Q1 2024 Community Health Systems Inc Earnings Call

Operator: Good day, and welcome to the Community Health Systems First Quarter 2024 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal conference specialists by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. And to withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Mr. Anton Hie, Vice President of Investor Relations. Please go ahead, sir.

Good day and welcome to the community Health systems first quarter 2024 earnings Conference call. All participants will be in a listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero.

Operator: After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your Touchtone phone and to withdraw your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Mr. Anton Hie, Vice President of Investor Relations. Please go ahead Sir.

Anton Hie: Thank you, Chuck. Good morning, everyone, and welcome to Community Health Systems' first quarter 2024 conference call. Joining me on today's call are Tim Hingtgen, Chief Executive Officer; Kevin Hammons, President and Chief Financial Officer; and Dr. Lynn Simon, President of Healthcare Innovation and Chief Medical Officer. Before we begin, I must remind everyone that this conference call may contain certain forward-looking statements, including all statements that do not relate solely to historical or current facts.

Anton Hie: Thank you Chuck and good morning, everyone and welcome to community Health Systems' first quarter 2024 Conference call. Joining me on today's call are Jim Henson, Chief Executive Officer, Kevin Hammons, President and Chief Financial Officer, and Dr. Lynn Simon President Health care innovation, and Chief Medical Officer.

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

Anton Hie: These forward-looking statements are subject to a number of known and unknown risks, which are described in headings such as risk factors in our annual report on Form 10-K and other reports filed with or furnished to the SEC. Actual results may differ significantly from those expressed in any forward-looking statements in today's discussion. We do not intend to update any of these forward-looking statements.

Anton Hie: Forward looking statements are subject to a number of known and unknown risks, which are described in headings such as risk factors in our annual report on Form 10-K, and other reports filed with or furnished to the SEC and actual results may differ significantly from those expressed in any forward looking statements in today's discussion we.

Anton Hie: We do not intend to update any of these forward looking statements yes.

Anton Hie: Yesterday afternoon, we issued a press release with our financial statements and definitions and calculations of adjusted EBITDA and adjusted EPS. We've also posted a supplemental slide presentation on our website. All calculations we will discuss exclude impairment expense as well as gains or losses on the sale of businesses, as well as expenses from government and other legal matters and related costs. With that said, I'll turn the call over to Tim Hingtgen, Chief Executive Officer.

Anton Hie: Yesterday afternoon.

Anton Hie: Press release, with our financial statements and definitions and calculations of adjusted EBITDA and adjusted EPS. We've also posted a supplemental slide slide presentation on our website.

Anton Hie: All calculations, we will discuss exclude impairment expense as well as gains or losses on the sale of businesses expense from government and other legal matters and related costs.

<unk> from business transformation costs and expenses related to employee termination benefits and other restructuring charges, but that said I will turn the call over to Jim Henson Chief Executive Officer. Thanks, Anton Good morning, and thank you for joining our first quarter conference call.

Tim L. Hingtgen: Thanks, Anton. Good morning, and thank you for joining our first quarter conference call. At CHF, 2024 is off to a good start with the solid operating and financial results achieved in the first quarter. Same store net revenue increased 5.7% compared to the first quarter of 2023. Same-store admissions increased 3.8%, and adjusted admissions were up 1.9%. The prior year comp was our most challenging of the year, with strong same-store admissions growth of 4.8% and adjusted admissions of 9.4%.

Jim Henson: CHS 2024 is off to a good start with the solid operating and financial results achieved in the first quarter.

Jim Henson: Same store net revenue increased five 7% compared to the first quarter of 2023.

Jim Henson: Same store admissions increased three 8% and adjusted admissions were up one 9%. The prior year comp was our most challenging of the year with strong same store admissions growth of four 8% and adjusted admissions up nine 4%. So we were very pleased to see continued strong demand.

Tim L. Hingtgen: So we were very pleased to see continued strong demand. Same-store ED visits increased by 3.4% in the quarter, and surgery slightly increased. In the first quarters of both 2023 and 2024, surgical volume was well above the first quarter of 2019, beating our pre-COVID baseline by approximately 10%. This growth, coupled with strong expense management, led to 120 basis points of margin expansion year over year. Adjusted EBITDA came in at $378 million, up 12.8% from the prior period on a consolidated basis, with growth in our core portfolio outpacing the impact of prior period divestitures.

Jim Henson: Store EDI visits increased three 4% in the quarter and search surgery slightly increased in the first quarter is about 2023 and 2024 surgical volume was well above the first quarter of 2019, beating our pre COVID-19 baseline by approximately 10%.

Tim L. Hingtgen: Coupled with strong expense management led to 120 basis points of margin expansion year over year adjusted.

Jim Henson: EBITDA came in at $378 million up 12, 8% from the prior period on a consolidated basis with growth in our core portfolio outpacing the impact of prior period divestitures.

Tim L. Hingtgen: This first quarter performance puts us very much in line with the guidance provided in February, but our work is not yet done, and our leaders remain focused on the opportunities ahead of us. We continue to make steady progress on each of our near-term priorities, and we are especially pleased with investments that are accelerating growth. We opened our new tower in Knoxville, Tennessee, a few weeks ago, and our Baldwin County, Alabama, campus expansion remains on schedule to open by the end of the year to address the strong demand for health care services in that fast-growing market.

Jim Henson: This first quarter performance puts us very much in line with the guidance provided in February but our work is not yet done and our leaders remain focused on the opportunities ahead of us.

Tim L. Hingtgen: We continue to make steady progress in each of our near term priorities and we are especially pleased with investments that are accelerating growth.

Jim Henson: We opened our new tower in Knoxville, Tennessee, a few weeks ago, and our Baldwin County, Alabama campus expansion remains on schedule to open by the end of the year to address the strong demand for healthcare services in that fast growing market.

Tim L. Hingtgen: Investments continue into incremental access points to expand outpatient capacity in multiple markets, which included the opening of two new ASCs during the quarter in our Tucson, Arizona, and Cedar Park, Texas markets. Another high-impact initiative that we've been updating you on is our work to outsource the management of certain hospital-based medical specialties. In a minute, Kevin will share details about how the financial impact from this initiative is tracking to our expectations, but I want to address the clinical and operational improvements we are seeing.

Tim L. Hingtgen: Investments continue into incremental access points to expand outpatient capacity in multiple markets, which included the opening of two new <unk> during the quarter and our Tucson, Arizona in Cedar Park, Texas markets.

Tim L. Hingtgen: Another high impact initiatives that we've been updating you on is our work to in source the management of certain hospital based medical specialties in a minute Kevin will share details about how the financial impact from this initiative is tracking to our expectations, but I want to address the clinical and operational improvements we are saying.

Tim L. Hingtgen: We now manage 29 ED and hospitalist programs, and across the board, we are realizing better quality metrics, improved throughput, lower premium pay utilization, and greater patient satisfaction. These improvements are consistent with our enterprise goals, and it is gratifying to see so much progress, especially when you consider that we have been self-operating these programs for less than a year. We've expanded our efforts to outsource select anesthesia programs with two sites already in place and additional opportunities expected to come online in the months ahead.

Jim Henson: We now manage 29, <unk> and hospitalist programs and across the board, we are realizing better quality metrics improved throughput lower premium pay utilization and greater patient satisfaction. These improvements are consistent with our enterprise goals and it is gratifying to see so much progress, especially.

Tim L. Hingtgen: When you consider that we have been self operating these programs for less than a year.

Tim L. Hingtgen: We've expanded our efforts to in source select anesthesia programs with two sites already in place and additional opportunities expected to come online in the months ahead.

