Q3 2024 Universal Health Services Inc Earnings Call

Yeah.

[music].

Speaker Change: Good day, and thank you for standing by and welcome to the third quarter 2020 for Universal Health Services' earnings Conference call.

At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone you will then hear an automated message advising you. Your hand is raised to withdraw your question. Please press star one again, please be advised the today's conference.

Is being recorded I would now like to hand, the conference over to your speaker today, Steve Fulton.

Executive Vice President and CFO. Please go ahead Sir.

Steve Fulton: Thank you good morning, and welcome to this review of Universal Health services results for the third quarter ended September 32024.

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

Steve Fulton: For anyone not familiar with the risks and uncertainties inherent in these forward looking statements I recommend a careful reading of the section on risk factors and forward looking statements and risk factors in our.

Steve Fulton: Form 10-K for the year ended December 31, 2023, and our Form 10-Q for the quarter ended June 32024.

Steve Fulton: Like to highlight just a couple of developments and business trends before opening the call up to questions.

As discussed in our press release last night. The company recorded net income attributable to uhm per diluted share of $3 80.

Steve Fulton: Third quarter of 2024.

Steve Fulton: After adjusting for the impact of the items reflected on the supplemental schedule is included with the press release, our adjusted net income attributable to uhm per diluted share was $3 71 for.

Steve Fulton: For the quarter ended September 32024.

Steve Fulton: As we anticipated acute care volumes have moderated somewhat and that gradually begun to resemble the patterns, we experienced before the pandemic.

Adjusted admissions to our acute hospitals increased one 5% year over year with surgical growth slowing overall.

Steve Fulton: Overall revenue growth was still a solid eight 6% excluding the impact of our insurance subsidiary.

Steve Fulton: Meanwhile, expenses were well controlled specifically the amount of premium paid in the third quarter was $60 million, reflecting a 12% decline from the prior year quarter.

Included in our operating results during the third quarter of 2024, where aggregate net incremental reimbursements of approximately $20 million recorded in connection with various state supplemental Medicaid programs approximately half of which was earned by our acute care hospitals.

These net reimbursements were in excess of the supplemental program projections included in our earnings guidance for the full year of 2020 for hazardous on July 24 2024.

Steve Fulton: On a same facility basis EBITDA at our acute care hospitals increased 36% during the third quarter of 2024 as compared to the comparable prior year quarter and the increase was 17% when excluding the impact of the incremental Medicaid supplemental payments earned in Nevada during the third quarter of 2024.

The increase in operating income comparison to last year's third quarter for our acute hospitals is a further step towards a more extended margin recovery, we hope to sustain for the next several periods.

Steve Fulton: In our acute segment position expense, which was a significant headwind in 2023 has stabilized at approximately seven 2% of revenues thus far in 2024.

Steve Fulton: During the third quarter same facility revenues at our behavioral health hospitals increased by 10, 5%, primarily driven by an eight 5% increase in revenue per adjusted patient day.

Steve Fulton: Even after adjusting for Medicaid supplemental payments not included in our original 2024 guidance facility revenues increased eight 3% and same facility EBITDA increased nine 6% in the third quarter of 2024 as compared to the comparable prior year period.

Steve Fulton: As a result of unfavorable trends experienced during the last several years during the third quarter of 2024, we recorded a $30 million increase to our reserves for.

Steve Fulton: For self insured professional and general liability claims.

Steve Fulton: Our cash generated from operating activities was $1 $4 billion. During the first nine months of 2024 as compared to $815 million during the same period of 2023.

Steve Fulton: In the first nine months of 2024, we spent $698 million on capital expenditures and acquired $1 $7 million of our own shares at a total cost of approximately $350 million.

Steve Fulton: Since 2019, we have repurchased approximately 31% of the company's outstanding shares.

Steve Fulton: As of September 32024, we had $1 1 billion aggregate available borrowing capacity pursuant to our one 3 billion revolving credit facility.

Steve Fulton: In our acute care segment, we continue to develop additional inpatient and ambulatory care capacity.

Steve Fulton: Construction continues on our de Novo acute care hospitals, consisting of the 150 bed West Henderson Hospital in Las Vegas, Nevada, which is expected to open shortly.

Steve Fulton: 136 that Cedar Hill Regional Medical Center in Washington, D C, which is expected to open in the spring of 2025.

Steve Fulton: And the 150 bed Allenby <unk> Medical center in Palm Beach Gardens, Florida, which is expected to open in the spring of 2026.

Steve Fulton: And our behavioral health segment, we recently opened the 128 Bad River.

Steve Fulton: Real Health Hospital in Madera, California, and we are developing the 96 beds South Ridge behavioral Health Hospital in West, Michigan, a joint venture with Trinity Health, Michigan, which is expected to open in the spring of 2025.

Steve Fulton: The approval processes continue in connection with new Medicaid supplemental payment programs in Tennessee, and Washington D C as well as the proposed funding increase to the existing program in Nevada.

Steve Fulton: Although we cannot provide assurance that any of them all of these programs and program changes will ultimately be approved by CMS with the timing of such approvals, which may not occur until 2025, if approval if approved in their current forms the Tennessee program with estimated annual net benefit of 40% to $56 million would be <unk>.

Steve Fulton: <unk> of July one 2024.

Steve Fulton: The Washington D. C program with estimated annual net benefit of approximately $85 million would be effective October one 2024.

And the funding increase to the existing Nevada program with estimated annual net incremental benefit of approximately $56 million would be effective July one 2024.

Steve Fulton: Our previously provided earnings guidance for the full year of 2024 as revised on July 24, 2024 did not include the estimated incremental net benefit related to any of these programs.

Steve Fulton: Be pleased to answer your questions at this time.

Speaker Change: Thank you as a reminder to ask a question at this time. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, one moment for our first question.

Speaker Change: Okay.

Speaker Change: And our first question is going to come from the line of Josh Raskin with no print.

Speaker Change: Your line is open. Please go ahead.

Speaker Change: Hey, Good morning. This is actually Mark go on for Josh I. Appreciate you taking the question.

Speaker Change: I was just wondering if you could speak to any changes you may be seeing in the behavior of managed care plans during the quarter, including activity around patient denials or downgrades across both the acute and behavioral segments and then it would also be helpful. If you could just give some color on what trends you're seeing between commercial and that May plan.

Speaker Change: And whether this activity is focused around any specific areas like two midnight. Thank you.

Speaker Change: Sure. So I think if you go back.

Speaker Change: Reviewing some of our transcripts and other commentary from late in 2022 and early into 2023. We first began to note I think more aggressive behavior on the part of our managed care payers.

Speaker Change: Especially coming off of the initial years of the pandemic 2021 'twenty, two where clearly we felt like like payers had become less aggressive I think in response to a large degree to the the significant decreases in utilization.

Speaker Change: During the early stages of the pandemic.

Since then since I would say late 'twenty two early 'twenty three again, we've seen I think payer behavior become more aggressive as it relates to denials as it relates to patient status changes.

Speaker Change: The state management when patients are in the facility et cetera.

I don't believe that we saw a dramatic change in the current quarter.

Speaker Change: I think again, the more aggressive behavior that we've been signing I think has been ongoing for more like a year or four to six quarters, but.

Speaker Change: Wouldn't necessarily suggest that we saw a dramatic change in the current quarter.

As far as weather and behaviors focused on any particular area.

Speaker Change: Specifically asked about the two midnight rule.

Speaker Change: Again, I think we've made a comment that.

Speaker Change: We've been focused on the two midnight rule and the appropriate coding consistent with the two midnight rule and appeal is consistent with the two midnight rule for several years, we've been using a third party firm to help us properly code.

Speaker Change: Admissions, we've been using that same firm to help us with denial appeals et cetera, and so I don't think we've seen again some of the perhaps significant difference in half two midnight rules to midnight.

Speaker Change: Coding claims are being handled with our claims as maybe some of our peers, who have really changed their behavior.

Speaker Change: As a result of the recent clarifications that CMS issued and in terms of two midnight rule.

Speaker Change: Okay.

Speaker Change: Thanks, I appreciate all the color on that and then just to squeeze in one more quick one I was wondering if you could just give a quick update on physician recruitment and turnover trends in <unk>.

Speaker Change: Behavioral segments.

Speaker Change: Especially as it relates to opening up additional capacity.

Speaker Change: And then whether you're seeing any more incremental competition in that area. Thank you.

Speaker Change: Yes, so I think there's been much discussion about.

Speaker Change: Physicians and especially as it related to hospital based physicians.

Speaker Change: <unk>.

Speaker Change: Last year when there was a significant increase for almost all providers in the expensive hospital based physicians in our case, especially emergency room physicians and anesthesiologists.

Speaker Change: That increased expense was more a result of <unk>.

Speaker Change: Billing changes and I think specifically the no surprise billing act.

Speaker Change: And the constraints that that put on those specialties emergency room anesthesiology in terms of their ability to bill for out of network patients.

Speaker Change: So I think the pressures on those expenses were driven more by billing changes then they whereby lack of.

Speaker Change: Our scarcity of those sort of physicians.

Speaker Change: Yes.

Speaker Change: I don't think that there is a dearth of physicians, nor do I think theres, a glut necessarily in every market different specialties are more challenging et cetera, but I don't think we would describe physician recruitment is particularly.

Speaker Change: Difficult in the current period.

Speaker Change: I don't think it's changed much over the last several years.

Speaker Change: Alright, Thank you for all the color.

Speaker Change: Thank you one moment for our next question. Our next question is going to come from the line of Anne Hayes with Mizuho. Your line is open. Please go ahead.

Speaker Change: Great. Thank you.

Speaker Change: Heading into 2025 are there any maybe major headwinds and tailwind if you wanted to call out and to that I know it sounds like you are getting incremental provider stuff. In 2024 is there anything we should be on the lookout for 2025.

Speaker Change: So I think for us and.

Speaker Change: <unk>.

Speaker Change: Mentioned in my prepared remarks.

We will have two new facilities opened in 2025, our west Henderson facility in Las Vegas, which will open late this year and then.

Speaker Change: Hospital in the district of Columbia, which will open in the spring I don't believe and we'll be more precise about this when we give our detailed 2025 guidance in February but I don't believe that either of those facilities will.

Speaker Change: Create a significant drag on EBITDA there will be some.

Speaker Change: The opening expenses and some ramp up but I think both are well positioned.

Speaker Change: So again nation that create much of a drag I think otherwise.

Speaker Change: For the two businesses, we are expecting the continued margin recovery.

Again, I alluded to in my opening comments and then finally, the major tailwind or the ones.

That I mentioned again in my remarks, the specific ones in terms of Tennessee issued a Columbia, Nevada. These are either new or additional supplemental programs that have been submitted to CMS for approval.

Speaker Change: There has been some.

Speaker Change: Reporting in some some things have been written about.

Speaker Change: Programs, either new or expanded programs in California, and Florida that could be effective next year, but those I think are sort of earlier stages of development. So I think broadly.

Speaker Change: There are some significant potential tailwind in the Medicaid supplemental area, some of which we've disclosed in some detail others, which I think are a little bit more.

Speaker Change: We're not quite as precise at this point.

Speaker Change: But those to me seemed to be the big puts and takes for 2025 at this point.

Speaker Change: Alright. Thanks.

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

Speaker Change: Our next question is going to come from the line of Andrew Mok with Barclays. Your line is open. Please go ahead.

Andrew Mok: Hi, Good morning wanted to focus on the acute volumes, maybe if you just take a step back and comment on the volume progression in that business and now that we've established a more normal baseline for volumes like what's the outlook in the acute care segment for volume growth.

Speaker Change: Okay.

Speaker Change: Okay.

Andrew I think we've been pretty clear and consistent in our commentary in this regard and that is.

Speaker Change: We've been saying for some time that we expected.

Speaker Change: Acute broadly acute care growth to return to sort of more.

