Q1 2025 Select Medical Holdings Corp Earnings Call
Okay.
Good morning, and thank you for joining us today for select Medical Holdings Corporation's earnings conference call to discuss the first quarter 2025 years old at the companies and the company's business.
Operator: Presenting today are the company's Executive Chairman and Co-Founder, Robert Ortenzio, and the company's Senior Executive Vice President of Strategic Finance and Operations, Martin Jackson.
Speaker Change: Presenting today are the company's executive Chairman and co founder Robert Ortenzio, and the company's senior executive Vice President of strategic.
Michael: Finance and operations Martin Jackson also on the conference line or on the call are the company's executive Vice President and Chief Financial Officer, Michael <unk>.
Operator: Also on the conference line are the company's Executive Vice President and Chief Financial Officer, Michael Malatesta, and the company's Senior Vice President, Controller, and Chief Accounting Officer, Christopher Weigel. Management will give you an overview of the quarter and open the call for questions.
Speaker Change: On the tester and the Companys Senior Vice President controller, and Chief Accounting Officer.
Christopher Wiegel: Christopher Wiegel.
Christopher Wiegel: Management will give you an overview of the quarter and the open open the call for questions before we get started we would like to remind you that this conference call may contain forward looking statements regarding future events or the future financial performance of the company, including without limitation statements regarding operating results growth.
Operator: Before we get started, we would like to remind you that this conference call may contain forward-looking statements regarding future events or the future financial performance of the company, including without limitation, statements regarding operating results, growth opportunities, and other statements that refer to select medical plans, expectations, strategies, intentions, and beliefs. These forward-looking statements are based on information available to management of Select Medical today, and the company assumes no obligation to update these statements as circumstances change.
Speaker Change: These and other statements that refer to select medical plans expectations stretched strategies intentions and beliefs. These forward looking statements are based on information available to management of select medical today and the company assumes no obligation to update these statements as circumstances change at this time I will now turn the call.
Robert Ortenzio: At this time, I will now turn the call over to Mr. Robert Ortenzio. Thank you, operator. Good morning, everyone. Welcome to Select Medical's earnings call for the first quarter of 2025. This was our first full quarter since our spin of Concentra this past November. As most of you know, we now have three remaining lines of business. Our inpatient rehab division had a very good first quarter and continues to exceed our expectations. We're very excited about the significant growth of this business line for this foreseeable future. This past quarter presented challenges for both our outpatient and critical illness recovery hospital lines of business.
Robert Ortenzio: Over to Mr. Robert Ortenzio.
Robert Ortenzio: Thank you operator, good morning, everyone welcome to Black Medical's earnings call for the first quarter of 2025.
Robert Ortenzio: This was our first full quarter since our spin of concern for this past November as most of you know we now have three remaining lines of business.
Robert Ortenzio: Our inpatient rehab division had a very good first quarter and continues to exceed our expectations.
Robert Ortenzio: We're very excited about the significant growth of this business line for the foreseeable future.
Robert Ortenzio: This past quarter presented challenges for both our outpatient and critical illness recovery hospitals lines of business. Our outpatient division was impacted by severe weather events in the south and central regions, along with a 3% reduction in Medicare reimbursement.
Robert Ortenzio: Our outpatient division was impacted by severe weather events in the south and central regions along with a 3% reduction in Medicare reimbursement. The outpatient division, however, had a strong finish to the quarter, which is carried over into the second quarter. The outpatient division would have exceeded prior year just EBITDA performance for the quarter, if not for the impact of the severe weather events. We are confident in the outlook for outpatient as the division continues to focus on improving patient access, productivity and investing in technology. The Critical Illness Recovery Hospital Division was impacted by a late start to the flu season.
Robert Ortenzio: Outpatient division, however had a strong finish to the quarter, which is carried over into the second quarter.
Robert Ortenzio: The outpatient division would have exceeded prior year adjusted EBITDA performance for the quarter, if not for the impact of the severe weather events. We are confident in the outlook for outpatient division continues to focus on improving patient access productivity and investing in technology.
Robert Ortenzio: The critical illness recovery Hospital Division was impacted by a late start to the flu season.
Robert Ortenzio: Another increase in the high-cost outlier threshold, which has almost doubled over the last two years, and the 20% transmittal rule. Approximately two-third of critical illness EBITDA missed the prior year was the result of the regulatory changes comprised of the increase to the outlier threshold and the 20% transmittal rule. In spite of these challenges, the division also had a strong finish to the quarter, which is carried into the second quarter. I'm very proud of how our operators were able to finish the quarter, which resulted in each division exceeding prior year adjusted EBITDA performance for the month of March.
Robert Ortenzio: Another increase in the high cost outlier threshold, which has almost doubled over the last two years and a 20% transmittal rule.
Robert Ortenzio: Approximately two third of critical warrants EBITA mess to prior year was the result of the regulatory changes.
Robert Ortenzio: But the increase did he outlier thresholds and a 20% transmittal rule.
Robert Ortenzio: Despite these challenges.
Robert Ortenzio: <unk> also had a strong finish to the quarter, which was carried into the second quarter I'm very proud of how our operators were able to finish the quarter.