Tim L. Hingtgen: We don't often take the opportunity to share our internal programs that are driving alignment across the organization, but today, I want to mention that we recently hosted our 2024 Health Systems CEO and Medical Staff Leadership Conferences. We spent time reviewing our goals and the initiatives that will drive results over the next few years. It was energizing to see so much commitment from our local health system leaders, who are absolutely focused on executing our strategies and leveraging the resources and support available across the CHS organization.

Speaker Change: We don't often take the opportunity to share our internal programs that are driving alignment across the organization, but today I want to mention that we recently hosted our 2024 health systems, CEO and medical staff leadership conferences.

Tim L. Hingtgen: We spent time reviewing our goals and the initiatives that will drive results over the next few years.

Tim L. Hingtgen: It was energizing to see so much commitment from our local health system leaders, who are absolutely focused on executing our strategies and leveraging the resources and support available across the CHS organization I remain excited about the opportunities ahead, this year and into the future.

Tim L. Hingtgen: I remain excited about the opportunities ahead this year and into the future. During the conferences, we also discussed our enthusiasm to be on the leading edge of innovation, leveraging our size and scale to discover new opportunities and to improve care design, delivery, and outcomes, utilizing technology and joint venture partners that are focused on moving healthcare forward. Last quarter, Dr. Miguel Benet talked about our partnership with Google Cloud and worked to unify our data into a single platform that can enable the future use of AI in healthcare settings. This quarter, I've asked Dr. Lynn Simon, President of Healthcare Innovation and our CMO, to share more about innovation across DHS and, in particular, our new partnership with Mark Cuban's Cost Plus Drug Company.

Tim L. Hingtgen: During the conferences, we also discussed our enthusiasm to be on the leading edge of innovation, leveraging our size and scale to discover new opportunities and to improve care design delivery and outcome utilizing technology and joint venture partners that are focused on moving health care forward land.

Tim L. Hingtgen: Last quarter, Dr. <unk> talked about our partnership with Google Cloud and work to unify our data into a single platform that can enable that future use of AI in health care settings. This quarter I've asked Dr. Lynn Simon President of healthcare innovation, and our CMO to share more about innovation across CHS.

Tim L. Hingtgen: And in particular, our new partnership with Mark Cuban cost plus drug company Lynn.

Lynn T. Simon: Thanks, Tim over the past several quarters, we have implemented a number of innovative programs at CHF, including remote monitoring for people with chronic conditions virtual support for people living with depression anxiety and other behavioral health issues and AI informed early warning system that alerts caregivers to potentially concerning trends.

Lynn T. Simon: Thanks, Tim. Over the past several quarters, we have implemented a number of innovative programs at CHS, including remote monitoring for people with chronic conditions, Virtual Support for People Living with Depression, Anxiety, and Other Behavioral Health Issues, an AI-informed early warning system that alerts caregivers to potentially concerning trends during childbirth, and a virtual, tech-enabled, tele-sitting initiative that is improving safety for hospitalized patients As we consider our approach to innovation, we also recognize there are opportunities to rethink and even disrupt the way we purchase products and services.

Lynn T. Simon: During childbirth and a virtual tech enabled <unk> initiative that is improving safety for hospitalized patients at high risk for calls as.

Lynn T. Simon: We consider our approach to innovation. We also recognize there are opportunities to racing and even disrupt the way we purchase products and services.

Lynn T. Simon: As an example, our relationship with Mark Cuban cost plus drug company as a potential to generate significant advantages for our affiliated hospitals by addressing rising drug costs and drug shortages.

Lynn T. Simon: We recently became the first health care system to purchase injectable drugs produced in the new cost plus drugs manufacturing plant in Dallas, specifically repurchased epinephrine, a lifesaving drug on the Fda's list of current drug shortages and norepinephrine for our hospitals in Texas and Pennsylvania.

Lynn T. Simon: As an example, our relationship with Mark Cuban Cost Plus Drug Company has the potential to generate significant advantages for our affiliated hospitals by addressing rising drug costs and drug shortages. We recently became the first healthcare system to purchase injectable drugs produced in the new Cost Plus Drugs manufacturing plant in Dallas. Specifically, we purchased epinephrine, a life-saving drug on the FDA's list of current drug shortages, and norepinephrine for our hospitals in Texas and Pennsylvania.

Lynn T. Simon: Through this strategic partnership CHS will be advising and collaborating with Mark Cuban cost plus drive about additional ways. We can address pharmaceutical cost avoid drug shortages reduce waste and improve medication administration safety and patient care. We expect this work to benefit not only CHS.

Speaker Change: But also other forward looking health care organizations, Tim Thanks, Lynn before I turn the call over to Kevin I'd like to recognize CHS hospitals and providers for a product Complishments Ah.

Lynn T. Simon: A recent report from the company reputation a global online reputation management firm that specializes in industries, such as healthcare financial services hospitality and property management recognized CHS as number one among the 50 largest health care systems for online reputation and this is the third year in a <unk>.

Lynn T. Simon: Through this strategic partnership, CHS will be advising and collaborating with Mark Cuban Cost Plus Drugs about additional ways we can address pharmaceutical costs, avoid drug shortages, reduce waste, and improve medication administration safety and patient care. We expect this work to benefit not only CHS but also other forward-looking healthcare organizations. Thanks, Lynn.

Lynn: Well, we've ranked number one in 2023, our hospitals earned accumulative average four five star rating on review sites, such as Google and it providers earned four eight stars. This speaks to our commitment to safety quality and patient experience. We appreciate the confidence of our patients and thank our local health systems for.

Tim L. Hingtgen: Before I turn the call over to Kevin, I'd like to recognize CHS Hospitals and Providers for a proud accomplishment. A recent report from Reputation, a global online reputation management firm that specializes in industries such as healthcare, financial services, hospitality, and property management, recognized CHS as number one among the 50 largest healthcare systems for online reputation. And this is the third year in a row we've ranked number one.

Tim L. Hingtgen: All they do to make health care accessible compassionate and worthy of this very positive feedback now I'll turn the call over to Kevin to review financial results Kevin.

Kevin: Thank you, Tim and good morning, everyone.

Kevin: As Tim indicated we were pleased with financial results delivered in the first quarter, which put us on track to achieve the guidance for 2024 that we provided in February.

Kevin: We're also pleased to see the momentum in volume growth that began last year continued into the first quarter of 2024 with three 8% growth in admissions.

Tim L. Hingtgen: In 2023, our hospitals earned a cumulative average 4.5 star rating on review sites such as Google, and our providers earned 4.8 stars. This speaks to our commitment to safety, quality, and patient experience. We appreciate the confidence of our patients and thank our local health systems for all they do to make healthcare accessible, compassionate, and worthy of this very positive feedback.

Tim L. Hingtgen: 9% growth in adjusted admissions.

Tim L. Hingtgen: 0.4% growth in surgeries stepping over a particularly difficult comp from prior year.

Tim L. Hingtgen: Net operating revenues for the quarter were $3 billion $140 million, representing consolidated year over year growth of 1%.

Tim L. Hingtgen: On a same store basis net revenues were up five 7% driven by one 9% growth in adjusted admissions and a three 7% increase in net revenue per adjusted admission, which was positively impacted by improved rates.

Kevin J. Hammons: Thank you, Tim, and good morning, everyone. As Tim indicated, we were pleased with the financial results delivered in the first quarter, which put us on track to achieve the guidance for 2024 that we provided in February. We're also pleased to see the momentum and volume growth that began last year continued into the first quarter of 2024, with 3.8% growth in admissions, 1.9% growth in adjusted admissions, and 0.4% growth in surgery, stepping over a particularly difficult comp from prior years.

Kevin J. Hammons: Incremental state Medicaid reimbursement and strong inpatient growth.

Kevin J. Hammons: Although volume improvements continued to be led by increases in Medicare advantage business, we did see a slight slightly more balanced growth profile in the first quarter of 2024 with improvements in commercial business as well.

