Q2 2025 Community Health Systems Inc Earnings Call
Operator: second quarter 2025 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal conference specialist by pressing the star key followed by zero.
Operator: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your touch-tone phone. And to withdraw your question, please press star then 2. Please note this event is being recorded.
Good day and welcome to the Community Health Systems. Second quarter 2025 earnings conference call. All participants will be in a listen-only mode. Should you need assistance? Please signal conference specialist by pressing the star key followed by zero.
After today's presentation, there will be an opportunity to ask questions.
Anton Hie: I would now like to turn the conference over to Mr. Anton Hie, Vice President of Investor Relations. Please go ahead, sir. Thank you, Chuck.
To ask a question, you may press star then 1 on your touchtone phone and to withdraw your question please press star then 2. Please note. This event is being recorded. I would now like to turn the conference over to Mr. Anton, High vice, president of investor relations. Please go ahead sir.
Tim Hingtgen: Good morning, and welcome to Community Health Systems Second Quarter 2025 Earnings Conference Call. Joining me on today's call are Tim Hingtgen, Chief Executive Officer, and Kevin Hammons, President and Chief Financial Officer. Before we begin, I must remind everyone this conference call may contain certain forward-looking statements, including all statements that do not relate solely to historical or current facts. These forward-looking statements are subject to a number of known and unknown risks, which are described under headings such as risk factors in our annual report on Form 10-K and other reports filed with or furnished to the FDA.
Speaker Change: Thank you Chuck. Good morning and welcome to Community Health Systems. Second quarter 2025 earnings conference. Call joining me on today's call are Tim Henson, chief executive officer and Kevin Hammond's president and Chief Financial Officer. Before we begin I must remind everyone. This conference call may contain certain 4 looking statements including all statements. That do not relate solely to historical or current facts.
Tim Hingtgen: Actual results may differ significantly from those expressed in any forward-looking statements in today's discussion. We do not intend to update any of these forward-looking statements.
Tim Hingtgen: 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. All calculations we will discuss today exclude gains from early extinguishment of debt, impairment gains or losses on the sale of businesses, and expense from business transformation.
Speaker Change: These 4 looking statements are subject to a number of known and unknown risks, which are described under headings such as risk factors and our annual report on form 10K and other reports filed with, or furnished to the FBC. Actual results May differ. Significantly from those expressed in any 4 looking statements. In today's discussion, we do not intend to update any of these 4 looking statements.
Tim Hingtgen: With that said, I'll turn the call over to Tim Hingtgen, Chief Executive Officer. Thank you, Anton.
Speaker Change: Yesterday afternoon, we issued a press release with our financial statements and definitions and calculations of adjusted Aveda and adjusted EPS. We've also posted a supplemental slide presentation on our website. All calculations we will discuss today, exclude games from early extinguishment of debt, impairment, gains or losses on the sale of businesses and expense from trans business transformation costs.
Tim Hingtgen: Good morning, everyone, and thank you for joining our second quarter 2025 conference call.
Tim Hingtgen: Before we get to the quarter's results, I want to address the announcement made yesterday afternoon that I've decided to retire at the end of September. I'm stepping back from my role as CEO for personal reasons, the most important one being that I want to dedicate more time to my family and personal pursuit. While I have loved the opportunity to serve as the leader of an organization that is devoted to helping people get well and live healthier, the job of CEO requires the highest degree of time, energy, and commitment, and my family has very generously supported me and my commitment to giving everything I have to leading this organization.
Speaker Change: With that said I'll turn the call over to Tim Henson chief executive officer. Thank you Anton. Good morning, everyone and thank you for joining our second quarter 2025 conference call.
Tim Henson: before we get to the quarter's results, I want to address the announcement made yesterday afternoon, that I decided to retire at the end of September,
Tim Henson: I'm stepping back from my role as CEO for personal reasons. The most important 1 being that, I want to dedicate more time to my family and personal Pursuits,
Tim Hingtgen: I've been thinking about that a lot this year. I want to be more present for them at this stage in my life and at this stage in theirs. I also have some personal pursuits that I want to explore while I'm still young enough and eager enough to try new things.
Tim Henson: And while I have loved the opportunity to serve as a leader of an organization that is devoted to helping people get well and live healthier, the job of CEO requires the highest degree of time energy and commitment. And my family has very generously supported me and my commitment to giving everything I have to Leading this organization.
Tim Henson: I've been thinking about that a lot this year, I want to be more present for them at this stage in my life and at this stage in theirs,
Tim Hingtgen: This is not a decision that was made easily or quickly or without regard to what's best for CHS. I wrestled with whether to retire and when to retire, in part out of a sense of loyalty to the organization, but even more than that, out of my sincere desire to continue to be a part of the progress happening in this company and the opportunities and achievements I still see ahead. Those will continue to happen under Kevin's leadership, I am sure. But after thinking about it a lot and consulting with my family, this is the appropriate decision.
Tim Henson: I also have some personal Pursuits that I want to explore while I'm still young enough and eager enough to try new things.
Speaker Change: This is not a decision that was made easily or quickly or without regard to what's best for CHS.
Speaker Change: I wrestled with whether to retire and when to retire and part out of a sense of loyalty to to the organization but even more than that, out of my sincere, desire to continue to be a part of the progress happening in this company and the opportunities. And achievements, I still see ahead.
Speaker Change: Those will continue to happen under Kevin's leadership. I am sure.
Tim Hingtgen: Let's call it a difficult, honest, and for me, a necessary choice. I'll be here through the end of September to support a seamless transition, but truthfully, Kevin could step into the role of CEO today, and things would be just fine. He knows CHS as much as anyone, and he cares deeply about our company, our people, and the patients who choose and rely on CHS health systems for their medical care.
Speaker Change: But after thinking about it a lot and Consulting with my family, this is the appropriate decision. Let's call it a difficult honest and for me and necessary choice.
Tim Hingtgen: I want to thank the CHS board for their faith in me, and the CHS team for the privilege of being their leader, and thank you to our investors for your confidence in CHS.
Speaker Change: I'll be here to the end of September to support a seamless transition and truthfully, Kevin could step into the role of CEO today and things would be just fine. He knows CHS as much as anyone and he cares deeply about our company, our people, and the patients who choose and rely on CHS health systems for their medical care.
Tim Hingtgen: So now with that, let me make just a few brief remarks about the quarter, and then Kevin will add quite a bit more detail and color about our results and what we see ahead, including potential impact from the Big Beautiful Bill. In the second quarter, on a same-store basis, net revenue increased 6.5 percent year-over-year. Inpatient admissions were up three-tenths of a percent, and adjusted admissions declined seven-tenths of a percent, with a 2.5 percent decline in surgery and a 1.9 percent decline in ER visits. While patient volumes were lower than expected and hampered our overall earnings results, we are confident that our past development and capital investment strategies have positioned CHS health systems very well to capture patient demand once consumer confidence returns, and it always has.
Speaker Change: CHS.
Speaker Change: So now with that, let me make just a few brief remarks about the quarter and then Kevin will add quite a bit more detail and color about our results. And what we see ahead, including potential impact from the big beautiful bill.
Speaker Change: In the second quarter on the same store basis, net revenue, increased 6.5% year-over-year.
Speaker Change: In patient admissions were up 3/10 of a percent and adjusted admissions declined, 7/10 of a percent, but the 2.5% decline in surgery and a 1.9% decline in ER visits.
