Q3 2023 Community Health Systems Inc Earnings Call

Speaker 1: Good morning and welcome to the Community Health Systems 3rd quarter 2023 earnings conference call. All participants will be in listen only mode. Should you need assistance please signal a conference specialist by pressing the star key followed by zero.

Good morning, and welcome to the community Health Systems' third quarter 'twenty twenty-three earnings conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the Starkey followed by zero.

Speaker 1: After today's presentation, there will be an opportunity to ask questions.

After today's presentation there'll be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad.

Speaker 1: To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event...

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Speaker 1: I would now like to turn the conference over to Anton Hai, Vice President and Vester Relations. Please go ahead.

I would now like to turn the conference over to Anton Hie, Vice President Investor Relations. Please go ahead.

Speaker 2: Thank you, Gary. Good morning and welcome to Community Health Systems 3rd quarter 2023 conference call. Joining me on today's call are Tim Hinchin, Chief Executive Officer and Kevin Hammond's President and Chief Financial Officer.

Thank you Gary Good morning, and welcome to community Health Systems' third quarter 2023 Conference call. Joining me on today's call are Tim mentioned, Chief Executive Officer, and Kevin <unk>, President and Chief Financial Officer.

Speaker 2: Before we begin, I'd like to remind everyone that this comments call may contain certain forward-looking statements, including all statements that do not rely solely to historical or current facts.

Before we begin I'd like to remind everyone that this conference call may contain certain forward looking statements, including all statements that do not rely solely to historical or current facts.

Speaker 2: These four looking statements are subject to a number of known and unknown risks, which are described in heading such as risk factors in our annual report on form 10-A, and other reports filed with or furnished to the FEP. Actual results may differ significantly from those expressed in 84 looking statements in today's discussion. We did not intend to update any of these four looking statements.

These forward looking statements are subject to a number of known and unknown risks, which are described in headings such as risk factors in our annual <unk> annual report on Form 10-K, and other reports filed with or furnished to the SEC.

Actual results may differ significantly from those expressed in any forward looking statements in today's discussion we do not intend to update any of these forward looking statements yesterday afternoon, we issued a press release with our financial statements and definitions and calculations of adjusted EBITDA and adjusted EPS. We've also posted a supplemental slide presentation.

Speaker 2: Yesterday afternoon, we issued a press release with our financial statements and definitions and calculations of adjusted EBITDA and adjusted EPS. We've also posted a supplemental fly-up presentation on our website. All calculations we will discuss on today's call exclude gains or losses from early extinguishment of debt, impairment expense as well as gains or losses on the sale of business.

And on our website all calculations, we will discuss on today's call exclude gains or losses from early extinguishment of debt impairment expense as well as gains or losses on the sale of businesses.

Speaker 2: expense from government and other legal matters and related costs.

From government and other legal matters and related cost expenses related to determination.

Speaker 3: expenses related to termination, employee termination benefits, and other restructuring charges. With that said, I will turn the call over to Tim Hitchens, Chief Executive Officer. Thanks, Anton, and good morning, and thank you for joining our third quarter conference call. Our performance in the third quarter included solid, same-store volume gains overall, reinforcing the confidence that our strategic initiatives, targeted market development plans, and investments continue to strengthen our competitive position.

Early termination benefits and other restructuring charges.

That I will turn the call over to Tim mentioned, Chief Executive Officer, Thanks, Anton and good morning, and thank you for joining our third quarter conference call. Our performance in the third quarter included solid same store volume gains overall, reinforcing the confidence that our strategic initiatives targeted market development plan and investments.

To strengthen our competitive position.

Speaker 3: Year over year for the quarter, same-store admissions were up 3.7%, and at the highest level since the fourth quarter of 2019, or pre-pandemic.

Year over year for the quarter same store admissions were up three 7% and at the highest level since the fourth quarter of 2019 or pre pandemic.

Speaker 3: Same-store adjusted admissions increased 4.2% and also reached record levels, demonstrating the strong demand for care in our markets, and the favorable impacts of our outpatient access point growth that investments.

Same store adjusted admissions increased four 2% and also reached record levels demonstrating the strong demand for care in our markets and the favorable impacts of our outpatient access point growth investments.

Speaker 3: We had our strongest DR volume so far this year in the third quarter, and we had a record quarter for physician practice visits, which is typically a leading indicator for future procedural volume.

We had our strongest Dr volumes, so far this year in the third quarter, and we had a record quarter for physician practice visits which is typically a leading indicator for future prestige real volumes.

Speaker 3: Surgery screw 1.6% over year has sequentially reflected more normal seasonality, including more vacations by position-vantation.

Surgeries grew one 6% year over year and sequentially, reflecting more normal seasonality, including more vacations by physicians and patients.

Speaker 3: Since the middle of 2022, we have been discussing our near-term priorities or our roadmap for navigating the overall industry and macroeconomic environment.

Since the middle of 2022, we have been discussing our near term priorities or our road map for navigating the overall industry and macroeconomic environment.

Speaker 3: I want to give you an update on these activities as we move toward the end of the year and prepare for 2024.

I wanted to give you an update on these activities as we move towards the end of the year and prepare for 2024.

Speaker 3: As outlined in our supplemental deck, this organization-wide focus covers four main categories. They are accelerate growth, strengthen the workforce, control expenses, and advanced safety and quality.

As outlined in our supplemental that this organization wide focus covers four main categories. They are accelerate growth strengthened to workforce control expenses and advanced safety and quality.

Speaker 3: First, we remain optimistic about our growth prospects and the ability to accelerate growth as we invest in our core markets and implement a number of operational initiatives to create more capacity for patient care.

First we remain optimistic about our growth prospects and the ability to accelerate growth as we invest in our core markets and implement a number of operational initiatives to create more capacity for patient care.

Speaker 3: Our campus expansion projects in Knoxville, Tennessee and Foley, Alabama are on schedule with the Knoxville project expected to open early next year and the Foley expansion on track to open at the end of 2024.

Our campus expansion projects in Knoxville, Tennessee, and Foley, Alabama are on schedule with the Knoxville project expected to open early next year and the Foley expansion on track to open at the end of 2024.

Speaker 3: Due to the high occupancy rates in both markets, the tower additions are integral to achieving our market share growth opportunity.

Due to the high occupancy rates in both markets. The tower additions are integral to achieving our market share growth opportunities.

Speaker 3: Upon their completion, we will have added more than 500 incremental beds across our portfolio since 2018, all initiated to advance growth prospects in high opportunity markets.

Upon their completion, we will have added more than 500 incremental debt across our portfolio. Since 2018, all initiated to advanced girls growth prospect in high opportunity markets.

Speaker 3: We are intensely focused on length of stay and capacity optimization work. Our efforts to safely and properly discharge patients ready to leave the hospital and return home are moved into a post-acute care setting, resulted in improved length of stay compared to last year and sequentially.

We are intensely focused on length of stay and capacity optimization work.

Our efforts to safely and properly discharge patients ready to leave the hospital and return home or move into a post acute care setting resulted in improved length of stay compared to last year and sequentially.

Speaker 3: This resulted in strong admission growth in the quarter, with a favorable net 1.3% reduction in total patient data.

This resulted in strong admission growth in the quarter with a favorable net one 3% reduction in total patient days.

Speaker 3: Directing our workforce remains another key priority. Our nursing and clinical recruitment and retention strategies continue to perform well, enabling further improvements in contract labor in the third quarter.

Strengthening our workforce remains another key priority, our nursing and cleanup of recruitment and retention strategies continued to perform well, enabling further improvements in contract labor in the third quarter.

Speaker 3: In terms of our work to ensure hospitalists and emergency medicine programs in select CHS hospitals, we have now more than 500 ED and hospitalist medicine providers working under this model.

In terms of our work to in source hospitalist and emergency medicine programs in select CHS hospitals, we have now more than 500, EDI and hospitalist medicine providers working under this model.

Speaker 3: We are pleased with the strategic and financial benefits from this effort in the third quarter. We are confident in our ability to scale the solution as needed and planning is currently underway to enforce anesthesia services in select markets as well.

We are pleased with the strategic and financial benefits from this effort in the third quarter. We are confident in our ability to scale. This solution as needed and planning is currently underway to in source anesthesia services in select markets as well.

Speaker 3: Finally, a couple of notes about our safety and quality initiatives. Our clinical scorecard designed a better leverage clinical data at a market and company-wide level was launched just over one year ago.

Finally, a couple of notes about our safety and quality initiatives, our clinical scorecard designed to better leverage clinical data at a market and company wide level was launched just over one year ago. This resource has provided great insights into areas, where we can further advance and excel in patient safety and quality leading to <unk>.

Speaker 3: This resource has provided great insights into areas where we can further advance and excel in patient safety and quality, leading to very targeted areas of improvement. For example, the majority of our hospitals are now in the top quartile nationally for prevention of certain hospital acquired infections.

<unk> targeted areas of improvement.

For example, the majority of our hospitals are now in the top quartile nationally for prevention of certain hospital acquired infections.

Speaker 3: and a company wide initiative to stop sexes as resulted in a sustainable reduction in mortality due to sex.

And our companywide initiative to stop sepsis as a resulted in a sustainable reduction in mortality due to sepsis.

Speaker 3: Healthcare providers continue to base headwinds, dedicated focus for our management team.

Health care providers continue to face headwinds, including reimbursement challenges inflationary pressures regulatory hurdles and evolving consumer behaviors and all of which are areas of that dedicated focus for our management team.

Speaker 3: As we navigate through these industry dynamics, we will continue to exercise control where we can and adaptability when we need to in order to further strengthen our results. With that, Kevin, let me turn this...

As we navigate through these industry dynamics, we will continue to exercise control, where we can and adaptability what do we need to in order to further strengthen our results.

With that Kevin Let me turn the call over to you.

Speaker 3: Thanks, Jim. And good morning, everyone. We are encouraged by the continued return in court of man for healthcare service.

Thanks, Tim.

Good morning, everyone.

We are encouraged by the continued return in core demand for healthcare services, the progress from our ongoing investments and further reductions in contract labor.

Speaker 4: progress from our ongoing investments and further reductions in contract late.

Speaker 4: as well as the early evidence of success in project impower and our position in sourcing initiative. Moving on.

As well as the early evidence of success in project and power and our position in sourcing initiative.

Moving on to quarterly financial results.

Speaker 4: Net operating revenues were 3.1 billion, representing a 2% year over your growth on a consolidated base.

Net operating revenues were $3 1 billion, representing a 2% year over year growth on a consolidated basis.

Speaker 4: On a same sore basis, net revenue increased 5.1% over the third quarter of 2022, driven by 4.2% growth and adjusted admissions, and a 0.9% increase in net revenue purchase.

