Q3 2023 Tenet Heatlhcare Corp Earnings Call
Speaker 1: transcript
Speaker 1: Good afternoon. Welcome to Kenneth Healthcare's third quarter 2023 earnings conference.
Good afternoon, welcome to Tenet Healthcare's third quarter 2023 earnings conference call.
Speaker 1: transcript
Speaker 1: After the speaker marks, it will be a question and answer session for industry analysts.
After the Speakers' remarks, there will be a question and answer session for industry analysts you May press star one at any time she placed in the question queue.
Speaker 1: transcript
Speaker 1: You may press star 1 at any time to be placed in the question queue.
Speaker 1: transcript
Speaker 1: I kind of respectfully ask the analysts to limit themselves to one question.
Kind of especially ask the 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. Mcgough, you may begin.
Speaker 1: transcript
Speaker 1: I'll now turn the call over to your host, Mr. Will McDowell, Vice President of Investor Relations. Mr. McDowell, you may begin.
Good afternoon, 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 <unk> third quarter 2023 results as well as the discussion of our financial outlook.
Speaker 2: transcript
Speaker 2: So please, to have you join us for a discussion of tenants' third quarter 2023 results, as well as the discussion of our financial outlook.
Speaker 2: transcript
Speaker 2: Tenant Senior Management, participating in today's call will be Dr. Sam Satoria, Chairman and Chief Executive Officer, Dan Cancel me, Executive Vice President and Chief Financial Officer, and Fund Park Executive Vice President.
And its senior management participating in today's call will be Dr. <unk>, <unk>, Chairman and Chief Executive Officer, Dan can sell me Executive Vice President and Chief Financial Officer, and Sun Park Executive Vice President.
Speaker 2: transcript
Speaker 2: Our webcast this afternoon includes a slide presentation, which has been posted to the investor relations section of our website tenanthealth.com
Our webcast. This afternoon includes a slide presentation, which has been posted to the Investor Relations section of our website tenant health Dot com.
Speaker 2: transcript
Speaker 2: Listeners to this call are advised that certain statements made during our discussion today are forward-looking and represent management expectations based on currently available information. Actual results and plans could differ materially.
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.
Speaker 2: transcript
Speaker 2: Tenant 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 10K and other filings with the Securities and Exchange Commission. With that, I'll turn the call over to Sam. Thank you, Willie.
Tenet 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 Willa and good afternoon, everyone.
Speaker 3: transcript
Speaker 3: We continue to deliver strong results in 2023. In the third quarter, we generated net operating revenues of $5.1 billion and consolidated adjusted EBITDA of $854 million. This translates into an attractive almost 17% margin.
We continued to deliver strong results in 2023 in the third quarter, we generated net operating revenues of $5 $1 billion and consolidated adjusted EBITDA of $854 million. This translates into an attractive almost 17% margin.
Speaker 3: transcript
Speaker 3: These results were driven by sustained volume growth and effective cost control across each of our businesses.
These results were driven by sustained volume growth and effective cost control across each of our businesses.
Speaker 3: transcript
Speaker 3: USPI had another very strong quarter with 370 million of adjusted EBITDA, which represents 16% growth compared with third quarter 2022.
U S. P. I had another very strong quarter with $370 million of adjusted EBITDA, which represents 16% growth compared with third quarter 2022.
Speaker 3: transcript
Speaker 3: Same facility revenues grew 7.9% and adjusted EBITDA margins remainder above.
Same facility revenues grew seven 9% and adjusted EBITDA margins remained robust U.
Speaker 3: transcript
Speaker 3: USPI had attractive volume growth in high-acuity service lines, including mid-teens growth in total joint replacements in the ASC's over third quarter 2022. We also delivered ongoing strength in GI Erology and EMT procedures.
U S. P I had attractive volume growth and high acuity service lines, including mid teens growth in total joint replacements and the a S sees over third quarter 'twenty 'twenty. Two we also delivered ongoing strength in Gi urology and Emt procedures.
Speaker 3: transcript
Speaker 3: We remain focused on attracting high quality physicians who choose to practice in our low cost high patient satisfaction setting of care.
We remain focused on attracting high quality physicians, who choose to practice in our low cost high patient satisfaction setting of care.
Speaker 3: transcript
Speaker 3: This coupled with tailwinds from increased patient demand for ambulatory surgery care will support continued organic growth.
This coupled with tailwind from increased patient demand for ambulatory surgery care will support continued organic growth.
Speaker 3: transcript
Speaker 3: We also remain committed to scaling our portfolio. During the quarter, we added six new centers, the majority of which were focused on higher-acuity orthopedic services. These included centers in Nevada, Maryland, Texas, and Florida, all with leading regional musculoskeletal specials.
We also remain committed to scaling our portfolio during the quarter. We added six new centers. The majority of which were focused on higher acuity orthopedic services. These included centers in Nevada, Maryland, Texas, and Florida, all with leading regional musculoskeletal specialists.
Speaker 3: transcript
Speaker 3: Our acquisition pipeline remains robust with the track of opportunity.
Our acquisition pipeline remains robust with attractive opportunities.
Speaker 3: transcript
Speaker 3: We also have a healthy Denobo development pipeline of more than 30 centers currently in the syndication stages all the way to being under construction.
We also have a healthy de novo development pipeline of more than 30 centers currently in the syndication stages, all the way to being under construction.
Speaker 3: transcript
Speaker 3: Notably, de novo centers have effective EBITDA multiples in the low single digits, making them a very attractive use of capital that further advances the site of service value-based care which USPI uniquely delivers.
Notably de Novo centers have effective EBITDA multiples in the low single digits, making them a very attractive use of capital that further advances the site of service value based care, which U S. P. A uniquely delivers.
Speaker 3: transcript
Speaker 3: Turning to our hospital segment, we generated $401 million of adjusted EBITDA on the third quarter 2023.
Turning to our hospital segment, we generated $401 million of adjusted EBITDA in the third quarter 2023.
Speaker 3: transcript
Speaker 3: Our patient acuity levels remain strong with revenue per adjusted admission up 3.2% over third quarter 2022. Additionally, on a non-COVID basis, same-store inpatient admissions increased 4.5%.
Our patient acuity levels remained strong with revenue per adjusted admission up three 2% over third quarter 2022.
Additionally, on a non COVID-19 basis same store inpatient admissions increased four 5%.
Speaker 3: transcript
Speaker 3: Our hospitals continue to enhance access to higher acuity services for the benefit of our patients.
Our hospitals continued to enhance access to higher acuity services for the benefit of our patients for example, our Arizona Heart Hospital was the first in Arizona to implant a new device to reduce stroke risk in our Palm Beach Gardens Medical center expanded its robotic surgical capabilities.
Speaker 3: transcript
Speaker 3: transcript
Speaker 3: We will continue to increase patient access to cutting edge specialty care across the communities we serve.
We will continue to increase patient access to cutting edge specialty care across the communities we serve.
Speaker 3: transcript
Speaker 3: Our third quarter results lend further credence to our hospital strategy of being focused on acuity rather than all things to all people.
Our third quarter results lends further credence to our hospital strategy of being focused on acuity rather than all things to all people.
Speaker 3: transcript
Speaker 3: We continue to make significant progress improving nurse retention and accelerating hiring.
We continue to make significant progress improving nurse retention and accelerating hiring.
Speaker 3: transcript
Speaker 3: This has resulted in a substantial reduction in contract labor usage to 3.1% of consolidated SW&B, which is the high end of pre-pandemic levels.
This has resulted in a substantial reduction in contract labor usage to 3.1% of consolidated S. W. N B, which is the high end of pre pandemic levels.
Speaker 3: transcript
Speaker 3: Given our progress in hiring and retention, the reductions in contract labor did not come at the expense of further capacity reduction.
Given our progress in hiring and retention the reductions in contract labor did not come at the expense of further capacity reductions.
Speaker 3: transcript
Speaker 3: We reach these levels in advance of our own projections through discipline, data-driven process.
We reached these levels in advance of our own projections through disciplined data driven processes, we will balance the utilization of contract labor for nurses with our targeted strategies to increase capacity to support patient demand for high acuity services.
Speaker 3: transcript
Speaker 3: We will balance the utilization of contract labor for nurses with our targeted strategies to increase capacity to support patient demand for high-acuity service.
Speaker 3: transcript
Speaker 3: In the fourth quarter, as demand rises, it is possible we will invest additional resources to ensure access. Continuing to employ the same discipline we have used in contract labor utilization over the past two years.
In the fourth quarter as demand rises it is possible, we will invest additional resources to ensure access continuing to employ the same discipline, we've used in contract labor utilization over the past two years.
Speaker 3: transcript
Speaker 3: We continue to manage cost pressures from medical fees. Medical fees while higher than last year remain relatively flat from Q2 to Q3 23.
We continue to manage cost pressures for medical fees medical fees, while higher than last year remained relatively flat from Q2 to Q3 'twenty three.
Speaker 3: transcript
Speaker 3: As I noted through the pandemic, we began a process of restructuring our staffing contracts market by market, which includes decisions on insourcing services where that is most beneficial.
As I noted through the pandemic, we began a process of restructuring our staffing contracts market by market, which includes decisions on in sourcing services, where that is most beneficial.
Speaker 3: transcript
Speaker 3: This has helped to mitigate the magnitude of expense increases in our business.
This has helped to mitigate the magnitude of expense increases in our business.
Speaker 3: transcript
Speaker 3: Again, as patient demand rises into the winter, we anticipate some increases in costs from our current run rate to ensure access to our specialty services. But this will not change our longer-term discipline nor our make-versus-by strategy.
Again as patient demand rises into the winter, we anticipate some increases in costs from our current run rate to ensure access to our specialty services, but this will not change our longer term discipline, nor our make versus buy strategy.
Speaker 3: transcript
Speaker 3: Finally, I want to point out that over the last two years, we have successfully settled over 30 labor union contract negotiations. These require a delicate balance between understanding our employees' needs and our ability to have a cost structure to deliver affordable care for our patients. We will continue with our strategy to balance-
Finally, I want to point out that over the last two years, we have successfully settled over 30 labor Union contract negotiations. These require a delicate balance between understanding our employees' needs and our ability to have a cost structure to deliver affordable care for our patients. We will continue with our strategy to balance those two aspects.
Speaker 3: transcript
Speaker 3: Before I turn my attention to Conifer, I'll make a few comments about our views on the GLP-1 receptor agonist's potential impact on our business.
Before I turn my attention to conifer I'll make a few comments about our views on the G. L. P. One receptor agonist potential impact on our business is.
Speaker 3: transcript
Speaker 3: These products are very early in their life cycle of impact. They have extraordinarily high costs, an expanding list of side effects, patient tolerance issues, and concerns about lean muscle loss.
These products are very early in their lifecycle of impact they are extraordinarily high costs and expanding list of side effects patient tolerance issues and concerns about lean muscle loss.
Speaker 3: transcript
Which translates into an unknown long term safety profile.
Speaker 3: transcript
Speaker 3: We believe that this means adoption among populations which could benefit is still and likely to be for some time low.
We believe that this means adoption among populations, which could benefit is still unlikely to be for some time low.
Speaker 3: transcript
Speaker 3: Additionally, these products require sustained consumption. The underlying conditions of diabetes or the related root causes of obesity are not cured.
Additionally, these products require sustained consumption the underlying conditions have diabetes or the related root causes of obesity are not cured.
Speaker 3: transcript
Speaker 3: Given this, we see no reason to alter our current focus on taking care of patients with multiple chronic illnesses, and we see no reason to alter our capital plans in moving care into convenient ambulatory settings.
Given this we see no reason to alter our current focus on taking care of patients with multiple chronic illnesses and we see no reason to alter our capital plans and moving care into convenient ambulatory settings.
Speaker 3: transcript
Speaker 3: The high-acuity strategy in the hospitals is subject to less demand elasticity and the capital-efficient business model we've designed to take care of the most complex needs of patients will endure.
The high acuity strategy in the hospitals is subject to less demand elasticity in a capital efficient business model. We've designed to take care of the most complex needs of patients will endure the.
Speaker 3: transcript
Speaker 3: The aging of the population, the growing burden of chronic illness, the population shifts into many of our markets, and the continued impacts of service and technology innovation that occur outside of the pharmaceutical sector, provide a significant tailwind for the important role that hospitals and ASCs will continue to play.
The aging of the population the growing burden of chronic illness. The population shifts into many of our markets and the continued impacts of service and technology innovation that occur outside of the pharmaceutical sector provide a significant tailwind for the important role that hospitals and <unk> will continue to play.
Speaker 3: transcript
Speaker 3: Turning to Conifer. Our Conifer business continues to deliver strong margins and provide high quality services to its clients.
Turning to conifer, our conifer business continues to deliver strong margins and provide high quality services to its clients.
Speaker 3: transcript
Speaker 3: This performance has been supported by ongoing automation and offshoring initiatives and third quarter EBITDA margins were over 26%.
This performance has been supported by ongoing automation and offshoring initiatives and third quarter EBITDA margins were over 26%.
Speaker 3: transcript
Speaker 3: We recently renewed our longstanding relationship with one of our larger physician revenue cycle management clients and are slated for additional renewals by the end of the year.
We recently renewed our long standing relationship with one of our larger physician revenue cycle management clients and are slated for additional renewals by the end of the year.
Speaker 3: transcript
Speaker 3: Before I turn the call over to Dan, I want to reiterate the strength of our portfolio of businesses and the ongoing performance they have produced. While we continue to navigate a challenging environment, our strategic focus on higher-acuity services, agile approach to managing operating expenses, and effective capacity management all play a pivotal role in delivering these durable results.
Before I turn the call over to Dan I want to reiterate the strength of our portfolio of businesses and the ongoing performance. They have produced while we continue to navigate a challenging environment, our strategic focus on higher acuity services agile approach to managing operating expenses and effective capacity management all.
Play a pivotal role in delivering these durable results.
Speaker 3: transcript
Speaker 3: As a result, we are again raising our full year 2023 adjusted EBITDA guidance to a range of $3.365 to $3.465 billion.
As a result, we are again raising our full year 2023, adjusted EBITDA guidance to a range of $3 $365 billion to $3.465 billion.
Speaker 3: transcript
Speaker 3: We're still formulating plans for 2024 and we'll take the time to see what a fourth quarter looks like in the post-bandemic environment before getting specific about our guidance for next year.