Tim Hingtgen: Our development strategies include physical capacity and service line expansion with a balanced focus on both inpatient and outpatient care, and we are intentional about broadening the footprint of our health systems through the ongoing recruitment of primary care, specialty physicians, and other providers. Specifically, through our year-to-date recruitment activities, we have over 200 providers currently scheduled to commence in the second half of 2025, including backfilling for the departure of certain independent specialists. We have a strong clinic services operations team and we are committing significant resources towards ensuring the successful and rapid ramp-up of our newest providers. Recent service line and capacity expansions in Knoxville, Naples, Laredo, Birmingham, and other key markets continue to ramp up and gain market share, and we have several new outpatient access points set to open in the coming months, including new ambulatory surgery centers in our Birmingham, Foley, and Tucson markets.
Speaker Change: While patient volumes were lower than expected and hampered our overall earnings results. We are confident that our past development and capital investment strategies have positioned CHS Health Systems very well to capture patient demand once consumer confidence returns and it always has
Speaker Change: Our development, strategies include physical capacity, and service line expansion with a balanced. Focus on, both inpatient and outpatient care and we are intentional about broadening the footprint of our health systems through the ongoing recruitment of primary care, Specialty, Physicians, and other providers.
Speaker Change: Specifically through our year-to-date recruitment activities. We have over 200 providers, currently scheduled to commence in the second half of 2025.
Speaker Change: Including back building for the departure of certain independent specialists.
Speaker Change: We have a strong Clinic Services operations team and we are committing significant resources resources towards ensuring the successful and Rapid ramp up of our newest providers.
Speaker Change: Recent service line and capacity. Expansions in Knoxville Maples, Laredo Birmingham and other key markets, continue to ramp up and gain market, share, and we have several new outpatient access points set to open in the coming months, including new Ambulatory Surgery centers in our Birmingham, full.
Tim Hingtgen: Today, CHS operates more than 40 ASCs, a critical component of our market growth strategy, and is being well-positioned to grow and serve consumer demand. We also continue to make progress on other strategic initiatives.
Speaker Change: Tucson markets.
Speaker Change: Today, CHS operates more than 40 afc's, a critical component of our market growth strategy, and to being well, positioned to grow and serve consumer demand.
Tim Hingtgen: Since our last earnings call in April, we completed the divestiture of Cedar Park Regional Medical Center in Texas. We will continue to improve our maturity and leverage profile through successful debt refinancing and retirement transactions.
Kevin Hammons: Now I'll turn the call over to Kevin, and as I do, I just want to once again express my full confidence in his upcoming leadership of Community Health Systems. Kevin? Thank you, Tim, and good morning.
Speaker Change: We also continue to make progress and other strategic initiatives. Since our last earnings call in April, we completed the death. Me of Cedar Park. Regional Medical Center in Texas and continue to improve our maturity and leverage profile through successful debt refinancing and retirement transactions.
Kevin Hammond: Now, I'll turn the call over to Kevin and as I do, I just want to once again, express my full confidence in his upcoming leadership of Community Health Systems. Kevin
Kevin Hammond: Thank you, Tim and good morning everyone.
Kevin Hammons: Before I begin with the review of financial and operating results, I'd like to thank the I want to take a moment to acknowledge Tim's contributions to CHS over the past 17 years. since joining the company in 2008. Tim has brought an invaluable amount of experience and insight into our organization. and has been instrumental in leading the development of regional healthcare networks across the country. His long track record of success as an operator, his leadership qualities, and his natural way with people have been an asset to CHS and all of our teammates, from us here at the corporate headquarters and throughout our entire organization.
Speaker Change: Before I begin with the review of Financial and operating results.
Speaker Change: I want to take a moment to acknowledge Tim's contributions to CHS over the past 17 years.
Speaker Change: since joining the company in 2008,
Speaker Change: Tim has brought an invaluable amount of experience. Insight into our organization and has been instrumental in leading, the development of regional Healthcare networks across the country.
Speaker Change: Kim's long track record of success, is an operator, his leadership qualities. It is naturally with people that have been enacted to CHS in all of our teammates from us here at the corporate headquarters and throughout our entire organization.
Kevin Hammons: For me personally, Tim, I want to say that it's been my pleasure to have been your partner here. to serve alongside you as your CFO. I believe I can speak for everyone when I wish you the best.
Speaker Change: For me personally Tim I want to say that it's been my pleasure to have been your partner here at CHS and to serve alongside you as your CFO.
Speaker Change: I believe I can speak for everyone when I wish you the best in your future endeavors.
Kevin Hammons: Turning to the results for the second quarter. CHF executed well on many of the controllable aspects of our business. such as supplies expense. wage rate growth, and overhead.
Speaker Change: Turning to the results for the second quarter.
Speaker Change: CHF executed well on many of the controllable aspects of our business.
Speaker Change: Such as supplies expense.
Kevin Hammons: However, we believe that external factors have affected the demand for healthcare services across our markets over the past few months. Last quarter, we noticed some deterioration in our acuity mix versus expectation. with software demand for elective surgery. in our commercial book. While we had expected the MIPS profile to improve with the typical seasonal factor of commercial patients meeting their deductibles, and the slew volumes dropped. This improvement did not materialize in the second quarter as expected. which led to some loss of operating leverage and slight degradation at even operating costs. year-over-year, and versus our four...
Speaker Change: Wage rate growth and overhead costs.
Speaker Change: However, we believe that external factors have affected the demand for healthcare services, across our markets over the past few months.
Speaker Change: Last quarter, we noted some deterioration in our Acuity mix versus expectations with softer demand for elective surgical procedures within our commercial book.
Speaker Change: While we had expected the mixed profile to improve with the typical seasonal factor of commercial patients, meeting their deductibles, and a slew volumes dropped off this Improvement. Did not materialize in the. Second quarter is expected.
Speaker Change: Which led to some loss of operating leverage in slight degradation and even on margin year-over-year and versus our forecasts.
Kevin Hammons: Despite the adverse volume and mixed profile, CHS continued to make good progress. Thank you.
Speaker Change: Despite the adverse volume and mixed profile. CHS continued to make good progress in strategic strategic initiatives. This Tim noted in his prepared remarks
Kevin Hammons: On June 30th, we completed previously announced divestiture of our 80% ownership in Cedar Park Regional Medical Center. to the minority partner, Ascension Health, for $436 million. And in May, we successfully refinanced all 700 million of our outstanding... 8% Senior Secured Note. using proceeds from our offering of a new 10.75% Senior Secured Medicare. and also tendered and redeemed $584 million in principal value of our outstanding 2028 unspecified... 438 million.
Speaker Change: And in may we successfully refinanced. All 700 million of our outstanding. 8% senior secured notes due 2027 using proceeds from our offering of a new 10.75% senior secured notes due for 2033.
And also tendered and redeemed, 584 million principal value of our outstanding 2028, unsecured notes, using 438 million in cash on hand.
Kevin Hammons: Turning back to operating results for the second quarter, St. Stornet revenue increased 6.5% year-over-year. It was primarily driven by rate growth, including the recognition of revenue under Medicaid state-directed payment programs in New Mexico and Tennessee. related to prior. Same-store inpatient admissions increased 0.3% year-over-year, while adjusted admissions declined 0.7%. Same store surgeries declined 2.5% and ED visits were down 1.9%. Adjusted EBITDA for the second quarter was $380 million, compared with $387 million in the prior year period. and included approximately $75 million in net contributions. from the recently approved state-directed payment programs in New Mexico and Tennessee.
Speaker Change: Turning back to operating results for the second quarter, same store, net revenue, increased 6.5% year-over-year.
And was primarily driven by rate growth, including the recognition of Revenue under Medicaid, State directed payment programs in New, Mexico and Tennessee.
A portion of which was related to our periods.
Speaker Change: Same store, inpatient admissions increased 0.3% year-over-year.
