Q3 2023 Acadia Healthcare Company Inc Earnings Call
Good morning.
Welcome to the Acadia healthcare third quarter 2023 earnings conference call.
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I would now like to turn the conference over to Gretchen.
Please go ahead.
Good morning, and welcome to Acadia <unk> third quarter 2023 conference call I'm, Gretchen Homrich, Vice President of Investor Relations for Acacia here with me today are Chris Hunter, <unk>, Chief Executive Officer, and Heather Jackson, Our Chief Financial Officer, I'll first provide you with our safe Harbor before.
Turning the call over to Chris to the extent any non-GAAP financial measure is discussed in today's call.
Also find a reconciliation of that measure to the most directly comparable financial measure calculated according to GAAP on our website are viewing yesterday's news release under the investors link.
This conference call may contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995, including statements among others.
Guarding Acadia is expected quarterly and annual financial performance for 2023 and beyond.
You are hereby cautioned that these statements may be affected by the important factors among others set forth in <unk> filings with the Securities and Exchange Commission and in the company's third quarter news release.
And consequently, actual operations and results may differ materially from the results discussed in the forward looking statements.
At this time I would like to turn the conference call over to our Chief Executive Officer, Chris Hannah for opening remarks.
Thank you Gretchen and good morning, everyone. Thank you for being with US for <unk> third quarter 2023 conference call.
Before we discuss the results I want to note an important recent addition to <unk> leadership.
Last week, we announced the Doctor Patrice Harris has been appointed to the Companys Board of directors. Dr. Harris is a board certified in psychiatry and has diverse experience as a private practicing physician.
Public health director and patient advocate she's.
She served as president of the American Medical Association from 2019 to 2020, where she was the first African American woman to be elected to this prestigious position she.
She also served as chair of the <unk> opioid task force and on Ami work groups devoted to health information technology sustainable growth rate and private contracting.
She continues to work in private practice and as Chief Executive Officer of <unk> Digital Health care Digital Health care company. She cofounded.
Dr. Harris brings deep clinical expertise in areas that are core to Acadia is mission and we look forward to her valuable insights as we continue to execute our growth strategy.
Now turning to the results.
For the third quarter, we delivered strong financial and operating performance as we continued to see growing demand for our behavioral health services across our four distinct lines of business with solid execution on our core business combined with sustained execution of our strategy we are consistently able.
To meet this demand as well as deliver on our key performance objectives.
Top and bottom line growth this quarter was impressive.
We reported year over year revenue growth of 12, 5% adjusted.
Adjusted EBITDA growth of 13, 4% and adjusted EPS growth of 13, 8% excluding income from the provider relief fund recognized in the third quarters of 2023 and 2022.
Notably our same facility revenue increased 13% compared with the third quarter last year with the increase driven by both volume and rate improvements Sim.
Similar to what we've experienced throughout 2023. These third quarter results reflect the collective impact of the ongoing focus on our core business and our progress against our growth strategy.
In addition to our core financial metrics, we were pleased to see further sequential improvement in our labor trends with 2023 wage inflation decreasing from seven 5% in the first quarter to six 3% in the second quarter to five 7% in the third quarter.
An improvement of 180 basis points, so far this year.
Additionally, recent investments to focus on employee engagement have supported our ability to attract and retain employees in a competitive market.
Our most recent employee survey showed notable improvement and engagement in.
In addition, attrition rates across a number of our clinical positions have declined we expect further improvement in this trend as we remain focused on employee engagement and continue to share best practices across our 253 facilities.
Our team has done an outstanding job in effectively managing our operations as we experienced higher volumes in our current facilities and added more capacity through the continued delivery of our five defined growth pathways.
In support of our first pathway facility expansions, we have added 204 beds to existing facilities through the first nine months of the year. We are on track to meet our objective to add a total of approximately 300 beds to existing facilities in 2023.
For our second pathway, we remained focused on developing wholly owned de novo facilities in underserved markets for behavioral health care services to this end, we're making good progress on opening our newly renovated 101 bed adult hospital and outpatient facility, which is part of the Montrose Bill.
<unk> Health Hospital in Chicago, Illinois, as well as an 80 bed inpatient hospital Coachella Valley behavioral health in India, California.
Both are expected to open by the end of this year.
Our CTC service line continues to expand its industry, leading position with 155 locations across 32 states and a flexible suite of service of solutions from traditional Otp's to mobile vans and Telehealth solutions, we opened two new CTC locations in the third quarter.
Making a total of four Ctc's opened so far this year. We're on track to open six Ctc's in 2023 and are focused on accelerating our growth in the future.
Importantly, the need for our services has never been greater more than 9 million Americans are suffering from opioid use disorder.
And just last year the country witnessed approximately 110000 overdose deaths tragically a record high.
Regarding our third growth pathway, we are especially proud of the expanded scale of care, we can deliver to communities across the country through relationships with renowned joint venture partners.