Robert Ortenzio: Which resulted in each condition exceeding prior year adjusted EBITDA performance for the month of March.
Robert Ortenzio: Our development pipeline remains strong, primarily in our inpatient rehab division. In January, we opened a rehab unit in Madison, Wisconsin, with 18 beds. In April, we opened a 12-bed unit in Tallahassee, Florida, and our second rehab hospital with UPMC in Central Pennsylvania, comprised of 20 beds. We have additional development projects in various stages.
Robert Ortenzio: Our development pipeline remains strong primarily in our inpatient rehab division in January we opened a rehab unit in Madison, Wisconsin with 18 beds in April we opened 12 bed.
Robert Ortenzio: Unit in Tallahassee, Florida, and our second rehab hospital with U P M.
Robert Ortenzio: Central Pennsylvania comprised of 20 beds.
Robert Ortenzio: We have additional development projects in various stages.
Robert Ortenzio: for the Inpatient Rehab Division, which I will summarize. Later in Q2, we plan on opening a 45-bed rehab hospital in Temple, Texas. In the last half of this year, we'll open our fourth rehab hospital with the Cleveland Clinic in Fair Hill, Ohio, with 32 beds, and a rehab unit in Orlando, Florida, also with 32 beds. In Q1 of 2026, we plan to open our fourth rehabilitation hospital as part of our joint venture with Banner in Tucson, Arizona, and a new freestanding 63-bed rehab hospital in Ozark, Missouri with Cox Health System. In Q4 2026, our 60-bed rehab hospital in Southern New Jersey, branded as Atlantic Care Rehabilitation Hospital, is scheduled to open, as well as a 76-bed facility in Jersey City, New Jersey, branded as Kessler.
Robert Ortenzio: For the inpatient rehab division, which I will summarize.
Robert Ortenzio: In Q2, we plan on opening a 45 bed rehab hospital in temple, Texas in the last half of this year, we'll open our fourth rehab hospital with the Cleveland Clinic, and fair Hello, Ohio, with 32 beds and a rehab unit in Orlando, Florida also with 32 beds.
Robert Ortenzio: In Q1 of 2026, we plan to open our fourth rehabilitation hospital as part of our joint venture with banner in Tucson, Arizona, and a new freestanding 63 bed rehab hospital in Ozark, Missouri with Cox Health systems.
Robert Ortenzio: In Q4, 2026, or 60 bed rehab hospital in Southern New Jersey branded as Atlanta care Rehabilitation Hospital is scheduled to open as well as a 76 bed facility in Jersey City, New Jersey branded as Kessler.
Robert Ortenzio: Between the specific projects just mentioned, as well as some other smaller expansions and new rehabilitation units in existing hospitals, we plan to add 440 additional beds to our operations from Q2 2025 through the end of 2027. The additional beds primarily consist of rehab hospital beds, which include 68 non-consolidating beds. There are also a number of opportunities under evaluation that would further increase our select specialty hospital footprint. This quarter, our outpatient division added 10 de novo clinics. This was offset by the strategic closure or consolidation of 13 locations, further optimizing our existing resources and clinical capacity.
Robert Ortenzio: Between the specific projects just mentioned as well as some other smaller expansions and new rehabilitation units an existing hospital, we plan to add 440 additional beds to our operations.
Robert Ortenzio: Q2, 2025 through the end of 2027.
Robert Ortenzio: The additional beds, primarily consist of rehab hospital beds, which include 68 non consolidating debts are also a number of opportunities under evaluation that would further increase our specs select specialty hospital footprint.
Robert Ortenzio: This quarter, our outpatient division added 10 de Novo clinics. This was offset by a strategic closure or consolidation of 13 locations further optimizing our existing resources and clinical capacity.
Robert Ortenzio: This activity aligns with our strategic vision to identify areas of opportunity, serving our patient population and targeted demographics.
Robert Ortenzio: This activity aligns with our strategic vision to identify areas of opportunity, serving our patient population and targeted demographics.
Robert Ortenzio: Now turning to our first quarter financial results and highlights. On a consolidated basis, our revenue increased over 2% while adjusted EBITDA declined by 9% from $165.8 million to $151.4 million. Earnings per common share from continuing operations increased by 33% to $0.44 for the first quarter compared to $0.33 per share in the same quarter prior year.
Robert Ortenzio: Now turning to our first quarter financial results and highlights on a consolidated basis, our revenue increased over 2%, while adjusted EBITDA declined by 9% or $165 $8 million to a $151 4 million earnings per common share from continuing operations increased by 33% to four.
Robert Ortenzio: Four cents for the first quarter compared to <unk> 33 per share in the same quarter prior year.
Robert Ortenzio: We are extremely pleased with the first quarter performance of our inpatient rehab hospital division with increases of 16% in revenue, 15% in adjusted EBITDA, and 6% in average daily census when compared to the first quarter of last year. The adjusted EBITDA margin was 23%, which was in line with the prior year's same quarter. Our rate per patient day increased by 7%. Our occupancy was 82%, was 5% lower than prior year of 87%, which was primarily the result of new hospitals. Same-store occupancy was 87%.