Speaker Change: while a judgement admissions declined, 0.7%
Speaker Change: same store, surgery, declined, 2.5% and ee visits were down 1.9%
Speaker Change: Adjusted to be, but I for the second quarter was 380 million compared with 387 million in the prior year period.
Speaker Change: And included approximately 75 million in net contribution from the recently approved, State directed payment programs in New, Mexico and Tennessee.
Kevin Hammons: Margin for the second quarter was 12.1% versus 12.3% in the prior year.
Speaker Change: Argent for the second quarter was 12.1%, versus 12.3% in the prior year.
Kevin Hammons: Turning to expense management, we continue to perform well on labor. with an approximate 4% year-over-year increase in average hourly wages. which was consistent with our range of expected growth for the year, and again, includes the impact from significant growth in the number of employed physicians. which was consistent with our expectations. Contract labor expense at $40 million was down approximately $5 million year-over-year on a consolidated... and with FLAT Sequential. We also continue to perform well on supplies. which was down year over year, and when adjusting for the impact. The new FDP programs in New Mexico and Tennessee was essentially flat as a percentage of net revenue with the prior year period.
Speaker Change: Turning to expense management. We continue to perform well on labor cost.
Speaker Change: With an approximate 4% year-over-year increase in average hourly wage rate, which was consistent with our range of expected growth for the year. And again, includes the impact from significant growth in the number of employed Physicians, which was consistent with our expectations.
Contract labor expense at 40 million was down approximately 5 million year-over-year on a Consolidated basis and was flat sequentially.
Kevin Hammons: We believe there remain opportunities in this area as we stabilize and mature our new process. with our VR. Medical specialist fees were 152 million in the second quarter, essentially flat year over year on a consolidated and representing 4.9% of net revenue. consistent with the prior year period.
Which was down year-over-year and when adjusting for the impact from the new sdp programs in New Mexico. And Tennessee, was essentially flat as a percentage of net revenue with the prior year period.
We believe there remain opportunities in this area as we stabilize and mature our new processes with our Erp.
Speaker Change: Medical specialist fees were 152 million in the second quarter. Essentially flat year-over-year on a Consolidated basis and representing 4.9% of net revenues consistent with the prior year period.
Kevin Hammons: We have flows from operations for $87 million for the second quarter and $208 million for the year to date. Note that cash flows from operations, as reported, include $74 million in outflows. for Taxes on Gain on Sale, primarily for the Lake Norman and Shorepoint transactions. which were paid out of divestiture proceeds and were not considered in our annual guide. When excluding this figure, our cash flows from operations were $282 million for the year to date. Street Cash Flows for the second quarter were marginally positive.
Speaker Change: Cash flows from operations, for 87, million, for the second quarter, and 208 million for the year to date.
Speaker Change: No, the cash flows from operations as reported include 74 million in outflows for taxes on gain on sale, primarily for the lake Norman's, and shortpoint transactions.
Speaker Change: Which were paid out of domestic or proceeds and were not considered in our annual guide.
Speaker Change: When excluding this figure, our cash flows from operations were 282 million for the year to date and free cash flows for the second quarter were marginally positive.
Kevin Hammons: Note that the funds from the new state-directed payment programs in New Mexico and Tennessee likely beginning to flow in the third quarter. And the company should also see positive free cash flow in the back.
Kevin Hammons: Additionally, we anticipate receiving the previously discussed contingent consideration related to the Tenova Cleveland divestiture and the proceeds from the sale of our reference lab. to LabCorp by the end of this year.
Note that the funds from the new state directed payment program to New, Mexico and Tennessee, likely beginning to flow in the third quarter. And the company should also see positive free, cash flow in the back, half of the year.
Additionally, we anticipate receiving the previously. Discussed contingent consideration related to the Tennova. Cleveland deve in the proceeds from the sale of our Reference Lab business.
Speaker Change: Uh, to labcore by the end of this year.
Kevin Hammons: We have received many inquiries from the investment community about the financial impact from the recently signed budget reconciliation for One Big People bill. Based on our analysis, impacts to state-directed payment. will be phased in beginning in 2027 through 2038. We project the combined impacts from lowering the provider tax threshold and the phase-down to Medicare-linked rates across CHS states will reduce EBITDA by approximately $300-350 million cumulatively. over the next 13 has no impact. and in material impact. and then building. Our estimate reflects the estimated net production relative to total Medicaid reimbursement. based on current Medicaid reimbursement rates.
We have received many inquiries from the investment Community, about the financial impact from the recently signed budget reconciliation for 1, big beautiful bill act.
Speaker Change: Based on our analysis, impacts to State directed payment, programs will be faced in beginning, in 2027, through 2038.
Speaker Change: We project the combined impacts from lowering the provider, tax threshold, and the phase down to Medicare link rates across CHS States. We'll Reduce ibida by approximately 300 to 350 million, cumulatively over the next 13 years with no impact in 2025 or 2026.
Speaker Change: and in, in material impact, in 2027 and then building from there,
Speaker Change: our estimate reflects the estimated net reduction, relative to Total Medicaid reimbursements, based on current Medicaid, reimbursement rates,
Kevin Hammons: Our analysis does not take into account any impact from Medicaid work. or the various provisions that could affect enrollment. expiration. The C's are much more difficult. Additionally, this analysis does not assume any... due to the uncertainties of how those monies will be distributed. nor do we assume any mitigating factors from expanded...
Account, any impact from Medicaid work requirements or the various Provisions. That could affect enrollment in ACA plans such as expiration of the extended tax credits. Since these are much more difficult to predict.
Kevin Hammons: cost reduction. Potential service line. Strategic Investments, or other actions that we may make in order to offset.
Speaker Change: Additionally, this analysis does not assume any benefit from the proposed rule fund due to the uncertainties of how those monies will be distributed nor do we assume any mitigating factors from expanded STP programs. Cost reductions potential service line changes, strategic Investments or other actions that we make make in order to offset the financial impact of CHS
Kevin Hammons: In the upcoming months, CHS will support industry efforts to aggressively pursue legislative and administrative fixes. We assume the opportunities to do so will increase as voters better understand how to cut back.
in the upcoming months, CHS will support industry efforts to aggressively pursue legislative and administrative fixes to the bill
Speaker Change: We assume the opportunities to do so will increase as voters better understand how the country.
Their household.
Kevin Hammons: On the subject of the Budget Reconciliation Act, I think it is also important to note that the interest deduction Section 163J of the IRS Act. which we have discussed on several occasions in the past, was restored, which will increase the amount of interest CHS can deduct for tax payers. and along with the Accelerated Depreciation Provision. will have the benefit to us of lowering our annual cash tax.
On the subject of the budget reconciliate reconciliation act. I think it is also important to note that the interest deduction under section 163j of the IRS code, which we have discussed on several occasions in the past was restored, which will increase the amount of Interest CHS can deduct for tax purposes.
Kevin Hammons: by approximately $40 to $60 million beginning next I'm moving on to our 2025 financial guide. Based on our operating results through the first half and the lower-than-expected volume growth heading into the third quarter. combined with the impacts in the second half of the year from the recently completed Cedar Park divestment. and the new state-directed payment. We are tightening our adjustability. for the full year 2025. $1.45 to $1.55 billion. Well, we are pleased to receive the additional funding in New Mexico. will be helpful to maintain service lines in the market. We believe it is proof. take a more conservative approach to the underlying business, given the impact from macro factors that we have observed.
Speaker Change: And along with the accelerated depreciation Provisions, we'll have the benefit to us, of lowering our annual cash taxes by approximately 40 to 60 million beginning next year.
Speaker Change: Now, moving on to our 2025 Financial guidance.
Based on our operating results. Through the first half of the year, and the lower than expected volume growth heading into the third quarter.