Speaker Change: Normal I'll call them pre COVID-19 levels. So the same store revenue growth in the 6% to 7% range that would be split pretty evenly between price and volume.

Speaker Change: If you actually look at our year to date metrics in acute care I think our adjusted admissions were up 3% I think our pricing per revenue per adjusted admission was up 5% I think if you adjust out for the Nevada, Medicaid supplemental youre sort of in that range.

6% to 7% revenue growth split pretty evenly between price and volume.

Speaker Change: I think thats.

Speaker Change: That's been our view for a while I know that.

Speaker Change: Some of the commentary from our peers have been a little bit more bullish about what acute care volume may look like and suggesting that there have been some structural changes.

In the business that would result in elevated acute care volume growth for the foreseeable future, we havent seen that yet.

Speaker Change: And obviously I think if there's a lot of these structural changes we would benefit from them as wood.

Speaker Change: The average acute care hospital, we just havent seen really evidence of that just yet the other issue, which I kind of alluded to earlier is I think a number of acute care hospitals are anticipating a fairly significant benefit from the two midnight rule change and.

Speaker Change: Consequent change in the way their coding these things et cetera, as I've indicated again, I think pretty clearly and consistently for a while now we think we have been focused on that issue for several years now and as a consequence don't necessarily anticipate an incremental benefit from that so again I think we view.

Speaker Change: Their volumes or the future to future volume growth and I think broadly acute care revenue growth is something that should be solid et.

Speaker Change: Et cetera, but that some of the really elevated acute care volume growth that we've seen over the last several years has been a result of the catch up in postponed and deferred procedures or procedures that had been postponed and deferred during the pandemic and by definition I think those were sort of a onetime thing and I think we're largely past that at this point.

Speaker Change: Great and then your corporate expenses tracked a bit higher than our estimates in the quarter can you help us understand any onetime items there.

Speaker Change: There are other drivers of the increase in the corporate segment.

Speaker Change: Yes, we had a $5 million loss on the extinguishment of debt related to our refinancing that we did during the quarter, we probably had another $5 million.

Speaker Change: Settlements of miscellaneous smaller lawsuits.

Speaker Change: That $10 million of corporate expense.

Speaker Change: Clearly characterized as nonrecurring in the quarter.

Speaker Change: Alright, thanks for the color.

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

And our next question is going to come from the line of Justin Lake with Wolfe Research. Your line is open. Please go ahead.

Good morning. This is Dylan on for Justin. Thanks for the question just had a couple of quick ones for you.

Speaker Change: Is there any color you can provide on the trajectory of volumes in the behavioral business in the quarter and then second.

Speaker Change: <unk> pricing clearly remains a strength are you expecting to see similar opportunities heading into 2025 or do you expect that to moderate.

So as far as the trajectory of behavioral volumes again, I think for the last several quarters we've been.

Talking about.

Speaker Change: Our sense that.

Speaker Change: While we originally guided to 3% same store patient day growth for behavioral for the full year of 2020 for that.

Speaker Change: That growth was occurring more slowly than we originally anticipated and we sort of revise that view to we'd be able to exit the year.

Speaker Change: That 3% level.

Speaker Change: We were able to exit the third quarter at that 3% level and thats, despite a little bit of drag from the hurricane impact in South Carolina, and Georgia on some of our facilities at the very end of the quarter Hurricane Helene.

Speaker Change: So yes.

Speaker Change: We remain confident that we should be able to exit the fourth quarter at that at least 3% patient day growth rate.

And remain confident that we can do so as far as behavioral pricing behavior pricing as people now had been quite strong for.

Speaker Change: Several years now throughout most of the pandemic.

Speaker Change: We attribute that to some degree to our efforts to.

Speaker Change: Leverage better pricing from some of our lower paying payers, particularly managed Medicaid payers and I think in an environment, where there's not a great deal of excess capacity in the behavioral industry writ large is thats been.

Speaker Change: So the strategy.

Speaker Change: We've been suggesting for some time that behavioral pricing is likely to moderate at some point.

Speaker Change: And we continue to believe that but to be fair. It has it is hanging in there very robustly very strongly.

Speaker Change: At the current time, and obviously, we're not doing anything to try and reduce that but we do believe that they have a pricing which has been running at historically high levels will moderate at some point, but still should track in sort of that 4% to 5% range for the foreseeable future.

Thank you and one moment for our next question.

Speaker Change: Our next question is going to come from the line of Sarah James with Cantor. Your line is open. Please go ahead.

Speaker Change: Hey, guys. This is Gaby on for Sarah you had a nice beat on our Q revenue per admission could you just walk us through the drivers there and was any of that related to the extra day in the quarter.

Speaker Change: Yes.

Speaker Change: The extra day I think it was a mechanical sort of thing we tend not to really focus on that.

Speaker Change: Largely because I think in the end obviously the longer the period. If you look at the full year all of that comes out in the wash I think more importantly.

Speaker Change: We had a difficult acute care comparison I think our same store adjusted admissions in last year's third quarter were up close to 7%.

Speaker Change: But I think even more importantly, if you go back and you listen to our commentary from last year's third quarter, we attribute a lot of that too again this catch up.

Speaker Change: In the.

Speaker Change: Deferred and postponed procedures, then those procedures that have been postponed or deferred during the pandemic and.

Speaker Change: And as a consequence, if you go back.

Speaker Change: While our volumes both admissions and surgical volumes were strong in the third quarter of last year, they tended to be skewed towards those lower acuity kind of more discretionary procedures.

Speaker Change: People had the ability to defer during the pandemic and so when youre looking at now that competitors in the 'twenty four to 'twenty three.

Speaker Change: C volumes sort of look unfavorable may come down some but acuity has come out because so much of that activity last year's quarter was due to the lower acuity lower revenue sorts of procedures.

Okay Awesome and then.

Speaker Change: Any color on the inpatient surgical trend.

Speaker Change: As I noted in my.

Speaker Change: Prepared remarks surgeries were worse off than they were probably down slightly in the quarter and again I think a lot of the same dynamic that surgeries were quite strong in the third quarter of last year, but that was skewed towards a lot of what I'll describe as sort of catch up lower acuity more discretionary and more elective procedure.

Speaker Change: Okay, great. Thank you guys.

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

Speaker Change: Our next question is going to come from the line of a J rice with UBS. Your line is open. Please go ahead.

Hired body.

Speaker Change: Maybe just two.

I ask about the labor you commented that you use.

Speaker Change: Premium pay was down to $60 million, 12% down year to year any more broad comments on what youre seeing in both business lines and labor are we sort of at a stable point at this point.

Speaker Change: You can sort of hold your <unk> ratios that are revenues going forward or do you think there is still further opportunities.

Yeah.

What I think has happened to a J is that again, we are in sort of now theres post pandemic environment in which.

Speaker Change: Wage inflation I think has stabilized it is clearly lower than it was at the height of the pandemic, obviously, our use of premium pay us.

Speaker Change: Minutes dramatically. Although it is also I think starting to stabilize and sort of flattened out.

Speaker Change: And I think that that should continue.

Speaker Change: That's benefiting us obviously in an environment, where the revenue growth in both businesses has been quite robust.

Speaker Change: Yeah.

Speaker Change: Contributing to the margin recovery that Sallie.

Speaker Change: Salaries are somewhat stable and I will say.

Speaker Change: People have noted to me that.

Speaker Change: On the behavioral side salaries as a percentage of revenue did sequentially increase from Q2 to Q3.

Speaker Change: And they asked about whether that kind of an emerging trend and I would say not I think that that's a function probably of the.

Speaker Change: Impact of the Hurricane that we saw at the very end of.

Speaker Change: The quarter, where a number of our facilities, particularly in Georgia, South Carolina markets.

Speaker Change: Sorry diminished volumes.

Speaker Change: But also it's a double whammy, because we see diminished volumes, but we're also paying overtime et cetera to keep people in the facility and make sure it's properly staffed.

Speaker Change: But I think outside of that I would say that.

Speaker Change: Labor trends have stabilized substantially in both business segments.

Speaker Change: Okay.

Maybe just thinking about <unk>.

Speaker Change: Growth development capital deployment et cetera.

Speaker Change: Any comment on the on the beverage side of the JV pipeline.

Paid some new bed additions as you start to think about 25.

Speaker Change: And then obviously to the extent there is free cash flow beyond any of that whether there's M&A opportunities or should we think that most of that cash flows when I go to stock buybacks from here.

Speaker Change: Yes.

Speaker Change: We continue with a pretty aggressive and robust capital expenditure program.

Speaker Change: Talked about some of the big spend in my prepared remarks, but we've started or maybe more practically I would say we've restarted.

Speaker Change: Add beds to our behavioral business, we've been doing that pretty consistently.

Speaker Change: Prior to the pandemic during the pandemic, but we paused many of those expansion activities with the sort of logic gain.

Speaker Change: We were struggling to staff the existing beds, we had.

Speaker Change: There was no point in building new beds, but now that it.

Again, the labor market has stabilized.

We're looking in those markets where.

Speaker Change: There is an opportunity to increase volumes by adding beds to be fair, our overall occupancy and behavioral still in the low 70. So there are plenty of facilities, where we should have the potential for upside volume without having to add any new beds, but there are some facilities that are running at higher occupancies in that in those facilities.

Speaker Change: We are again, either resurrecting or entertaining.

Speaker Change: New programs to build that and we'll continue to do that as far as opportunities for M&A.

Speaker Change: We often comment that we are presented with opportunities.

Speaker Change: Reasonably regularly.

Speaker Change: We have found if you look at the last five years seven years, not a great deal of those opportunities to be very compelling, although we'll continue to look at them.

Speaker Change: So my guess.

Speaker Change: Because as you know M&A I think can be hard to predict but my guess is that.

Speaker Change: As you think about.

Speaker Change: Our capital deployment will remain focused probably on capital expenditures and on share repurchase as much as it has been for the last five to seven years.

Speaker Change: Okay. Thanks, a lot.

Speaker Change: Thank you and my moment for our next question.

Speaker Change: Our next question is going to come from the line of Peter <unk> with Deutsche Bank. Your line is open. Please go ahead.

Speaker Change: Hey, good morning, guys.

Speaker Change: Looking at same store occupancy here, that's a fund metric because it probably underestimates the busier days Monday through Wednesday.

Speaker Change: For electric procedures. So the question is what does the Max occupancy for the portfolio before it impacts same store admission growth and as you think about hospital occupancy.

Speaker Change: If you can sort of expand beds fast enough does this create a more aggressive conversations with their lowest yielding MA payers like you did a few years ago when your Max capacity.

Speaker Change: <unk>.

Speaker Change: Yes, so Peter I'm not sure. If your question was specific to one or both of the segments.

Speaker Change: So I'll try and answer for both I think on the acute side occupancy over the years has become somewhat less relevant metric obviously it measures your occupied inpatient beds.

Speaker Change: But.

Speaker Change: My experience has been in the hospital any number of times that maybe at two thirds occupancy from an inpatient bed perspective, but you will see the emergency room and.

Speaker Change: There are structures in the hallway or you walk through the ore and got a real busy schedule in the Cath lab that sort of thing so I think that.

Speaker Change: <unk>.

Speaker Change: So acute care inpatient occupancy is not as relevant a metric as it used to be all at one time it was.

Speaker Change: I think a number of other equally important variables in measuring sort of the efficiency and the output of an acute care hospital.

Speaker Change: I think in terms of the broader question I don't know that we have too many rural hospitals that we're really at Max capacity in any of those areas. We're certainly not there in terms of inpatient beds, but I don't think we're necessarily there in terms of emergency room capacity or cath labs, or <unk> et cetera, and to the degree that we are I think we're responding to.

Speaker Change: For that with capital improvement and expansion programs that address that on the behavioral side I do think that invasion of occupancy or in inpatient bed occupancy number is more relevant there are sort of fewer ancillary sorts of procedures in a behavioral hospital.

Speaker Change: That account for that although obviously outpatient activity needs to be measured as well.