Early in the third quarter, we opened 96 bed hospital with our joint venture partner Bronson Healthcare in Battle Creek, Michigan, and another 96 bed hospital with our partner Guy singer and music, Pennsylvania.
This is the first of two hospitals, we will be opening with guy singer in this state we anticipate breaking ground in early 2024 on the second hospital in Danville, Pennsylvania.
We are also pleased to highlight that this week, we broke ground on our previously announced behavioral health hospital with joint venture partner <unk> Health Eastern North Carolina's Premier Health system.
This new hospital will expand our acute service line into the North Carolina market and will serve as a destination academic site training students and residents from the Ecu's Brody school of Medicine.
We look forward to working together with these premier health systems to provide quality behavioral health care in their respective markets with our clinical expertise in standing as the leading pure play provider of behavioral health care services Acadia remains an attractive partner for health systems, who want to expand behavioral healthcare treatment.
<unk> and their respective communities.
Working together, we have a shared commitment to provide access to quality care and support the critical need in the community.
Today, <unk> 20 joint venture partnerships represent a combined total of 21 hospitals with 11 hospitals already in operation and 10 hospitals expected to open over the next several years in.
In addition, we recently broke ground on a second hospital with an existing JV partner, which we will announce in the next several months. This will be our second partnership with two hospitals in different markets demonstrating the value of these collaborations to both our partners and to us.
The pipeline for potential partners remains robust and joint ventures will continue to play an important role in <unk> future growth.
With respect to our fourth growth pathway, we are focusing on identifying acquisitions that support our growth objectives and meet the criteria of our capital allocation strategy.
During the third quarter, we announced a definitive agreement to acquire turning point centers, a specialty provider of substance use disorder and primary mental health treatment services that cares for patients and the Salt Lake City, Utah Metropolitan market.
This acquisition will allow us to operate the 76 beds in their current facilities and over time at an additional 48 beds to the operation.
We expect to close this transaction by the end of 2023.
As you know extending the continuum of care as our fifth and final growth pathway.
One of the key focus areas of this pathway is expanding partial hospitalization programs or PHP.
And intensive outpatient programs, our IOP that can provide four to six hours of care per day.
We believe the impact at PHP IOP on the clinical outcomes of our patients can be significant for multiple reasons first the vast majority of our acute and specialty patients are indicated for PHP IOP is a step down therapy post discharge is they transitioned back to the community.
Second PHP IOP has a strong record of positively affecting post discharge health outcomes and.
And lastly, we believe there is a clinical opportunity for a larger share of our patients to access an appropriately utilize PHP IOP to support. This goal, we will continue to expand our PHP IOP offerings across facilities, including three new programs in the third quarter and 26 programs through the first nine months of the year.
Through each of these five growth pathways, we are well positioned to maintain our growth trajectory and meet our stated development targets for calendar 'twenty three as follows adding 670 beds through approximately 300 bed additions to existing facilities of which already we've already added 204 beds year to date.
Opening two inpatient de Novo hospitals mantras behavioral health hospital in Coachella Valley, behavioral health, which we expect to complete by year end.
Opening two hospitals with JV partners, which we completed early in the third quarter and then opening six CTC locations of which we have already opened four this year.
Looking ahead to 2024, we have significant opportunities for further growth through our defined pathways and consistent with what we shared in our first ever Investor day, a year ago at Carnegie Hall in New York.
With respect to our joint ventures, we look forward to continued progress into 2024 with projects that are already underway, we would like to preview a few highlights first together with our partner Henry Ford Health, one of the nation's premier academic and integrated health systems, We will open a 190.
Too bad joint venture inpatient behavioral health hospital, serving the Metro Detroit area.
Second together with one of their Premier Health systems, and Colorado Inner Mountain Health, We will open a 144 bed inpatient behavioral health hospital, which will serve Denver area residents. This hospital works will expand our acute service line into Colorado and as previously mentioned, we expect to announce the second half.
Spittle with an existing joint venture partner in the next several months, which has already been begun construction.
We expect these facilities to open in 2024.
In addition to these JV facilities, we have several de novo facilities that will begin to care for patients in 2024 as well as we previously announced we plan to open a 100 bed acute behavioral health hospital in Mesa, Arizona, Agave rich behavioral health. Additionally.
Additionally, we recently acquired a building on 10 acres of land that will allow us to expand our specialty services in Florida.
This convertible facility near Tampa is expected to open its first 20 beds in the second quarter of 2024 and includes plans to expand this facility to 80 beds in the future. This.
This specialty facility will treat patients recovering from substance use disorders.
And finally, we'd like to highlight our new acute care behavioral health facility in Madison, Wisconsin, While Acadia has a presence in the state with our 14th Ctc's or specialty Su D residential treatment program or 120 bed acute care hospital represents an important new market entry for Acadia as acute.