Speaker Change: combined with the impacts in the second half of the year for the Recently completed Cedar Park de
Speaker Change: We are tightening our adjusted e but our range for the full year 2025 to 1.45 to 1.55 billion dollars.
Speaker Change: but we are pleased to receive the additional funding in New Mexico and Tennessee, which will be helpful to maintain service lines in the markets we serve
Speaker Change: We believe it is prudent.
Speaker Change: To take on taking more conservative approach to the underlying business given the impact. From macro factors that we have observed in the second quarter.
Operator: This concludes our prepared remarks, so at this time we will turn the call back over. Thank you.
Speaker Change: This concludes our prepared remarks. So at this time, we will turn the call back over to the operator for Q&A.
Operator: We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are 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. Please limit yourself to one question and one follow-up, and if you have further questions, you may re-enter the question queue.
Speaker Change: Thank you. We will now begin the question and answer session.
Speaker Change: to ask a question, you may press star then 1 on your touchtone phone,
Speaker Change: If you're using a speaker-phone, please pick up your handset before pressing the keys.
Speaker Change: if any time your question has been addressed and you would like to withdraw your question, please press star then to
Operator: And at this time, we'll pause momentarily to assemble our roster.
Speaker Change: Please limit yourself to 1, question in 1, follow up. And if you have further questions, you may reenter the question queue. And at that time, we'll pause momentarily to assemble our roster.
A.J. Rice: And the first question will come from A.J. Rice with UBS. Please go ahead. Hi, everybody. I want to just wish Tim best wishes going forward, and Kevin, congratulations.
Speaker Change: And the first question will come from AJ rice with UBS. Please go ahead.
Kevin Hammons: Maybe I'll ask about two items on the guidance. Volumes, obviously, it seems like those are coming in a little more sluggish than expected. To what extent did you make a tweak in your second half expectations if you did on volumes? And maybe talk about the dynamics you saw into a quarter. Was there any variation into a quarter on that?
Uh, hi everybody. Um, want to just wish Tim best wishes. Uh, going forward and Gavin. Congratulations. Um, maybe I'll ask about um, 2 items on the uh guidance. Um you, uh, volumes obviously seems like those are coming in a little more sluggish, uh, than expected to what extent did you make a
Kevin Hammons: And then also on the guidance, the operating cash flow. I know year-to-date your free cash flow, I think it's about 200 million. Our operating cash flow rose 200 million, and I think the guidance calls for 600 to 700 million. I know there's some unusual items, like the DPP program and the way you get paid for that. Can you just bridge this a little bit from what you've seen in the first half and how you get to that second half number?
Tweak in your second, half expectations, if you did on volumes and maybe talk about the Dynamics, you saw in in a quarter, was there any uh, variation in the quarter on that? And then on also on the guidance, the operating cash flow, I know, year to date your uh free cash flow. I think it's about 200 million, our operating cash flow, row is 200 million. Um, and I think the guidance calls for 600 to 7
700 million. I I know there's some unusual items, the DPP program and the way you get paid for that. Can you just Bridge us a little bit from what you see in the first half and how you get to that second half number?
Kevin Hammons: Thanks, AJ. Let me start off. In terms of volume, you know, inter-quarter, really if we go back to March, We began to see some decline in consumer confidence. https://www.healthysystemsinc.com April, May, and June, to the point where we're seeing now the lowest consumer confidence probably since COVID levels. So I'm not sure we saw, you know, a significant decrease kind of month over month, but certainly as the consumer confidence is a leading indicator. beginning to see some recovery in volume back to the prior levels, and as we look out into kind of this first part of July coming into the third quarter, although the levels are not where we had maybe originally anticipated, we are starting to see some stabilization.
Speaker Change: Uh, thanks AJ. Uh, let me start off in terms of volume. Um, you know, intra quarter really, if we go back to March, uh, of this of the first quarter.
Kevin Hammons: in our volumes relative to prior. If we look out over the course of the year where we had maybe originally Guided towards a 2-3% adjusted admission volume for the year. I think a new updated guidance would look more like 0-1% adjusted admissions for the year. Currently we're at 1% year-to-date.
We're taking that uh, into consideration. Uh, I will say that as we exited June, uh, we did see kind of the final week of June, uh, beginning to see some recovery in volume, uh, back to, uh, prior levels. Uh, and as we look at into kind of this first part of July coming into the third quarter, uh, although the levels are not where we had. Maybe originally anticipated. Uh, we are starting to see some stabilization in our volumes relative to Prior year. If if we look out over the course of the Year where we had maybe originally,
Kevin Hammons: So hopefully that gives you a little bit of color around the volumes.
Kevin Hammons: Cash Flow. As we think about our guide, it kind of remains the same. A couple things I'd point out. Our adjusted cash flow from operations... We reported $208 million, but that did include the $74 million cash tax payment on the gain on sale. That cash comes out of The Vector Proceeds, when you add that back in, cash flow from operations in the first half of the year is $282, which is almost halfway there for our full year guide, at least the low end of our full year guide, and typically our fourth quarter is by far the largest cash flow generating quarter of the year.
Speaker Change: Guided towards a 2 to 3%, adjusted admission volume for the year. I think a new updated guidance. Would look more, like, zero to 1% adjusted admissions for the year, currently. We're at 1% year to date. Uh, so hope hopefully that gives you a little bit of of color around. Uh, the volume Trends, cash flow.
Speaker Change: As we think about our our guide kind of remain the same couple things I'd point out.
Speaker Change: Our adjusted cash flow from operations and you know we reported 208 million uh but that did include the 74 million cash tax payment uh on the gain on sale uh that cash comes out of.
Kevin Hammons: The DPP programs that were approved in the second quarter in New Mexico and Tennessee, those were approved just in the final days of the quarter. We've not received any of that cash yet, so those payments will be coming in the back half. So with those payments and the historically better fourth quarter cash flow generation, we expect to be able to hit the range with effectively, or even a guidance, staying relatively flat from where we were at the beginning of the year. Our year-to-date cash flow, I think, will be positive in the back half.
Speaker Change: At the vesture proceeds when you add that back in uh cash flows from operations. In the first half of the year is 282 uh which is almost halfway there for our full year guide. At least the low end of our full year guide and typically uh our fourth quarter is by far the largest cash flow generating quarter of the year, the DPP programs that were approved in the second quarter and the next in Tennessee. Those were approved. Uh, just in the final days of the quarter, we've not received any of that cash yet. Uh, so those payments will be coming in the back half. So with those payments and the historically better fourth quarter cash flow generation. We expect to be able to hit the range, uh, with effectively or even a guidance thing, relatively flat from where we were at the beginning of the year. Um, and and, and our year to date cash flow, I think will be positive in the back half of the year as well.
Kevin Hammons: If I could just jump in with one follow-up. There have been some pending DPP programs that were relevant to you, Indiana, Alabama, and to a lesser extent, Florida, potentially topping up their program. Is there any update on the status of those in light of the one big beautiful bill?
If I could just jump in with 1 follow up uh there have been some pending DPP programs that were relevant to you Indiana Alabama and to a western extent Florida. Um,
Kevin Hammons: There is. So, Florida has submitted for an update to their rate under their existing program, that submission. in on time, and we would expect that to be approved, and there should be a small tailwind for us at the point in time that that gets approved. Indiana, likewise, has submitted their preprint to CMS for a new state-directed payment program which will replace their provider tax program that currently exists in the state. We would expect that to be, you know, a much more material benefit to us. That preprint was submitted before the deadline, and we fully expect that that one will also be approved.
Potentially up topping up their program. Is there any update on the status of those in light of the 1, big, beautiful bill.