Kevin J. Hammons: Adjusted EBITDA for the first quarter was $378 million compared with $335 million in the prior year period and $386 million in the fourth quarter of 2023.

Kevin J. Hammons: Considering the sequential effect from the <unk> divestiture that closed late last year and lower recognition of Mississippi Medicaid expanded funding in the first quarter compared to the fourth quarter, we view our production with nearly flat sequential EBITDA as a sign of progress.

Kevin J. Hammons: Net operating revenues for the quarter were $3,140,000,000, representing consolidated year-over-year growth of 1% on a same-store basis. Net revenues were up 5.7%, driven by 1.9% growth in adjusted admissions and a 3.7% increase in net revenue per adjusted admission, which was positively impacted by improved rates, Incremental State Medicaid Reimbursement, and Strong Inpatient Grip.

Kevin J. Hammons: Margin for the quarter was 12% a modest decline sequentially. Despite the typical seasonal headwinds that affect first quarter performance, such as higher unemployment taxes and annual resets of Copays and deductibles in our commercial book on a year over year basis margin improved 120 basis points.

Kevin J. Hammons: We believe this is a strong start relative to our guidance for mid 12% adjusted EBITDA margin for 2024, and we expect further margin expansion through strong cost controls continued volume growth and top line leverage.

Kevin J. Hammons: Although volume improvements continue to be led by increases in Medicare Advantage business, we did see a slightly more balanced growth profile in the first quarter of 2024, with improvements in commercial business as well. Adjusted EBITDA for the first quarter was $378 million, compared with $335 million in the prior year period and $386 million in the fourth quarter of 2023. Considering the sequential effect from the Bervera divestiture that closed late last year and lower recognition of Mississippi Medicaid expanded funding in the first quarter compared to the fourth quarter, we view our production of nearly flat sequential EBITDA as a sign of progress. Margin for the quarter was 12%. A modest decline sequentially, despite the typical seasonal headwinds that affect first quarter performance, such as higher unemployment taxes and annual resets of copays and deductibles in our commercial book.

Kevin J. Hammons: We were again pleased with our performance on labor costs in the quarter.

Kevin J. Hammons: The average hourly wage rate increased approximately 3% year over year.

Kevin J. Hammons: Recall, we are anticipating an approximate 4% average hourly inflation rate for the full year 2024.

Kevin J. Hammons: Our progress in contract Labor continued in the first quarter with contract labor spend of approximately $48 million compared to $52 million in the fourth quarter and approximately $85 million in the first quarter of 2020 through.

Kevin J. Hammons: This performance was consistent with expectations and primarily reflects reduced utilization of contract nursing.

Kevin J. Hammons: As a result of our retention and recruitment efforts as well as a lower hourly contract labor rate.

Kevin J. Hammons: We were also pleased to see continued progress from our in sourcing and other initiatives to address medical specialist fees that have surged over the past two years.

Kevin J. Hammons: Medical specialist fees were flat compared to the first quarter of 2023 and slightly down from the fourth quarter.

Kevin J. Hammons: On a year-over-year basis, margin improved to 120 basis points. We believe this is a strong start relative to our guidance for a mid 12% adjusted EBITDA margin for 2024, and we expect further margin expansion through strong cost controls, continued volume growth, and top-line leverage. We were again pleased with our performance on labor costs in the quarter. The average hourly wage rate increased approximately 3% year over year. Recall, we are anticipating an approximate 4% average hourly inflation rate for the full year 2024.

Kevin J. Hammons: As Tim noted we are seeing strong operational improvements in the 'twenty nine EDI and hospitalist programs that we have brought in house since last fall into anesthesia programs brought it in house thus far.

Kevin J. Hammons: We believe we can continue to scale up these in sourcing efforts and are well positioned to keep further increases under control despite ongoing pressure.

Kevin J. Hammons: Including those in anesthesia.

Kevin J. Hammons: Okay.

Kevin J. Hammons: Cash flows from operations were $96 million for the first quarter of 2024, compared with $5 million in the year ago period.

Kevin J. Hammons: This improvement was primarily the result of improved earnings as well as the timing of collections from the buildup of certain accounts receivable at year end, which resulted in the overall net decrease in accounts receivable of approximately $39 million from December 31 2023.

Kevin J. Hammons: Our progress in contract labor continued in the first quarter with contract labor spend of approximately $48 million compared to $52 million in the fourth quarter and approximately $85 million in the first quarter of 2023. This performance was consistent with expectations and primarily reflects reduced utilization of contract nursing as a result of our retention and recruitment efforts, as well as lower hourly contract labor rates. We were also pleased to see continued progress from our in-sourcing and other initiatives to address medical specialties, which have surged over the past two years. Medical specialties were flat compared to the first quarter of 2023 and slightly down from the fourth quarter.

Kevin J. Hammons: Capital expenditures for the quarter were $93 million on track for our 2024 guidance range of $350 million to $400 million provided in February.

Kevin J. Hammons: As announced last week, we signed an agreement to divest to Nova Cleveland located in Cleveland, Tennessee for approximately $160 million plus the potential for an additional contingent consideration payments.

Kevin J. Hammons: We continue to evaluate opportunities for further divestitures across a handful of markets that could total more than $1 billion in total proceeds.

Kevin J. Hammons: The divestiture of to know the Cleveland is anticipated to close in the third quarter and.

Kevin J. Hammons: And we believe that one or more additional transactions could close within the calendar year, providing substantial capital for the company to redeploy.

Kevin J. Hammons: Net debt to trailing adjusted EBITDA was seven seven times slightly improved from 788 times at year end 2023.

Kevin J. Hammons: As Tim noted, we have seen strong operational improvements in the 29 ED and hospice programs that we have brought in-house since last fall and two anesthesia programs brought in-house thus far. We believe we can continue to scale up these insourcing efforts and are well positioned to keep further increases under control despite ongoing pressure, including those in anesthesia. Cash flows from operations were $96 million for the first quarter of 2024, compared with $5 million in the year-ago period.

Kevin J. Hammons: With $618 million of borrowing capacity under the ABL, along with pending asset sale proceeds we believe we have more than adequate liquidity to meet our needs going forward.

Kevin J. Hammons: Regarding project empower we are continuing to make progress having now gone live with the second wave of hospitals on April one.

Kevin J. Hammons: Without experiencing any disruption and care delivery.

Kevin J. Hammons: The progress we are making is right in line with our scheduled timeline and we believe we are already experiencing the benefits of incorporating automation technologies to remove certain annual administrative tasks from our nurses workflows and improved insight into our business at the sites that are live.

Kevin J. Hammons: We believe these benefits will translate into realized cost savings beginning later this year and into future periods.

Kevin J. Hammons: This improvement was primarily the result of improved earnings, as well as the timing of collections from the buildup of certain accounts receivables at year end, which resulted in an overall net decrease in accounts receivable of approximately $39 million from December 31, 2023. Capital expenditures for the quarter were $93 million, on track for our 2024 guidance range of $350 to $400 million provided in February.

Speaker Change: At this time, we will turn the call back over to our operator for Q&A.

Speaker Change: We will now begin the question and answer session.

Speaker Change: To ask a question you May Press Star then one on your Touchtone phone if.

Kevin J. Hammons: If youre using a speakerphone please pick up your handset before pressing the keys.

Speaker Change: Anytime Youre question has been addressed and you would like to withdraw your question. Please press Star then two we also ask that you. Please limit yourself to one question and one follow up and if you have further questions. You may reenter the question queue and at this time, we'll pause momentarily to assemble our roster.