The novo growth.
As we continue to expand extend our market reach safety and quality care remain our top priorities in every aspect of patient care, we're committed to implementing the right training and leadership development along with the right technology to ensure we're delivering the best possible outcomes for our patients.
We have made significant technology investments this year to deliver strong clinical outcomes and further drive efficiencies in our business.
Our recent investments in electronic medical records and patient monitoring technology are yielding early benefits and support our medical teams with respect to patient safety and compliance.
We are extremely proud of the work that we're doing in our progress to date in 2023 across the company our dedicated employees and clinicians are addressing the nation's critical need for safe quality treatment for mental health and substance use issues, we are well positioned to leverage our scale and expertise and continue.
To reach more patients and their families who desperately need our help.
At this time I will now turn the call over to Heather to discuss our financial results for the quarter and 2023 guidance.
Thanks, Chris and good morning, everyone. Our third quarter financial performance reflects the continued favorable growth in our business in 2023.
We achieved solid top line growth with $753 million in revenue for the quarter up 12, 5% over the third quarter of last year.
The company recorded income related to the provider relief fund established by the cares Act at $4 4 million during the third quarter of 2003 and $7 $7 million during the third quarter of 2022 <unk>.
Excluding income from the PRA for both periods adjusted EBITDA for the third quarter of 2023 increased 13, 4% to $175 $9 million compared with $155 1 million for the third quarter of 2022.
Adjusted income attributable to Acadia stockholders per.
Per diluted share was <unk> 91 up.
Up 13, 8% for the third quarter of 2023, compared with <unk> 80 per diluted share for the third quarter of 2022.
Adjustments to income for the third quarter of 23 include the impact of the cost of legal settlement transaction related expenses and the related income tax effects of all items.
Yes.
During the third quarter, we evaluated our professional liability reserve, including an acceleration of our periodic actuarial review.
While we performed that review process, each year and adjust our reserves accordingly, the timing is usually during fourth quarter.
Given the heightened activity and level of discussions regarding litigation reserve. We believed it was prudent to accelerate that review to the third quarter.
As a result, we recorded an adjustment to increased professional and general liability reserves by five.
$5 $2 million.
After seeing increases in the last two years.
<unk> reserve adjustments, we are not anticipating a meaningful increase in that line item moving forward.
Acadia has maintained a strong financial position, which provides us the flexibility to deploy capital to support our organic growth strategy as well as fund potential acquisitions and future investments.
As of September 32023, we had $99 $6 million in cash and cash equivalents and $520 million available under our $600 million revolving credit facility with a net leverage ratio of approximately two times.
Before turning to our guidance, let me briefly touch on the settlement agreements. We described in the 8-K filed earlier this week relating to three lawsuits involving the company's former Desert Hills facility.
As noted in that 8-K soon after the settlements are approved by the court Acadia will pay an aggregate $400 million in exchange for a full release and discharge at all related claims.
We believe these settlement agreements are a positive step forward and remove uncertainty in future expense associated with the three cases.
We currently intend to pay the settlement funds from a combination of insurance cash on hand, and existing credit lines and expect the entire settlement amount less any portion covered by insurance to be tax deductible.
We look forward to turning all of our attention to the continued execution and delivery at the best possible care for our patients families and communities, we serve and as you can see from the updates to our guidance our growth in this respect is strong and is expected to remain so.
In fact as noted in our press release, we have increased our full year expectations for revenue, which are now expected to be in the range of $2 nine to $2 $92 billion.
We are also excluding income from the Prs adjusted EBITDA is now expected to be in the range of $655 million to $675 million and adjusted earnings per diluted share are now expected to be in the range of $3 33.
To $3 43.
Please refer to our press release for all other metrics as a reminder, the company's guidance does not include the impact of any future acquisitions divestitures transaction related expenses or the recognition of additional provider relief fund income.
With that operator, we're ready to open the call for questions.
Yes.
We will now begin the question and answer session.
To ask a question you May Press Star then one on your Touchtone phone.
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As a reminder, we ask that you please limit yourself to one question and one follow up on today's call.
At this time, we will take our first question, which will come from Whit Mayo with Leerink partners. Please go ahead.
Thanks.
Heather can I just follow up on the professional liability the med Mal reserve sounds like this was just accelerating.
The annual process. If you guys undertake in the fourth quarter, but can you confirm whether or not there's been any changes in the number of claims the frequency of the claims the size of the claims anything that Actuarially would have would have driven the $5 billion increase which I think similar to what we saw last year. So I'm just not sure what.
Drove this other than perhaps the strengthening of the reserves. So just any additional context would be helpful.
Sure.
I can tell you that we follow the same process that we typically follow.
And it covers claims across all of our facilities for all years, there is no change to <unk>.
The volume of claims or the way that we've evaluated these.