Speaker Change: But there there is so Florida has submitted for an update to their rate under their existing program. Uh, that submission was in on time. Uh, and we would expect that to be approved and there should be a small Tailwind for us uh, at the point in time and that gets approved Indiana's likewise had submitted their preprint to CMS
Speaker Change: For a new state directed payment program, which will replace their provider tax programs, currently exist in the State. Uh, we would expect that to be, you know, a much more material benefit to us.
Kevin Hammons: We don't have the ability to really estimate the amounts, and we don't do that until those programs are approved. The Insight we have today, and given our footprint in the state of Indiana, we would expect that to be a material benefit. In terms of Alabama and Arkansas, you know, they are not that far along yet, but we understand there may still be a path for them. It's a little less clear to us at this point, but I know those states are still working on some of that.
Speaker Change: That preprint was submitted uh before the deadline uh and we fully expected that that 1 will also be approved. Uh, we don't have the ability to really estimate the amounts, uh, and we don't do that until those programs are approved. But
Speaker Change: Uh, the Insight. We have, uh, today and given our footprint in the state of Indiana, we would expect that to be a material benefit to us, uh, in terms of Alabama and Arkansas, you know. They, they are not that far along yet, but we understand. There may still be a path for them. Uh, it's a little less clear to us at this point, but I know those states are still working on some opportunities.
Operator: Okay, great.
Operator: Thanks so much.
Operator: Thank you.
Speaker Change: Okay, great. Thanks so much.
Thank you.
Brian Tanquilut: Your next question will come from Brian Tanquilut with Jeffreys. Please go ahead. Hey, good morning, guys.
Speaker Change: The next question will come from Brian tan. Quilet, with Jeffrey's please go ahead.
Kevin Hammons: And Tim, you know, congrats on the retirement. And Kevin, good luck. Maybe my first question, as we think about what the right run rate is for earnings to be thinking about given the DPP from the quarter, you know, I'm thinking like 305, is that the right way to think about it? Or maybe slightly higher than that, if we back out the prior period contribution from the Tennessee DPP. So if you just walk us through how we should be thinking about the right run rate for EBITDA going forward. For more information visit www.fema.gov Sure, Brian. Thank you.
Brian tan: Hey good morning guys. And Tim you know congrats on the retirement and then Kevin you know good luck um maybe my first question as we think about what the right run rate is for earnings to be thinking about giving the DPP from the quarter. You know I'm thinking like 305 is is that the right way to think about it? Or maybe slightly higher than that? If we back out the prior period uh contribution from the 10th to DPP. So if you just walk us through how we should be thinking about the right run rate for Eva going forward,
Kevin Hammons: 305, I think, is too low because that's really taking out the entire DPP money that we recognized this quarter. You would want to include the current period quarter portion of that, call that roughly $30 million, so starting at $335 million, but even at that point, volumes in the second quarter were really depressed, and we don't think that's the current run rate, particularly as I mentioned as we're exiting the quarter and seeing some visibility into some stabilization. I would say that the real run rate, in our mind, is probably something in the 360 to 375 as a starting point.
Brian tan: Sure, Brian, thank you. Um,
305. I think would be, we is is too low, um, because that's really taking out the entire
Kevin Hammons: And then as we get back to positive volume growth, and we believe, as Tim mentioned in his remarks, there are times when we go through periods where volumes seem to dry up, but they always come back. We believe that most of what happened this quarter was care that's being deferred for financial reasons, you know, the patient behavior, but that will come back. So kind of as a baseline starting point. and then opportunity to grow.
Call back roughly 30 million dollars so starting at 3:35 but even at that point uh, volumes in the second quarter were were really depressed and we don't think that's the current run rate. Uh, particularly as I mentioned, as we're exiting the quarter and seeing some visibility into some stabilization, uh, I would say that, you know, the the real run rate, uh, in our mind is probably something in the the 360 to 375 as a starting point. And and then as we get back to positive volume, uh, growth and, and we believe, as Tim mentioned in his remarks, you know, there are times when we go through periods, where, where volumes, you know, seem to dry up, but they always come back. We believe that most of what happened, this quarter was care that's being deferred uh, for financial reasons, you know, that that patient Behavior, Uh, but that will come back. So uh, kind of as a, a baseline starting point in the 360 to 375.
Brian tan: Range and then opportunity to, to grow from there.
Kevin Hammons: That makes sense. And then maybe Kevin, just to double click on your comment on the OBBVA impact, maybe if you can share with us just how you're thinking about that number, meaning like, you know, what assumptions go into that and or maybe how we should be thinking about kind of trying to build that ourselves. Yeah, I mean, there's some, you know, probably pretty complicated math behind those, but we really went through kind of state-by-state exercise taking a look at which states are expanding. Above the three and a half percent, those get ratcheted down. each year beginning in Got it.
Brian tan: That makes sense and then maybe Kevin just to double click on your comment on the obb, VA impact, maybe if you can share with us, just how you were thinking about that number meaning like you know what assumptions go into that and or maybe how we should be thinking about kind of trying to build that ourselves.
Speaker Change: Um, yeah. I mean, there's, there's some, you know, probably pretty complicated math, stuff behind those. But we really went through kind of states by State, uh, exercise taking a look at which states are expansion. States, which states are non-expansion states, ratcheting down, uh, both the rates, uh, Medicaid rate for where we have, you know, commercial average commercial rate down to Medicare. And then the states that are expansion States, uh, that have taxes
Speaker Change: You know, above the 3 and a half percent, those get ratcheted down, I think 50 basis Points each year. Uh beginning in 2028.
Operator: Thank you.
Speaker Change: Got it. Thank you.
Ben Hendrix: The next question will come from Ben Hendrix with RBC, please go ahead. Thank you very much. With the recognition of the DPP revenue from Tennessee and New Mexico, and then also the developments on the commercial elective weakness, maybe you can kind of just recap the bridge to the revised 2025 EBITDA guidance for us. Sure Ben, you know we started called the midpoint at $1.525 billion, if you add in, and that does not include any decrease. Pat in, call it $140 million of EPP monies for Tennessee and New Mexico, back out. from the divestiture of Cedar Park, roughly $70 million.
Finn Hendrix: The next question will come from Finn Hendrix with RBC. Please go ahead.
Finn Hendrix: Thank you very much, uh, with the, uh, recognition of the DPP revenue from Tennessee and New Mexico. And then also the developments on the, uh, commercial elective weakness, maybe you can kind of just recap, uh, the uh, bridge to to the revised 2025 Eva dog, guidance for us.
Finn Hendrix: Sure been, um, you know, we we, we started called the midpoint at the billion 525. Uh, if you add in and that does not include any of Tennessee, add in call it 140 million of DPP.
Finn Hendrix: Uh, monies for Tennessee and New Mexico. Uh, back out.
Kevin Hammons: is probably the miss in the second quarter, and then the remainder being kind of revision to the back half of the year.
Kevin Hammons: based off of our previous expectations to get us to our new guide of a billion files. Gotcha.
Finn Hendrix: Call at 20 to 25 from the destitute of Cedar Park. Uh, roughly 70 million, which is probably the, the myths, and the second quarter, and then the remainder being kind of revision to the back half of the year, uh,
Finn Hendrix: based off of our previous expectations, uh, to get us to our new guide of of a billion 5 at the midpoint
Kevin Hammons: And then just a follow-up on some of the mixed trends you're seeing. I know that payer mix has been a topic of discussion in recent quarters. I was just wondering if you could walk through the components of payer mix trend you're seeing, and then Medicare Advantage in particular, the type of growth you're seeing there. The biggest declines we had were... and surgical, and about half of those surgical declines were orthopedics. Most of the declines were primarily commercial, Blue Cross business. So that's where we're seeing, you know, the biggest headwinds, which certainly impacted our net revenue per adjusted mission, impacted the flow through to EBITDA, and also lens us to believe that.