Speaker Change: But at the same thing I mean, as I said for.

Speaker Change: For the most part I don't think we have physical capacity constraints in our behavioral business, but they are certainly in our facilities and geographies where that is an issue and those are the places where we're doing that expansions or at least contemplating bed expansions.

Speaker Change: Great and then a follow up years on.

Speaker Change: This is in expenses, but can you talk about where that these be able at some point.

Speaker Change: Revenue are there other areas like radiology in NICU.

Speaker Change: Which have not been pressure points in the past.

Speaker Change: It could be asking for subsidies going forward or pretty much across the portfolio across all different groups of physicians that stable. Thanks, so much.

Speaker Change: Yes.

Speaker Change: Yeah. So the answer is yes, and I would say in the portfolio I can find examples in almost every specialty where we've had requests for greater subsidies or increased expense et cetera, as I noted.

Speaker Change: Comments earlier, I think for us the biggest pressure by far.

Speaker Change: The most expansive has been in the emergency room and anesthesia areas, but yes, we have I think one off situations, where we've seen.

Speaker Change: Pressure from Hospitalists or.

Speaker Change: <unk>.

Labor is or <unk>.

Speaker Change: A radiologist as you asked about but.

Speaker Change: Clearly I think.

Speaker Change: Accounted for much less pressure than you are in anesthesiology and I think broadly well, we continue to sort of deal with those issues every day I think that that situation, which was such a headwind in 2023 has largely stabilized.

Speaker Change: Great. Thanks, so much guys.

Speaker Change: Thank you and one moment as we move on to our next question.

Speaker Change: Our next question is going to come from the line of Joanna <unk> with Bofa Securities. Your line is open. Please go ahead.

Speaker Change: Hi, good morning. Thanks, so much for taking the question so I could clarify the commentary around the outlook for it.

Speaker Change: Business into next year.

Speaker Change: And if I look at that idea.

Speaker Change: Thanks.

Speaker Change: So a supplemental.

And.

Speaker Change: And I guess, you still expect to exit that.

Speaker Change: Koop, some borrowing costs or is that.

Speaker Change: Uh huh.

Speaker Change: Can we expect next year in terms of growth for that for that segment.

Speaker Change: Yeah. So Joanne I mean, we're not going to give sort of precise 2025 guidance on this call. We don't do that until our fourth quarter call in February but.

Speaker Change: I think we have broadly described are expected to the trajectory of growth in the behavioral business is what same store revenue growth in the kind of mid to upper single digits 67, 8%.

Speaker Change: Probably skewed a little bit more to pricing, so 4% to 5% pricing three to three 5% volume.

But I'm not suggesting that that's going to be our precise guidance for next year, but I think in terms of thinking about next year. That's I think how we started and then obviously to the degree that there is any significant.

Speaker Change: Medicaid supplemental programs et cetera that would be sort of incremental to that.

Speaker Change: Alright, and I guess staying on site.

In terms of volumes.

Speaker Change: This quarter, maybe wasn't alright, that's.

Speaker Change: But I guess it kind of it.

Speaker Change: But the good thing about all different tailwind so can you.

Speaker Change: Walk us through what you're seeing out there in the markets.

Speaker Change: Parity with the Bill that has I guess more teeth.

Requiring.

Speaker Change: To actually execute on that is not the whole party and also it sounds like they are adding more benefits.

Speaker Change: Higher demand.

Speaker Change: And I guess are you able to do better than that I guess is there something can be set about inc.

Speaker Change: <unk>.

Speaker Change: Could be able to.

Speaker Change: Scott for that volume.

Speaker Change: Yeah.

Speaker Change: And I apologize because I'm, having a little trouble hearing you, but I think I got the crux of your question I will say this.

Speaker Change: We.

Speaker Change: As I indicated in some earlier comments I think are.

Speaker Change: Volume recovery in behavioral has I think we've been candid about saying, it's taken a little bit longer than we expected we decided a number of issues that have been challenges.

Labor scarcity issues in specific pockets in specific geographies has been one we had a handful of residential facilities that struggled with some very sort of unique issues that they've been recovering from.

Speaker Change: I think over the last year or so we've talked about.

Speaker Change: The impact of Medicaid Dis enrollments.

Speaker Change: And the sort of.

Speaker Change: <unk>.

Challenges that that's created even for those patients who have been able to re enroll or enroll in commercial exchange products.

Speaker Change: While that I think tends to be a benefit on the acute side I don't think it tends to be as much of a benefit on the behavioral side, because the large co pays and deductibles that generally come with those commercial plans have sort of been challenging but I think.

Speaker Change: For the most part the recovery in our behavioral volumes and our optimism about being able to sustain that recovery in the fourth quarter is really about the improvement of all these issues, we continue to be able to hire more staff.

And have more adequate staff to allow us to take more patients. The residential facilities that had struggled are continuing to improve and the Medicaid just enrollment impact continues to dissipate as either patients are able to re enroll in Medicaid or get commercial exchange coverage in may exhaust their copays and deductibles. So I think.

Speaker Change: It's the improvement in those areas Thats really contributing to the behavioral improvement I think you specifically asked about whether we're seeing or anticipating.

Speaker Change: Significant benefit from the Biogen administration's sort of tightening of rules on mental health parity.

Speaker Change: Mental health parity, which was implemented any number of years ago.

Speaker Change: It's a great fanfare and I think expectation that we would really benefit from that I think we benefited to some degree, but I think the payers and the payer community broadly.

Has been challenging in terms of really.

Speaker Change: Getting them to comply with I think both the spirit and the actual antenna.

Speaker Change: That'll help parity I do think that the strengthened government regulations are helpful. But I don't know that there they are likely to really create a landscape change I think where they're helpful is as we appeal. These things as we appeal denials and that sort of thing.

Speaker Change: Strength in government regulations are often helpful. In that regard, but I don't think thats going to drive a huge increase in base oil value.

Speaker Change: Thank you if I may squeeze a barrel off I guess clarification question I will comment on the 2024 guidance. So assuming no change so you've got about $20 million good guy in the quarter from supplemental.

Speaker Change: In there, but then there was a $10 million bad Guy I guess.

Speaker Change: That and that question Ben.

Speaker Change: And I guess settlement so rapidly no change to your 2020 guidance I just want to confirm that thank you.

Speaker Change: Yes, there is no change to our to our revised 2020 for guidance.

Speaker Change: Okay.

Speaker Change: Thank you and one moment as we move on to our next question.

Our next question is going to come from the line of Jimmy <unk> with Goldman Sachs. Your line is open. Please go ahead.

Jimmy: Hey, Thank you good morning, Steve I, just wanted to go back to acute care volumes in the quarter at one 5% I appreciate you've been expecting some normalization.

Speaker Change: That was.

Speaker Change: Just weaker than expected and wanted to get a sense of if you saw any change across the quarter any call outs by payer class. If you can give us any detail on on how some of the larger payer classes grew relative to that and then as we think about normalization is this what the new normal looks like or are there any dynamic.

In the third quarter that make this not representative of the go forward.

Yes. So on this one Jamie I think I'm, just going to have to repeat comments I've already made.

The most.

Speaker Change: Significant sort of dynamic in the quarter is the difficult comparison to last year.

Which I will say, we have clearly and consistently pointed out during the quarter and tried to manage people's expectations.

Speaker Change: But but more importantly is that difficult comparison to last year I think was really related to the fact that I think if you go back and read or listen to our commentary from last year. It was this sort of exhaustion of deferred and postponed procedures, which we did view as kind of a onetime thing.

What I also said earlier was I thought that if you looked at the <unk>.

Speaker Change: Year to date performance and the acute business three 2%, 3% adjusted admission growth, 5% revenue per adjusted admission growth in U S.

Speaker Change: X out the impact of the Nevada supplemental as you're starting to get.

Speaker Change: You start to get in the acute care model that in my mind was reflective or is reflective of our historical model, but also our expectations for the future, which is kind of mid single digits, 7% same store revenue growth split pretty evenly between price and volume.

Speaker Change: Okay. That's that's helpful. And then maybe just a bit of a longer term question we've been in a.

Speaker Change: Pretty unique environment really for the last five years or so number of structural dynamics of either emerged or maybe intensified over that period ASC utilization aggressive payer tactics.

Speaker Change: Probably impacts administrative burden growth and M&A and Hicks I guess, just as you think about the next five years can you level set us on strategy in particular internal investment priorities going forward.

Speaker Change: Yes.

Speaker Change: It's a pretty broad question and one that I'm sure. We could we could speak for an extended period of time about all the dynamics that you mentioned I think broadly the way I would answer the question, which seems to be an acute care center question is.

Speaker Change: We have a view that the care continuum has clearly been expanded and payers are looking to.

Speaker Change: Ensure that patients can be treated in the most cost effective settings of care, which has resulted in a growth.

Speaker Change: Ambulatory surgery.

Speaker Change: Facilities and freestanding imaging facilities.

Speaker Change: And much greater access points, we've had great success with.

Speaker Change: <unk>.

Our penetration of freestanding emergency departments as an example, but broadly I think we are trying to participate in that.

And the investment in that broader continuum, whether it's.

Again.

Speaker Change: These freestanding imaging freestanding eds et cetera that that's certainly one component of it. The other I think is a continued alignment with our physicians whether that's through accountable care organizations. We have at least one of those in every single market in which we operate.

Speaker Change: Whether it's employed physicians, which we have in virtually all of our markets.

Et cetera, but I think we view that.

Speaker Change: As we sort of continue into a pretty challenging environment, and where utilization is going to be.

Speaker Change: <unk>.

Speaker Change: <unk> carefully by payers and by the government, we think being properly aligned with our physicians is sort of most.

Speaker Change: Most important dynamics so to me I would say those two issues. The continued emphasis on physician alignment and a bunch of different ways and the continued expansion of the care continuum as two of our major focus is as we think about the next five years.

Speaker Change: Alright I appreciate it thank you.

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

Our next question is going to come from the line of Ryan Lynch with <unk>.

Speaker Change: TD Cowen Your line is open. Please go ahead.

Ryan Lynch: Hey, Steve Thank you.

Ryan Lynch: Rick One and then maybe more broad one first.

Ryan Lynch: The SDP program benefit you called out for DC does that include the new facility that you're opening.

Speaker Change: Yes, it does.

Speaker Change: Although I think for the most part.

Speaker Change: It's been difficult to predict what the impact on the new facility is because obviously, we have no track record of utilization etcetera. So the number that we've given is largely based on the historic performance of our acute care hospital in the district as well as we do have a behavioral hospital in the district that would have a smaller benefit from this program.

Speaker Change: But but but the new hospital will participate in any new Medicaid supplemental program that's approved.

Speaker Change: So that would just be some upside potentially to what you've ranged already I guess, maybe modest correct.

Speaker Change: Okay, and then maybe just more broadly.

Speaker Change: We've seen some I guess increase in frequency and legal headlines bolt on behavioral in the acute side. So just curious on your thoughts on is that just sort of the avalanche of UC, one and now youre going to get three more and if you think that might subside I mean, it just seems like these are much higher at least frequency than pre COVID-19.

Speaker Change: Just any kind of high level thoughts on some of the legal news flow would be great. Thanks.

Speaker Change: Yes, I mean, certainly there have been some kind.

Speaker Change: Kind of headline grabbing verdicts in I think particularly in the behavioral space in the last year.

Speaker Change: I think as we've indicated.

Speaker Change: We believe that the two verdicts that we have disclosed.

Speaker Change: Or are both subject to appeal Abel issues at <unk>.

Speaker Change: One of the verdicts has been substantially reduced just that the trial judge level, but again I think theres a great deal more appeal activity to go on both of those cases.

I think it's hard to say, whether those cases really reflect a significant change in the landscape.

I think they are both they were both extraordinary verdicts in terms of.

Speaker Change: Any sort of history.

Speaker Change: In terms of the facts in the case of the jurisdictions or whatever.