Robert Ortenzio: We are extremely pleased with our first quarter performance of our inpatient rehab Hospital division with increases of 16% in revenue, 15% and adjusted EBITDA at 6% and average daily census, when compared to the first quarter of last year.
Robert Ortenzio: Adjusted EBITDA margin was 23%, which was in line with the prior year same quarter.
Robert Ortenzio: Our rate per patient day increased by 7% our occupancy was 82% was 5% lower than prior year of 87%, which was primarily the result of new hospitals.
Robert Ortenzio: Same store occupancy was 87% in April CMS issued their proposed rule for fiscal year 2026, and if adopted we would see an increase of two 4% and the standard federal payment rate decline.
Robert Ortenzio: In April, CMS issued their proposed rule for fiscal year 2026, and if adopted, we would see an increase of 2.4% in the standard federal payment rate. The final rule is expected in late July, early August, after the required comment period.
Robert Ortenzio: The rule is expected in late July early August after the required comment period.
Robert Ortenzio: As previously mentioned, our outpatient rehab division had a challenging quarter due to winter storms in the south and central regions. The estimated impact of these events is approximately $4 million. Notwithstanding the weather events and one less workday for the first quarter compared to prior year, revenue increased 1% driven by an increase in our net revenue per visit compared to the first quarter of prior year. Net revenue per visit increased from $99 prior year Q1 up to $102 in Q1 of this year, with continued improvements in managed care, commercial rates, which was offset by the decline in our Medicare rate.
Robert Ortenzio: As previously mentioned, our outpatient rehab division had a challenging quarter due to winter storms in the south and Central reason regions. The estimated impact of these events is approximately $4 million.
Notwithstanding the weather events and one less workday for the first quarter compared to prior year revenue increased 1% driven by an increase in our net revenue per visit compared to the first quarter of prior year net revenue per visit increased from $99. Prior year Q1 up to a $102 in Q1 of this year with.
Robert Ortenzio: Continued improvements in managed care commercial rates, which was offset by the decline in our Medicare rate.
Robert Ortenzio: The decrease in the Medicare fee schedule was 3.2 percent, to our outpatient division of approximately $2.6 million in the first quarter. Total visits declined by 1% from prior year, same quarter, due to the one less work day. However, there was an increase of 1% in visits per day. Adjusted EBITDA declined 3% from Q1 of prior year, and the division's adjusted EBITDA margin decreased from 8.2% to 7.9%.
A decrease in the Medicare fee schedule was three 2% to our outpatient division or approximately $2 6 million in the first quarter.
Robert Ortenzio: Total visits declined by 1% from prior year same quarter due to one less workday. However, there was an increase of 1% and visits per day adjusted EBITDA declined 3% from Q1 of prior year and the divisions adjusted EBITDA margin decreased from eight 2% to seven 9%.
Robert Ortenzio: Our critical illness recovery hospitals, as previously noted, had a challenging quarter primarily related to the large increase in the high cost outlier threshold for the second year in a row and the 20% transmittal rule, as previously noted. The impact of the regulatory changes in the first quarter were especially challenging when this is when we treat our highest acuity patient population during respiratory season. Revenue decreased from the first quarter of prior year by 3%, driven by a 2% decline in rate per patient day, coupled with a 1% decline in patient days. While our occupancy rate increased from 71% to 73% and our average daily census was consistent with prior year Q1, the volume decline was primarily a function of one less calendar day compared to prior year.
Robert Ortenzio: Our critical illness recovery hospitals as previously noted had a challenging quarter primarily related to the large increase in the high cost outlier threshold for the second year in a row in the 20% transmitter all as previously noted the.
Robert Ortenzio: The impact of the regulatory changes in the first quarter were especially challenging.
Robert Ortenzio: This is when we treat our highest acuity patient population during respiratory season.
Robert Ortenzio: Revenue decreased from the first quarter of prior year by 3% driven by a 2% decline in rate per patient day, coupled with a 1% decline in patient days.
Robert Ortenzio: Occupancy rate increased from 71% to 73% and our average daily census was consistent with prior year Q1. The volume decline was primarily a function of one less calendar day compared to prior year.
Robert Ortenzio: The decrease in net revenue per patient day was driven by a decrease in our Medicare rate, which was primarily a function of the increase in the high-cost outlier threshold. Critical illness, salary wage, and benefit-to-revenue ratio was 54% compared to 53% in prior year Q1. Adjusted EBITDA declined by 25% from prior year, and our adjusted EBITDA margin was 14% for the quarter compared to 18% in the prior year Q1.
Robert Ortenzio: The decrease in net revenue per patient day was driven by a decrease in our Medicare rate, which was primarily a function of the increase in the high cost outlier threshold critical wellness salary wage and benefit to revenue ratio was 54% compared to 53% in prior year Q1.
Robert Ortenzio: Adjusted EBITDA declined by 25% from prior year and our adjusted EBITDA margin was 14% for the quarter compared to 18% in the prior year Q1.
Robert Ortenzio: In April, CMS issued their LTCH Proposed Rule for FY 26, and if adopted, we would see an increase of 2.7% in the standard federal payment rate and an increase in the high-cost outlier threshold. The final rule is expected in late July and early August, after the required comment period.