I'm sure you will remember that we took a similar charge in the fourth quarter of last year and that was actually larger than the reserve that we just recorded $5 $9 million last year that we took in the fourth quarter and we took five two or five three in this quarter.
Okay.
My other question.
Maybe just Chris and update the volumes look pretty strong broad based if you could maybe unpack some of the service lines, whether or not there is one individual one that stands out more than the others and now that you've had some time to sort of unpack Medicaid redetermination is there anything noticeable to call out anything.
That you've learned any color would be would be helpful. Thanks.
Yeah, no. Thank you would.
I'd say all of our service lines, so really seeing strong performance.
When you look at acute and specialty they.
They're both up as well as CTC RTC is also up not as much but I would say primarily the volume growth is driven by acute specialty and CTC.
And then I would say on the Redetermination spot.
All of the advanced preparation it traces back to really a year ago at this time we.
We feel like is really paid off for us and we're not seeing a significant impact on patient volume or payer mix and just to remind.
You that when you look at our lines of business. Our acute service line continues to outperform and just has seen no noticeable impact from Redetermination.
Specialty is a little bit different in that it's protected due to these unique county level backstop funding mechanism that we have for patients in Pennsylvania, which is the state that we have most of our specialty Medicaid volume.
And then regarding our RTC business are our experience. There just continues to support that our patients are protected because roughly 80% of Medicaid patients are awards at the state and as a result, they are protected so for US Redetermination is really primarily applicable.
To our CTC service line and I would say our patients there are continuing with their treatment either through the reinstatement of Medicaid switching to another payer.
As accessing state based exchanges and sometimes moving to self pay as well so more broadly across the country.
Now the Oregon, which has been the final state actually started Redetermination on October one all states have officially launched Redetermination.
And we'd say that we.
We estimate approximately just under half of about 40% of our patients have now completed redetermination.
We anticipate this part in this process, we will obviously continue to move into 24. So I just think in summary, we continue to be cautiously optimistic that the impacts we will continue to be very manageable. It continues to be a major focus for the company. We're tracking it very very closely process continues to vary.
A little bit by state CMS came in last year in the summer.
And encouraged a number of states to pause the pace that they were moving.
Various patients.
Off the rolls, but overall, we believe the impact is going to be modest, particularly in 'twenty, three and our experience to date aligns with this view.
Thanks Sam.
Okay.
And our next question will come from AJ Rice with UBS. Please go ahead.
Okay.
Thanks, Hi, everybody.
I know earlier in the year there was some concern expressed about.
Whether the payment rates. When you gave your original guidance that you were seeing sort of across the board with may be moderate in the back half of the year because it seems like that's held in there pretty well I wondered if aggregates U.
For the first question here just to give us some thoughts about what youre seeing in terms of rate updates.
And maybe as you look into 'twenty four across your major payer classes.
Sure sure Hi, AJ I'll I'll take that question. So first I'll say you are right. We are pleased with what we're seeing from a rate perspective, and Youll recall of course that we could have increased our guidance mid year based partly on the strength that we were seeing.
Our rate negotiations and we were anticipating mid single digit growth rates for the second half of the year and I can tell you that we are we are seeing that we are seeing that come through and we've seen it in the third quarter. As you can see sort of strong results that we had and then we are expecting to continue to see those strong rates come through for.
Q4.
I can tell you that that has been pretty consistent across the markets and across the Payors Medicaid and commercial and we see the average rate increases in those ranges of course, there are some above and below that it's just across all service lines, including TTC.
We would.
We expect that to continue into Q1 as we enter 2024, but then we would think that that's going to moderate back to normal or normalized growth level for 2024, sorry, I cut you off there.
No no that's fine.
Good to hear the last part do so that's good.
My other question would be related to.
The pay to joint ventures, you're obviously announced a lot of deals with major health systems and it seems to continue to be there.
There was a perception maybe that some of this was a reaction to these health system challenges in the pandemic and the need to partner up with someone for some of the <unk>.
Post acute services, but I wonder if.
The discussion that you are seeing now suggest that maybe this is going to persist for longer.
Maybe give us a little bit of a flavor for what are the discussions with some of these newer JV that youre seeing is it whats driving the continued discussion to partner with someone like unit album on behavioral.
Yeah. Thanks, a J this is Chris I'll start and see if other wants to add anything but I think it starts with the fact that.
We have.
Really impressive referenced facility.
Two joint ventures that we've now signed and we had a groundbreaking earlier this week.
Just in talking to that partner I think we continue to see that theyre getting calls on <unk>.
<unk> from others that are interested in.
In some sort of partnership I think there's a recognition that.
There are so many behavioral health patients that present.
Emergency room that they would like to get dedicated care and they recognize increasingly that they don't have that expertise and so they frequently are looking for a partner that can help them deliver care and frequently they just do not have the related beds. So I think this is a theme that.
