Q3 2024 Community Health Systems Inc Earnings Call
Good day and welcome to the community Health Systems' third quarter 'twenty 'twenty four earnings conference call. All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero. After today's presentation there'll be an op.
<unk> to ask questions to ask a question you May Press Star then one on a touchtone phone to withdraw your question. Please press Star and then to also please limit yourself to one question and one follow up re queue to ask additional questions. Please note. This event is being recorded I would now like to.
Speaker Change: Turn the conference over to Anton Hive, Vice President of Investor Relations. Please go ahead.
Anton Hive: Thank you Dave.
Anton Hive: Welcome to community Health Systems' third quarter 2024 conference call participating on today's call.
Speaker Change: Thank you officer, Kevin Hammons, President and Chief Financial Officer, and Dr. <unk> Executive Vice President clinical operations before we begin I must remind everyone. This conference call may contain certain forward looking statements, putting all statements that do not relate solely to historical or current facts.
Anton Hive: These forward looking statements are subject to a number.
Anton Hive: The risks, which are described in headings risk factors and our annual report on Form 10-K, and other reports filed with or furnished to the FTC.
Anton Hive: Actual results may differ significantly from those expressed in any forward looking statements in today's discussion.
Anton Hive: And to update any of these forward looking statements.
Anton Hive: Yesterday afternoon, we issued a press release with our financial statements and definitions and calculations of adjusted EBITDA and adjusted EPS.
Anton Hive: We've also posted a supplemental slide presentation on our website.
Anton Hive: All calculations, we will discuss exclude impairment expense as well as gains or losses on the sale of businesses.
Anton Hive: From government and other legal matters and related costs.
Anton Hive: Expense from business transformation costs expenses related to employee termination benefits and other restructuring charges and change in estimate for professional claims liability with that said I'll turn the call over to Tim Henson Chief Executive Officer. Thank you Anton and thanks to everyone for joining our third quarter earnings Conference call.
Tim Henson: I'd like to begin by addressing the impact of back to back Hurricanes Halloween and Milton.
Tim Henson: The hurricanes impacted several of the communities, we serve primarily in Florida, Georgia and Tennessee.
Tim Henson: As a result in late third quarter and early fourth quarter CHS hospitals, most likely to experience severe impact ramped down surfaces and canceled elective procedures and total three of our facilities worry back your way that aren't closed consistent with local orders.
Tim Henson: The biggest impact occurred in our short point health system, located south of Tampa additions regional health care system in Naples, and to Nova Newport in East, Tennessee.
Tim Henson: Most significantly sharp quite political order experienced major damage due to flooding.
Tim Henson: The hospital remains closed today and remediation efforts are currently underway.
Tim Henson: Hurricane readiness and response has proven to be a core competency at CHF and I want to note that the effort to safely evacuated patients what's enabled by terrific coordination between our hospitals, our CHS transfer center operation and numerous other corporate resources that worked around the clock to be ready for Hawaii and then.
Tim Henson: I'll turn.
Tim Henson: Our Hearts go out to all affected by these terrible weather event and I just want to mention that our CHS cares fund, which was established to help employees in need of financial assistance. Following an unforeseen disaster or situation has already been supporting hundreds of impacted team members.
Tim Henson: Kevin will talk more about the financial impact of the Hurricanes on the third quarter results in just a moment.
Tim Henson: Despite the late quarter Hurricane impact same store volumes improved with a two 4% increase in admissions and a two 6% increase in adjusted admissions over the prior year quarter.
Tim Henson: Surgeries improved three 1% led by growth in lower acuity outpatient cases, driven by our consistent investment in the ambulatory surgery sites of care.
Tim Henson: While patient demand for services with good overall inpatient acuity skewed lower than expected affecting that revenue, which totaled $3 $9 billion in the quarter.
Tim Henson: Adjusted EBITDA was $347 million.
Tim Henson: Our third quarter results were impacted by continued increase in denials and downgrades by insurers.
Tim Henson: We are seeing some payers aggressively deny payment for medically necessary services that had been provided for our patients.
Tim Henson: For several quarters now the challenges, we and our industry are facing regarding increasing denial activity by Payors has been well documented.
Tim Henson: And over the last few years and our response to this challenge we have stood up and enhance the utilization review program and centralized physician advisory services to ensure our patients are placed in the critical care status and that we received the appropriate payment for their care.
Tim Henson: As a result, our physician advisors service has been able to obtain a high rate of reversal on initial payer denials. Nevertheless, the rate of denial activity by payers continues to grow and has continued to pressure our top line.