On a same store basis net revenue increased five 1% over the third quarter of 2022, driven by four 2% growth in adjusted admissions and a <unk>, 9% increase in net revenue per adjusted admission.

Speaker 4: The commercial mix was flat sequentially at 47.9% total net revenue while Medicare Advantage was down 60 basis points from the second quarter.

Commercial mix was flat sequentially at 47, 9% total net revenue, while Medicare advantage was down 60 basis points from the second quarter.

Speaker 4: Commercial volume grew faster than the company average from the second quarter as expected. However, growth in medical edness outpaced surgical.

Commercial volume grew faster than the company average from the second quarter as expected.

However growth in medical admits outpace surgical admits as Tim noted.

Speaker 4: The justice EBITDA was $360 million, representing an 11.7% margin.

Adjusted EBITDA was $360 million, representing an 11 seven.

7% March.

Speaker 4: When excluding the 115 million of benefits from provider relief funds from third quarter 2022 results, margin was up more than 200 basis points year over year, and declined only 30 basis points sequentially. The CHS stepped over the fifth goal, third quarter seasonal pressures on profitability.

When excluding the $115 million of benefit from provider relief funds from third quarter 2022 results margin was up more than 200 basis points year over year and declined only 30 basis points sequentially. The CHF stepped over the typical third quarter seasonal pressures on profitability.

Speaker 4: We were very pleased to deliver strong labor cost management, as strong nurse recruitment and retention helped us outperform expectations in driving down contract labor.

We were very pleased to deliver strong labor cost management, and a strong nurse recruitment and retention helped us outperform expectations and driving down our contract labor expense, which was $54 million improving sequentially from $72 million.

Speaker 4: which was $54 million in proving sequentially from 72 million.

Speaker 4: and versus our previous expectation for 60 to 70 million.

And versus our prior previous expectation for.

For $60 million to $70 million exiting the year.

Speaker 4: Our average hourly rate for contract labor also improved 10%.

Our average hourly rate for contract Labor also improved 10% sequentially.

Speaker 4: Additionally, overall wage inflation came in slightly better than expected. Up approximately 3% year over year versus our forecasted 5% for the full year.

Additionally, overall wage inflation came in slightly better than expected up approximately 3% year over year versus our forecasted 5% for the full year.

Speaker 4: Medical Specialist D's as reported in other op-x line increased slightly from the second core.

Medical specialist fees is reported in other Opex line increased slightly from the second quarter, which.

Speaker 4: which included a growth up of expenses for physicians' in-source from the former ATP con.

Which included a gross up of expenses for physicians in sourced from the former ATP contract.

Speaker 4: In fact, during the net revenue associated with insourcing those positions.

Factoring in the net revenue associated with in sourcing those physicians, we estimate we benefited by approximately $4 million sequentially compared to the subsidy payments previously paid.

Speaker 4: We estimate we've benefited by approximately $4 million sequentially compared to the subsidy payments previously paid to APP. As Kim noted, the progress with our in-sourcing initiative has been very encouraging. And we expect further improvement in the coming quarters as we scale this up.

AP.

As Tim noted the progress with our in sourcing initiative has been very encouraging and we expect further improvement in the coming quarters as we scale this effort.

Speaker 4: Moving on to the cash flow statement, cash flows from operations were $29 million compared with $137 million in the third quarter of 2022.

Moving on to the cash flow statement cash flows from operations were $29 million compared with $137 million in the third quarter of 2022.

Speaker 4: The cash performance was temporarily affected by more than $100 million in various items that should reverse in the fourth quarter.

The cash performance was temporarily affected by more than $100 million in various items that should reverse in the fourth quarter.

Unknown Attendee: Good morning, and welcome to the Community Health Systems third quarter 2023 earnings conference call. All participants will be in listen only mode. Should you need assistant, please signal a conference specialist by pressing the star key followed by zero.

Speaker 4: Most notably, billing delays related to clinical system upgrades in two of our markets.

Most notably billing delays related to clinical system upgrades in two of our markets and our position in sourcing initiative as we work to get certain providers credentials under in network agreements.

Speaker 4: and our physician-in-source-ending initiative, as we work to get certain providers, credentials under our network to-

Unknown Attendee: After today's presentation there will be an opportunity to ask questions. To ask a question you may press star then one on your telephone keypad. To withdraw your question please press star then two.

Speaker 4: And importantly, these have been successfully completed and related claims are being submitted. So we expect to begin receiving these payments in the fourth quarter.

Importantly, these have been successfully completed and related claims are being submitted so we expect to begin receiving these payments in the fourth quarter.

Speaker 4: Capital expenditures for the quarter were $130 million, and for the first nine months were $357 million, on track with our guidance of $450 to $500 million.

Capital expenditures for the quarter were $130 million and for the first nine months were $357 million on track with our guidance the $450 to $500 million.

Unknown Attendee: Please note this event is being recorded.

Anton Hie: I would now like to turn the conference over to Anton Hie, Vice President Investor Relations. Please go ahead. Thank you Gary.

Speaker 4: We continue to expect significant improvement in free cash flow performance in fourth quarter as a stick.

We continue to expect significant improvement in free cash flow performance in the fourth quarter as is typical however in light of the performance to date and the current legislative environment. We are updating our guidance for operating cash flows to $400 million to $450 million.

Anton Hie: Good morning and welcome to Community Health Systems third quarter 2023 conference call. Joining me on today's call are Tim Hingtgen, Chief Executive Officer, and Kevin Hammons, President and Chief Financial Officer. Before we begin I'd like to remind everyone that this conference call may contain certain forward-looking statements, including all statements that do not rely solely to historical or current facts. These forward-looking statements are subjects to a number of known and unknown risks which are described in heading such as risk factors in our annual annual report on form 10K and other reports filed with or furnished to the FET. Actual results may differ significantly from those expressed in any forward-looking statements in today's discussion. We do not intend to update any of these forward-looking statements.

Speaker 3: However, in light of the performance today and the current legislative environment, we are updating our guidance for operating cash flows to $400 to $400.

Speaker 4: That debt to trail in adjusted e but I have to quarter end with eight times.

Net debt to trailing adjusted EBITDA at the quarter end was eight times and with $91 million of cash and equivalents on hand, and approximately $680 million of borrowing capacity under our ABL, we remain well positioned from a liquidity standpoint to meet our needs going forward.

Speaker 4: and with $91 million of cash and equipment on hand, and approximately $680 million of borrowing capacity under our ABL, we remain well positioned from the liquidity standpoint to meet our needs going forward.

Speaker 4: Additionally, we continue to expect proceeds from the planned best to chair the Brewer Health Access in Western Florida to be used primarily to pay down debt.

Additionally, we continue to expect proceeds from the planned divestitures of severe health assets in western Florida to be used primarily to pay down debt.

Speaker 4: We continue to receive inbound interest in certain of our assets, and we will consider a transaction when it makes financial and strategic decisions.

We continue to receive inbound interest in certain of our assets and we will consider the transaction when it makes financial and strategic sense as we recycle capital towards achieving higher returns with lower risk including debt reduction.

Anton Hie: Yesterday afternoon we issued a press release with our financial statements and definitions and calculations of adjusted EBDA and adjusted EPS. We've also posted a supplemental fly-up presentation on our website. All calculations we will discuss on today's call exclude gains or losses from early extinguishment of death, impairment expense as well as gains or losses on the sale of businesses, expense from government and other legal matters and related costs, expenses related to terminate and employee termination benefits and other restructuring charges.

Speaker 4: as we recycle capital towards achieving higher returns with lower risk.

Speaker 4: including get reduction, capacity and service line expansions, and potentially select...

<unk> service line expansions.

Potentially select acquisitions in certain key markets.

Speaker 3: Projects in power are enterprise wide modernization and optimization initiatives, kicked off October 1st. We're very pleased with the early results.

Project empower our enterprise wide modernization and optimization initiatives kicked off October one.

We are very pleased with the early results.

Speaker 4: As part of our first wave of deployments, we have implemented our new workflows and the Oracle supply chain and finance functionality at 15 of our facilities.

As part of our first wave of deployments, we have implemented our new workflows in the Oracle supply chain and finance functionality at 15 of our facilities and have stood up our shared services with no disruption in patient care.

Tim Hingtgen: With that said, I will turn the call over to Tim Hitchens, Chief Executive Officer. Thanks, Anton, and good morning, and thank you for joining our third quarter conference call. Our performance in the third quarter included solid, same-store volume gains overall, reinforcing the confidence that our strategic initiatives, targeted market development plans, and investments continue to strengthen our competitive position. Year over year for the quarter, same-store admissions were up 3.7 percent and at the highest level since the fourth quarter of 2019 or pre-pandemic.

Speaker 4: and have stood up our shared services with no disruption in patient care.

Speaker 4: We are increasingly confident in the business case for project and power and believe that the significantly improved visibility and insights will reveal opportunities within CHSS markets and business lines from which our operators can capitalize upon to drive further shareholder value.

We are increasingly confident in the business case for projects in power and believe that the significantly improved visibility and insight will review opportunities within chs's markets and business lines from which our operators can capitalize upon to drive further shareholder value.

Speaker 3: We look forward to providing you further our face as we press forward the project empowerment coming months and courts.

We look forward to provide any further updates as we press forward with project empower in the coming months and quarters.

Tim Hingtgen: Same-store adjusted admissions increased 4.2 percent and also reached record levels, demonstrating the strong demand for care in our markets and the favorable impacts of our outpatient access point growth investments. We had our strongest DR volume so far this year in the third quarter and we had a record quarter for physician practice visits, which is typically a leading indicator for future procedural volumes. Surgery screwed 1.6 percent year over year, it sequentially reflected more normal seasonality, including more vacations by physician-vantations.

Speaker 3: As we noted in last night's press release, we are updating the guidance range for 2020.

As we noted in last nights press release, we are updating the guidance range for 2023.

Speaker 3: Specifically, we now anticipate in it operating revenues of 12.4 to 12.5.

Specifically, we now anticipate net operating revenues of $12 four to $12 5 billion.

Speaker 3: and adjusted EBITR of 1.45 to 1.55.

And adjusted EBITDA of $1 45 to $1 5 billion.

Speaker 3: We remain confident in our three to five year targets in the longer term opportunities in our markets and our continued volume growth and recovery gives us reason for optimism heading into the fourth quarter.

We remain confident in our three to five year targets in the longer term opportunities in our markets and our continued volume growth and recovery gives us reason for optimism heading into the fourth quarter.

Speaker 3: However, we believe this update is prudent, which is one quarter remaining.

