Q4 2024 Community Health Systems Inc Earnings Call
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Speaker Change: Good day, and welcome to the Community Health System's fourth quarter and four-year 2024 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal conference specialists by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions.
Speaker Change: To ask a question you may press star then one on your touchtone phone and to withdraw your question please press star then two. Please note this event is being reported. I would now like to turn the conference over to Mr. Anton Hie, Vice President of Investor Relations. Please go ahead sir.
Anton Hie: Thank you, Chuck. Good morning, everyone. Welcome to Community Health Systems 4.4.2024 conference call. Joining me on today's call are Tim Hingtgen, Chief Executive Officer, Kevin Hammons, President and Chief Financial Officer, and Dr. Miguel Benet, President of Clinical Operations and Chief Medical Officer.
Anton Hie: Before we begin, I must remind everyone that this conference call may contain certain forward-looking statements, including all statements that do not relate solely to historical or current facts.
Anton Hie: These forward-looking statements are subject to a number of known and unknown risks, which are described in headings such as risk factors in our annual report on Form 10-K and other reports filed with or furnished to the SEC. Actual results may differ significantly from those expressed in any forward-looking statements in today's discussion.
Anton Hie: We do not intend to update any of these forward-looking statements.
Anton Hie: Yesterday afternoon, we issued a press release with our financial statements and definitions and calculations of Adjusted EBITDA and Adjusted EPS. We've also posted a supplemental slide presentation on our website.
Anton Hie: All calculations that we will discuss exclude gains from early extinguishment of debt, impairment gains or losses on the sale of businesses, expense from government and other legal matters and related costs.
expense from business transformation costs.
Speaker Change: Thank you, Anton, and thanks to everyone for joining our 4th Quarter Earnings Conference Call.
Speaker Change: I want to highlight some key performance measures for the full year and later Kevin will cover results for the quarter.
Speaker Change: I'll start today with the strong growth we are achieving across our CHF-affiliated health systems.
Speaker Change: resulting in record same-store volume levels for the full year 2024. Versus prior year, same-store admissions increased 3.2%, same-store adjusted admissions increased 2.7%, and same-store surgeries increased 1.3%.
Speaker Change: Growth like this is enabled by our capital investment, strong capacity management, and the pursuit of strategic value-generating opportunities across our core portfolio.
Speaker Change: In 2024, that included significant expansion in outpatient access, such as primary care, specialty practices, and urgent care centers.
Speaker Change: In addition to DeNovo projects, we acquired 10 urgent care clinics in Tucson, Arizona, broadening our geographic footprint and ability to care for more patients in this market.
Speaker Change: We opened two new freestanding emergency rooms in fast-growing communities, bringing our current count to 19 freestanding EDs across the portfolio.
Speaker Change: We ended the year with a total of 47 ambulatory surgery centers. Within our markets, we are very well positioned for outpatient surgery, and as a result, same-store AFC cases increased 14% last year.
Speaker Change: We also completed two major campus expansion projects including new inpatient bed towers, emergency department, and surgical services capacity.
Speaker Change: These projects have further improved our competitive position in our Knoxville, TN and Baldwin County, Alabama markets, and both continue to ramp up nicely.
Speaker Change: And, we invested in procedural capacity, such as expanding and upgrading cardiac cath labs and other procedural spaces in several health systems last year.
Speaker Change: Thanks to our net operating revenues for the year increased 5.5 percent and adjusted EBITDA for the year improved 6 percent, which includes the benefit from supplemental state-directed payment programs in the fourth quarter, which Kevin will discuss in more detail later.
Speaker Change: We also saw improvements in both labor and supplies as a percentage of net revenue.
Speaker Change: Turning to our portfolio, in 2024, we completed divestitures in Cleveland, Tennessee, and Statesboro, North Car- I'm sorry, and in North Carolina. We also plan to finalize other announced divestitures in the first quarter, Shorepoint Health in Florida, and Lake Norman Regional Medical Center in North Carolina. And we are in discussions with-
which will likely result in additional strategic divestitures in 2025.
