Q2 2024 Ardent Health Partners Inc Earnings Call
Speaker Change: Thank you. Bye.
Speaker Change: for that.
JL: Thank you. The floor is now open. Sorry. Thank you for standing by. My name is JL and I will be your conference operator today. At this time, I would like to welcome everyone to the Ardent Health Partners Second Quarter 2024 Earnings Conference Call.
JL: All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session.
JL: If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press star 1 again. I would now like to turn the conference over to Stephen Neely of Valum Advisors. You may begin.
Stephen Neely: Thank you operator and welcome to Arden Health's second quarter 2024 results conference call. Leading the call with me today is Arden's President and CEO Marty Bonick and Alfred Lumsday, Chief Financial Officer.
Speaker Change: Today's discussion contains forward-looking statements about future business and financial expectations.
Speaker Change: Actual results may differ significantly from those projected in today's forward-looking statements due to various risks and uncertainties, including the risks described in our periodic reports filed with the SEC. Except as required by law, we undertake no obligation to update our forward-looking statements.
Speaker Change: Further, this call will include the discussion of certain non-GAAP financial measures, including Adjusted EBITDA and Adjusted EBITDAR.
Speaker Change: Reconciliation of these measures to the Closest Gap financial measure is included in our quarterly earnings press release, which was issued yesterday evening after the market closed, and is available at ArdentHealth.com.
Speaker Change: At the conclusion of our prepared remarks, we will open the line for questions. With that, I would like to turn the call over to Marty.
Marty: Thank You Stephan and good morning everyone. We appreciate you all joining us today for our first earnings call as a public company and for your support as we begin this exciting new chapter.
Marty: I want to particularly acknowledge our team, including the more than 24,000 team members, each of whom work hard every day to deliver on our purpose of caring for our patients, our communities, and one another.
Marty: Today I'll provide a brief summary of our second quarter financial results, share some key strategic updates, and discuss our outlook for the rest of 2024. But first, I would like to take a moment to give a brief overview of Ardent and our compelling growth story.
Marty: Ardent is a leading hospital operator and healthcare provider in eight growing midsize urban markets across six states, including Texas, Oklahoma, New Mexico, New Jersey, Idaho, and Kansas.
Marty: We deliver care through a system of 30 hospitals and more than 200 sites of care.
Speaker Change: At our core, Arden is committed to making healthcare better. We strive to achieve this goal through an operating philosophy that puts the patient, our consumer, at the center of everything that we do.
Speaker Change: By creating this consumer focus, we cultivate deep and long-lasting relationships with our patients that span their entire healthcare journey.
Speaker Change: To aid in this, we leverage technology within our facilities and beyond to expand our relationships with patients, making care easier to access, easier to deliver, and easier to experience. We believe our differentiated care delivery model creates a unique and scalable growth platform.
Speaker Change: Our strategic framework is centered around market share growth, operational excellence, and disciplined capital deployment. Through this strategic framework, we believe that we are well-positioned to create sustainable long-term growth and value for our shareholders and for the markets that we serve.
Speaker Change: Key to our growth strategy is a differentiated joint venture model, which enables us to build local market density in new markets while also being capital efficient.
Speaker Change: Now, looking at the second quarter, our results were supported by broad-based demand growth for our services, improved payer mix, and reimbursement dynamics, along with continued strategic execution.
Speaker Change: The strong demand we experienced for our services during the second quarter resulted in a 3.4% increase in adjusted admissions relative to last year.
Speaker Change: Demand trends remain favorable across both inpatient and outpatient settings, as total admissions grew 5.1% year over year.
Speaker Change: Inpatient volume growth was supported by an increase in admissions through the emergency department, partially due to strong growth in our EMS ED volumes.
Speaker Change: Another important dynamic impacting our inpatient volumes during the second quarter was the two midnight rule, which we estimated drove more than a 2% increase in admissions compared to the second quarter of last year.
Speaker Change: Surgery volumes decreased 2.2% compared to the prior year period. The decrease in surgeries was due to a 0.9% decrease in our inpatient surgeries and a 2.8% decrease in outpatient surgeries.
Speaker Change: Outpatient surgeries were particularly impacted by our service line optimization efforts, which reduced volumes and select lower margin services such as dental, otolaryngology, and ophthalmology.