Tim Hingtgen: Since the middle of 2022, we have been discussing our near-term priorities or our roadmap for navigating the overall industry and macroeconomic environment. I want to give you an update on these activities as we move toward the end of the year and prepare for 2024. As outlined in our supplemental deck, this organization-wide focus covers four main categories. They are accelerate growth, strengthen the workforce, control expenses, and advanced safety and quality. First, we remain optimistic about our growth prospects and the ability to accelerate growth as we invest in our core markets and implement a number of operational initiatives to create more capacity for patient care.

However, we believe this update is prudent with just one quarter remaining in the year.

Speaker 3: With that, I'll turn the call back over to the operator to poll questions.

With that I'll turn the call back over to the operator to poll for questions.

We will now begin the question and answer session.

Speaker 1: To ask a question, you may press star then one on your telephone keypad.

To ask a question you May press Star then one on your telephone keypad.

Speaker 1: If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2.

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Speaker 1: Please limit your questions to one with a single follow-up. At this time, we will pause momentarily to assemble our roster.

Please limit your questions to one with a single follow up at this time, we will pause momentarily to assemble our roster.

Speaker 1: The first question is from Ben Hendrix with RBC. Please go ahead.

The first question is from Ben Hendrix with RBC. Please go ahead.

Tim Hingtgen: Our campus expansion projects in Knoxville, Tennessee and Foley, Alabama are on schedule with the Knoxville project expected to open early next year and the Foley expansion on track to open at the end of 2024. Due to the high occupancy rates in both markets, the tower additions are integral to achieving our market share growth opportunities. Upon their completion, we will have added more than 500 incremental beds across our portfolio since 2018, all initiated to advance growth growth prospects in high opportunity markets.

Speaker 5: Thank you very much. I was hoping for some more color on the magnitude of the cash flow guide down versus the EBITDA revision. Can you help us bridge from the prior to current cash flow guidance? I think you flagged a number of items there. I was just hoping you could quantify those and help us get to the new range. Thanks.

Thank you very much I was hoping for some more color on the magnitude of the cash flow guide down versus the EBITDA revision can you help us bridge from the prior to current cash flow guidance I think you flagged a number of items. There I was just hoping you could quantify those and help us get to the to the new range. Thanks.

Speaker 3: Sure, thanks Ben, and I appreciate the question. Yeah, so if we think about the new guide for cash flows, it really starts at worth the lower end of the event I'll reign.

Sure. Thanks, Ben I appreciate the question.

Yes, so if we think about that.

The new guide.

For cash flows and it really starts that we're at the lower end of the EBITDA range.

Speaker 3: And then there are a couple items that are really more timing related than anything. And we did expect...

And then there are a couple of items that are really more timing related than anything, but we did expect.

Tim Hingtgen: We are intensely focused on length of stay and capacity optimization work. Our efforts to safely and promptly discharge patients ready to leave the hospital and return home or move into a post-acute care setting resulted in improved length of stay compared to last year and sequentially. This resulted in strong admission growth in the quarter with a favorable net 1.3% reduction in total patient days.

Speaker 3: a cash tax refund, a federal tax refund in the current year, this actually goes back a couple years that we now know will not come until 2024. That represents about 30% of the reduction.

A cash tax refund of federal tax refund in the current year. This actually goes back a couple of years.

Now no will not come until 2024 that represents about 30% of the reduction. We also became a cash taxpayer predominantly in the second half of this year.

Speaker 3: We also became a cash tax payer predominantly in a second half of this year as a result of the interest deduction limitation going into effect this year. That's a 163J is the IRS code on that.

As a result of the interest deduction limitation going into effect this year.

Tim Hingtgen: Directing our workforce remains another key priority. Our nursing and clinical recruitment and retention strategies continue to perform well, enabling further improvements in contract labor in the third quarter. In terms of our work to ensure hospitalists and emergency medicine programs and select CHS hospitals, we have now more than 500 ED and hospitalist medicine providers working under this model. We are pleased with the strategic and financial benefits from this effort in the third quarter. We are confident in our ability to scale dissolution as needed and planning its currently underway to enforce anesthesia services in select markets as well.

163, Jay is the IRS code on that.

Speaker 3: That is also approximately one-third of the guide down. And we do expect that interest limitation deduction to be rolled back. And if so, that would turn into another refund that we would expect to get in the coming year.

That is also approximately one third of the guide down and we do expect that.

Interest limitation deduction to be rolled back.

And if so that would turn into another refund that we would expect to get in the coming year.

Speaker 3: Another item that is

Another item that is.

Sure.

Speaker 3: Included in guidance is we made some retirement and deferred compensation payouts

Included in guidance is we've made some retirement and deferred compensation payout. This year. This actually has a zero net zero impact on our overall cash, but the accounting rules require us to include the outflows in operating cash flows and then there is a corresponding inflow in investing.

Speaker 3: This year, this actually has a zero net, zero impact on our overall cash, but the accounting rules require us to include the outflows and operating cash flows. And then there's a corresponding inflow in investing section because we had investments on hand that we sold to make these payments. So it was really a net zero cash impact, but to reflect the accounting in cash flow from up.

Tim Hingtgen: Finally, a couple of notes about our safety and quality initiatives. Our clinical scorecard designed a better leverage clinical data at a market and company wide level was launched just over one year ago. This resource has provided great insights into areas where we can further advance and excel in patient safety and quality, leading to very targeted areas of improvement. For example, the majority of our hospitals are now in the top core top nationally for prevention of certain hospital acquired infections.

Section because we had investments on hand that we sold to make these payments. So it was really a net zero cash impact but to reflect the accounting.

Cash flow from operations. We included that that was about 20% of the guidance reduction.

Speaker 3: We included that, that was about 20% of the guy reduced.

The reduction.

Speaker 3: The other couple items in there, we called out an increase in some governmental litigation reserves during the quarter as an adjustment to e-bought of about $24 million. But the payment of that is expected in the-

The other couple of items in there.

We called out.

Increase in some governmental.

Tim Hingtgen: And a company wide initiative to stop sepsis has resulted in a sustainable reduction in mortality due to sepsis. Healthcare providers continue to base headwinds, including reimbursement challenges, inflationary pressures, regulatory hurdles, and evolving consumer behaviors, and all of which are areas of dedicated focus for our management team. As we navigate through these industry dynamics, we will continue to exercise control where we can and adaptability when we need to in order to further strengthen our results.

Litigation reserves during the quarter as an adjustment to EBITDA of about $24 million of the payment of that is expected in the.

Speaker 3: fourth quarter of this year, so we've included that. And then as we mentioned, the billing related to the in-source physicians has been delayed a little bit as we ramp up, get those physicians credentialed. There's some cashflow drag, but those bills are going out, as I mentioned, and we would expect that to turn around.

Fourth quarter of this year. So we've included that and then as we mentioned the billing related to the in source physicians.

It has been delayed a little bit as we ramp up get those physicians credentialed theres, some cash flow drag, but those bills are going out as I mentioned.

Kevin Hammons: With that, Kevin, let me turn the call over to you. Thanks, Tim.

We would expect that to turn around.

Speaker 4: either, you know, partially in the fourth quarter, maybe flowing into the early part of 24, and that's probably about 5% of the guy down. So I think that covers substantially all of the adjustments and majority of those are just fine.

These are partially in the fourth quarter may be flowing into the early part of 'twenty four and that's probably about 5% of the guide down so.

Kevin Hammons: Good morning, everyone. We are encouraged by the continued return in quarter-man for healthcare services, the progress from our ongoing investments and further reductions in contract labor, as well as the early evidence of success in project and power and our position in sourcing initiatives. Moving on to quarterly financial results, net operating revenues were 3.1 billion, representing a 2% year-over-year growth on a consolidated basis. On a same sore basis, net revenue increased 5.1% over the third quarter of 2022, driven by 4.2% growth and adjusted admissions, and a 0.9% increase in net revenue per adjusted admission.

I think that covers substantially all of the adjustments and majority of those are just timing issues.

Speaker 5: Great appreciate that and with regard to the very last one with the billing for the APP physicians you're bringing on. Can you give us an idea of how much revenue that accounts for and how much you are a top line exposure you have related to billing? And are you guys asking for subsidies from other providers in that regard? Thanks.

Great I appreciate that and with regard to the very last one with the billing for the APB physicians, you're bringing on can you give us an idea of how much.

Revenue that accounts for.

How much of your topline exposure you have related to.

Billing and are you guys asking for.

For subsidies from other providers in that regard.

Speaker 4: Sure, so all of the physicians are practicing in our hospitals. So we are either have completed or in process of giving those physicians credentialed under our agreements with the payers. So there are no subsidies from other providers involved in that. In terms of kind of the magnitude of this.

Sure. So all of the physicians are practicing in our hospitals.

So we are either completed or in process of getting those physicians credentials under.

Kevin Hammons: Commercial mix was flat sequentially at 47.9% of total net revenue, while Medicare Advantage was down 60 basis points from the second quarter. Commercial volume grew faster than the company average from the second quarter as expected. However, growth and medical admitts outpace surgical admitts, this Tim note. Adjusted EBITDA was $360 million, representing an 11.7% margin. When excluding the 115 million of benefits from provider relief funds from third quarter 2022 results, margin was up more than 200 basis points year over year, and declined only 30 basis points sequentially.

Our agreements with the payers.

So there are no subsidies from from other providers involved in that in terms of kind of the magnitude of this.

Speaker 3: You know, for this quarter, for the two months this quarter, represented only approximately $20 million of revenue, and across expenses, approximately $25 million, so a net...

For this quarter.

Two months this quarter represented only approximately $20 million.

Revenue and across expenses approximately $25 million, so a net $5 million EBITDA impact related to those physicians that we in source so not overly material, but that is approximately a $4 million benefit compared to the <unk>.

Speaker 3: five million dollar kind of EBITDA impact related to those.

Speaker 3: physicians that we in source. So not overly material, but that is approximately a $4 million benefit compared to the subsidies that we were previously playing.

<unk> that we were previously paying AP.

Kevin Hammons: The CHS stepped over the fifth quarter seasonal pressures on profitability. We were very pleased to deliver strong labor cost management, as strong nurse recruitment and retention helped us outperform expectations in driving down contract labor expense, which was $54 million, improving sequentially from $72 million, and versus our previous expectation for 60 to 70 million exiting the year. Our average hourly rate for contract labor also improved 10% sequentially. Additionally, overall wage inflation came in slightly better than expected.

Speaker 6: Yeah, Kevin, I'm going to add on to that. And Ben, good morning. As we said in our comments, you know, we're really pleased with how this transaction has taken shape and our ability to, I think, rapidly in source these providers in the last two months, the quarter, we see a lot of opportunities looking forward.