Speaker Change: We anticipate the sale of these assets will generate meaningful proceeds and de-leveraging value.
Speaker Change: While 2024 was a very good year in many regards, it was not without challenges.
Speaker Change: On our last call, we mentioned the impact of downgrades and denials, which continue to be a troubling trend for health care providers. However, that situation has shown some stabilization since the third quarter.
Speaker Change: Our Utilization Management and Physician Advisor programs are performing as expected as these clinicians advocate for our patients to receive the appropriate care in appropriate settings and as we pursue payment for those services.
Speaker Change: Medical specialist fees and subsidies continue to be a pressure point, particularly in anesthesia services.
Speaker Change: To mitigate this trend, we have scaled our proven capabilities for managing in-source hospital-based services beyond hospitalist and emergency medicine into a growing number of anesthesia programs.
Speaker Change: In the fourth quarter, for instance, we rapidly insourced anesthesiology in one of our larger markets, a move which we are confident will lead to better, more integrated care and services in the most cost-effective manner.
Speaker Change: We anticipate further expansion of internally managed, hospital-based provider services in 2025, which is leading to greater provider satisfaction and stability, positive quality outcomes for our patients, and the opportunity for cost savings.
Speaker Change: This is just one of many strategic initiatives highlighting how CHS is now a more agile organization prepared and equipped to rapidly adjust to and overcome macro trends and industry headwinds as they arise.
Speaker Change: Now I'd like to spend a minute on our clinical achievements in 2024. We are proud of our advancements across many measures, including reductions in risk-adjusted mortality rates and hospital-acquired infections, and further advancements in patient safety.
Speaker Change: By the end of 2024, we reached our best ever reduction in the serious safety event rate, down 90% from our baseline in 2013.
We also saw notable gains in our patient experience measures.
Speaker Change: These results are made possible by the skills and compassionate teams working across our organization.
Speaker Change: Our work to recruit and retain a highly capable workforce continues to yield impressive results. In 2024, overall employee retention was particularly high and we achieved our best retention rate for registered nurses in the past five years.
Speaker Change: I want to thank our frontline caregivers and support teams, our local leaders, and our corporate teams for all they do, every day, to ensure quality care for our patients.
Speaker Change: We are proud of our progress throughout 2024. We believe we accomplished what we said we would do and finished the year strong by building momentum that we can carry forward. We look forward to even more progress in 2025.
Speaker Change: Looking ahead, we expect our investments will continue to produce incremental growth. We are intensely focused on ensuring the availability of access and capacity for all of our services.
Speaker Change: help our patients get the care they need conveniently and without delay.
Speaker Change: Numerous initiatives in 2025 are designed to enhance appointment scheduling, care navigation, and to help facilitate needed follow-up services, all of which support our patients and can drive additional growth.
Speaker Change: With our enterprise resource planning platform now fully implemented, we have more insights and data than ever before. These tools can help drive efficiencies, streamline workflows, and reduce costs.
Speaker Change: And this year, we will continue to leverage partnerships and innovation to further advance patient care and support our workforce.
Speaker Change: As always, we remain dedicated to delivering high-quality health care services for the patients and communities who count on us every day. With that, let me turn the call over to Kevin Hammons, who will provide more context about our fourth quarter and 2024 results and guide us for the year ahead. Kevin?
Thank you, Tim, and good morning, everyone.
Speaker Change: We continue to see strong demand for care in our markets.
Speaker Change: leading to the best same-store revenue growth of the year, up 6.5% in the fourth quarter, on a 3.4% increase in inpatient admissions and 3.1% growth in adjusted admissions.
Speaker Change: Same store ED visits were up 1% and surgeries were up 0.9%.
Speaker Change: In addition to the strong volumes, same-store revenue growth reflects a 3.3% increase in net revenue per adjusted admission.