Robert Ortenzio: In April CMS issued their <unk> proposed rule for fiscal year 2006, and if adopted we would see an increase of two 7% in the standard federal payment rate and an increase in the high cost outlier threshold. The final rule is expected in late July early August after the required comment period.
Robert Ortenzio: During the quarter, we repurchased almost 650,000 shares of our stock at an average price per share of $1,752 under our board-authorized stock repurchase program for a total of $11.4 million. In regards to our deployment of capital, the board of directors declared a cash dividend of $6,000. .625 per share payable on May 29th, 2025 to stockholders of record as of the close of business on May 15th, 2025. Going forward, we will continue to evaluate stock repurchases, reduction of debt and development opportunities.
Robert Ortenzio: During the quarter, we repurchased almost 650000 shares of our stock at an average price per share of $17 52 under our board authorized stock repurchase program for a total of $11 $4 million in regards to our deployment of capital the board of directors declared a cash dividend of $6.
Robert Ortenzio: 625 per.
Robert Ortenzio: Per share payable on May 29, 2025 to stockholders of record as of the close of business on May 15, 2025 going forward. We will continue to evaluate stock repurchases reduction of debt and development opportunities. This concludes my formal remarks, I will turn the call over to Marty Jackson for additional financial details before we open the call up for questions.
Robert Ortenzio: This concludes my formal remarks.
Martin Jackson: I'll turn the call over to Martin Jackson for additional financial detail before we open the call up for questions. Thank you, Bob. And good morning, everyone. At the end of the quarter, we had $1.8 billion of debt outstanding and $53.2 million of cash on the balance sheet. Our debt balance at the end of the quarter included $1.05 billion in term loans, to do 2031. $180 million in revolving loans, $550 million of six and a quarter senior notes due 2032. and $37 million of other miscellaneous debt. We ended the quarter with net leverage for our senior secured credit agreement of $3.4 As of March 31, we had $377.5 million of availability.
Robert Ortenzio: Yes.
Marty Jackson: Thank you Bob and good morning, everyone.
Robert Ortenzio: At the end of the quarter, we had $1 8 billion.
Robert Ortenzio: Outstanding.
Robert Ortenzio: $53 $2 million of cash on the balance sheet, our debt balance at the end of the quarter included $1.05 billion in term loans.
Robert Ortenzio: Which are due 2031.
Robert Ortenzio: $180 million in revolving loans $550 million of six and a quarter senior notes due 2032.
Robert Ortenzio: And $37 million of other miscellaneous debt, we ended the quarter with net leverage for our senior secured credit agreement of three four times.
Robert Ortenzio: As of March 31, we had $377 $5 million of a barrel of availability.
Martin Jackson: on our revolving loom. The interest rate on our term loan SOFR plus 200 basis points. Interest expense was $29.1 million in the first quarter. This compares to $40.7 million in the same quarter per year. The decrease in interest expense was due to the reduction of select debt resulting from the concentra IPO and related debt transactions last year. for the quarter.
Robert Ortenzio: On our revolving loans.
Robert Ortenzio: The interest rate on our term loan silver plus 200 basis points.
Robert Ortenzio: Interest expense was $29 1 million in the first quarter. This compares to $47 million in the same quarter. Prior year. The decrease in interest expense was due to the reduction of select debt, resulting from the can central IPO related debt transactions last year.
Martin Jackson: Operating activities use $3.5 million in cash flows. Our day sales outstanding on DSO for continued operations. with 60 days at March 31st, 2025. This compares to 62 days as of March 31st, 2024 and 58 days as of December 31st, 2024.
Robert Ortenzio: For the quarter.
Robert Ortenzio: Operating activities used $3 5 million in cash flows.
Robert Ortenzio: Our days sales outstanding on DSO for continued operations.
Robert Ortenzio: It was 60 days at March 31, 2025. This compares to 62 days as of March 31, 2024, and 58 days as of December 31, 2024 <unk>.
Martin Jackson: Investing activities used $52.3 million of cash in the first quarter for purchases of property and equipment. Financing activities provided $49.3 million of cash in the first quarter. This includes $75 million net borrowings on a revolving line of credit and $3.2 million net borrowings on the other. This activity was offset by $11.4 million in common stock repurchases, $8.1 million in dividends of our common stock. $6.8 million in net distributions and purchases of non-controlling interests.
Robert Ortenzio: Investing activities used $52 $3 million of cash in the first quarter for purchases of property and equipment financing activities provided $49 $3 million of cash in the first quarter. This includes $75 million net borrowings on our revolving line of credit and $3 $2 million net borrowings on the other debt. This.
Robert Ortenzio: <unk> was offset by $11 4 million in common stock repurchases $8 $1 million and dividends of our common stock.
Robert Ortenzio: $6 $8 million net distributions and purchases of Noncontrolling interest.
Martin Jackson: and a $2.6 million payment on our terms. We are slightly adjusting our business outlook for 2025 and now expect revenue to be in the range of $5.3 to $5.5 billion. Adjusted EBITDA is expected to be in the range of $510 to $530 million. And finally, adjusted earnings per common share is still expected to fall in the range of $1.09 to $1.19. Capital expenditures are expected to be in the range of $160 to $200 million.