We've seen really began before the pandemic, but I think has accelerated and I think as we've continue to align ourselves with such marquee partners that.
That reference ability has continued to persist and I think our pipeline continues to look very good. Obviously, we continue to do significant work on identifying the targeted geographies that we feel are under bedded and that starts there, but where there is a partner that.
Presents themselves in that market or that we proactively approached joint ventures can be.
Really attractive growth pathway for us and one that will continue to be a significant part of our growth and as I laid out in my opening remarks in 2024 really gives us the visibility into 2024 bed growth that we laid out at our Investor day.
Okay. Thanks, a lot.
Thank you.
Yes.
And our next question will come from Kevin Fischbeck with Bank of America. Please go ahead.
Great. Thanks.
I guess last night.
CMS finalized the hospital outpatient.
Update and it included a bunch of things on behavioral health and allowing.
Providers to set up these partial hospitalization programs and things like that is that something that you guys would directly participate in or is that something that would potentially be.
Increasing competition for the services that you provide.
Kevin This is Chris Thanks for the question I would say on the PHP IOP front.
There is not as much opportunity for us with Medicare specifically I think the day rate increases would certainly apply to us, but we see them as relatively negligible and not a material impact on the business and pretty much in line with what we had expected.
Okay, and then the revenue growth pretty impressive.
And obviously EBITDA grew faster and I appreciate that the $5 million charge in the quarter, but I would've thought that.
With rates growing faster than wages in the quarter, and then really strong volume growth there might be more leverage to the margin in the quarter or is there anything that you would spike out there or.
Anything that you would highlight there as to why there might not have been more leverage in the quarter on the EBITDA side.
I would really point to the point that you just made in regards to that PL GL reserve adjustment, we did see favorable rate increases and we did see that have labor rates moderating so you're right on both of those fronts.
Really that that reserve increase that we took in Q3 this year instead of our normal Q4 cadence.
But all other things aside we are progressing well on the other fronts that you mentioned.
Okay, great. Thanks.
Yes.
And our next question will come from Ben Hendrix with RBC. Please go ahead.
Thank you I wanted to get a little bit more detail on the labor front. The periodic labor screen that we run is also suggests that you've made good progress filling open clinical positions over the last few months and I wanted to get your comments on where youre seeing the strongest hiring activity across the business lines and if there are still areas or geographies, where you're seeing capacity constraints.
And then finally, what youre expecting for wage inflation next year. Thanks.
Well I'll start maybe with wage inflation and what we're expecting for next year.
You know we've gone from seven five to six 3% to $5 7 million ultimately in Q3 and Thats.
Starting from Q4 last year at eight 2%. So we've made some significant progress there.
We're really happy with that progress and we definitely expect to see continued progress.
We continue to think that we have a path to see further reductions.
On the actions that we're taking on our part and Chris can talk about some of your specific hiring questions and that you are alluding to in a minute, but those are the actions, we're taking and we feel really good about those things that we're doing but we remain a little bit cautious in regards to the macroeconomic environment and things that are outside of our control.
As we just talked about labor inflation, we think will move in tandem with the overall inflation rate.
And that will ultimately continue to support our reimbursement rate trends.
We expect the labor inflation will moderate and it will come more in line with other market trends, but it's a little too early to really put out a number for the guide will come back in February next year with something more solid there, but we expect to continue to make progress.
A couple of things that I would add I.
I would say that we.
<unk> been very successful in increasing our net new hires and seeing a decline in the open roles that you were referencing.
A number of strategies that we've put in place there in a number of actions that I think have really helped drive a reduction in turnover I referenced in the prepared remarks employee engagement. We did our first employee engagement survey and his first in the history of the company last year and we recently did a pulse check to just check.
The progress that we're making and we saw a pretty significant improvement over the baseline and only a short period of time. So we feel really good about the progress that we're making there I think the other factor that has really helped us with clinical positions.
Particularly the impact of turnover for our ends in Lps has been being much more intentional about training and Onboarding new employees I think historically as a company that has grown by acquisition, we've been very differential to the facilities to put their own training programs in place.
And by system or <unk>, the way that we do training, we've seen a pretty meaningful reduction in the turnover of clinical employees, because we are managing their expectations better upfront.
And I think while this we saw this with both <unk> and <unk>.
LPN, so where we saw the most impressive improvement overall, so we continue to just focus significantly on 90 day turnover across the board across all lines of business and continue to work very closely with our operators.
As well as our HR team and just the final part of your question in terms of yes. There certainly are some geographies, where we continue to see.
More challenges than others. There are some that are obviously more advantageous, but I think we're doing a much better job as a company in the last year of having that very close working relationship within our HR department being much more closely aligned with our operators.
Thanks for the question.
Thank you.
And our next question will come from Brian <unk> with Jefferies. Please go ahead.
Hey, good morning, and congrats on the quarter.
Heather maybe just a clarification on some of the comments you've already made.
