Q1 2023 Universal Health Services Inc Earnings Call
Good morning, and thank you for standing by and welcome to the first quarter 2023 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one one.
Your telephone you will gain here an automated message by senior had this waste to withdraw your question simply press Star one again, please be advised that today.
Today's conference is being recorded.
Now I'd like to hand, the conference over to.
Steve Filton Executive Vice President and Chief Financial Officer. Please go ahead.
Thank you and good morning, Mark Miller is also joining us. This morning, we welcome you to this review of Universal Health services results for the first quarter ended March 31, 2023. During the conference call will be using words, such as believes expects anticipates estimates and similar words that.
<unk> forecast projections and forward looking statements for anyone not familiar with the risks and uncertainties inherent in these forward looking statements I recommend a careful reading of the section on risk factors and forward looking statements and risk factors in our Form 10-K for the year ended December 31 2022.
We'd like to highlight just a couple of developments and business trends before opening the call up to questions as discussed in our press release last night. The company reported net income attributable to U H S per diluted share of $2.28 for their first quarter of 2023 after adjusting for the impact of the item reflected on this.
Supplemental schedule is included with the press release, our adjusted net income attributable to U S. Jasper diluted share was $2.34 for the quarter ended March 31 2023.
During the first quarter, our behavioral health hospitals produced strong results the decline in Covid activity allowed our behavioral hospitals to continue to reduce their labor vacancies, resulting in a reduction of the cabinet capped bed capacity at a four 7% year over year increase in adjusted patient days.
Bind with a healthy 5% increase in net revenue per adjusted patient day overall revenues grew by almost 10% over the prior year quarter and with that level of revenue growth same store behavioral EBITA margins increased from 20% to almost 23%.
Our acute hospitals experienced strong demand for their services with adjusted admissions, increasing 10, 5% year over year for a variety of reasons revenue growth was more muted at 3.5% as a percentage of total admissions COVID-19 diagnosed patients made up 14% of our admissions.
In the first quarter of 2022, but only 4% of admissions in the first quarter of 2023.
This decline in Covid patients resulted in reduced revenues due to the lower acuity and less of the incremental government reimbursement associated with Covid patients the impact of the Covid support payments, including her Medicare sequestration in the 20% Medicare add on was a 42 million.
The headwind in the first quarter compared to the same prior year period.
There was also a $15 million of out of period, Texas Chirp reimbursement recorded in Q1 of 2022 that did not recur in this year's quarter, while overall surgical volumes were robust increasing a little over 10% from the prior year quarter. There was a continuing shift from inpatient to out.
Patients, resulting in further overall revenue pressures. Meanwhile, the amount of premium pay in the quarter, which declined from a peak of $153 million in the first quarter of 2022 was $85 million in the first quarter similar to what it was in the third and fourth quarters of 2022.
The dramatic increase in volumes is the major reason that premium pay is not decline further.
It's worth noting that our average hourly rate, which includes premium pay was 7% lower than it was in the first quarter of 2022.
In total the robust volume growth offset by lower revenue per adjusted admission resulted in flat same store acute care EBITDA compared to last year's quarter.
We also note that the first quarter acute non same store results included approximately $10 million of a headwind for the impact of the Desert Springs hospital closure and approximately $5 million of losses related to startup facilities.
Our cash generated from operating activities was $291 million during the first quarter of 2023 as compared to $445 million. During the same quarter in 2022. The decline was largely due to an unfavorable change of $183 million in other working capital accounts, primarily due to the timing.
Disbursements for accrued compensation and accounts payable.
In the first quarter of 2023, we spent $169 million on capital expenditures and acquired 650000 of our own shares at a total cost of approximately $79 million.
Since the inception of the current share repurchase program in 2014, we have repurchased more than 20% of the company's outstanding shares.
As of March 31, 2023, we had $875 million of aggregate available borrowing capacity pursuant to our $1 $2 billion revolving credit facility.
Now I'll turn the call over to Mark Miller, President and CEO for closing comments.
Thanks, Steve and good morning in our year end conference call. We said, we envision 2023.
A year of continued transition into a post pandemic world.
We anticipated that volumes in both segments and acuity in our acute business will continue their recovery trajectory.
And gradually begin to resemble the patterns, we experienced before the pandemic.