Kevin J. Hammons: As announced last week, we signed an agreement to divest to Nova Cleveland, located in Cleveland, Tennessee, for approximately $160 million, plus the potential for an additional contingent consideration. And we continue to evaluate opportunities for further divestitures across a handful of markets that could total more than $1 billion in total proceeds. The divestiture of Tenova Cleveland is anticipated to close in the third quarter, and we believe that one or more additional transactions could close within the calendar year, providing substantial capital for the company to redeploy. Net debt to trailing adjusted EBITDA was 7.7 times, slightly improved from 7.88 times at year-end 2023, with $618 million of borrowing capacity under the ABL, along with pending asset sale proceeds.

Kevin J. Hammons: And our first question will come from Jason <unk> with Citi. Please go ahead.

Speaker Change: Great. Good morning. Thanks, I was just hoping you could dig a bit deeper on the cash generation in the quarter. Obviously, there's seasonality considerations you talked about that AI release.

Speaker Change: Was there any impact from change in the cyber I didn't hear that and then I guess now that works through the first quarter. How would you expect cash generation to play out for the rest of the year just in context of your 500 to 650 embedded in guidance. Thanks.

Speaker Change: Thanks, Jason.

Kevin J. Hammons: So okay.

Kevin J. Hammons: In typical or historical fashion cash flow in the first quarters typically are our lowest cash flow quarter. As a result of the reset of patient copays and deductibles and more of your receivables being patient responsibility.

Kevin J. Hammons: Did have the benefit in Q1 of getting some additional cash.

Kevin J. Hammons: We believe we have more than adequate liquidity to meet our needs going forward. Regarding Project EMPOWER, we are continuing to make progress, having now gone live with the second wave of hospitals on April 1st without experiencing any disruption in care delivery. The progress we are making is right in line with our scheduled timeline, and we believe we are already experiencing the benefits of incorporating automation technologies to remove certain manual administrative tasks from our nurses' workflow and improve insight into our business at the sites that are lost. We believe these benefits will translate into realized cost savings beginning later this year and into future periods.

Kevin J. Hammons: And as a result of the accounts receivable that buildup in the fourth quarter, including that from the Mississippi sub.

Kevin J. Hammons: Supplemental Medicaid program that was collected in the first quarter of this year.

Kevin J. Hammons: In terms of other kind of working capital.

Kevin J. Hammons: Items, they were all pretty much in line with our expectations, we always have a little bit of a headwind in Q1 with the payment of our annual bonuses, which occurs just once a year and then throughout the remainder of the year.

Operator: At this time, we'll turn the call back over to our operators for Q&A. Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1.

Kevin J. Hammons: As bonuses are accrued that kind of turns itself around.

Operator: Similarly, we will have that situation in the second quarter.

Speaker Change: We fund our 401K plan just once annually.

Operator: Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys.

Operator: And therefore that also has a negative.

Operator: A negative impact on second quarter cash flows, but turns around throughout the remainder of the year as we build our accruals backup.

Operator: If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. We also ask that you please limit yourself to one question and one follow-up. And if you have further questions, you may re-enter the question queue. At this time, we'll pause momentarily to assemble our roster. And our first question will come from Jason Cassarello with Citi. Please go ahead.

Operator: In terms of our guidance on cash flow at this point of the year I think were right in line and are comfortable with where were guiding at.

Jason Paul Cassorla: Okay got it thanks, and maybe just as a follow up I wanted to ask on the Tennessee Hospital sale agreement can you give us a sense on what the revenue and EBITDA contribution of that asset is and then what would the EBITDA multiple will be implied.

Jason Paul Cassorla: Tennessee supplemental payment program.

Jason Paul Cassorla: Is it.

Jason Paul Cassorla: Is approved it sounds like I guess broadly again on divestitures it sounds like you're keeping that potential for $1 billion of proceeds just if theres any other incremental color you can offer around your divestiture plans, how they're tracking and what youre seeing out there would be helpful. Thanks.

Jason Paul Cassorla: Great. Good morning.

Kevin J. Hammons: Thanks. I was just hoping you could dig a bit deeper on cash generation in the quarter. Obviously, there are seasonal considerations. You talked about that AR release. Was there any impact from the change in cyber? I didn't hear that. And then I guess, you know, now that we're through the first quarter, how would you expect cash generation to play out for the rest of the year, just in context of your 500 to 650 embedded in guidance? Thanks, Jason.

Jason: Sure will.

Speaker Change: My follow up the second part of your first question as well related to change we did not see any impact or nothing material. As a result of any cash flow slowdown from change healthcare's breach, we did not use them for billing and collection purposes.

Jason Paul Cassorla: Thanks, Jason. In typical or historical fashion, cash flow in the first quarter is typically our lowest cash flow quarter as a result of the reset of patient co-pays and deductibles and more of your receivables being patient responsibility. We did have the benefit in Q1 of getting some additional cash flow as a result of the accounts receivable that built up in the fourth quarter, including that from the Mississippi Supplemental Medicaid Program that was collected in the first quarter of this year.

Jason Paul Cassorla: That does not have an impact.

Jason Paul Cassorla: On us relating to the divestitures.

Jason Paul Cassorla: The base price of $160 million is essentially a.

Jason Paul Cassorla: 10 times EBITDA multiple on trailing EBITDA for Cleveland.

Jason: So then any contingent.

Jason Paul Cassorla: Payment.

Jason Paul Cassorla: Above that.

Jason Paul Cassorla: You know, in terms of other kinds of working capital items, they were all pretty much in line with our expectations. We always have a little bit of a headwind in Q1 with the bonuses, but as they are accrued, that kind of turns itself around. Similarly, we'll have that situation in the second quarter as we fund our 401K plan just once annually, and therefore, that also has a negative impact on second quarter cash flows but turns around throughout the remainder of the year as we build our accruals back up. In terms of our guidance on cash flow, at this point in the year, I think we're right on line and are comfortable with where we're at.

Jason Paul Cassorla: We would anticipate putting.

Jason Paul Cassorla: The.

Jason Paul Cassorla: Complete purchase price somewhere in the low teens multiple on a trailing basis.

Jason Paul Cassorla: And then in terms of how Cleveland their margin profile.

Jason Paul Cassorla: Operate pretty similar to our kind of corporate average margins. So you can probably do the math in terms of getting our revenue.

Jason Paul Cassorla: Contribution.

Jason Paul Cassorla: The next question will come from Brian <unk> with Jefferies. Please go ahead.

Speaker Change: Hey, good morning.

Jason Paul Cassorla: That's on the quarter.

Speaker Change: Good morning, Hey, I guess my first question Theres, a lot of discussion among investors on the monthly flow or a monthly trend in volumes, obviously with the calendar moves in Q1, just curious what you can share with us in terms of what.

Kevin J. Hammons: Okay, I got it. Thanks.

Kevin J. Hammons: Maybe just as a follow-up, I wanted to ask about the Tennessee Hospital Sale Agreement: can you give us a sense of what the revenue and EBITDA contribution of that asset is? And then what would the EBITDA multiple be implied if the Tennessee Supplemental Payment Program is approved? It sounds like, I guess, broadly, on divestiture, it sounds like you're keeping the potential for $1 billion in proceeds. If there's any other incremental color you can offer around your divestiture plans, how they're tracking it, and what you're seeing out there, it would be helpful. Sure will, and let me follow up on the second.

Kevin J. Hammons: January February March looked like and how is that translating to April in terms of obviously, we're on a more normalized calendar disc.

Speaker Change: This quarter.

Speaker Change: Sure so probably like like most people, we saw pretty strong January and February some softness year over year in March, but I would really attribute that to how the calendar lined up with February having an additional business day this year with leap year.

Kevin J. Hammons: Sure will, and let me follow up the second part of your first question as well, related to change. We did not see any impact or anything material as a result of any cash flow, slowdown from change, or health care's breach. We did not use them for billing and collection purposes, so that did not have an impact on us. Relating to the divestitures... The base price of $160 million is essentially a 10 times EBITDA multiple and trailing EBITDA for Cleveland.