Speaker Change: As I mentioned in my prepared remarks, we are increasing our reserves for malpractice expense to recognize I think just more broadly.

Speaker Change: An increase not so much in the frequency of cases, but in the severity of cases and the severity of settlements in verdicts et cetera, but not necessarily really driven by the.

Speaker Change: The two cases that we've been disclosing because I do think those are sort of extraordinary and are both likely to be significantly reduced.

Speaker Change: Got it thank you.

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

Speaker Change: Our next question is going to come from the line of Matthew Gillmor with <unk>.

Speaker Change: <unk>. Your line is open. Please go ahead.

Hey, Steve.

Matthew Gillmor: The outlook for the Medicaid supplemental payments I think we've heard you talk about Tennessee.

Matthew Gillmor: In the past, but I think today you mentioned some additional funding for Nevada $56 million does.

Matthew Gillmor: Should that be understood to be something newness developed or was that already sort of baked in and understood previously.

Matthew Gillmor: No I think what gives rise to that incremental benefit.

Is the state.

Matthew Gillmor: <unk>.

Matthew Gillmor: Increasing the size of their Medicaid supplemental pool as a result of updating their Medicaid utilization statistics and data.

Matthew Gillmor: And submitting that to CMS. So that is something that is sort of incrementally new.

Matthew Gillmor: It is worthy to us and then obviously, we're disclosing it now.

Matthew Gillmor: But I think it's triggered by the increase in Medicaid utilization that the state is experiencing and as a consequence is increasing their pool. These.

These Medicaid supplemental payments available.

Speaker Change: Got it and then Steve I wanted to see if you would be able to provide any comments on the hurricane dynamics I think you mentioned some impacts around the edges with behavioral volumes, but any way to think about sort of any EBITDA impact or is it just small enough that it doesn't matter that much.

Speaker Change: Yes.

Steve Fulton: I'd say that.

Steve Fulton: We thought that that probably on the behavioral side of the business.

Steve Fulton: Patient day volume would've been maybe 25 30 basis points higher had it not been for the impacts of the Hurricane I mentioned that.

I think there was a bit of a creep up in salary expense during the quarter. As a result, I think broadly we had the view that.

Steve Fulton: To quantify the impact of the hurricane in both of the segments. It was just not material enough to call out as a discrete item and it certainly was a bit of a drag during the quarter.

Steve Fulton: But I think.

Steve Fulton: I think our point of view was it wasn't significant enough to call out as a discrete item.

Speaker Change: Got it thank you.

Speaker Change: One moment for our next question.

Speaker Change: Our next question is going to come from the line of Whit Mayo with Leerink partners. Your line is open. Please go ahead.

Whit Mayo: Thanks, I'll just keep it to one question Steve was just looking for an update on some of the EMR investments you guys have been making within the behavioral segment you know how many facilities now any benefits that youre seeing on.

Whit Mayo: Labor other efficiencies and then just maybe any new strategic initiatives within that segment that we should be mindful of as we enter 2025 things.

Whit Mayo: Yeah.

Speaker Change: Have the precise data in front of me with but I think.

Speaker Change: By early next year, we'll probably have 25 or 30 facilities live on EMR in that implementation and installation process will continue.

Speaker Change: I think.

Speaker Change: We feel like it's generally been successful and I think it.

Speaker Change: It tends to lend itself to greater efficiencies.

Speaker Change: When you don't necessarily have a tape of record, but also higher quality of care.

Speaker Change: Different clinicians are able to view the record more more easily a factor in that improved I think the quality of.

The patient care that you can provide I think the other.

Speaker Change: Technological development that we've talked about before in behavioral has to deal with.

Speaker Change: What we describe as patient observation your patient rounding.

Speaker Change: Having eyes on behavioral patients.

Very very frequently.

Speaker Change: A significant part of keeping patients safe and well.

Speaker Change: And to date, that's been a physical exercise that literally.

Speaker Change: Someone is laying eyes on every patient every 15 minutes or so.

Speaker Change: And to the degree that we can enhance.

Speaker Change: <unk> that process technologically.

Speaker Change: Have a patient where what it looks like an Apple watch in half.

Speaker Change: Our clinicians carry what looks like a tablet around and be able to know where patients are and whether they have been observed in.

Speaker Change: Keep track of them more effectively that way I think thats going to be a significant development that will.

Speaker Change: Help in the behavioral business and a great many ways in terms of.

Speaker Change: <unk>.

Speaker Change: Quality of patient care and risk management et cetera in the next few years.

Speaker Change: Okay. Thanks.

Thank you and one moment for our next question.

Speaker Change: Our next question is going to come from the line of Michael Hall with Baird. Your line is open. Please go ahead.

Michael Hall: Thank you Steve I think last quarter, you mentioned a lot of cost management in your acute care business.

Speaker Change: Separation for that sort of eventual return to pre pandemic volume and then basically with the aim of being able to continue EBITDA and margin expansion, even when think moderate so now that volumes appear to be moderating in acuity.

Speaker Change: Picking up it feels like it might be materializing faster their merchants.

Speaker Change: Wanted to revisit the topic asked about the cost management efforts, how that's been tracking how has that been tracking at this point in time at volume too.

Speaker Change: Even a moderate what's your confidence level that you are right now in the right position to drive that EBITDA margin expansion in the queue.

Speaker Change: Yes, I mean, I think the point that I tried to make.

Speaker Change: Last quarter, maybe in the last couple of quarters as a sort of idea that some of the.

Speaker Change: Traditional kind of blocking and tackling that we.

Speaker Change: We have done from a productivity standpoint.

Speaker Change: Was if not suspended 80 pause temporarily during the pandemic we were so.

Challenged in finding.

Speaker Change: Inadequate workforce and keeping inadequate workforce during the pandemic.

Speaker Change: There were.

Speaker Change: We're definitely sort of.

Speaker Change: Good luck and to manage to what we would sort of consider peak efficiency I think as we emerge from the pandemic more willing to do this sort of things that I think we've always historically done including adjusting to volumes as they moved up and down.

Speaker Change: And I think you saw that last quarter and I think you saw that this quarter as well where salaries as a percentage of revenues has been coming down and coming down.

Pretty steadily and I think it is really one of the main contributors to that margin recovery I think that continuing and I think the point being.

Speaker Change: Don't exactly know where acute care volumes will move and I don't think anybody really knows for certain but I think we're in a position where we're we're much more.

Speaker Change: Flexible about reacting to that and reacting to that in an efficient way than we were at the height of the pandemic. We faced so many more staffing challenges.

Speaker Change: Thank you and then.

Speaker Change: Follow up, California, New Mexico supplemental payments for 25, we're hearing it could be potentially $70 million to $80 million for California, 34, New Mexico to the U S.

I was wondering if you have any sort of additional clarity on sizing and then with all the discussion around the proposal you math raising those payments the average commercial rates for next year I was wondering if you could talk more about those the poker the potential tailwind not just California, and Florida, which everyone's been focused on but across all your.

Speaker Change: I guess, how real potential tailwind business. Thank you.

Speaker Change: Yes, so just responding because the specific questions you asked new Mexico I don't think is a significant upside for us we have one small behavioral facility in new Mexico, California, We obviously have a much bigger presence, both acute and behavioral and I think the challenge in terms of sizing the potential <unk>.

In California is that the state has not created a formal plan.

Speaker Change: Or an allocation methodology et cetera, so even though we understand that the potential benefit in total could be quite significant and we really have no way of knowing exactly.

Speaker Change: How that would impact specific hospitals that will be allocated among specific hospitals until the state issues, a more specific plan, which at least I understand is not likely to happen until sometime maybe next year early next year.

Speaker Change: Your broader question about are more states likely too.

Speaker Change: Increased their programs or develop new programs increased their funding to average commercial rates it really varies by state.

Speaker Change: <unk>.

Speaker Change: So to add this practice of really only disclose them when the states have a formal plan if they submitted to CMS and are waiting approval.

Speaker Change: We certainly like others are aware that other states are contemplating this in earlier stages et cetera.

And so we continue to believe that the potential benefit could.

Speaker Change: Be significant beyond just the ones that we disclose which are significant I think in and of themselves.

Speaker Change: But difficult to size that opportunity and any sort of precise way until the space develop their plans.

Speaker Change: Submit them to CMS.

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

Speaker Change: Our next question is going to come from the line of Ben Hendrix with RBC capital markets. Your line is open. Please go ahead.

Ben Hendrix: Great. Thank you very much just a quick follow up on some of the.

Ben Hendrix: Some of the psychiatric questions, especially in residential side can I think I've asked this before but just wanted to get any update or any updated thoughts on your strategic initiatives around like you mentioned the <unk>.

Ben Hendrix: Higher liability reserve some very specific issues at some of your facilities is there any any thoughts on kind of changing strategic direction or or evolving our strategy, there and could we potentially amid this heightened security could there be consolidation opportunities in the residential.

Ben Hendrix: Okay.

Ben Hendrix: Yes.

Ben Hendrix: <unk>.

Speaker Change #100: I was asked kind of a more strategic question earlier, though that focus was on.

Speaker Change #100: Acute care.

Speaker Change #100: And I think in some ways.

Speaker Change #100: <unk>.

Speaker Change #100: My answer on behavioral and my outlook is similar in the sense that we see an expanding continuum.

Speaker Change #100: Rich outpatient care is likely to play a greater role and there'll be more demand for access to outpatient care and we're expanding our outpatient footprint.

Speaker Change #100: In response to that.

Speaker Change #100: We continue to expand our services to military numbers, because that seems to be growing and significant.

Speaker Change #100: Part of the business.

Speaker Change #100: The SUV or addiction business continues to grow and demand is increasing there and I think we are increasing our exposure there.

Speaker Change #100: So, yes, I don't know that its particularly in acute residential sort of issue.

Speaker Change #100: Paying attention or focusing on one more than the other as much as it is these other service lines, which we think are rolling in and I would add to sort of the outpatient dynamic.

Speaker Change #100: Continuing expansion of telehealth capabilities as well.

Speaker Change #100: Okay.

Speaker Change #101: Thank you very much.

Thank you and I'm showing no further questions at this time I would like to hand, the conference back over to Steve Hilton for any closing remarks.

Steve Hilton: Yes, we just like to thank everybody for their time and look forward to speaking with people at the end of next quarter. Thank you.

Speaker Change #103: This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.

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Speaker Change #103: Okay.

Speaker Change #103: Okay.

Speaker Change #103: Okay.

Speaker Change #103: Okay.

Speaker Change #103: Yes.

Speaker Change #103: Right.

Speaker Change #103: Yes.

Speaker Change #103: Yes.

Okay.

Speaker Change #103: Sure.

Speaker Change #103: Okay.

Speaker Change #103: Yes.

Speaker Change #103: Okay.

Speaker Change #103: Okay.

Yes.

Speaker Change #103: Yes.

Speaker Change #103: Yes.

Yes.

Speaker Change #104: Good day, and thank you for standing by and welcome to the third quarter 2020 for Universal Health Service earnings Conference call.

Speaker Change #105: At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press star one on your telephone you have inherent automated message advising you. Your hand is raised to withdraw your question. Please press star one again, please be advised that today's conference.

Speaker Change #104: Is being recorded.

Speaker Change #106: I'd now like to hand, the conference over to your speaker today Stifel.

Speaker Change #107: Executive Vice President and CFO. Please go ahead Sir.

Speaker Change #108: Thank you good morning, and welcome to this review of Universal Health services results for the third quarter ended September 32024.

Speaker Change #109: During the conference call I will be using words, such as believes expects anticipates estimates and similar words that represent forecasts projections and forward looking statements.

Speaker Change #109: For anyone not familiar with the risks and uncertainties inherent in these forward looking statements I recommend a careful reading of the section on risk factors and forward looking statements and risk factors in our Form 10-K for the year ended December 31, 2023, and our Form 10-Q for the quarter ended June 32024.

Speaker Change #109: I'd like to highlight just a couple of developments and business trends before opening the call up to questions.