Tim Henson: We are making incremental investments in our centralized patient financial services processes and chain as well as our physician advisory program to continue to advocate for the appropriate classification of care for our patients and payment for the services our health systems provide.
Tim Henson: While the quarter did not fully meet all of our expectations I remain very proud of our team's ability to face unexpected challenges head on and I am optimistic about our opportunities we expect normal seasonality improvements in the fourth quarter and we remain optimistic that our focus on adding incremental inpatient capacity outpatient.
Tim Henson: At this point and recruitment of specialists necessary to grow higher acuity service lines will position our helps us tons per girl into 2025 and beyond.
Tim Henson: We have been delivering upon our strategic growth plans across our health systems fueled by key capital investment.
Tim Henson: If you're a recent and notable investments include our Knoxville, North tower expansion, which opened earlier this year and it's ramping up well the new capacity was a catalyst for strong incremental patient volumes posting a double digit increase versus the same quarter last year.
Tim Henson: And this Saturday, we were operating a new patient tower and incremental surgical capacity in Baldwin County, Alabama. These developments are core components of the nearly $200 million campus expansion, taking shape, there all of which will create capacity for incremental market share gains in this rapidly growing region.
Tim Henson: On the outpatient side, we now operate a total of 18 freestanding EDI location. Following the opening of new centers in Huntsville, Alabama, and Lake Grand Prairie, Texas.
Also completed the expansion of the hospital Emergency Department at Grandview Medical Center in Birmingham, Alabama. All of these projects have resulted in immediate volume growth.
Tim Henson: And we recently announced a definitive agreement to acquire carbon health 10 urgent care location in the Tucson, Arizona market.
Tim Henson: We'll expand our urgent care footprint to 17 locations across that market, we expect that transaction to close this quarter.
Tim Henson: My confidence in our strategic direction health system leadership teams, and especially the women and men who provide care for our patients is at an all time high the services. We provide are critically important to our patients and communities and our commitment to provide that care. While also achieving strong operating and financial results is unwavering.
Speaker Change: With that Kevin Let me turn the call over to you.
Kevin Hammons: Thank you, Tim and good morning, everyone.
Kevin Hammons: Underlying demand for care in our markets remains strong.
Leading to the same store volume growth, including a 224% increase in admissions and a two 6% increase in adjusted admissions same store visits were up <unk>, 8% and surgeries were up three 1%.
Kevin Hammons: Yes.
Kevin Hammons: As a result of hurricane Helane during the third quarter, one of our facilities was forced to evacuate patients in several facilities saw delays in scheduled or less.
Kevin Hammons: We estimate an approximate $7 million impact during the third quarter for mis revenue and incremental costs.
Kevin Hammons: However, sharply helped Pune Gorda remains closed due to the extensive damage suffered from both hurricanes and we will continue to be a headwind throughout the fourth quarter as it will be closed for the remainder of the year.
Kevin Hammons: Net operating revenues for the quarter or $3.09 billion up.
Up slightly year over year on a consolidated basis.
On a same store basis net revenue increased five 1%, which remained consistent with our target for mid single digit growth for the year.
Kevin Hammons: The same store top line growth was driven by the two 6% increase in adjusted admissions.
Kevin Hammons: Along with two 5% growth in net revenue per adjusted admission, which largely reflects improved rates and incremental reimbursement under state Medicaid programs, partially offset by lower acuity.
Kevin Hammons: We were pleased to see solid volume growth, including growth in our commercial book However, with service line mix of the business was less favorable than expected with overall case mix index down 60 basis points from prior year, reflecting declines in both the surgical mix and the surgical CMO.
Kevin Hammons: Adjusted EBITDA for the third quarter was $347 million compared with $360 million in the prior year period.
Kevin Hammons: Margin for the quarter was 11, 2% down from 11, 7% in the prior year period.
Kevin Hammons: Contributing to the lower than expected EBITDA, we've continued to experience significant increases in initial denials and downgrades by managed care plans.
Kevin Hammons: With more than half of the incidents coming into Medicare advantage book.
Kevin Hammons: While denial activity is not news the tactics used by the payers have become more aggressive and we have experienced an approximate doubling of denials in the quarter compared with the prior year, which is an increase above our expectations. This resulted in an approximate $10 million headwind for the quarter.
Speaker Change: As Tim noted we are taking action to help ensure that the care. We are providing this properly classified in reimbursed, including further expansion of our centralized physician advisor program, along with additional steps to mitigate increased denials in the future.
Speaker Change: Moving to expense management, we were once again pleased with our performance on labor costs.