Speaker Change: driven by rate growth, including the Medicare inpatient rate update, and incremental reimbursement under Medicaid supplemental payment programs, partly offset by lower acuity.
Speaker Change: Adjusted EBITDA for the fourth quarter was $428 million compared with $386 million in the prior year period.
Speaker Change: Margin for the quarter was 13.1%, up from 12.1% in the prior year period.
Speaker Change: For the full year of 2024, adjusted EBITDA totaled $1,540,000,000 compared with $1,453,000,000
Speaker Change: in 2023 with margin of 12.2% and improvement of 60 basis points from the prior year.
Speaker Change: During the quarter, we recognized an incremental net benefit of approximately $40 million from Medicaid Supplemental Payment Programs versus prior guidance.
Speaker Change: primarily relating to the approval and recognition of the New Mexico program for the period July 1st through December 31st, 2024.
Speaker Change: As Tim noted, the impact of payer downgrades and denials has stabilized for us since calling it out in the third quarter. Thanks for our ongoing utilization management efforts and physician advisor program.
However,
We will remain vigilant in our work and advocacy.
Speaker Change: regarding this troubling trend that is affecting all health care providers.
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Speaker Change: Turning to expense management, we were again pleased with our performance on labor costs, with average hourly rate up approximately 4.7% year-over-year in the fourth quarter, reflecting an increase in the number of employed physicians.
and approximately 4%
for the full year 2024 consistent with our expectations.
Speaker Change: Contract labor spend was $36 million in the fourth quarter, down another $5 million sequentially, and bringing the full year 2024 total to $170 million, down an impressive 36% from full year 2023, reflecting our success with recruitment and retention.
Speaker Change: We also continue to see improvement on supplies expense, which declined 50 basis points year-over-year to 15.5% of net revenues in the fourth quarter, and for the full year 2024, declined 60 basis points to 15.4%.
Speaker Change: This reduction in supplies expense as a percent of net revenue reflects some early wins in our management of supplies as a result of implementing our ERP.
Speaker Change: Increased reimbursement for Medicaid supplemental programs, as well as the growth of admissions outpacing our surgical growth for the year.
Speaker Change: Offsetting these gains during the fourth quarter, we experienced a somewhat sharper increase in medical specialist fees versus expectations.
and an acceleration from the previous three quarters.
specifically.
Speaker Change: Medical Specialist Fees exceeded expectations, increasing approximately $20 million on a same-store basis, or approximately 12% year-over-year to $170 million in the fourth quarter, and for the full year totaled $640 million, up 10.9% on a same-store basis from 2023.
Speaker Change: As Tim noted, we rapidly brought anesthesia care in-house in one of our larger markets and also took over operations when a regional contractor began experiencing severe financial distress, both of which we view as strategic investments.
Speaker Change: that will lead to better results and visibility over the longer term, despite the upfront cost and short-term margin dilution.
Speaker Change: While we have made good progress with our insourcing initiatives, we anticipate further pressure in medical specialist fees over the near term.
Speaker Change: In 2025, we anticipate these costs to grow in excess of typical inflationary trends, but still well below the spikes that we saw in 2022 and 2023.
Speaker Change: Cash flows from operations were $216 million for the fourth quarter, up from $90 million in the fourth quarter of 2023.
and $480 million for the full year of 2024.
Speaker Change: which was consistent with our guidance for $400 to $500 million and up from the $210 million in 2023.
Speaker Change: This year-over-year growth in cash flow primarily reflects higher adjusted EBITDA, a reduction in cash interest, and improvements in working capital, including the conversion of accounts receivable.
Speaker Change: For the full year of 2024, we deployed $360 million on capital expenditures in line with our guidance and down from $460 million in 2023.
Speaker Change: Transitioning to divestitures during the fourth quarter, we completed one small divestiture of Davis Regional Medical Center in Statesville, North Carolina, and announced agreements to divest our other remaining North Carolina facility, Lake Norman Regional Medical Center in Mooresville.
as well as the Shorepoint Health System in Florida.