Speaker Change: Gotcha. And then just a a follow up, I know uh on on some of the mixed Trends you've seen you're seeing I know that payer mix has been a topic of discussion and reason quarters. I was just wondering if you could uh walk through the components of payer mix Trend you're seeing uh and then Medicare Advantage in particular the type of growth uh you're seeing there
Speaker Change: Sure. The, you know, the biggest declines we had were
Speaker Change: in surgical, uh, and about half of those, surgical, surgical declines were Orthopedics, uh, most of the declines were primarily commercial Blue, Cross business
Speaker Change: So that that's where we're seeing, you know, the biggest, uh headwinds uh which certainly impacted our, our net revenue per adjusted Mission uh impacted the flow through the Eva and also lends.
Us to believe that.
Kevin Hammons: The consumer confidence and impact on household incomes and how people are spending their money making decisions in healthcare is really the true reason for some of the headwind on surgical and care delivery at this point. It's those patients who have the highest co-pays and deductibles that are being most impacted. I think even if you look at some other industry across the country where we're seeing consumers not spending money, they're discretionary individuals. on things. So, again, that's... that's the biggest declines. In terms of the exchange business, overall volume of exchange business was up, but acuity of exchange business was severely down, with the biggest component of that being surgery of exchange patients.
Speaker Change: Thing. So, uh, again that's
Kevin Hammons: So there again, let us... The same conclusion because most of the exchange contracts have some higher co-pays.
Speaker Change: That's the biggest declines in terms of the exchange business. Uh, overall volume of exchange business was up but Acuity of exchange business was severely down with the biggest component of that being surgeries, uh, of of exchange, uh, patients. So there again let us to to, uh, the same conclusion because most of the exchange contracts have some higher co-pays and deductibles
Operator: Thank you very much and congratulations to Tim on retirement and to Kevin and Jason on the appointments.
Thank you very much and congratulations to Tim on retirement and to Kevin and Jason on the appointments.
Speaker Change: Thanks Ben.
Jason Casorla: The next question will come from Jason Casorla with Guggenheim. Please go ahead. Great, thanks.
The next question will come from Jason cassorla with Guggenheim, please go ahead.
Kevin Hammons: Best of luck, Tim, in your retirement and congrats, Kevin. Maybe I just want to start on leverage. You've got some cash coming in in the second half. You've done some refinancing activity earlier this year, but are there other areas you're hoping to refinance at this point, maybe drive some incremental interest cost savings, whether debt takeout or otherwise, and kind of just follow to that? You're still about a little less than a turn and a half away from your below five and a half times leverage target, maybe only a turn when factoring the back half, cash generation, incoming proceeds, and payments, but perhaps can you just walk us through the remaining building blocks that get you toward that below five and a half target at this point?
Jason Cassorla: Uh, great. Thanks. Um. Um, best of luck to him in your retirement, and congrats Kevin. Um, maybe I just want to start on.
Jason Cassorla: Leverage, you've got some cash coming in in the second half. Um, you've done some refinancing activity, early this year, but are there other areas you're hoping to refinance at this point? Maybe drive some incremental, uh, interest cost savings. Um, whether debt take out or otherwise, and, and kind of just follow to that, you're, you're still, you know, about a little less than a turn and a half away from your, uh, below 5 and a half times, leverage Target. Uh, maybe only a, uh, you know, maybe only a a turn when factoring the back half. Cash, generation. Incoming proceeds and payments, but perhaps can you just walk us through the remaining building blocks?
Kevin Hammons: Thanks. Thank you. Yes, happy to walk through that. So right now, as we look at our debt stack, we've got some 2027s, a billion 750 million of 2027s that are our next current maturity. Those become current in March of 2026. And we've been pretty Deligent, over the years, or disciplined I should say, over the years of trying to make sure we take care of those deaths and not get too close to things becoming current. So that's top of our list of things we want. and get that debt pushed out. Now that debt currently has a coupon of five and 5.8%, probably a little bit lower than the market's going to absorb right now and we'll see a little bit of additional interest expense from that.
Jason Cassorla: That get you toward that uh below 5 and a half Target at this point. Thanks
Jason Cassorla: Thank you.
Speaker Change: Uh, we looked at our debt stack, we've got some 2027 a bill, 750 million of 2027, that are our next, current maturity. Uh, those become current in March of 2026 and we've been pretty
Kevin Hammons: But as we continue to make progress on some divestitures and chipping away at other pieces of debt, we'll have an opportunity to offset any of those. And that will be a great idea. That's in the area of $100 million. So we should be getting approximately $300 million coming in in the back half of this year. And then we're continuing to pursue some additional divestiture opportunities. There's a number of transactions that are in various stages. We're still getting some inbound interest. And we'll continue to look at that to manage our portfolio, not only where we believe we have the best opportunities to invest and to grow, but then also with some opportunities to invest in the future.
Speaker Change: Diligent, I mean, over the years of trying to her discipline, I should say, maybe, uh, over the years of trying, to make sure we take care of those debts and not get too close to things becoming current. So that's top of our list of things, we want to get, uh, handled and and get that depth pushed out. Now, that debt currently has a coupon of 5 and 58%, uh, probably a little bit lower than the Market's going to absorb right now, and, and we'll see a little bit of additional interest expense from that, but as we continue to make progress, uh, on some de bestes and chipping away, uh, if other pieces of debt, uh, we'll have an opportunity to offset any of those interests, uh, expense increases from the rate, uh, and, and continue to to lower our leverage. I, as, as we look out, you know, in the nearest term, uh, over the, the next couple quarters.
Kevin Hammons: both of which would help us de-lever. I think we've given that. goal of below five and a half times by 2027. So we've got a little bit of time, although time clicking away here, ticking away. But I would go back, and if you track our leverage over the last two years, we have consistently have been bringing it down over a two-year period. I'm fully confident we'll continue to make progress there and get to our goal. Got it. Okay, thanks. Helpful.
Speaker Change: I mentioned, we've got the proceeds coming in from the last Corp sale, which is almost $200 million and we have the contingent payment from the sales of Tova Cleveland, uh, which we should that that's in the area of 100 million dollars. So we should be getting approximately 300 million coming in in the back half of this year. Uh, and then we continuing to pursue some additional the vesture opportunities. Uh, there's a number of transactions that are in various stages. Uh, we're still getting some inbound interest and we'll continue to look at that, uh, to manage our portfolio. Uh, not only where we believe, we have the best opportunities to invest and to grow. Uh, but then also, with some opportunities to maybe devest put that money to other use, uh, whether that's directly paying down debt, or investing in some growth opportunities, both of which would help us to see lever. I think we've given that
Speaker Change: That goal of below 5 and a half times uh like 2027. So we got a little bit of time, although time, you know, clicking away here, uh, ticking away.
Speaker Change: But I would go back and if you track our our leverage over the last 2 years, we've consistently uh been bringing it down uh over a 2 year period. Um full of confidence will continue to make progress there uh and and get to our goal.
Kevin Hammons: And maybe just as a follow up, you know, on the heels of the LabCorp deal, obviously, a nice cash flow or cash inflow there. But maybe are there other opportunities for the enterprise that you're either evaluating to maybe outsource or maybe other non-core assets that you can look to offload that could drive that incremental cash or even EBITDA benefits at this point? Thanks. Great question. We continue to look at our business seeing where we can, you know, make little tweaks similar to what we did. Our outpatient reference lab business is something that was not a core competency.