Speaker Change: Average hourly wage rate increased three 9% year over year, consistent with our expectations for the full year.
Speaker Change: Contract labor spend was down 24% year over year and declined $4 million sequentially to $41 million in the third quarter, which was better than our expectations and reflected the continued progress made possible by our recruitment and retention efforts.
Speaker Change: We continue to see a meaningful improvement in controlling <unk> expense, which on a same store basis was down one 3% per adjusted admission in the third quarter.
Speaker Change: As we move more hospitals onto our new ERP, we are gaining additional insights, we can leverage to improve efficiencies and reduce supply expense.
Speaker Change: Medical specialist fees increased $15 million or approximately 10% from the prior year period with notable pressure in anesthesia.
Speaker Change: This was slightly higher than expected in the third quarter, but overall, we remain pleased with the progress of our hospital based provider and sourcing initiatives.
Speaker Change: Since launching in August of 2023, the in source platform has expanded significantly and coverage of EDI and hospitalist programs.
Speaker Change: It is only just beginning in anesthesia with the first large market coming online in the fourth quarter.
Speaker Change: We have an active pipeline of additional programs coming in house in the coming months and many others under consideration.
Speaker Change: During the quarter, we booked a $149 million increased our professional claims liability accrual based on a review by our new actuary.
Speaker Change: This change in estimate considers the national trend of outsized verdicts and propensity for larger claims settlements that have been experienced more recently, which.
Speaker Change: Which is probably being referred to in the industry is social inflation.
Speaker Change: And the exposure of adverse development in our outstanding claims if this environment persists.
Speaker Change: Although we have not been the subject of any recent nuclear verdicts, we have experienced increased settlement amounts over historical averages, including those in jurisdictions that have historically resisted this behavior.
Speaker Change: Furthermore, the majority of this change in estimate relates to claim activity and development from our previously divested hospitals and is therefore not reflective of our current run rate of new claim activity, which has been much lower because we have made material improvements in our safety and quality outcomes.
Speaker Change: In fact, our improvements in some cases are industry leading.
Speaker Change: Dr. <unk> comment for just a minute on some of these most recent accomplishments Dr. Burnett.
Dr. Burnett: Thank you Kevin CHS has a long standing commitment to advance clinical quality and patient safety and that commitment is ingrained into our culture at every level of the organization.
Dr. Burnett: We are proud of the many positive results that we are achieving especially this year and we are confident that we can continuously improve quality and safety producing better outcomes and higher value for our patients.
Dr. Burnett: CHS began monitoring our organization wide serious safety event rate more than a decade ago.
Dr. Burnett: Significant improvements in this area have saved lives and thousands of patients from preventable harm.
Dr. Burnett: That work continues and I would like to highlight achievements in three specific areas, including first.
Dr. Burnett: We've achieved a nearly 20% improvement in our risk adjusted mortality index from the prior year period, which puts CHF in the top quartile of all U S hospitals.
Dr. Burnett: There are many initiatives that have led to this accomplishment.
Dr. Burnett: <unk>, a companywide focus on immediate treatment to patients with sepsis.
Dr. Burnett: We've also achieved a nearly 24% improvement versus the same period last year, and our patient safety and adverse event composite from CMS.
Dr. Burnett: Which measures the effectiveness and protecting patients from complications improvement places phs.
Dr. Burnett: 5% of hospitals nationwide.
Dr. Burnett: And we're pleased to report a 27% year over year improvement and a precursor safety event rate continuing our trend of reducing serious safety events almost every quarter since the baseline was established in 2012.
Dr. Burnett: Our data science program is maturing and providing insights to help identify areas like these.
Dr. Burnett: We can optimize our clinical outcomes and deliver further improvements across the organization.
Of course it is.
Dr. Burnett: Physicians nurses and other caregivers to commit daily to providing high quality care for their patients and mix. These accomplishments possible. We certainly appreciate your dedication to quality and safety with that Kevin I'll turn it back over to you.
Kevin Hammons: Thank you Miguel.
Kevin Hammons: Back to our financial review.
Kevin Hammons: Flows from operations were $67 million for the third quarter of 2024, compared with $29 million in the year ago period.
Kevin Hammons: The year over year improvement in cash flow, primarily reflects improved cash flow from changes in working capital, including the conversion of accounts receivable as expected.
Kevin Hammons: Capital expenditures for the third quarter of 2024 were $70 million.
Kevin Hammons: For the year to date were $251 million on track for our 2024 guidance range of $350 million to $400 million.