Speaker Change: Our inpatient surgical volume trends for the quarter reflect a decrease in bariatric and gynecological cases, partially offset by growth in higher acuity spine, neurology, and urology cases.
Speaker Change: Turning now to an update on our growth strategy, our team is focused on advancing our key initiatives of targeted market share growth, operational excellence, and disciplined capital allocation.
Speaker Change: When combined, we believe our strategy can allow us to achieve sustainable long-term organic revenue growth in the mid-to-high single digits, adjusted EBITDA growth in the low-to-mid double digits, and mid-teens adjusted EBITDA margins.
Speaker Change: Our plan to grow our market share is centered around improving access to health care within our markets. To achieve this, we are focused on investing in additional ambulatory sites of care, such as urgent care centers, freestanding emergency rooms, outpatient surgery centers, and physician clinics.
Speaker Change: We are also deepening our network of employed providers to widen the top of the funnel in terms of patient access.
Speaker Change: Through the first half of this year, we have acquired or opened eight urgent care clinics and are actively evaluating numerous ambulatory investment opportunities within our existing markets.
Speaker Change: Urgent care facilities are currently our most immediate focus as they broaden our geographic footprint and access to new patients in our communities.
Speaker Change: As it relates to our provider network, we employed 1,785 providers at the end of the second quarter, an increase of 6.5% compared to the same time last year. We are currently focused on recruiting both primary care and specialty care providers to expand access in our markets to support our targeted service line growth strategies.
Speaker Change: In terms of operational excellence, as I've already mentioned, we've been very focused on service line optimization, which was an initiative we began in the second half of last year.
Speaker Change: Year-to-date, our service line optimization efforts have focused on curtailing low-margin and low-acuity cases, causing a nearly 2% decrease in our total surgery volumes and resulting in improved margins overall.
Speaker Change: We are also making strong progress improving our supply utilization through a variety of sourcing and procurement initiatives along with other enterprise standardization initiatives. These efforts combined with our service line optimization initiatives contributed to the 70 basis point improvement in our adjusted EBITDA margins relative to the second quarter of 2023.
Speaker Change: In addition, fundamental to our growth strategy is a focus on disciplined capital allocation, which includes maintaining a lean balance sheet to support opportunistic growth through investment in M&A.
Speaker Change: With the completion of our initial public offering last month, we have substantial available liquidity to pursue expansion into new and adjacent high-growth, mid-size urban markets. Our current pipeline of potential opportunities is robust, and we are actively evaluating potential targets that represent attractive return opportunities for growth.
Speaker Change: As we look forward to the second half of the year, we continue to expect strong demand for growth across our markets along with continued margin expansion and strategic execution. To that end, yesterday we initiated guidance for the full year of 2024.
Speaker Change: Alfred will provide more on our guidance in a moment, but I do want to highlight a few key elements of our guidance, which includes total revenue growth of between 6% and 9% and adjusted EBITDA growth of between 32% and 38%.
Speaker Change: In closing, I'm very proud of the hard work and commitment of our entire team, which has allowed us to reach this important milestone for Ardent.
Speaker Change: As we enter into this new chapter in growth, in partnership with all of our shareholders, we are excited about the growth opportunities ahead and believe we have an exciting roadmap to create value for shareholders while continuing to improve access to healthcare in the markets we serve. With that, I'll now hand the call over to Alfred.
Alfred: Thank you, Marty, and good morning to everyone joining us on the call today.
Alfred: As Marty indicated, we're pleased with our second quarter results, which reflected both improved revenue realization and margin expansion. Our total revenue for the quarter was $1.5 million, an increase of 7.5% compared to the second quarter of 2023.
Alfred: As Marty noted, the growth in our total revenue was the result of increased volumes and better rates, partially due to improved payer and service mix.
Speaker Change: Our net patient service revenue mix for the second quarter reflects a 70 basis point reduction in Medicaid revenue mix offset by a 55 basis point increase in managed care and a 55 basis increase in Medicare which includes managed Medicare.
Speaker Change: Our net patient service revenue mix for the second quarter reflects a 70 basis point reduction in Medicaid revenue mix.
Speaker Change: Offset by a 55 basis point increase in managed care and a 55 basis point increase in Medicare, which includes managed Medicare. Of note, these changes in payer mix reflect the ongoing Medicaid redeterminations.