We're still formulating plans for 'twenty 'twenty, four and we will take the time to see what fourth quarter looks like in the post pandemic environment before getting specific about our guidance for next year.
Speaker 3: transcript
Speaker 3: From a capital deployment perspective, our priorities are consistent. USPI expansion at very attractive post-energy multiples, and investments in the growth of our high-acuity strategy in the acute care segments.
From a capital deployment perspective, our priorities are consistent U S. P. I expansion at very attractive post synergy multiples and investments in the growth of our high acuity strategy in the acute care segment.
Speaker 3: transcript
Speaker 3: Those two priorities help to reduce leverage through earnings growth and free cash flow generation.
Those two priorities helped to reduce leverage through earnings growth and free cash flow generation.
Speaker 3: transcript
Speaker 3: We maintain an opportunistic balance in this public market trading environment between our desire to pay down debt more directly and the very attractive valuation of our equity. I will remind you that we have all fixed rate debt and no maturities do until 2026, providing a great deal of predictability relative to other companies that may have a similar level of leverage.
We maintain an opportunistic balance in this public market trading environment between our desire to pay down debt more directly and the very attractive valuation of our equity.
I will remind you that we have all fixed rate debt and no maturities due until 2026, providing a great deal of predictability relative to other companies that may have a similar level of leverage.
Speaker 3: transcript
Speaker 3: And with that, Dan will now provide a more detailed review of our financial results.
And with that Dan will now provide a more detailed review of our financial results Dan. Thanks.
Speaker 4: transcript
Speaker 4: Thanks, Fram, and hello everyone. Our financial results in the third quarter were strong with USPI and our hospitals at Justin EBITDA well above our expectations.
Thanks, Tom and Hello, everyone. Our financial results in the third quarter was strong with USPI and our hospitals adjusted EBITDA well above our expectations.
Speaker 4: transcript
Speaker 4: In the quarter we generated consolidated the Justin EBITDA of 854 million above the high end of our third quarter guidance ring.
In the quarter, we generated consolidated adjusted EBITDA of $854 million above the high end of our third quarter guidance range.
Speaker 4: transcript
Speaker 4: Our results were driven by strong same store revenues and volumes, high patient acuity, and very effective cost control.
Our results were driven by strong same store revenues and volumes high patient acuity and very effective cost control.
Speaker 4: transcript
Speaker 4: Now I'd like to highlight a few key items for each of our segments.
Now I'd like to highlight a few key items for each of our segments.
Speaker 4: transcript
Speaker 4: Let's start with USB-I which delivered strong volume and earnings growth.
Let's start with USPI, which delivered strong volume and earnings growth.
Speaker 4: transcript
Speaker 4: In the third quarter, USBI produced a 7.9% increase in same facility system-wide revenues compared to last year, with case volumes up 4.1%, and net revenue per case up 3.7%.
In the third quarter U S. P. I produced a seven 9% increase in same facility system wide revenues compared to last year with case volumes up four 1% and net revenue per case up three 7%.
Unknown Executive: Good afternoon. Welcome to Tenet Healthcare's third quarter 2023 earnings conference call. After the speak remarks, it will be a question and answer session for industry analysts.
Speaker 4: transcript
Speaker 4: and usbi's adjusted ebitta grew 16% compared to the third quarter of last year adjusted adjusted ebitta minus NCI expense increased 12% and its ebitta margin continues to be very strong at 39.3%
And Uspi's adjusted EBITDA grew 16% compared to the third quarter of last year adjust adjusted EBITDA minus NCI expense increased 12% and its EBITDA margin continues to be very strong at 39, 3%.
Unknown Executive: You may press star one at any time you place into question Q. Tenet respectfully asks to analysts limit themselves to one question each.
William McDowell: I'll now turn the clover to your host, Mr. Will McDowell, vice president and investor relations. Mr. McDowell, you may begin.
Speaker 4: transcript
Speaker 4: We are pleased with the continued strength of the VSBI's performance as we grow this business both organically and inorganically in attractive markets across the country.
We are pleased with the continued strength of Uspi's performance as we grow this business, both organically and inorganically in attractive markets across the country.
William McDowell: Good afternoon, 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 Tenet's third quarter 2023 results, as well as the discussion of our financial outlook. Tenet Senior Management, participating in today's call will be Dr. Saum Sutaria, Chairman and Chief Executive Officer, Daniel Cancelmi, Executive Vice President and Chief Financial Officer, and Sun Park Executive Vice President.
Turning to our acute care hospital business.
Speaker 4: Same hospital inpatient admissions increased 0.6% compared to the third quarter last year, while non-COVID admissions increased 4.5%.
Same hospital inpatient admissions increased 0.6% compared to the third quarter last year, while non COVID-19 admissions increased four 5%.
Speaker 4: transcript
Speaker 4: In fact, year-to-date non-COVID admissions are up 7.6% over last year.
In fact year to date non covered admissions are up seven 6% over last year.
William McDowell: Our webcast this afternoon includes a slide presentation, which has been posted to the investor relations section of our website, TenetHealth.com. Listeners to this call are advised that certain statements made during our discussion today are forward-looking and represent management expectations based on currently available information. Actual results and plans could differ materially. Tenet 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 10K and other filings with the Securities and Exchange Commission.
Speaker 4: transcript
Speaker 4: Our labor management continues to be very effective, especially temporary contract nurse staffing costs.
Our labor management continues to be very effective, especially temporary contract nurse staffing costs.
Speaker 4: transcript
Speaker 4: On a consolidated basis, contract labor costs were just 3.1% of SWMB in the quarter, a significant decline from 4.3% in the second quarter this year, and 7.4% in the third quarter of last year.
On a consolidated basis contract labor costs were just 3.1% of S. W. M. B in the quarter a significant decline from four 3% in the second quarter of this year and seven 4% in the third quarter of last year.
Speaker 4: transcript
Speaker 4: A year over year decline of almost 60%.
A year over year decline of almost 60%.
Speaker 4: transcript
Speaker 4: Our consolidated SWNB costs as a percent of revenue were just 45.2% in the quarter, compared to 46.4% in the third quarter last year, and 250 points lower than the 47.6% reported in Q3 2019 before the pandemic despite the significant inflationary pressures since then.
Our consolidated SWM beef costs as a percent of revenue were just 45, 2% in the quarter compared to 46, 4% in the third quarter last year.
Saum Sutaria: With that, I'll turn the call over to Saum. Thank you, Will, and good afternoon, everyone. We continue to deliver strong results in 2023. In the third quarter, we generated net operating revenues of $5.1 billion and consolidated adjusted EBITDA of $854 million. This translates into an attractive almost 17% margin. These results were driven by sustained volume growth and effective cost control across each of our businesses. USPI had another very strong quarter with $370 million of adjusted EBITDA, which represents 16% growth compared with third quarter 2022.
And 250 basis points lower.
Then the 47, 6% reported in Q3 2019 before the pandemic. Despite the significant inflationary pressures since then.
Speaker 4: transcript
Speaker 4: Medical fees were flat sequentially compared to the second quarter of this year, and we're 34 million higher than the third quarter of 2022, consistent with our expectations.
Medical fees were flat sequentially compared to the second quarter of this year and were 34 million higher than the third quarter 2022, consistent with our expectations.
Speaker 4: transcript
Speaker 4: Overall, these costs are up 15% year to date.
Overall these costs are up 15% year to date.
Speaker 4: transcript
Speaker 4: And finally, our case mix and revenue yield remains strong as we continue our strategic focus on investments in higher-acuity, higher margin service lines.
And finally, our case mix and revenue yield remained strong as we continue our strategic focus on investments and higher acuity higher margin service lines.
Saum Sutaria: Same facility revenues grew 7.9% and adjusted EBITDA margins remained robust. USPI had attractive volume growth in high-acuity service lines, including mid-teens growth in total joint replacements in the ASC's over third quarter 2022. We also delivered ongoing strength in GI, Urology, and ENT procedures. We remain focused on attracting high-quality physicians who choose to practice in our low-cost, high-patient satisfaction setting of care. This coupled with tailwinds from increased patient demand for ambulatory surgery care will support continued organic growth.
Speaker 4: transcript
Speaker 4: I want to reiterate what we've communicated previously. Our hospital strategy has focused on growing higher QD volumes, which is working. Better margins, stronger ability to manage costs, and more capital efficient to generate the earnings.
I want to reiterate what we've communicated previously our hospital strategy is focused on growing higher acuity volumes, which is working better margins stronger ability to manage costs and more capital efficient to generate the earnings growth.
Speaker 4: transcript
Speaker 4: Let's now turn to Conifer, which again delivered a solid quarter. Conifer produced third quarter to Justin EBITDA of $83 million, and a strong margin of 26.3% and continued its strong revenue cycle performance for our hospitals and its other clients.
Let's now turn to conifer, which again delivered a solid quarter conifer produced third quarter, adjusted EBITDA of $83 million and a strong margin of 26, 3%.
And continued its strong revenue cycle performance for our hospitals and its other clients.
Saum Sutaria: We also remain committed to scaling our portfolio. During the quarter, we added six new centers, the majority of which were focused on higher-acuity orthopedic services. These included centers in Nevada, Maryland, Texas, and Florida, all with leading regional musculoskeletal specialists. Our acquisition pipeline remains robust with attractive opportunities. We also have a healthy, denoboed development pipeline of more than 30 centers currently in the syndication stages, all the way to being under construction. Notably, denobos centers have effective EBITDA multiples in the low single digits, making them a very attractive use of capital that further advances the site of service value-based care which USPI uniquely delivers.
Now, let's review, our cash flows balance sheet and capital structure.
Speaker 4: transcript
Speaker 4: At the end of the quarter, we had over $1 billion of cash on hand and no borrowings outstanding under our $1.5 billion line of credit facility.
At the end of the quarter, we had over 1 billion of cash on hand, and no borrowings outstanding under our $1 5 billion line of credit facility.
Speaker 4: transcript
Speaker 4: We generated 327 million of free cash flow in the third quarter, and just over 1 billion year to date, bolstered by Conifer's strong cash collection performance.
We generated $327 million of free cash flow in the third quarter and just over 1 billion year to date bolstered by conifer strong cash collection performance.
Speaker 4: transcript
Speaker 4: Our September 30th leverage ratio was 4.08 times EBITDA. As a reminder, all of our outstanding senior secured and unsecured notes.
Our September 30th leverage ratio was 4.08 times EBITDA as a reminder, all of our outstanding senior secured and unsecured notes.
Speaker 4: transcript
Speaker 4: have fixed interest rates and we have no significant debt maturities until 2026.
Have fixed interest rates and we have no significant debt maturities until 2026.
Saum Sutaria: Turning to our hospital segment, we generated $401 million of adjusted EBITDA on the 3rd quarter 2023. Our patient acuity levels remain strong with revenue per adjusted admission up 3.2% over 3rd quarter 2020. Additionally, on a non-COVID basis, same-store inpatient admissions increased 4.5%. Our hospitals continued to enhance access to higher acuity services for the benefit of our patients. For example, our Arizona Heart Hospital was the first in Arizona to implant a new device to reduce stroke risk and our Palm Beach Gardens Medical Center expanded its robotic surgical capabilities.
Speaker 4: transcript
Speaker 4: We believe our strong free cash flow generation, capital deployment actions, will continue to provide us financial flexibility to support our growth initiatives and further deliver the balance sheet.
We believe our strong free cash flow generation and capital deployment actions will continue to provide us financial flexibility to support our growth initiatives and further deleverage the balance sheet.
Let me now turn to our increased outlook for this year.
Speaker 4: transcript
Speaker 4: As I mentioned, we are raising our 2023 Adjusted E with the Outlook range by 30 million to 3 billion 415 million at the midpoint of our range, reflecting our continued strong performance.
And so I mentioned, we are raising our 2023 adjusted EBITDA outlook range by $30 million to $3 billion $415 million at the midpoint of our range, reflecting our continued strong performance.
Speaker 4: transcript
Speaker 4: This $30 million increase includes a 10 million raise for USBI and a 20 million raise for our hospital.
This $30 million increase includes a $10 million raise for U S V I and a 20 million raise for our hospitals.
Saum Sutaria: We will continue to increase patient access to cutting-edge specialty care across the communities we serve. Our 3rd quarter results lend further credence to our hospital strategy of being focused on acuity rather than all things to all people. We continue to make significant progress improving nurse retention and accelerating hiring. This has resulted in a substantial reduction in contract labor usage to 3.1% of consolidated SW&B which is the high end of pre-pandemic levels.
Speaker 4: transcript
Speaker 4: This is the third time we've raised our EBITDA guidance this year, which is now 155 million or 5% higher than our initial guidance we shared at the beginning of the year.
This is the third time, we've raised our EBITDA guidance each year this year, which is now $155 million or 5% higher than our initial guidance, we shared at the beginning of the year.
Speaker 4: transcript
Speaker 4: Additionally, we now expect net operating revenues to be in the range of 20.3 billion to 20.5 billion.
Additionally, we now expect net operating revenues to be in the range of $23 billion to 25 billion.
Speaker 4: transcript
Speaker 4: An increase of 100 million at the midpoint over previous expectations.
An increase of $100 million at the midpoint over previous expectations.
Saum Sutaria: Given our progress in hiring and retention, the reductions in contract labor did not come at the expense of further capacity reductions. We reach these levels in advance of our own projections through discipline, data-driven processes. We will balance the utilization of contract labor for nurses with our targeted strategies to increase capacity to support patient demand for high acuity services. In the 4th quarter, as demand rises, it is possible we will invest additional resources to ensure access, continuing to employ the same discipline we have used in contract labor utilization over the past 2 years.
Speaker 4: transcript
Speaker 4: Turning to our cash flows for 23, we now expect free cash flow to be in the range of 1.125 billion to 1.35 billion.
Turning to our cash flows for 'twenty three we now expect free cash flow to be in the range of 1.125 billion to 1.351 billion.
Okay.
Now I'd like to spend a minute discussing 2024.
Speaker 4: transcript
Speaker 4: We are still conducting our 2024 business planning processes and evaluating key assumptions. And therefore, it is premature at this point for us to provide specifics on 2024 guidance.
We are still conducting our 2020 for business planning processes and evaluating key assumptions and therefore it is premature at this point for us to provide specifics on 2024 guidance.
Speaker 4: transcript
Speaker 4: However, we do want to give you some context for our current thinking about next year.
However, we do want to give you some context for our current thinking about next year.