The comparison to last year's first quarter for our acute hospitals, which we're experiencing a significant surge in COVID-19 patients with the omicron variant is particularly challenging but many of those COVID-19 related headwinds will become much less of a factor as the year progresses.
We expect it to be able to reduce premium pay by about one third in 2023 from 2022 levels as.
As we continue to increase hiring rates and reduce turnover.
And while the decline in premium pay has leveled off for the time being we continue to make progress on overall wage pressures.
In our acute segment, we highlighted the upward pressure on physician expense, which tended to run at a rate of about 6% of revenues pre pandemic, but is budgeted to run and actually is closer to seven 5% in 2023.
Overall, we were pleased with our first quarter results, which were largely in line with our internal expectations with our behavioral results somewhat ahead and our acute results slightly behind.
We are pleased to answer your questions at this time.
Thank you.
Yes.
Okay.
Jerry do you have a question simply press star one on your telephone.
To withdraw your question simply press Star one again.
One moment.
We have a question from Jason <unk> with Citi. Please proceed.
Alright, Great I guess first wanted to ask about your acute volume trajectory I guess, obviously, a solid start to the year, but curious if you believe this was broad based underlying demand or anything else beyond an easier comp and I guess given performance in the quarter, how youre thinking about the sustainability of the momentum and volume growth.
For the remainder of 2023.
Sure Jason.
I think we've made the point for some time that we felt that as COVID-19 volumes continued to decline and sort of.
Continue at a kind of a lower we'll call. It endemic level that the non COVID-19 volumes would.
I'll begin to recover I think that recovery quite frankly has been a.
A bit slower than we anticipated, but clearly.
Taking into account what our.
Public hospital acute care hospital peers have said as well in the first quarter.
I think there seems to be a broad based recovery across the space.
And.
I think our expectation is that.
We're going to begin to see acute care volumes.
Track at their sort of pre pandemic patterns with volume growth in the low to mid single digits and sort of pricing growth at a similar level. So ultimately and particularly I think once we get beyond the first quarter with that difficult Covid comparison.
We'll begin to see an acute care business model that resembles something a lot closer to where our pre pandemic experience.
Okay got it thanks, and then just as a follow up you know I wanted to ask about the favorable the favorable behavioral revenue per patient day trying to up 5% in the quarter I guess any color on how we should think about the growth in that stock for the remainder of 'twenty just given the improvement that youre seeing on labor scarcity, better volume procured product than anything else, but any help there would be great. Thanks.
Yeah again, so we've talked about this I think on a number of prior calls.
I think prior to the pandemic revenue per adjusted day in the behavioral division tended to increase about 2% to 3% annually.
During the pandemic.
I think we've seen that number jumped 5% or 6% and a number of quarters and we've attributed in many cases to a more aggressive stance on our part.
We renegotiated contracts with some of our lowest tires with the idea that in an environment of capacity constraint in an environment, where we returning patients away because of a lack of adequate staffing.
It gave us more leverage to take.
A more aggressive stance with our payers and again I think you saw that in the 5% revenue per day per adjusted day increase in first in the first quarter.
<unk>.
Obviously, I think the sort of the crux of your question is as we continue to hire more people and those capacity constraints or E. Sun does it change the dynamic with the payers and I think the honest answer is to a degree but I'll also say just broadly I think across the space, but behavioral space, we have a view that.
Demand across the space exceeds.
The supply of beds in many geographies and in many instances and so.
I think we're going to still have leverage with the payers.
In many of our geographies if they want a place to have their patients treated theyre going to have to pay.
At a minimum you know market rates to providers.
Yes.
But we also did say I think when we talked about our 2023 guidance in our last call.
That we were.
Rejecting guide.
Guidance that that revenue per day growth would moderate some so if we see some moderation. It is certainly something thats been anticipated in our guidance, but right now it's a pretty strong environment in terms of our negotiations with payers.
Great. Thank you.
Thank you one moment for our next question. Please.
And it comes from the line of Josh Raskin with Nephron Research. Please proceed.
Yeah.
Hi, Good morning. This is actually Mark <unk> on for Josh I. Appreciate you taking the question.
Based on your commentary it appears that <unk>.
Capacity is opening back up in the behavioral segment.