Speaker Change: So far, we've seen approximately two-thirds of our redetermined patients stay within government coverage and approximately 20% convert to commercial plans.
Speaker Change: In addition, our total revenue for the second quarter reflects a $13 million increase in our supplemental revenues due to the implementation of the Oklahoma DPP program, which became effective on April 1st of this year.
Speaker Change: Adjusted EBITDA for the quarter was $122 million, compared to $102 million in the second quarter of 2023.
Speaker Change: Adjusted EBITDA margin before non-controlling interest as a percentage of net revenue was 12.7% during Q2 of 2024 compared to 12.0% in Q2 of 2023.
Speaker Change: As Marty discussed, our adjusted EBITDA margins benefited by improved surgical mix, the impact of our cost reduction efforts, as well as the overall improvement in our payer mix.
Speaker Change: The comparison of adjusted EBITDA to the prior year is also impacted by approximately $8 million in benefit from government stimulus funds recognized in the second quarter of last year.
Speaker Change: Specifically, relating to our expenses for the second quarter of 2024, I'd highlight that our contract labor expense declined by approximately $7 million year-over-year, or 22%, as we continue to see a normalization of contract labor utilization and rates across each of our markets.
Speaker Change: and continued improvements in our nursing retention.
Speaker Change: As a percentage of total salaries and benefits, our contract labor expense for Q2 of 2024 was 4.3%, compared to 5.7% for Q2 of last year.
Speaker Change: In total, for the second quarter of 2024, salaries and benefits were $624 million.
Speaker Change: or 42.4% of total revenue.
Speaker Change: compared to $598 million, or 43.7% of total revenue, in the second quarter of last year.
Speaker Change: Our supplies expense for the quarter was approximately $259 million, or 17.6% of total revenue, compared to $253 million, or 18.5% of total revenue, in the second quarter of last year.
Speaker Change: This 90 basis point decrease in supplies expense as a percentage of revenue reflects improvements in our supply chain performance from a number of supply expense initiatives that our team has been implementing this year.
Speaker Change: Professional fees for the second quarter of 2024 were $272 million, or 18.5 percent of total revenue, compared to $235 million, or 17.1 percent of total revenue in the prior year period.
Speaker Change: A majority of the increase in professional fees relates to higher hospital-based physician subsidies compared to 2023.
Speaker Change: So far in 2024, we continue to see some pressure in certain specialties, such as anesthesia and radiology, but overall, we believe that the subsidy dynamic has largely normalized relative to the significant increases we saw throughout 2023.
Speaker Change: Other operating expenses for Q2 were $115 million, or 7.9% of total revenue, compared to $109 million, or 7.8% of total revenue, in Q2 of last year.
Speaker Change: The decrease in other operating expenses primarily reflects an approximately $7 million benefit from a sale of aged patient accounts receivable in Q2 of this year.
Speaker Change: Moving now to cash flow and liquidity, we ended the second quarter with total cash of $335 million.
Speaker Change: Cash provided by operating activities during the second quarter was 120 million dollars compared to 43 million dollars during the second quarter of 2023.
Speaker Change: The increase in cash from operating activities compared to the prior year reflects our improved profitability and higher cash flow resulting from changes in networking capital.
Speaker Change: Capital expenditures during the second quarter were $39 million compared to $34 million in the second quarter of last year.
Speaker Change: The increase in CapEx was primarily driven by an $8 million increase in growth CapEx relating to medical imaging equipment and surgical robots.
Speaker Change: At the end of the second quarter, our total net debt outstanding was $758 million.
Speaker Change: During the quarter, we repaid $100 million of outstanding borrowings under our Term Loan B using cash on hand, while simultaneously increasing capacity under our undrawn revolving credit facility by $100 million.
Speaker Change: At the end of the second quarter, our total available liquidity was $624 million.
Speaker Change: When factoring in the $209 million of net proceeds from the initial public offering in July , our net debt would have been $549 million, and total available liquidity would have been $832 million.
Speaker Change: at the end of the second quarter on a pro forma basis.
Speaker Change: As of June 30, 2024, our total net leverage, as calculated under our credit agreements, was 2.3 times, and our lease-adjusted net leverage was 4.0 times.
Speaker Change: Proforma for the net proceeds of the IPO, our least adjusted net leverage, was 3.6 times.