Saum Sutaria: We continue to manage cost pressures from medical fees. Medical fees while higher than last year remained relatively flat from Q2 to Q323. As I noted through the pandemic, we began a process of restructuring our staffing contracts, market by market, which includes decisions on in sourcing services where that is most beneficial. This has helped to mitigate the magnitude of expense increases in our business. Again, as patient demand rises into the winter, we anticipate some increases in costs from our current run rate to ensure access to our specialty services. But this will not change our longer term discipline nor our make versus by strategy.
Speaker 4: transcript
Speaker 4: Our starting point assumes that we will continue to produce organic volume growth in our key service lines, increase pace,
Our starting point assumes that we will continue to produce organic volume growth in our key service lines incur.
Increased patient acuity.
Speaker 4: transcript
Speaker 4: benefit from better than historical contract negotiations, and effectively manage costs.
Benefit from better than historical contract negotiations and.
And effectively manage costs.
Speaker 4: transcript
Speaker 4: with the specific expectation for full year additional contract labor savings.
With the specific expectation for full year additional contract labor savings.
Speaker 4: transcript
Speaker 4: And given the robust pipelines at USPI, we will have further contributions from M&A and Denovov Development Center Open.
And given the robust pipelines at USPI, we will have further contributions from M&A and de Novo development Center openings.
Speaker 4: transcript
Speaker 4: These factors in addition to an ongoing post pandemic recovery for health care services provide tailwinds into next year.
These factors in addition to an ongoing post pandemic recovery for health care services provide tailwind into next year.
Saum Sutaria: Finally, I want to point out that over the last 2 years, we have successfully settled over 30 labor union contract negotiations. These require a delicate balance between understanding our employees' needs and our ability to have a cost structure to deliver affordable care for our patients. We will continue with our strategy to balance those two aspects.
Speaker 4: transcript
Speaker 4: Our starting point also assumes some rather obvious points in this year's results.
Our starting point also assumes some rather obvious points in this year's results.
Speaker 4: transcript
Speaker 4: such as the absence of further grand income and cybersecurity process.
Such as the absence of further grant income and cyber security proceeds.
Speaker 4: transcript
Speaker 4: In addition, we anticipate completing our sale of the Thane Ramon Hospital subject to regulatory approved.
In addition, we anticipate completing our sale of the San Ramon hospitals subject to regulatory approvals.
Saum Sutaria: Before I turn my attention to Conifer, I will make a few comments about our views on the GLP-1 receptor agonist potential impact on our business. Business. These products are very early in their life cycle of impact. They have extraordinarily high costs, an expanding list of side effects, patient tolerance issues, and concerns about lean muscle loss, which translates into an unknown long-term safety profile. We believe that this means adoption among populations which could benefit is still and likely to be for some time low. Additionally, these products require sustained consumption. The underlying conditions of diabetes or the related root causes of obesity are not cured.
Speaker 4: transcript
Speaker 4: The termination of COVID-related government funding programs.
The termination of Covid related government funding programs.
Speaker 4: transcript
Speaker 4: as well as the new regulations related to workers' compensation and personal injury reimbursement in Florida, and health care wages in California represent around 100 million in headwinds in aggregate.
As well as the new regulations related to workers compensation and personal injury reimbursement in Florida, and health care wages in California represent around $100 million and headwinds in aggregate.
Speaker 4: transcript
However, thus far in our planning, we expect our earnings growth opportunities will more than offset these headwinds.
Speaker 4: transcript
Speaker 4: I would reiterate, Som's point, the current environment for recovery and health care services is positive, and we feel well positioned to continue our success.
I would reiterate Sams point that the current environment for recovery in health care services is positive and we feel well positioned to continue our success.
Saum Sutaria: Given this, we see no reason to alter our current focus on taking care of patients with multiple chronic illnesses, and we see no reason to alter our capital plans in moving care into convenient ambulatory settings. The high-acuity strategy in the hospitals is subject to less demand elasticity, and the capital-efficient business model we've designed to take care of the most complex needs of patients' will endure. The aging of the population, the growing burden of chronic illness, the population shifts into many of our markets, and the continued impacts of service and technology innovation that occur outside of the pharmaceutical sector, provide a significant tailwind for the important role that hospitals have. And ASCs will continue to play.
Speaker 4: transcript
Speaker 4: We look forward to completing the planning and sharing guidance with you for 2024 in February on our earnings call.
We look forward to completing the planning and sharing guidance with you for 2024 in February on our earnings call.
Speaker 4: transcript
Speaker 4: We are pleased with our strong performance. So far this year, and have confidence in our ability to deliver on our increased 2023 Adjusted Ebit to Guidance of 3,415 million at the midpoint of the range. And with that, we're ready.
We are pleased with our strong performance so far this year and have confidence in our ability to deliver on our increased 2023, adjusted EBITDA guidance of $3 billion $415 million at the midpoint of the range.
And with that we're ready to begin the Q&A operator.
Speaker 1: transcript
Speaker 1: Thank you. Now that you've done your question and answer session, as a reminder, we respectfully ask you to limit yourself to one question.
Thank you, we'll now be conducting a question and answer session. As a reminder, we respectfully ask you to limit yourselves to one question. Each if correctly placed in the question queue. Please press star one on your telephone Keypad you May press star two if you'd like to remove your question from a Q1 moment. Please while we poll for questions.
Speaker 1: transcript
Speaker 1: If you'd like to be placed into question, Q, please press star one on your telephone keypad. You may press star two if you'd like to move your question from the Q. One moment, please, while we pull for...
Saum Sutaria: Turning to conifer. Our conifer business continues to deliver strong margins and provide high-quality services to its clients. This performance has been supported by ongoing automation and offshoring initiatives, and third quarter EBITDA margins were over 26%. We recently renewed our longstanding relationship with one of our larger physician revenue cycle management clients and are slated for additional renewals by the end of the year.
Speaker 1: transcript
Speaker 1: Our first question is coming from John Craskin from the Front Research Relighted Allies.
First question is coming from Josh Raskin from Nephron Research. Your line is now live.
Thanks, Good evening, just a quick clarification.
Speaker 5: transcript
Speaker 5: Just a quick clarification, Dan, when you say earnings growth will more than make up those headwinds, are you just suggesting EBITDA will be up for 2024 and we can figure out magnitude, you know, in February ?
And when you say earnings growth will more than make up those headwinds are you just suggesting EBITDA will be up for 2024, and we can figure out magnitude you know in February and then my real question is just has to do with the ASC segment. You know specifically seeing same store growth moderate a little bit Ah Ah while pricing is picking up so cases moderate a little bit more.
Speaker 5: transcript
Speaker 5: And then my real question is just have to do with the ASC segment, you know, specifically seeing same story growth, moderate a little bit.
Saum Sutaria: Before I turn the call over to Dan, I want to reiterate the strength of our portfolio of businesses and the ongoing performance they have produced. While we continue to navigate a challenging environment, our strategic focus on higher-acuity services, agile approach to managing operating expenses, and effective capacity management all play a pivotal role in delivering these durable results. As a result, we are again raising our full-year 2023 Adjusted EBITDA guidance to a range of $3.365 to $3.465 billion.
Speaker 5: transcript
Speaker 5: while pricing is picking up so cases moderate a little bit while pricing picks up so
Pricing picks picks up so and you know in same store revenues are still at very high single digit range each quarter. So that simply just you know more complex cases to the outpatient setting is that the focus on higher acuity specialties or some of the new centers, you're opening more multi specialties or something else in there and then it sounds like you expect that to pursue.
Speaker 5: transcript
Speaker 5: You know, in same sort of revenues are still that very high single digit range each quarter So that's simply just you know more complex cases to the outpatient setting is that the focus on higher-acuity Specialties or some of the new centers you're opening more multi-specialties There's something else in there and then sounds like you expect that to persist into 2024 Is that is that you know this sort of run rate that we're seeing in sort of high single digit same store?
Assistance of 'twenty 'twenty four is that is that this sort of run rate that we're seeing in certain high single digit same store revenue growth is that a fair assumption for next year.
Saum Sutaria: We're still formulating plans for 2024 and will take the time to see what a fourth quarter looks like in the post-pandemic environment before getting specific about our guidance for next year. From a capital deployment perspective, our priorities are consistent, USPI expansion at very attractive post-energy multiples, and investments in the growth of our high-acuity strategy in the acute care segment. Those two priorities help to reduce leverage through earnings growth and free cash flow generation.
Speaker 4: transcript
Speaker 4: Hey, Josh, it's Dan. I'll take the first part about 2024 and then some I will address the USB odd points. Yes, we are assuming EBITDA growth.
Josh It's Dan I'll take the first part about 'twenty 'twenty four and then some will address the USPI points. Yes, we are assuming EBIT growth in 2024 compared to this year. Obviously, you just heard some of my remarks outlined some of the various positives as we think about next year.
Speaker 4: transcript
Speaker 4: in 2024 compared to this year. Obviously, you just heard some of my remarks.
Speaker 4: transcript
Speaker 4: outlining some of the various positives as we think about next year. I'm also taken into consideration.
<unk> also taken into consideration.
Speaker 4: transcript
Speaker 4: some of the other items that will go the other way, just because, you know, the reduction in...
Some of the other items that will go the other way just because you know the reduction in and government Covid funding yeah, we're not anticipating any additional grant income next year, our cyber income, where obviously you're still pursuing cyber insurance proceeds were filled we're certainly entitled to additional proceeds but we're not good at this point, we're not going.
Speaker 4: transcript
Speaker 4: In government COVID funding, we're not anticipating any additional.
Saum Sutaria: We maintain an opportunistic balance in this public-market trading environment between our desire to pay down debt more directly and the very attractive valuation of our equity. I will remind you that we have all fixed rate debt and no maturities due until 2026, providing a great deal of predictability relative to other companies that may have a similar level of leverage.
Speaker 4: transcript
Speaker 4: a grand income next year or cyber income, we're obviously still pursuing cyber insurance proceeds, where we feel we're certainly entitled to additional proceeds, but at this point, we're not gonna assume anything for the guidance next year. And as we talked about in the past, there's some reimbursement headwinds in Florida, and then as well as the new wage regulations in California. So all those items.
To assume anything for the guidance next year and you know as we talked about in.
In the past or some you know reimbursement headwinds and in Florida.
Daniel Cancelmi: And with that, Dan will now provide a more detailed review of our financial results.
And then as well as the the new.
Daniel Cancelmi: Thanks, Tom, and hello, everyone. Our financial results in the third quarter were strong, with the USPI and our hospitals at Justity Bitta, well above our expectations. In the quarter, we generated consolidated the Justity Bitta of 854 million above the high end of our third quarter guidance range. Our results are driven by strong, same-store revenues and volumes, high-patient acuity, and very effective cost control.
Wage.
Let regulations in California, so all those items.
Speaker 4: transcript
Speaker 4: All that headwinds, photospeak, roughly 100 million in aggregate or in total.
All of the headwinds so to speak of a roughly $100 million in aggregate or in total.
Speaker 3: transcript
Speaker 3: Hey Josh, on the ASC growth, we're obviously quite pleased with continued growth rates.
Hey, Josh it's Tom.
The ASC growth, we're obviously quite pleased with continued growth rates well above our long term projections for the business of 2% to 3% organic growth and so.
Speaker 3: transcript
Speaker 3: Well above our long term projections for the business of 2 to 3% organic growth and so.
Speaker 3: transcript
Speaker 3: while there may be moderation from the first part of the year to the third quarter It's still incredibly robust growth. So I you know, I'm very pleased with With that continuing strength and obviously we continue to build the QD into our
Daniel Cancelmi: Now I'd like to highlight a few key items for each of our segments. Let's start with USPI, which delivered strong volume and earnings growth. In the third quarter, USPI produced a 7.9% increase in same facility system-wide revenues compared to last year, with case volumes up 4.1%, and net revenue per case up 3.7%. And USPI's adjusted EBITDA grew 16% compared to the third quarter of last year. Adjusted EBITDA minus NCI expense increased 12%, and its EBITDA margin continues to be very strong at 39.3%.
While there may be moderation from the first part of the year to the third quarter, it's still incredibly robust growth. So I you know I am.
I'm very pleased with with that continuing strength and obviously, we continue to build acuity into our into our a S season and see that in the net revenue per case.
Speaker 3: transcript
Speaker 3: into our ASCs and see that in the net revenue per case.
Speaker 3: transcript
Speaker 3: at the same time so you know we feel we feel pretty good about what the business is achieving right now with with so much momentum so far for the full year and as you know the Q4
At the same time. So you know we feel we feel pretty good about what the business is achieving right now with with so much momentum so far for the full year and as you know the Q4.
Speaker 3: transcript
Speaker 3: ramp for us p i's real and it's uh... it's something that we're really interested in seeing and were well prepared for as the first kind of post-pandemic q4 to see how that goes we haven't uh... we haven't really formulated uh... twenty four guidance on that so i'll defer the twenty four guidance question
Ramp for U S. P is real and it's a it's something that we're really interested in seeing and we're well prepared for as the first kind of post pandemic Q4 to see how that goes we haven't we haven't really formulated 24 guidance on that so I'll defer the 24 guidance question.
Daniel Cancelmi: We are pleased with the continued strength of USPI's performance as we grow this business both organically and inorganically in attractive markets across the country. Turning to our acute care hospital business, same hospital inpatient admissions increased 0.6% compared to the third quarter last year, while non-COVID admissions increased 4.5%. In fact, year-to-date non-COVID admissions are up 7.6% over last year. Our labor management continues to be very effective, especially temporary contract nurse staffing costs.
Speaker 1: transcript
Speaker 1: Thank you. Next question is coming from Steven Baxter from Wells Fargo, your line is that line.
Thank you next question is coming from Stephen Baxter from Wells Fargo. Your line is now live.
Speaker 6: transcript
Speaker 6: Yeah, hi, thanks. I wanted to ask him about the revised guidance in the implied fourth order in there. So for the hospital segment, it doesn't look like your guidance needed to be done. It's a little bit lower sequentially at the midpoint, especially if we're gonna trust out.
Yeah, Hi.
Wanted to ask about the revised guidance.
The implied fourth quarter in there so for the hospital segment. It does look like your guidance EBITDA, that's a little bit lower sequentially at the midpoint, that's ever going to adjust out the insurance proceeds you have the third quarter.