Robert Ortenzio: And a $2.6 million payment on our term loan.
Robert Ortenzio: We are slightly adjusting our business outlook for 2025, and now expect revenue to be in the range of $5 three to $5 5 billion.
Robert Ortenzio: Adjusted EBITDA is expected to be in the range of $510 million to $530 million.
Robert Ortenzio: And finally adjusted earnings per common share is still expected to fall in the range of $1 nine.
Robert Ortenzio: <unk> to $1 19 capital expenditures are expected to be in the range of $160 million to $200 million.
Martin Jackson: This concludes our prepared remarks, and at this time, we would like to turn it back to the operator to open up the call for questions. Thank you.
Robert Ortenzio: This concludes our prepared remarks and at this time, we would like to turn it back to the operator to open up the call for questions.
Operator: To ask a question, you will need to press star 11 on your telephone and wait for your name to be announced.
Robert Ortenzio: <unk>.
Robert Ortenzio: Thank you.
Speaker Change: To ask a question you will need to press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby we compile the Q&A roster.
Operator: To withdraw your question, please press star 11 again.
Operator: Please stand by while we compile the Q&A roster.
Operator: One moment for our first question.
Robert Ortenzio: One moment for our first question.
Justin Bowers: Our first question will come from the line of Justin Bowers from Deutsche Bank. Your line is open. Hi, good morning, everyone.
Speaker Change: Our first question comes from the line of Justin Bowers from Deutsche Bank. Your line is open.
Robert Ortenzio: So in IRF, you had very strong results and a nice sequential increase in occupancy is Is that, like, how should we be thinking about occupancy for the rest of the year with the new capacity coming online? So I think it should stay around in that 85% plus capacity, even with the new business coming online, because as a new business comes online, we still have some other businesses still maturing. But again, our mature hospitals have all been in that 85 plus Okay, thanks.
Robert Ortenzio: Hi, good morning, everyone.
Speaker Change: In <unk>, you had very strong results and a nice sequential increase in occupancy.
Robert Ortenzio: Yes.
Robert Ortenzio: Is that like how should we be thinking about occupancy for the rest of the year with us.
Robert Ortenzio: The new.
Robert Ortenzio: Capacity coming online.
Robert Ortenzio: Jonathan I think it should stay around about 85% plus.
Robert Ortenzio: Capacity, even with the new business coming online.
Robert Ortenzio: New business comes online, we still have some other business installment maturing, but again on one of our mature hospitals have all been in that 85 plus percent range.
Robert Ortenzio: And then on LTAC, you mentioned that two thirds of the NIST was related to regulatory and some of the outlier stuff. Was that versus like your internal expectations or, you know, consensus? Just trying to get a sense of what the magnitude there was, and maybe you can quantify it for us. Yeah, Justin, it was higher than what we had anticipated. So for example, if you take a look at the high-cost outlier impact. from Q1, 25 versus Q1 of 24, there was about 100% increase in the cost, the high cost outlier. We thought it was gonna be a little bit less than that.
Robert Ortenzio: Okay. Thanks, and then on <unk>, you mentioned that two thirds of <unk> was related to.
Robert Ortenzio: Regulatory and some of the outlier stuff.
Robert Ortenzio: Is that versus like your internal expectations or.
Robert Ortenzio: Or.
Robert Ortenzio: Consensus.
Robert Ortenzio: Just trying to get a sense of.
Robert Ortenzio: What the magnitude there was and maybe you can quantify.
Robert Ortenzio: Was.
Justin Bowers: Yes, Justin.
Justin Bowers: It was a it was higher than what we had anticipated. So for example, if you take a look at.
Justin Bowers: The high cost outlier impact.
Justin Bowers: From Q1, 'twenty versus Q1 of 'twenty four there was about 100% increase in the cost of the high cost outlier.
Justin Bowers: We thought it was going to be a little bit less than that.
Robert Ortenzio: And the 20% impact, it was 480% from Q4 of 24. That 20% impact didn't go, that wasn't around Q1 of 24. First quarter we had it was actually in Q4 of last year.
Justin Bowers: The 20% impact.
Justin Bowers: It was 480% from Q4 of 'twenty four.
That 20% impact didn't go that wasn't around Q1 of 'twenty for first quarter. We had it was actually in Q4 of last.
Justin Bowers: Last year.
Robert Ortenzio: Okay, understood. Thank you. Oh, go ahead.
Justin Bowers: Understood. Thank you.
Robert Ortenzio: Yeah, so Justin, from a quantification standpoint, we have, we basically quantified that in the revised guidance. Okay, understood. Appreciate it. Thanks. One moment for our next question.
Justin Bowers: Go ahead.
Justin Bowers: So Justin from a quantification standpoint, we have we basically quantified that in the revised guidance.
Speaker Change: Okay understood I appreciate it.
Justin Bowers: Thanks.
Justin Bowers: One moment for our next question.
