Q1 2024 Universal Health Services Inc Earnings Call

Operator: Good day, and thank you for standing by. Welcome to the Universal Health Services First Quarter 2024 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 11 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Steve Filton, Executive Vice President and Chief Financial Officer. Please go ahead.

Good day and thank you for standing by welcome to the Universal Health Services first quarter 2024 earnings Conference call.

At this time all participants are in listen only mode. After the speaker's presentation. There will be a question answer session to ask a question. During this session you will need to press star one on your telephone.

Then here an automated message you're buying your hand this race to withdraw your question. Please press star one again, please be advised that today's conference is being recorded I would now.

Like to hand, the conference over to your first speaker today, Steve Filton Executive Vice President and Chief Financial Officer. Please go ahead.

Steve G. Filton: Thank you and good morning. Marc Miller is also joining us this morning.

Steve G. Filton: Thank you and good morning, Mark Miller, who is also joining us. This morning. We welcome you to this review of Universal Health services results for the first quarter ended March 31 2024.

Steve G. Filton: We welcome you to this review of Universal Health Services' results for the first quarter and for March 31st, 2024. During this conference call, we will be using words such as believes, expects, anticipates, estimates, and similar words that represent forecast projections and forward-looking statements. For anyone not familiar with the risks and uncertainties inherent in these forward-looking statements, I recommend a careful reading of the section on risk factors and forward-looking statements and risk factors in our Form 10-K for the year ended December 31, 2023.

During this conference call, we will be using words, such as believes expects anticipates estimates and similar words that represent forecasts projections and forward looking statements.

For anyone not familiar with the risks and uncertainties inherent in these forward looking statements I recommend a careful reading of protection on risk factors and forward looking statements and risk factors in our Form 10-K for the year ended December 31 2023.

Steve G. Filton: We'd like to highlight just a couple of developments and business trends before opening the call up to questions. As discussed in our press release last night, the company reported net income attributable to UHS per diluted share of $3.82 for the first quarter of 2024. After adjusting for the impact of the items reflected on the supplemental schedule as included with the press release, our adjusted net income attributable to UHS per diluted share was $3.70 for the quarter ended March 31, 2021.

We'd like to highlight just a couple of developments and business trends before opening the call up to questions.

As discussed in our press release last night. The company reported net income attributable to <unk> per diluted share of $3 82 for the first quarter of 2024.

Steve G. Filton: After adjusting for the impact of the items reflected on the supplemental schedule is included with the press release, our adjusted net income attributable to Uhf's per diluted share was $3 70 for the quarter ended March 31 2024.

Steve G. Filton: Our acute hospitals continued to experience strong demand for their services in the first quarter, with adjusted admissions increasing 4.5% year-over-year on a same-facility basis. When combined with the net revenue per adjusted admission increase of 4.6%, our acute care services net revenues increased by 9.6% during the first quarter of 2024 as compared to the first quarter of 2023. Despite these increases, we believe that both volumes and acuity in March were adversely impacted by the timing of Easter and Spring Break, which occurred in March of this year compared to April of last year.

Steve G. Filton: Our acute hospitals continued to experience strong demand for their services in the first quarter with adjusted admissions, increasing four 5% year over year on a same facility basis.

Steve G. Filton: When combined with the net revenue per adjusted admission increase of four 6%.

Steve G. Filton: Our acute care services net revenues increased by nine 6% during the first quarter of 2024 as compared to the first quarter of 2023.

Steve G. Filton: Despite these increases we believe that both volumes and acuity in March were adversely impacted by the timing of Easter and spring break which occurred in March of this year compared to April of last year.

Steve G. Filton: In connection with a previously disclosed, newly implemented Medicaid Supplemental Reimbursement Program in Nevada, our acute care hospitals located in the state recorded approximately $38 million of aggregate incremental income during the first quarter of 2024. Meanwhile, premium pay in the quarter was $68 million as compared to $86 million in the first quarter of 2023. During the first quarter of 2024, same facility net revenues in our behavioral health hospitals increased by 10.4%, driven primarily by an 8.2% increase in revenue per adjusted day. Adjusted patient day growth in the quarter was 2.0% over the prior year. We believe the patient day volume was muted somewhat by the aforementioned calendar timing issue.

Steve G. Filton: In connection with a previously disclosed newly implemented Medicaid supplemental reimbursement program in Nevada, our acute care hospitals located in the state recorded approximately $38 million of aggregate incremental income during the first quarter of 2024.

Steve G. Filton: Meanwhile, premium pay in the quarter was $68 million as compared to $86 million in the first quarter of 2023.

Steve G. Filton: During the first quarter of 2020 for same facility net revenues in our behavioral health hospitals increased by 10, 4% driven.

Steve G. Filton: Driven primarily by an eight 2% increase in revenue per adjusted day.

Steve G. Filton: Adjusted patient day growth in the quarter was 2.1% over the prior year quarter we.

Steve G. Filton: We believe the patient day volume was muted somewhat by the aforementioned calendar timing issues.

Steve G. Filton: Our cash generated from operating activities increased by $106 million to $396 million during the first quarter of 2024, as compared to $291 million during the same quarter of 2023. In the first quarter of 2024, we spent $209 million on capital expenditures and acquired 700,000 of our own shares at a cost of approximately $125 million. Since January 1, 2019, we have repurchased almost 27 million shares, representing 30% of our shares outstanding. As of March 31, 2024, we had $733 million of aggregate available borrowing capacity pursuant to our $1.2 billion revolving credit facility. We'll now turn the call over to Marc Miller, President and CEO, for closing.

Steve G. Filton: Our cash generated from operating activities increased by $106 million to $396 million during the first quarter of 2024 as compared to $291 million during the same quarter in 2023.

Steve G. Filton: In the first quarter of 2024, we spent $209 million on capital expenditures and acquired 700000 of our own shares at a cost of approximately $125 million sales.

Steve G. Filton: Since January one 2019, we have repurchased almost 27 million shares representing 30% of our shares outstanding as of that day.

Steve G. Filton: As of March 31, 2024, we had $733 million of aggregate available borrowing capacity pursuant to our $1 2 billion revolving credit.

Steve G. Filton: Credit facility.

Steve G. Filton: I will now turn the call over to Mark Miller, President and CEO for closing comments.

Marc D. Miller: In our year-end conference call, we said we envisioned 2024 as a year of continued strength in both of our business segments. And during the first quarter of 2024, both segments increased their operating margins when compared to the comparable quarter of 2023. We anticipated that acute care volumes would likely moderate to a degree but remain robust compared to historical levels. We also believed that acuity trends would continue their recovery trajectory. In our behavioral segment, we anticipated that patient day volumes would gradually improve over the course of the year, returning to a more historically normal level of growth in the 3% We noted that both of our business segments have experienced a significant increase in Medicaid supplemental payments, which are helping to compensate for several years of inadequate reimbursement levels that have failed to keep up with the costs we had to incur to properly care for our patients. Overall, we're pleased with the first quarter results. We are now happy to answer questions. Thank you.

Marc D. Miller: Thanks, Steve.

Marc D. Miller: Our year end conference call. We said, we envision 2024 as a year of continued strength in both of our business segments.

Marc D. Miller: And during the first quarter of 2020 for both segments increased their operating margins when compared to the comparable quarter of 2023.

Marc D. Miller: We anticipated that acute care volumes would likely moderate to a degree but remain robust compared to historical levels. We also believe the acuity trends would continue their recovery trajectory.

Marc D. Miller: And our behavioral segment, we anticipated the patient day volumes will gradually improve over the course of the year, we're turning to a more historically normal level of growth in the 3% range.

Marc D. Miller: We noted that both of our business segments have experienced a significant increase in Medicaid supplemental payments, which are helping to compensate for several years of inadequate reimbursement levels that has scale to keep up with the costs, we had to incur to properly care for our patients overall, we're pleased with the first.

Marc D. Miller: Quarter results we.

Speaker Change: We are now happy to answer questions at this time.

Operator: Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you'll need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A list. Our first question comes from the line of Justin Lake of Wolf Research. Your line is now open.