As discussed in our press release last night. The company recorded net income attributable to uhm per diluted share of $3 80 for.

Speaker Change #109: For the third quarter of 2024.

After adjusting for the impact of the items reflected on the supplemental schedule is included with the press release, our adjusted net income attributable to uhm per diluted share was $3 71 for the quarter ended September 32024.

Speaker Change #109: As we anticipated acute care volumes have moderated somewhat and that gradually begun to resemble the patterns, we experienced before the pandemic.

Speaker Change #109: Adjusted admissions to our acute hospitals increased one 5% year over year with surgical growth flowing.

Speaker Change #109: Overall revenue growth was still a solid eight 6% excluding the impact of our insurance subsidiary.

Speaker Change #109: Meanwhile, expenses were well controlled specifically the amount of premium paid in the third quarter was $60 million, reflecting a 12% decline from the prior year quarter.

Speaker Change #109: Included in our operating results during the third quarter of 2024, where aggregate net incremental reimbursements of approximately $20 million recorded in connection with various state supplemental Medicaid programs approximately half of which was earned by our acute care hospitals. These net reimbursements were in <unk>.

Speaker Change #109: <unk> of the supplemental program projections included in our earnings guidance for the full year of 2024 as advised on July 24 2024.

Speaker Change #109: On a same facility basis EBITDA at our acute care hospitals increased 36% during the third quarter of 2024 as compared to the comparable prior year quarter and the increase was 17% when excluding the impact of the incremental Medicaid supplemental payments earned in Nevada during the third quarter of 2024.

Speaker Change #109: The increase in operating income comparison to last year's third quarter for our acute hospitals is a further step towards a more extended margin recovery, we hope to sustain for the next several periods.

Speaker Change #109: In our <unk> segment position expense, which was a significant headwind in 2023 has stabilized at approximately seven 2% of revenues thus far in 2024.

Speaker Change #109: During the third quarter same facility revenues at our behavioral health hospitals increased by 10, 5%, primarily driven by an eight 5% increase in revenue per adjusted patient day.

Even after adjusting for Medicaid supplemental payments not included in our original 2024 guidance facility revenues increased eight 3% and same facility EBITDA increased nine 6% in the third quarter of 2024 as compared to the comparable prior year period.

As a result of unfavorable trends experienced during the last several years during the third quarter of 2024, we recorded a $30 million increase to our reserves for.

For self insured professional and general liability claims.

Speaker Change #109: Our cash generated from operating activities was $1 $4 billion. During the first nine months of 2024 as compared to $815 million during the same period of 2023.

Speaker Change #109: In the first nine months of 2024, we spent $698 million on capital expenditures and acquired $1 $7 million of our own shares at a total cost of approximately $350 million.

Speaker Change #109: Since 2019, we have repurchased approximately 31% of the company's outstanding shares.

Speaker Change #109: As of September 32024, we had $1 1 billion aggregate available borrowing capacity pursuant to our one 3 billion revolving credit facility.

Speaker Change #109: In our acute care segment, we continue to develop additional inpatient and ambulatory care capacity.

Construction continues on our de Novo acute care hospitals, consisting of the 150 bed West Henderson Hospital in Las Vegas, Nevada, which is expected to open shortly.

136 that Cedar Hill Regional Medical Center in Washington, D C, which is expected to open in the spring of 2025.

Speaker Change #109: And the 150 bed Allenby Medical center in Palm Beach Gardens, Florida, which is expected to open in the spring of 2026.

Speaker Change #109: And our behavioral health segment, we recently opened the 128 Bad River.

Speaker Change #109: <unk> Health Hospital in Madera, California, and we are developing the 96 beds South Ridge behavioral Health Hospital in West, Michigan, a joint venture with Trinity Health, Michigan, which is expected to open in the spring of 2025.

The approval processes continue in connection with new Medicaid supplemental payment programs in Tennessee, and Washington D C as well as the proposed funding increase to the existing program in Nevada.

Speaker Change #109: Though we cannot provide assurance that any or all of these programs and program changes will ultimately be approved by CMS or the timing of such approvals, which may not occur until 2025, if approval if approved in their current forms the Tennessee program with estimated annual net benefit of 40% to $56 million would be <unk>.

As of July one 2024.

Speaker Change #109: Washington D. C program with estimated annual net benefit of approximately $85 million will be effective October one 2024.

Speaker Change #109: And the funding increase to the existing Nevada program with estimated annual net incremental benefit of approximately $56 million would be effective July one 2024.

Speaker Change #109: Our previously provided earnings guidance for the full year of 2024 as revised on July 24, 2024 did not include the estimated incremental net benefit related to any of these programs.

Speaker Change #109: I'd be pleased to answer your questions at this time.

Yes.

Speaker Change #110: Thank you as a reminder to ask a question at this time. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, one moment for our first question.

Speaker Change #109: Okay.

Speaker Change #111: And our first question is going to come from the line of Josh Raskin with nephron.

Speaker Change #111: Your line is open. Please go ahead.

Mark: Hey, Good morning. This is actually Mark <unk> on for Josh I. Appreciate you taking the question.

Speaker Change #113: I was just wondering if you could speak to any changes you may be seeing in the behavior of managed care plans during the quarter, including activity around patient denials or downgrades across both the acute and behavioral segments and then it would also be helpful. If you just if you could just give some color on what trends you're seeing between commercial and that MA plan.

Speaker Change #113: And whether this activity is focused around any specific areas like two midnight. Thank you.

Speaker Change #114: Sure. So I think if you go back.

Speaker Change #115: And review some of our transcripts and other commentary from late in 2022 and early into 2023. We first began to note I think more aggressive behavior on the part of our managed care payers.

Speaker Change #115: Especially coming off of the initial years of the pandemic 2021 'twenty, two where clearly we felt like like payers had become less aggressive I think in response to a large degree to the significant decreases in utilization during.

Speaker Change #115: During the early stages of the pandemic.

Speaker Change #115: Since then since I would say late 'twenty two early 'twenty three again, we've seen I think payer behavior become more aggressive as it relates to denials as it relates to patient status changes.

Speaker Change #115: <unk> management when patients are in the facility et cetera.

I don't believe that we saw a dramatic change in the current quarter.

Speaker Change #115: I think again, the more aggressive behavior that we've been signing I think has been ongoing for more like a year or four six quarters, but.

Speaker Change #115: Wouldn't necessarily suggest that we saw a dramatic change in the current quarter.

Speaker Change #115: As far as weather and behavior is focused on any particular area.

Specifically asked about the two midnight rule again, I think we've made a comment that.

Speaker Change #115: We've been focused on the two midnight rule and the appropriate coding consistent with the two midnight rule and appeal is consistent with the two midnight rule for several years, we've been using a third party firm to help us properly code admissions, we've been using that same firm to help us with denial appeals et cetera.

Speaker Change #115: So I don't think we've seen again some of the perhaps significant difference in half two midnight rules to midnight.

Speaker Change #115: Coding claims are being handled with our claims as maybe some of our peers who've really change their behavior.

Speaker Change #115: As a result of the.

Speaker Change #115: The recent clarifications that CMS issued and in terms of the two midnight rule.

Speaker Change #115: Okay.

Speaker Change #116: Thanks, I appreciate all the color on that and then just to squeeze in one more quick one I was wondering if you could just give a quick update on physician recruitment and turnover trends.

Speaker Change #116: Behavioral segments.

Speaker Change #116: Especially as it relates to opening up additional capacity.

Speaker Change #116: And then whether you're seeing any more incremental competition in that area. Thank you.

Speaker Change #116: Yes.

Speaker Change #116: Okay.

Speaker Change #117: Yes, so I think there has been much discussion about.

Speaker Change #117: Physicians and especially as it related to hospital based physicians.

Sure.

Speaker Change #117: Last year when there was a significant increase for almost all providers in the expensive hospital based physicians in our case, especially emergency room physicians.

Speaker Change #117: And anesthesiologists.

Speaker Change #117: I think that increased expense was more a result of.

Speaker Change #117: Billing changes and I think specifically the no surprise billing act.

Speaker Change #117: And the constraints that that put on those specialties emergency room anesthesiology in terms of their ability to bill for out of network patients.

Speaker Change #117: So I think the pressures on those expenses were driven more by those billing changes then they were by lack of.

Speaker Change #117: Our scarcity of those sort of physicians.

Speaker Change #117: Hi.

Speaker Change #117: I don't think that there is a <unk>.

Speaker Change #117: Eric a physician has been where do I think theres a glut necessarily in every market different specialties are more challenging et cetera, but I don't think we would describe physician recruitment is particularly difficult in the current period.

I don't think it's changed much over the last several years.

Speaker Change #118: Alright, Thank you for all the color.

Speaker Change #119: Thank you one moment for our next question. Our next question is going to come from the line of Ann <unk> with Mizuho. Your line is open. Please go ahead.

Speaker Change #120: Great. Thank you.

Speaker Change #121: Heading into 2025 are there any maybe major headwinds in tailwind do you want to call out.

Speaker Change #121: And to that I know it sounds like Youre getting incremental provider stuff in 2024 is there anything we should be on the lookout for 2025.

Speaker Change #121: Okay.

Speaker Change #122: So I think for us and.

Speaker Change #123: As I mentioned in my prepared remarks, we will have two new facilities opened in 2025, our west Henderson facility in Las Vegas, which will open late this year and then.

Speaker Change #123: Hospital in the district of Columbia, which will open in the spring I don't believe and we'll be more precise about this when we give our detailed 2025 guidance in February but I don't believe that either of those facilities will.

Speaker Change #123: Create a significant drag on EBITDA there will be some.

Speaker Change #123: The opening expenses and some ramp up but I think both are well positioned.

Speaker Change #123: So again, they shouldn't that create much of a drag I think otherwise.

Speaker Change #123: For the two businesses, we are expecting the continued margin recovery.

Again, I alluded to in my opening comments and then finally, the major tailwind or the ones.

Speaker Change #123: And that I mentioned again in my remarks.

Speaker Change #123: Specific ones in terms of Tennessee issued a Columbia, Nevada. These are.

Speaker Change #123: Either new or additional supplemental programs that have been submitted to CMS for approval there.

Speaker Change #123: And then some.

Speaker Change #123: Reporting and some things that have been written about.

Speaker Change #123: Programs, either new or expanded programs in California, and Florida that could be effective next year.

Speaker Change #123: Those I think are sort of earlier stages of development, So I think broadly.

Speaker Change #123: There are some significant potential tailwind in the Medicaid supplemental area, some of which we've disclosed in some detail others, which I think are a little bit more.

We're not quite as precise at this point.

Speaker Change #123: But those to me seem to be the big puts and takes for 2025 at this point.

Speaker Change #124: Alright. Thanks.

Speaker Change #125: Thank you and one moment for our next question.

Speaker Change #126: Our next question is going to come from the line of Andrew Mok with Barclays. Your line is open. Please go ahead.

Hi, Good morning wanted to focus on the acute volumes, maybe if you just take a step back and comment on the volume progression in that business and now that we've established a more normal baseline for volumes like what's the outlook in the acute care segment for volume growth.

Speaker Change #127: Andrew I think we've been pretty clear and consistent in our commentary in this regard and that is.

Speaker Change #127: We've been saying for some time that we expected.

Speaker Change #127: Acute broadly acute care growth to return to sort of more.

Speaker Change #127: Normal I'll call them pre COVID-19 levels, so sort of same store revenue growth in the 6% to 7% range that would be split pretty evenly between price and volume.

Speaker Change #127: I think if you actually look at our year to date metrics in acute care I think our adjusted admissions were up 3% I think our pricing part of our revenue per adjusted admission was up 5% I think if you adjust out for the Nevada, Medicaid supplemental youre sort of in that range.

Speaker Change #127: 6% to 7% revenue growth split pretty evenly between price and volume.

Speaker Change #127: I think thats.