Speaker 6: transcript
Speaker 6: insurance procedure has the third quarter. Normally we'd expect e-bidaz to grow in the fourth quarter as volume six up. We'd also understand your guidance here a little bit better. And then I think you mentioned again, like something kind of a wait and see approach around, you know, Q4 performance post-COVID. Just wanna clarify, now you've seen something different at this point in Q4, just trying to understand what that's more prudent or something you're actually seeing in the results phase where I'm most sure October . Thanks.
Normally we would expect EBITDA to grow in the fourth quarter as volume picks up we would love to understand your guidance here a little bit better.
Daniel Cancelmi: On a consolidated basis, contract labor costs were just 3.1% of SW&B in the quarter, a significant decline from 4.3% in the second quarter this year, and 7.4% in the third quarter of last year, a year-over-year decline of almost 60%. Our consolidated SW&B costs as a percent of revenue were just 45.2% in the quarter, compared to 46.4% in the third quarter last year, and 250 basis points lower than the 47.6% reported in Q3 2019 before the pandemic despite the significant inflationary pressures since then.
You mentioned again like something you kind of a wait and see approach around Q4 performance post Covid just want to clarify have you seen something different at this point in Q4, just trying to understand what that's more prudence or something you're actually seeing the results.
For October.
Speaker 3: transcript
Speaker 3: So let me start and I'll pass to Dan. Just going in reverse order, we're not seeing anything different at this stage although we are cognizant of the fact that...
So let me start and I'll pass to Dan just going in reverse order, we're not seeing anything different at this stage. Although we are cognizant of the fact that there are lots of reports out there about COVID-19 spreading and the penetration of the vaccine that is supposedly effective against the strain being at somewhere around 7%.
Speaker 3: transcript
Speaker 3: There are lots of reports out there about COVID spreading and the penetration of the vaccine.
Speaker 3: transcript
Speaker 3: that is supposedly effective against this strain being it somewhere around seven percent. I think in the US population, so...
I think in the U S population so yeah.
Speaker 3: transcript
Speaker 3: you know this is a little bit of uh... post-traumatic stress right in the sense that we've been through surprise COVID-19 spikes before uh... we're hopeful that that doesn't happen again we're certainly not seeing evidence of it in our hospitals at this point in time but you know i've said from the beginning of the year and even late last year that we're really looking forward to
You know this is a little bit of a post traumatic stress right in the sense that we've been through surprise COVID-19 spikes before.
We're hopeful that that doesn't happen again, we're certainly not seeing evidence of it in our hospitals at this point in time, but you know I've said from the beginning of the year and even late last year that we're really looking forward to.
Daniel Cancelmi: Medical fees were flat sequentially compared to the second quarter this year, and we're 34 million higher than the third quarter 2022, consistent with our expectations. Overall, these costs are up 15% year-to-date. And finally, our case mix and revenue yield remain strong as we continue our strategic focus on investments in higher-acuity, higher margin service lines.
Speaker 3: transcript
Speaker 3: seeing and digging into a Q4 without COVID to understand how the business and the demand environment performs from that perspective.
Seeing and digging into our Q4 without COVID-19 to understand how the business.
And the demand environment.
Performs from that perspective.
Speaker 4: transcript
Speaker 4: They stay in the stand in terms of the sequential walk from Q3 to Q4. So obviously looking at USBI business, we are expecting sequential growth there consistent with what we have seen in the past.
Hey, Stephen this is Dan in terms of the sequential.
Walk from from Q3 to Q4, so in obviously looking at the USPI business. You know we are expecting sequential growth there consistent with what we have seen in the past.
Daniel Cancelmi: I want to reiterate what we've communicated previously. Our hospital strategy has focused on growing higher-acuity volumes, which is working. Better margins, stronger ability to manage costs, and more capital efficient to generate the earnings.
Speaker 4: transcript
Speaker 4: So we've obviously, the performance has been strong this year and everything we're seeing so far would suggest we'll see sequential growth and the USVI business. Listen on the hospitals, there was some items there in the third quarter, whether it's grand income or cyber proceeds.
So we're we've obviously.
Performance has been strong this year and everything we're seeing so far.
Unknown Executive: Grove.
Daniel Cancelmi: Let's now turn to Conifer, which again delivered a solid quarter. Conifer produced third quarter to Justin EBITDA of 83 million, and a strong margin of 26.3% and continued its strong revenue cycle performance for our hospitals and its other clients.
Suggests we will see.
Sequential growth in the USPI business, you know listen on the on the hospitals.
You know there was some items there in the third quarter, whether it's you know grant income or cyber proceeds I'm, you know who they are.
Speaker 4: transcript
Speaker 4: You know, they, we're assuming they won't be there in Q4.
We're assuming they won't be there in Q4, there will be some additional reimbursement reductions are related to COVID-19 funding in particular have map phasing down.
Speaker 4: transcript
Speaker 4: There will be some additional reimbursement reductions related to COVID funding in particular, like FMAP, phasing down.
Daniel Cancelmi: Now let's read our cash loads balance sheet and capital structure. At the end of the quarter, we had over 1 billion of cash on hand, and no borrowings outstanding under our 1.5 billion line of credit facility. We generated 327 million of free cash flow in the third quarter, and just over 1 billion year to date, bolstered by Conifer's strong cash collection performance. Our September 30th leverage ratio was 4.08 times EBITDA. As a reminder, all of our outstanding senior secured and secured notes have fixed interest rates, and we have no significant debt maturities until 2026. We believe our strong free cash flow generation and capital deployment actions will continue to provide us financial flexibility to support our growth initiatives and further deleverage the balance sheet.
Speaker 4: transcript
Speaker 4: and and and and and is you know it's on point it out in his remarks
Further and and then as you know as Tom pointed out in his remarks.
Speaker 4: transcript
Speaker 4: You know, we're, you know, when we think about, you know, contract labor, you know, maybe we might invest some more in the fourth quarter if necessary to meet the volume of demand. And, you know, we're also built into our assumptions of some additional medical fees in the fourth quarter.
You know, we're you know when we think about you know contract labor.
You know, maybe we may invest more in the fourth quarter, if necessary to meet the volume demand and you know we're also built into our assumptions of some additional medical fees in the fourth quarter.
Speaker 1: transcript
Speaker 1: Thank you. Next question is coming from Whitmail from Learing Partners, Relighters, L.I. Yeah.
Thank you. Our next question is coming from Whit Mayo from Leerink Partners. Your line is now live.
Yeah I was just curious on slide 10 of the.
Powerpoint presentation, though 103, new service lines added year to date for USPI just to confirm does that include de novo's from this year and just any common themes around that just as this all joints any cardio just what are the service lines and maybe how that 103 number compares to the new services last year. Thanks.
Speaker 7: transcript
Speaker 7: 103 new service lines added year to date for USPI just to confirm is that include the novos from the
Daniel Cancelmi: Let me now turn to our increased outlook for this year. As saw mentioned, we are raising our 2023 Adjusted EBITDA outlook range by 30 million to 3 billion, 415 million at the midpoint of our range, reflecting our continued strong performance. This 30 million dollar increase includes a 10 million raise for USBI and a 20 million raise for our hospitals. This is the third time we've raised our EBITDA guidance this year, which is now 155 million or 5% higher than our initial guidance we shared at the beginning of the year. Additionally, we now expect net operating revenues to be in the range of 20.3 billion to 20.5 billion, an increase of 100 million at the midpoint over previous expectations.
Speaker 3: transcript
Speaker 3: Yeah, hey, wait, that does not include DeNovo's service line additions or expansions of...
Yeah, Hey, what that does not include de Novo's service line additions or expansions of services in existing ambulatory surgery centers and.
Speaker 3: transcript
Speaker 3: services in existing ambulatory surgery centers, and obviously consistent with our priorities, what we're looking to do is add higher acuity services, in many cases orthopedics, into existing centers that may be single specialty but have additional capacity, or if they're multi-specialty centers that don't have orthopedics work going on in them, looking to add orthopedics in those settings.
Obviously consistent with our priorities what we're looking to do is add higher acuity services in many cases orthopedics into existing centers that may be single specialty, but have additional capacity or if theyre multi specialty centers that don't have a with the pdx work going.
On and I'm looking to add orthopedics in those settings.
Speaker 1: transcript
Speaker 1: Thank you. Next question is coming from Justin Lake from Wolf Research, RELYDERS.
Thank you. Your next question is coming from Justin Lake from Wolfe Research. Your line is now live.
Speaker 8: transcript
Speaker 8: Thanks. It's probably my question. I just want to say, I'm not sure if this is Dan's last earnings call, but if it is, it's been a pleasure work with you and congrats on the retirement. My question is around the surgery center business. So some couple things. One, there's been some discussion out there that, you know, MedTech.
Thanks.
Before I ask my question just wanted to say I'm not sure. If this is Dan laugh.
Daniel Cancelmi: Turning to our cash flows for 23, we now expect free cash flow to be in the range of 1.125 billion to 1.350 billion.
Earnings call, but if it is it's been a pleasure working with you and congrats on the retirement.
My question is around.
The surgery center business so.
A couple of things one there's been a there's been some discussion out there that medpac is talking about volumes kind of moderating a bit September into October just curious if you're hearing that out there seeing anything in Europe is that that would imply a bit of a slowdown and then can you flesh out a little.
Daniel Cancelmi: Now I'd like to spend a minute discussing 2024. We are still conducting our 2024 business planning processes and evaluating key assumptions, and therefore it is premature at this point for us to provide specifics on 2024 guidance.
Speaker 8: transcript
Speaker 8: talking about volumes, kind of moderating a bit, the temper into October .
Speaker 8: transcript
Speaker 8: Just curious if you're hearing that out there seeing anything in your business that would imply a bit of a slowdown. And then can you flesh out a little bit? The last time we were together, you did mention the excitement. It feels like there's been a pickup in the M&A pipeline, the Ninovo pipeline. Maybe give us a little bit of color in terms of how that's shaping up going into next year versus how it's looked the last two or three years. Thanks.
The last time, we were together.
Daniel Cancelmi: However, we do want to give you some context for our current thinking about next year. Our starting point assumes that we will continue to produce organic volume growth in our key service lines, increase patient acuity, benefit from better than historical contract negotiations, and effectively manage costs with the specific expectation for full-year additional contract Things. And, given the robust pipelines at USPI, we will have further contributions from M&A and DeNovo Development Center openings.
You did mention.
The excitement it feels like there's been a pickup in the M&A pipeline that in the Novo pipeline, maybe give us a little bit of color in terms of how how that shaping up going into next year versus how its looked the last two or three years. Thanks.
Speaker 3: transcript
Speaker 3: yeah hey thanks thanks justin um i i i don't i haven't seen the med pack report and i you know i'm not going to comment on October or early fourth quarter volumes um other than to say reiterate what i said before which is you know this is shaping up to be a terrific year
Yeah, Hey, Thanks, Justin.
I don't I haven't seen the Medpac report and I, you know I'm not going to comment on October.
Our early fourth quarter volumes other than to say.
I'll reiterate what I said before which is you know this is shaping up to be a terrific year for volume growth of USPI. The.
Speaker 3: transcript
Speaker 3: for volume growth at uspi uh... the m&a environment uh... is consistently positive uh... we don't see
The M&A environment is consistently positive we don't see that we're you know we don't see that there's higher multiples are required as as centers recover on their own.
Daniel Cancelmi: These factors in addition to an ongoing post-pandemic recovery for healthcare services provide tailions into next year. Our starting point also assumes some rather obvious points in this year's results, such as the absence of further grant income and cybersecurity proceeds. In addition, we anticipate completing our sale of the San Ramon Hospital subject to regulatory approvals. The termination of COVID-related government funding programs, as well as the new regulations related to workers' compensation and personal injury reimbursement in Florida and healthcare wages in California represent around 100 million in headwinds in aggregate. However, thus far in our planning, we expect our earnings growth opportunities will more than offset these headwinds.
Speaker 3: transcript
Speaker 3: that we're, you know, we don't see that there's higher multiples required as centers recover on their own.
Speaker 3: transcript
Speaker 3: that might have been up for sale over the last couple of years. We have a lot of opportunities and diligence.
That might have been up for sale over the last couple of years, we have a lot of lot of opportunities and diligence.
Speaker 3: transcript
Speaker 3: from that perspective. And at the same time, given where interest rates are, we've actually gone through a process internally of raising our bar on the...
From that perspective, and at the same time, given where interest rates are we've we've actually gone through a process internally of raising our bar on the assessment process that we use in particular around the financial returns and the ability to drive the post synergy multiples down to where.
Speaker 3: transcript
Speaker 3: assessment process that we use in particular around the financial returns and the ability to drive the post-energy multiples down to where we've said they would go on the denovo opportunities You know those have a lead time obviously once you start moving of around 18 months or more but
We have said they would go on the de Novo opportunities you know those have a lead time, obviously once you start moving of around 18 months or more but.
Speaker 3: transcript
Speaker 3: having this many in the pipeline is great because you know two things happen from that perspective one is that you usually building new higher-acuity orthopedics focus centers in markets where physicians haven't really been in the asses setting before so it's a net increase of activity in two
Having this many in the pipeline is great. Because you know two things happened from that perspective, one is that you usually building new higher acuity orthopedics focused centers in markets, where physicians haven't really been in the ASC setting before so it's a net increase of activity in two.
Daniel Cancelmi: I would reiterate Saum's point that the current environment for recovery and healthcare services is positive and we feel well positioned to continue our success. We look forward to completing the planning and sharing guidance with you for 2024 in February on our earnings call.
Speaker 3: transcript
Speaker 3: By moving things into a lower cost setting, it continues to enhance the value-based care proposition of USPI and we're kind of focused on both of those. So I feel pretty good about both areas at this point heading into 2024. Dan. Hey.
By moving things into a lower cost setting it continues to enhance the value based care proposition of of USPI and and you know we're kind of focused on on both of those so I feel pretty good about our I feel pretty good about both areas.
Daniel Cancelmi: We are pleased with our strong performance so far this year and have confidence in our ability to deliver on our increased 2023 Adjusted EBITDA guidance of $3,415 million at the midpoint of the range.
At this point heading into 2020 for.
Dan.
Justin It's Dan Hey.
Speaker 4: transcript
Speaker 4: This will be my last earnings call, but thanks for remembering that. Really appreciate that. It's been really an honor, you know, representing the company. And I just want to say thanks to all of the company's employees, the physicians, all the caregivers, and our volunteers at our hospitals and facilities. They really do amazing things every day. If you spend any time at the hospital, you see that very quickly. So I just want to thank all of them.