Yeah, Kevin I'm going to add onto that and Ben Good morning, as we said in our comments, we're really pleased with how this transaction has taken shape and our ability to I think rapidly and source. These providers in the last two months of the quarter, we see a lot of opportunities looking forward I think some of the key wins in that regard or we have.

Speaker 6: I think some of the key wins in that regard are we have now an internal group of leaders who are operating that hospital-based component of our physician practice enterprise, which is uniquely different from our, you know, past experience of just running more traditional medical practices.

Now an internal group of leaders, who are operating that hospital based component of our physician practice enterprise, which is uniquely different from our past experience that just running more traditional medical practices and the team has just done an outstanding job of standing that up we are also now adding to that functionality.

Speaker 6: And the team has just done an outstanding job of standing that up. We are also now adding to that functionality some resources to help us tackle anesthesia, medical specialist fee clients that we're experiencing. Again, it won't be an across-the-board initiative for the company, but having those capabilities, those competencies, and those resources, we think really helps us balance out our approach to managing the medical specialist fee spend.

Kevin Hammons: Up approximately 3% year over year versus our forecasted 5% for the full year. Medical specialties, as reported in other APX line, increased slightly from the second quarter, which included a growth up of expenses for physicians' in-source from the former APP contract. When factoring in the net revenue associated with in-sourcing those positions, we estimate we've benefited by approximately $4 million sequentially compared to the subsidy payments previously paid to APP. As Kim noted, the progress with our in-sourcing initiative has been very encouraging, and we expect further improvement in the coming quarters as we scale this effort.

Some resources to help us tackle anesthesia medical specialist fees clients that were experiencing again it won't be an across the board initiative for the company, but having those capabilities those competencies and those resources, we think really helps us balance out our approach to managing the medical specialist fees then.

Thank you.

Speaker 1: The next question is from Brian Tankhelet with Jeffries. Please go ahead.

The next question is from Brian <unk> with Jefferies. Please go ahead.

Speaker 7: Good morning guys. Maybe I'll follow up with that last point that you made. So as we think about physician outsourcing or physician staffing as a whole.

Hey, good morning, guys.

Yes, maybe I'll follow up on that last point that you made.

As we think about physician outsourcing or physician staffing as a whole how are you thinking about number one the decision to in source versus outsource because it sounds like this is.

Speaker 7: How are you thinking about number one, the decision to end source versus outsource? It sounds like this is turning out to be a modest positive. And then second, what are we seeing in terms of subsidies? And you know,

Kevin Hammons: Moving on to the cash flow statement, cash flows from operations were $29 million compared with $137 million in the third quarter of 2022. The cash performance was temporarily affected by more than $100 million in various items that should reverse in the fourth Most notably, billing delays related to clinical system upgrades in two of our markets and our physician insurance initiative as we work to get certain providers, credentials under our network agreements.

Turning out to be a modest positive and then second.

What do we see in terms of subsidy.

Speaker 7: What are your expectations in terms of subsidy payments going forward to third party outsourcers? How difficult would it be if you decide to bring...

What are your expectations in terms of subsidy payments going forward to third party outsourcers.

How difficult would it be too.

You decided to bring some of those in.

Speaker 7: As we see some of these pressures, what are those processes and moving parts like bring all this in house at some point if that's

And as we see some of these pressures what are those processes and moving parts like bring all of this in house at some point.

<unk>.

Possible option.

Speaker 6: Good morning, Brian . I'll start that and then head up to Kevin for some of the financial implications of that type of plan. As we said last quarter when we were starting to really pursue the insourcing opportunity, we did not, you know, our end all be all. We don't expect to have every single one of our hospital-based contracts.

Good morning, Bryan I'll start that and it has to Kevin for some of the some of the financial implications of that type of plan them. As we said last quarter. When we were starting to really pursue the in sourcing opportunity Amit if not our <unk>. We don't expect to have every single one of our hospital based contracts.

Kevin Hammons: Importantly, these have been successfully completed and related claims are being submitted. So we expect to begin receiving these payments in the fourth quarter. Capital expenditures for the quarter were 130 million and for the first nine months with 357 million, untracked with our guidance, the $450 to $500 million. We continue to expect significant improvement in free cash flow performance in fourth quarter as is typical. However, in light of the performance today and the current legislative environment, we are updating our guidance for operating cash flows to $400 to $450 million.

Speaker 6: service by an in-source model. So we have not set our sites on 100% transition to that type of work. However, again, building it over time, if that's what happens, I think we're inclined to say we would be able to do that. We like the in-source model for the financial purposes that Kevin called out. We think there's a slight improvement as a result of our first two months that are the in-source model. But we also like it from an ability to align those hospital-based providers more closely.

Serviced by an in sourced model. So we have not set our sights on 100% transition to that type of work. However, again building. It over time, if that's what happens I think we're inclined to say, we would be able to do that.

Like the in source model for financial purposes that Kevin called out we think there was a slight EBITDA improvement as a result of our first two months under the in sourced model. Although we also like it from.

Kevin Hammons: Net debt to trail in adjusted e but odd to quarter end with eight times. And with $91 million of cash and equivalent on hand, and approximately $680 million of borrowing capacity under our ABL, we remain well positioned from the liquidity standpoint to meet our needs going forward. Additionally, we continue to expect proceeds from the plan to best to chair the prepare health assets in Western Florida to be used primarily to pay down debt.

L mind, Philip hospital based providers more closely to our patient safety and clinical initiatives our throughput initiatives.

Speaker 6: to our patient safety and clinical initiatives, our throughput initiatives.

Speaker 6: It's really still early to see how much benefit we can glean from that type of affiliation with in-source providers.

Really still early to see how much benefit we can glean from that type of affiliation within source providers.

Speaker 6: But it's something we're keeping a close eye on. I think there is tremendous upside down the road.

Something we're keeping a close eye out I think there is tremendous upside down the road I should point out that for our traditional hospital based contracted providers.

Speaker 6: I should point out that for our traditional hospital-based contracted providers, I don't want to care driving as if we don't have good relationships and that they're not partnering with us on those things types of initiatives.

Kevin Hammons: We continue to receive inbound interest in certain of our assets. And we will consider a transaction when it makes financial and strategic sense as we recycle capital towards achieving higher returns with lower risk, including that reduction capacity and service line expansions. And potentially select acquisitions in certain key markets.

I want to characterize it as if we don't have good relationships and that theyre not partnering with us on those same types of initiatives. Hence the reason we don't really believe we have to make this 100% of our approach to our hospital based physician contracting our spend process.

Speaker 6: Hence the reason we don't really believe we have to make this 100% of our approach to our hospital-based physician contracting or spend process.

Speaker 3: Yeah, maybe just to add on a few kind of financial metrics around that, our current medical specialist fees represent approximately 500 basis points.

And maybe just to add on a few financial metrics around that are current medical specialist fees.

Kevin Hammons: Progress and power, our enterprise wide modernization and optimization initiative, kicked off October 1st. We are very pleased with the early results. As part of our first wave of deployments, we have implemented our new workflows and the Oracle Supply Chain and Finance functionality at 15 of our facilities. And have stood up our shared services with no disruption in patient care. We are increasingly confident in the business case for project and power and believe that the significantly improved visibility and insights will reveal opportunities within CHS's markets and business lines from which our operators can capitalize upon to drive further shareholder value. We look forward to providing you further updates as we press forward the project and power in the coming months and quarters.

Represent approximately 500 basis points.

Speaker 3: of net revenue, they did this quarter. That's about a hundred basis point increase over the prior year. Although we had expected, you know, the first quarter, as we previously indicated, we thought the first quarter was our high watermark for the year in the medical specialist fees.

Net revenue they did this quarter, that's about 100 basis point increase over prior year.

Although we had expected the first quarter as we previously indicated we thought the first quarter was our high watermark for the year and the medical specialist fees.

Speaker 3: They've been harder to reduce than we had previously anticipated. They ran relatively flat sequentially, just a small increase sequentially. I would expect.

I've been harder to reduce than we had previously anticipated.

<unk> relatively flat sequentially.

A small increase sequentially.

I would expect the fourth quarter to be pretty much in line with where we are in the third quarter.

Speaker 3: the fourth quarter to be pretty much in line with where we are in the third quarter.

So.

I'm not expecting that.

Speaker 3: material reduction kind of in the near term as we continue to work on. A number of things, as we'll, as Tim mentioned, and we'll look at either further insorts, further marine negotiate contracts to try to get these down.

<unk> reduction.

In the near term as we continue to work on a number of things this is Tim.

Kevin Hammons: As we noted in last night's press release, we are updating the guidance range for 2023. Specifically, we now anticipate an operating revenues of 12.4 to 12.5 billion and adjusted EBITR of 1.45 to 1.5 billion.

Tim mentioned and we'll look to either further in source further renegotiate contracts.

To try to get these down going forward.

That makes sense and then maybe Kevin as I think about your guidance the implied guidance for Q4, additional and Kelly at 13, 7% margin at the midpoint.

Kevin Hammons: We remain confident in our 3 to 5 year targets in the longer term opportunities in our markets and our continued volume growth and recovery gives us reason for optimism heading into the fourth quarter. However, we believe this update is prudent with just one quarter remaining in the year. With that, I'll turn the call back over to the operator to poll for questions.

In your slide deck, you're still pointing to telling a mid teens margin target.

How are you thinking about driving that sequential margin lift and then incremental margin opportunities going forward to get to that mid teens target.

Speaker 3: Sure, I think there's a number of things. So as we've mentioned, a number of growth initiatives, investments in, you know, expanding capacity. As we continue to grow and leverage fixed costs, a much, you know, bigger portion of that growth will flow through to the bottom line, which will add to our margin.

Sure I think there is a number of things so as we mentioned a number of growth initiatives investments in.

Unknown Attendee: We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speaker phone, please pick up your handset before pressing the keys.

Expanding capacity.

Unknown Attendee: To withdraw your question, please press star then two. Please limit your question to one with a single follow-up.

As we continue to grow and leverage fixed costs.

<unk>.

Bigger portion of that growth will flow through to the bottom line, which will add to our margin we expect our rate.

Speaker 3: We expect our rate lift to be a little higher next year. Our Medicare rate, if you think about this year, although the base rate was fairly significant in 2023, a big portion of that was offset with take back.

<unk> to be a little higher next year, our Medicare rate. If you think about this year.

Unknown Attendee: At this time, we will pause momentarily to assemble our roster.

The base rate.

Was fairly significant in 2023, a big portion of that was offset with take backs. The majority of those take backs by the government are completed now so we should have.