Kevin Hammons: In August we completed the divestiture of <unk>, Cleveland and used part of the proceeds to extinguish approximately $143 million of principal value of our $5 five 8% senior secured notes due 2027 through open market repurchases utilizing cash on hand.
Kevin Hammons: We continue to make progress towards our 1 billion divestiture plan.
We anticipate the majority of the remaining transactions to be complete.
Kevin Hammons: This plan will likely be signed in the fourth quarter with final closings carrying over into the first quarter of 2025.
Kevin Hammons: At the end of the order net debt to trailing adjusted EBITDA was seven six times consistent with the prior quarter and improved from seven nine times at year end 2023.
Kevin Hammons: We continue to believe we have more than adequate liquidity to meet our needs going forward with approximately $440 million of borrowing capacity under the ABL along with pending asset sale proceeds.
Kevin Hammons: Our implementation of <unk>.
Kevin Hammons: A new ERP and workflows, along with standardization of data under our project in power enters the finally as of October one we have all of our subsidiaries up and running on the new financial and supply chain platforms and transitioned into our shared service environment.
Kevin Hammons: We are on track to complete the implementation of the ERP by transitioning onto the new.
Kevin Hammons: Workforce management tools for HR payroll and time, keeping thus completing the bulk of the transition work in the first quarter of 2025.
Kevin Hammons: As we enter 2025.
Kevin Hammons: We will benefit by having the investment and disruption behind us and we can focus on optimizing our use of the new tools and benefit realization.
Speaker Change: With one quarter remaining in 2024, we are adjusting our guidance range as we continue to assess the impact of hurricane to lean in on our operations.
Speaker Change: Specifically, we now anticipate 2024 adjusted EBITDA.
Speaker Change: Of one five to 154 billion.
Speaker Change: Which consistent with prior guidance does not include any contribution from potential new supplemental payment programs, nor does it assume any future divestiture activity.
Speaker Change: While not yet providing formal guidance for 2025 in response to repeated investor inquiries and in the interest of transparency. We are providing an initial estimate of the <unk>.
Speaker Change: Potential benefit from the new or expanded state directed payments programs in new Mexico and Tennessee.
Speaker Change: The programs have been approved by the respective legislatures and governors submitted to CMS, where they are currently awaiting approval.
Speaker Change: At this time based.
Speaker Change: Based on our interpretation of the program is designed and the various puts and takes.
Speaker Change: We estimate an aggregate EBITDA benefit of approximately $100 million to $120 million annually.
Speaker Change: This concludes our prepared remarks. So at this time, we'll turn the call back over to the operator for Q&A.
Speaker Change: We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
Speaker Change: If youre using a speakerphone please pick up your handset before pressing the keys if at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
Speaker Change: Also please limit yourself to one question and one follow up re queue to ask additional questions.
Speaker Change: Our first question comes from Brian Tim Quillin with Jefferies. Please go ahead.
Speaker Change: Hey, good morning, guys, maybe Kevin I'll touch on that last comment you made just under the DPP, so $100 million to $120 million. This is just for new Mexico, and Tennessee, and then is this net of provider taxes just to clarify that.
Speaker Change: Yes.
Kevin Hammons: That is the aggregate amount from both Tennessee and in Mexico on an annual basis and is the net EBITDA benefit so that would be net of the provider taxes. So there would be a gross up impact on net revenue and an additional expense.
Kevin Hammons: It is also net of what we may see in terms of sunsetting some existing reimbursement.
Kevin Hammons: Benefit and maybe some additional cost there.
Kevin Hammons: We could incur as a result of.
Kevin Hammons: These plans being approved as we've seen in the past and some other stuff.
Kevin Hammons: So that is what our current estimate is of our EBITA benefit on an annual basis I would remind everyone that if those are approved in the fourth quarter as we expect they will be those plans are retroactive back to July one 2024, so we could potentially get six months worth of that.
Kevin Hammons: Again, if CMS approved now during the fourth quarter.
Speaker Change: Understand and then maybe Kevin as I think about your EBITDA guidance change and the free cash flow guidance range, maybe the Enbridge me from that $40 million cut the EBITDA to the 100, plus another $100 million cut to free cash flow. So just curious.
Speaker Change: Sure. There's a couple of other things that I'd.
Speaker Change: I'd point out so obviously, a big one there is the reduction in EBITDA.
Speaker Change: Denials.
Speaker Change: Really the slowdown in the adjudication process.
Speaker Change: It's also having.
Speaker Change: And impact.
Speaker Change: On our cash collections are numbers of claims that have been denied or bill not through the final adjudication process and that seems to be continually slow.
Speaker Change: Going down so we've taken that into consideration.