Speaker Change: Thank you at this time, we will conduct a question and answer session. As a reminder to ask a question you'll need to press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby, while we compile the Q&A roster.

Speaker Change: Okay.

Speaker Change: Our first question comes from the line of Justin Lake of Wolfe Research. Your line is now open.

Justin Lake: Thanks. Good morning.

Steve G. Filton: First question on your acute care volumes in the quarter. Just to your point, Steve, I think it's pretty clear the calendar had some impacts, January, February stronger, March weaker. So I'm curious, you know, if you can maybe share with us what you were seeing monthly or maybe kind of Jan, Feb versus March, and then how does April kind of, you know, starting to look versus March? Are you seeing it kind of back to January, February levels or somewhere in between?

Justin Lake: Thanks, Good morning.

Justin Lake: First question on your acute care volumes in the quarter just to your point, Steve I think it's pretty clear the calendar.

Justin Lake: Had some impact January February stronger March weaker so I'm curious.

Justin Lake: If you can maybe share with us what you were seeing monthly or maybe you're kind of Chad fair versus March and then how does April kind of.

Justin Lake: Starting to look versus <unk> versus Mark you're seeing and kind of back to January February levels are somewhere in between.

Steve G. Filton: And then secondly, you know, we know you got a bunch of Medicaid dollars in Nevada. I'm curious what ran through the behavioral business in the quarter. For instance, Mississippi, I think, had a program that was put in. Can you give us some color on the impact of those Medicaid provider tax dollars on behavioral health? That would be helpful as well. Thank you.

Speaker Change: And then secondly.

Justin Lake: We know you've got a bunch of Medicaid dollars in Nevada curious what ran through the behavioral business in the quarter.

Justin Lake: Mississippi I think had out a program that was put in can you give us some color on the impact.

Justin Lake: Those Medicaid provider tax dollars and behavioral that'd be helpful as well thank you.

Steve G. Filton: Okay, I'll try and tackle a bunch of different issues there. Yeah, definitely, acute care volumes and behavioral volumes softened in March, I think, as a result of the Easter spring break timing. We're seeing some recovery in April, and I would say April is probably volume-wise somewhere in between the January-February run rates and March run rates.

Justin Lake: Okay.

Speaker Change: Tackle a bunch of different issues there.

Speaker Change: Yes, so definitely acute care volumes and behavioral volumes softened in March I think as a result of the Easter spring break timing.

Speaker Change: We're seeing some recovery in April I would say April is probably.

Speaker Change: Volume wise somewhere in between the January February run rate in the March run rates.

Steve G. Filton: And I think that's what we would expect. I mean, you know, the shortfall in admissions and elective activity and surgical activity that we saw in March, I think we would largely expect to make up, not necessarily completely in April, but mostly through the second quarter. And it seems like we're on track to do that. As far as Medicaid dollars go, the one thing I would point out is we probably had, in the quarter, on the behavioral side, maybe $10 to $15 million out of period behavioral dollars.

Speaker Change: And I think that's what we would expect I mean the <unk>.

Speaker Change: Short fall in admission and a lack of activity in surgical activity that we saw in March I think we would largely expect to make up not necessarily completely in April but mostly through the second quarter.

Speaker Change: It seems like we are on track to do that.

Speaker Change: As far as the Medicaid dollars.

Speaker Change: The one thing I would point out is we probably had in the quarter on the behavioral side can be $10 million to $15 million of out of period behavioral dollars that as we're catching up mostly from 2023.

Steve G. Filton: That is, we're catching up mostly from 2023 as programs sort of refine their calculations, etc., so I think that's the major point in terms of the activity. Obviously, we disclose in our 10-Ks and 10-Qs a great deal of detail about these Medicaid supplemental payments, and we'll update that disclosure in the 10-Q that we'll file in a week or so.

Speaker Change: Peter program sort of refine their calculations et cetera.

Speaker Change: So.

Speaker Change: I think that's the major point in terms of the activity obviously, we.

Speaker Change: We disclose in our 10-K and 10-Q is a great deal of detail about these Medicaid supplemental payments.

Speaker Change: And we'll update that disclosure in the 10-Q that we'll file in a week or so.

Operator: Operator, we can get the next question. Thank you. One moment for our next question.

Speaker Change: Operator, we can get the next question.

Speaker Change: Thank you one moment for our next question.

Ann Hynes: Our next question comes from the line of Ann Hynes of Missoula Security. Your line is now open. Hi, good morning.

Speaker Change: Our next question comes from the line of Ann Hynes Mizuho Securities. Your line is now open.

Steve G. Filton: Thanks, Anne. Yeah, I mean, our internal budget for the quarter was not far off from consensus. I think maybe it was a little bit higher than consensus. You know, so so, you know, maybe, you know, two or three percentage points higher than consensus, but obviously, it was a, you know, a successful quarter, both in terms of the third party expectations, as well as our own, as far as the two midnight rule and the impact on inpatient acute volumes As best as we can tell, it did not have, you know, and I think the question is, is there a change in payer behavior that's resulting in a measurably increased amount of inpatient activity versus observation?

Speaker Change: Hi, good morning.

Speaker Change: So obviously you beat consensus EPS and EBITDA.

Ann Hynes: Can you tell us what you beat versus your internal expectations.

Ann Hynes: My first question. My second question is inpatient grew higher than outpatient in the quarter.

Speaker Change: It is now how much is from the two midnight rule.

Speaker Change: Thanks, Dan.

Speaker Change: Yes.

Dan: Our internal budget for the quarter wasn't that far off from consensus I think maybe it was a.

Dan: A little bit higher than consensus.

Dan: So maybe two or three percentage points.

Dan: Higher than consensus, but obviously.

Dan: It was.

Dan: Excess of quarter, both in terms of the.

Dan: The third part of your expectations as well as our own.

Dan: Yes.

Dan: As far as the two midnight rule and the impact.

Dan: Inpatient acute volumes.

Dan: As we can tell it did not have.

Dan: I think the question is.

Dan: Is there a change in payer behavior that resulting in a measurably increased amount of inpatient activity versus observation.

Steve G. Filton: And our own data, as well as we use a third party to help us adjudicate a lot of these, I'll sort of call them claims that are on the bubble of being inpatient or observation. We use a third party to help us with that. And I think both our internal resources and our third-party consultants tell us that they're not seeing a significant or measurable change in the behavior of our payers that's really impacting our inpatient activity. So I would say that in our minds, you know, most of the growth in acute care volumes in the quarter is exclusive of any change in payer behavior.

Dan: Our own data as well as we use a third party to help us adjudicate a lotteries I'll turn the call. Then claims that are on the bubble of being inpatient or observation. We use a third party to help us with that and I think both our internal resources and our third party consultants tell us that they're not seeing a significant measurable change in.

Dan: Behavior.

Dan: Payers, that's really impacting alright.

Dan: Our inpatient activity, so I would say that in our minds most of the growth.

Dan: Acute care volumes in the quarter is exclusive of any change in payer behavior.

Operator: Thank you one moment for our next question.

Speaker Change: Thank you one moment for our next question.

Speaker Change: Okay.

Unknown Speaker: Yeah, hi, thanks for the questions. Two kind of quick ones, I guess. So first, you know, the behavioral patient day volume growth improvement that you're expecting throughout the year. I guess, just give us a little bit of color on leading indicators or potentially capacity opening up, I guess, like, what is giving you the confidence to kind of point to that from here. And then secondarily, you obviously had the disclosure of a jury award during the quarter. I know that you discussed some measure of

Speaker Change: Our.

Speaker Change: Next question comes from the line of Stephen Baxter of Wells Fargo. Your line is now open.

Stephen C. Baxter: Yes, hi, thanks for the question.

Stephen C. Baxter: Two quick ones I guess so.

Stephen C. Baxter: The behavioral patient day volume growth improvement that you're expecting throughout the year I guess, just give us a little bit of color on leading indicators or potentially capacity opening up I guess like what is giving you the confidence to kind of point to that from here.

Stephen C. Baxter: And then secondarily.

Stephen C. Baxter: Do you have that.