Got it. Okay, thanks helpful and maybe just as a follow-up you know on the heels of the Lab Corp deal. Obviously a nice cash flow or cash inflow there, but maybe are there other opportunities, uh, for the Enterprise that you're either evaluating to maybe Outsource, or maybe other non-core assets that you can look to offload that could drive that incremental cash or even even up benefits at this point. Thanks.
Kevin Hammons: And I actually believe that by Completing this deal with LabCorp, we're going to provide a better experience for our physicians and also potentially get some savings to the company. We'll be using LabCorp almost exclusively for our reference lab and outsource business and we'll be getting better pricing where we had been using them sporadically in the past or other outsource services. We can move that to LabCorp at a better pricing going forward. We continuously look at our business. I don't know that we have anything currently in flight that I would call out as being something that we could monetize.
Speaker Change: We can, uh, you know, make little tweaks, uh, similar to what we did. Uh, our, our outpatient Reference Lab, uh, business is something that was not a core competency, uh, and I actually believe that by
Kevin Hammons: There are areas of our business that we consider as we grow and invest and develop that may be sources of revenue for us in the future and those are something that we're looking at and which could be margin accretive if we would decide to do that or get to a point where we think it's viable that we could sell some of that.
Uh, completing this deal with LabCorp, we're going to provide a better experience for our physicians and also potentially get some savings, uh, to the company. We'll be using Lab Corp almost exclusively, uh, for our Reference Lab, and, and Outsource business. And we'll be getting better pricing where we had been using them sporadically in the past or other outsourced Services. We can move that to Lab Corp, uh, it it a better price and going forward, we continuously look at at our business. I don't know that we have anything currently in Flight that I would call out as being something that we could monetize. Uh, there are areas of our business that we, you know, consider as we as we grow and invest, and develop that maybe sources of revenue for us in the future. Um, and, and those are some things that we're looking at, uh, in in which could be margin of creative. Uh, if we would decide to do that or or get to a point where we think it's
Speaker Change: It's viable.
Speaker Change: If we could uh, sell sell some services.
Operator: Okay, great, thank you.
Speaker Change: Okay, great. Thank you.
Andrew Mok: The next question will come from Andrew Mok with Barclays. Please go ahead. Hi, good morning. Wanted to follow up on volumes because I'm having a hard time reconciling the lower volumes that you're calling out with some of the callouts of accelerating cost trends from payers. Was there anything else you saw impacting volume trends beyond consumer confidence that might be more regional specific or anything on the policy front that you suspect is driving a hesitation to use the healthcare system? Thanks. Maybe the only other item I might call out, and it's admittedly difficult when patients don't come to your system to know exactly why they aren't coming and who those patients are when they're not showing up, but the other item that I would call out would be immigration and certainly in some of our markets that may have larger concentrations of the immigrant community in states like Arizona and Texas, possibly even Florida, there has been a well-documented instances of individuals in the immigrant community not participating in some normal everyday things, not going to church, school, going to the hospital, not going to concerts, doing things like that.
Speaker Change: The next question will come from Andrew Mo with barklay, please. Go ahead.
Hi. Good morning wanted to follow up on volumes because I'm having a hard time reconciling the lower volumes um that you're calling out with some of the call outs of accelerating cost. Trends from payers, was there anything else you saw impacting volume Trends Beyond consumer confidence? That might be more Regional specific or anything. On the policy front that you suspect is driving a hesitation to use the Healthcare System. Thanks.
Speaker Change: Maybe the only other item I might call out and, and it's, you know, admittedly difficult when patients, don't come to your system to know exactly why they aren't coming. And who those patients are when they're not showing up, but the other item that I would call out would be immigration. And and certainly in some of our markets that may have, uh, larger concentrations of the Immigrant Community, uh, in States, like Arizona and Texas, uh, possibly even Florida. Uh, there has been a well documented
Kevin Hammons: I know the hospitals are no longer considered a sanctuary location and there is concern even among immigrants with legal status that there's, you know, some fear in that community. That's likely caused, at least in some of our markets, some softness in the volume.
Speaker Change: Uh, instances of, uh, individuals in the Immigrant Community, not participating in some normal everyday, things not going to church, uh, School, uh, going to the hospital, not going to concert, uh, doing things like that. I know the hospitals, uh, are no longer considered a sanctuary location, uh, and there is concern even among, uh, immigrants with, uh, legal status, uh, that that there's, you know, some fear in that Community, uh, that's likely caused at least in some of our markets, some softness in the volumes,
Kevin Hammons: Great. Maybe just as a quick follow-up, appreciate all the color on the estimated impact of state-directed payments. Is there any way you can share thoughts for how the expiration of enhanced subsidies might impact your business next year? Thanks. That one's difficult to quantify in any real way. So, you know, I can say what we're doing relative to that is investing in some you know, with our, excuse me. Our lobbying efforts in Washington, and continue to work on that from a legislative standpoint, but in terms of quantifying, no, we don't have. Great, thank you.
Speaker Change: Great. Maybe just as a quick follow-up. Appreciate all the caller. On the estimated impact the state directed payments is there anyway, you can share thoughts for how the expiration of enhanced subsidies might impact your business next year. Thanks.
Speaker Change: That 1's difficult to, uh, quantify in, in, in, in any real way. So uh, you know, I I can say what we're doing relative to that is, is investing in some, uh, uh,
You know, with our um, excuse me.
Are lobbying efforts in Washington uh and and continue to work on that from from from a legislative standpoint. Uh, but in terms of quantifying know, we don't have an estimate at this point.
Great. Thank you.
Stephen Baxter: The next question will come from Stephen Baxter with Wells Fargo. Please go ahead. Hi, thanks. I just wanted to kind of continue the guidance bridge conversations to make sure that we understand kind of how you're carrying things forward. So I think the, you know, the items you're flagging was the $70 million underperformance on a core basis during the quarter, the $25 million for Cedar Hill. Did you give us the all-in increase to Medicaid supplemental program expectations? I think there's more than just 100 to, you know, maybe 120 that you kind of let on before. I'm just trying to really understand as we think about the back half of the year relative to the $70 million underperformance, I guess how much of that are you carrying through into this guidance revision that you made?
The next question, will come from Stephen Baxter with Wells, Fargo. Please go ahead.
Kevin Hammons: Thank you. Thanks, Stephen.
Stephen Baxter: Hi. Thanks. I just wanted to to kind of continue the the guidance Bridge conversation just to make sure that we understand kind of how you're carrying things forward. So I think the you know, the items you're flagging, was the 70 million underperformance in a core basis during the quarter, the 25 million for Cedar Hills um did you give us the all-in increase to Medicaid supplemental program, expectations. I think there's more than just the 100 to, you know, maybe 120 that you kind of, let on before. I'm just trying to really understand as we think about the back half of the year, uh, relative to the 70 million underperformance. I guess how much of that are you carrying through into this guidance? Revision that you made. Thank you.
Kevin Hammons: Yeah, let me give you some more clarity on the state-directed payment programs, and sorry if I did not make that clear. So, we had previously indicated 100 to 125 million of state-directed payment possibility. There is an annual run rate for Tennessee and New Mexico. That was just a 12-month run rate for the combined two states. In the second quarter, we actually picked up a retroactive... back to 2024 for Tennessee, plus six months of Tennessee and six months of New Mexico. So for the full year 2025, those two states will be about 140 million. That's the amount we're putting in our guide.