Speaker Change: There is a small amount of some state.
Speaker Change: Program monies that we had thought might get approved in the third quarter that will be approved in the fourth quarter, but the cash for those will likely slip into the first quarter of 2025. So that's just a matter of timing.
Speaker Change: And then with one of the divestitures.
Speaker Change: Pennsylvania that we.
Speaker Change: They have announced that we expect to close in the fourth quarter, but we are selling working capital.
Speaker Change: With that.
Speaker Change: Net working capital get pulled out.
Speaker Change: The anticipated collections related to those receivables won't be in the fourth quarter.
Speaker Change: All right got it thank you.
Speaker Change: The next question comes from a J rice with UBS. Please go ahead.
Speaker Change: Thanks, Hi, everybody.
To go back to that.
Speaker Change: Guidance change on the EBITDA reduction of about $40 million at the midpoint I think $18 million of that is in.
Speaker Change: Third quarter variance hurricane and otherwise so that leaves about 22 for the fourth quarter. If ive got the numbers right you got I'm sure additional hurricane impact given the.
Speaker Change: Timing of the second hurricane.
Speaker Change: Probably.
Speaker Change: I don't know whether theres a change in your accruals for liability based on the update a charge in the third quarter, but is that part of the dynamic and then are you, making any operational changes in your assumption for the fourth quarter.
Speaker Change: Thanks, a J. So I think your math is right about $18 million of the $40 million change at the midpoint as the.
Speaker Change: Quite to the Miss in Q3.
Speaker Change: Then I would say the remainder is really split between the fourth quarter Hurricane impact.
Speaker Change: With Cologuard are being shut down for the entire quarter.
Speaker Change: As well as the.
Speaker Change: The.
Speaker Change: Disruption, we had when Milton here early in the quarter Theres certainly some EBIT.
Speaker Change: EV business.
Speaker Change: We won't get back from those days hopefully will recover some of the elective surgeries. There really is no operational changes.
Speaker Change: May.
Speaker Change: In terms of the med Mal expense.
Speaker Change: Our decreased liability really does not impact our go forward run rate materially we had already been increasing the run rate of expense. So thats kind of been baked in and this adjustment really was.
Speaker Change: Going back and looking at the base claim amounts, but in terms of run rate, we don't see that having a big impact I do also want to point out relative to our guidance change on net revenue.
Speaker Change: We did bring down net revenue of $100 million at the midpoint.
And that's largely due to reflecting the announced divestitures.
Speaker Change: And Commonwealth and North Carolina.
Speaker Change: The one small hospital in North Carolina, and taking in the fourth quarter revenue.
Speaker Change: No doubt.
Speaker Change: Because we expect those to be completed deals to close here during the quarter.
Speaker Change: And then a smaller portion of that net revenue adjustment was again, the hurricanes and denials.
Speaker Change: Yeah that makes sense, maybe just my follow up question on those denials Youre, saying you said it's.
Speaker Change: Mainly concentrated Medicare advantage plans when you drill down is this mostly related to the change.
Speaker Change: Associated with the two midnight rule that MA plans or having to absorb and that's creating confusion or is there other.
Speaker Change: Areas of focus on these denials that are being implemented.
Speaker Change: Yeah.
Speaker Change: I would describe that is I think maybe the two midnight rule is the impetus, but we're just saying the payers be more aggressive.
Speaker Change: Across many areas of denials, so theyre expanding.
Speaker Change: The population of claims, which they're denying and we're seeing it again the majority of it is in the MA book, but we're seeing more denials in the commercial book as well.
Speaker Change: So that's.
Speaker Change: That's where we're seeing the impact of Buffalo.
Speaker Change: The prior trends and above what we had previously anticipated.
Speaker Change: Okay. Thanks, a lot.
Speaker Change: And the next question comes from Andrew Mok with Barclays. Please go ahead.
Andrew Mok: Hi, Good morning, just wanted to follow up on this denied claims headwind one when did that start to materialize as a headwind in the quarter and two.
Andrew Mok: What can you do to combat this going forward do you have a stronger appeals case for these newer denials than what you would typically have.
Speaker Change: I think.
Speaker Change: It was really capture out the quarter.
Speaker Change: They've continued to ramp up.
Speaker Change: And really it's the slowdown of the adjudication process.
Speaker Change: <unk> continues to to kind of expand.
And were you know.
Speaker Change: As.
Speaker Change: Noted by our adjustment in our guidance in the fourth quarter at this point, we're expecting that to continue to be a problem.
Speaker Change: Somewhat going forward as well.