Speaker Change: And then March is calendar had really two things going against it wanted to add one fewer business day.

Kevin J. Hammons: Just how the calendar lined up and then you also moved.

Kevin J. Hammons: Good Friday and Easter holiday into March it was in April of last year.

Kevin J. Hammons: So that has some impact not only from it being a holiday, but also <unk>.

Kevin J. Hammons: So then any contingent payment, you know, above that, we would anticipate putting the complete purchase price somewhere in the low teens, multiple on a trailing base. And then, in terms of how Cleveland, their margin profile, they operate pretty similar to our kind of corporate average margins, so you can probably do the math in terms of getting a revenue contribution.

Kevin J. Hammons: Round spring breaks in a number of markets.

Kevin J. Hammons: Schools, often scheduled spring breaks around the holiday. So we think that that probably had some contribution.

Kevin J. Hammons: Two.

Kevin J. Hammons: Some of the volume trends that we saw in March in terms of how we view that going forward I think overall strong volume quarter.

Kevin J. Hammons: For us and we see the momentum from that continuing on and don't believe that that.

Brian Gil Tanquilut: The next question will come from Brian Tanquilut with Jefferies. Please go ahead.

Kevin J. Hammons: Calendar the volatility monthly.

Brian Gil Tanquilut: In the first quarter that really influence as much about how we're thinking about future quarters.

Kevin J. Hammons: Good morning. Hey, I guess my first question is, you know, there's a lot of discussion among investors on the monthly flow or monthly trends and volumes, obviously, with the calendar moves in Q1. Just curious what you can share with us in terms of what, you know, January, February, March looked like, and how is that translating to April in terms of, obviously, we're on a more normalized calendar this quarter.

Speaker Change: Got it Okay, and then maybe Kevin just a quick cash flow question.

Kevin J. Hammons: The payout to the NCI is during the quarter was probably higher than typical so just curious what the moving pieces are there and how should we be thinking about NCI payments going forward.

Kevin J. Hammons: Yeah, we're still comfortable with where we guided for the full year, which is about $150 million I believe on total NCI payments for the year.

Brian Gil Tanquilut: Sure. So, you know, probably like most people, we saw, you know, pretty strong January and February, some softness year over year in March. But I would really attribute that to how the calendar lined up with February having an additional business day this year because of leap year. And then March's calendar really had two things going against it. One, it had one fewer business day, which is how the calendar lined up. And then you also moved Good Friday and Easter, you know, the holiday into March.

Kevin J. Hammons: There was just some timing with some <unk>.

Brian Gil Tanquilut: Items accrued from the fourth quarter that carried forward into Q1 on NCI payments.

Brian Gil Tanquilut: But I would expect those to be on a more regular run rate beginning in Q2.

Speaker Change: Awesome. Thanks, guys. Thank you Jeff Thank you.

Brian Gil Tanquilut: Our next question will come from Ben Hendrix with RBC. Please go ahead.

Brian Gil Tanquilut: It was in April of last year. So that, you know, has some impact, not only from it being a holiday but also around spring breaks and a number of markets where schools often schedule spring breaks around the holidays. So we think that that probably had some contribution to, you know, some of the volume trends that we saw in March. In terms of, you know, how we view that going forward, I think overall, a strong volume quarter for us, and we see the momentum from that continuing on, and don't believe that, you know, calendar, the volatility monthly in the first quarter.

Speaker Change: Yes. Thank you very much good morning, it looks like <unk> was a little favorable to our assumptions.

Speaker Change: And perhaps to what you had guided to for the year, just wondering how youre thinking about the rest of the year and if any outperformance in the first quarter kind of pads the year expectations or if theres any reason to think that we might see some added inflation.

Speaker Change: We are later in later quarters. Thanks.

Speaker Change: Sure so coming into the year, we anticipate about a 4%.

Brian Gil Tanquilut: Wage inflation on an average hourly rate basis for the year. If we think about the sequence last year of inflation. It was high early in the year began to moderate in the back half of the year, where we saw wage inflation in the third and fourth quarter in the low three range.

Kevin J. Hammons: Got it. Okay.

Brian Gil Tanquilut: And then maybe, Kevin, just a quick cash flow question. The payout to NCI during the quarter was probably higher than typical. So just curious what the moving pieces are there and how should we be thinking about NCI payments going forward?

Brian Gil Tanquilut: <unk>.

Brian Gil Tanquilut: It has carried over into the first quarter, although we expected expect for the year there could still be some pressure on wages and maybe some potential in individual markets, maybe not across the board, but in certain markets, we can see higher.

Kevin J. Hammons: Yeah, we're still comfortable with where we kind of guided for the full year, which is about $150 million in total NCI payments for the year. There was just some timing with some items accrued from the fourth quarter that carried forward into Q1, but I would expect those to be on a more regular run rate beginning in Q2.

Kevin J. Hammons: Wage growth than other markets and we do believe there could be some pressure in the back half of the year.

Kevin J. Hammons: It is a nice start to the year and we think thats very favorable in terms of our outlook on where we were at kit.

Brian Gil Tanquilut: Awesome, sounds good, thank you.

Benjamin Hendrix: The next question will come from Ben Hendrix with RBC. Please go ahead.

Brian Gil Tanquilut: Can ultimately end up for the full year.

Benjamin Hendrix: Yes, Ben I'll add on to that this is Tim I think the other item that we baked into our guidance was more of the in sourcing of some of these hospital based specialties and the higher average Audi rate on those professionals.

Kevin J. Hammons: Thank you very much. Good morning. It looks like SWB was a little favorable to our assumptions and perhaps to what you had guided to for the year. I was just wondering how you're thinking about the rest of the year and if any outperformance in the first quarter kind of pads the year expectations or if there's any reason to think that we might see some added inflation later in the year. Thanks.

Kevin J. Hammons: So with anesthesia more in sourced 80 in hospice programs in our pipeline, we anticipate that we will have some some increase or have some some impact on the average order rate increase as well. We also have a good strong pipeline of physician recruitment into our clinics, which also hits, our swg line as well and maybe the last comment that I would make.

Kevin J. Hammons: Sure, so, you know, coming into the year, we anticipated about 4% wage inflation on an average hourly rate basis for the year. If we think about the sequence of inflation last year, it was high early in the year, and it began to moderate in the back half of the year, where we saw, you know, wage inflation in the third and fourth quarters in the low three range. That has carried over into the first quarter, you know, although we expect for the year there could still be some pressure on wages and maybe some potential, you know, in individual markets, maybe not across the board, but in certain markets, we can see higher, you know, wage growth than other markets, and we do believe there could be some pressure in the back half of the year. You know, it is a nice start to the year, and we think that's very favorable in terms of our outlook and where we could ultimately end up for the full year.

Kevin J. Hammons: In terms of the mix as Tim mentioned the mix of <unk>.

Kevin J. Hammons: Employees coming in many at a higher rate that could drive that up we've also been very effective.

Kevin J. Hammons: It's bringing in.

Kevin J. Hammons: Some.

Kevin J. Hammons: Allied health workers, and changing or making changes to our care delivery model.

Kevin J. Hammons: That allows us to.

Kevin J. Hammons: Treat patients with with.

Kevin J. Hammons: More lpns nursing assistant.

Kevin J. Hammons: And making those adjustments this had a favorable impact on our salaries wages and benefits.

Speaker Change: Great. Thank you very much if I could just follow up on the in sourcing comment clearly you guys have made some really good progress there, but I was just wondering if there are any risks of in sourcing maybe it could bringing in more E D.

Kevin J. Hammons: And the Hospitalists impair your ability to flex staff to volume fluctuations in any way or is that does that not a concern.

Tim L. Hingtgen: Yeah, Ben, I'll add on to that. This is Tim.

