over year in <unk>, I think that uncompensated care staff.

As we indicated opened up access to some of our services a bit more than we had in the past and that's good because.

That's up about 10% back in fourth quarter. Two so just any color on uncompensated care trends would be helpful. Thanks.

It's not only testing whether the demand is there, but it's also our ability to service it at healthy margins and that ended up being a good test for this quarter and so we'll keep pushing on that but we are also very focused on <unk>.

Yeah.

Hey, Jason Stan.

I would say.

The year over year.

<unk> is probably more last year.

Trying to drive contract labor unit rates.

<unk> seen some some lower levels.

I would tell you the.

Back towards pre pandemic levels, though they won't get all the way there, perhaps we're driving in that direction. This year.

Overall, the uncompensated care.

We.

I think it's been manageable.

<unk> spent a lot of time with our conifer team and hospital resources doing everything possible.

Thank you.

Thank you next question is coming from Andrew Mok from UBS. Your line is now live.

For someone who does not have insurance.

<unk>.

We assist them and we do an incredible job finding other forms of insurance through our <unk>.

Eligibility enrollment program.

Yes.

I wouldn't say, we're I wouldn't say youre never concerned about uncompensated care, but.

Yes, Andrew it's Dan it's a mix of the intensity of the outpatient volume the gross revenue in relation to the inpatient side.

The trends are essentially in line with what our expectations are so far this year.

Okay got it thank you.

Thank you. Our final question today is coming from Stephen Baxter from Wells Fargo. Your line is now live.

That's the primary driver there.

Obviously, we've got volume our volume strength in the quarter was very strongly we're pleased.

Yeah, Hey, Thanks for the question I wanted to ask another one on the ambulatory side, it's a little bit of a longer term question. I was hoping you could talk a little bit more about the outlook for ortho procedure growth and the opportunity here over the next couple of years and then we have this massive shift of ortho procedures from the inpatient hospital setting to the outpatient hospital setting compared to where we were pre COVID-19.

With what we saw and it was consistent throughout the quarter, which was which was encouraging too.

Got it so the mix and acuity on the outpatient side was also it was.

A driver of the strength there.

Yes.

I guess for the <unk> do you think about this shift as having pulled forward the opportunity there in a meaningful way and then second what do you need to do strategically to help migrate these procedures into your alc's. Thanks.

Yes.

The contributor to it.

And as I said zinc.

Encouraging not only on the hospital side, but also on the USPI side. The volumes were generally speaking strong throughout the quarter.

Yes.

Yes, I mean, I think I think a couple of things I mean first of all.

Got it thank you.

You are right that.

Thank you next question today is coming from Jason <unk> from Citigroup. Your line is allied.

A lot of what used to be done inpatient with a multi day stay even if it is a short stay.

Great. Thanks, just wanted to ask about uncompensated care trends it looks like bad debt in the quarter was up pretty decently year over year that can be accomplished here, but any color on what drove that bad debt expense higher and just overall uncompensated care up 12% year over year in <unk> I think that uncompensated care established.

Turning into hospital based outpatient surgery and.

I would say the moment you have something that turns into hospital based outpatient surgery, there's going to be a subset of patients that will qualify in an ambulatory surgery setting over time it'll be more of the comorbidities that patients have that determined the site of care rather than the.

About 10% back in fourth quarter, two so just any color on uncompensated care trends would be helpful. Thanks.

Nature of the potential procedure and what that recovery will look like.

Yes.

Hey, Jason Stan.

I would say.

The year over year.

From the standpoint of being able to ambulate and get home.

<unk> is probably more last year.

On a same day basis, and so that's really I think what will end up determining what the ultimate mix of inpatient hospital based outpatient, especially when there's certain comorbidities that that one needs to be careful with versus a fully ambulatory ASC outpatient setting I would tell you that R. R.

Seeing some some lower levels.

I would tell you the.

Overall, the uncompensated care.

We.

I think it's been manageable.

We spent a lot of time with our conifer team and a hospital resources doing everything possible.

For when someone who does not have insurance.

Our belief in the ASC setting in this area.

<unk>.

We assist them and we do an incredible job finding other forms of insurance through our.

For much more runway comes from the fact that.

We continue to see growth in the ASC setting, we continue to see new patients, including Medicare senior patients that are older being effectively treated in the ASC setting along with expanding the commercial market and we continue to see physicians coming to USPI wanting to initially.

Eligibility enrollment program.

So yes.

I wouldn't say we're I.

I Wouldnt say youre never concerned about uncompensated care, but.

No.

The trends are essentially in line with what our expectations are so far this year.

Okay got it thank you.

There first.

Thank you. Our final question today is coming from Stephen Baxter from Wells Fargo. Your line is now live.

Orthopedics de Novo work in our centers either through New center development ore.

Joining existing centers. So I think there's still demand and runway to go for ASC based orthopedics longer term, what we're focused on is looking at areas within orthopedics or even spine work.

<unk> are very much done in the acute care hospital and developing clinical algorithms to figure out how to safely do those types of procedures more actively in the ASC setting. So in orthopedics and example of that would be shoulder surgery and as I indicated spine surgery and I think we will see a migration in those areas in a.

I guess for the ASC is do you think about this shift as having pulled forward the opportunity there in a meaningful way and then second what do you need to do strategically to help migrate these procedures into your assays.

Yes.

I mean, I think I think a couple of things I mean first of all.

Youre right that.

Few years as well.

A lot of what used to be done inpatient with a multi day stay even if it is a short stay.

Thank you we've reached end of our question and answer session and ladies and gentlemen that does conclude today's teleconference and webcast. You may disconnect. Your lines at this time and have a wonderful day, we thank you for your participation today.

Turning into hospital based outpatient surgery and.

I would say the moment you have something that turns into hospital based outpatient surgery. There is going to be a subset of patients that will qualify in an ambulatory surgery setting over time it'll be more of the comorbidities that patients have that determined the site of care rather than the.

Nature of the potential procedure and what that recovery will look like.

From the standpoint of being able to ambulate and get home.

Our belief in the ASC setting in this area.

For much more runway comes from the fact that.

Hey.

There first.

Orthopedics de Novo work in our centers either through New center development ore.

Joining existing centers. So I think there's still demand and runway to go for ASC based orthopedics longer term, what we're focused on is looking at areas within orthopedics or even spine work.

Today are very much done in the acute care hospital and developing clinical algorithms to figure out how to safely do those types of procedures more actively in the ASC setting. So in orthopedics and example of that would be shoulder surgery and as I indicated spine surgery and I think we will see a migration in those areas in a.

Few years as well.

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