Speaker Change: We anticipate both of these transactions will close in the first quarter of 2025, providing nearly $550 million in gross proceeds.
Speaker Change: These transactions reflect attractive double-digit multiples on trailing EBITDA, leading to further deleveraging.
Speaker Change: In addition to these previously announced transactions, we continue to advance discussions on additional divestitures that we expect to announce in the near future, also at very attractive multiples.
Speaker Change: All told, these pending and expected transactions should generate more than $1 billion in total proceeds.
Speaker Change: which we expect to lead to meaningful deleveraging and increased shareholder value.
Speaker Change: At year end, net debt to trailing adjusted EBITDA was 7.4 times, improved from 7.6 times in the prior quarter, and 7.9 times at the end of 2023.
Speaker Change: We continue to believe we have more than adequate liquidity to meet our needs going forward with approximately 500 million of borrowing capacity
Speaker Change: under our ABL, along with available working capital and pending asset sale proceeds.
Speaker Change: We look forward to providing additional details on these transactions as they become available.
Speaker Change: Finishing up 2024, we completed the implementation of our new ARP and workflows under Project Empower as scheduled.
Speaker Change: The final phase, which involved transitioning onto new workforce management tools for HR, payroll, and timekeeping.
Speaker Change: allows us to move beyond the investment and implementation phases and begin focusing on optimizing our use of the new tools and realizing tangible benefits throughout the remainder of 2025.
Speaker Change: We estimate that as a result of this work, we will save between $40 and $60 million this coming year.
Speaker Change: Moving on to our initial guidance for 2025, we anticipate net revenue of $12.2 to $12.6 billion.
adjusted EBITDA of $1,450,000,000 to $1,600,000,000.
Speaker Change: Cash flow from operations of $600 to $700 million and capital expenditures of $350 to $400 million.
Speaker Change: Our guidance does not include Directed Payment Program reimbursement for New Mexico or Tennessee, as those programs have not yet been approved by CMS for 2025.
Speaker Change: If those programs get approved for 2025, we believe it will add an incremental $100 to $125 million to our annual guided run rate of EBITDA.
Speaker Change: Likewise, we have not considered in our guidance any additional divestitures beyond those that have already been announced.
Speaker Change: If completed, any such transactions would reduce net revenues in EBITDA in 2025, the amount of which is dependent on timing of completion, but would also allow further reductions in our leverage and would therefore be accretive to our equity value.
Speaker Change: This concludes our prepared remarks, so at this time we will turn the call back over to the operator for Q&A.
Thank you.
Speaker Change: We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone.
Speaker Change: If you're 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. And at this time, we'll pause momentarily to assemble our roster.
Speaker Change: And the first question will come from Brian Tanquilid with Jeffries. Please go ahead.
Brian Tanquilid: Hey, good morning guys, and congrats on the quarter. Maybe, Kevin, my first question for you, as I think about the guidance for 2025, maybe if you can just help us bridge 24 to 25. I know there's so many moving pieces here. And then if there are any specific callouts for one-timers that we need to consider, maybe for Q1.
Kevin Hammons: Sure, thanks Brian. I appreciate it. So, as I mentioned, the guidance does not include Tennessee and New Mexico DPP and only includes the announced.
Kevin Hammons: So maybe to do a high-level bridge, starting with Ibeda, where we finished up 2024 at $1.5 billion, I think we could take out...
Kevin Hammons: You know, approximately 40 million of BPP funds that were recognized in 2024 in the fourth quarter. That was the New Mexico piece.
Kevin Hammons: Take out $50 to $60 million related to the announced investitures.
Kevin Hammons: as we go, and so roughly, you know, call it a $100 million reduction.
add in organic growth of 75 to 100 million.