Speaker Change: So I can't say that there is.
Speaker Change: There wasn't one event during the quarter that would have pointed to pay.
Speaker Change: Hey, this is changing but we just continue to see.
Speaker Change: Slow.
Speaker Change: Ramp up.
Speaker Change: Denials as well as.
Speaker Change: The timeframe for the.
Speaker Change: Adjudication process.
Speaker Change: We have been successful.
Speaker Change: About 25% of the cases that have been denied.
Speaker Change: And these are worth looking at cases greater than two midnight that had been denied we've been successful in about 25% of those getting those paid as inpatient.
Speaker Change: But there still remains.
Speaker Change: A material amount almost 70% of those initial denials from claims this year.
Speaker Change: No longer is that are still out there.
Speaker Change: Process has not been finalized final adjudicated.
Speaker Change: Yes, Andrew this is Tim I'll add on to that.
Tim Henson: <unk> been experiencing increased denials throughout the year, but most of that claims activity is coming out of the prior year. Because you know there is quite a tail on the actual denial and appeal process. So what we saw in this quarter. It was an acceleration off of the run rate that we had in the first and second quarter and Thats the $10 million Dell.
Speaker Change: Kevin called out it was.
Speaker Change: The incremental increase that we did not expect that bumps in the third quarter.
Speaker Change: Got it and if I could just follow up is this broad based activity across most of your payers or this is more concentrated among a few.
Speaker Change: It's relatively broad based.
Speaker Change: Yes, I would agree it may be to your other question about things that were changed and Eric can do going forward. We do now are in a position to have.
Speaker Change: Physician advisor coverage across our entire portfolio.
Speaker Change: As well as having a more robust kind of appeals capabilities.
Speaker Change: To go after some of these initial denials.
Speaker Change: Great. Thanks for the color.
Speaker Change: The next question comes from Ben Hendrix with RBC. Please go ahead.
Ben Hendrix: Very much just to follow up on the 22 million of the EBITDA guidance that you expect in the fourth quarter is it possible to parse that out between the impact from printed gorda and the other hospitals versus claim denials just trying to get an idea. If if those claim denials are expected to continue to accelerate in the fourth.
Ben Hendrix: And then if there's any impact on acuity in that in that number from from the outpatient acuity. If theres just if you could just parse out kind of the impact within that $22 million.
Speaker Change: Yeah, I would say.
Speaker Change: More than half of that $22 million as hurricane impact I would say that denial impact would look similar to <unk>.
Speaker Change: Yeah.
Speaker Change: Q3.
Speaker Change: And then the remainder.
Speaker Change: Being hurricane impact.
Speaker Change: Thanks for that and just a quick follow up on the softer acuity can you talk to the alright. The drivers of that outpatient acuity softness is that just calendar related we heard one of your peers talk about kind of forecast expectations for maybe some some higher.
Speaker Change: Higher volume of lower acuity in the second half I was just wondering if you see that.
Speaker Change: Persisting through the.
Speaker Change: The rest of the.
Speaker Change: Of the year and then how that might look like for 2025.
Speaker Change: Yes.
Speaker Change: Hey, Ben This is Tim I'll start us off and invited Kevin or Miguel to chime in just to clarify the softness in the acuity that we called out was on the inpatient surgery side of the business.
Speaker Change: We had good strong surgical growth in the quarter as we pointed out earlier in our remarks, but that was primarily on the outpatient side of the business. We did see growth in inpatient surgeries, but they were in the lower acuity inpatient surgery category I think impacting that inpatient surgical acuity.
Speaker Change: Just some continued fed a clear migration of our total joints to the outpatient side the last year and in previous quarters, we had more inpatient total joints, we see more of that migrating into the ambulatory surgery environment and just to clarify.
Speaker Change: We believe we're capturing that within our ambulatory surgery environment, we did a large expansion of one of our orthopedic focus ASD.
Speaker Change: In Indiana that is really ramping up very nicely. So that does have an impact on the surgical acuity, we did see softer inpatient surgery volumes on elective spine cases, we saw some softness on the CVT in vascular services. Those are the areas, where we believe we will pick those back up in the fourth quarter with focused effort.
Speaker Change: Yeah.
Speaker Change: Nicky enough patients back and further care.
Speaker Change: Just to point out our clinic visits in the third quarter, we always say that the decent bellwether of what we can expect for for volumes down. The road. We did have really strong clinic visits even factoring in the hurricane impact markets. So we have no reason to believe that demand is just a softening overall, we believe it's more of a timing issue.
Speaker Change: Thank you.