Staffing levels improve and you also just spoke to demand outstripping supply in a number of geographies.
So with that do you think we're at a point now where should we we should expect more development on the behavioral side or even acquisitions of assets there. Thanks.
Okay.
Yeah, I think it's a reasonable question, obviously during the pandemic and during the significant capacity constraints, we had and the issues we had in <unk>.
Hiring sufficient clinicians, especially nurses to treat our patients we did put on hold some of our development activities.
Building, new capacity at existing facilities or building de novo facilities, Although we certainly continued with some.
But I think your question is right I mean, we just had a meeting recently and which we reviewed a hole.
Chunk of facilities that are running at in excess of 80% occupancy on the behavioral side to consider I think the exact point of your question whether.
Study.
Building more capacity in those facilities. So I think youre right. This is a bit of a compounding kind of dynamic as we're able to hire more people and fill more of our permanent vacancies I think we'll be able to treat more patients and as we're able to treat more patients we may need to increase capacity in some of our.
Some of our facilities and some of our de Novo projects. So I think that's certainly a possibility over the next several years.
Great. Thanks, and then just on the acute care side I know you gave some detail on the contract labor trends in the quarter, but I was wondering your thoughts on whether rates are now back to levels, where it makes sense to just continue you utilizing temporary labor as a means of increasing capacity.
And do you think there'll be enough sustained demand on the acute side.
To support that.
Yes.
The traditional I think approach to temporary labor in the acute business for us and I think largely for our peers always wise that when there were temporary surges in volumes, which they are often are.
Covid activity aside it always made sense too.
Solve those sort of temporary demands on your staffing with the use of temporary and traveling nurses et cetera.
What became.
Really sort of disrupting kind of factor during the Covid surge is was that the price or the cost of that temporary labor.
Arose to two and three and I think that sometimes four times, what traditional rates had been I think as we see those numbers come down and we certainly have seen them come down quite a bit although I think were at pre pandemic levels.
I think we're going to get back to that sort of traditional approach that win.
We need temporary labor.
To these outside agencies for Ed.
But it'll be on a less frequent basis et cetera, and I will say that there were times during the pandemic, where the cost of temporary labor got so expensive that we just refused to use it if you've got above a certain level.
Again, I think we're largely past that point and like many other things.
Referenced on the call I think that as we progress in 2023, and we go beyond that we're going to see that temporary labor supply demand dynamic in pricing and inflationary dynamic returned to much more of a pre pandemic sort of level than what we have seen in the last few years.
Alright, thanks very much.
Thank you one moment for our next question. Please.
Okay.
Alright any comes from the line of Andrew Mok with UBS. Please proceed.
Thanks can you help us understand the.
<unk> improvement in the acute business in the context of lower acuity trends seen in the fourth quarter did underlying acuity actually improve or were volumes. So strong such that it matched some of the continued acuity headwinds that you're seeing thanks.
Yes, so I think the sequence the sequential improvement sequential improvement reflects some.
Some of the normal seasonal patterns I think.
In any normal year.
Our first quarter is our busiest year on the acute side.
And.
There is generally a pretty significant step up from the fourth quarter and some of the reduced activity during the holidays in the fourth quarter etcetera. So I think you did absolutely see side of that I also thank you.
Just continue to see a.
Our return abnormal patterns patients who.
The delayed and deferred procedures during the pandemic.
Beginning to schedule those and at least get into the pipeline for some of those more elective and scheduled procedures et cetera. So I think you saw that dynamic so I think the acute care performance clearly.
In my mind was more favorable when you look at it from a sequential basis. When you look at it from a year over year basis to the first quarter of last year. When we had the omicron surge when we had the very high acuity.
The comparisons I think we're much more challenging yet kovac reimbursement in the first quarter of last year, but to your point the fourth quarter improvement over for the acute division.
It was encouraging to us and I think sort of reinforces our view that we've created.
An appropriate sort of guidance trajectory in 2023 with the acute care performance improving as the year goes on.
Got it and related to that hoping you could provide an update on the Las Vegas market with respect to the Desert Springs Hospital, you close down to the new Reno Hospital, how is that tracking against expectations. Thanks.
So those are two very different dynamics.
I think we discussed in our last call. The Desert Springs dynamic is really related to the new hospital. We're building in West Henderson, which is sort of between our existing Henderson hospital in our existing Desert Springs Hospital.