Kevin Hammons: The first question is from Ben Hendrix with RBC. Please go ahead. Thank you very much. It was hoping for some more color on the magnitude of the cash flow guide down versus the EBITDA revision. Can you help us bridge from the prior to current cash flow guidance? I think you flagged a number of items there, which is hoping you quantify those and help us get to the to the new range. Thanks.

Speaker 3: the majority of those takebacks by the government are completed now so we should have it.

Speaker 3: better Medicare rate lift going into 2024. And we're seeing similar commercial rate lift kind of in that 4 to 6% in 2024 that we had in 2023. So I think there's some more runway there on the commercial side as well.

Better Medicare rates lift going into 2024, and we're seeing similar commercial rate lift kind of in that 4% to 6% in 2024 that we had in 2023, So I think theres some more runway there on the commercial side as well.

Speaker 3: And then, you know, the work we're doing on expenses, we continue to manage expenses really well. Our project in power is that continues to be rolled out into 2024, and then into 2025. We think there's, that's going to lengthen the runway on us being able to capture additional kind of margin improvement in expense reductions.

Kevin Hammons: Thanks, Ben. I appreciate the question. Yeah, so if we think about the new guide for cash flows and it really starts at the lower end of the EBITDA range, and then there are a couple items that are really more timing related than anything. We did expect a cash tax refund, a federal tax refund in the current year. This actually goes back a couple years that we now know will not come until 2024.

And then the <unk>.

Work, we're doing on expenses, we continue to manage expenses really well our project in power.

That continues to be rolled out into 2024.

And into 2025, we think there is that's going to lengthen our runway on us being able to capture additional margin improvement and expense reductions.

Awesome. Thank you guys.

Speaker 1: The next question is from AJ Rice with UBS. Please go ahead.

The next question is from a J rice with UBS. Please go ahead.

Kevin Hammons: That represents about 30% of the reduction. We also became a cash tax payer predominantly in the second half of this year as a result of the interest deduction limitation going into effect this year. That's 163J is the IRS code on that. That is also approximately one third of the guide down, and we do expect that interest limitation deduction to be rolled back, and if so, that would turn into another refund that we would expect to get in the coming year.

Thanks, Hi, everybody.

Speaker 8: Just on your payer mix trends, I wanted to just ask about two things. I know in your slide deck, you comment on a little bit of an uptick in self-pay you've seen off a very low base.

Just on your payer mix trends.

Wanted to just ask about two things.

Slide deck.

Comment on a little bit of an uptick itself.

Very low base.

Speaker 8: Is that really related to re-verifications dynamic or is there something else going on there? And then also on the commercial side there.

Is that really related to re verifications dynamic or is there something else going on there and then also on the commercial side. There you generally youre sort of flat year to year and your percentage from commercial or call. It managed care and other some of the other companies are pointing out.

Speaker 8: You generally, you're sort of flat year to year and you're percentage from commercial or I think call it managed care and other.

Speaker 8: Some of the other copies are pointing out that they've got a list from the public exchange.

Got a lift from the public exchange enrollment is that are you seeing that as well in your markets.

Kevin Hammons: Another item that is included in guidance is we made some retirement and deferred compensation payouts this year. This actually has a zero net, zero impact on our overall cash, but the accounting rules require us to include the outflows and operating cash flows, and then there's a corresponding inflow in investing section because we had investments on the end that we sold to make these payments. It was really a net, zero cash impact, but to reflect the accounting in cash flows from operations, we included that.

Speaker 8: enrollment. Are you seeing that as well in your markets?

Speaker 8: And does that then say that the rest of the

And does that then say that the rest of the managed care and others somehow off a little bit anything behind that.

Speaker 8: Managed care and others somehow off a little bit anything behind that if you have it

If you have it.

Speaker 3: sure. So I'll point out a couple things and then feel free to jump in.

Sure So I'll point out a couple of things.

And we feel pretty good jump in.

Speaker 3: Relative to self pay, it is a very small base and there's nothing really there. There was a small adjustment just on collectability that we had good collectability. This quarter on some self pay but again a very small amount and nothing really there. We're not seeing any material increase in self pay volume.

Relative to self pay it is a very small base and there's nothing really there there was a small adjustment just on collectibility.

We had good collectability this quarter on some self pay but.

Kevin Hammons: That was about 20% of the guide reduction. The other couple items in there, we called out an increase in some governmental litigation reserves during the quarter as an adjustment to EBITDA of about $24 million of the payment of that is expected in the fourth quarter of this year, so we've included that. Then, as we mentioned, the billing related to the in-source physicians has been delayed a little bit as we ramp up, get those physicians credentialed.

Again, a very small amount and nothing really there we're not seeing.

Any material increase in self pay volume.

Speaker 3: And as it relates to re-determination, we're not seeing a decline in...

And as it relates to Redetermination, we're not seeing a decline.

Speaker 3: to kind and Medicaid volumes either, so we don't believe that that's having a negative impact on us. On relative to commercial, we did see...

A significant decline in Medicaid volumes, either so we don't believe that that's having a negative impact on us.

Relative to commercial we did see.

Speaker 3: Kind of year over year, increasing from both commercial business and Medicare business in terms of volume. Some of the commercial rate was offset because we did have more outpatient business this year so that it's more of a mix between inpatient and outpatient that had an effect on the net revenues but we are seeing a list.

Kind of year over year increase in both commercial business and Medicare business in terms of volume.

Kevin Hammons: There's some cash flow drag, but those bills are going out, as I mentioned, and that we would expect that to turn around, around either, you know, partially in the fourth quarter may be flowing into the early part of 24, and that's probably about 5% of the guys down. So I think that covers the substantially all of the adjustments and majority of those are just timing issues.

Some of the commercial rate.

Was offset because we did have more outpatient business. This year. So it's more of a mix between inpatient and outpatient that had an effect on the net revenues that we are seeing a lift in commercial volumes.

Speaker 3: commercial volumes as well. Okay. That carries on. We are seeing continued shift out of Medicare fee for service into MAB business, and that always continues to pressure the revenue because we collect less on MAB.

Well okay.

Sure Simon.

Kevin Hammons: Great. Appreciate that. And with regard to the very last one with the billing for the APP physicians you're bringing on, can you give us an idea of how much revenue that accounts for and how much you are top line exposure you have related to billing and are you guys asking for, you know, for subsidies from other providers in that regard. Thanks. Sure. So all of the physicians are practicing in our hospitals.

We are seeing continued shift out of Medicare fee for service.

MA business and that always continues to pressure.

The revenue because we collect less on EMEA compared to traditional fee for service.

Speaker 8: Okay, and then my follow up, you mentioned that you're running at least in this quarter, the 3% year-to-year trend and underlying.

Okay, and then my follow up.

Mentioned that you're running in at least in this quarter, the 3% year to year trend in underlying.

Speaker 8: labor cost, wage increases, et cetera. I mean, that sounds like it's back to sort of pre-pandemic levels in your mind. Is that something we can carry forward in expectation for next year that you're in that sort of 3% zone on wage increases?

Labor costs wage increases et cetera.

Kevin Hammons: So we are either have completed or in process of giving those physicians credentials under our agreements with the payers. So there are no subsidies from other providers involved in that. In terms of kind of the magnitude of this, you know, for this quarter, for the two months this quarter represented only approximately $20 million of revenue and across expenses, approximately $25 million. So a net $5 million kind of EBITDA impact related to those physicians that we ensure.

That sounds like it's back to sort of pre pandemic levels in your mind.

Is that something we can carry forward an expectation for next year that you're in that sort of represent zone on our wage increases.

Speaker 3: Yeah, you know, we've been very fortunate, and I think we've managed wages this past two quarters. If you recall, Q1 was close to the 5.5%, Q2 was about 2.8%, Q3, 3%. So we did...

We've been very fortunate and I think we've manage wages. This past two quarters. If you recall Q1 was closer to five 5%.

Q2 was about two 8% in Q3, 3%.

So we had kind of guided towards about a 5% for the year. We're currently running averaging all of that out approximately 4%, so a little bit below our guidance or expectations in terms of wage inflation.

Speaker 3: kind of guided towards about a 5% for the year. We're currently running.

Speaker 3: averaging all that out, approximately 4%, so a little bit below our expectation in terms of wage inflation.

Kevin Hammons: So not overly material, but that is approximately a $4 million benefit compared to the subsidies that we were previously paying APP. Yeah, Kevin, I'm going to add on to that and then get a good morning. As we said in our comments, you know, we're really pleased with how this transaction has taken shape and our ability to, I think rapidly insourced these providers in the last two months the quarter. We see a lot of opportunities looking forward.

Speaker 3: still seeing some pressure in market.

Still seeing some pressure in markets.

Speaker 3: around wages, it really differs market to market. I would anticipate as we look into 2024, still being a little bit elevated over historical trends, and probably at this point, thinking something in the 4% range is probably more reasonable into 2024, as we obviously people continue to work hard to keep that.

Around wages, it really differs market to market I would anticipate as we look into 2024 still being a little bit elevated over historical trends and probably at this point thinking something in the 4% range is probably more reasonable into 2020.

Kevin Hammons: I think some of the key wins in that regard are we have now an internal group of leaders who are operating that hospital-based component of our physician practice enterprise, which is uniquely different from our past experiences just running more traditional medical practices. And the team has just done an outstanding job of standing that up. We are also now adding to that functionality some resources to help us tackle anesthesia, medical specialist fee of clients that we're experiencing. Again, it will be in across the board initiative for the company, but having those capabilities, those competencies and those resources, we think really helps us balance out our approach to managing the medical specialist fees.

Four.

Obviously, we'll continue to work.

Hard to keep that as you know.

Speaker 3: easy and check but also wanting to make sure we're taking care of our nurse staff and all of our employees to that matter appropriately.

Sure.

Also wanting to make sure we're taking care of our.

Nurse staff in all of our employees for that matter appropriately.

Okay. Thanks, a lot.

Unknown Attendee: Thank you.

Speaker 1: The next question is from Jason Kassorla with City. Please go ahead.

The next question is from Jason Cazorla with Citi. Please go ahead.

Speaker 3: Great things. I wanted to ask about Medicaid reimbursement. It just seems that a greater number of states are building out Medicaid supplemental payment programs, including the potential one and Mississippi. And I know those program dollars can fluctuate year to year and aggregate, but I guess in that context, do you see the Medicaid reimbursement backdrop generally improving, or how are you thinking about that?

Alright, great. Thanks, I wanted to ask about Medicaid reimbursement just seems that a greater number of states are building out Medicaid supplemental payment programs, including the potential one in Mississippi and I know those program dollars can fluctuate year to year in aggregate, but I guess in that context do you see the Medicaid.