Im looking at <unk>, maybe on a per patient day basis should should we think that is.
There is something of the Kpis that will moderate in terms of growth rate going forward or maybe just track the rate growth number.
Yes, if you if you think about <unk> on a per patient day basis, we have typically track that and we have seen we saw in previous years, how that was growing and it has some other contribution that arent in the normal sort of day to day operations.
Contribute to it and that includes <unk> and includes obviously same facility wage inflation, but it also has some of the corporate function.
Cost benefits that are included in there and then startup losses, and then closures that has all of those different effects. So we started to call out sort of the base wage trends that we're seeing because there was a discrepancy between those two because some of the investments that we're making.
If you if you look at what's happening with SMB per patient day, it starting to come back in line with where we're seeing the other sort of the base wage inflation.
SMB as a percentage.
<unk> revenue actually came down about 60 basis points during the quarter.
I'm down to $6 three from seven five and that of course continues to decline from the prior year, but you can see that's coming more in line with what you are seeing from the base wage perspective, as well and then on a same facility basis and decreased by 60 basis points.
And then sorry go ahead.
Go ahead Karen.
Chris I guess my second question as I think about your plan to open about 1000 beds next year. In 2025 are you seeing any changes in terms of the construction costs or the.
<unk> to start.
We see just the macro stuff on construction kind of having an impact on maybe commercial construction is as it relates to you guys as well.
Yes, no. Thank you that's a fair question and I think we've done a really good job overall working through this I mean, we saw.
Spike and construction costs earlier last year, and it's something that we're constantly having to work through I think this is one where particularly with joint venture partners. It's helpful. Having.
Having a partner in the local market.
So I think we've got a number of strategies in place that we haven't talked about it at our Investor day with some of the pre fabricated construction some of the things that we're trying to do to get ahead of supply chain constraints.
For materials that are more difficult to procure so I would say that overall.
We've gotten increasingly better at managing it it's certainly better than it was a year ago, but we're continuing to work through it consistently.
Our continuous continued to be very optimistic with all of the continued growth into 2024 that we have that I talked about in my prepared remarks, both on the JV side as well as the de Novo side four for all of our business lines.
Awesome. Thank you.
Yes.
Yes.
And our next question will come from John Ransom with Raymond James. Please go ahead.
Yes.
Hey, good morning.
Just thinking about next year, I know youre, not giving guidance, but how should we think about corporate overhead.
Next year over this year kind of a full year comparison and also.
Do you have a crystal ball on labor inflation do you think it set a plateau or do you think theres some room for it on a patient day basis too.
<unk> continued to decelerate.
Hi, Don this Heather I'll take that.
I do not have a crystal ball.
I did.
I can tell you that.
Just to go back on a couple of things that.
We said we are really pleased with what we're seeing happening from quarter to quarter and that continued steady decline in the base wage rates and then also the base wage rates coming in line with what we're seeing on it and SBB per patient day and that is coming in line together and as we start to lap.
Some higher some higher rates in the prior years, we feel good about where we are I mean, we continue to think that we'll see declines in we'll see some improvement until we get to a more normalized rate of inflation I think our question is what the normalized rate of inflation.
That that inflation is going to continue to move with overall inflation.
And.
The thing that we feel good about John is that we can anticipate.
The rate improvement will also typically follow that so we feel like all of those things are going to move in tandem and we've seen our ability to grow rate at a stronger pace.
And then what we're seeing.
In.
Our labor inflation, so that we can continue to sort of build some some operating leverage there.
Kind of coming back to your corporate cost question. What I can tell you is that where we're seeing those corporate costs level off as you know they they sort of built in the prior year instead of throughout earlier portions of this year, but we are seeing those come down slightly.
Slightly and we're seeing those start to build leverage as a percentage of revenue I would anticipate that leverage certainly to continue in 2024.
It's a little early for us to have sort of a good guide for 2024 for the full year as you mentioned, but I can tell you that we certainly expect to see that continue.
In light of of leverage that will come there as you know we made some significant investments in the corporate costs in the past 12 months and we're seeing those pay off and we're seeing that pay off and really good waste throughout the business, but also we're seeing corporate cost level off.
Yes, John This is Craig I would just add that.
I think there is direct correlation between the investments that we've made and the performance of the business, whether it's on the marketing side and the record admissions that we're seeing whether it's the quality investments that we've made that have consistently shown improved quality even investments in our managed care team and others.
I think this is one where we're obviously continue to be very focused on corporate costs and getting operating leverage into heather's point, we've seen a sequential decline quarter over quarter since the beginning of the year.
Expect that to continue.
And just a quick follow up.
The project to Digitize your medical records, where does that stand and are you seeing any payoff.
Pay off from some of the early efforts there.
Yes, no thanks for four.
The question on that John I think overall, we feel great about the continued progress that we're seeing.