Speaker Change #127: That's been our view for a while I know that some of the commentary from our peers have been a little bit more bullish about what acute care volume may look like and suggesting that there have been some structural changes.

Speaker Change #127: In the business that would result in elevated acute care volume growth for the foreseeable future, we havent seen that yet.

Speaker Change #127: And obviously I think if there's a lot of these structural changes we would benefit from them as wood.

Speaker Change #127: The average acute care hospital, we just havent seen really evidence of that just yet the other issue, which I kind of alluded to earlier is I think a number of acute care hospitals are anticipating a fairly significant benefit from the two midnight rule change and.

Speaker Change #127: Consequent.

Speaker Change #127: Consequent change in the way their coding lease things et cetera, as I've indicated again, I think pretty clearly and consistently for a while now we think we have been focused on that issue for several years now and as a consequence don't necessarily anticipate an incremental benefit from that so again, I think we view acute care volumes or.

Speaker Change #127: The future to future volume growth and I think broadly acute care revenue growth is something that should be solid.

Speaker Change #127: Et cetera, but that some of the really elevated acute care volume growth that we've seen over the last several years has been a result of the catch up in postponed and deferred procedures or procedures that had been postponed and deferred during the pandemic and by definition I think those were sort of a onetime thing and I think we're largely past that at this point.

Speaker Change #128: Great and then your corporate expenses tracked a bit higher than our estimates in the quarter can you help us understand any one time items.

Speaker Change #129: There are other drivers of the increase in the corporate segment.

Yes, we had a $5 million loss on the extinguishment of debt related to our refinancing that we did during the quarter, we probably had another $5 million.

Speaker Change #129: Settlements of miscellaneous smaller lawsuits.

Speaker Change #129: That $10 million of corporate expense.

Speaker Change #129: Clearly characterized as nonrecurring in the quarter.

Speaker Change #130: Alright, thanks for the color.

Speaker Change #129: Yeah.

Speaker Change #131: Thank you one moment for our next question.

Speaker Change #132: And our next question is going to come from the line of Justin Lake with Wolfe Research. Your line is open. Please go ahead.

Speaker Change #133: Good morning. This is Dylan on for Justin Thanks for the question I just had a couple of quick ones for you.

Speaker Change #134: Is there any color you can provide on the trajectory of volumes in the behavioral business in the quarter and then second.

Speaker Change #134: <unk> pricing clearly remains a strength are you expecting to see similar opportunities heading into 2025 or do you expect that to moderate thank you.

Speaker Change #135: So as far as the trajectory of behavioral volumes again, I think for the last several quarters we've been.

Speaker Change #135: Talking about.

Speaker Change #135: Our sense that.

Speaker Change #136: While we originally guided to 3% same store patient day growth for behavioral and for the full year of 2020 for that growth was occurring more slowly than we originally anticipated and we sort of revise that view to we'd be able to exit the year.

So the 3% level.

Speaker Change #136: We were able to exit the third quarter at that 3% level and thats, despite a little bit of drag from the hurricane.

Packed in South Carolina, and Georgia on some of our facilities at the very end of the quarter Hurricane Helene.

Speaker Change #136: So.

Speaker Change #136: I think we remain confident that we should be able to exit the fourth quarter at that at least 3% patient day growth rate.

Speaker Change #136: And remain confident that we can do so as far as behavioral pricing behavior pricing as people now had been quite strong for.

Speaker Change #136: Several years now throughout most of the pandemic.

Speaker Change #136: We attribute that to some degree to our efforts to.

Speaker Change #136: Leverage better pricing from some of our lower paying payers, particularly managed Medicaid payers and I think in an environment, where there is not a great deal of excess capacity in the behavioral industry writ large is thats been.

Speaker Change #136: Effective set of strategy.

Speaker Change #136: We've been suggesting for some time that behavioral pricing is likely to moderate at some point.

Speaker Change #136: And we continue to believe that but to be fair. It has it is hanging in there very robustly very strongly.

Speaker Change #136: At the current time, and obviously, we're not doing anything to try and reduce that but we do believe that they have a pricing which has been running at historically high levels will moderate at some point, but still should track in sort of that 4% to 5% range for the foreseeable future.

Thank you and one moment for our next question.

Speaker Change #137: Our next question is going to come from the line of Sarah James with Cantor. Your line is open. Please go ahead.

Speaker Change #138: Hey, guys. This is Gaby yonker, Sarah you had a nice beat on our Q revenue per admission could you just walk us through the drivers there and with any of that related to the extra day in the quarter.

Yes, I mean.

Speaker Change #139: Today I think it was a mechanical sort of thing we tend not to really focus on that.

Speaker Change #139: Largely because I think in the end obviously.

Speaker Change #139: The longer the period, if you look at the full year all of that comes out in the wash I think more importantly.

Speaker Change #139: We had a difficult with acute care comparison, I think our same store adjusted admissions in last year's third quarter were up close to 7%.

But I think even more importantly, if you go back and you listen to our commentary from last year's third quarter, we attribute a lot of that too again this catch up.

Speaker Change #139: In the.

Speaker Change #139: The deferred and close bone procedures, then those procedures that have been postponed or deferred during the pandemic.

Speaker Change #139: And as a consequence, if you go back.

Speaker Change #139: While our volumes both admissions and surgical volumes were strong in the third quarter of last year, they tended to be skewed towards those lower acuity kind of more discretionary procedures.

People had the ability to deploy during the pandemic and so when youre looking at now that comparison with 24% to 23.

C volumes sort of look unfavorable may come down some but acuity has come out because so much of that activity last year's quarter was due to the lower acuity lower revenue sorts of procedures.

Speaker Change #140: Okay Awesome and then.

Speaker Change #141: Any color on the inpatient surgical trends.

As I noted in my.

Prepared remarks surgeries were worse off than they were probably down slightly in the quarter and again I think a lot of the same dynamic that surgeries were quite strong in the third quarter of last year, but that was skewed towards a lot of what I'll describe as sort of catch up lower acuity more discretionary more elective sorts of proceed.

Speaker Change #142: Okay, great. Thank you guys.

Speaker Change #143: Thank you and one moment for our next question.

Speaker Change #144: Our next question is going to come from the line of a J rice with UBS. Your line is open. Please go ahead.

Speaker Change #144: Hired body.

Speaker Change #146: Maybe just two.

Speaker Change #147: I ask about the labor you commented that you use.

Speaker Change #148: Premium pay was down to $60 million, 12% down year to year any more broad comments on what youre seeing in both business lines and labor are we sort of at a stable point at this point.

Speaker Change #148: You can sort of hold your <unk> ratios set of revenues going forward or do you think there's still further opportunities.

Speaker Change #148: Yeah.

Speaker Change #149: What I think has happened to a J is that again, we are in sort of now there's post pandemic environment in which.

Speaker Change #149: Wage inflation I think has stabilized it is clearly lower than it was at the height of the pandemic. Obviously, our use of premium pay has diminished dramatically. Although it is also I think starting to stabilize and sort of flattened out.

Speaker Change #149: And I think that that should continue.

That's benefiting us obviously in an environment, where the revenue growth in both businesses has been quite robust.

Speaker Change #149: Yeah.

Speaker Change #149: Contributing to the margin recovery that.

Speaker Change #149: Salaries are somewhat stable and I will say.

People have noted to me that on.

Speaker Change #149: On the behavioral side salaries as a percentage of revenue did sequentially increase from Q2 to Q3 and they asked about whether that kind of an emerging trend and I would say not I think that that's a function probably of the impact of the hurricane that we saw at the very end of.

Speaker Change #149: The quarter, where a number of our facilities, particularly in Georgia, South Carolina markets.

Speaker Change #149: So a diminished volumes.

Speaker Change #149: But also it's a double whammy, because we see diminished volumes, but we're also paying overtime et cetera to keep people in the facility and make sure it's properly staffed.

Speaker Change #149: But I think outside of that I would say that.

Speaker Change #149: Labor trends have stabilized substantially in both business segments.

Speaker Change #149: Okay.

Speaker Change #149: Just thinking about.

Speaker Change #149: <unk> development capital deployment et cetera.

Speaker Change #149: Yeah.

Speaker Change #150: Any comment on the on the behavioral side of the JV pipeline.

Speaker Change #150: A new bed additions as you start thinking about 25.

Speaker Change #150: And then obviously to the extent there is free cash flow beyond any of that whether there's M&A opportunities or should we think that most of that cash flows when I go to stock buybacks from here.

Speaker Change #150: Yes.

Speaker Change #151: We continue with a pretty aggressive and robust capital expenditure program.

Speaker Change #151: Talking about some of the big spend in my prepared remarks, but we've started or maybe more practically I would say we've restarted.

Speaker Change #151: Add beds to our behavioral business, we've been doing that pretty consistently.

Prior to the pandemic during the pandemic, but we paused many of those expansion activities with the sort of logic gain.

Speaker Change #151: We were struggling to staff for the existing beds, we had.

Speaker Change #151: There was no point in building new beds, but now that <unk>.

Speaker Change #151: Again, the labor market has stabilized we're looking in those markets where.

There is an opportunity to increase volumes by adding does not to be fair, our overall occupancy and behavioral still in the low 70. So there are plenty of facilities, where we should have the potential for upside volume without having to add any new beds, but there are some facilities that are running at high occupancies in that in those facilities.

Speaker Change #151: We are again, either resurrecting or entertaining.

Speaker Change #151: New programs to build that and we'll continue to do that as far as opportunities for M&A.

Speaker Change #151: We often comment that we are presented with opportunities.

Speaker Change #151: Reasonably regularly.

Speaker Change #151: We have found if you look at the.

Speaker Change #151: In the last five years seven years, not a great deal of those opportunities to be very compelling, although we'll continue to look at them.

Speaker Change #151: And so my guess.

Speaker Change #151: M&A I think can be hard to predict but my guess is that.

Speaker Change #151: As you think about it.

Speaker Change #151: Capital deployment will remain focused probably on capital expenditures and on share repurchase as much as it has been for the last five to seven years.

Speaker Change #152: Okay. Thanks, a lot.

Speaker Change #153: Thank you and my moment for our next question.

Speaker Change #154: Our next question is going to come from the line of Peter <unk> with Deutsche Bank. Your line is open. Please go ahead.

Speaker Change #154: Hey, good morning, guys.

Speaker Change #156: Looking at same store occupancy here, yes, thats, if im not sure because it probably underestimate busier days Monday through Wednesday.

For electric procedures. So the question is what is the Max occupancy.

Speaker Change #156: The portfolio before it impacts same store admission growth and how do you think about hospital occupancy.

Speaker Change #156: If you can sort of expand beds fast enough does this create a more aggressive conversations with their lowest yielding MAA payors alike.

You did a few years ago, when your Max capacity in Pedro.

Speaker Change #157: Yes, so Peter Im not sure. If your question was specific to one or both of the segments.

Speaker Change #158: I'll try and answer for both I think on the acute side occupancy over the years has become somewhat less relevant metric obviously it measures your occupied inpatient beds.

Speaker Change #158: But.

Speaker Change #158: My experience I've been in a hospital any number of times that maybe at two thirds occupancy from an inpatient bed perspective, but you will see the emergency room and.

Speaker Change #158: There are structures in the hallway or you walk through the or.

Speaker Change #158: <unk> got a real busy schedule in the Cath lab that sort of thing so I think that.

Speaker Change #158: <unk>.

Speaker Change #158: So acute care inpatient occupancy is not as relevant a metric as it used to be all at one time. It was I think a number of other equally important variables.

Speaker Change #158: Measuring sort of the efficiency and the output of an acute care hospital.

I think in terms of the broader question I don't know that we have too many.

Speaker Change #158: <unk>.

Speaker Change #158: At Max capacity in any of those areas. We're certainly not there in terms of inpatient beds, but I don't think we're necessarily there in terms of emergency room capacity or cath labs, or <unk> et cetera, and to a degree that we are I think we're responding to that with capital improvement and expansion programs that address that on the behavioral side I do think that.