Bruce backdrop, generally improving or how are you thinking about that.

Tim Hingtgen: The next question is from Brian Tankheelit with Jeffries. Please go ahead. Good morning, guys. Maybe I'll follow up with that last point that you made. So, as we think about physician outsourcing or physician staffing as a whole, how are you thinking about number one, the decision to insource versus outsource? It sounds like this is turning out to be a modest positive. And then second, what are we seeing in terms of subsidies and what are your expectations in terms of subsidy payments going forward to third party outsourcers and how difficult would it be to, if you decide to bring some of those in as we see some of these pressures, what are those processes and moving parts to bring all this in house at some point? If that's a possible option.

Speaker 3: That's a great question. And I think probably you've all have seen a number of reports coming out of Mississippi. Generally, that would obviously be a positive for us.

That's a great question and I think probably you've all have seen.

Number of reports coming out of Mississippi.

Generally that would obviously be a positive for us.

Speaker 4: But those programs do have to go through approval by CMS.

But those programs do have to go through.

Approval by CMS.

Speaker 4: And at this point, we have, you know, CMS has not approved what has been submitted by Mississippi. But generally, I think you're right. There are other states like Texas and Florida, as well as some others that, you know, have...

And at this point, we have CMS has not approved.

It has been submitted.

Bye bye, Mississippi, but generally.

I think youre right there are other states like Texas and Florida.

Well as some others.

Speaker 3: over the past few years of adopted the supplemental payment program.

Over the past few years have adopted the supplemental payment programs generally very helpful. For helpful. For the people of the state who are covered by their Medicaid and it does make an adjustment to.

Speaker 3: generally very helpful for the people of the state who are covered by their Medicaid, and it does make an adjustment to increase the reimbursement for the providers who are providing services for the Medicaid patient. So we would see this as a positive, but it's too early to tell at this point on exactly what will be approved and what the quantification of that program.

Tim Hingtgen: Good morning Brian, I'll start that and then head back to Kevin for some of the financial implications of that type of plan. As we said last quarter when we were starting to really pursue the insourcing opportunity, we did not, you know, our end all be all, we don't expect to have every single one of our hospital-based contracts serviced by an in-source model. So we have not set our sights on a hundred percent transition to that type of work.

Increased reimbursement for the providers, who are providing services to the Medicaid patients. So we would see this as a positive.

But yet it's too early to tell at this point.

Exactly what it will be approved and what the.

The quantification of that program will be.

Speaker 9: Okay, fair enough. And I guess this is a follow up. I wanted to ask about surgeries and a quarter, about 1% against overall volume of a workforce. It seems like that buck the trend is, you're so far this year on surgeries outpacing overall volumes. I guess are you talking about up to a physical top? And I know you know thepes of malady and your preparer marks are there other factors, that's where that surgery growth in the quarter. And then,

Okay Fair enough and then I guess, just as a follow up I wanted to ask about surgeries in the quarter up about 1% against overall volume up over four it seems like that Buck the trend. This year. So far this year on surgeries outpacing overall volumes I guess are you talking about up to a difficult comp.

Tim Hingtgen: However, again, building it over time, if that's what happens, I think we're inclined to say we would be able to do that. We like the in-source model for the financial purposes that Kevin called out. We think there's a slight improvement as a result of our first two months that are the in-source model. But we also like it from an ability to align the hospital-based providers more closely to our patient safety and clinical initiatives, our throughput initiatives.

I know you've noted seasonality.

Your prepared remarks are there other factors that drove that surgery growth in the quarter and then.

Speaker 9: You know, just to follow on to that, you have this two to three percent normalized volume outlook over time. I'm curious how you're thinking about how surgery growth fits in that paradigm. Just given your investment in higher cutie service lines and the investments you're making in the outpatient setting too.

Just a follow on to that you have is 2% to 3% normalized volume outlook over time Im curious, how youre thinking about how surgery growth fits into that paradigm, just given your investments in higher acuity service lines and the investments youre, making in the outpatient setting.

Tim Hingtgen: It's really still early to see, you know, how much benefit we can green from that type of affiliation with in-source providers. But it's something we're keeping in close by, I think there is tremendous upside down the road. I should point out that for our traditional hospital-based contracted providers, I don't want to characterize it as if we don't have good relationships and that they're not partnering with us on those same types of initiatives. Hence the reason we don't really believe we have to make this a hundred percent of our approach to our hospital-based position contracting or spend process.

Speaker 6: I'll start with our view on the seasonality impacts in the third quarter. We don't really see anything.

I'll start with our view on the seasonality impacts in the third quarter, we don't really see anything other than increased provider and patient vacations that we called out in your opening remarks as being the key driver I think last year. It was it was a good comp for us it was a high comp for us adequate or good surgery.

Speaker 6: other than increase provider and patient vacations that we called out in our opening remarks as being the key driver. I think last year it was a good, you know, comp for us, a high comp for us, an equated surgery performance quarter in the third quarter.

Performance quarter in the third quarter.

Kevin Hammons: Yeah, maybe just to add on a few some of financial metrics around that. Our current medical specialist fees represent approximately 500 basis points of net revenue. They did this quarter. That's about a hundred basis point increase over the prior year. Although we had expected, you know, the first quarter as we ended previously indicated, we thought the first quarter was our high water mark for the year and the medical specialist fees. They've been harder to reduce than we had previously anticipated.

So I think it's really just kind of the timing of People's vacations and as we always anticipate we expect the fourth quarter to be a strong surgery quarter.

Hopefully a better commercial mix in that which is what leads to our confidence in sequential earnings opportunities in the fourth quarter. We're really pleased frankly with our ASC growth strategies, our ambulatory strategies in general for surgery.

Speaker 3: We have a lot of regulatory strategies in general for surgery. We have really good growth in our procedural volumes for cardiac cases for us, for like surgical specialties, like holder rectal and a spine. So just really pleased with what we saw in our overall numbers, it's just a more challenging cop that we're facing in from prior year. Yeah, I think that's right, Tim. I just want to maybe reiterate, although, you know, we saw that decline in surgeries sequentially. It was positive over prior year. Second quarter was also very strong, a surgical quarter for us. And with the continued sequential improvement in both admissions and adjustments.

Really good growth in our procedural volumes for cardiac cases for our select surgical specialties like colorectal and <unk>.

Kevin Hammons: They ran relatively flat sequentially, just a small increase sequentially. I would expect the fourth quarter to be pretty much in line with where we are in the third quarter and not expecting material reduction kind of in the near term as we continue to work on. There's a number of things as Tim mentioned and we'll look at either further in source further than we negotiate contracts to try to get these down going forward.

And our spine. So just really pleased with what we saw in our overall numbers. It's just a more challenging comp that we were facing from prior year.

Speaker 4: Yeah, I think that's right, Tim. I just want to maybe reiterate, although we saw that at the climate surgery sequentially, it was positive over a prior year. Second quarter was also a very strong surgical quarter for us. And with the continued sequential improvement in both admissions and adjusted admissions, we still saw continue growth. So with the only softness being,

Yeah, I think that's right Tim I, just want to maybe reiterate.

Although we saw that decline in surgeries sequentially. It was positive over prior year second quarter was also very strong surgical quarter for us and with the continued sequential improvement in both admissions and adjusted admissions.

We sit still still saw continued growth.

Kevin Hammons: Let me tell you something. Maybe Kevin, as I think about your guidance, the implied guidance for Q4 is showing kind of like a 13.7 percent margin at the midpoint. I know in your slide deck, you still point to telling a mid teens margin target. So how are you thinking about driving that sequential margin lift and then incremental margin opportunities going forward to get to that mid teens target? Sure. I think there's a number of things.

The only softness being.

Speaker 3: You know, insurgeries that we kind of saw in the third quarter, we are attributing that to just kind of normal seasonality and we expect that to pick back up in the fourth.

And surgeries that we kind.

Kind of saw in the third quarter, but we are attributing that to just kind of normal seasonality and we expect that to pick back up in the fourth quarter I think the last comment I'll make just to kind of I guess support our confidence in the surgery growth opportunities across the portfolio and we are exceeding the pre COVID-19 baseline.

Speaker 6: I think the last common old may just to kind of support our confidence in the surgery growth opportunities across the portfolio. We are exceeding the pre-COVID baseline. You know, certainly I think that both well-prost and the acuity of our surgical business, the impatient business is growing as we invest in provider recruitment and the specialist that drives that. And then the last thing I'll add is, you know, the new, I guess I'll say input to our surgery growth opportunities.

Kevin Hammons: So as we mentioned, the number of growth initiatives, investments in expanding capacity, as we continue to grow and leverage fixed costs, a much bigger portion of that growth will flow through to the bottom line, which will add to our margin. We expect our rate lift to be a little higher next year, Medicare rate, if you think about this year, although the base rate was fairly significant in 2023, a big portion of that was offset with takebacks.

Certainly I think that bodes well for us and the acuity of our surgical business. The inpatient business is growing as we invest in provider recruitment into specialist that drive that and then the last thing I'll add is the the new I guess I'll say input to our surgery growth opportunities with more capacity, we are seeing record transfer center volumes as well we are.

Speaker 6: With more capacity, we are seeing record transfer center volumes as well. We are up to quenchedling over par a year, ugly by seven and eight percent. So again, still great demand out there for us as we open up capacity and invest in the right service lines and providers.

Were up sequentially and over prior year equity by 7%, 8%. So it's again still great demand out there for us as we open up capacity and invest in the right service lines and providers.

Speaker 1: The next question is from Steven Baxter with Wells Fargo. Please go ahead.

Kevin Hammons: The majority of those takebacks by the government are completed now, so we should have it, and a better Medicare rate lift going into 2024. And we're seeing similar commercial rate lift kind of in that 4% to 6% in 2024 that we had in 2023. So I think there's some more runway there on the commercial side as well. And then, you know, the work we're doing on expenses, we've continued to manage expenses really well.

The next question is from Stephen Baxter with Wells Fargo. Please go ahead.

Okay.

Okay.

Okay.

Yes.

Speaker 1: Mr. Vacher, we're having trouble hearing you. Is your phone muted or you have a good connection?

Mr. Bachelor, we're having trouble hearing you use your phone muted or good connection, yes, sorry about that I think problem on my end. Thank you Paul.

Speaker 10: Yeah, sorry about that. I think problem on my end. Well, thank you, Hall.

Speaker 10: Yeah, so I just wanted to ask a couple of, I think, interrelated questions just to make sure I'm tracking correctly. You know, we have the quarter, you know, a little bit below, but generally right in line with where our model was, I think you're pretty close to consensus as well for EBITDA on the quarter. So I would love to just hear a little bit more about.