Stephen C. Baxter: Our disclosure of jury awards during the quarter I know that you discussed some measure.

Stephen C. Baxter: Potential protection from insurance related to that first could you update us on where you stand from insurance perspective related to that specific award in any general comments you might offer about the litigation environment. Thank you very much.

Steve G. Filton: So in terms of your first question about behavioral patient days and behavioral patient day growth, I think, as you alluded to in your question, it improved slightly from the pace of the last few quarters. Our expectation is that it will continue to improve during the year gradually. I think, you know, Marc mentioned that our underlying guidance for the year assumes we'll get to about a 3% patient day growth level. What gives us that confidence is simply that, as we've said many times over the last several years, we believe the underlying demand is there.

Speaker Change: So in terms of your first question about behavioral patient days.

Stephen C. Baxter: Behavioral patient day growth.

Stephen C. Baxter: As you alluded to in your question it improved slightly from the pace of the last for a few quarters.

Stephen C. Baxter: Our expectation is that it will continue to improve.

Stephen C. Baxter: During the year incrementally I think Mark mentioned.

Stephen C. Baxter: That our underlying guidance for the year assumes we will get to like a 3% patient day growth level.

Stephen C. Baxter: What gives us that confidence is simply that as we've said.

Stephen C. Baxter: Many times over the last several years, we believe the underlying demand is there that's evident in the amount of volume of inbound inquiries, we get on the Internet and our 800 numbers et cetera.

Steve G. Filton: That's evident in the amount and volume of inbound inquiries we get on the Internet and our 800 numbers, etc., sufficiently to be able to handle that volume. We've mentioned a few other, I think, dynamics that have muted that volume a little bit in the last few quarters, including some specific residential treatment facilities that we believe continue to improve, including the impact of Medicaid disenrollment, which I think we think is stabilizing, et cetera. So I think it's all those factors together that give us confidence that behavioral volume will continue to grow incrementally throughout the year.

Stephen C. Baxter: And it's really about our ability to staff.

Stephen C. Baxter: Yes.

Stephen C. Baxter: Sufficiently to be able to treat that volume.

Stephen C. Baxter: We've mentioned a few other I think dynamics that have muted that volume a little bit in the last few quarters, including <unk>.

Stephen C. Baxter: Specific residential treatment facilities that we believe continue to improve including the impact of Medicaid This enrollment, which I think we think it's stabilizing etcetera. So I think it's all those factors together that gives us the confidence that.

Stephen C. Baxter: Behavioral volume will continue to grow incrementally throughout the year.

Steve G. Filton: Your second question was about the verdict in a malpractice case in Illinois that we disclosed in 8K a few weeks ago. That verdict was, as we noted in 8K, unprecedented. It was unprecedented both in terms of our own history and cases with similar fact patterns. It was unprecedented in terms of verdicts in that specific jurisdiction, et cetera. And so we think there is still a great deal of uncertainty around how that specific verdict will ultimately be decided.

Stephen C. Baxter: Your second question was around the.

Stephen C. Baxter: <unk>.

Stephen C. Baxter: Verdict in a malpractice case in Illinois that we disclosed in an 8-K, a few weeks ago.

Stephen C. Baxter: With that verdict was as we noted in the 8-K unprecedented it was unprecedented both in terms of our own history and cases with similar fact patterns. It was unprecedented in terms of vertex in that specific jurisdiction.

Stephen C. Baxter: And so we think there still is a great deal of uncertainty around how that specific verdict will be.

Steve G. Filton: And as a result, other than the disclosure that we had in the 8K and in the press release we'll have in our 10Q, we haven't really had any measurable impact on our financial statements until there is some level of greater certainty around what the ultimate outcome will be. From an insurance perspective, we disclose in our Qs and Ks our insurance coverage by year. This is a 2020 incident. We disclosed that we had $250 million of commercial insurance for that year. The bulk of that insurance, around $225 million, is still available for coverage. Thank you.

Stephen C. Baxter: Ultimately adjudicated and as a result other than the disclosure that we had in the 8-K and in the press release, we will have in our 10-Q.

Stephen C. Baxter: We haven't really had.

Stephen C. Baxter: Any measurable impact on our financial statements until there is some level with greater certainty around what the ultimate outcome will be.

Stephen C. Baxter: From an insurance perspective, we disclosed in our Qs and Ks.

Stephen C. Baxter: Our insurance coverage by year. This is a 2020 incident, we disclosed that we had $250 million of commercial insurance for that year.

Stephen C. Baxter: Bulk of that reinsurance around $225 million is still available for coverage.

Operator: Thank you. One moment for our next question. Our next question comes from the line of Pito Chickering of Douche Bank. Your line is now open.

Speaker Change: Thank you we'll move next question.

Speaker Change: Our next question comes from the line of Peter Chickering of Deutsche Bank. Your line is now open.

Pito Chickering: Yeah.

Steve G. Filton: Yeah, good morning. Can you talk about the acute OPEX changes that you saw in this quarter? How much did Fish and Expenditures increase year over year? And is this the right level going forward? And any other pressure points within OPEX we should be thinking about?

Philip Chickering: Yes. Good morning can you talk about the acute opex changes that you saw on this quarter how much did.

Philip Chickering: <unk> expenses increased year over year and is this the right level going forward and any other pressure points within opex, we should be thinking about it.

Steve G. Filton: Yeah, so I think Pito, especially on the acute side, the increase in other operating costs is primarily driven by physician expenses, which we said for the year would increase by about 5 or 6%, and we believe that will still be the case. But because physician expense continued to increase every quarter last year and we believe it will be relatively flat this year, meaning flat quarter to quarter, the increase over last year will diminish as we get to the end of the year.

Speaker Change: Yes.

Philip Chickering: Yeah, So I think especially on the acute side the increase in other operating costs are primarily driven by.

Philip Chickering: Physician expense.

Speaker Change: Which we said.

Speaker Change: For the year will increase by about five or 6% and we believe that will still be the case.

Speaker Change: Because physician expense continue to increase every quarter last year.

Speaker Change: And we believe will be relatively.

Speaker Change: Flat this year, meaning flat quarter to quarter.

Speaker Change: The increase over last year will diminish as we get to the end of the year and again I think we are on target to get to that sort of 5% five or 6% growth over the prior year, but in Q1 that growth was more like 12% 13%.

Steve G. Filton: And again, I think we're on target to get to that sort of 5 or 6% growth over the prior year. But in Q1, that growth was more like 12 or 13%. And then the other, I think, driver of OPEC's increase, particularly in the acute division, was increased claims having to do with our insurance subsidiary, and that mostly had to do with increased premiums. The insurance subsidiary, you know, was at sort of a break-even level for the quarter, which is where we had it budgeted. So there is nothing unexpected there from our portfolio.

Speaker Change: And then the other I think driver of Opex increase, particularly in the acute division was.

Speaker Change: Increased.

Speaker Change: Claims having to do with our insurance subsidiary.

Speaker Change: And thats, mostly having to do with increased premiums. The insurance subsidiary was that sort of a break a breakeven level for the quarter, which is where we have a budget and so.

Steve G. Filton: Okay, and then on, a follow-up to Justin's question on supplemental payments, you know, I guess $10 to $15 million from prior periods, but, you know, looking at either 2024 or 2025, what states do you think could be expanding or adding certain new payments that could impact behavior throughout the year? Thanks.

Speaker Change: Nothing unexpected there for now.

Speaker Change: Point of view.

Speaker Change: Okay, and then on a follow up to Justin's question on supplemental payments I get sort of $10 million to $15 million from.

Speaker Change: Prior periods, but looking at the end of 2425, what states do you think could be expanding or adding certain payments that could impact your behavioral throughout the year. Thanks.

Steve G. Filton: Yeah, so what I would say is, you know, we've often pointed out, and I think there are a couple of analysts on this call who will routinely point out that, over the last several years, especially our original forecast of supplemental payments has tended to only increase as the year has gone on as states either implement new programs or refine their existing programs and calculations. And I think that's our expectation for this year as well.

Speaker Change: Yes, so what I would say as we've often pointed out and I think there are a couple of analysts on this call who will rotate routinely pointed out that over the last several years, especially.