Speaker Change: Sure Ben I'll start answering that one I don't see any real risk in relation to that we have a good mix of employed and contracted personnel. So some of the staffing mechanism is through a per diem or a per day rate type of arrangement. So that is pretty flexible in terms of how we run the model.

Tim L. Hingtgen: I think the other item that we've baked into our guidance was more of the insourcing of some of these hospital-based specialties and the higher average audit rate on those professionals. So with anesthesia, more insourced ED, and hospice programs in our pipeline, we anticipate that we'll have some increase or have some impact on the average audit rate increase as well. We also have a good, strong pipeline of physician recruitment into our clinics, which also hits our SWB line as well.

Tim L. Hingtgen: Yes.

Tim L. Hingtgen: Mentioned this before and maybe it hasn't been completely clear, but even where we've in sourced these.

Tim L. Hingtgen: These programs not all of those physicians become employees, although the majority do not.

Kevin J. Hammons: And maybe the last comment that I would make in terms of the mix, as Tim mentioned, the mix of employees coming in, many at a higher rate, which could drive that up. We've also been very effective at bringing in some allied health workers and changing or making changes to our care delivery model that allows us to treat patients with more LPNs, nursing assistants, and make those adjustments that have had a favorable impact on our salaries, wages, and benefits.

Tim L. Hingtgen: Number of those physicians are still 10, 99 employees and that $10 99 expense is down in our other operating expenses still.

Kevin J. Hammons: Yes.

Kevin J. Hammons: That gives us some of the flexibility I think to address what you were talking about.

Speaker Change: Makes sense. Thank you.

Kevin J. Hammons: The next question will come from AJ Rice with UBS. Please go ahead.

Kevin J. Hammons: Okay.

Speaker Change: Hello, everybody.

Kevin J. Hammons: First I was just going to ask when I look at some of your volume metrics same store admissions up three eight adjusted admissions 1.9 and surgeries of 0.4, it's a little.

Benjamin Hendrix: Great, thank you very much. If I could just follow up on the in-sourcing comment, clearly, you guys have made some really good progress there, but I was just wondering if there are any risks of in-sourcing? Maybe it could bring in more ED patients in the hospitalists, or impair your ability to flex staff to volume fluctuations in any way, or is that not a concern?

Benjamin Hendrix: Unusual to see the inpatient side growing faster.

Benjamin Hendrix: Then it puts it in the outpatient side can you comment on any dynamics, you're seeing there and was that surgery mix.

Benjamin Hendrix: Was there a divergence between what you saw inpatient versus outpatient surgeries.

Tim L. Hingtgen: Thank you.

Tim L. Hingtgen: Sure, Ben, I'll start answering that one. I don't see any real risk in relation to that.

Speaker Change: Sure I'll start off and Tim Please feel free to jump in.

Speaker Change: We have done a lot of work around length of stay management.

Tim L. Hingtgen: We have a good mix of employed and contracted personnel, so some of the staffing mechanism is through a per diem or a per day rate type of arrangement. So that is pretty flexible in terms of how we run the model. Yeah, we

Speaker Change: And by doing that we've opened up capacity by getting patients appropriately discharged and timely.

Tim L. Hingtgen: It's helped to open up capacity, allowing more admissions to be brought in.

Kevin J. Hammons: Yeah, we've mentioned this before, and maybe it hasn't been completely clear, but even where we've insourced these programs, not all of those physicians become employees, although the majority do. A number of those physicians are still 1099 employees, and that 1099 expense is down in our other operating expenses, still. So that gives us some of the flexibility, I think, to address what you're talking about. Thank you.

Kevin J. Hammons: Our transfer center that we've talked about for some time contributed significantly.

Kevin J. Hammons: Particularly in those markets, where we were able to add that.

Kevin J. Hammons: That capacity through three length of stay management. So I think that has been a big favorable mover and has allowed us to grow impatient.

Kevin J. Hammons: Faster rate this past quarter as.

Kevin J. Hammons: As we look out for the remainder of the year and we've also as Tim mentioned opened up the bed tower and Knoxville, Tennessee on April one.

Albert J. William Rice: The next question will come from A.J. Rice with UBS. Please go ahead.

Kevin J. Hammons: Hi, everybody. First, I was just going to ask, when I look at some of your volume metrics, same-story admissions up 3.8, adjusted admissions 1.9, and surgeries up 0.4, it's a little unusual to see the inpatient side growing faster than the outpatient side. Can you comment on any dynamics you're seeing there, and was that surgery mix, was there a divergence between what you saw inpatient versus outpatient on the surgeries?

Kevin J. Hammons: So thats going to give us some additional capacity going into Q2, and then we have the bed tower in Foley, Alabama, that's opening up in the fourth quarter. So we still see opportunities.

Kevin J. Hammons: We're growing both inpatient and outpatient, but still being able to bring in additional inpatient throughout the remainder of the year, Yes, I agree and a J in terms of the surgery and mix that we saw growth on both the inpatient and the outpatient side.

Kevin J. Hammons: Sure, I'll start off, and Tim, please feel free to jump in. You know, we have done a lot of work around length of stay management, and by doing that, we've opened up capacity, you know, by getting, you know, patients appropriately discharged and timely. That's helped open up capacity, allowing more admissions to be brought in. Our transfer center that we've talked about for some time contributed significantly, particularly in those markets where we were able to add that capacity through length of stay management.

Tim: So im pleased to see that on the outpatient side I think we outpaced it on an absolute numbers, just with our ASD growth and our focus on driving.

Kevin J. Hammons: Driving some really strong outpatient surgical sites of care. So we're pleased to see that happen are going back to the inpatient growth in the quarter as Kevin said the transfer center.

Tim: It's performing as designed and we also added new specialties into markets, where we had insights that we werent able to accept those patients in prior periods. So it's good to see our service line and acuity agenda are really delivering better access to patients and the communities, we serve and yielding the expected growth in acuity and revenues.

Kevin J. Hammons: So I think that has been a big favorable mover and has allowed us to grow inpatient at a faster rate this past quarter. As we look out, you know, for the remainder of the year, we've also, as Tim mentioned, opened up the bed tower in Knoxville, Tennessee on April 1st. So that's going to give us some additional capacity going into Q2, and then we have the bed tower in Foley, Alabama, that's opening up in the fourth quarter. So we still, you know, see opportunities. You know, we're growing both inpatient and outpatient services but still being able to bring in additional inpatients throughout the remainder of the year.

Speaker Change: That's great and maybe my follow up just to ask you on the payer mix it looks like.

Kevin J. Hammons: <unk>.

Kevin J. Hammons: Medicare was up about 90 basis points and fee for services was the one that was down can you comment are you seeing outsized volume growth in your <unk>.

Kevin J. Hammons: Managed Medicare or is it right or what's driving that increase as a percent of revenues and any update on just general contracted with managed care.

Speaker Change: Sure. So the volume increases are still.

Kevin J. Hammons: Being led by Medicare advantage and substantially all of our Medicare business increases are all Medicare advantage.

Tim L. Hingtgen: Yeah, I agree, and AJ, in terms of the surgery mix, we saw growth on both the inpatient and the outpatient side, so we're pleased to see that. On the outpatient side, I think we outpaced it on absolute numbers just with our AFC growth and our focus on, you know, driving some really strong outpatient surgical sites of care. So we're pleased to see that happen. Going back to the inpatient growth in the corridor, as Kevin said, the transfer center is performing as designed.

Tim L. Hingtgen: What we did experience this quarter was a little more.

Tim L. Hingtgen: Balanced growth between Medicare advantage and commercial.

Tim L. Hingtgen: I think we had indicated in the fourth quarter.

Tim L. Hingtgen: That early part of 2023 MAA was growing at about a three for one ratio to commercial in the fourth quarter. It improved to only a two for one ratio and we continued on in the first quarter at approximately that two to one ratio growth. So so some slowing in that meta.