Yeah. So I just wanted to ask a couple of I think interrelated questions just to make sure I'm tracking correctly, we had the quarter.

Little bit below but generally right in line with where our model was I think you are pretty close to consensus as well for EBITDA in the quarter. So would love to just hear a little bit more about understanding the guidance revision at this point and what that reflects and then just to make sure I'm tracking the seasonality comments correctly.

Kevin Hammons: Our project and power is that continues to be rolled out. In the 2024 and then into 2025, we think there's that's going to lengthen the runway on us being able to capture additional kind of margin improvement and expense reductions.

Speaker 10: you know, understanding that the guidance revision at this point and what that reflects. And then just to make sure I'm tracking the seasonality comments correctly, you know, it sounds like, you know, the best I can tell that you're suggesting you saw something closer to normal seasonality in the third quarter and thought that you might see something a little bit less than that. But just want to clarify that that's the case and not that, you know, you saw seasonality access of typical levels in the third quarter. Thank you.

Unknown Attendee: Awesome. Thank you guys.

It sounds like you know the best I can tell you that you are suggesting you saw something closer to normal seasonality in the third quarter and thought that you might see something a little bit less than that but just wanted to clarify that that's the case and not that you saw seasonality excess of typical levels in the third quarter. Thank you.

Kevin Hammons: The next question is from AJ Rice with UBS. Please go ahead. Thanks, everybody. Just on your pay or mix trends, I wanted to just ask about two things. I know in your slide deck, you comment on a little bit of an uptick and self pay, you've seen off a very low base. Is that really related to rebarifications dynamic, or is there something else going on there? And then also on the commercial side there, you generally, you're sort of flat year to year and your percentage from commercial or, I think, call it managed care and other.

Speaker 3: Sure, and I'll start with some comments on our guidance. So our guidance update around EBITDA really just wanted to reflect kind of the...

Sure.

I'll start with some comments on our guidance.

Our guidance update around EBITDA really just wanted to reflect kind of where we are year to date, we've started off the year with a very soft first quarter.

Speaker 4: where we are year to day. We started off the year with a very soft first quarter, now that we're through the third quarter and only have, we clad some of that in this back. I think in the second quarter, we kind of came in line with the expectations on the third quarter, but did not have outsized performance.

Now that we're through the third quarter.

And only have we.

We cleared some of that back I think in the second quarter.

Kind of came in line with the expectations on the third quarter, but did not have outsized performance.

Kevin Hammons: Some of the other companies are pointing out that they've got a lift from the public exchange enrollment. Is that, are you seeing that as well in your markets? And does that then say that the rest of the managed care and others somehow off a little bit, anything behind that if you, if you have it.

Speaker 3: that really clawed back much of the missing first quarter. So the update is really reflective of just our year-to-date results. If you think about what the implied fourth quarter is now from our updated guidance.

Really clawed back much of the Miss in the first quarter. So the update is really reflective of just our year to date results.

Think about what the implied fourth quarter is now.

From our updated guidance its still 400 at the mid point $407 million of EBITDA.

Speaker 3: Still, 400, at the midpoint, 47 million, Vibeda, 3 billion, 142 of net revenue, that would be our highest.

Kevin Hammons: Sure. So I'll point out a couple things and can feel free to jump in. Relative to self pay, it is a very small base and there's nothing really there. There was a small adjustment, just on collectability that we had good collectability. This quarter on some self pay, but again, a very small amount and nothing really there. We're not seeing any material increase in self pay volume. And as it relates to re-determination, we're not seeing a decline in a significant decline and Medicaid volumes either.

3 billion $1 42 of net revenue that would be our highest.

Speaker 3: EBITDA quarter of the year as we had expected. It's a 13% margin at the midpoint that implied, which is the highest margin quarter of the year. So I still think reflects continued growth and reflects again where we are coming out of the third quarter and just an update with only one quarter to go in the year. In terms of seasonality for Q3, I think it's really just kind of the normal seasonality that we had experienced kind of pre-pandemic.

EBITDA quarter of the year as we had expected it to 13% margin at the midpoint implied which is the highest margin quarter of the year. So I still think reflects continued growth.

And reflects again, where we are coming out of the third quarter and just an update with only one quarter to go in the year in terms of seasonality for Q3, I think it's really just kind of a normal normal seasonality that we had experienced kind of pre pandemic.

Speaker 4: in terms of kind of patient behavior and physician behavior around.

In terms of kind of patient behavior in physician behavior around.

Kevin Hammons: So we don't believe that that's having a negative impact on us. Relative to commercial, we did see kind of year over year, increasing from both commercial business and Medicare business in terms of volume. Some of the commercial rate was offset because we did have more outpatient business this year so that it's more of a mix between inpatient and outpatient that had an effect on the net revenues. But we are seeing a lift in commercial volumes as well. We are seeing continued shift out of Medicare fee for service into MAA business and that always continues to pressure the revenue because we collect less on MAA, compared to traditional fee for service.

Speaker 3: vacations and so forth. What I would just, again, maybe point out is, I think we stepped over some of that with continued growth, particularly in the outpatient side, and then with some cost management. So we did not experience maybe the normal pressure on EBITDAQ.

Vacations, and so forth, but what I would just again, maybe point out as I think we stepped over some of that with continued growth, particularly in the outpatient side and then with some cost management. So we did not experience may be the normal pressure on EBITDA.

Speaker 3: that we had in historically from that seasonality, but in terms of kind of buying a business and type of business and patient behavior, it was a much more seasonal.

Sequentially that we had.

Historically from that seasonality.

In terms of kind of volume of business and type of business and patient behavior. It was a much more seasonal.

<unk> this is Ben.

Speaker 2: We've probably more so than we anticipated at the beginning of the year when we thought growth may be a little more straight line throughout the year and recovered.

We probably more so than we anticipated at the beginning of the year when we thought growth maybe a little more straight line throughout the year and recovery from the pandemic.

Okay.

Kevin Hammons: Okay, and then my follow-up, you mentioned that you're running, at least in this quarter, the 3% year-to-year trend and underlying labor cost, wage increases, etc. I mean, that sounds like it's back to sort of pre-pandemic levels in your mind. Is that something we can carry forward and expectation for next year that you're in that sort of 3% zone on wage increases? Yeah, you know, we've been very fortunate, and I think we've managed wages this past two quarters.

Yeah.

Speaker 1: Again, if you have a question, please press star then one.

Again, if you have a question. Please press Star then one.

Speaker 1: The next question is from Josh Raskin with Neffron Research. Please go ahead.

The next question is from Josh Raskin with Nephron Research. Please go ahead.

Speaker 11: Hi, thanks for good morning. Just wanted to touch a little bit on sort of same store revenue and just sort of overall same store business. You guys mentioned the weakness in the first quarter and then in 2Q, it was up at 9% sort of back down to that 5% number here. Is this more of a, do you think we're kind of through the normal path and that 5% is kind of a number to think about as we go through 2024? And then maybe just some color on what's created some of the volatility this year.

Hi, Thanks, good morning.

Just wanted to touch a little bit on sort of same store revenue and just sort of overall same store business. So.

You guys mentioned the weakness in the first quarter and then <unk> was up at 9% sort of back down to that 5% number here is this more of a do you think we're kind of through the normal path in that 5% is kind of a number to think about as we go through 2024, and then maybe just some color on what's created some of the volatility this year.

Kevin Hammons: If you recall, Q1 was close to the 5.5%, Q2 was about 2.8%, Q3%, 3%. So we had kind of guided towards about a 5% per year. We're currently running the averaging all that out, approximately 4%. So a little bit below our guide or expectation in terms of wage inflation. Still seeing some pressure in markets around wages, it really differs market to market. I would anticipate, as we look into 2024, still being a little bit elevated over historical trends, and probably at this point, thinking something in the 4% range is probably more reasonable into 2024. Obviously, people continue to work hard to keep that as easy in check, but also wanting to make sure we're taking care of our nurse staff and all of our employees for that matter appropriately.

Unknown Attendee: Okay, thanks a lot.

Speaker 4: So thanks, Josh. I do think, you know, kind of that 5%, as we think about our longer term, medium term goals of delivering kind of mid-single digit net revenue growth, that 5% fits right into that. And that's where I would expect kind of same-store revenue growth to be.

So thanks, Josh.

Thanks.

Kind of that 5%.

Jason Cassorla: The next question is from Jason Kassorla with City. Please go ahead. Great, thanks.

As we think about our longer term medium term goals of delivering mid single digit net revenue growth.

5% fits right into that and that's where I would expect kind of same store revenue growth to be.

Speaker 3: You know, kind of as we look, go into next year in natural we would target in terms of some of the volatility, you know, part of that is due to the time we had significant softness in the sector quarter of 2022, kind of as...

Yeah.

Kind of as we look go into next year.

And that's what we would target in terms of some of the volatility.

Part of that is due to the cost we had significant softness.

In the second quarter of 2022.

Kind of as I can go back to April 2022, and restrictions on masking and so forth were lifted restrictions on travel were lifted that's when we saw the <unk>.

Speaker 3: You know, you can go back to April 2022 and restrictions on masking and so forth were lifted restrictions on travel were lifted. And that's when we saw, you know, the real kind of exodus and some respects from the healthcare system people are going about doing other things and not coming into the healthcare system since they were free to move about.

Real kind of exited in some respects for from the health care system people are going about doing other things and not coming into the health care systems. Since they were free to move about and returned to more normal behaviors. So we had a little easier comp in the second quarter in terms of that volume.

Speaker 4: in return to more normal behaviors. So we had a little easier cop in the second quarter in terms of that volume. So I think that contributed a little bit to the kind of percentage growth. But as I think about, again, sequentially, we continue to grow. So stepping over that in terms of admissions, adjust admissions into the third quarter, very helpful, the normal seasonality on surgeries, not unexpected now that we're seeing more kind of.

Tim Hingtgen: I wanted to ask about Medicaid reimbursement. It just seems that a greater number of states are building out Medicaid supplemental payment programs, including the potential one and Mississippi. And I know those program dollars can fluctuate year to year and aggregate, but I guess in that context, do you see the Medicaid reimbursement backdrop generally improving, or how are you thinking about that? That's a great question, and I think probably you've all seen a number of reports coming out of Mississippi.

That contributed a little bit crazy.

Kind of percentage growth.

But as I think about again sequentially, we continue to grow so stepping over that in terms of admissions adjusted admissions into the third quarter very helpful. The normal seasonality in surgeries not unexpected now that we're seeing we're kind of getting back to more normal behaviors in there.