Speaker Change: Our original forecast of supplemental payments have tended to only increase as the year has gone on as states either implement new programs or refine their existing programs and calculations and I think that's our expectation for this year as well.

Steve G. Filton: One of the tricky parts about this is I think we tend not to disclose what states they are in or what expectations might be until the state really goes public or gets the approvals it requires or goes public with their calculations. So we do believe, I think, as we said on the last call, and I'll reiterate today, I think we do expect a number of states to implement either new programs or expand existing programs by the end of the year. But, you know, we'll give that detail as it becomes more certain in our public. Great, thanks so much.

Speaker Change: One of the tricky part about this is I think we tend not to disclose what states they are or what expectations might be until the state really goes public or against the approvals that are required or goes public with their calculation. So we do believe I think as we said on the on the last call and I'll reiterate today I think.

Speaker Change: We do expect a number of states to implement either new programs or expand existing programs by the end of the year.

Speaker Change: We'll give that detail as it becomes more certain in our public filings.

Speaker Change: Great. Thanks, so much.

Operator: Thank you. One moment for our next question. Our next question comes from the line of A.J. Rice of UBS. Your line is now open.

Speaker Change: Thank you we'll move next question.

Speaker Change: Our next question comes from the line of a J rice of UBS. Your line is now open.

Albert J. William Rice: Thanks. Hi everybody.

Albert J. William Rice: Thanks, Hi, everybody.

Steve G. Filton: Obviously, with the strong revenue number, that gives you leverage down the income statement, but I wondered if you looked at labor, both permanent and your premium labor. Can you give us a little sense of what the underlying trends are, year-to-year wage increases, and how it's working out with your premium labor outlay? And then similarly, I'll ask on the, for a second question. Pricing was strong in the quarter. Obviously, that was helped on the acute side by the supplemental payments. Any updated thoughts on where commercial rate increases are coming out and the extent to which you think exchange-related coverage as people maybe pick up exchange coverage versus Medicaid is impacting what you're seeing there?

Albert J. William Rice: Obviously with the.

Albert J. William Rice: The strong revenue number that gives you leverage down the income statement, but I wondered if you look at labor both permanent and.

Albert J. William Rice: And.

Albert J. William Rice: Your premium labor can you give us a little sense of what the underlying trends are year to year wage increases.

Albert J. William Rice: Working out with your premium labor outlay, and then similarly I'll ask on the per second question pricing was strong in the quarter.

Albert J. William Rice: It was helped on the acute side by the supplemental payments any updated thoughts on where commercial rate increases are coming out and the extent to which you think.

Albert J. William Rice: Gains related coverage as people, maybe pickup exchange coverage versus Medicaid is.

Steve G. Filton: Yeah, so again, there are a few different issues here. I'll try and address them discreetly.

Albert J. William Rice: And impacting what you're seeing there.

Speaker Change: Yes, so again.

Speaker Change: A few different issues here I'll try and address them discretely.

Steve G. Filton: Yeah, I mean, I think, you know, clearly what the income statement reflects, as you alluded to, AJ, is more operating leverage and efficiency on the labor line. I think it's a result of a few different things. Premium pay, as I said in my opening comments, is down roughly $20 million from the same quarter last year. I think we're seeing wage rate inflation decelerate from the peak levels that it was running at at the height of the pandemic. I think that's helping.

Speaker Change: Yes, I mean, I think clearly what the income statement reflects as you alluded to a J is more operating leverage and efficiency.

Speaker Change: On the Labor line I think it is a result of a few different things premium pay as I said in my opening comments.

Speaker Change: Down roughly $20 million from the same quarter last year.

Speaker Change: I think we're seeing wage rate inflation decelerate from the peak levels that it was running at at the height of the pandemic I think that's helping.

Steve G. Filton: You know, I also think we've made a number of productivity adjustments in both business segments over the course of the last six months. As we came out of the pandemic, I think we re-evaluated our productivity in both segments, particularly in our non-clinical areas, some of which I think, you know, maybe, you know, grew ahead of, you know, the actual need for those resources during the pandemic. You know, as far as pricing goes, you know, we continue to get, I think, reasonable price increases in our contractual rates.

Speaker Change: I also think we've made a number of productivity adjustments in both business segments.

Speaker Change: Over the course of the last six months as we came out of the pandemic I think we reevaluated our productivity in both segments, particularly at our non clinical areas some of which I think.

Speaker Change: Maybe grew ahead of.

Speaker Change: The actual need for those resources during the pandemic.

Speaker Change: As far as pricing goes.

Speaker Change: We continue to get I think reasonable price increases in our contractual rates.

Steve G. Filton: You know, I think the bigger issue, quite frankly, on the acute side, especially, is this issue of, as the managed care companies see, you know, their margins under pressure. You know, we have tended in the past to see greater levels of denial activity, patient status changes, etc. We saw a lot of that in 2023. I think that activity has stabilized some in the fourth quarter and in the first quarter this year. But it's something that we're watching, you know, very carefully.

Speaker Change: I think the bigger issue quite frankly on the acute side, especially.

Speaker Change: Is more of this issue as the managed care companies see their margins.

Speaker Change: Under pressure, we have tended in the past to see greater levels of denial activity.

Speaker Change: Patient status changes et cetera, we saw a lot of that in 2023, I think that activity has stabilized.

Speaker Change: In the fourth quarter and in the first quarter of this year, but it's something that we're watching very carefully.

Steve G. Filton: We are seeing, you know, I think as a result of Medicaid disenrollment, more patients, you know, moving to exchange coverage. I think that tends to be a net positive on the acute side because I think, you know, exchange coverage reimbursement tends to be slightly better than Medicaid or in some cases measurably better. On the behavioral side, I think it's a bit of a toss-up because a lot of these exchange coverages have pretty significant co-pays and deductibles and given the fact that behavioral care on an absolute basis tends to have a much smaller bill, I think we find that patients who have exchange coverage, you know, often will not be able to cover their, or the bill will not cover their co-pays and deductibles.

Speaker Change: We are seeing I think as a result of Medicaid enrollments.

Speaker Change: More patients moving to exchange coverage I think that tends to be a net positive on the acute side.

Speaker Change: Because I think exchange coverage reimbursement tends to be slightly better than.

Speaker Change: Then Medicaid or in some cases measurably better on the behavioral side I think it's a bit of a toss up because a lot of these exchange coverages.

Speaker Change: Pretty significant copays and deductibles and given the fact that the.

Speaker Change: Behavioral care on an absolute basis tends to have a much smaller bill I think refine that.

Speaker Change: <unk>, who have exchange coverage, often will not be able to cover there.

Steve G. Filton: So sometimes that switch from Medicaid to exchange coverage is not a favorable development on the behavioral side and may, I think, contribute a little bit to the slower growth in patient pay volumes on the behavioral side.

Speaker Change: The bill will not cover their copays and deductibles, so sometimes that switch from Medicaid to an exchange coverage is not a favorable development on the on the behavioral side in May I think contribute a little bit to the slower growth in patient volumes on the behavioral side.

Operator: Interesting. Okay, thanks so much. Thank you. One moment for our next question.

Speaker Change: Interesting okay. Thanks, so much.

Speaker Change: Thank you one moment for our next question.

Speaker Change: Okay.

Benjamin Hendrix: Our next question comes from the line of Ben Hendrix of RBC Capital Markets. Your line is now open. Okay.

Speaker Change: Our next question comes from the line of Ben Hendrix of RBC capital markets. Your line is now open.

Steve G. Filton: Great, thank you very much. Just a quick follow-up on the Illinois litigation. I appreciate that you know that this is unprecedented and different in fact and jurisdiction from Acadia's settlement, but that was also kind of equally unprecedented. I was just wondering if this is changing at all your approach to the RTC business, your strategy, capital allocation, and how you expect to kind of grow in your approach to behavioral health over the long term.

Benjamin Hendrix: Okay, great. Thank you very much just a quick follow up on the Illinois litigation I. Appreciate that this is unprecedented and different in fact in jurisdiction from Acadia settlement, but that was also kind of equally unprecedented I was just wondering if this is changing at all your approach to.