As I think.
Physicians and patients and employees all in.
Came to the realization that ultimately west Henderson would be replacing deserts function in the market.
They began to make other decisions and move to other hospitals very often our own hospitals elsewhere in the market and so we made the decision to close desert as an acute care hospital that we still operate freestanding emergency department on the site.
As I mentioned in our prepared remarks that those shutdown costs and severance costs et cetera.
Created about a $10 million headwind in the first quarter compared to last year.
Essentially I think after that as the year progresses.
Desert Springs will have much less of an impact and I think we're very much looking forward to the positive impact that west Henderson will have when it opens.
Either the spring or the middle of 2024.
In Reno or new hospital.
A bit of a drag compared to last year, but certainly not at the level of <unk>.
2022, when it was.
Seven or $8 million drag per quarter on average.
And we think again that will improve over the year and as I think we indicated in our guidance.
We're expecting about a $30 million favorable.
Tailwind in 2023 from the Reno Hospital.
Broadly I would just say and I think this is consistent with what our peers have said, we've seen our Texas and Florida markets recover I missed I think particularly from an acute care perspective.
Recover from the pandemic dynamics faster than our other markets around the country, including in our case in Nevada, and California, There's been a shift in population to places like Florida, and Texas I think those.
Economies tended to recover more quickly from the shutdown. They didnt shutdown is as completely we're as quickly as some other markets around the country. So.
Again, I think our experience in those markets is consistent with what at.
At least in a couple of our peers have talked about as well.
Great. Thanks for the color.
Yes.
Thank you.
Our next question please.
And it comes from the line of Stephen Baxter with Wells Fargo. Please proceed.
Hi, Thanks for taking the question. This is Nick on for Steve I was hoping you could talk a little bit about how your Q1 results impact your thinking for full year guidance, particularly in light of some of the margin favorability you you saw on behavioral in the quarter. Thank you.
Yes so.
As is our practice, we didn't address guidance in our press release, which means that we're maintaining our existing guidance I will say that in because we don't give quarterly guidance I will say that.
Our internal forecast for the quarter were somewhat ahead of the consensus estimates, although our actual results were ahead of both consensus and our internal forecast.
In term I know that a couple of our peers raised their guidance in the first quarter.
As you all know I have been at IHS for more than three decades, I don't recall that we've ever changed our guidance. After the first quarter for better for worse. Obviously in this case it would have been better had there been any change.
But generally we were pleased with our first quarter results I think Mark's comments.
On the call indicated.
But I'll also make the point that.
Other years.
The earnings trajectory that we're expecting in 2023.
Is that earnings will continue to improve as the year progresses.
So we feel very comfortable with our full year earnings were very pleased with the first quarter results.
But certainly it didn't feel from a either a sort of a historical practice perspective or.
Or any other that there was any need to change the guidance after the first quarter results.
Sure Joe.
Your question Sir.
<unk>.
Yes. Thank you.
My question well Amendment for our next question. Please.
Okay.
Okay.
And it comes from the line of Ann Hynes with Mizuho Group. Please proceed.
Hi, good morning could.
Could you talk about nursing trends, maybe in each segment, which segment do you think its recovering faster than the other.
And I know you said turnover improved can you give us some stats, maybe what turnover was at the height of the pandemic.
It was before the pandemic and wanted to trailing now thanks.
Sure and so I think turnover.
Particularly in nursing.
<unk> the U S pre pandemic tended to average in the low 30% range I think most of our hospitals tended to do a little bit better than that but obviously nursing turnover is is and has been significant.
I think challenge for the hospital industry for many years during the pandemic I think those percentages often doubled and in some cases, maybe even tripled.
Again, not just for UHF and not just for acute or behavioral, but I think for hospitals across the country. I think it was particularly challenging for sub acute providers like behavioral hospitals or nursing homes or home health home health agencies or any long term care businesses, who are losing clinicians too.
These incredibly sort of high priced opportunities to make these really premium.
<unk> in acute care COVID-19 settings. During the pandemic I think what we said all along was that as Covid volumes.
Diminished and reduce sort of the levels that we saw in Q1 of this year.