Speaker Change: I'd like to turn now to recap our full year 2024 financial guidance, which we announced in our press release yesterday afternoon.
Speaker Change: Total revenue of between $5.75 billion and $5.9 billion.
Speaker Change: Adjusted EBITDA of between $415 million and $435 million.
Speaker Change: Net income attributable to Arden Health Partners of between $163 million and $182 million, implying full-year EPS of between $1.23 and $1.37.
Speaker Change: Finally, capital expenditures of between $170 million and $185 million.
Speaker Change: Our guidance for the year reflects total adjusted admissions growth of between 4.0% and 4.5% compared to 2023 and that patient revenue per adjusted admission growth of between 3.0% and 4.0%.
Speaker Change: Our guidance also reflects an adjusted EBITDA impact of approximately $27 million from the Oklahoma DPP program.
Speaker Change: As it relates specifically to our expectations for the second half of the year compared to 2023, we expect to see continued volume and rate growth across our markets supported by our focus on sustainable operational excellence and margin improvement.
Speaker Change: Before opening the call up for questions, I also want to provide a quick update on the New Mexico Directed Payment Program.
Speaker Change: This supplemental program has been approved by the state and signed into law by the governor of New Mexico.
Speaker Change: As of August 5th of this year, the program has been submitted to CMS for its approval, which historically takes, on average, 120 to 140 days. We'll continue to keep you posted on any material updates to the status of this program going forward.
Speaker Change: Now, with that, operator, I'd like to open up the line for questions.
Speaker Change: Thank you. The floor is now open for questions. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue.
Speaker Change: If you would like to withdraw your question, simply press star 1 again. If you are called upon to ask a question and are listening via loudspeaker on your device, please pick up your handset to ensure that your phone is not on mute when asking a question.
Speaker Change: For this session, we request that you please restrict yourself to one question and one follow-up and you can re-enter the queue for any further follow-up questions.
Speaker Change: Your first question comes from the line of Jason Casorla of Citi. Your line is open.
Jason Casorla: Great. Thanks, guys. And congrats on the quarter. I just wanted to ask about 24 EBITDA guidance and what it implies for the back half of the year. You know, if we add back that 63 million of cybersecurity headwind in the fourth quarter of 23, it seems like 24 guidance implies that second half EBITDA would basically be flat at the midpoint year over year. You know, that comes after meaningful growth year to date, Oklahoma DPP benefit. I guess you have the range out there, but just any color in terms of how you're approaching EBITDA guidance and maybe what the puts and takes are that we should be thinking about for the second half.
Speaker Change: Sure. I appreciate the question.
Speaker Change: Yeah, you're correct. You know, if you look at just the midpoint of guidance, you know, it would apply pretty, you know, pretty modest year over year growth, relatively flat. If you adjust out for cyber, you know, obviously, you know, we're just out of the gate in terms of guidance. You know, we, we clearly had some benefit in Q2 from a couple things from a timing perspective.
Speaker Change: We had a sale of HDR that was a relatively small amount, but usually we have, we expect those types of events to happen in the back half of the year. So there's just a little bit of timing going on as well as some supplemental activity. We're.
Speaker Change: We're early in our, obviously, in our public co-history, and, you know, our expectations are to have guidance that we fully meet, so we haven't done anything in terms of modifying guidance at this point, and, again, I would point to, you know, real-timing activity, as well as, if you look at last year, the Oklahoma DPP program was scheduled to go live originally in October of 23.
Speaker Change: They postponed the go live until April of this year. But as a consequence, they provided Oklahoma provided a refund of the shop tax that and that hit in Q4 last year. So that was kind of a one timer in the back half of the year.
Speaker Change: Okay. Great. Thank you. And then maybe just as a follow-up, we're just hoping to get a little bit more color around your ambulatory expansion. I know, I think you guys have previously suggested a $20, $25 million kind of annualized spend there. I guess, can you just give us a sense on the pipeline, timing around that ambulatory expansion, what that looks like, and maybe just how you're, you know, perhaps how you're balancing any opportunity to kind of pull that forward or accelerate that spend would be great. Thanks.
Speaker Change: Yeah, as we said, we've implemented our...
Speaker Change: through our urgent care platform by AIDS.