Ben Hendrix: Our next question will come from Ben Hendrix from RBC Capital Markets. Your line is open. Hey, thank you very much, and congrats on the IRF performance.
Speaker Change: Our next question will come from the line of Ben Hendrix from RBC capital markets. Your line is open.
Speaker Change: Okay. Thank you very much and congrats on the <unk> performance, but just going back to <unk>.
Robert Ortenzio: But just going back to LTCH, just wondering if you could provide any update or if you're having any changing thoughts on mitigation strategies with regard to the high-cost outlier and the transmittal rule, kind of anything you can do to kind of head off those headwinds operationally. And then second, just based on your flu commentary and guidance, is there a reason to expect maybe an easing of that year-over-year headwind as we kind of get into some of the lower acuity quarters? Thanks. Yes, Ben, to your, and there's two questions there to both questions, I think When you talk about high cost outliers, typically are our Q1 is higher than the balance of the year, just because the acuity of the patient, it's pulmonary patients that we're dealing with, so it's typically higher during that period of time, so we should see that drop.
Speaker Change: Just wondering if you could provide any update or if you are having any changing thoughts on mitigation strategies with regard to the high cost I cocked outlier in the trains middle rule.
Speaker Change: Kind of anything you can do to kind of head off those headwinds operationally and then.
Speaker Change: Just based on your flu commentary and guidance is there a reason to expect maybe an easing of that year over year headwind as we kind of get into some of the lower acuity quarters. Thanks.
Speaker Change: Yeah.
Speaker Change: Yes, Ben to your and there is.
Speaker Change: Two questions there to both questions I think.
Speaker Change: When you talk about the high cost outliers typically are our Q1.
Speaker Change: Is higher than the balance of the year, just because the acuity of the patient is pulmonary patients that were dealing with so it is typically higher during that period of time, so we should see that drop.
Robert Ortenzio: So, you know, it's part and parcel of the same answer to your two questions.
Speaker Change: So it's part and parcel of the same answer to your two questions.
Robert Ortenzio: Okay, and anything that you can do just strategically or is there, is there, is it just something you have to write out or is there anything maybe from a legislation perspective, any conversations in Washington that could help kind of cure this or get traction with, you know, with a revised regulation?
Speaker Change: Okay.
Speaker Change: Anything that you can do just strategically or is there is there.
You have to ride out or is there anything maybe from a.
Speaker Change: Legislation perspective, any conversations in Washington.
Speaker Change: That could help cure that to get traction with that.
With our revised.
Speaker Change: Regulations.
Robert Ortenzio: Yeah, this is Bob. Yeah, the idea we we are constantly having conversations both on the regulatory side with the new CMS administration and on the legislative side. So that's always ongoing. But I think that that has been stepped up and a little bit narrowed to this high cost outlier impact because from a from a policy standpoint, with the The criteria for LTACs that encourages taking the higher acuity patients and not taking what they call the site neutral or the patients that are excluded by the criteria that was put in place some years ago, it is going to logically have more patients that reach high-cost outlier status.
Speaker Change: Yes.
Speaker Change: Venice, Bob Yes.
Speaker Change: We are constantly having conversations both on the regulatory side with the new CMS.
Administration and on the legislative side, so thats always ongoing but I think that that has been stepped up in a little bit narrowed to this high cost outlier impact because from a from a policy standpoint.
Speaker Change: With.
Speaker Change: The criteria for al tax that encourage is taking the higher acuity patients.
Speaker Change: And not taking what they call the site neutral or the patients that are excluded by the criteria that was put in place some years ago.
Speaker Change: It is going to logically have more patients that reach high cost outlier status. So we're trying to have the kind of conversations that explain that and look for ways that we might be able to.
Robert Ortenzio: So we're trying to have the kind of conversations that explain that and look for ways that we might be able to propose some ideas and some changes on some of the policies that would help mitigate some of the severe impacts that we're seeing.
Speaker Change: Suppose some ideas and some changes on some of the policies that would help mitigate some of the severe impacts that we're seeing.
Ben Hendrix: Appreciate the caller, thank you. Thank you. One moment for our next question.
Speaker Change: I appreciate the color. Thank you.
Speaker Change: Thank you one moment our next question.
William Sutherland: Our next question is from William Sutherland from The Benchmark Company. Your line is open. Thanks, operator. Hey, everybody.
Speaker Change: Our next question comes from the line of William Sutherland from the Benchmark Company. Your line is open.
William Sutherland: Thanks, Operator, hi, everybody.
William Sutherland: What do startup costs look like this year? And, you know, and then versus last year, that would be helpful. Thank you.
William Sutherland: What do startup costs look like this year.
William Sutherland: And.
William Sutherland: And then versus last year that would be helpful. Thank you.
William Sutherland: Yes.
Martin Jackson: Bill, this is Marty. Good morning. The starting losses are relatively the same from last year to this year. and nothing special in the court today. Okay.
Marty Jackson: Bill This is Marty.
Speaker Change: Good morning, the startup losses are relatively the same from <unk>.
Marty Jackson: Last year to this year.
Speaker Change: Okay.
Speaker Change: Nothing special in the quarter Okay.