This will be my last earnings call, but thanks for remembering that really appreciate that.
Unknown Executive: And with that, we're ready to begin the Q&A. Operator, thank you. Now we're conducting a question and answer session.
Then really an honor representing the company and I just want to say thanks to all of the company's employees of the physicians caregivers and and our volunteers at our hospitals and facilities. They they they really do amazing things every day.
Unknown Executive: As a reminder, we respectfully ask you to limit yourself to one question each. If you'd like to be placed in the question, Q, please press star one on your telephone keypad. You may press star two if you'd like to move your question from the Q. One moment, please, while we pull for questions.
If you spend any time at the hospital you see that very quickly. So I just want to thank all of them.
Speaker 1: transcript
Speaker 1: Thank you. Next question today is coming from Kevin Fishbeck. From Bank of America, your line is now on.
Thank you next question today is coming from Kevin Fischbeck from Bank of America. Your line is now live.
Josh Raskin: Our first question is coming from Josh Raskin from the Front Research Alive. Thanks, good evening. Just a quick clarification, Dan, when you say earnings growth will more than make up those headlines. Are you just suggesting EBITDA will be up for 2024 and we can figure out magnitude, you know, in February? And then my real question is just has to do with the ASC segment, you know, specifically seeing same-store growth moderate a little bit while pricing's picking up.
Speaker 9: transcript
Speaker 9: Great, thanks. I guess I'll add my thanks to Dan as well. But I guess as far as my question goes,
Great. Thanks, and I guess I'll add my thanks to Dan as well.
But I guess as far as my question goes when you were talking about the you know that kind.
Speaker 9: transcript
Speaker 9: in the next year. One of the things you've liked out was the post pandemic recovery from COVID, providing a good operating backdrop. In the next year, I guess, where do you think we are today in that recovery? And I guess I'm interpreting that as a volume comment, but if there's something else, you would also be speccing out it's not quite back to normal on the cross side or whatever it is. I'd love to kind of get a sense of where we are in that recovery in your view today.
Kind of a tailwind into next year.
Josh Raskin: So cases moderate a little bit while pricing picks up. So, you know, in same-store revenues, there's still that very high single-digit range each quarter. So that's simply just, you know, more complex cases to the outpatient setting. Is that the focus on higher recuity specialties or some of the new centers you're opening, more multi-specialties? There's something else in there and then sounds like you expect that to persist into 2024. Is that, you know, this sort of run rate that we're seeing in high single-digit same-store revenue growth? Is that a fair assumption for next year?
One of the thank you spiked out was the post pandemic recovery from Covid, providing a good operating backdrop into next year, I guess, where do you think we are today and that recovery and I guess.
Im interpreting that of a volume comment, but if there's something else you would also be spiking out it's not quite back to normal on the cost side or whatever it is would love to kind of get a sense of where we are in that recovery in your in your view today.
Speaker 3: transcript
Speaker 3: It's both, I mean, it's both. It's, I mean, the volume recovery, especially in the acute care business and related services on an elective basis, will continue to grow. And...
It's both I mean, it's it's it's both it's the volume recovery, especially in the acute care business and related services on an elective basis will continue to grow and you know I think that part of this is obviously, we had a lot of premature mortality from from Covid way back in the beginning.
Speaker 3: transcript
Speaker 3: you know i think that part of this is obviously we had a lot of premature mortality from from COVID-19 way back in the beginning twenty twenty-twenty-ish early twenty twenty-twenty-one and i think as the population continues to age in uh... despite that premature mortality will see a tailwind of of demand now look the cost side
Dan Cancelmi: Hey, Josh, it's Dan. I'll take the first part about 2024 and then some I will address the USB odd points. Yes, we are assuming EBITDA growth in 2024 compared to this year. Obviously, you just heard some of my remarks outlined some of the various positives as we think about next year, also taken into consideration some of the other items that will go the other way just because, you know, reduction in government COVID funding.
<unk> 2000, Twentyish early 2020 to 21, and I think as the population continues to age and.
Despite that premature mortality, we'll see a tailwind of of demand now look the cost side, whether it be in labor, which is the most obvious or supply chain side still has room to go to normalize you know I mean, our performance. This year in the hospital business has been a combination of volume and the higher.
Speaker 3: transcript
Speaker 3: whether it be in labor, which is the most obvious or supply chain side, still has room to go to normalize. You know, I mean, our performance this year in the hospital business has been a combination of volume in the high acuity area that we've focused on, but also beating our expectations on...
Dan Cancelmi: You know, we're not anticipating any additional grand income next year or cyber income. We're obviously still pursuing cyber insurance proceeds. We feel we're certainly entitled to additional proceeds, but we're not at this point. We're not going to assume anything for the guidance next year. And, you know, we talked about in the past, there's some, you know, reimbursement headwinds in Florida, and then as well as the new, wage regulations in California. So, all those items, all the headwinds, so to speak, are roughly 100 million in aggregate or in total.
Acuity area that we've focused on but also beating our expectations on.
Speaker 3: transcript
Speaker 3: how much expensive contract labor uh... we would be able to reduce from the business and i think that in the quarter it came without any cost to capacity because of our hiring effort but i don't think there's room you know there's still room to move from uh... a normalization standpoint over the next couple of years and certainly that the basis of the comment for twenty twenty four
How much expensive contract labor, we would be able to reduce from the business and as I said in this quarter. It came without any cost to capacity because of our hiring efforts, but I still think there's room, there's still room to move from a.
A normalization standpoint over the next couple of years and certainly that's the basis of the comment for 2024.
Speaker 1: transcript
Speaker 1: Thank you. Next question is coming from AJ Rice from UBS. So, why is that line?
Thank you next question is coming from a J rice from UBS. Your line is now live.
Speaker 10: transcript
Speaker 10: uh... thanks hi everybody and best wishes to end as well uh... haven't spoken a lot about manage care on the call uh... where you at with your contracting for twenty four twenty five i know uh... you know you've got a lot of national contracts for kind of increases are you seeing are you still getting some environmental bond for uh...
Thanks, Hi, everybody and best wishes, Dan as well I haven't spoken a lot about managed care on the call where are you at with your contracting or $24 25, I know you know you've got a lot of national contracts, what kind of increases are you seeing are you still getting some incremental bump.
Saum Sutaria: Hey Josh, and Saum, you know on the ASC growth we're obviously quite pleased with continued growth rates well above our long term projections for the business of 2 to 3% organic growth. And so while there may be moderation from the first part of the year to the third quarter, it's still incredibly robust growth. So, you know, I'm very pleased with with that continuing strength. And obviously we continue to build the QD into our into our ASCs and see that in the net revenue per case at the same time.
Sure.
Speaker 10: transcript
Speaker 10: The labor challenges that the industry space or is it sort of normalized as you look out for the next year or two and rates, any thoughts there.
The labor challenges that the industry has faced or is it starting to sort of normalize as you look out for the next year or two and rates any thoughts there.
Speaker 11: transcript
Speaker 11: Hey, AJ. This is actually a stunt park speaking on. Thanks for your question. And as I've slowly gone to learn the business here, obviously managed here is a critical component. Dan mentioned it as part of the tailwinds that we do expect to continue to see into 24.
Hey, Jay This is actually Stan Park speaking on thanks for your question.
Slowly gotten to learn the business here, obviously managed care as a critical component.
Saum Sutaria: So, you know, we feel we feel pretty good about what the business is achieving right now with with so much momentum so far for the full year. And as you know, the Q4 ramp for USPI is real and it's something that we're really interested in seeing and we're well prepared for.
You know Dan mentioned it as part of the tailwind that we do expect it to continue to see into 'twenty four.
Speaker 11: transcript
Speaker 11: And then as we've set historically, we do see, you know, commercial rate increases kind of mid-single digits.
And then as we've said historically, we do see commercial rate increases kind of the mid single digits.
Speaker 11: transcript
Speaker 11: And I think more recently, we are seeing some rates that at or at the high range of that. And I think that reflects the current inflation environment that we are all seeing. So I think that's what we'll say. Thank you.
And I think more recently, we are seeing some rates that at or at the high range of that.
Saum Sutaria: As the first kind of post pandemic Q4 to see how that goes. We haven't we haven't really formulated 24 guidance on that. So I'll defer the 24 guidance question. Thank you.
And I think that reflects the current inflationary environment that we're all seeing so I think that's that's what I'll say thank you.
Speaker 1: transcript
Speaker 1: Our next question today is coming from Jimmy Perse from Goldman Sachs, Robynas, LA.
Stephen Baxter: Next question is coming from Stephen Baxter from Wells Fargo, your line is all right. Yeah, hi, thanks. I wanted to ask about the revised guidance in the implied fourth quarter in there. So for the hospital segment, you know, it doesn't make your guys need to dot it's a little bit lower sequentially at the midpoint, you know, especially if we're going to just out the incremental insurance procedure has the third quarter. Normally, we'd expect you to know to grow in the fourth quarter as well in six up with lots of understanding your guidance here a little bit better.
Our next.
<unk> today is coming from Jamie Paris from Goldman Sachs. Your line is that life.
Speaker 12: transcript
Speaker 12: Hey, thank you all. I'll add my, my, my congrats and thanks to Sten as well. My questions just on the later environment, there were some headlines around.
Hey, Thank you I'll add my my congrats and thanks and as well.
My question is just on the labor environment, there were some headlines around <unk>.
Speaker 12: transcript
Speaker 12: Some union contracts during the quarter you mentioned it earlier There's also that the California minimum wage is wondering if you can give us an update on on what you're seeing You know broadly with with labor if something structural has changed if you're thinking about you know the next
Some union contracts during the quarter you mentioned it earlier.
Also I'll add that the California minimum wage is wondering if you can give us an update on what youre seeing.
Stephen Baxter: And then I think you mentioned again, like something kind of a wait and see approach around, you know, Q4 performance post code that just want to clarify. Now, just being something different at this point in Q4 or just trying to understand what that's more credence or something you're actually seeing as a result phase, we're almost through October. Thanks.
Broadly with with labor, if something structural has changed if youre thinking about.
Next.
Speaker 12: transcript
Speaker 12: years any different from a rate of increase of labor. And then just if you can science anything on the California Mid-Momo Age in 24 and 25 months, I can fully implement it. Thank you.
Few years any different from the.
Rate of increase.
Of Labor and then just if you can size.
Saum Sutaria: Let me start and I'll pass to Dan just going in reverse order. We're not seeing anything different at this stage, although we are cognizant of the fact that there are lots of reports out there about COVID spreading in the penetration of the vaccine that is supposedly effective against this strain being it somewhere around seven percent. I think in the US population, so you know, this is a little bit of post traumatic stress right in the sense that we've been through surprise COVID spikes before.
On the California minimum wage and in 'twenty, four and 'twenty five once that gets fully implemented thank you.
Speaker 3: transcript
Speaker 3: Yeah, hey, it's, it's, um, on the California minimum wage piece and, and the, you know, impacts of that, that was covered in Dan's commentary around headwinds. Uh, we haven't called out what it is specifically. We may do that in the future, but, uh, it was kind of covered within that broad category of, um, headwinds in terms of ongoing contract negotiations. I'm not going to comment on those, but, you know, we're obviously aware of them.
Yeah, Hey, it's on.
On the California minimum wage piece and the impacts of that that was covered in dan's commentary around headwinds, we haven't called out what it is specifically we may do that in the future, but it was kind of covered within that broad category of <unk>.
Headwinds in terms of ongoing contract negotiations I am not going to comment on those but we're obviously aware of them.
Saum Sutaria: We're hopeful that that doesn't happen again. We're certainly not seeing evidence of it in our hospitals at this point in time, but you know, I've said from the beginning of the year and even late last year that we're really looking forward to seeing and digging into a Q4 without COVID to understand how the business. And the demand environment performs from that perspective.
Speaker 3: transcript
Speaker 3: uh... and deeply engaged in them and i wouldn't pay the environment uh... has changed tremendously uh... i didn't know that you know we've we've worked on and settled thirty
And deeply engaged in them and I Wouldnt say the environment.
It has changed tremendously.
No.
We've worked on and settled 30.
Speaker 3: transcript
Speaker 3: uh... labor union contract negotiations uh... relatively peacefully over the last couple of years and we continue to work in good faith on all the contract negotiations we have obviously you know there are things that complicate that environment in the middle of uh... uh... the wage bill in california being passed but you know that's just something that we're gonna work on uh... with our employees in the union and and we know will move back that at some point
The labor Union contract negotiations relatively peacefully over the last couple of years and we continue to work in good faith on all the contract negotiations. We have obviously you know there are things that complicate that environment in the middle of the.
Dan Cancelmi: Hey, Steven, it's Dan in terms of the sequential walk from Q3 to Q4. So in obviously looking at USBI business, you know, we are expecting sequential growth there consistent with what we have seen in the past. So we're obviously the performance has been strong this year and everything we're seeing so far would suggest we'll see sequential growth in the USBI business. You know, listen on the hospitals, you know, there was some, you know, items there in the third quarter, whether it's, you know, grand income or cyber proceeds, you know, we're assuming they won't be there in Q4.
The wage bill in California being passed but that's just something that we're going to work on.
With our employees and the Union and we will move past that at some point.
Speaker 1: transcript
Speaker 1: Thank you. Next question is coming from Calvin Sternick from GAP MorganerLine. Is that live?
Thank you next question is coming from Calvin starting from Jpmorgan. Your line is alive.
Is there any way to quantify how much capacity you've added so far this year, what the impact on volumes has been and then.
Speaker 6: transcript
Speaker 6: added so far this year, what the impact on volumes has been.
Speaker 6: transcript
Speaker 6: Going to next year, we need to talk about organic growth. How do we think about order of magnitude for the capacity expansions? And then any color on which markets are service lines are the biggest growth opportunities there. And we think about California minimum wage and I think that should be manageable for you guys, but just wondering if that impacts how you think about the capacity expansions in those.
Going into next year, when you talk about organic growth how can we think about order of magnitude.
Dan Cancelmi: There will be some additional reimbursement reductions related to, you know, COVID funding in particular FMAP phasing down further. And then as you know, it's some pointed out in his remarks, you know, we're, you know, when we think about, you know, contract labor, you know, maybe we might invest some more in the fourth quarter if necessary to meet the volume demand. And, you know, we're also built into our assumptions of some additional medical phasing in the fourth quarter. Thank you.