Kevin Hammons: in 2025, and that gets you back to midpoint of our guide of about a billion 525.
So, even without the DPP,
Kevin Hammons: You know, at that midpoint, it would still be deleveraging, given that we have 550 million of proceeds.
coming in related to those divestitures.
Kevin Hammons: And then factoring in if or when Tennessee and New Mexico get approved, and we do fully expect them to get approved, that would add an additional $100 to $125 million to that annual run rate of EBITDA.
Kevin Hammons: gosh okay that makes sense and then maybe Tim as I think about some of the things that you've done in 2024 you know you're still looking to do some divestitures here but you've also added
Kevin Hammons: some urgent care locations. Just curious how we should be thinking about where you stand today on
Kevin Hammons: kind of like the strategic moves that you still want to do.
Kevin Hammons: And I know you mentioned that you've got a couple of deals here in the pipeline, but once we get past that I mean, how should we be thinking about, you know, kind of like the moves that we should expect out of you guys?
Speaker Change: Sure. Thanks, Brian. I'm happy to shed some color on that. Obviously, we're pleased with our ability to invest in and grow the core portfolio. We've been speaking to
Speaker Change: are investable opportunities for the last several years and it's always good to see that pull through in terms of the volume and earnings progression.
Speaker Change: I think we've called this out on a number of occasions, but it's a smaller portfolio generating roughly a similar amount of net revenue as three or four years ago. So we know that our investments are yielding the intended outcomes, caring for more patients.
Speaker Change: and driving that type of growth. Now in terms of where we go next, we still have some runway left on obviously some past capital investments, particularly around our expansion projects.
Speaker Change: I call out that they're ramping up nicely, that by any stretch of the imagination, we've built them for further growth capabilities.
Speaker Change: and the quarters ahead. Also, we've also talked extensively about where we're investing our capital dollars and it goes beyond just
Speaker Change: You know, inpatient capacity and procedural capacity on our campuses, they're really driving that access point strategy.
Speaker Change: So we have a pipeline of incremental AFC expansions or de novo projects underway. We also have more freestanding ED projects in flight, some of them going through certificate of need processes. So we still see a good portion of the portfolio still having investable opportunities for more organic growth.
Speaker Change: In terms of post-acute and behavioral health side of the business, we think we've done a nice job of growing that side of the business.
Speaker Change: We believe there's also more expansion opportunities and growth opportunities in that regard.
Speaker Change: And then the last thing I'll put out there, again, speaking to where we have insights into the business.
Speaker Change: Beyond just the ERP implementation, seeing where we can better manage the business, for the last, I'd say, seven or eight years, we've leveraged the Transfer Center rather extensively to always help us identify new opportunities for service line expansion. We continue to see, in the majority of our Transfer Center markets,
Speaker Change: The ability to expand our service areas by taking in patients from further out as we add those specialties. So we don't believe we've reached the end of that road either. So again, a lot of growth opportunities on an organic basis.
Speaker Change: Hey Tim, maybe if I might follow up just as I think about your mid-teens EBITDA margin guidance and you did 13%-ish coming out of Q4, so you know putting all this the things that you mentioned together and then maybe considering medical specialist fees
Tim Hingtgen: What's that line of sight like and what will it take for you to hit that mid-teens target number?
Speaker Change: I'll let Kevin start with the answer kind of where we we peg that midterm guidance. I'll add a few things at the end which I think tied back to my comments.
Kevin Hammons: Sure, you know, there's there's a couple things we've had, you know, a little bit of drag
Speaker Change: with some medical specialties, which we, even though we do believe they're continuing to increase.
We are getting some stabilization. Our work with...
ERP and getting
Speaker Change: and Tim Hingtgen, and we've had a lot of success with that project completed, which has also been a little bit of a drag on us, but should turn into a tail wind. And with the functionality and the work and visibility we have in improving decision support, we think we can take out some material costs.
Speaker Change: you know, what we believe to be really good investments in capital growth projects.