Speaker Change #158: Invasion of occupancy or in inpatient bed occupancy number is more relevant there are sort of fewer ancillary sorts of procedures in a behavioral hospital.

Speaker Change #158: That account for that although obviously outpatient activity needs to be measured as well.

Speaker Change #158: But at the same thing.

Speaker Change #158: Said.

Speaker Change #158: For the most part I don't think we have physical capacity constraints in our behavioral business, but they are certainly in our facilities and geographies where that is an issue and those are the places where we're doing that expansion or at least contemplating bed expansions.

Great and then a follow up years on.

This is in expenses, but can you talk about where that would be stable.

Speaker Change #158: Some 40% of revenue are there other areas like radiology in NICU.

Speaker Change #158: Which have not been pressure points in the past.

Speaker Change #159: Which could be asking for subsidies going forward or pretty much across the portfolio across all different groups of physicians that stable. Thanks, so much.

Speaker Change #158: Yes.

Speaker Change #160: Yeah. So the answer is yes, and I would say in the portfolio I can find examples in almost every specialty where we've had requests for greater subsidies or increased expense et cetera.

Speaker Change #160: <unk>.

Speaker Change #160: Comments earlier, I think for us the biggest pressure by far.

Speaker Change #160: The most expansive has been in the emergency room and anesthesia areas, but yes, we have I think one off situations, where we've seen.

Speaker Change #161: Pressure from Hospitalists or.

Speaker Change #161: <unk>.

Speaker Change #161: Labor risks or.

Speaker Change #161: Radiologists as you asked about but.

Speaker Change #161: Clearly I think.

Speaker Change #161: The accounted for much less pressure than you are in anesthesiology and I think broadly well, we continue to sort of deal with those issues every day I think that that situation, which was such a headwind in 2023 has largely stabilized.

Speaker Change #162: Great. Thanks, so much guys.

Speaker Change #163: Thank you and one moment as we move on to our next question.

Speaker Change #164: Our next question is going to come from the line of Joanna <unk> with Bofa Securities. Your line is open. Please go ahead.

Speaker Change #165: Hi, good morning, Thanks, so much for taking the questions.

Speaker Change #166: To clarify the commentary around the outlook for site.

Speaker Change #166: Business into next year.

Speaker Change #167: And as I alluded to the idea.

Speaker Change #167: Excluding supplemental.

Speaker Change #167: And.

And I guess do you still expect to exit that.

Speaker Change #167: Keep some volume quarter.

Speaker Change #168: I don't.

Speaker Change #168: The trajectory to expect next year in terms of growth for that for that segment.

Yes, so Joanne I mean, we're not going to give sort of precise 2025 guidance on this call. We don't do that until our fourth quarter call in February but.

Speaker Change #168: I think we have broadly described are expected to the trajectory of growth in the behavioral business is same store revenue growth and the kind of mid to upper single digit 67, 8%.

Speaker Change #168: Probably skewed a little bit more to pricing, so 4% to 5% pricing three to three 5% volume.

Speaker Change #168: But I'm not suggesting that that's going to be our precise guidance for next year, but I think in terms of thinking about next year. That's I think how we start and then obviously to the degree that there is any significant.

Speaker Change #168: Medicaid supplemental programs et cetera.

Speaker Change #168: Would be sort of.

Speaker Change #168: <unk> to that.

Speaker Change #168: Alright, and I guess staying on site.

Speaker Change #169: So in terms of volumes.

Speaker Change #169: This quarter, maybe it wasn't.

Alright, so 2% or about I guess.

Speaker Change #169: Kind of exit that.

Speaker Change #169: Do you think about all the different tailwind so can you.

Speaker Change #169: Walk us through what you're seeing out there in the markets all exceeded the mental health parity with Mcl that has I guess more teeth.

Speaker Change #169: Macquarie link.

Speaker Change #169: Actually execute on Beckman Pardee and also it sounds like.

Speaker Change #169: Adding more benefits.

Speaker Change #169: The higher demand.

Speaker Change #169: And I guess are you able to meet that demand I guess.

Speaker Change #169: Something can be set about inc.

Speaker Change #169: <unk>.

Speaker Change #169: It could be able to.

Speaker Change #170: Scott for that volume.

Speaker Change #171: Yeah, So John I apologize because I'm, having a little trouble hearing you, but I think I got the crux of your question I'll say that.

Speaker Change #170: We.

Speaker Change #170: I indicated that from earlier comments I think are.

Speaker Change #170: Volume recovery in behavioral has I think we've been candid about saying, it's taken a little bit longer than we expected we decided a number of issues that have been challenges.

Speaker Change #170: Labor scarcity issues in specific pockets in specific geographies has been one we had a handful of residential facilities that struggled with some very sort of unique issues that they've been recovering from.

I think over the last year or so we've talked about.

The impact of Medicaid Dis enrollments.

Speaker Change #170: And the sort of.

Speaker Change #170: <unk>.

Speaker Change #170: Challenges that that's created even for those patients who have been able to re enroll or enroll in commercial exchange products.

Speaker Change #170: While that I think tends to be a benefit on the acute side I don't think it tends to be as much of a benefit on the behavioral side, because the large copays and deductibles that generally come with those commercial plans have sort of been challenging but I think.

Speaker Change #172: For the most part the recovery in our behavioral volumes MLR optimism about being able to sustain that recovery in the fourth quarter is really about the improvement of all of these issues, we continue to be able to hire more staff.

Speaker Change #172: And have more adequate staff to allow us to take more patients. The residential facilities that have struggled are continuing to improve and the Medicaid just enrollment impact continues to dissipate as either patients are able to re enroll in Medicaid or commercial exchange coverage and they exhaust their copays and deductibles. So I think.

Speaker Change #172: If the improvement in those areas Thats really contributing to the behavioral improvement I think you specifically asked about whether we're seeing or anticipating.

Speaker Change #173: <unk> benefit from the Biogen administration's sort of tightening of rules on mental health parity.

Speaker Change #173: Mental health parity, which was implemented any number of years ago.

Speaker Change #173: It's a great fanfare and I think expectation that we would really benefit from that.

I think we benefited to some degree, but I think the payers and the payer community broadly.

Speaker Change #173: Has been challenging in terms of really.

Speaker Change #173: Getting them to comply with I think both the spirit and the actual antenna.

Speaker Change #173: That'll help parity I do think that the strengthened government regulations are helpful. But I don't know that there they are likely to really create a landscape change I think where they are helpful is as we appeal. These things as we appeal denials and that sort of thing.

Speaker Change #173: Strength in government regulations are often helpful. In that regard, but I don't think thats going to drive a huge increase in base oil volume.

Speaker Change #174: Thank you if I may squeeze better loss I guess clarification question I will comment on the 2024 guidance. So assuming no change. So you put about 20 million I guess, good guy in the quarter from supplemental.

Speaker Change #174: In there, but then there was a $10 million bad Guy I guess.

Speaker Change #174: That and that question Ben.

Speaker Change #174: And I guess settlement so rapidly no change to your 2020 guidance I just wanted to confirm that thank you.

Speaker Change #175: Yes, there is no change to our to our revised 2020 for guidance.

Okay.

Speaker Change #176: Thank you and one moment as we move on to our next question.

Speaker Change #177: Our next question is going to come from the line of Jimmy <unk> with Goldman Sachs. Your line is open. Please go ahead.

Speaker Change #178: Hey, Thank you good morning, Steve I, just wanted to go back to acute care volumes in the quarter at one 5% I appreciate you've been expecting some normalization, but that that was.

Speaker Change #178: Just weaker than expected and wanted to get a sense of if you saw any change across the quarter any call outs by payer class. If you can give us any detail on on how some of the larger payer classes grew relative to that and then as we think about normalization is this what the new normal looks like or are there any.

Speaker Change #178: Dynamics in the third quarter that make this not representative of the go forward.

Yes. So on this one Jamie I think I'm, just going to have to repeat comments I've already made.

Speaker Change #178: The most.

Speaker Change #179: Significant sort of dynamic in the quarter is the difficult comparison to last year.

Speaker Change #179: Which I will say, we have clearly and consistently pointed out during the quarter and tried to manage people's expectations.

Speaker Change #179: But but more importantly is that difficult comparison to last year I think was really related to the fact and I think if you go back and read or listen to our commentary from last year. It was this sort of exhaustion of deferred and postpone procedures, which we did view as kind of a onetime thing.

Speaker Change #179: What I also said earlier was I thought that if you looked at year to date performance and the acute business three 2%, 3% adjusted admission growth, 5% revenue per adjusted admission growth and if you.

Speaker Change #179: X out the impact of the Nevada supplemental you're starting to get.

Speaker Change #179: You're starting to get in the acute care model that in my mind was reflective or is reflective.

Speaker Change #179: Historical model, but also our expectations for the future, which is kind of mid single digits, 7% same store revenue growth split pretty evenly between price and volume.

Speaker Change #180: Okay. That's that's helpful. And then maybe just a bit of a longer term question we've been in a.

Speaker Change #180: Pretty unique environment really for the last five years or so number of structural dynamics of either emerged.

Speaker Change #180: Maybe intensified over that period ASC utilization aggressive payer tactics.

Speaker Change #181: Probably impacts administrative burden growth and M&A and Hicks I guess, just as you think about the next five years can you level set us on strategy in particular internal investment priorities going forward.

Speaker Change #181: Yes.

Speaker Change #182: But it's a pretty broad question and one that I'm sure. We could we could speak for an extended period of time about also to all the dynamics that you mentioned I think broadly the way I would answer the question, which seems to be an acute care centered question is.

Speaker Change #182: We have a view that the care continuum has clearly been expanded and payers are looking to.

Speaker Change #182: Ensure that patients can be treated in the most cost effective settings of care, which has resulted in a growth.

Speaker Change #182: Ambulatory surgery.

Facilities and freestanding imaging facilities.

Speaker Change #182: And much greater access points, we've had great success with.

Speaker Change #182: <unk>.

Speaker Change #182: Our penetration of freestanding emergency departments as an example, but broadly I think we are trying to participate in that.

Speaker Change #182: And the investment in that broader continuum, whether it's.

Again.

Speaker Change #182: These freestanding imaging freestanding eds et cetera that that's certainly one component of it. The other I think is a continued alignment with our physicians whether that's through accountable care organizations. We have at least one of those in every single market in which we operate whether it's employed physicians, which we have in virtually all of our mall.

Speaker Change #182: <unk>.

Speaker Change #182: Et cetera, but I think we view that.

Speaker Change #182: As we sort of continue into a pretty challenging environment, and where utilization is going to be.

Speaker Change #182: No.

Speaker Change #182: <unk> carefully by payers and by the government, we think being properly aligned with our physicians as sort of the most.

Speaker Change #182: Most important dynamics so to me I would say those two issues. The continued emphasis on physician alignment and a bunch of different ways and the continued expansion of the care continuum.

Speaker Change #182: Two of our major focus is as we think about the next five years.

Speaker Change #182: Alright I appreciate it thank you.

Speaker Change #183: Thank you and one moment for our next question.

Speaker Change #184: Our next question is going to come from the line of Ryan Lynch with <unk>.

TD Cowen Your line is open. Please go ahead.

Ryan Lynch: Hey, Steve Thank you.

Ryan Lynch: One and then maybe more broad one first.

Ryan Lynch: The SDP program benefit you called out for DC does that include the new facility that you're opening.

Yes, it does.

Ryan Lynch: No I think for the most part.

Speaker Change #185: It's been difficult to predict what the impact on the new facility is because honestly, we have no track record of utilization etcetera. So the number that we've given is largely based on the historic performance of our acute care hospital in the district as well as we do have a behavioral hospital in the district that would have a smaller benefit from this program.

Speaker Change #185: But but but the new hospital will participate in any new Medicaid supplemental program that's approved.

Speaker Change #186: So that would just be some upside potentially to what you've ranged already I guess, maybe modest correct.