Speaker Change: facilities the first half of this year. You know, we expect to see meaningful growth in the second half on urgent care as well. We've got the number of de novos and acquisitions, targeted acquisitions in the pipeline, but nothing definitive to say. But I would expect to see growth in the second half of this year based upon what's in our pipeline.
Speaker Change: Your next question comes from the line of Scott Fidel of Stevens. Your line is open.
Scott Fidel: Hi, thanks. Good morning. For the first question, just appreciate the update on the redeterminations and the comment around 20% shifting over to commercial. Just interested if you could share with us what your exchange
Speaker Change: admissions contributions were in the second quarter to admissions growth and what you're budgeting for the full year for that as well.
Speaker Change: Yeah, exchange volumes overall were, you know, up fairly significantly, you know, basically from an admin's perspective about a third year over year. However, you know, for us it's still a relatively small contribution from a revenue perspective just over 3% of our revenues. So, you know, the volumes are still relatively modest overall, even though on a year over year basis, you know, it is growing and clearly a big part of that growth has been the redeterminations.
Speaker Change: Okay, got it. And then as a follow-up question, I thought it might just be helpful if you could walk us through it in a little more detail. I've actually got a couple questions on this already, just around...
Speaker Change: sort of the sequencing of the Oklahoma DPP and sort of how that builds into the full year expectations. As you highlighted in the release, you had around 13 million in the second quarter. You're assuming 27 million for the full year. So that would sort of imply one more sort of similar payment.
Speaker Change: But maybe if you could walk us through, is this something that you would expect quarterly or biannually, or is there some conservatism just around that sort of processing of Oklahoma DPP revenues over the course of the year would be helpful? Good question, Scott. And I think, you know, that's partially was a component of the answer to Jason's questions as well. And I know it is a little bit, I'll say, confusing. We're expecting, you know, the program is live, went live on April 1.
Speaker Change: And we'll expect relatively consistent revenue impact from that. We said $13 million in Q2. We would expect relatively consistent revenue.
Speaker Change: Revenues, you know, in the coming quarters, there is a, of course, a tax component to that. So the net is smaller than that, you know, call call that ten, eleven million dollars from a year over year perspective.
Speaker Change: We did have this shop tax refund in Q4 of last year, and that's why the full year impact, it's not as simple as taking three times the 13 million for the rest of the year. However, going into next year, we'll also from a Q1 perspective, we'll get a full quarter impact of the program.
Speaker Change: in Q1 of next year on a year-over-year basis. So again, that's why it's not as simple, just that shop tax, I'll call it refund last year makes it not as simple as taking three times the Q2 impact. Hope that makes sense.
Speaker Change: Yeah, it does. Okay. That helps explain that. Okay. Great.
Speaker Change: repent.
Speaker Change: Your next question comes from the line of Whitmail of Lering Partners. Your line is open.
Speaker Change: Hey, thanks. Good morning guys. Can you maybe spend just a minute on the service line optimization? I think you've kind of framed some.
Speaker Change: with the impacts that you saw on surgical trends, calling out dental, ENT, ophthalmology, just how much did that contribute to the decline? How much do you think that weighs on the metrics for the year? Did you annualize this next year? Is this an ongoing initiative? Just maybe any color would be helpful.
Speaker Change: Yeah, I think I'll start and then let Marty jump in. You know, from our perspective, when we look at the surgical decline, it essentially, you know, and there's always puts and takes, right, but it essentially covers all of it.
Speaker Change: Thank you. Bye.
Speaker Change: And we've also seen pressure, and I think that is a broad industry dynamic as well on our bariatric cases, unrelated to our service line optimization, but I think if we look just at how much of the year over year decline did that service line optimization
Speaker Change: impact, it was effectively the the entire amount of the...
Speaker Change: Yeah, actually slightly more than that. We saw surgical growth when you net in the addition, so we were focusing on taking out some lower-level cases, dental, ophthalmology, ENT. If you look at just those three categories, that'd be great.
Speaker Change: quit to about 117% of the decline. So we backfilled that with higher acuity cases.
Speaker Change: We also have been focused on
Speaker Change: Our oncology programs, we closed an OB program last year in one of our Texas markets and so all those things are continuing to play out and we'll see that the rest of that impact basically cycle out as we go through the balance of this year.