Robert Ortenzio: And then on, I'm a little confused on the impact. High-Cost Outlier and Transmittal Rule in the sense that, in terms of how it's impacting guidance. So you have this big impact, particularly in the first two months of the quarter. that I think, Bob, you said that March was, you were finishing up the year in March was, I mean, the quarter with March even a little ahead of plan. So is this guidance change just reflect really the first two months of the year, particularly for LTAC? Yeah, well, the first two, it was actually like the first six weeks, we saw a slow first six weeks.
Speaker Change: Yes.
Speaker Change: Yeah.
Speaker Change: I'm a little confused.
Speaker Change: The impact.
Speaker Change: The high cost outlier and transmittal rule.
Speaker Change: In the sense that in terms of how it's impacting items.
Speaker Change: So you have this big impact, particularly in the first two months of the quarter.
Robert Ortenzio: And I think Bob you said that March was.
Robert Ortenzio: We're finishing up the year and March was the quarter with March even a little ahead of plan.
Robert Ortenzio: So as described change just reflects really the first two months of the year, particularly for <unk>.
Robert Ortenzio: <unk>.
Robert Ortenzio: Okay.
Robert Ortenzio: Yes Bill.
Bill: The first two was actually like the first six weeks, we saw a slow.
Robert Ortenzio: versus what we typically see as far as the flu is concerned. We saw that pick up, the balance of the quarter. That's basically what we were talking about. As far as the high-cost outlier, high-cost outlier, as I mentioned earlier, you know, on a year-over-year basis, there was about a 100% increase in the High Cost Outlier. So that's what's going on. If you take a look, what we've seen, right, we've seen an increase. of almost 100%, you know, from 23. We saw an increase from 38,000 to 57,000, I believe, is it? $59,000. And then we saw an increase from the $59,000 up to $77,000.
Robert Ortenzio: First six weeks.
Bill: Versus what we typically see as far as the flu is concerned we.
Robert Ortenzio: We saw that pick up.
Robert Ortenzio: The balance each quarter.
Robert Ortenzio: That's basically what we're talking about.
Robert Ortenzio: As far as the high cost outlier.
Robert Ortenzio: The outlier.
Robert Ortenzio: As I mentioned earlier on a year over year basis, there was about a 100% increase in the <unk>.
Robert Ortenzio: In the.
Robert Ortenzio: High cost outlier.
Robert Ortenzio: So again.
Robert Ortenzio: Well if you take a look what we've seen we've seen an increase.
Robert Ortenzio: Of.
Almost 100%.
Robert Ortenzio: 'twenty three we saw an increase from 38000 to 57000 I believe.
Robert Ortenzio: 59000.
Robert Ortenzio: And then we saw an increase from the 59000 up to $77000.
Robert Ortenzio: We did a pretty good job with this last year, and we're going through that right now. Our operators, again, doing a very good job, the best job that they can. But those increases are very, very significant. Right. No, I get it. Okay.
Robert Ortenzio: We did a pretty good job with this last year and.
Robert Ortenzio: We're going through that right now.
Robert Ortenzio: Our operators again doing a very good job the best job that they can.
Robert Ortenzio: But those increases are very very significant.
Robert Ortenzio: Yeah.
Robert Ortenzio: Right no I get it okay.
Robert Ortenzio: And then lastly, in outpatient rehab, update us, if you can, on some of the initiatives you've got in place to improve the margins of the business. The initiatives are... I mean, a couple of those. We've talked, I think, over the last two or three quarters about the change that we're making in our technology. And we have rolled that out in the first quarter. We are seeing some benefits from that. We continue to have additional releases. on that software, we think we'll continue to see those benefits expand throughout the year. And from a contracting perspective, you know, we continue to see some nice increases.
Robert Ortenzio: And then lastly in outpatient rehab.
Robert Ortenzio: Update us <unk>.
Robert Ortenzio: Can on some of the initiatives you put in place to improve the margins.
Robert Ortenzio: <unk>.
Robert Ortenzio: The initiatives.
Robert Ortenzio: I mean, a couple of those that we've talked I think over the last two or three quarters about the.
Robert Ortenzio: The change that we're making in our technology.
Robert Ortenzio: And we have rolled that out in the first quarter.
Robert Ortenzio: We are seeing some benefits from that we continue to have additional releases.
Robert Ortenzio: On that software, we think we'll continue to see those benefits expand throughout the year.
Robert Ortenzio: And in the contract.
Robert Ortenzio: And from a contracting perspective.
Robert Ortenzio: We continue to see some nice increases.
Robert Ortenzio: you know, in the range of four to six percent, so on the commercial side. So you've got these progressive, you know, these steady improvements kind of baked into your expectations then in the guide. Yes, we do. That's all.
Robert Ortenzio: Okay.
And the range of four 4% to 6% so on the commercial side.
Robert Ortenzio: Okay.
Robert Ortenzio: So you've got these progressive.
Robert Ortenzio: These steady improvements kind of baked into your expectations then.
Robert Ortenzio: On the guide.
Robert Ortenzio: Yes, we do.
Robert Ortenzio: Okay.
William Sutherland: I'll jump off. Thanks.