The capacity expansions and then.
Any color on which markets or service lines or the biggest growth opportunities there.
We think about California minimum wage you're going to think that should be manageable for you guys, but just wondering if that impacts how you think about.
The capacity expansions in those buckets. Thanks.
Speaker 3: transcript
Speaker 3: Well, so there's a few different things to unpack in your question, but let me start with...
Well, so there's a few different things to unpack in your question, but let me let me start with probably the most.
Speaker 3: transcript
Speaker 3: probably the most salient point around how we think about the hospital capacity.
MS Salient point around how we think about the hospital capacity.
Speaker 3: transcript
Speaker 3: We're very cognizant of the service lines that we have prioritized market by market and maintain access for those service lines. And we have, even through this strategy of reducing our exposure or access in some cases and markets because of the contract labor expense. So through this year, I would say that we have maintained
We're very cognizant of the service lines that we have prioritized market by market and maintain access for those service lines and we have even through this strategy of reducing our exposure or access in some cases and markets because of the contract labor expense.
Whitmail: Next question is coming from Whitmail, from Learing Partners, Elijah. Yeah, I was just curious on slide 10 of the PowerPoint presentation, though 103 new service lines added year-to-date for USPI just to confirm, is that include the Novos from this year and just any common themes around that, just this all joints and any cardio, just what are the service lines and maybe how that 103 number compares to the new services last year.
So through this year I would say that we have maintained.
Speaker 3: transcript
Speaker 3: capacity or added a little bit back but it has not been a significant change in our strategy this year with respect to managing contract labor. And by the way, you know, the consequence of that is the contract labor reductions have been steady and progressive and now the basis of them has changed from reducing capacity to succeeding and hiring and retention.
Capacity or added a little bit back but.
But it has not been a significant change in our strategy. This year with respect to managing contract labor and by the way you know the consequence of that is the contract labor reductions have been steady and progressive.
Whitmail: Thanks. Yeah, hey, wait, that does not include DeNovos service line additions or expansions of services in existing ambulatory surgery centers and obviously consistent with our priorities, what we're looking to do is add higher acuity services, in many cases orthopedics, into existing centers that may be single specialty but have additional capacity, or if they're multi-specialty centers that don't have orthopedics work going on in them, looking to add orthopedics in those settings. Thank you.
And now the basis of them has changed from reducing capacity to succeeding in hiring and retention. So that's and you know at the beginning of the year I think we said the basis of the labor environment in 'twenty three.
Speaker 3: transcript
Speaker 3: so that's and you know at the beginning of the year i think we said the basis of the labor environment in twenty three
Speaker 3: transcript
Speaker 3: must change in our view towards hiring and retention away from capacity reduction. So we feel pretty good about having achieved that and selectively as I noted, adding certain service lines. You know, that's why I try to highlight them in every quarterly update at three or four of our hospitals, service lines that we're adding, where we're adding that capacity and putting that investment to work in things that we believe we, you know, will want to do. I don't know.
Must change in our view towards hiring and retention away from capacity reduction. So we feel pretty good about having achieved that and selectively as I noted, adding certain service lines. Yeah. That's why I tried to highlight them in every quarterly update at three or four of our hospitals service lines that we're adding where we are.
Justin Lake: Next question is coming from Justin Lake from Wolf Research, Elijah. Thanks.
Adding that capacity and putting that.
Justin Lake: First, my question, I just want to say, I'm not sure if this is Dan's last earnings call, but if it is, it's been a pleasure work with you and congrats on the retirement. My question is around the Surgery Center business, so a couple of things. One, there's been some discussion out there that MedTech is talking about volumes, kind of moderating a bit, September into October. Just curious if you're hearing that out there seeing anything in your business, that would imply a bit of a slowdown.
Investment to work and things that we believe we will want to do that.
I don't know if.
Speaker 3: transcript
Speaker 3: I think the question was largely focused on the hospitals, but at USPI, we don't have as much of an impact of contract labor impacting our capacity. And so we have continued to expand access in centers across the country as the demand has risen. And the nice thing is that in a robust demand year, we've proven the ability to staff.
I think the question was largely focused on the hospitals, but you know at USPI are we don't have as much of an impact of contract labor impacting our capacity and so we have continued to expand access in centers across the country as the demand has risen in the nice.
Thing is that in a robust demand year, we've proven the ability to staff staff it appropriately and maintain our margins are with the growth that we have.
Speaker 3: transcript
Speaker 3: staff it appropriately, and maintain our margins with the growth that we have been able to deliver this year without creating a bunch of extraordinary expense in contract labor. So for USPI, I see the environment differently, and we feel like this won't be as significant an issue going into 2020.
Justin Lake: And then can you flesh out a little bit? The last time we were together, you did mention the excitement, feels like there's been a pickup in the M&A pipeline, the DeNovo pipeline. Maybe give us a little bit of color in terms of how that's shaping up going into next year versus how it's looked the last two or three years. Thanks. Yeah, thanks, Justin. I haven't seen the MedTech report, and I'm not going to comment on October or early fourth quarter volumes, other than to reiterate what I said before, which is this is shaping up to be a terrific year for volume growth at USPI.
<unk> been able to deliver this year without creating a bunch of extraordinary expense in contract labor. So for U S. P. I see the environment differently and we feel like.
You know this won't be as significant an issue going into 2024.
Speaker 1: transcript
Speaker 1: Thank you. Next question is coming from Pito Chica Ring from Deutsche Bank, your line is out loud.
Thank you. Your next question is coming from Peter Chickering from Deutsche Bank. Your line is now live.
Speaker 13: transcript
Speaker 13: Good afternoon and again adding the thanks to Dan. It's a pleasure working with you for all these years. On 2024 commentary, a quick clarification and a question for the clarification.
Good afternoon.
And then adding the thanks to Dan it's a pleasure to work with you for all these years.
On 2024 commentary a quick clarification and then a question for.
Justin Lake: The M&A environment is consistently positive. We don't see that we're, you know, we don't see that there's higher multiples required as centers recover on their own that might have been up for sale over the last couple of years. We have a lot of opportunities and diligence from that perspective. And at the same time, given where interest rates are, we've actually gone through a process internally of raising our bar on the assessment process that we use in particular around the financial returns and the ability to drive the post-energy multiples down to where we've said they would go.
Clarification.
Speaker 13: transcript
Speaker 13: If you take the midpoint, it got into 3.415 billion and pull out 10 million for Ramon and 14 million grain income and 34 million in size security is 3.357, the right launch pad for 2024. And the question is, on the $100 million of headwinds you talked about, contract labor year $300 million, so if add another $100 million of fourth quarter, $40 million of contract labor in 2023.
If you take the midpoint of guidance at 3.415 billion and pull out $10 million for Ramon and 14 million Grant income and 34 million sorry of security.
Is $3 $55 seven the right launch pad for 2024 and the question is on the $100 million of headwinds you talked about.
Contract labor year to date is about $300 million sofa, Adena honeymooned ours in fourth quarter, so that $40 million of contract labor in 2023.
Speaker 13: transcript
Speaker 13: The reductions in the last two quarters there have been about 20% or so. So while you aren't guiding for 24, could we think about contract labor savings offsetting those $100 million headwinds you identified?
The reduction in the last two quarters, there have been about 28% or so so while you are guiding for 24 could be think about contract labor settings contract labor savings offsetting those 100 Honeywell headwinds you identified.
Yeah.
Justin Lake: On the DeNovo opportunities, you know, those have a lead time obviously once you start moving of around 18 months or more. But having this many in the pipeline is great because, you know, two things happen from that perspective. One is that you're usually building new higher acuity orthopedics focus centers in markets where physicians haven't really been in the ASC setting before. So it's a net increase of activity. And two, by moving things into a lower cost setting, it continues to enhance the value-based care proposition of USPI. And, you know, we're kind of focused on on both of those. So I feel pretty good about, I feel pretty good about both areas. At this point, heading into 2024, Dan.
Hey, Peter it's Dan.
Speaker 4: transcript
Speaker 4: i'm not going to get into specifics in terms of what you know the guidance for next year and what that with the launching point is but you know we wanted to give you some you know high-level uh... overview of those numbers uh... and again you know roughly a hundred million for the you know the government funding type of
I'm not going to get into specifics in terms of the guidance for next year and what the with the launching point is but we wanted to give you some high level.
Overview of those numbers.
Again, you know roughly 100 million for the you know the the government funding type of reductions in the in the wage matter as well and you know then.
Speaker 4: transcript
Speaker 4: uh... reduction in the in the in the wage uh... matter as well and you know then do you you know green incoming obviously to the green income on a year-to-date basis of
Grant income you, obviously see the grant income on a year to date basis of about $14 million in the.
Speaker 4: transcript
Speaker 4: about 14 million and the cyber income a year to date is about 34 million. You know, in terms of, you know, Q3 to Q4, as we mentioned a few minutes ago, you know, when we think about, you know, this sequential walk from Q3 to Q4 for the hospitals, as we talked about, you know, we'll probably see some additional medical fees sequentially. And...
The the cyber income a year to date is about $34 million and in terms of you know.
Q3 to Q4, as we mentioned a few minutes ago.
Daniel Cancelmi: Hey, Justin, Stan. Hey, this will be my last earnings call. But thanks for remembering that. Really appreciate that. It's been really an honor, you know, representing the company. But I just want to say thanks to all of the companies, employees, the physicians, all the caregivers, and our volunteers at our hospitals and facilities. They really do amazing things every day. If you spend any time at the hospital, you see that very quickly. So I just want to thank all of them. Thank you.
When we think about the sequential walk from Q3 to Q4 for the hospitals.
As we talked about you know where we're at.
Probably see some additional medical fees sequentially and you know we're.
Speaker 4: transcript
Speaker 4: We're being cautious and when we think about, you know, contract labor in the fourth quarter, whether we need to potentially invest more to meet volume demands.
We're being cautious and when we think about contract labor in the fourth quarter, and whether we need to potentially invest more to meet volume demands.
Speaker 1: transcript
Thank you. Next question is coming from John Ransom from Raymond James. Your line is now live.
Thank you next question is coming from John Ransom from Raymond James Your line is now live.
Speaker 13: transcript
Hey, good afternoon on the hot topic in your sector, but not for you, a professional.
Hey, good afternoon.
Kevin Fischbeck: Next question today is coming from Kevin Fischbeck from Bank of America. Your line is now live. Great. Thanks. I guess I'll add my thanks to Dan as well. But I guess as far as my question goes, when you were talking about the, you know, the mental pale ones into next year, one of the things you liked out was that the post-pandemic recovery from COVID providing a good operating backdrop. Into next year, I guess, where do you think we are today in that recovery?
On the hot topic in your sector, but not for you our professional fees.
Speaker 13: transcript
Could you just in plain and simple English tell us what the professional fee expense looks like for calendar 23 in your guidance versus calendar
Could you.
And plain and simple English tell us what the professional fee expense looks like for calendar 'twenty, three and your guidance versus calendar 'twenty two.
Speaker 4: transcript
Hey John , it's Stan. In terms of our medical fee cost.
Hey, John it's Dan in terms of our medical fee costs.
Speaker 4: transcript
so far this year, they're up around 15%.
So far this year, they're up around 15%.
Kevin Fischbeck: And I guess I'm interpreting that as a volume comment, but if there's something else, you would also be specking out it's not quite back and normal on the cross side or whatever it is. The love is going to get a sense of where we are in that recovering your view today. It's both. I mean, it's, it's, it's both. It's, I mean, the volume recovery, especially in the acute care business and related services on an elective basis will continue to grow.
Speaker 4: transcript
compared to last year and that's generally that's in line with what our expectations were this year and you know we've always we've said a couple times we we do anticipate you know some additional costs sequentially in Q4
Compared to last year and that's generally that's in line with what our expectations were this year and.
We set a couple of times, we we do anticipate.
Some additional.
Costs sequentially in Q4.
Speaker 13: transcript
Dan, is that the same number kind of through three quarters up the pain area expecting it to be higher in the fourth quarters that make it higher?
As Dan is that the same number kind of two or three quarters of 15 are you expecting it to be higher in the fourth quarters that make it harder for the year.
Kevin Fischbeck: And, you know, I think that part of this is obviously we had a lot of premature mortality from, from COVID way back in the beginning, 2020-ish early 2020-21. And I think as the population continues to age in despite that premature mortality, we'll see a tailwind of demand. Now, look, the cost side, whether it be in labor, which is the most obvious or supply chain side still has room to go to normalize.
Speaker 4: transcript
It would be, we wouldn't anticipate going up from, you know, 15% in Q3, or sorry, Q4.
It would be we wouldn't anticipate be going up from 15% in.
In Q3.
I'm sorry Q4.
Speaker 1: transcript
Bacon, next question is coming from Ben Hendricks from RBC Capital Markets. Your line is not live.
Thank you next question is coming from Ben Hendrix from RBC capital markets. Your line is that life.
Speaker 14: transcript
Thank you very much, and apologies if I missed this earlier, but I was wondering if you could provide some commentary on growth specifically within some of USPI.
Thank you very much and apologies if I missed this earlier, but I was wondering if you could provide some commentary on growth.
Kevin Fischbeck: You know, I mean, our performance this year in the hospital business has been a combination of volume in the high acuity area that we focused on, but also beating our expectations on how much expensive contract labor. We would be able to reduce from the business. And as I said, in this quarter, it came without any cost to capacity because of our hiring efforts. But I still think there's room, you know, there's still room to move from a normalization standpoint over the next couple of years. And certainly, that's the basis of the comment for 2024.
<unk> within some of Uspi's specialties.
Speaker 14: transcript
a musculoskeletal and hips and knees in particular, how that grew and then all...
SQL skeletal and.
Hips and knees in particular, how how that grew and then <unk>.
The other specialties I know you've made some investments in urology recently, just how big is.
Speaker 14: transcript
and the lessons in neurology recently, just how those areas are growing.
Unknown Executive: Thank you.
If those areas are growing in line with your expectations.
Speaker 3: transcript
Yeah, hips and knees grew in the mid-teens over prior year, year over year, and our collaboration and work with United Urology Group is growing faster than our expectations in terms of when the deal was done, and we continue to have attractive recovery in other areas like GI and ENT. So the growth is broad-based, but the fastest growth is coming in joint surgeries.