Speaker Change: Okay, and maybe just
Alfred: Alfred, I think contract labor, you framed around a 4.3% as a percentage of total SW&B this quarter, down from 5.7% if I get the numbers right. What are you budgeting for in terms of the rest of the year? Do you think you may be able to get that?
Speaker Change: make additional improvement from current levels or is this a steady state that you would expect?
Alfred: I would say it's closer to steady state with than any substantial, you know, I wouldn't expect the same kind of quarter of a quarter decreases that we've seen as we go forward. We're still very focused, you know, average hourly rate has come down nicely and
Alfred: We are still very focused on utilization, and of course, from a quarter of a quarter, we would expect seasonally Q4 to be our strongest from a volume perspective, and so there will be more utilization potentially. So I think we'll call it the new normal.
Alfred: focus on getting back to pre-pandemic levels, but we're getting much closer to that. So I don't think we'll see the kind of step functions down that we've seen in the last several quarters. Yeah, that being said, we are seeing strong recruitment and retention for our team members. And as that trend continues, we do expect, you know, as Alfred said, to get back towards.
Alfred: pre-pandemic levels around those rates but again not the significant step down that we saw.
Speaker Change: Okay, maybe just to clarify that point, I mean if I take the second quarter, the 4.3% of SWB, you're kind of run rating that in terms of like your guidance for the rest of the year, you're not assuming a material or modest level of improvement?
Speaker Change: Not assuming a modest, I mean not assuming a material level of improvement. Okay, perfect. Thank you.
Speaker Change: Your next question comes from the line of Craig Hettenbach of Morgan Stanley. Your line is open.
Craig Hettenbach: Great, thanks for the color and the timing of New Mexico. On supplemental payments more broadly, can you just talk about your confidence in expanding and that and really a contribution to margins as we go forward?
Speaker Change: Yeah, I think at a macro level, you know, we, we,
Speaker Change: we view these programs as, you know, pretty consistent and enduring, you know, I think now with.
Speaker Change: New Mexico and Tennessee with their day people.
Speaker Change: program, something like 44 states have a program in place. So, you know, we
Speaker Change: we think, you know, relatively predictable. Now, obviously, New Mexico has not been approved by CMS yet, and, you know, we'll be back, obviously, once that approval has happened. But, yeah, I think from, you know, we think it is the amounts historically have been largely quite predictable.
Speaker Change: Got it. And then just a follow-up question on the strong adjusted admissions growth. Can you share any insights or color by some of the markets like maybe some markets that are trending above?
Speaker Change: i
Speaker Change: Yeah, it's been pretty consistent throughout our markets. Obviously, the two midnight rule has been a tailwind in this and that's been consistent across all of our markets. So, you know, I don't think there was there's anything at a individual market level that I would that I would particularly point to.
Speaker Change: Okay, thanks for that.
Speaker Change: Your next question comes from the line of Kevin Fishbeck of Bank of America. Your line is open.
Joanna Gadrox: Hi. Good morning. This is Joanna Gadrox filling in for Kevin today. Thanks for specifying the question. So if I may just first follow up on the discussion around the supplementary payment programs. I understand we're waiting for the New Mexico.
Speaker Change: And he's saying, you know, it's broadly, I guess, accepted.
Speaker Change: program across
Speaker Change: of 44 different states. But I guess as we're thinking, you know, going into elections and what might happen, like the different scenarios in terms of the outcome and how this could impact the Medicare Supplemental Payment Program in particular, right, if Republicans.
Speaker Change: were to take over and try to kind of go after Medicaid while we're speaking and then, you know, I guess how much is at risk in your states when it comes to these supplement and payment programs. Thank you.
Speaker Change: Yeah, I mean, it's a good question, and everybody's got that same...
Speaker Change: question on their minds, you know, the way in which we've looked at it is, as Alfred said,
Alfred: With the approval of New Mexico, the 44 states that have these live, if you go back.
Speaker Change: To the inception of these programs they started back in 2016 under the Trump administration and then have continued to grow under the Biden administration and so given that this is now widespread across the country, you know, we feel that there's, you know, significant durability.