Speaker 3: giving that to more normal behaviors and the recovery is fitting.

Recovery.

Tim Hingtgen: Generally, that would obviously be a positive force, but those programs do have to go through approval by CMS. And at this point, CMS has not approved what has been submitted by Mississippi. But generally, I think you're right. There are other states like Texas and Florida, as well as some others that have over the past few years have adopted the supplemental payment programs, generally very helpful for the people of the state who are covered by their Medicaid.

Setting yet.

Speaker 11: Gotcha, that's helpful. And then just on paramix, I know you mentioned it, A.J.'s question, but you didn't sort of put a little bit of Medicare was down a little bit. So again, is it just sort of moving parts on rate that impact itself pay and some other stuff that kind of drove Medicare down, or was there anything in there?

Got you that's helpful. And then just on payer mix I know you mentioned that the Ajs question, but you didn't sort of had a little bit Medicare was down a little bit. So again is it just sort of moving parts on rate that impacted self pay and some other stuff that kind of drove Medicare down or was there anything in there.

Speaker 3: You know, the Medicare, the fee for service was down, but Medicare damage was up year over year. So that, that...

Yeah.

The Medicare fee for service was down.

But Medicare advantage was up year over year.

So thats.

Speaker 4: maybe just a shift to that Medicare age population out of the traditional fee-for-service programs into M.A. programs. Commercial business was up here over a year and then kind of Medicaid and self-pay were relatively flat.

Maybe just a shift of that Medicare age population out of the traditional fee for service programs into.

Tim Hingtgen: And it does make an adjustment to increase the reimbursement for the providers who are providing services for the Medicaid patients. So we would see this as a positive, but it's too early to tell at this point on exactly what will be approved and what the quantification of that program. Okay, fair enough. And I guess this is a follow-up. I wanted to ask about surgeries and a quarter, about 1% against overall volume of a four.

MAA programs.

<unk> business was up year over year.

And then kind of Medicaid.

And self pay relatively flat.

Okay. Thanks.

Speaker 1: This concludes our question and answer session. I would like to turn the conference back over to Tim Hinchin for any closing remarks.

This concludes our question and answer session I would like to turn the conference back over to Tim <unk> for any closing remarks.

Speaker 6: Thank you, Gary. I want to close by expressing my appreciation for healthcare workers across the H.S. and across the nation. I remind it daily about how much we rely on and appreciate those who have devoted themselves to healthcare careers. And I just want to say I'm very proud of our healthcare workforce. And always if you have additional questions, you can reach us at 615-465-7000. Thank you and have a great day.

Thank you Gary I want to close by expressing my appreciation for health care workers across CHS and across the nation I reminded daily about how much we rely on and appreciate those who have devoted themselves to health care careers and I just want to say I'm very proud of our health care workforce as always if you have additional questions you can reach us.

Tim Hingtgen: It seems like that buck the trend is so far this year on surgeries, outpacing overall volumes. Okay, so you're chucking it up to a difficult top. And I know you notice these amality, and you're prepared, Mark, are there other factors that drove that surgery growth in the quarter? And then, you know, just a follow-up on that, you have a 2% to 3% normalized volume out look over time. I'm curious how you're thinking about how surgery growth fits in that paradigm, just given your investments in higher cutie service lines and the investments you're making in the outpatient setting too.

615465 to 7000, thank you and have a great day.

Speaker 1: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

[music].

Tim Hingtgen: I'll start with our view on the seasonality impacts in the third quarter. We don't really see anything other than, you know, increased provider and patient vacation that we called out in our opening remarks as being the key driver. I think, you know, last year it was a good, you know, comp for us, it was a high comp for us, it equates surgery performance quarter in the third quarter. So I think it's really just kind of the timing of people's vacations.

Speaker 12: F.

Tim Hingtgen: And as we always anticipate, we expect the fourth quarter to be a strong surgery quarter, hopefully a better, you know, commercial mix in that, which is what leads to our confidence in sequential earnings opportunities in the fourth quarter. We're really pleased, frankly, with our, you know, ASE growth strategies, our ambulatory strategies in general for surgery. We have really good growth in our procedural volumes for cardiac cases for select surgical specialties like holorectal and a spine.

Speaker 12: The I some.

Yeah.

[music].

Tim Hingtgen: So just really pleased with what we saw in our overall numbers, it's just a more challenging comp that we're facing from prior year. Yeah, I think that's right, Tim. I just want to maybe reiterate, although, you know, we saw that the climate surgeries sequentially, it was positive over prior year. Second quarter was also very strong, a surgical quarter for us. And with the continued sequential improvement in both admissions and adjusted admissions, you know, we still saw continue growth.

Speaker 12: Really.

Tim Hingtgen: So with the only softness being, you know, in surgeries that we kind of saw in third quarter, we are attributing that to just kind of normal seasonality. And we expect that to pick back up in the fourth quarter.

Tim Hingtgen: I think the last comment I'll make just to kind of support our confidence in the surgery growth opportunities across the portfolio. You know, we are exceeding the pre-COVID baseline, you know, certainly, I think that votes well for us. And the acuity of our surgical business, the inpatient business is growing as we invest in provider recruitment and a specialist that drives that. And then the last thing I'll add is, you know, the new, I guess I'll say input to our surgery growth opportunities.

Tim Hingtgen: With more capacity, we are seeing record transfer center volumes as well. We are up to quenchedly and over par year, I believe by seven and eight percent. So again, still great demand out there for us as we open up capacity and invest in the right service lines and providers.

Stephen Baxter: The next question is from Steven Baxter with Wells Fargo. Please go ahead.

Kevin Hammons: Mr. Baxter, we're having trouble hearing you. Is your phone muted or do you have a good connection? Yes, sorry about that. I think problem on my end. Well, thank you all. Yeah, so just wanted to ask a couple of I think in a related question just to make sure I'm tracking correctly. You know, we have the quarter, you know, a little bit below would generally write in line with where our model was.

Kevin Hammons: I think you're pretty close to consensus as well for EBITDA on the quarter. So we'd love to share a little bit more about, you know, understanding that the guidance revision at this point and what that reflect. And then just to make sure I'm tracking the seasonality comments correctly, you know, it sounds like, you know, the best I can tell that you're suggesting you saw something closer to normal seasonality in the third quarter and thought that you might see something a little bit less than that. But just want to clarify that that's the case and not that, you know, you saw seasonality excess of typical levels in the third quarter. Thank you.

Kevin Hammons: Sure, and I'll start with some comments on our guidance. So our guidance update around EBITDA really just wanted to reflect kind of where we are here today. We started off the year, you know, with a very soft first quarter. Now that we're through the third quarter and only have, you know, we caught some of that miss back. I think in the second quarter. We kind of came in line with with the expectations on the third quarter, but did not have outsized performance that really caught back much of the miss in the first quarter.

Kevin Hammons: So the update is really reflective of just our year-to-date results. If you think about what the implied fourth quarter is now from our updated guidance, it's still 400. At the midpoint, 47 million EBITDA, 3 billion, 142 of net revenue. That would be our highest EBITDA quarter of the year. As we had expected, it's a 13 percent margin. It's the midpoint that implied, which is the highest margin quarter of the year. So I still think reflects continued growth and reflects again where we are coming out of the third quarter and just an update with only one quarter to go in the year.

Kevin Hammons: In terms of seasonality for Q3, I think it's really just kind of the normal seasonality that we had experienced kind of pre-pandemic. In terms of kind of patient behavior and physician behavior around vacations and so forth. What I would just again maybe point out is I think we stepped over some of that with continued growth, particularly in the outpatient side and then with some cost management. So we did not experience maybe the normal pressure on EBITDA sequentially that we had in historically from that seasonality.

Kevin Hammons: But in terms of kind of buying a business and type of business and patient behavior, it was a much more seasonal quarter. More so than we anticipated at the beginning of the year, when we thought growth may be a little more straight line throughout the year and recovery from the pandemic. Again, if you have a question, please press star then one.

Joshua Raskin: The next question is from Josh Raskin with the Front Research. Please go ahead. Hi, thanks, good morning. I just wanted to touch a little bit on sort of same-store revenue and just sort of overall same-store business. So, you know, you guys mentioned the weakness in the first quarter and then, you know, in 2Q, it was up at 9% sort of back down to that 5% number here. Is this more of a, do you think we're kind of through the normal path and that 5% is kind of a number to think about as we go through 2024?

Joshua Raskin: And then maybe just some color on what's created some of the volatility this year? So, thanks, Josh. I do think, you know, kind of that 5%. As we think about our longer-term, medium-term goals of delivering kind of mid-single digit net revenue growth, that 5% fits right into that. And that's where I would expect kind of same-store revenue growth to be, you know, kind of as we look, go into next year in natural we would target in terms of some of the volatility, you know, part of that is due to the time we had significant softness in the sector quarter of 2022.

Joshua Raskin: Kind of as, you know, can go back to April of 2022 and restrictions on masking and so forth, we're left in restrictions on travel, we're left in that, that's when we saw, you know, the real, kind of exodus and some respects from the healthcare system people are going about doing other things and not coming into the healthcare system since they were free to move about and in return to more normal behaviors. So, we had a little easier cop in the second quarter in terms of that volume.

Joshua Raskin: As I think that contributed a little bit to the kind of percentage growth. But as I think about, again, sequentially, we continue to grow, so stepping over that in terms of admissions, just admissions into the third quarter, very helpful, the normal seasonality on surgeries, not unexpected now that, you know, we're seeing we're kind of getting back to more normal behaviors and the recovery is setting in. Gotcha, that's helpful. And then just on payer mix, I know you mentioned at the age of question, but you didn't sort of put a little bit of Medicare was down a little bit.

Joshua Raskin: So again, is it just sort of moving parts on rate that impact itself pay and some other stuff that kind of drove Medicare down or was there anything in there? You know, the Medicare, the fee for service was down, but Medicare Advantage was up year over year. So that's, you know, maybe just a shift to that Medicare age population out of the traditional fee for service programs into MA programs. Commercial business was up year over year and then kind of Medicaid and self pay were relatively flat. Okay, thanks.

Unknown Attendee: This concludes our question and answer session.

Tim Hingtgen: I would like to turn the conference back over to Tim Hinchin for any closing remarks. Thank you, Gary. I want to close by expressing my appreciation for healthcare workers across CHS and across the nation. I remind it daily about how much we rely on and appreciate those who have devoted themselves to healthcare careers. And I just want to say I'm very proud of our healthcare workforce.

Unknown Attendee: And always, if you have additional questions, you can reach us at 615-465-7000. Thank you and have a great day.

Unknown Attendee: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.