Speaker Change: And then we continue to believe we can get some leverage on both acuity and payer mix as some of our markets grow.
Speaker Change: And I would layer on to that, opportunities for margin expansion, obviously over the next couple of years.
Speaker Change: hopefully with the moderation and inflation and continued strengthening and payer mix and rates.
Speaker Change: on the commercial side of the business. Obviously, there's some, you know, risk embedded with the governmental programs, but in general, targeting the payer-mixed-or-access-point strategy has worked out really well for us.
Speaker Change: We also see some opportunities, as I said, to ramp up these projects and improve our fixed cost leverage. So I think that will pull through in terms of hitting that midterm target as well. Maybe the last point I'd make is...
Speaker Change: You know as we continue to delever and have opportunities for deleveraging
Speaker Change: You know, we are getting to a positive free cash flow.
Speaker Change: be able to get our debt down and lower our cash interest even if we aren't at those mid-teen margins, being positive on all those other things will generate sufficient cash flow and sufficient EBITDA to continue to progress and make the investments that we need.
Awesome. Thank you guys. Thank you.
Speaker Change: The next question will come from Ben Hendricks with RBC Capital Markets. Please go ahead.
Speaker Change: Great, thank you guys very much. Just wanted to follow up on some of your thoughts on DPP. First of all,
Speaker Change: in 4Q, the $40 million from New Mexico DPP that you recognized.
Speaker Change: It seems to be about twice what you'd expected. Does that reflect just conservatism around this program initially versus your expectations? Or was there something structurally that changed that drove that outperformance? And then just secondly, the exclusion of DPP and guidance suggests a more cautious stance than what we heard back in October, clearly. Just wanted to get your latest thoughts on your assessment of the risk of these programs
administration. Thanks.
Sure, thanks Ben. You know, we did not include
Speaker Change: the New Mexico or Tennessee programs in our guidance in 2024.
Speaker Change: So, although we've been working closely with the state and following, you know, very closely with that program.
Speaker Change: We weren't sure of the timing of approval, so we did not include it in the guidance.
It was approved, I believe, in December.
So, we were able to recognize and we recognized.
Thank you.
Speaker Change: period from July 1st through December. So two quarters worth recognized all in the fourth quarter. I think kind of at the end of the day what we had provided on an outlook back after the third quarter was those two states combined.
we believe should contribute about $100 to $125 million.
Speaker Change: to an annual run rate of EBITDA. We still believe that that's the right number, so it's in line. New Mexico is really in line with our expectations.
Speaker Change: around that, but we just did not have it in the guidance.
Speaker Change: for 4Q because of timing and uncertainty around the approval process.
Speaker Change: Going forward, again, we do expect those programs to get approved.
Speaker Change: New Mexico, which is basically a renewal, and then Tennessee to get approved. Here right now, I understand there's a freeze on communications.
Speaker Change: from CMS until we get confirmation of the secretary and leadership there, but that should be coming.
Speaker Change: hopefully soon. And we don't see that there is probably going to be a big headwind. We believe these programs will continue, you know, relatively in their current form going forward. They've been
Speaker Change: successful programs. Many states actually, there's been bipartisan support in both red states and blue states, and if I think about
Speaker Change: You know, the current administration and where some of these programs are used to a high degree in states like Texas and Florida and more recently Mississippi.
Speaker Change: Tennessee also being a red state that has applied for one, I don't see that they will not be approved going forward.
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Speaker Change: Yeah, and then I'll add on to that. I think Kevin's spot-on, you know, obviously, you know, Medicaid has traditionally been an underfunded payer source for us, so these programs are critically important to
Speaker Change: Sustaining the level of services to the Medicaid population, and irrespective of whether it's a red state or a blue state, giving people coverage and access to health care is such a critical issue for their well-being, but also just from, I guess I'll say, from a political agenda as well, making sure that we're not taking things away from people that are so important to them, especially as we transition to the new administration.