Speaker Change: CMS has also published guidance, you know, that has to be achieved by 2028 in terms of how these, how they're going to try to standardize and normalize these programs across the country. So, you know, I think that also gives us some visibility in terms of how the government is thinking about these programs as a, you know, as a, as a, as a, as a, as a, as a, as a, as a, as a, as a, as a, as a, as a, as a, as a, as a, as a, as a, as a, as a, as
Speaker Change: contributing funding source for these lower income patients. And so we have good reason to believe that regardless of the election outcomes that you should have durability.
Speaker Change: Right. And what do you think about the concept of, you know, some of these states when they expanded these supplemental payment programs, they went with the rate increase all the way up to commercial rates and some states are, you know, raised the rates but more kind of in line with Medicare. So would you say that, you know, those states that...
Speaker Change: went with, you know, higher rates all the way to commercial would be more at risk when it comes to potential, you know, program changes.
Speaker Change: I think it's just too early to know, you know, what the platforms need, neither of the candidates have really established any firm guidance on this. And so I think anything that we would say is just complete speculation on that part.
Speaker Change: Thank you. If I might ask a question on a separate topic. So you talk about...
Speaker Change: you're, I guess, you know, managing your balance sheet, but also looking at potential acquisitions. You talk about you actively evaluating a pipeline. So can you talk about your plans? Should we expect...
Speaker Change: you know, a transaction within the next 12 months, you know, and I guess how many different assets are you looking at, you know, what types of assets you're looking at when it comes to, you know, targeting expansions. Thank you.
Speaker Change: Yeah, I mean, we've got a robust pipeline of activity, it's just...
Speaker Change: Everybody knows that there's a.
Speaker Change: sort of tale of two cities going on in the health care world. There are systems like ours that are performing well.
Speaker Change: and still a lot that are struggling and so we're in conversations with a number of different opportunities that are attractive. We're going to be
Speaker Change: very picky in terms of which markets we go into that fit our criteria of those mid-sized urban markets.
Speaker Change: good growth profile, and some place where we can get a significant foothold in those markets. At this point, we don't have anything definitive to discuss, but we're encouraged by the pipeline that we have.
Speaker Change: And are hopeful to see an opportunity arise, you know, in the not too distant future. But that being said, it's too early to put anything definitive out there.
Speaker Change: Your next question comes from the line of Timothy Greaves of Loop Capital Markets. Your line is open.
Timothy Greaves: Hi. Hi. If I could, I wanted to go back to total surgeries.
Timothy Greaves: And in the decline, it seems like the service line optimization and the move away from lower acuity services to higher ones is the reason for it. I just wanted to kind of like...
Speaker Change: to go into more of what is the depth of services that you guys offer in the higher acuity versus lower acuity services and maybe further in on that.
Speaker Change: How much of the split, what is the split between the lower versus higher surgeries you guys give?
Speaker Change: We're full-service providers absent, you know, high-end transplants. You know, we do a full complement of mix of surgeries, orthopedics, neurosurgery, general surgeries, etc. And so, you know, the
Speaker Change: The surgeries that we've taken out, as you said, tend to be higher volumes, but not as a percent of the total, but they're quicker turnaround cases. And so you see a bigger numeric impact than
Speaker Change: you would for some of the higher acuity cases that take more time. And so, you know, as we said, the.
Speaker Change: The delta that we saw in terms of the surgery decline was fully captured in terms of taking some of those lower margin services out, not all, but, but, you know, making progress around those and then backfilling with some of those higher versions. So, for anything.
Speaker Change: No, I think, you know, it's difficult to give a precise answer, you know, or a precise definition of lower acuity and higher acuity, right? Because even within categories of something like orthopedics, there are, you know, I'll say lower acuity orthopedics and higher acuity orthopedics, you know, to Marty's point.
Marty: The lower acuity clearly are a higher volume.
Marty: And, you know, for having the OR time freed up for a higher acuity surgeries and really focusing on growing those types of surgeries, you know, spine, orthopedics has been a significant focus.
Speaker Change: Okay, thank you for taking the question.
Speaker Change: i
Speaker Change: This concludes our Q&A session. I will now turn the conference back over to Marty for closing remarks.
Marty: Thank you everyone for your support of Arden as we entered into this exciting new chapter for the company. We believe we've got a strong foundation for profitable growth and we look forward to keeping you apprised of our progress. And with that, that concludes our call today. Thank you.
Speaker Change: This concludes today's conference call. You may now disconnect.
Speaker Change: Bye.