There are several elements of the it investment. So one is the remote monitoring technology that we think has we've put that in nearly all of our acute facilities.
<unk>.
Year to date. So we are in 45 facilities and we've seen really promising.
Initial improvements in patient incidence there and we expect that to continue on the EMR front.
We have implemented.
Omar now and we're expecting to end the year at about half of our acute facilities and continuing to now deploy look at our specialty facilities as well and CTC as well from that standpoint.
I think the benefits to show up in a number of different ways I mean, we've gotten.
Really strong praise from our surveyors who have come into these most recent JV that we've opened.
<unk>.
Speak to the strength of the EMR that we have in place and the patient monitoring and how unique and differentiated they see relative to the other surveys that were doing we hear that consistently.
Again, I think the material improvements that we continue to see.
On the quality front in.
And only a short period of time also speaks to the benefit we're seeing with patient safety and compliance, which we think is really important.
I would say staff engagement, we've seen better employee engagement at facilities that have an EMR relative to those that don't.
It's easier to recruit clinicians that have been trained on EMR that don't want to work in a paper environment, which is consistently the norm and behavioral health.
And it helps us on the retention front as well and then obviously we are beginning to see the benefits that you would expect.
<unk> improved back office functionality reduce paper and efficiencies there that we think we will continue to be much more pronounced in the in the coming months and we are tracking all of that and expect to be in a position to share probably more detail on that it will take a little bit more time later next year, certainly by our Investor day.
Thanks, so much.
Thank you.
And our next question will come from Sarah James with Cantor Fitzgerald. Please go ahead.
Because it seems a little bit of a contrast to what the payers are saying, which is they're getting 20% to 25% returning.
Hence with a 60 to 90 day.
Gap in care.
So I'm wondering if you were.
Yes.
If you're a patient being returned to some form of insurance is like a geographic mix and given your exposure in Florida, or if you're actually able to take an active role and help then resubmit for for coverage and close that gap in care.
Yes. Thank you for the question Sarah.
It's difficult to.
No the comparison with respect to others in their geographies, but again as I started we have extensively prepared for redetermination, particularly with our CTC business, where it's most pronounced and I think we've been able to do an excellent job of proactively working with these patients.
I mean, we've put kiosk in place and the individual facilities, we've had QR codes up in place to tell them that the redetermination.
The redetermination coming many of them come into our clinics on a daily basis with a letter where they've been they've lost their Medicaid coverage and Theyre looking for help we have a dedicated support line that helps people. Sometimes we will have many of our facilities I've seen we'll sit down with the patient that's loss coverage and take them through <unk>.
Reapplying.
In person other times, it takes a little bit longer, but we've had a high success rate of being able to.
Assist our patients, particularly.
Particularly our CTC patients, but also our other lines of business to retain their coverage and I think in the.
Many instances as well, where we're able to help them.
Get retro coverage, where they've lost.
They've lost coverage for a period of time as well so I would say a very high majority of our patients who have loss coverage have been able to favorably resolved.
In 30 days and we've just continued to have a really strong track record and continue to expect that to.
To be the case into 2024 as well.
That's great and then on the <unk>.
Good settlement money, you've previously talked about.
Abuse of it coming down to the county level in 'twenty, four and 'twenty five.
You give us an idea of timeline once it gets to the county level long does it take to get through a grant process.
And when could we actually see that having an impact on <unk>.
Build out decisions.
Yes, it's a very fair question and one that we would love to have a more detailed answer to every state as you would expect is a little bit different so while there have been $50 billion opioid settlement dollars.
In total only about $3 billion have been distributed to the states and then once it gets to the states only a small portion is beginning to trickle down to the individual counties. So we're doing everything we can to partner with these individual counties with communities.
To help showcase some of the things that we've seen some of the strategies to specifically deal with opioid addiction.
We partner with the University of North Carolina to do an independent study on that that is available for everyone. Every single county across the country and we've been able to help show outcomes with respect to harm reduction treatment efforts that are in place.
All of the many things that we've done we have such strong quality metrics that have been recognized by car, which is the accrediting body for the CTC that we were able to also talk about and share but overall, we're doing our best to partner with these counties when Theyre ready I just think realistically.
They are try theyre, putting together task force at the county level, they're trying to determine.
What services they want.
If it's a rural county today want access to mobile fans.
They want to expand pure recovery specialist programs do they want housing support.
Do they want to just emphasize the distribution of naloxone I mean, it just it can really vary county by county, but I think were there and ready to be a good partner and we have built a very strong team that is laser focused on grants and responding to grants.
I think we continue to have significant confidence that as these dollars do begin to flow into 'twenty, four and certainly into 'twenty, five where we probably think that there will be a greater prevalence of that funding that we're very well positioned to capitalize on it and to assist these states.
Thank you.
Okay.
And our next question will come from Gary Taylor with Cowen. Please go ahead.