Many nurses and what sort of return to their original or if you will they're sort of homebase occupations or work sites and I think we've seen that I think we've seen a sort of a faster and quicker benefit to that on the acute on the excuse me on the behavioral side, where.
We've been able to fill more of our permanent vacancies.
And as a consequence, we've been able to add more patients and again the.
That 10% same store revenue growth that we saw in the first quarter I think is a.
Very concrete reflection of our progress that we're making I think on the acute side, we're making progress we've obviously reduced.
Our premium pay.
All by almost half from where it was a year ago.
I think a number of our peers have quoted.
Have tended to talk about the wage issues in an acute care by quoting our premium pay numbers and that includes both things like overtime and shift differential that we pay to our own employees as well as contract labor.
But when you just.
Isolate the contract labor numbers as a percentage of overall salaries and wages I.
I think we're in that 5% to 6% range, which I think is right where our peers are may be even a little bit lower than that so we've clearly made progress on the acute care side as well and I think that while it's the acute care recovery has been a little bit slower I think it positions the acute care business well for the rest of the year as acuity.
Return to surgical volumes improve the.
The fact that we've been able to reduce.
Premium pay so much from a year ago bodes well for.
What we'll be able to accomplish in the upcoming quarters as well.
Great and just on the inpatient side and patient trends emissions improve sequentially can you just describe what delta like what do you think it's coming back versus what was not in 2022.
Yes, I think it tends to be across the board.
We have seen emergency room volume increase and that always had sort of a cascading impact on our admissions we've seen our schedule then elective surgical procedures increase.
And I think the one.
Dampening sort of impact of that is that asset, which again I mentioned in my prepared remarks is that even though overall surgical volumes are clearly increasing and even inpatient volumes are increasing on an absolute basis, there's definitely a shift too.
More procedures being done on an outpatient basis I would highlight I think particularly again I don't think this is unique to UHF, but particularly in the orthopedic service line, we've seen a pretty dramatic shift in the last couple of years from inpatient to outpatient.
Procedures, but just broadly I think we're seeing the volumes in almost all of our service lines improve.
Great. Thanks.
Thank you one moment for our next question. Please.
And he comes from the line of Justin Lake with Wolfe Research. Please proceed.
Hey, guys. This is Austin on for Jonathan I appreciate the question.
Steve sticking on that like scheduled elective mix that you. Just described I know that was a little bit of a focal point in two Q3, Q and through back half of last year. You noted some improvement there, but wondering if you can kind of quantify where that's maybe tracking versus the pre pandemic level and is that shift to outpatient maybe shifting that run rate going forward. Thanks.
So again.
In my prepared remarks, I talked about a year.
Year over year surgical growth total surgical growth.
As around 10% higher on the outpatient side, maybe 14% lower on the inpatient side, maybe 4% something like that.
<unk>.
Thank those.
That level of growth is reflective of.
Some amount of catch up of deferred procedures et cetera, I mean that would be.
A pretty difficult pace to continue.
Sort of indefinitely, but again I think we've we've argued for some time now that as Covid volumes decline there would be some.
Kind of pent up demand in surgical volumes at a minimum would return to their pre pandemic levels. I think we're at a point right now where we're recapturing some of the volume that we lost during the height of the pandemic.
But it feels like absent another COVID-19 surge, which nobody seems to be anticipating at the moment.
There ought to be a relatively.
Steady and sustainable growth in surgical volumes, although I suspect that they will continue to be more skewed to outpatient revenue patients.
Great. Thanks, and then maybe just as a quick follow up.
Commercial contracting cycle kind of and focus I'm just wondering if there's any update there and if youre still seeing some favorability on that front. Thanks.
Yes, I mean, I think as we indicated and have indicated I think since we have probably the back half of 2020 to win.
Inflation began to.
Have a clear impact on our business, but also the rest of the world. We've been negotiating managed care increases that I think in general are somewhere in 150, <unk> hundred 75 basis point range.
Here than what they were pre pandemic.
That will continue quite frankly for.
A number of periods.
As contracts come up for renewal.
But yes, I mean, I think as we are renegotiating commercial contracts in particular.
Getting some relief I think we would still argue it's not necessarily full relief for the inflationary pressures we have been under but it's certainly been helpful to our results in.