Tim L. Hingtgen: We also added, you know, new specialties into markets where we had insights that we weren't able to accept those patients in prior periods, so it's good to see our service line and acuity agenda are really delivering better access to patients in the communities we serve and yielding the expected growth in acuity and revenue.

Tim L. Hingtgen: <unk> advantaged growth business.

Tim L. Hingtgen: In terms of contracting.

Tim L. Hingtgen: Early in the year, but we're seeing early signs that would probably point to similar rate increases.

Kevin J. Hammons: That's great. And maybe my follow-up, just to ask you on the payer mix, it looks like managed Medicare was up about 90 basis points, and fee-for-services was the one that was down. Can you comment on, are you seeing outsized volume growth in your managed Medicare, or is it rate, or what's driving that increase as a percent of revenues? And any update on just the general contract with managed care?

Tim L. Hingtgen: 425 that we are experiencing in looking to.

Kevin J. Hammons: Or already have locked in for 24.

Speaker Change: Okay. Thanks, a lot.

Kevin J. Hammons: The next question will come from Stephen Baxter with Wells Fargo. Please go ahead.

Kevin J. Hammons: Alright, great. Thanks. This is this is Nick on for Steve. So wanted to follow up a little bit on the payer mix question to start so it looked like Medicaid mix was actually up a little bit year over year. So wanted to see.

Kevin J. Hammons: The volume increases are still being led by Medicare Advantage, and substantially all of our Medicare business increases are Medicare Advantage. What we did experience this quarter was a little more balanced growth between Medicare Advantage and commercial. I think we'd indicated in the fourth quarter that, in the early part of 2023, MA was growing at about a three-for-one ratio to commercial. In the fourth quarter, it improved to only a two-for-one ratio, and we continued on in the first quarter at approximately that two-to-one ratio growth, so some slowing in that Medicare Advantage growth business.

Kevin J. Hammons: If that was more driven by an increase in Medicaid supplemental payments are actually patient mix shift and then maybe just an update on what youre seeing for Medicaid redetermination. Thank you.

Kevin J. Hammons: Sure the increase in Medicaid net revenue.

Kevin J. Hammons: It is primarily due to the Medicaid supplemental programs. So.

Kevin J. Hammons: Kind of in terms of dollars.

Kevin J. Hammons: <unk> was the big change year over year that program, which we've recognized $40 million in Q4.

Kevin J. Hammons: For six months worth is that program just got approved and was retroactive to July one.

Kevin J. Hammons: In terms of contracting, you know, still early in the year, but we're seeing early signs that would probably point to similar rate increases for 25 that we are experiencing and looking to, or already have locked in for 24.

Kevin J. Hammons: One quarter's worth of that.

Kevin J. Hammons: The full program that was approved is about roughly $80 million on an annual basis. So we recognized the first quarter's.

Kevin J. Hammons: A portion of that in Q1, there was zero of that in last year's numbers. So that you know.

Stephen C. Baxter: Okay, thanks a lot. The next question will come from Stephen Baxter with Wells Fargo. Please go ahead. Hi, great. Thanks. This is Nick on for Steve. So I wanted to follow up a little.

Nick: It was the primary primary driver of Medicaid increase although we did have an increase in.

Nick: The small increase in Medicaid volume too.

Nick: During the quarter in terms of Redetermination, we're not really seeing.

Stephen C. Baxter: The next question will come from Stephen Baxter with Wells Fargo. Please go ahead.

Stephen C. Baxter: <unk>.

Nick: Any substantial impacts I mean, there are certainly patients who are losing Medicaid insurance.

Stephen C. Baxter: I agree. Thanks. This is

Kevin J. Hammons: Sure, the increase in Medicaid net revenue is primarily due to the Medicaid Supplemental Program. So, you know, kind of in terms of dollars, Mississippi was the big change year over year. That program, which we'd recognized $40 million in Q4 for six months' worth, is that program just got approved and was retroactive to July 1st. You know, one quarter's worth of that, the full program that was approved, was about roughly $80 million on an annual basis.

Kevin J. Hammons: Seeing a slight uptick in self pay volume.

Kevin J. Hammons: We're also seeing the uptick of commercial volume. So a portion of those patients who are losing Medicaid are picking up exchange business insurance or commercial insurance.

Kevin J. Hammons: Thats far offsetting any of the negative impacts.

Speaker Change: Great. Thank you.

Kevin J. Hammons: The next question will come from Andrew Mok with Barclays. Please go ahead.

Kevin J. Hammons: Hi, Theres been a lot of discussion around the two midnight rule for MA plans may impact that might have an acute hospital I'd love to hear your take on the role if and when you would expect to see any impact from that.

Kevin J. Hammons: So we recognize the first quarter's portion of that in Q1. There was zero of that in last year's numbers. So that's, that's, you know, was the primary driver of the Medicaid increase, although we did have an increase in, you know, a small increase in Medicaid volume too during the quarter. In terms of redetermination, we're not really seeing, you know, any substantial impacts. I mean, there are certainly patients who are losing Medicaid insurance. We're seeing a slight uptick in self-pay volume, but we're also seeing an uptick in commercial volume. So a portion of those patients who are losing Medicaid are picking up exchange business insurance or commercial insurance that's far offsetting any of the negative impacts. Great, thank you.

Kevin J. Hammons: Yes.

Kevin J. Hammons: Continuing to evaluate.

Kevin J. Hammons: I know there's been some additional guidance put out there by CMS.

Speaker Change: At this point I think it's still early and not sure that we can really quantify.

Kevin J. Hammons: The impact there is a number of kind of moving parts around that then include work that we're doing ourselves internally with a physician advisor program that we've stood up that allows us to.

Kevin J. Hammons: Ensure that we're getting better documented the appropriate documentation.

Kevin J. Hammons: It also.

Andrew Mok: The next question will come from Andrew Mok with Barclays. Please go ahead. Hi, there's been a lot of questions.

Kevin J. Hammons: Kind of brought in house.

Andrew Mok: The peer review process with the payers.

Andrew Mok: Both of those things should be beneficial to us.

Kevin J. Hammons: Yeah, we're, you know, we're continuing to evaluate. You know, I know there's been some additional guidance put out there by CMS. At this point, I think it's still early and not sure that we can really quantify the impact. There's a number of kind of moving parts around that, that include work that we're doing ourselves internally, with a physician advisor program that we've stood up that allows us to, you know, ensure that we're getting better documentation or the appropriate documentation. It also, you know, we've kind of brought the peer review process with the payers in house. Both of those things, you know, should be beneficial to us.

Kevin J. Hammons: Then this quarter, we also had the situation with changes breach.

Kevin J. Hammons: And change.

Kevin J. Hammons: It indicated that they were.

Kevin J. Hammons: Got it no longer require preauthorization for certain services.

Kevin J. Hammons: So that weighs into the calculation in Q1 as well as then some of the regulation from CMS to the payers about two midnight.

Kevin J. Hammons: So all of those and I'm not sure it's very difficult to differentiate the impact of each individual one.

Kevin J. Hammons: But I would say at least on the margins we saw a little bit of improvement in Q1 overall, though denials still continue to increase.

Kevin J. Hammons: Then this quarter, we also had the situation with breaches and changes. You know, it indicated that they were going to no longer require pre-authorization for certain services, so that weighs into the calculation in Q1, as well as then some of the regulation from CMS to the payers about 2 midnight. To throw all those in, I'm not sure; it's very difficult to differentiate the impact of each individual one, but I would say, you know, at least on the margins, we saw a little bit of improvement in Q1.

Kevin J. Hammons: So.

Kevin J. Hammons: I think theres a little bit of.

Kevin J. Hammons: Continued pressure, we may see some benefit in one area.