Hi, Good morning, just a couple of questions.
Chris I just wanted to.
Confirm I think the latest number we've seen for new bed adds next year is 1100 50 in.
Given your commentary.
About all the development I just I just wanted to get a sense of was that just illustrative and confirming all of the stuff that's coming in for 24 or is there a reason to think that.
That growth could be even higher than that number you showed us before and then related to that just Heather I know last quarter you talked about.
Generally 15% to $20 million a year of of Preopening costs that burdened the P&L.
Third growth, maybe going up 70% or so next year should we think about a commensurate sort of increase in that and that preopening burden.
Yeah. Thanks, Gary why don't I go ahead and start so just as you're probably referencing the slide that we felt like was a very important one to lay out in investor day that showed the 150 bed additions in 'twenty, four and 25% and so just.
Discussed earlier, the three hospitals that will be building in 2024, we've got six facilities coming online. So those three JV partners Henry for the inner mountain and the other JV partner that we Havent disclosed we expect those to contribute about 440 beds.
We also have several.
De Novo hospitals and reference to one of the Gaba a ridge in Arizona, Madison, Wisconsin and in this one in Tampa. So we're expecting those to contribute about 400 beds and then obviously we have discussed in the past the bed additions to the expansions to existing facilities, which had been in the 300 range. So that gives you <unk>.
To the $11 50, I would say that we are.
Very actively looking at whether we can even expand beyond the 300 I think that is one of the most effective.
The highest returns in terms of capital deployment, because we do own those facilities, we can control the.
Construction process, a little bit more and we've historically.
Focused on are around 300, a year, but we think that can be higher in the coming years and so that's something that we're spending time on as well, but hopefully that helps break that down a tethered do you want to take the other question sure sure. Thanks, Hi, Gary.
Speak a little bit about the startup costs.
The end of Q3 were trending at around $16 million, which includes the ramp at the two JV that Chris mentioned and as we expect to open two more de Nova by the end of the year that pace will continue.
<unk> C and.
Similar level of about $6 $5 million is what we think we're going to continue to see in Q4 and thats consistent with Q3.
That number of how we trend has already ramped up a little bit in the back half of.
2023.
I'd expect that that pace would continue for 2024, so maybe to more directly answer your question. Gary We think it will be relatively consistent with where we are currently as we have already started to ramp some of that construction and bed openings, but it won't be.
The same is what we started the year with last year, a little higher for 24th.
With where we are right now.
Got it thank you.
<unk>.
No problem.
And our last question will come from Peter Chickering with Deutsche Bank. Please go ahead.
Hey, good morning, guys nice quarter. Thanks for fitting me in two quick questions here, one more follow up on Medicaid determinations.
But your Dsos ticked up slightly sequentially as Greta information has a bigger impact can you just let us know the process for how you learned PVC patient has been returned I believe you Bill CVC weekly so I assume that you know within one or two weeks. If there's if that person has been re determines that there is minimal risk.
Killing Ravi so you can't collect.
Yes. Thank you Peter I would say it continues to really varies state by state. So there are some states that have proactively worked with us and will actually in the beginning of a period, where they are moving.
Various patients and citizens off of Medicaid they will share with us proactively.
That's going to happen.
Who is on the rolls and that enables us to cross reference against our patients and to be much more proactive in reaching out.
Other times that process doesn't happen in our patients even though we have been proactively talking to them about this for some time will come into us with a hard copy letter that they've received where they've lost their coverage and we have to work with them. So.
We've done everything we can to point out the states that have been particularly transparent and shared with others, how that really isn't the patient's best interest, but it really varies state by state.
Okay Fair enough and then a quick modeling question. If you look at Opex for the fourth quarter and take out I'm, sorry, Opex for the third quarter. It takes out a $5 $3 million for professional fees per patient day.
Can we assume a similar number for that for fourth quarter, just adjusting for that for that.
Personal liability.
I think thats right.
Our other operating expenses have been pretty consistent right around 13% of revenue. If you take out the impact of the $5 $3 million reserve adjustment. We are at $13. Two for Q3, So we're right in line with Q.
Q3, prior year, which was 13, 3% and then sequentially Q2 of 2023 was $13. One so to answer. Your question. Yes, you can expect that that will come right back in line.
Great. Thank you so much no.
No problem.
And this concludes our question and answer session I would like to turn the conference back over to Chris Hunter for any closing remarks.
Thank you so before we end the call I just want to again, thank our committed facility leaders clinicians and approximately 23000 dedicated employees across the country, who has just continued to work tirelessly to meet the needs of patients in a safe and effective manner, we have such a strong foundation and a proof.
<unk> strategy for driving growth and delivering greater value to both the patients we serve and our shareholders. We greatly. Thank you all for being with US This morning and for your interest in Acadia and if you all have additional questions. Today. Please don't hesitate to contact us directly have a great day.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.