More clearly on the on the behavioral side you can see that number in our revenue per day. It is not as easy to see it on the acute side in our revenue per admission because you've got the sort of acuity factor working the other way, but again I think those comparisons are going to become a lot clearer as we get past the first quarter when the Covid comparison.
For the prior year, we're going to be much more.
Equal and not nearly as.
Out of whack.
Great. Thanks for the color guys.
Thank you.
Our next question please.
And he comes from Kevin Fischbeck with Bank of America. Please go ahead.
Hi, Good morning. Thank you. This is Joanna <unk> filling in for Kevin today, Thanks for taking the question.
So I guess, firstly, just a follow up on the on the behavioral business.
So the volume is pretty strong there, we just talk about the acute but any any color there in terms of.
The regions or business lines.
Across the board, but just additional color on the strike volume strength.
Not really Joanne I mean again this is a.
Subject that we've discussed at great length in calls during the pandemic.
We have argued.
Throughout that the biggest.
Constrain on our volume growth in behavioral was our staffing and the inability to hire.
A sufficient number of clinicians, which was mainly nurses, but also things like <unk>.
Other professionals like therapists, and psychologists and psychiatrists, even but also even some nonprofessional folks mental health technicians, who are a critical part of our patient care planning in our behavioral hospitals.
And what we continue to say is that as we as the covered volumes declined we'd be able to hire more people and fill more of those permanent vacancies are net hires have been increasing for well over a year now pretty consistently.
And.
I think you saw our behavioral volumes improve in the back half of 2022, obviously, they continue to improve in the first quarter very robustly.
But the early signs as those trends are continuing into Q2.
I think we hit our highest.
Behavioral census number within the last week that we've seen in a couple of years. So.
We're very bullish about our ability to again continue to fill those vacancies and increase of our ability to treat more patients, but its very much across the board from.
From a geography perspective from a service line perspective.
To be perfectly honest here with that 10%.
Same store revenue growth really couldn't be anything, but pretty comprehensive because theres not theres not a single geography or a single service line that could drive that level of improvement.
And would you say that that strength.
Because you made it sound like things are tracking better.
Second.
Segment by sounds like maybe margins, so any chance to kind of your view.
For the year, just beckman or it's kind of end up.
Ballpark.
Yes, I mean again I'll just echo the comments made by Mark in his remarks.
I think when we created our 2023 guidance, we envision that.
2023 would be a year of transition out of sort of the pandemic environment into a post pandemic world in which we have much greater success.
And filling our labor vacancies there wouldn't be as much labor supply demand disruption certainly that's the way the first quarter played out, particularly very strongly on the on the behavioral side.
Yes, that's the way our guidance plays out for the year.
We're feeling very good about how the year has started out.
And anticipate that most of these trends will continue as the year goes on.
Great. Thank you and then last question.
Behavioral segment.
It comes through.
Read the terminations of states are starting this process now.
Have been delaying a bit I guess.
Talking about this.
Quite a bit.
So can you talk about how you think this will play out for behavioral business specifically.
Jim anything in your guidance or is it.
More 2024, if at all and then also I guess.
Any comments on how this could impact that.
Great. Thank.
Thank you.
Yes, so look I think the truth Joanne is that.
Nobody really has a very sort.
Is that a clear and precise view of how redetermination theyre going to effect and by the way either either the behavioral or the acute business as your question indicates.
It depends a lot on the pace at which the states go through the Redetermination process and Thats not clear it certainly depends on the pace at which folks who lose their Medicaid coverage can qualify for a commercial exchange products.
Number one how quickly they can do so and number two what percentage of them can do so.
So they have been all sorts of guesstimate by all sorts of people about how this will.
Play out some of them are quite frankly, you substantively very positive for the hospital industry. Some are somewhat negative I think.
<unk> broadly what we did in our 2023 guidance is think about re determinations as being sort of modestly negative for both segments.
But to be fair that was largely a guesstimate, but I think that has been included in our pricing assumptions for 2023. So we'll see how it plays out we're certainly ready from an operational perspective at our hospitals too.
Do everything that we can do to make sure that patients who lose their Medicaid coverage.
Do everything possible to re qualify for commercial exchanges or any other coverage that might be available in a particular market. So we're we're prepared at that.
Sort of.
Round level too.
Deal with re determinations, but I think thats something that we as an industry are going to have to wait and see how that develops and plays out over the next couple of quarters.