Robert Ortenzio: That's all.
Robert Ortenzio: I'll jump off thanks, guys.
Robert Ortenzio: Thanks.
Operator: One moment for our next question.
Robert Ortenzio: One moment for our next question.
Anne Hines: Our next question will come from Anne Hines from Missouho. Your line is open. Hi, thank you.
Speaker Change: Our next question will come from the line of Ann Hynes from Mizuho. Your line is open.
Anne Hines: Maybe we can shift to IRF. Obviously, that was the shining star on the quarter. Is there any plans to actually, I know you're accelerating growth a lot, is there any plans to even accelerate it more to further diversify your business away from LTAC, given the regulatory challenges? And I guess like internally, how much capacity can the organization support for that growth? Thanks. Yeah, thanks, Anne. On the development side, I think it's important to note that all the projects that we listed or that I talked about in my prepared remarks, those are projects that are signed under construction and will open.
Ann Hynes: Hi, Thank you maybe we can shift obviously that was the strength during the quarter.
Any plans to actually I know you are excelling.
Ann Hynes: Accelerating growth a lot is there any plans to even accelerate that move out of further diversify your business away from <unk>.
Ann Hynes: Ill talk given the regulatory challenges.
Ann Hynes: And I guess like internally, how much capacity can the organization supports for that growth. Thanks.
Ann Hynes: Yes, thanks and on the.
Ann Hynes: On the development side I think it's important to note that all the projects that we that we listed our that I talked about it.
Ann Hynes: In my prepared remarks, those are projects that are signed.
Ann Hynes: Under construction in <unk>.
Robert Ortenzio: It doesn't include all the other projects that are in our pipeline that will be signed, will be committed to, and some of those could come in along those same timeframes. So the short answer to your question is yes, there is more of an acceleration going on than even that you would see to drive more robust growth on the rehab side.
Ann Hynes: <unk>.
Ann Hynes: And we'll open it doesn't include all of the other projects that are in our pipeline that.
Ann Hynes: We'll be signed will be committed to and some of those could come in along those same timeframe. So.
Ann Hynes: The short answer to your question is yes, there is more of an acceleration going on than even that you would see.
Ann Hynes: To drive.
Ann Hynes: More robust growth on the rehab side.
Ann Hynes: Okay.
Robert Ortenzio: Okay, great. Thanks.
Anne Hines: And my second question would just be, just on the CMS front, obviously, for the industry, the outlier and the transmittal rule is a pressure point. What type of advocacy do you have at CMS just to help the industry try to offset some of these pressures? Well, you got to remember that the that the new CMS team is just so recently installed. I mean, the new CMS administrator was just confirmed a couple couple weeks ago. So it's it's very early for them to be in place and to get their, you know, hands dirty on all the policies.
Speaker Change: Okay, great. Thanks, and my second question would just be just on the CMS front, obviously for the industry the outlier in the trends.
Ann Hynes: Well, it's a fresh plant or whatever but what type of efficacy you have it.
Speaker Change: Yeah.
Speaker Change: <unk>.
Speaker Change: The industry had to offset some of these pressures.
Speaker Change: Well you got to remember that the that the new CMS team is just so recently installed the new CMS administrator was just confirmed a couple couple of weeks ago. So.
Speaker Change: It's very early for them to be in place and to get there.
Speaker Change: Hands Dirty on all of the policies.
Robert Ortenzio: And they have obviously a lot of things going on that we can assume are bigger issues than the LTACH space, not even including what's being talked about by Medicaid and all the issues with Medicare Advantage. And so it would be presumptuous of me to think that we could be moved to the top of their list. But, you know, we have a policy of always engaging with CMS. We did with the last CMS administration, not with a lot of great success on these policies. So I'm optimistic that maybe we can do better under the new administration.
Speaker Change: They have obviously a lot of things going on that.
Speaker Change: We can assume our bigger issues than the L tax space.
Speaker Change: Not not even including whats being talked about by Medicaid and all the issues with Medicare advantage and so.
Speaker Change: It is presumptuous of me to think that we could be moved to the top of their list but.
Speaker Change: We have a policy of always engaging with CMS.
Speaker Change: We did with the last CMS administration.
Speaker Change: Not with a lot of great success on these policies and so on.
Speaker Change: Optimistic that maybe we can do better under the new administration.
Operator: Great, thank you. Thank you. I'm not showing any other questions in the queue.
Speaker Change: Great. Thank you.
Speaker Change: Thank you.
Speaker Change: I'm not showing any other questions in the queue I would now like to turn call back over to Mr. <unk> for closing remarks.
Robert Ortenzio: I would now like to turn the call back over to Mr. Ortenzio for closing remarks. Yeah, no closing comments. Thanks, everybody, for being with us and working through our quarter. Look forward to updating you next quarter.
Speaker Change: No closing comments, thanks, everybody for.
Speaker Change: Being with us and working through our our quarter look forward to updating you next quarter.
Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone have a great day. Music
Speaker Change: Okay.
Speaker Change: Thank you for your participation in today's conference. This does conclude the program you may now disconnect everyone have a great day.
Speaker Change: Okay.
Speaker Change: [music].