Okay, and then maybe just more broadly.

Speaker Change #187: We've seen some I guess increase in frequency and legal headlines pulse on behavioral and acute side. So just curious on your thoughts on is that just sort of the avalanche of UC, one and now youre going to get three more and if you think that might subside I mean, it just seems like these are much higher at least frequency than pre COVID-19.

Speaker Change #187: Just any kind of high level thoughts on some of the legal news flow would be great. Thanks.

Speaker Change #188: Yes, I mean, certainly there have been some.

Kind of a headline grabbing verdicts in I think particularly in the behavioral space in the last year.

Speaker Change #188: I think as we've indicated.

Speaker Change #188: We believe that the two verdicts that we have disclosed.

Speaker Change #188: Are both subject to appeal oval issues at.

Speaker Change #188: At least one of the verdict has been substantially reduced just that the trial judge level.

Speaker Change #188: But again I think there is there is a great deal more appeal activity to go on both of those cases.

Speaker Change #188: It's hard to say, whether those cases really reflect a significant change in the landscape.

Speaker Change #188: I think they are both they were both extraordinary verdicts in terms of.

Speaker Change #188: Any sort of history.

Speaker Change #188: In terms of the facts of the case of the jurisdictions or whatever.

As I mentioned in my prepared remarks.

Speaker Change #188: Our increasing our reserves for malpractice expense to recognize I think just more broadly and.

Speaker Change #188: An increase not so much in the frequency of cases, but in the severity of cases and the severity of settlements in verdicts et cetera, but not necessarily really driven by the.

Speaker Change #188: The two cases that we've been disclosing because I do think those are sort of extraordinary and are both likely to be significantly reduced.

Speaker Change #189: Got it thank you.

Speaker Change #190: Thank you and one moment for our next question.

Speaker Change #191: Our next question is going to come from the line of Matthew Gillmor with KBC. Your line is open. Please go ahead.

Matthew Gillmor: Hey, Steve.

Matthew Gillmor: The outlook for the Medicaid supplemental payments I think we've heard you talk about Tennessee.

Matthew Gillmor: In the past, but I think today, you mentioned, some additional funding for Nevada $56 million.

Matthew Gillmor: Should that be understood to be something newness developed or was that already sort of baked in and understood previously.

Matthew Gillmor: No I think what gives rise to that incremental benefit.

Matthew Gillmor: Is the state.

Matthew Gillmor: Sure.

Matthew Gillmor: Increasing the size of their Medicaid supplemental pool as a result of updating their Medicaid utilization statistics and data.

Matthew Gillmor: And submitting that to CMS. So that is something that is sort of incrementally new.

Matthew Gillmor: Newsworthy to us and then obviously, we're disclosing it now.

Matthew Gillmor: But I think it is triggered by the increase in Medicaid utilization that the state is experiencing and as a consequence is increasing their pool. These.

Matthew Gillmor: These Medicaid supplemental payments available.

Speaker Change #192: Got it and then Steve I wanted to see if you would be able to provide any comments on the hurricane dynamics I think you mentioned some impacts around the edges with behavioral volumes, but any way to think about sort of any EBITDA impact or is it just small enough that it doesn't matter that much.

Yes.

Speaker Change #193: I would say that.

Steve Hilton: We thought that probably on the behavioral side of the business.

Steve: Patient day volume would've been maybe 25 30 basis points higher had it not been for the impacts of the Hurricane I mentioned that.

I think there was.

Steve: A bit of a creep up in salary expense during the quarter as a result, I think broadly we had the view that.

Steve: Trying to quantify the impact of the hurricane in both of the segments. It was just not material enough to call out as a discreet item. It certainly was a bit of a drag during the quarter.

Steve: But I think.

Steve: I think our point of view was it wasn't significant enough to call out as a discrete item.

Speaker Change #195: Got it thank you.

One moment for our next question.

Speaker Change #196: Our next question is going to come from the line of Whit Mayo with Leerink partners. Your line is open. Please go ahead.

Thanks, I'll just keep it to one question and he was looking for an update on some of the EMR investments you guys have been making within the behavioral segment you know how many facilities now any benefits that you're seeing on labor.

Speaker Change #196: Labor other efficiencies and then just maybe any new strategic initiatives within that segment that we should be mindful of as we enter 2025.

Speaker Change #196: Yeah.

Speaker Change #197: And if I have the precise data in front of me with but I think.

Speaker Change #198: By early next year, we'll probably have 25 or 30 facilities live on EMR in that implementation and installation process will continue.

Speaker Change #198: I think we.

Speaker Change #198: We feel like it's generally been successful and I think.

Speaker Change #198: It tends to lend itself to greater efficiencies.

Speaker Change #198: You don't necessarily have the type of record, but also higher quality of care.

Different clinicians.

Speaker Change #198: To view the record more more easily et cetera, and that improved I think the quality of.

Speaker Change #198: The patient care that you can provide I think the other.

Speaker Change #198: Technological development that we've talked about before in behavioral has to deal with.

What we described as patient observation your patient rounding.

Speaker Change #198: Having eyes on behavioral patients.

Speaker Change #198: Very very frequently.

Speaker Change #198: A significant part of keeping patients safe and well.

Speaker Change #198: To date, that's been a physical exercise that literally.

Speaker Change #198: Someone is laying eyes on every patient every 15 minutes or so.

Speaker Change #198: But to the degree that we can.

Speaker Change #198: And that process technologically.

Speaker Change #198: I have a patient where it looks like an apple watch in half.

Speaker Change #198: Our clinicians carry what looks like a tablet around and be able to know where patients are and whether they have been observed and keep track of them more effectively that way I think thats going to be a significant development that will help.

Speaker Change #198: In the behavioral business and a great many ways in terms of.

Speaker Change #198:

Speaker Change #198: Quality of patient care and risk management et cetera in the next few years.

Speaker Change #199: Okay. Thanks.

Speaker Change #200: Thank you and one moment for our next question.

Speaker Change #201: Our next question is going to come from the line of Michael Hall with Baird. Your line is open. Please go ahead.

Michael Hall: Thank you Steve I think last quarter, you mentioned a lot of cost management in your acute care business.

Speaker Change #202: Preparation for that sort of eventual return to pre pandemic volume and then basically with the aim of being able to continue EBITDA margin expansion, even when think moderate so now that volume appear to be moderating in acuity.

Speaker Change #202: Picking up it feels like it might be materializing faster than merchant capacity I wanted to revisit the topic asked about the cost management efforts.

Speaker Change #203: How has it been tracking at this point in time at volume too.

Speaker Change #204: Turning to moderate what's your confidence level that you are right now in the right position to drive that EBITDA margin expansion in the queue.

Yes, I mean, I think the point that I tried to make.

Speaker Change #204: Last quarter, maybe in the last couple of quarters is there sort of idea that <unk>.

Speaker Change #204: Some of the.

Speaker Change #204: Traditional kind of blocking and tackling that we.

Speaker Change #204: We have done from a productivity standpoint.

Speaker Change #204: Was if not suspended 80 pause temporarily during the pandemic we were so.

Speaker Change #204: Challenged in finding.

Speaker Change #204: Inadequate workforce and keeping inadequate workforce during the pandemic.

Speaker Change #204: There were.

Speaker Change #204: We're definitely sort of.

Speaker Change #204: Good luck and to manage to what we would sort of consider peak efficiency I think as we emerge from the pandemic more willing to do those sort of things that I think we've always historically done including adjusting to volumes as they moved up and down.

Speaker Change #204: And I think you saw that last quarter and I think you saw that this quarter as well where.

Speaker Change #204: Salaries as a percentage of revenues has been coming down and coming down.

Speaker Change #204: Pretty steadily and I think as is really one of the main contributors to that margin recovery I think that's continuing and I think the point being.

Speaker Change #204: Don't exactly know where acute care volumes will move and I don't think anybody really knows for certain but I think we're in a position where we're we're much more.

Speaker Change #204: Flexible about reacting to that and reacting to that in an efficient way than we were at the height of the pandemic. We faced so many more staffing challenges.

Speaker Change #205: Thank you and then.

Speaker Change #206: Follow up, California, New Mexico supplemental payments for 25, we're hearing it could be potentially $70 million to $80 million for California, 34, New Mexico to the U S.

Speaker Change #207: I was wondering if you have any sort of additional clarity on sizing and then with all the discussion around the proposal and your math raising those payments. The average commercial rates for next year I was wondering if you could talk more about those the poker the potential tailwind not just California, and Florida, which everyone's been focused on but across all your.

Speaker Change #207: I guess, how real potential tailwind business. Thank you.

Speaker Change #208: Yes, so just responding to the specific questions you asked new Mexico I don't think.

Speaker Change #209: As a significant upside for us we have one small behavioral facility in new Mexico, California, We obviously have a much bigger presence both the acute and behavioral and I think the challenge in terms of sizing the potential benefit in California is that the state has not created a formal plan.

Speaker Change #209: Or an allocation methodology et cetera, so even though we understand that the potential benefit in total could be quite significant we really have no way of knowing exactly.

Speaker Change #209: How that would impact versus the cash flows that will be allocated amongst specific hospitals until the state issues a more specific plan, which at least we understand is not likely to happen until sometime maybe next year early next year.

Speaker Change #210: Your broader question about are more states likely too.

Speaker Change #210: Crease their programs or develop new programs increase their funding to average commercial rates it really varies by state.

Speaker Change #210: <unk>.

Speaker Change #210: So to add this practice, we really only disclose them when the states have a formal plan if they submitted to CMS and are waiting approval.

Speaker Change #210: But we certainly like others are aware that other states are contemplating this in earlier stages et cetera.

Speaker Change #210: And so we continue to believe that the potential benefit could be significant beyond just the ones that we disclosed which are significant I think in and of themselves.

Speaker Change #210: But difficult to size that opportunity and any sort of precise way until the states develop their plans and submit them to CMS.

Speaker Change #211: Thank you and one moment for our next question.

Our next question is going to come from the line of Ben Hendrix with RBC capital markets. Your line is open. Please go ahead.

Ben Hendrix: Great. Thank you very much just a quick follow up on some of the.

Ben Hendrix: Some of the psychiatric questions, especially in residential side and I think I've asked this before but just wanted to get any update or any updated thoughts on your strategic initiatives around like you mentioned.

Ben Hendrix: The higher liability reserve with some very specific issues at all.

Ben Hendrix: Some of your facilities is there any any thoughts on kind of changing strategic direction or or evolving our strategy, there and could we potentially amid this heightened security could there be consolidation opportunities in the residential.

Ben Hendrix: Yes.

Ben Hendrix: Yes.

Ben Hendrix: I was asked kind of a more strategic question earlier, though that focus was on.

Ben Hendrix: Acute care.

Ben Hendrix: But then I think in some ways.

Ben Hendrix: My answer on behavioral and my outlook is similar in the sense that we see an expanding continuum.

And rich outpatient care is likely to play a greater role and there'll be more demand for access to outpatient care and we're expanding our outpatient footprint.

Ben Hendrix: In response to that I think we continue to expand our services to military numbers, because that seems to be growing and significant.

Part of the business.

Ben Hendrix: The SCD or addiction business continues to grow and demand is increasing there and I think we are increasing our exposure. There. So yeah I don't know that it is particularly in acute residential sort of.

Ben Hendrix: <unk>.

Ben Hendrix: Paying attention or focusing on one more than the other as much as it is these other service lines, which we think are growing in it and I would add to sort of the outpatient dynamic.

Ben Hendrix: Continuing expansion of telehealth capabilities as well.

Ben Hendrix: Okay.

Speaker Change #212: Thank you very much.

Speaker Change #213: Thank you and I'm showing no further questions at this time I would like to hand, the conference back over to Steve Filton for any closing remarks.

Steve Filton: Yes, we just like to thank everybody for their time and look forward to speaking with people at the end of next quarter. Thank you.

Speaker Change #215: This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.