Speaker Change: And the next question comes from Stephen Baxter with Wells Fargo. Please go ahead.
Speaker Change: Hi, Thanks.
Stephen Baxter: It's early for 2025 commentary, but just wanted to get your sense of how we should think about perhaps the 2020 for revised guidance the jump off point because.
Stephen Baxter: I guess first wondering like is it reasonable to expect essentially getting back all of the hurricane headwind.
Stephen Baxter: As we move into FY 'twenty, five or would you expect that there'd be any lingering disruption there and I guess as we think about the incremental $10 million of denials I assume obviously, you're factoring in something similar for the fourth quarter I.
Stephen Baxter: I guess, if we all saw that have to consider that headwind. So maybe Q1 and Q2 before you lap that and maybe.
Stephen Baxter: All of these things are offsetting this is a good jump off point or should we think about it perhaps different I would love to get some insight there. Thanks.
Stephen Baxter: Sure.
Speaker Change: There are some moving parts, but I think 2024.
Stephen Baxter: Good.
Speaker Change: Jumping off point, we will have some divestitures.
Stephen Baxter:
Stephen Baxter: Here either in late fourth.
Stephen Baxter: Fourth quarter or early first quarter would need adjusted.
Stephen Baxter: Certainly the DPP programs.
Stephen Baxter: Which are not in 2024 not in our guidance.
Stephen Baxter: We're hopeful to get approved here in the fourth quarter, but we certainly expect those to be in place.
Stephen Baxter: In 2025, assuming CMS approves those today.
Stephen Baxter: So that's kind of a meaningful change for us in terms of disruption around the hurricane.
Stephen Baxter: It will take some time before we get insurance business interruption insurance settled.
But some of this disruption that we're seeing here in the third and fourth quarter.
Stephen Baxter: We will be getting reimbursed through business interruption insurance.
Stephen Baxter: But again that will take some time, it's not going to be this year.
Stephen Baxter: I would hope that.
Stephen Baxter: With a full year ahead of us and 25 that we can come to some agreement with the insurance companies and get that settled in in 2025 as well as having some reimbursement.
Stephen Baxter: For our property damage in 2025 as well so.
Stephen Baxter: Again, some moving parts, but I think from base operations, we're continuing to make progress.
Stephen Baxter: With some of our strategic investments opening new tower here in the fourth quarter that Tim mentioned earlier in the year another one in Knoxville.
Stephen Baxter: As we continue to.
Recruit specialists and make other investments in outpatient locations I think we can continue to grow.
Stephen Baxter: Volume and grow earnings from there.
Speaker Change: Thats, well said Stephen I'll add on in terms of hurricane disruption for the printer Gorda facility that remains closed that's part of our short points Health network, which have a larger hospital in port Charlotte, we have been successful at migrating some of that care over to the port Charlotte campus to mitigate some of that some of that.
Speaker Change: Disruption of having a campus shut down but we do not have the access for <unk> services. We also had a larger behavioral health program that is running at a more reduced capacity at the port Charlotte campus. So theres some things that we can't necessarily be overcome within one quarter. So just wanted to put some color around that in terms of the timing of Nelson.
Speaker Change: Unlike our Helene happening in the last week of a quarter.
Speaker Change: Milton being in the first week of the quarter and we do see opportunities to work those patients back into the surgical site. The procedural side of the business for sure through the remainder of the quarter, we stay close to those patients and providers right. Now is currently the case after a major natural disaster.
Speaker Change: Patients maybe don't come back the first week or second week. After after an incident like this they are trying to hit their homes and their lives back on order, but we believe we can get them back in by the end of the quarter.
Speaker Change: And the next question comes from Brian <unk> with Jefferies. Please go ahead.
Speaker Change: Hey, Thanks for letting me ask a follow up maybe Kevin as I think about the revenue per adjusted admission.
Speaker Change: The <unk> for the quarter, just curious I mean, as I look at the payer mix improving.
Speaker Change: You called out acuity, but how should we be thinking about putting all that together and the outlook for revenue per admission.
Speaker Change: Okay.
Speaker Change: There is opportunity to continue to grow that.
Speaker Change: Certainly getting acuity back will be beneficial in a couple of the other moving parts there.
Speaker Change: And I would point out is.
Speaker Change: With re determination and we've lost some Medicaid business.
Speaker Change: We are picking up more in healthcare exchanges.
Speaker Change: Which is beneficial to us we have seen some movement from commercial insurance in the health care exchanges.
Speaker Change: Which isn't beneficial but still in the managed care numbers.
Speaker Change: We've had some geographic movement during this quarter.