Yes, hips and knees grew in the mid teens over prior year, a year over year, and our <unk> collaboration and work with the United Urology group is growing faster than our expectations.
In terms of when the when the deal was done and we continue to have attractive recovery and in other areas like G. I N E. N T. So the growth is broad based but the fastest growth is coming in joint surgeries.
AJ Rice: Next question is coming from AJ Rice from UBS. So, why is that live? Thanks.
Sun Park: Hi, everybody. And best wishes to end as well. I haven't spoken a lot about managed care on the call. Where are you at with your contracting for 24 and 25? I know, you know, you've got a lot of national contracts. What kind of increases are you seeing? Are you still getting some incremental bump for the labor challenges that the industry space or is it starting to sort of normalize as you look out for the next year or two and rates?
Speaker 1: transcript
Thank you. Next question is coming from Jason Casorla from Citigroup. Your line is now live.
Thank you next question is coming from Jason Cazorla from Citigroup. Your line is now live.
Speaker 2: transcript
great thing. I just want to ask about the updated USPI guidance. You know, just curious on the margins. You have the ranges out there, but the midpoint is just a totally lower margins versus where you previously were. You know, I was just stronger revenue than even a dollar. So I guess can you give us an idea on how you're seeing margin progression from the newer to nobles and MMA you've done over the past 12 months, maybe against the margin headwinds, but bigger growth profit dollars that come with higher acuity cases as you focus growth.
Oh, great. Thanks, I just wanted to ask about the updated USPI guidance. Yeah. Just curious on the margins you've got the ranges out there, but the midpoint would suggest a slightly lower margins versus what you previously were.
Revenue then.
EBIT dollars I guess can you give us an idea on how you're seeing margin progression from the newer to novels and M&A you've done over the past 12 months, maybe against the margin headwinds, but bigger gross profit dollars that come with higher acuity case since that's your focus growth. There just any help there would be great I appreciate it well yeah.
Sun Park: Any thoughts there? Hey, Jay. This is actually a son park speaking on. Thanks for your question. And as I've slowly gotten to learn the business here, obviously managed care is a critical component. Dan mentioned it as part of the tailwinds that we do expect to continue to see into 24. And then as we've said historically, we do see, you know, commercial rate increases kind of mid single digits. And I think more recently, we are seeing some rates at or at the high range of that. And I think that reflects the current inflation environment that we are all seeing. So I think that's what we'll say. Thank you.
Speaker 3: transcript
Well, yeah, let me let me make a couple of comments just contextually. I mean one is
Yeah, Let me, let me make a couple of comments just contextually I mean, one is you know we we work to maintain our USPI margins based upon longer term business decisions, we make around service lines that we choose to be in what we think the mix will be with the physicians that we work with et cetera, but make.
Speaker 3: transcript
You know, we work to maintain our USPI margins based upon longer-term business decisions we make around service lines that we choose to be in, what we think the mix will be with the physicians that we work with, etc.
Speaker 3: transcript
You know, make no mistake about it. There are many things that we could do to grow the business within that range that may move the margins up or sometimes, you know, down a bit. But they're still highly accretive to the business given the types of post-synergy multiples that we deliver. So I just want to provide that backdrop because.
Make no mistake about it there are many things that we could do to grow the business within that range that may move the margins up or sometimes slow down a bit.
But there is still highly accretive to.
Jamie Perse: Our next question today is coming from Jamie Perse from Goldman Sachsville, why is that live? Hey, thank you all. I'll add my my my congrats and thanks as well. My question is just on the later environment, there were some headlines around some union contracts during quarter you mentioned it earlier. There's also that the California minimum wage is wondering if you can give us an update on on what you're seeing. You know, broadly with labor, if something structural has changed, if you're thinking about, you know, the next few years, any different from rate of increase of labor.
Two the business given the types of post synergy multiples that we deliver so I just want to provide that backdrop because.
Speaker 3: transcript
you know we we focus on a range that we want to be in uh... for the our lives that we want to have now specifically to your question around
You know we focus on a range that we want to be in for the Rois that we want to have now specifically to your question around.
Speaker 3: transcript
Service lines, remember the government makes in different service lines can be different.
Service lines remember, they're there the government mix in different service lines can be different.
Jamie Perse: And then just if you can size anything on the California minimum wage in in 24 and in 25 months, I could fully implement it. Thank you. Yeah, hey, it's on the California minimum wage piece and the, you know, impacts of that that was covered in Dan's commentary around headwinds. We haven't called out what it is specifically. We may do that in the future, but it was kind of covered within that broad category of headwinds in terms of ongoing contract negotiations.
Speaker 3: transcript
and uh... obviously the government mix will have a lower lower margin that doesn't necessarily mean that avoiding the service lines that have a little bit more government mix like for example joint replacements or other orthopedic type procedures is the right answer because they add net revenue intensity but when those service lines gale up to their full potential
And.
Obviously, the government mix will have a lower lower margin that doesn't necessarily mean that avoiding the service lines that have a little bit more government mix like for example, joint replacements or other orthopedic type procedures is the right answer because they add net revenue intensity, but when those service line scale up.
Up to their full potential they meet U S. P is margins right. So when you're scaling up a new service line and Youre running at sub scale in 60 70 centers as you introduce ortho into those centers of course, the margins will be lower until you get them.
Speaker 3: transcript
they meet us p i's margine's right so when you're scaling up a new service line and you're running its sub-scale in sixty seventy centers as you introduce or throw into those centers of course the margins will be lower until you get them uh... get them up to scale and you're finally correct to point out that
Get them up to scale and you're finally, correct to point out that.
Speaker 3: transcript
As we increase the number of de novos, obviously those are operating expenses that are in our environment not contributing to the revenue and margin profile of existing centers.
As we increase the number of de Novo's, obviously those are operating expenses that are in our environment not contributing.
Jamie Perse: I'm not going to comment on those, but, you know, we're obviously aware of them and deeply engaged in them. And I wouldn't say the environment has changed tremendously. I did note, you know, we've we've worked on and settled 30 labor union contract negotiations, relatively peacefully over the last couple of years. And we continue to work in good faith on all the contract negotiations we have. Obviously, you know, there are things that complicate that environment in the middle of the wage bill in California being passed, but, you know, that's just something that we're going to work on with our employees in the union.
To the revenue and margin profile of existing centers and you know as we've moved from having a handful three or four de novo's to 30, we're obviously cognizant of the fact that we need to overcome those operating expenses to maintain the margins that we've outlined in our range and the good news is we're doing that we don't talk about it.
Speaker 3: transcript
you know as we've moved from having a handful three or four denobos to thirty uh... we are obviously cognizant of the fact that uh... we need to overcome those operating expenses to maintain the margins that we've outlined in our range and and the good news is we're doing that we don't talk about it much because you know it has not been an issue
Much because you know it has not been an issue yeah, Jason I mean, USPI is full year margin for this year is roughly 40% 39, 8%, that's where we're guiding to in the fourth quarter. We're assuming the margin is close to 43% 42, 8%. So the margins are.
Speaker 4: transcript
Yeah, Jason, the USPI is in a four-year margin for this year.
Speaker 4: transcript
is roughly forty percent thirty nine point eight percent that's where we're guided to and in in the fourth quarter we're assuming the margin is close to forty three percent forty two point eight percent so the margins are incredibly strong as the i in the businesses performing well
Unknown Executive: And we'll move past that at some point. Thank you.
Strong USPI and the business is performing well.
Calvin Surnick: Next question is coming from Calvin Surnick from GAP Morgan, your life is that live? Is there any way to quantify how much capacity you've added so far this year, what the impact on volumes has been, and then going to next year when you talk about organic growth. How do we think about order of magnitude for the capacity expansions and then any color on which markets are service lines are the biggest growth opportunities there.
Okay.
Speaker 1: transcript
Bacon, next question is coming from Brian Tink, Kula from Jeffries, your line is now live.
Thank you next question is coming from Brian <unk> from Jefferies. Your line is now live.
Speaker 15: transcript
a good afternoon and Dan thanks again for all the help over the years. I guess my question, as I think about your comment about medical fees being up sequentially, is that just conservatism or expectations for higher volume? And then maybe first time, maybe take a step back is how do you think or judge or make that sufficient in-source certain physician groups versus keeping them third party? Thanks. Yeah. Hey, just.
Hey, good afternoon, Dan Thanks, again for all the help over the years.
I guess my question as I think about your comment about medical fees being up sequentially.
That just conservatism or expectations for higher volume and then maybe for some maybe take a step back how do you think are judge to make that decision to in source certain physician groups versus keeping them third party.
Calvin Surnick: And we think about, you know, California minimum wage, you're going to think that should be manageable for you guys, but just wondering if that impacts how you think about the capacity expansions in those markets. Well, so there's a few different things to unpack in your question, but let me, let me start with probably the most, the most salient point around how we think about the hospital capacity. We're very cognizant of the service lines that we have prioritized market by market and maintain access for those service lines.
Yeah, Hey, just.
On the first point.
Speaker 3: transcript
I'm not sure I would characterize it. Look, the way I would characterize it is what I've said all along this year, which is we are interested in seeing what a fourth quarter looks like post-pandemic for the first time in many years. You can interpret that as how you want to from your question around conservatism or whatnot. You know, we're...
I'm not sure I would characterize it the way I would characterize it as what I've said all along this year, which is we are interested in seeing what fourth quarter looks like post pandemic for the first time in many years you.
You can interpret that as how you want to from and your question around conservatism or whatnot.
Speaker 3: transcript
we're being thoughtful in our view about the services uh... that we want to offer and maintain access to as we move into the fourth quarter and we're doing it uh... in a way in which we would like to maintain strong margins uh... all point out again i did it in the very first couple of lines of my uh...
We're being thoughtful in our view.
Calvin Surnick: And we have, even through this strategy of reducing our exposure or access in some cases in markets because of the contract labor expense. So through this year, I would say that we have maintained capacity or added a little bit back, but it has not been a significant change in our strategy this year with respect to managing contract labor. And by the way, you know, the consequence of that is the contract labor reductions have been steady and progressive.
About the services that.
That we want to offer and maintain access to as we move into the fourth quarter and we're doing it.
In a way in which we would like to maintain strong margins. So I'll point out again I did it in the very first couple of lines of my statement.
Speaker 3: transcript
statement at the beginning of the earnings call it's it's notable that we are reaching uh... the point where we're almost at a seventeen percent even the margin company-wide
Statement at the beginning of the earnings call.
It's notable that we are reaching the point, where we're almost at a 17% EBITDA margin companywide.
Speaker 3: transcript
We believe in the strategy we're pursuing around acuity, capital efficiency.
We believe in the strategy, we're pursuing around acuity capital efficiency thoughtful.
Calvin Surnick: And now the basis of them has changed from reducing capacity to succeeding in hiring and retention. So that's, and you know, at the beginning of the year, I think we said the basis of the labor environment in 23. We must change, in our view, towards hiring and retention away from capacity reduction. So we feel pretty good about having achieved that and selectively as I noted, adding certain service lines. That's why I try to highlight them in every quarterly update at three or four of our hospitals, service lines that we're adding, we're adding that capacity and putting that investment to work in things that we believe we will want to do.
Speaker 3: transcript
thoughtful uh... management of our capacity for the services we offer and obviously the expansion and growth of of u.s. p i and and that margin uh... is is notable for tenet uh... as an entity uh... which i don't think we've been for a very long time if ever that that you know that's really the pathway were down
Management of our capacity for the services, we offer and obviously the expansion and growth of of USPI and in that margin.
<unk> is notable for tenant as an entity, which I don't think we've seen for a very long time if ever so.
That's you know that's really the pathway we're down.
There was a second part of your question, which.
Speaker 16: transcript
I didn't take down. It was in terms of the sequential increase that we're assuming from three to four in medical fees. I mean, some of it also relates to it can be a combination of volume. It can be a combination of contracts we've entered into that we know how the pricing lays out. Yeah, and to your question about insource, outsource, I mean,
I didn't take down.
It was in terms of the the sequential increase that we're assuming from from three to four in medical fees I mean, some of it also relates to you know.
Calvin Surnick: I don't know if, I think the question was largely focused on the hospitals, but at USPI, we don't have as much of an impact, of contract labor impacting our capacity. And so we have continued to expand access in centers across the country as the demand has risen. And the nice thing is that in a robust demand year, we've proven the ability to staff, staff it, appropriately, and maintain our margins with the growth that we have been able to deliver this year without creating a bunch of extraordinary expense in, in contract labor. So for USPI, I see the environment differently. And we feel like, you know, this won't be as significant an issue going into 2024.
It can be a combination of volume it can be a combination of you know cause.
Contracts, we've entered into that we know how the pricing wise Oh, yes and to your question about in source outsource I mean.
Saum Sutaria: Thank you.
Speaker 3: transcript
Our managed care contracting platform is pretty thorough. I mean, we talk about what we do with respect to hospitals and ambulatory surgery centers and other things, but we do maintain active physician service contracts for hospital-based specialties, and we do have markets in which we have over the last couple of years in sourced, outsourced, previously outsourced.
Our managed care contracting platform is pretty thorough I mean, we talk about what we do with respect to hospitals and ambulatory surgery centers and other things, but we do maintain active physician service contracts for hospital based specialties and we do have markets in which we have over the last couple of years in sourced outsourced previously.
[noise] outsource work again I would refer you to even back during the pandemic I made some comments about the fact that we undertook a comprehensive review of every physician service contract in the company to restructure consolidate scale services and work with some of our better partners and when.
Speaker 3: transcript
again i i i would refer you to even back during the pandemic i made some comments about the fact that we undertook a comprehensive review
Speaker 3: transcript
of every physician service contract in the company to restructure, consolidate, scale services.
Speaker 3: transcript
and work with some of our better partners and and when those weren't available
Pete O'Chickering: Next question is coming from Pete O'Chickering from Deutsche Bank. Your line is now live. Yeah, good afternoon. And, you know, again, adding the thanks to Dan. It's a pleasure working with you for like all these years.
Those weren't available either due to market penetration issues or competitive issues. They may have had we looked at opportunities to in source. So you know where we understand that these fees are going up but all year long and going into next year, we're planning them.