Benjamin Hendrix: The RTC business your strategy capital allocation and how you expect to kind of grow and in your approach to behavioral health over the long term. Thanks.

Steve G. Filton: No, I think it would be premature. Then, you know, again, as I commented earlier, I think that there still is a great deal of uncertainty surrounding this particular case and verdict that we had. You know, I'm certainly not an expert and wouldn't comment, you know, in any great detail on the case that Acadia had in, you know, other than to comment that it was a different state and that it was a case with multiple plaintiffs.

Speaker Change: No I think it would be premature then again.

Speaker Change: I commented earlier.

Speaker Change: I think that there still is a great deal of uncertainty surrounding this particular.

Speaker Change: Case and verdict that we had.

Speaker Change: I'm certainly not an expert in wouldn't comment in any great detail on the case that.

Speaker Change: Acadia had it other than to comment that it was a different state. It was the case with multiple plaintiffs there were multiple cases.

Steve G. Filton: There were multiple cases. However, our case was in a different jurisdiction, a single plaintiff, a single incident, etc. So, yeah, in response to your question, broadly, I don't think our approach to the business is being changed at the moment as a result of this verdict. We are very focused on the things we need to do to work through this verdict and to, you know, challenge it and appeal it, if necessary, at several different levels of the judicial system. But at the moment, I don't think it's having an impact on the way we think about the business. Thank you.

Speaker Change: Our case was in a different jurisdiction a single plane or a single incident et cetera. So yes, I think broadly in response to your question No I don't think our approach to the business.

Speaker Change: Is being changed at the moment as a result of this verdict. We are very focused on the things we need to do to work through this verdict and to challenge it and appeal it.

Speaker Change: If necessary and several different levels of the judicial system.

Speaker Change: But at the moment I don't think its having an impact on the way we think about the business.

Operator: Thank you. One moment for our next question. Our next question comes from the line of Kevin Fischbeck of Bank of America. Your line is now open.

Speaker Change: Thank you.

Speaker Change: Thank you one moment our next question.

Speaker Change: Our next question comes from the line of Kevin Fischbeck of Bank of America. Your line is now open.

Kevin Mark Fischbeck: saw some nice margin improvement in the quarter. You know, you've talked about a significant margin opportunity in both segments of time. Just want to get a little more color on what you think about the ultimate opportunity for margins, and the pace of that margin improvement. And it does feel like, and I don't know if this was in your original assumption, but it does feel like these supplemental payments are coming in maybe better than one might have thought a year or two ago.

Kevin Mark Fischbeck: Great. Thanks, I was wondering if you can talk a little bit about margins I guess, both segments saw some nice margin improvement in the quarter.

Kevin Mark Fischbeck: You've talked about a significant margin opportunity in both segments over time.

Kevin Mark Fischbeck: Just wanted to get a little more color update about how do we think about bolt on opportunity for margins the pace of that margin improvement and it does feel like and I don't know if this was in your original assumption, but it does seem like your supplemental payments or are coming in maybe better than one might have thought a year or two ago. So when I get your thoughts about how that might impact your view of where margins ultimately can be.

Kevin Mark Fischbeck: So I want to get your thoughts about how that might impact your view of where margins ultimately can be. And then, I guess, if you think about where we are versus where we could be, what are the main levers in each segment to kind of get from here to there?

Kevin Mark Fischbeck: And then I guess, if you think about where we are versus where it could be what are the main levers in each segment.

Steve G. Filton: Yeah, so, you know, Kevin, we have said for some time that we felt like the margin deterioration that we saw during the pandemic could and would largely be recovered in both business segments as we return to sort of more normal levels of growth. And I think, you specifically pointed out that acute care volumes broadly, not just ours, still haven't necessarily returned to pre-pandemic levels.

Speaker Change: I'm here today. Thanks.

Speaker Change: Yeah. So Kevin we have said for some time that.

Speaker Change: Sure.

Speaker Change: We felt like the margin deterioration that we saw during the pandemic.

Speaker Change: Could and would largely be recovered in both business segments.

Kevin Mark Fischbeck: As we return to more normal levels of growth.

Speaker Change: And I think you specifically pointed out that it could be bad acute care volumes broadly not just ours still haven't necessarily returned to pre pandemic levels. So we still think there is.

Steve G. Filton: So we still think there is, you know, a decent amount of runway there for continued acute care volume growth, as well as behavioral volume growth, which I addressed in a previous question. I think the benefit there is that we continue to have this strong revenue performance. I do think expenses are being better controlled by us in terms of our own actions and things that we control, productivity, et cetera.

Kevin Mark Fischbeck: A decent amount of runway there for continued acute care volume growth as well as behavioral volume growth, which I addressed in a previous question I think the benefit the areas that we continue to have this strong revenue performance I do think expenses are.

Kevin Mark Fischbeck: Being better controlled both by us in terms of our own.

Kevin Mark Fischbeck: The actions and things that we control productivity et cetera, but I also pay broadly wage inflation is becoming more manageable physician expense, which was a huge drag of the increase in physician expense in 'twenty three I think it was then.

Steve G. Filton: But I also think, broadly, wage inflation is becoming more manageable. Position expense, which was a huge drag, the increase in position expense in 23, I think, you know, is not going to be a drag for the full year 24. And so, you know, I think all those are opportunities for margin improvement. Obviously, as your question suggests, the increase in Medicaid supplemental payments is a significant opportunity as well.

Kevin Mark Fischbeck: Not going to be a drag for the full year 'twenty four.

Kevin Mark Fischbeck: So I think that's all those are opportunities for margin improvement.

Kevin Mark Fischbeck: Obviously as your question suggests the increase in Medicaid supplemental payments are a significant opportunity as well I think as Mark's comments.

Steve G. Filton: I think, you know, as Mark's comments reflected in our prepared remarks, we largely feel that those increased Medicaid reimbursements are making up for inadequate reimbursement over the last several years. But as you put it in the context of margin improvement, they should be very helpful because, at least at the current moment, there's not, you know, new or incremental expense associated with most of those Medicaid supplemental payments. So it's a big help in recovering those margins that deteriorated over the past few years because they were inadequately reimbursing us for our cost increases.

Kevin Mark Fischbeck: Reflected in our prepared remarks, we largely feel that those.

Kevin Mark Fischbeck: Those increased Medicare reimbursements are making up for inadequate reimbursement over the last several years, but as you put it into context of margin improvement.

Kevin Mark Fischbeck: They should be very helpful. Because at least at the current moment, there's not new or incremental expense associated with.

Kevin Mark Fischbeck: With most of those Medicaid supplemental payments. So it's a big help in recovering those margins that deteriorated over the past few years, because they were inadequately reimbursing us for our cost increases.

Steve G. Filton: You know, we'll see. Obviously, the first quarter was, you know, a significant improvement, as I alluded to in an earlier question, over our expectations. We'll see how the rest of the year plays out, but hopefully, we'll recover more of that, you know, margin deterioration than we originally anticipated in our guidance. But, you know, we'll see how the rest of the year plays out before making that judgment.

Kevin Mark Fischbeck: We will see I mean, obviously the first quarter was.

Kevin Mark Fischbeck: A significant improvement.

Kevin Mark Fischbeck: I alluded to in an earlier question over our expectations, we'll see how the rest of the year plays out, but hopefully will recover.

Kevin Mark Fischbeck: More of that margin deterioration than we originally anticipated in our guidance, but we'll see how the rest of the year plays out before making that judgment.

Steve G. Filton: Thanks. Thank you.

Speaker Change: Great. Thanks.

Operator: Thank you one moment for our next question. Our next question comes from the line of Jason Cassorla of Citi. Your line is now open.

Speaker Change: Thank you Manuel for next question.

Kevin Mark Fischbeck: Our next question comes from the line of Jason Cusano of Citi. Your line is now open.

Jason Cassorla: Great. Thanks. Good morning.