Speaker Change: I do think, in terms of the programs, you know, we're doing a lot of work around lobbying activities, obviously, making sure that the reason why these programs are important is clearly understood by our elected officials, and as Kevin said, you know, we've had broad support in our discussions with many of them to get these programs adjusted or modified to strengthen the access to healthcare in their communities, so we hope that bodes well for us going forward in terms of the durability of the supplemental programs.
Thank you very much.
Speaker Change: The next question will come from A.J. Rice with UBS. Please go ahead.
Hi everybody. Thanks for the question.
Speaker Change: On the organic growth of 75 to 100 million, is this part of the bridge you talked about earlier?
Thank you.
Speaker Change: You mind just giving us some sense of what you're thinking of for same-store revenues, same-store volume, same-store margins, perhaps? I know you've had a slight uptick in the overall margin, but I don't think that...
Speaker Change: teases out what the SafeStore number is. I apologize if I missed it, but just some metrics around what you think the underlying SafeStore portfolio is doing.
Speaker Change: Thanks, AJ. So, you know, in terms of kind of volume, we're looking at two to three percent volume growth in 2025. Similar in pricing, so you can think about net revenue growing in the mid-single digit.
Speaker Change: area, you know, contributing. Margin-wise, you know, slight increase in same-store margin is...
Speaker Change: more of that organic growth we would expect to flow through to the bottom line. In terms of
Speaker Change: You know, some inflationary trends, we're thinking about something in the neighborhood of 3.75% on salaries and wages.
Speaker Change: That's a little bit less than 2024, but still not back to where we had previously thought.
Speaker Change: from an inflationary trend with the exception of medical specialist fees.
were probably.
you know, looking at
Speaker Change: And we've budgeted for an increase in the 8-12% range on medical specialist fees. It was up 12% this year, or I'm sorry, 10.9% for the full year. And so we're kind of budgeting in that 8-12%.
Speaker Change: And then on ERP, you know, to help offset some of those inflationary increases, we're looking at some offsetting savings as a result of our ERP work and now having that fully implemented in the $40 to $60 million range.
Speaker Change: Okay, now that's helpful. And then just not to belabor the DPP program questions, but some of your peers
Speaker Change: felt like Tennessee got approved, at least for the six-month stub, in 24. It doesn't sound like you booked any of that.
either in 24 or in your guidance for 25.
Speaker Change: Can you comment on that? And then also, I know for some time, you're one that has some.
Speaker Change: that have not yet adopted DPP programs, or at least have not upgraded DPP programs to the extent that they might. And specifically, people typically call out Alabama, Indiana, and Arkansas. Any update on where those stand at this point?
Speaker Change: Yes, I can give you an update on those. So Tennessee, in January, we did get word that the program in Tennessee was approved, at least the structure of the program.
But the funding
Speaker Change: for Tennessee's DPP program has not yet been approved. So just being prudent and conservative in our guidance.
Speaker Change: Without the funding being approved and the freeze on communications coming out of Washington or out of CMS we decided not to put that in our guidance But again fully expect that that funding does get approved
Speaker Change: Tennessee, the TennCare program was a block grant program, so I think there was an additional level of approval that was...
was needed or a waiver for that.
going forward, and we're just waiting on that final step.
In terms of additional states, we do have...
Speaker Change: Some pretty meaningful states, Indiana, Tennessee, Arkansas, and Alaska, which do not have programs, do not have DPP programs, or at least not fully implemented.
Speaker Change: Indiana is probably the farthest along, although no certainty of where that ends up, we
We do know that the state legislature
Speaker Change: is considering it. They're in session right now and there's a plan.
that's been presented for them.
Speaker Change: for approval. So that is farthest along. We are in discussions.
Speaker Change: in Alabama and Arkansas, I would say that they're a little farther behind, or maybe said differently, they're at the earlier stages of considering and developing plans.
Speaker Change: in those states, but all of those states have certainly expressed interest.