Kevin J. Hammons: But there is continued pressure in other areas and even on the commercial side from denials.

Kevin J. Hammons: And so I would just again say, it's kind of difficult at this point to measure, but we're keeping a close eye on it and hope we see some more clarity.

Kevin J. Hammons: Later in the year.

Speaker Change: Great. Thank you.

Kevin J. Hammons: The next question will come from Josh Raskin with Nephron Research. Please go ahead.

Speaker Change: Hi, Thanks.

Kevin J. Hammons: Morning.

Kevin J. Hammons: Looking at occupancy rates overall, they're up nicely from pre pandemic I'm curious how much of that is due to change in portfolio over the last couple of years versus an organic excuse me organic or same store improvement and where does occupancy need to get to in your mind to get to that sort of 15%.

Kevin J. Hammons: Overall, though, denials still continue to increase, so, you know, I think there's a little bit of, you know, continued pressure. We may see some benefit in one area, but there's continued pressure in other areas and even on the commercial side from denials, and so I'd just, again, say it's kind of difficult at this point to measure, but we're keeping a close eye on it and hope we see some more clarity later in the year.

Kevin J. Hammons: Target margins.

Kevin J. Hammons: Sure Josh This is Tim I'll kick it off in terms of the occupancy rate growth. We think that's driven through the items. We mentioned previously the growth of the transfer center I'm higher acuity services. There is some adjustments to the portfolio when we divest smaller more rural hospitals with a higher bed count and a low occupancy.

Joshua Richard Raskin: The next question will come from Josh Raskin with Nefron Research. Please go ahead.

Joshua Richard Raskin: Hi, thanks. Good morning.

Tim L. Hingtgen: You know, looking at occupancy rates overall, they're up nicely from pre-pandemic. I'm curious how much of that is due to the change in portfolio over the last couple of years versus, you know, an organic, excuse me, organic or same-store improvement. And where does occupancy need to get to in your mind to get to that sort of 15%, you know, intermediate target on March 10th?

Speaker Change: Right, obviously that that helps our stronger markets, where we run higher occupancy rates to shine through we don't necessarily have an internal target. If you will because of the changes in the portfolio.

Tim L. Hingtgen: They're part of the equation that makes it difficult for us to really track occupancy rates in an absolute basis. As we also have outpatients in those beds, which are not factored into the occupancy rate calculation that youre seeing there and we have seen the growth of our of our outpatient observation business over the last several quarters as you know across the industry, but in general.

Tim L. Hingtgen: Sure, Josh. This is Kim. I'll kick it off.

Tim L. Hingtgen: In terms of the occupancy rate growth, we think that's driven by the items we mentioned previously, the growth of the transfer center, and higher acuity services. There are some adjustments to the portfolio when we divest smaller, more rural hospitals with a higher bed count and a low occupancy rate. Obviously, that helps our stronger markets where we run higher occupancy rates shine through. We don't necessarily have an internal target, if you will, because of the changes in the portfolio.

Tim L. Hingtgen: We are very very focused on understanding the physical footprint of every one of our campuses to make sure that we're optimizing that footprint decommissioning any spaces, which may not be necessary. So that we're not running any additional fixed costs that are necessary for whatever volumes, we can bring into that health care system.

Speaker Change: Got you got you that's helpful. And then just on supply expense down about 80 basis points year over year, despite sort of the shift in patient continued increase in the acuity and things like that so what's driving the supply expense improvements.

Tim L. Hingtgen: The other part of the equation that makes it difficult for us to really track occupancy rates on an absolute basis is that we also have outpatients in those beds, which are not factored into the occupancy rate calculation that you're seeing there. And we have seen a growth in our outpatient observation business over the last several quarters, as you know, across this industry. But in general, we are very, very focused on understanding the physical footprint of every one of our campuses to make sure that we're optimizing that footprint, decommissioning any spaces which may not be necessary so that we're not running any additional fixed costs that aren't necessary for whatever volumes we can bring into that healthcare system.

Tim L. Hingtgen: So I think there is a number of things driving some supply expense improvement, yes, it's relatively flat on a per adjusted admission basis.

Tim L. Hingtgen: Which would indicate that we are stepping over inflation and managing that well, we're doing that with a number of supply chain initiatives that we have in place too to ensure we're getting best pricing taking advantage of scale and so forth.

Tim L. Hingtgen: Are putting in our ERP.

Joshua Richard Raskin: Gotcha, gotcha. Supplement just on supply expense, you know, down about 80 basis points year over year, despite sort of this shift to inpatient care, you know, continued increase in acuity and things like that. So what's driving supply expense? I think there's a number of things driving it.

Tim L. Hingtgen: Which we've talked about project empower I can't say that we're realizing a lot of savings.

Joshua Richard Raskin: Currently yet because we only have a handful of hospitals up and running at least through the first quarter.

Kevin J. Hammons: I think there's a number of things driving some supply expense improvement. It's relatively flat on a per-adjusted admission basis, which would indicate that we are stepping over inflation in managing that well. We're doing that with a number of supply chain initiatives that we have in place to ensure we're getting the best pricing, taking advantage of scale, and so forth. We are putting in our ERP, which we talked about, Project Empower. I can't say that we're realizing a lot of savings currently yet because we only have a handful of hospitals up and running at least through the first quarter, and it's still relatively new, but it's positioning us with significantly improved information that will allow us to manage that expense going forward, probably having a significant impact on our ability to manage that supply expense with fewer high-dollar implant items during the quarter.

Joshua Richard Raskin: And it is still relatively new but it's positioning us with cigna.

Kevin J. Hammons: Significant significantly improved information that will allow us to manage that expect expense going forward.

Kevin J. Hammons: Back to the quarter payer mix, I think cat or I'm, sorry, surgical mix had.

Kevin J. Hammons: No.

Kevin J. Hammons: Probably a significant impact on our ability to.

Kevin J. Hammons: Manage that supply expense with fewer high dollar implant items during the quarter and then with the growth in net.

Kevin J. Hammons: Net revenues of top line growth I think had some dilutive impact on that calculation as a percent of net revenue, bringing in your Medicare Medicaid supplemental program revenue.

Kevin J. Hammons: As well as the impatient and growth in kind of medical.

Kevin J. Hammons: Cases.

Kevin J. Hammons: Can have a lower supply cost as a percent of net revenue.

Kevin J. Hammons: And then with the growth in net revenue, the top line growth, I think had some dilutive impact on that calculation as a percent of net revenue, bringing in your Medicare and Medicaid supplemental program revenue, as well as the inpatient and growth in certain kinds of medical cases, which can have a lower supply cost as a percent of net revenue.

Speaker Change: Okay perfect. Thanks.

Kevin J. Hammons: This concludes our question and answer session I would like to turn the conference back over to Mr. Tim <unk> for any closing remarks. Please go ahead great.

Speaker Change: Great. Thank you Chuck and thanks to all of you for joining our call today, we remain committed to achieving our goals for 2024 and look forward to updating you again at the mid year point as always if you have additional questions. You can reach us at 615 465, 7000, Thanks, again and have a great day.

Tim L. Hingtgen: This concludes our question and answer session. I would like to turn the conference back over to Mr. Tim Hingtgen for any closing remarks. Please go ahead.

Tim L. Hingtgen: The conference.

Tim L. Hingtgen: Is now concluded. Thank you for attending today's presentation you may now disconnect.

Tim L. Hingtgen: Great. Thank you, Chuck, and thanks to all of you for joining our call today. We remain committed to achieving our goals for 2024 and look forward to updating you again at the mid-year point. As always, if you have additional questions, you can reach us at 615-465-7000. Thanks again, and have a great day.

Tim L. Hingtgen: Yes.

Tim L. Hingtgen: Yes.

Tim L. Hingtgen: [music].

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

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