Steve G. Filton: I wanted to follow up on the supplemental payments and the acceleration there. Clearly, you guys are benefiting, but I guess, you know, your local market competitors would, by design, be benefiting as well. So I guess I'm just curious if you're seeing any changes from a competitive standpoint, either competitors accelerating the build out of the outpatient facility or anything along those lines. And if I could follow up quickly just on the Illinois litigation. I know there's a number of unknowns about how that could play out, but does that change how you're thinking from a share repo argument or capital deployment in the near term as you wait to see how that all unfolds?

Jason Cassorla: Great. Thanks, Good morning, I wanted to follow up on the supplemental payments and the acceleration. There clearly you guys are benefiting but I guess your local market competitors were by design be benefiting as well. So I guess I'm just curious if youre seeing any changes from a competitive standpoint, either competitors youre accelerating build out of the outpace.

Jason Cassorla: <unk> or anything along those lines and then if I could follow up quickly just on the litigation I know Theres a number of unknowns there.

Kevin Mark Fischbeck: How that could play out but does that change how you're thinking from a share repo argument our capital deployment in the near term as you wait to see how that all bulbs.

Steve G. Filton: Any help there would be great.

Steve G. Filton: Yeah, so in terms of your first question, Jason, I mean, I don't know that in any of our markets, we've detected or recognized a significant change in our competitor behavior as a result of the increase in supplemental payments. I'll make the point that obviously, these supplemental payments tend to benefit, as they're intended to, providers who are providing more, you know, service to Medicaid patients and have higher Medicaid utilization. I think that's why, you know, we struggled a little bit more during the pandemic. I think we tend to have slightly higher Medicaid utilization than some of our public peers. So I think, you know, we're benefiting from that now.

Speaker Change: That'd be great. Thanks.

Speaker Change: Yeah. So in terms of your first question Jason.

Speaker Change: Don't know that in any of our markets.

Speaker Change: Detect it or recognize the significant change in our competitor behavior as.

Speaker Change: As a result of the increase in supplemental payments.

Speaker Change: Make the point that obviously the supplemental payments tend to.

Speaker Change: Benefit as they are intended to.

Speaker Change: Providers, who are providing more.

Speaker Change: Service to Medicaid patients have higher Medicaid utilization I think thats why.

Speaker Change: We struggled a little bit more during the pandemic I think we tend to have a slightly higher Medicaid utilization in some of our public peers. So I think we're benefiting from that now but in terms of our local market now I don't know that again, the Medicaid supplemental payments are specifically affecting competitive behavior.

Steve G. Filton: But in terms of our local market now, I don't know that, again, the Medicaid supplemental payments are specifically affecting competitive behavior. Just like I don't know that it's specifically affecting, you know, our strategic sort of moves or actions in a specific market. As far as the Illinois impact on capital deployment or specifically share repurchase,

Speaker Change: Just like I don't know that its specifically affecting our strategic sort of moves.

Speaker Change: Our actions in a specific market.

Speaker Change: As far as the Illinois and impact on capital deployment, specifically share repurchase.

Steve G. Filton: I'll sort of reiterate the same comment that I made before. I think it's too early for us to really make any sort of, or have any sort of specific reaction until we see a further diminution of the uncertainty surrounding how this verdict and case will ultimately be adjudicated. At some point, you know, it could have an impact. But I think at the moment, we're waiting at least until we at least see the outcome of post-trial motions at the trial judge and trial court level. You know, at a minimum, I think we'll wait and see what happens there before deciding on our next step. Thank you. Thank you.

Speaker Change: Also to reiterate the same comment that I made before I think it's too early for us to really.

Speaker Change: Make any sort of.

Speaker Change: Or have any sort of specific reaction until we see a further there.

Speaker Change: Emulation of the uncertainty surrounding how this verdict in case will ultimately be adjudicated.

Speaker Change: At some point it could have an impact.

Speaker Change: But I think at the moment, we're waiting at a minimum until we see the outcome from post trial motions at.

Speaker Change: The trial judge and trial court level.

Speaker Change: So at a minimum I think we'll wait and see what happens there before deciding what our next steps are.

Operator: Thank you. Thank you one more for the next question. Our next question comes from Lionel Mayo of LeRink Partners. Your line is now open.

Speaker Change: Alright. Thank you. Thank you Manuel for next question.

Speaker Change: Okay.

Speaker Change: Our next question comes from the line of Whit Mayo of Leerink Partners. Your line is now open.

Benjamin Whitman Mayo: Hey, thanks. Good morning.

Steve G. Filton: Steve, can you maybe just comment on the Medicaid rule that was released this week on state-based programs? Maybe too early to have much insight, but it seems like some positives and some less positive things. Just curious how your team and legal advisors are looking at this.

Benjamin Whitman Mayo: Hey, Thanks, Good morning, Steve maybe.

Benjamin Whitman Mayo: Maybe you can just comment on the Medicaid rule that was released this week on state based programs, maybe too early to have.

Benjamin Whitman Mayo: Much insight, but it seems like some positives and some less positive things just curious how your team and legal advisers are looking at this.

Steve G. Filton: Yeah, so we were encouraged by the fact that in this rule, Medicaid did not place a cap on these supplemental programs. Instead, they focused, as they have in the past, I don't think this was a new focus of theirs, but they focused on these hold harmless agreements, which they have historically objected to. I am certainly not an expert legal expert in this regard, but I do know that we've certainly used legal experts and consultants and are aware of consultants who will adamantly argue that CMS is wrong on this particular issue and on the legality of these hold harmless arrangements.

Speaker Change: Yes, so I mean, we were encouraged with by the fact that in this rule Medicaid did not place a cap on the supplemental programs.

Speaker Change: Instead, they focused as they have in the past I don't think this is a new focus of theirs, but they focus on these hold harmless agreements, which they have historically objected to.

Benjamin Whitman Mayo: Im certainly not an expert legal expert in this regard, but I do know that we've certainly used.

Benjamin Whitman Mayo: Legal experts and consultants and are aware of consultants who.

Benjamin Whitman Mayo: We'll adamantly argue that CMS just as wrong on this particular issue and on the legality of these hold harmless arrangements.

Steve G. Filton: But regardless, I think there's a chance that CMS's objection to these hold harmless agreements might be successfully challenged legally over the course of the next several years. In any event, I think it was encouraging that CMS said that they were not going to essentially go after or enforce any actions against these hold harmless agreements until 2028, which I think means that if states are convinced that these arrangements are not going to withstand any sort of legal scrutiny, they have time to change them.

Benjamin Whitman Mayo: But regardless, so so I think theres a chance that.

Benjamin Whitman Mayo: CMS has objection to this hold harmless agreements might be successfully challenged legally over the course of the next several years.

Benjamin Whitman Mayo: Event, and I think it was encouraging that CMS said that they were not going to essentially go after our in force.

Benjamin Whitman Mayo: Any actions against these hold harmless agreements until 2028, which I think means that if states are convinced.

Benjamin Whitman Mayo: That these arrangements are not going to withstand legal scrutiny.

Steve G. Filton: So, you know, I would make the point that we did a quick analysis and think that maybe about a third of the supplemental payments we currently receive are under these hold harmless agreements that CMS has objected to, but two-thirds are not. And we think, again, that CMS has left the states plenty of time to restructure their arrangements if they're convinced that these hold harmless agreements will not, you know, hold up under legal scrutiny. So I think, you know, generally, we found that to be pretty encouraging in terms of the flexibility the states will have and the time they'll have to respond to this new rule.

Benjamin Whitman Mayo: They have time to change them. So I would make the point, we did a quick analysis and think that maybe about a third of the supplemental payments. We currently receive are under these hold harmless agreements that CMS has objected to that two thirds or not and we think again that CMS has left the stage plenty of time.

Benjamin Whitman Mayo: How to restructure their arrangements if they're convinced that these hold harmless agreements will not.

Benjamin Whitman Mayo: Hold up under legal scrutiny. So I think generally we found that all to be pretty.

Benjamin Whitman Mayo: Pretty encouraging in terms of the flexibility of the states will have in the time they'll have.

Benjamin Whitman Mayo: To respond to this new role.