Speaker Change: and taking a look at these programs and looking for additional.
Medicaid funding.
through these.
Speaker Change: You know, we view these programs really as just part of Medicaid funding.
Overall, you know, we typically...
consider Medicaid or delivery of Medicaid business at a loss.
These programs help.
bridged that gap.
Speaker Change: as part of the reimbursement for Medicaid. And I know the states are looking for some additional money. So we would expect, you know, some potential there, but Alabama and Arkansas, probably not. Not in 2025, that's probably at 2026 is the earliest.
Okay, thanks a lot
Speaker Change: The next question will come from Andrew Mock with Barclays. Please go ahead.
Andrew Mock: Hi, good morning. It looks like you're forecasting operating cash flow to improve $150 to $200 million in 2025 on a lower EBITDA base, so hoping you could flesh out the drivers of that better conversion. And then as a follow-up, to the extent that there's an incremental $100 million plus from the state-directed payment programs, would that all drop through to operating cash flow? Thanks.
Speaker Change: Sure Andrew, thanks for the question. So there are a couple moving parts on the cash flows.
So, the New Mexico...
Speaker Change: DPP program that we did recognize in 2024, that was in the fourth quarter, that $40 million roughly would be paid.
Speaker Change: cash received in 2025 so that's a nice carryover and would contribute to the cash. Also as we wrapped up our implementation of our ERP conversion, that has been a drag on cash flows.
Speaker Change: from Adjusted EBITDA, we've not backed out the cash component of that from cash flows. So I think that also contributes.
to some improved cash flow.
generation in 2025.
Speaker Change: Another positive impact is we've gotten word that our tax refund is being processed by their IRS. This is the tax refund that we've been waiting on for a number of years.
Speaker Change: So we would expect, you know, roughly 70 to 75 million dollars of cash coming in on that. Those will be offset. We will have higher cash interest payments.
in 2025.
primarily related to the timing of cash.
interest payments.
Thank you.
Speaker Change: Got it. That's helpful. And then just to clarify a point on the state-directed payments, I think you called out $100 to $125 million in incremental annual benefit from Tennessee and New Mexico. That doesn't include the retro Tennessee piece. Is that correct?
Speaker Change: That is correct. That does not include the retro Tennessee piece.
Speaker Change: So that would be an addition. And those programs will accrue to our cash flow, you know, will flow through EBITDA and cash flow as well.
Great, thanks for all the color.
Speaker Change: The next question will come from Stephen Baxter with Wells Fargo. Please go ahead.
Thank you.
Speaker Change: Hey, this is Mitchell on for Steve. I wanted to see if you could quantify the continued hurricane impact in Q4, and do you expect volumes to fully recover in 2025? Thanks.
Thank you.
Speaker Change: Sure. How are you today? You know, we had, as we indicated in our guide for Q4, we expected about a $10 million impact from the hurricane. It was as expected and really, you know,
Speaker Change: didn't see any additional impact. We have one hospital that continues to be shut down as a result of that hurricane. It was shut down for the entire quarter and into Q1.
Speaker Change: The assets that were impacted by the hurricane, Shorepoint Health System
are assets that are being sold, that deal was announced.
Speaker Change: and we expect that deal to close here in the first quarter so we do not expect any ongoing impact since those assets will be gone.
Great, thank you.
Speaker Change: Again, if you have a question, please press star, then 1. Our next question will come from Josh Raskin with Nephron Research. Please go ahead.
Hi, thanks, good morning.
Speaker Change: It seems that our questioner has disconnected. This leaves no questions in the question queue. I would like to turn the conference back over to Mr. Tim Hingtgen for any closing remarks.
Tim Hingtgen: Great. Thank you, Chuck. And thanks to all of you for joining our call today. As always, if you have additional questions, you can reach us at 615-465-7000. Thanks again and have a great day.
Thank you. Bye.
Speaker Change: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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