Thank you for this call I appreciate it.
Thank you Amit for her next.
Question. Please.
Okay.
Alright any comes from the line of Steven Valiquette with Barclays. Please proceed.
Alright, great. Thanks, Hi, good morning.
To get too granular on labor, but our monthly labor trackers showed the company had better momentum later in the quarter.
In February and March, especially on filling nurse job vacancies at both segments. So I would think that would also bode well for volumes in the second quarter. So not ask you to comment on monthly trends, obviously, but just curious if you're able just to comment on the momentum for the company.
Exiting the quarter on the labor front, whether that also as Joe just to give a positive bias for volume trends in the second quarter as well. Thanks.
Yes.
Broadly, Steve I would say.
We concur with the idea that things improve broadly both from a labor perspective volume perspective, as the quarter went on.
And again as I think Ive noted a number of times in my comments on the call already that's the way our 2023 guidance is built.
I think traditional seasonality would not suggest necessarily that things would continue to get better historically from the first quarter forward, but we thought 2023 trajectory would be different and it seems to be playing out that way. It played out that way in Q1, and certainly early in Q2 that seems to be the trend.
So we're encouraged by that debt.
The assumptions that we made in our 2023 guidance seem to be at least early in the year playing out in the way that we expected.
Okay got it okay.
Yes.
One moment for our next question please.
Sure.
Alright, and it comes from the line of Peter Chickering with Deutsche Bank. Please proceed.
Hey, good morning, guys and thanks.
Taking my questions a follow up to both the <unk> answer question here.
Can you combine both the new hires and the turnover to quantify where the net hires was specifically behavioral compared in the first quarter versus the fourth quarter.
And then how many behavioral beds or you're still unable to staff at this point, if any kind of how has that tracked throughout the year.
Yeah.
I don't have the net higher detail in front of me, what I do know and what again I've said I think on a number of occasions is our net hires on the behavioral side in particular have been positive.
Definitely since the end of the first quarter of last year.
And I think thats been pretty consistent and probably accelerating.
As as time has progressed and again I think thats pretty consistent with our expectations and.
I think we expect it will continue to be the case.
Sure.
Yes, how many beds, we are capped et cetera kind of an interesting thing we don't really give that number in a precise way because.
It really sort of varies the way each facility thinks about it I think they generally sort of describe a bed or a unit as kind of capture close if it has traditionally been open.
But it has to be temporarily closed because of a lack of.
Sufficient staffing I will say this I mean, we continue to and that again. We've made this comment before this is not anything terribly new we continue to turn away significant numbers of patients.
Because there is either not an available that or not and available staff members of our staff members to treat that patient. So we continue to believe that as we make progress and continue to hire people in the behavioral space that the demand will be there. It's not like we're hiring people to chase demand, we believe that we're hiring.
People to meet the demand Thats already out there and has been demonstrated to us through the incoming.
Inquiry process, whether that's people.
<unk> are 800 numbers or people enquiring about treatment online.
As we measure that incoming call volume, there's still a significant amount of unmet demand.
That we believe as we addressed earlier in the call we can meet through potentially expanding bed capacity, but also through continuing to expand our net hires.
Okay, Great and then.
A question here.
As you think about sort of margin expansion behavioral sort of over the next sort of sort of between 12 to 24 months, how much is coming from sort of getting those beds filled up as we're getting the fixed costs.
Leverage there and how much is it coming from spread of pricing running in the mid single digits versus the wage inflation running in the 3% range.
Yes, Im sorry, Im not sure I fully understand the question I mean, obviously, if you look at our 10% revenue growth in the first quarter was split pretty evenly between price and volume.
Honestly I think there's more upside on the volume side is kind of I think in response to an earlier question I think we may see that price our revenue per adjusted day moderate a little bit as the year goes on.
And some of the capacity constraints or ease, but I think the volume growth for the foreseeable future ICU.
Pegged the timeframe is 12 months to 24 months.
Should continue.
And quite frankly not really.
Inconsistent with what our volume growth patterns, where in behavioral pre pandemic, obviously those volume.
Volume patterns were significantly muted during the pandemic because of the labor.
Supply and demand disruption that we saw but as we continue over the next couple of years I think that we're very confident that that volume growth in the mid single digits is a very sustainable sort of number.