Steve G. Filton: That's helpful, and just one other quick one, just thinking about the opening of West Henderson later this year, is that still a good timetable, and maybe any of the P&L considerations, startup losses, and I'm kind of curious how you think about how the volume may get redistributed in the market once that hospital opens. Thanks.

Speaker Change: That's helpful and just one other quick one just thinking about the opening of West Henderson later, this year or is that still a good timetable and maybe any of the P&L considerations startup losses.

Benjamin Whitman Mayo: I'm kind of curious how you think about how the volume may get redistributed in the market, what's that hospital opened stinks.

Steve G. Filton: So West Henderson is scheduled to open late in the year, you know, maybe in late November or December. So it shouldn't have much of an impact.

Benjamin Whitman Mayo: So west Henderson is scheduled to open late in the year, maybe in late November December so it shouldnt have much of an impact and there'll be some level of preopening costs, and then a month or two of probably operating losses as it opens.

Steve G. Filton: It'll be, you know, some level of pre-opening costs and then, you know, a month or two of probably operating losses as it opens. I think we didn't really highlight that in our call a couple of months ago, in part because I think we have a view that the continued improvement of our hospital in the Reno market will largely offset that. And as a consequence, you know, neither was likely to have a material impact on this year's results.

Speaker Change: I think we didn't really highlight that in our call a couple months ago in part because I think we have a view that the continued improvement of our hospital in the Reno market will largely offset that and as a consequence, neither was likely to have a material impact on this year is resolved.

Steve G. Filton: There's some amount of cannibalization that will take place, meaning, you know, we'll probably take some patients from our existing Henderson Hospital. But, you know, the real play for West Henderson is the significant population growth in that area that we think will allow the hospital to have a very successful opening. You know, quite frankly, the opening of Henderson at this point, I think five years ago, was very successful for the same reasons. And I think we're looking for West Henderson to have a very similar experience when it opens late this year. Okay, thanks. Thank you.

Speaker Change: There is some amount of cannibalization that will take place, meaning we'll take some patients probably from our existing Henderson hospital.

Speaker Change: But.

Benjamin Whitman Mayo: The real play for West Henderson is.

Benjamin Whitman Mayo: <unk> population growth in that area.

Benjamin Whitman Mayo: We think will allow the hospitals to have a very successful opening.

Benjamin Whitman Mayo: Quite frankly, the opening of Henderson at this point I think five years ago was very successful for the same reasons and I think we're looking for west Anderson to have a very similar experience when it opens late this year.

Speaker Change: Okay. Thanks.

Operator: Thank you. One moment for our next question. Our next question comes from the line of Sarah James of Cantor Fitzgerald. Your line is now open.

Speaker Change: Thank you Amit for next question.

Speaker Change: Okay.

Speaker Change: Our next question comes from the line of Sarah James of Cantor Fitzgerald. Your line is now open.

Sarah Elizabeth James: Yeah, so I actually think, Sarah, that the $68 million in premium pay in Q1 is pretty similar to what we've been running the last few quarters. You're right, we have talked kind of about a goal of getting into sort of the mid-50s, but I think what's prevented us from doing that is these really robust acute care volumes. I'll make the point that the 4.5%...

Speaker Change: Okay.

Sarah Elizabeth James: Thank you.

Sarah Elizabeth James: Can you clarify the 5 million sequential uptick in premium pay was that related to the acute volume strength than does your $50 million a quarter premium pickle assume a reversion to normal acute volumes and how do you think about strategy and timeline to get to that $50 million.

Speaker Change: Yes, so actually thing Sara that the $68 million in premium pay in Q1 is pretty similar to what we've been running the last few quarters. You are right. We have talked about a goal of getting into sort of the mid fifty's, but I think what's prevented us from doing that is these really robust.

Speaker Change: Acute care volumes and I'll make the point that the.

Steve G. Filton: The Adjusted Admission Increase in Q1 of this year is compared to, I think, in excess of a 10% increase in adjusted admissions last year's first quarter. So you're really talking about, I think, some pretty historically high acute care volume numbers. And, yeah, I think we acknowledge that it will be difficult to get much below the premium pay levels we're currently running at unless the acute care volume is moderated, and quite frankly, you know, we'd be perfectly happy if they weren't. I think at this level of acute care volumes, we're relatively satisfied with having to run this level of premium pay. Great. Thank you.

Speaker Change: Four 5%.

Speaker Change: Adjusted admission increase in Q1 of this year is compared to I think in excess of a 10% increase in adjusted admissions last year's first quarter. So you're really talking about I think some pretty.

Speaker Change: Historically high acute care volume numbers.

Speaker Change: Yes.

Speaker Change: I think we acknowledged that it will be difficult.

Speaker Change: To get much below the premium pay levels. We're currently running at and less acute care volumes moderate and quite frankly, we'd be perfectly happy if they don't I think at these level of acute care at this level of acute care volumes.

Speaker Change: We're relatively satisfied with having to run this level of premium pay.

Speaker Change: Great. Thank you.

Speaker Change: Thank you our next question.

Speaker Change: Our next question comes from the line of Joshua Raskin of Nephron Research. Your line is now open.

Operator: Thank you. One moment for our next question. Our next question comes from the line of Joshua Raskin of Nifron Research. Your line is now open. Hi, thanks, good morning.

Joshua Richard Raskin: Hi, Thanks, good morning.

Joshua Richard Raskin: I was wondering if you give a broader update on capex spending and maybe capacity increases in specific areas of focus and then just a quick follow up on <unk>.

Joshua Richard Raskin: Vegas, and West Henderson opening I'm curious, if las Vegas on the acute care side.

Joshua Richard Raskin: Sure. So from a CapEx perspective, Josh, you know, we continue to invest in the acute side in those areas where I think acute inpatient hospitals really differentiate themselves, meaning emergency room services, emergency room capacity, surgical services, both in and outpatient, and again, the sort of higher acuity, higher-end services that we don't have as much competition in, but we also continue to invest in outpatient. We have a very successful freestanding emergency department initiative that has been underway for a number of years. I think we'll finish this year with probably 30 freestanding EDs around the country, whereas five years ago, I don't think we had any.

Joshua Richard Raskin: Volumes are demand, they're running above company average and maybe just a little bit more color on sort of shorter term trends there.

Joshua Richard Raskin: Okay.

Speaker Change: Sure. So I think from a capex perspective.

Joshua Richard Raskin: Josh.

Joshua Richard Raskin: I think we.

Joshua Richard Raskin: We continue to invest.

Joshua Richard Raskin: Invest on the acute side.

Joshua Richard Raskin: In those areas, where I think acute inpatient hospitals really differentiate themselves meeting emergency room services emergency room capacity surgical services, both in and outpatient.

Joshua Richard Raskin: And again that sort of higher acuity.

Joshua Richard Raskin: Higher end services that we don't have as much competition in but we also continue to invest in outpatient and we have very successful freestanding emergency department.

Joshua Richard Raskin: Initiative that has been underway for a number of years I think we'll finish this year with probably 30 freestanding eds around the country, whereas five years ago, we didn't have any.

Steve G. Filton: And we also continue to invest in some freestanding surgical services facilities, freestanding imaging centers, et cetera. On the behavioral side, it's mostly building more inpatient capacity now that we are, at least in many markets and many facilities, more fully staffed, but also in that business investing in freestanding outpatient developments, telemedicine, addiction treatment, et cetera. So I think, again, in both business segments, CapEx really runs the gamut of the sort of full service continuum that our facilities and our integrated providers tend to provide in their markets.

Joshua Richard Raskin: And we can also continue to invest in some freestanding surgical services facilities freestanding imaging centers et cetera.

Joshua Richard Raskin: On the behavioral side, it's mostly.

Joshua Richard Raskin: Building it more inpatient capacity now that we are at.

Joshua Richard Raskin: At least in many markets in many facilities more fully staffed but also in that in that business investing in freestanding outpatient developments.

Joshua Richard Raskin: Telemedicine.

Joshua Richard Raskin: Addiction treatment et cetera. So.

Joshua Richard Raskin: I think again in both business segments, the Capex really runs the gamut.