Speaker Change: As you know not all commercial contracts and obligations are equal. So if you lose half lower commercial business in one location.
Speaker Change: They have higher rates and you're picking up commercial business.
Speaker Change: In another location that has lower rates.
Speaker Change: Still flowing through as commercial business and commercial volumes, but.
Speaker Change: Then reimburse less for it. So there was some geographic movement during the quarter all of that I think kind of washes out in the end over the course of the year.
Speaker Change: And we don't see that being a headwind for us going forward and think will continue to grow off of that reimbursement rates. As you know for Medicare are going to be favorable for next year on our commercial contracting we're seeing increases similar to what we've experienced this year.
Speaker Change: With some of the Medicaid PPP programs could materially increase our realization on Medicaid business going forward.
And then maybe Kevin one last from me as I think about the divestitures I mean, you sound fairly confident that we are.
Speaker Change: Still on track to hitting so you would go there.
Speaker Change: Are you thinking about valuation and just the ability to close deals or at least announced deals by year end given some of the moving pieces in the industry right now.
Speaker Change: Yes.
I would say for this $1 billion.
Kevin Hammons: But what we're trying to get completed here, it's going to average out to about a 10 times multiple.
Kevin Hammons: And these facilities will average out there'll be probably high single digit margin.
Kevin Hammons: Hospitals at a 10 multiple.
Kevin Hammons: So.
Kevin Hammons: One it should help our leverage two it should help our margin profile going forward.
Kevin Hammons: So.
Kevin Hammons: And that's pretty consistent with where our.
Kevin Hammons: Valuations have been in the past over the past several years at least on average where we've been in the 10 to 12 times multiple so still feel very good about the multiple that we're getting and being able to get these across the finish line.
Speaker Change: Awesome. Thank you.
Speaker Change: And the next question comes from Josh Raskin with Nephron Research. Please go ahead.
Josh Raskin: Hi, Thanks for fitting me in here. So just wanted to confirm Tennessee in New Mexico, I know you talked about a potential retro up a half year, maybe $50 million to $60 million I assume that's not in guidance for <unk> right, you're waiting for that to be.
Speaker Change: CMS level right.
Speaker Change: That is correct. It is not in our guidance for 2024, we've kept it out of guidance because it is not approved by CMS yet.
Speaker Change: And had not previously quantified it but at this point.
Speaker Change: We did want to quantify at least what Emmanuel a math looks like.
Speaker Change: To give you some insight into how we're thinking about this going forward.
Speaker Change: Got you and then I'm just curious you know we're hearing a lot about these IV shortages and I'm curious if you're seeing any impact that you're at the hospitals.
Speaker Change: Now in terms of procedures and at that level or you are you seeing any impact from these IV shortages at this point.
Speaker Change: Hey, Josh this is in the Gulf.
Speaker Change: So far we have not experienced any operational disruptions in large part because factor is not our primary source for IV fluids, we largely partner with BD for outsourcing those those stocks also we are aware of course of the broader risks in the industry because of the shortages due to the Baxter plant.
Speaker Change: Instructions and about potential buying across the industry to basically ramp up stock. So in preparation for that teams have implemented.
The logistics efforts and the shifting of inventory between our affiliated hospitals and basically stocking up so that we can stay ahead and keep our operations flowing without interruption.
Speaker Change: Okay Perfect and then just last one for me just on the exchanges do you get a sense of what percentage of your admissions are coming from the exchanges at this point and then has that slowed down at all as the reverb occasion process Medicaid has come to an end.
Speaker Change: Or kind of percentage.
Speaker Change: The exchange business is about 7%.
Speaker Change: Roughly.
Speaker Change: It's consistent with national averages.
Speaker Change: Of kind of the population enrolled.
Speaker Change: Exchange business. So I think we're pretty close to national average.
Speaker Change: As it relates to that and we've not seen any real material change.
Speaker Change: Yeah.
Speaker Change: Recently, I guess in that other than to say that we are picking up some additional exchange business. As you know states has taken some of the Medicaid people off the Medicaid roles, we have seen a decline in Medicaid volume and a pickup in exchange volume without much of a change.
Speaker Change: <unk> and our uninsured business.
Speaker Change: Thanks.
Speaker Change: This concludes our question and answer session I would like to turn the conference back over to Mr. Tim <unk>.
Speaker Change: <unk> for any closing remarks.
Tim Henson: Dave and thanks to all of you for joining our call today.
Tim Henson: Always if you have additional questions you can reach us at 615 or 65 7000.
Tim Henson: Have a great day.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.