Okay, great. Thanks, so much guys.
Quarter.
Yes.
Thank you.
Our next question and as a reminder, if you do have a question simply press star one to get into queue.
And our question comes from Jamie Paris with Goldman Sachs. Please proceed.
Hey, Thank you good morning.
Steven you previously guided to about 1% to 2% revenue per adjusted admission in 2023. You also said that was kind of one of the more aggressive assumptions in your thinking for 2023. So.
Getting through the tough <unk> comp and then just curious how revenue per adjusted admission played out versus your expectations and how to think about that metric for the rest of the year is for the acute segment.
Yes, so again I think our comments.
Were straightforward in saying that.
Our.
Acute performance in the first quarter was slightly below our own expectations and I think it was mostly on the pricing side, because obviously it was hard not to be pleased with the volumes in the quarter and I think our expense control was pretty strong so.
Now again I think as we said that first quarter comparison, we know was always going to be difficult for on a pricing basis for the acute business because of that acuity drop.
I think we will get a better view of this as the year progresses because the.
Again, the Covid comparison is not going to be nearly as important.
And we will get to see what the I'll call it sort of true pricing dynamic looks like and what the inpatient to outpatient shift means et cetera.
Again, I think we were slightly behind expectations in Q1, but certainly don't in any way feel like that doesn't mean, we can't get to our full year expectations on the acute side.
Okay. Thanks for that and then just on contracting tactics with commercial payers that you previously mentioned there were some contracts where you're potentially willing to walk away if.
If payers didn't kind of meet you halfway I'm curious how some of those types of negotiations of have played out plans are payers, becoming more receptive to medium providers.
At better rates have you actually walked away from contracts just any update there.
On the behavioral side in particular.
Yes, so again I mean, I think a large degree the proof is in the pudding, we add 5%.
Revenue per adjusted day growth in our behavioral revenue in the quarter that certainly is well above historical averages.
Which I think tended to be in maybe two to two 5% range.
More.
More like what we have been seeing during the pandemic again, because I think that with capacity constraints and with our large market share in many of our geographies.
Payers are unwilling to.
Kind of in your terms meet us halfway path reasonable rate and essentially go out of network with US I think their choices in their options to have their patients treated in other settings and at least in some geographies is severely limited so.
I think we've been pretty successful again at the end of the day that revenue per adjusted day I think is the evidence of that and it plays out.
Are asking how it plays out.
A lot of times, we will give notice of termination and the contract never terminates and we will reach a negotiated.
Settlement.
On rates at other times, we will actually walk away and the contract will terminate.
Sometimes that's a permanent thing and sometimes the payer comes back and you've been after the termination will saddle so it.
It doesn't play out the same way every time.
But again my sense is broadly in the behavioral space.
Theres not a lot of excess capacity.
Around the country.
And payers, while they certainly are always going to be aggressive.
I think you'll find themselves having to be reasonable if they really want to make sure that there is a place for their subscribers to be adequately treated.
So I think on the behavioral side that.
A strong leverage position is going to continue with us for some time.
And I just want to piggyback on this point because we have just decided.
A little bit more forcefully now.
We're just going to push that issue.
We need to be paid fairly for the work that we're doing.
Our expenses are up.
Some of the payers.
Don't need us half way all the time and we've.
Clearly leaning to them that that's not going to be adequate going forward.
But in addition to that we're having a lot of different discussion with payers.
Say in the last six to 12 months.
We've not had before and it goes to a lot of what their needs are growing on the behavioral side. We are the largest provider in the United States and behavioral so the leverage is shifting a little bit and we're trying to work with them to show them. How it is.
More conducive for them to pay us a little bit more would have their patients serviced in a much better way than to try and continue to nickel and dime and ultimately.
Thats not going to satisfy their needs. So those discussions are I would say escalating.
And there are different discussions and I think that we're going to have more positive results from the types of conversations that we're having now.
Thanks for all the color.
Thank you.
Yes.
And at this time I would like to turn the conference back to Steve Filton for closing remarks.
Okay. Thank you we'd like to thank everybody for their time. This morning, and look forward to speaking again next quarter.
And this concludes today's conference call. Thank you for participating and you may now disconnect.
Okay.
[music].