Joshua Richard Raskin: Sort of full service continue and that our facilities and our integrated <unk>.

Joshua Richard Raskin: <unk>.

Steve G. Filton: As far as the specific questions about Las Vegas, look, I think one of the comments that we've made over the last several years is that, you know, one of the reasons why I think we've been slower to recover those margins that we talked about in a previous question than some of our peers is that, you know, we've been slower to, you know, emulate some of the geographies around the country that have recovered more quickly from the pande Texas and Florida, most specifically, while we have a presence in those geographies, we tend to have a bigger footprint in places like Nevada, California, the District of Columbia that have tended to recover more slowly from the pandemic, just, you know, from a broader economic perspective.

Joshua Richard Raskin: To provide in their markets.

Joshua Richard Raskin: As far as the specific questions about Las Vegas, and look I think one of the comments that we've made over the last several years is that.

Joshua Richard Raskin: One of the reasons why I think we have been slower to recover those margins that we talked about in the previous question than some of our peers is that.

Joshua Richard Raskin: Some of the geographies around the country that have recovered more quickly from the pandemic, Texas and Florida.

Joshua Richard Raskin: More specifically, while we have a presence in those geographies.

Joshua Richard Raskin: Geographies, we tend to have a bigger footprint in places like Nevada, California. The addition of Columbia that have tended to recover more slowly from the pandemic.

Steve G. Filton: But I think in the last couple of quarters, the recovery trajectory in Nevada has definitely accelerated, you know, separate and apart from the Medicaid Supplemental Program, which obviously is quite helpful in that market or that state. You know, we've seen, I think, fundamental business metrics improve pretty dramatically in the last couple of quarters.

Joshua Richard Raskin: From a broader economic perspective, but I think in the last couple of quarters.

Joshua Richard Raskin: The the recovery trajectory in Nevada has definitely accelerated.

Joshua Richard Raskin: And.

Joshua Richard Raskin: Separate and apart from the Medicaid supplemental program, which obviously is quite helpful in that market or that state.

Joshua Richard Raskin: We've seen I think fundamental business.

Joshua Richard Raskin: Metrics improved pretty dramatically in the last couple of quarters.

Operator: Thank you. One moment for the next question. Again, as a reminder, to ask a question, you will need to press star 11 on your telephone.

Speaker Change: Perfect. Thanks.

Speaker Change: Thank you William for next question.

Speaker Change: Again as a reminder to ask a question you will need to press star one on your telephone.

Operator: Hi, good morning. I think you commented that the

Speaker Change: Our next question comes from the line of Andrew Mok of Barclays. Your line is now open.

Andrew Mok: Sure, Andrew. I mean, clearly, you know, just from a mathematical perspective, the amount that we exceeded our own internal budget and consensus numbers for the first quarter would already put us on the trajectory, you know, towards the high end of our guidance. I think most people know, but I'll just repeat for everybody's sake, you know, we have never revised guidance after the first quarter. It's just something that we don't, you know, generally think is a kind of a prudent thing to do.

Andrew Mok: Hi, Good morning, I think you commented that the quarter with above your internal expectation, you're expecting behavioral volumes to improve from here and there is potential upside to the initial forecast for supplemental payment, but putting all those together any updated thoughts on where you think you fit within the unchanged guidance for the year. Thanks.

Andrew Mok: Okay.

Speaker Change: Sure Andrew I mean, clearly just from a mathematical perspective.

Speaker Change: The amount that we exceeded.

Speaker Change: Our own internal budget and consensus numbers for the first quarter, we'd already put us on a trajectory.

Andrew Mok: Towards the high end of our guidance.

Speaker Change: I think most people know, but I'll just repeat for everybody's sake, we have never.

Steve G. Filton: I think if the trends continue, however, into Q2, that's certainly a possibility, you know, a guidance revision at the end of Q2 if these trends continue. Again, I think the trends that I would specifically highlight that were better than we expected in Q1 are acute care volumes, which I think we thought might moderate a little bit more than they actually did, and behavioral pricing, which I think we thought might moderate a little more than they did.

Speaker Change: The revised guidance after the first quarter, it's just something that we don't generally think is.

Speaker Change: Kind of a prudent thing to do I think if the trends continue however into Q2.

Speaker Change: That's certainly a possibility guidance revision at the end of Q2. If these trends continue again I think the trends that I would specifically highlight were better than we expected in Q1 of our acute care volumes, which I think we thought might moderate a little bit more than they actually did in behavioral pricing.

Speaker Change: Which I think we thought might moderate a little bit more than they did obviously, we're pleased that neither did we are focused on keeping both of those metrics as high as they can be.

Steve G. Filton: Obviously, we're pleased that neither did. We're focused on keeping both of those metrics as high as they can be, but to me, that's what we'll watch, you know, most closely in Q2. If those metrics remain strong and steady in Q2, I think it's, you know, much more likely that we would have a guidance revision at that point.

Speaker Change: But to me that's what we will watch most closely in Q2, if those metrics remained.

Speaker Change: Our strong and steady in Q2.

Speaker Change: Thank you.

Speaker Change: Much more likelihood we'd have a guidance revision at that point in time.

Steve G. Filton: Great, and then just a follow-up, I think you commented on inter-quarter and April volumes in the acute segment. I was just hoping you could do the same thing in the behavioral segment and, you know, maybe comment on trends exiting the quarter to help support the higher growth outlook.

Speaker Change: Great and then just a follow up I think you commented on future quarter and April volumes in the acute segment, just hoping you could do the same thing in the behavioral segment, maybe comment contract trends exiting the quarter to help support the higher growth outlook.

Steve G. Filton: Yeah, I think, you know, I forget if the comments that I made were specifically about the acute segment, but I think, you know, the trends were similar in both. You know, I think I commented at some conferences earlier this quarter that the behavioral business got off to a bit of a slow start with some bad weather in bad winter weather in states that don't necessarily usually expect bad winter weather in the south central part of the country. But, you know, behavioral volumes recovered in late January and certainly in February, but I think they had the same calendar issues as the acute segment did in March, softer volumes, etc.

Speaker Change: Yes, I think.

Speaker Change: I forget if the <unk>.

Speaker Change: Comment on EMEA were specifically about the acute segment, but I think the trends.

Speaker Change: We're similar in both.

Speaker Change: I think I commented in some conferences earlier this quarter that the behavioral business got off to a bit of a slow start with some bad weather.

Speaker Change: In bad winter weather in the states that don't necessarily usually expect bad winter weather in the south central part of the country.

Speaker Change: Favre volumes recovered in late January and certainly in February, but I think had the same cal.

Speaker Change: Calendar issues as the acute segment did in <unk>.

Speaker Change: In March softer volumes et cetera.

Steve G. Filton: Particularly in that child and adolescent population, which tends to really soften when school is out. But, yeah, I mean, I think I'd make the same comment. I think, you know, we would expect to recover that softness, if not in April but, you know, then, then over the course of the second quarter. And I think Mark alluded in his prepared comments that our general expectation at the beginning of the year was that behavioral volumes would incrementally improve as the year went on. And that's still our expectation.

Speaker Change: Particularly in that child, and adolescent population, which tends to really soften when school is out.

Speaker Change: But yes, I mean, I think I'd make the same comment I think we would expect to recover that softness if not in April but then over the course of the second quarter and I think mark alluded to in his prepared comments that our general expectation at the beginning of the year was that behavioral volumes would incremental.

Speaker Change: Improved as the year went on and Thats still our expectation.

Steve G. Filton: Thank you. I'm showing no further questions at this time. I'd now like to turn it back to Steve Filton for closing remarks.

Speaker Change: Great. Thank you.

Speaker Change: Thank you I'm showing no further questions at this time I would now like to turn it back to Steve Filton for closing remarks.

Steve G. Filton: We'd just like to thank everybody for their time and look forward to speaking with everybody next quarter.

Steve G. Filton: We'd just like to thank everybody for their time and look forward to speaking with everybody next quarter.

Operator: Thank you for your participation in today's conference. This concludes the program. You may now disconnect.

Speaker Change: Thank you for your participation in today's conference. This concludes the program you may now disconnect.

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