Speaker 3: transcript
uh... either do the market penetration issues are competitive issues they may have had we looked at opportunities to in-source
Speaker 3: transcript
So, you know, we understand that these fees are going up, but all year long and
Daniel Cancelmi: On 2024 commentary, a quick clarification and a question for the clarification. If you take the midpoint, it got into 3.415 billion and pull out 10 million for Ramon and 14 million grain income and 34 million side of security is 3.357, the right launch pad for 2024. And then the question is on the 100 million dollars of headwinds you talked about. A contract labor year dates about 300 million dollars. So if I add 100 million dollars in fourth quarter, it's about 400 million dollars of contract labor in 2023.
Speaker 3: transcript
going into next year, we're planning them in the way we issue guidance.
In in the way we issue guidance.
Speaker 1: transcript
Her final question today is coming from Sarah James from Ketopro Cheryl July . There's no lies.
Thank you. Our final question today is coming from Sarah James from Cantor Fitzgerald. Your line is now live.
Speaker 17: transcript
Thank you, and I want to echo my well wishes to Dan.
Thank you and I want to Echo my well wishes to Dan.
Speaker 17: transcript
I appreciate the comment that you just made about the service contract review, but I think also during the pandemic, tenants stood out in making investments in technology for efficiency and scheduling. So I'm wondering, has that had any impact on your mix of contracted physician labor? And then also, are you seeing any of the incremental pushback on inpatient versus monitoring classification that some of your peers are?
I appreciate the comment that you just made about the service contractor view them, but I think also during the pandemic tenet stood out and making investments in technology for efficiency and scheduling. So I'm wondering has that had any impact on your mix of contracted.
Daniel Cancelmi: The reductions the last two quarters there have been about 20% or so. So while you're not guiding for 24, could you think about contract labor settings? Contract labor savings offsetting those 100 million dollars of headwinds you identified? Hey, Pete O'Chickering.
Labor and then also are you seeing any of the incremental pushback on inpatient versus monitoring classification that some of your peers are in acute.
Daniel Cancelmi: I'm not going to get into specifics in terms of the guidance for next year and what the launching point is. But we wanted to give you some high level overview of those numbers. And again, roughly 100 million for the government funding type of reductions in the wage matter as well. And then, you know, grain income, you obviously see the grain income on a year-to-date basis of about 14 million. And the cyber income year-to-date is about 34 million.
Speaker 3: transcript
Yeah, so on the on the technology front.
Yeah, so on the on the technology front.
Speaker 3: transcript
I appreciate you remembering that. I mean, we deployed technologies that assist with scheduling in most of our high-acuity, like surgical, cath lab, other procedure areas, along with some interesting things that we did, even in emergency room, access for lower-acuity scheduled, but emergent, truly emergent care. And those have been paying off well. We've also continued to utilize,
I appreciate you're remembering that I mean, we we deployed technologies that assist with scheduling in most of our high acuity surgical Cath lab other procedure areas along with some interesting things that we did even in emergency room access for lower acuity scheduled but emerging truly emerged.
Care and those have been paying off well. We've also continued to utilize our.
Speaker 3: transcript
you know, scheduling technologies in our outpatient specialty practices.
You know scheduling technologies in our outpatient specialty practices and one of the reasons. We do that is it gives us the ability in a data driven way to track week to week volume demand movements in our specialty practices, which we roll up country wide to understand what's going on in the <unk>.
Speaker 3: transcript
And one of the reasons we do that is it gives us the ability in a data-driven way to track week-to-week volume demand movement in our specialty practices, which we roll up countrywide to understand what's going on in the different specialties, because the technology provides an automated source of having that data. So, yeah.
Daniel Cancelmi: And in terms of Q3 to Q4, as we mentioned a few minutes ago, when we think about this sequential walk from Q3 to Q4 for the hospitals, as we talked about, we'll probably see some additional medical fees sequentially. And we're being cautious, and when we think about contract labor in the fourth quarter, whether we need to potentially invest more to meet volume demands.
<unk> specialties, because the technology provides an automated source of having that data.
Daniel Cancelmi: Thank you.
Yeah, I mean, we we feel good about those investments they were not large investments you know there is simple usable technologies that are physician friendly and we feel pretty good about those in terms of inpatient outpatient pressure.
Speaker 3: transcript
We feel good about those investments. They were not large investments. You know, they're simple, usable technologies that are physician-friendly, and we feel pretty good about those. In terms of inpatient, outpatient pressure, you know, I would reframe that into we are concerned with the degree of denial activity that we see from some of the health plans. We think it's.
John Ransom: Next question is from John Ransom from Raymond James. Your life is our life.
You know I would I would reframe that into we are concerned with the degree of denial activity that we see from some of the health plans that we think it's a <unk>.
Saum Sutaria: Hey, good afternoon. On the hot topic in your sector, but not for you, professional fees. Could you just in plain and simple English tell us what the professional fee expense looks like for calendar 23 in your guidance versus calendar 22? Hey, John, it's Stan. In terms of our medical fee costs so far this year, they're up around 15% compared to last year and that's generally that's in line with what our expectations were this year.
Speaker 3: transcript
excessive and inappropriate and we continue to work on you know our appropriate documentation both for us and obviously with conifer for all of our clients in order to push back on the volume of clinical denials on the basis of having excellent documentation
Excessive and inappropriate and we continue to work on our appropriate documentation both for us and obviously with conifer for all of our clients in order to push back on the volume of of clinical denials on the basis of having excellent documentation.
Speaker 3: transcript
uh... and we think that the right path you know right path out of that
And we think that's the right path you know right path out of that.
Speaker 1: transcript
Thank you, we reached the end of our question and answer session. I'd like to turn the floor back over to some for any further closing.
Thank you we've reset of our question and answer session I'd like to turn the floor back over to Sam for any further or closing comments, yeah. So Justin Justin stole my Thunder, but I kept this till the end because I was worried Dan might work out if we thanked him too early.
Speaker 4: transcript
Yeah, so Justin stole my fender, but I kept this till the end because I was worried Dan might walk out if we thanked him too early from this phone call. But I wanna thank Dan as well, not only for being an outstanding CFO and exceptional colleague, but I would tell you he is the picture of integrity and honesty that's a role model for every CFO that exists in this country. So thank you, Dan. Appreciate the kind remarks on. All right, well that will wrap up.
Saum Sutaria: And you know, as we said a couple times, we do anticipate some additional costs sequentially in Q4. Dan, is that the same number kind of through three quarters up to 10? Are you expecting it to be higher on the fourth quarter so making it higher for the year? It would be we wouldn't anticipate being going up in from 15% in Q3 or sorry Q4.
From this phone call but.
I want to thank Dan as well not only for being an outstanding CFO an exceptional colleague.
Ben Hendricks: Thank you.
But I would tell you. He is the picture of integrity and honesty. That's a role model for every CFO that exists in this country. So thank you Dan I appreciate the kind remarks on.
Alright with that we'll wrap up thank you everybody.
Speaker 1: transcript
Thank you, that does include today's telecom, that's a webcast, and we just connect to Ryan at this time and have a wonderful day. We thank you for your...
Thank you that does conclude today's teleconference and webcast you may disconnect. Your line at this time and have a wonderful day, we thank you for your participation today.
Saum Sutaria: Next question is coming from Ben Hendricks from RBC Capital Markets. Your life is now live. Thank you very much.
Saum Sutaria: And apologies if I missed this earlier, but I was wondering if you could provide some commentary on growth specifically within some of USPI specialties, a masculine skeletal and hips and knees in particular, how that grew and then all the other specialties. I know you made some investments in neurology recently just how those those areas are growing in line with your expectations. Thanks. Yeah, hips and knees grew in the mid teens over a prior year, year over year.
Okay.
Saum Sutaria: And our collaboration and work with United Urology Group is growing faster than our expectations in terms of when the deal was done. And we continue to have attractive recovery in other areas like GI and ENT. So the growth is broad base, but the fastest growth is coming in joint surgeries. Thank you.
Jason Kassorla: Next question is coming from Jason Kassorla from City Group, your life is that life? Great. Thanks.
Saum Sutaria: I just want to ask about the updated USPI guidance. I'm just curious on the margins. You have the ranges out there, but the midpoint is just slightly lower margins versus where you previously were. You know, stronger revenue than even a dollar. I guess can you give us an idea on how you're seeing margin progression from the newer to no loads of M&A you've done over the past 12 months, even against the margin headwind, but bigger growth profit dollars that come with higher acute cases as you focus growth there. Just any help there would be great. We appreciate it.
Saum Sutaria: Well, yeah, let me let me make a couple of comments just contextually. I mean, one is, you know, we work to maintain our USPI margins based upon longer term business decisions we make around service lines that we choose to be in what we think the mix will be with the physicians that we work with, etc. But you know, make no mistake about it. There are many things that we could do to grow the business within that range that may move the margins up or sometimes, you know, down a bit, but they're still highly accretive to the business given the types of post synergy multiples that we deliver.
Saum Sutaria: So I just want to provide that backdrop because, you know, we we focus on a range that we want to be in for the ROI that we want to have now specifically to your question around. Service Lines. Remember, the government mix in different service lines can be different. And obviously, the government mix will have a lower margin. That doesn't necessarily mean that avoiding the service lines that have a little bit more government mix, like for example joint replacements or other orthopedic type procedures is the right answer, because they add net revenue intensity.
Saum Sutaria: But when those service lines scale up to their full potential, they meet USPI's margins, right? So when you're scaling up a new service line and you're running its sub-scale in 60, 70 centers as you introduce ortho into those centers, of course the margins will be lower until you get them, get them up to scale. And you're finally correct to point out that as we increase the number of denobos, obviously those are operating expenses that are in our environment, not contributing to the revenue and margin profile of existing centers.
Saum Sutaria: And as we've moved from having a handful, three or four denobos to 30, we are obviously cognizant of the fact that we need to overcome those operating expenses to maintain the margins that we've outlined in our range. And the good news is we're doing that. We don't talk about it much because it has not been an issue. And Jason, the USPI's full year margin for this year is roughly 40%, 39.8%. That's where we're guiding to. And in the fourth quarter, we're assuming the margin is close to 43%, 42.8%. So the margins are incredibly strong, the USPI, and the business is performing well. Thank you.
Brian Taylor: Next question is coming from Brian Taylor from Jeffries, your line is now live. Hey, good afternoon. Dan, thanks again for all the help over the years.
Dan Cancelmi: I guess my question, as I think about your comment about medical fees being up sequentially, is that just conservatism or expectations for higher volume? And then maybe for some, maybe take a step back. How do you think or judge to make that sufficient in source certain physician groups versus keeping them third party? Yeah. Hey, just on the first point, I'm not sure I would characterize it. The way I would characterize it is what I've said all along this year, which is we are interested in seeing what a fourth quarter looks like post pandemic for the first time in many years.
Dan Cancelmi: You can interpret that as how you want to from your question around conservatism or whatnot. We're being thoughtful in our view about the services that we want to offer and maintain access to as we move into the fourth quarter. And we're doing it in a way in which we would like to maintain strong margins. I'll point out again, I did it in the very first couple of lines of my statement at the beginning of the earnings call.
Dan Cancelmi: It's notable that we are reaching the point where we're almost at a 17% EBITDA margin company wide. We believe in the strategy we're pursuing around acuity, capital efficiency, thoughtful management of our capacity for the services we offer and obviously the expansion and growth of USPI. And that margin is notable for tenant as an entity, which I don't think we've seen for a very long time, if ever. So. That's really the pathway we're down.
Saum Sutaria: There was a second part of your question, which I didn't take down. It was in terms of the sequential increase that we're assuming from three to four in medical fees. Some of it also relates to, it can be a combination of volume, it can be a combination of contracts we've entered into. We know how the pricing lies out. To your question about in-sourced outsourced, our managed care contracting platform is pretty thorough.
Saum Sutaria: We talk about what we do with respect to hospitals and ambulatory surgery centers and other things, but we do maintain active physician service contracts for hospital-based specialties. We do have markets in which we have over the last couple of years outsourced previously outsourced work. Again, I would refer you to, even back during the pandemic, I made some comments about the fact that we undertook a comprehensive review of every physician service contract in the company to restructure, consolidate, scale services and work with some of our better partners.
Saum Sutaria: When those weren't available, either due to market penetration issues or competitive issues they may have had, we looked at opportunities to insource. We understand that these fees are going up, but all year long and going into next year, we're planning them in the way we issue guidance. Thank you.
Sarah James: Our final question today is coming from Sarah James from Canada for Cheryl July.
Saum Sutaria: Thank you, and I want to echo my well wishes to Dan. I appreciate the comment that you just made about the service contract review, but I think also during the pandemic, Tenets stood out in making investments in technology for efficiency and scheduling. So I'm wondering, has that had any impact on your mix of contracted physician labor, and then also are you seeing any of the incremental pushback on inpatient versus monitoring classification that some of your peers are in acute?
Saum Sutaria: Yeah, so on the technology front, I appreciate you remembering that. I mean, we deployed technologies that assist with scheduling in most of our high acuity, like surgical, cath lab, other procedure areas, along with some interesting things that we did even in emergency room access for lower acuity scheduled, but emergent, truly emergent care. And those have been paying off while we've also continued to utilize scheduling technologies in our outpatient specialty practices. And one of the reasons we do that is it gives us the ability in a data driven way to track week to week volume demand movement in our specialty practices, which we roll up countrywide to understand what's going on in the different specialties because the technology provides an automated.
Saum Sutaria: It's a good source of having that data so yeah, I mean, we we feel good about those investments. They were not large investments. You know, there's simple usable technologies that are physician friendly and we feel pretty good about those in terms of inpatient outpatient pressure. You know, I would I would reframe that into we are concerned with the degree of denial activity that we see from some of the health plans that we think it's excessive and inappropriate and we continue to work on, you know, our appropriate documentation.
Saum Sutaria: Both for us and obviously with conifer for all of our clients in order to push back on the volume of clinical denials on the basis of having excellent documentation. And we think that's the right path, you know, right path out of that.
Unknown Executive: Thank you.
Saum Sutaria: We reshend of our question and answer session, and I could turn the floor back over to Saum for any further closing comments. Yeah, so Justin stole my thunder, but I kept this till the end because I was worried Dan might walk out if we thanked him too early from this phone call, but I want to thank Dan as well, not only for being an outstanding CFO and exceptional colleague, but I would tell you he is the picture of integrity and honesty that's a role model for every CFO that exists in this country. So thank you, Dan.
Dan Cancelmi: Appreciate the kind remarks on.
Unknown Executive: All right, well that will wrap up. Thank you, everybody. Thank you.
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