Uh, sorry if I did not make that. Clear. So we had previously indicated 100 to 125 million of
Kevin Hammons: for the DPP program. So that's the addition, you know, starting again, I'll run through quickly, a billion 525 at the midpoint is the starting point. We added 140 million. That's the 100 to 125 run rate plus the retroactive. then taking out 20 to 25 for Cedar Park, taking out the second quarter miss, and then adjusting our expectations in the back half. Okay, got it. Thank you very much. And just, you know, it's really helpful to have these, you know, the sizing around the, you know, the impacts from the bill. Is there an absolute number you can give us for what the current annual run rate of these programs are?
Stephen Baxter: State directed payments, uh possibility or is an annual run rate for Tennessee in New Mexico. That was just a 12-month run rate for each of or or for the combined 2 States in the second quarter. We actually picked up a retroactive piece back to 2024 for Tennessee uh plus 6 months of Tennessee, in 6, months of New Mexico. So for the full year 2025 those 2 States will be about 140 million. Uh, that's the amount we're putting in our guide kind of, is the midpoint, um, for the DPP program. So, that's the addition, you know, starting again I'll run through as quickly. A billion 525 at the midpoint, as a starting point, we added 140 million. That's the
Stephen Baxter: 100 to 125, run rate, plus the retroactive piece. Uh, then taking out 20 to 25 for Cedar Park. Taking out the second quarter Miss and then adjusting our expectations in the back, half of the Year slightly.
Kevin Hammons: So not including any of the out of period stuff, but just so we can maybe contextualize this as a percentage decline, that would also be pretty helpful to people. Thank you. I don't have that number exactly. We really look at those state-directed payment programs once they're in place. They become part of the normal Medicaid reimbursement strategy for that state and normal Medicaid kind of reimbursement process. Those programs oftentimes have many different variations within a state, both at the district level, county level, state level. States then make decisions about increasing their rates or increasing the programs at various stages once they're in place.
Okay, got it. Thank you very much. Um, and just, you know, it's really helpful to have these, um, you know, the sizing around the, you know, the impacts from the bill, is there a, um, an absolute number, you can give us for what the, the current annual run rate of these programs are so not including any of the outer period stuff. But just so we can maybe contextualize this as a percentage decline. That would also be. I think pretty helpful to people. Thank you.
Kevin Hammons: So we don't really call those out separately because Again, once in place, they kind of move more as an aggregate number within the state.
Stephen Baxter: Uh, no, I don't have that that number. Exactly. And we, we really look at those State corrected payment programs. Once they're in place, they become part of the normal Medicaid, reimbursement, strategy, for that state and normal Medicaid kind of reimbursement, uh, process. Um, those, those programs often times have, you know, many different variations within a state uh, both at the district, level county level state level uh, States then make decisions about increasing their rate or increasing the programs, uh, at various stages once they're in place. Um, so we don't really call those out uh, separately because they again once in place they kind of move.
Kevin Hammons: each individual program being Okay.
Speaker Change: Moors and aggregate number within the state versus each individual program, being on its own.
Kevin Hammons: Maybe just one more if I can squeeze it in. Just can you talk a little bit, I know a lot of this, you know, you think is driven on the volume side by the consumer confidence changes, you know, kind of in the early part of this year. Are you seeing any kind of volume change in the Medicare part of your business given that obviously, you know, it seems like there would generally be less economic sensitivity? I would be curious to sign up for a comment on Medicare specific trends if possible. Yeah, we haven't seen much change in the Medicare book of business.
Speaker Change: Got it, okay, maybe just 1 more. Um, if I can squeeze it in, uh, just could you talk a little bit? I know a lot of this, you know, you think is driven on the volume side by the consumer confidence changes, you know, kind of in the early part of this year. Um are you seeing any kind of volume change in the Medicare part of your business? Give it a seems like. There was generally, be less economic sensitivity. There would be curious to kind of, for a comment on Medicare specific Trends if possible.
Kevin Hammons: And interestingly, you know, the Medicare book of business has the lowest deductible component. So that is the group of patients least impacted, I think, by some of this consumer confidence issue. I think that really further supports maybe our belief. what's driving some of the patient behavior is around financial government-insured patients who don't have high co-pays and deductibles haven't really changed their behavior. to receive help.
Speaker Change: Yeah, we haven't seen much change in the Medicare book of business. And interestingly, you know, the Medicare book of business has the lowest deductible, um, component. So, that is the group of patients, least impacted. I think, by some of this consumer confidence,
Speaker Change: Issue. I think that really further supports maybe our beliefs that that what's driving, some of the patient behavior is around financial decisions and so those patients are government-insured patients that don't have high co-pays and deductibles haven't really changed their behavior in terms of coming to to receive Health Care.
Joshua Raskin: The next question will come from Josh Raskin with Nefron Research. Please go ahead. Hi, thanks. Good morning. I'll congratulate Tim as well and Kevin and Jason as well. I want to go back to the difference in trends that you guys are seeing from the volume perspective relative to some of the hospital peers and certainly relative to the commentary from the payers. And I appreciate the commentary you've made. But do you think there's any difference from whether it's geographies or lines of business or outpatient networks that could explain that? Do you think others are embracing more technology or AI on the RCM side?
The next question will come from. Josh Raskin with nephron research, please go ahead.
Kevin Hammons: Do you think any of that could be contributing to this?
Hi. Thanks, good morning. I'll, I'll congratulate Tim as well and and Kevin and Jason as well. Um, I want to go back to the difference in trends, that that you guys are seeing from the volume perspective, relative to some of the hospital peers and certainly relative to the commentary from the payers and I appreciate the commentary you've made. But do you think there's any difference from whether it's geographies or lines of business or outpatient? Um, networks that, that could explain that. Do you think others are embracing more technology or AI on the RCM side? Do you think any of that could be contributing to this?
Kevin Hammons: There could be some differential in terms of location, types of markets, you know, urban versus non-urban type markets, you know, it's hard to say exactly, again, I would point to don't show up, it's very hard to necessarily no wire to track that, but I do think the differential between urban markets and non-urban markets could be part of that. In terms of difference between what we're experiencing and the payers they're experiencing, you know, much of their cost increases could be coming from pharmaceutical side, maybe behavioral business, not necessarily a change in acute payments to the acute providers.
Speaker Change: Exactly. Again, I would point to when patients,
Kevin Hammons: I think their headwinds really are probably somewhere else. Otherwise, I can't really reconcile to them.
Tim Hingtgen: Tim, I don't know if there's something you might want to add on this. Yeah, Josh, thanks for the question. I'll add on to the payer answer. I think the other area where I'm not going to say it's an outsized impact, but, you know, we've been speaking for several quarters on our investment in physician advisor services and really honing in on where we believe we should be getting appropriate reimbursement for care and services delivered. We have not seen an increase in our downgrades and denials as a percentage of net because of those efforts. And I hope it means we're keeping more of the rightfully earned dollars coming into our pockets versus into the payer's pocket.
Speaker Change: Don't show up. It's very hard to, to necessarily know why or to to track that. But I do think the differential between urban markets and non-urban markets. Uh, could could be part of that. In terms of difference between what we're experiencing in the payers their experiencing, you know, much of of their cost increases could be coming from pharmaceutical side, maybe behavioral business, not necessarily A change in acute uh payments to to the acute providers. Uh I think their headwinds really are probably somewhere else um and otherwise I can't really reconcile to them. Tim I don't know if it's something. You might want to add on this. Yeah, Josh thanks for the question. Um, I'll head on to the the payer um, answer. I think the other area where I'm not going to say, it's an outside impact but you know, we've been speaking for several Quarters on our investment and physician advisor services, and really honing in on, where we believe we should be.
Tim Hingtgen: So that's one element I would throw in there. I don't think it's material, but we have not allowed that slippage to continue, which we said we'd be fixated on as a strategy for the company.
Getting appropriate reimbursement for care and services delivered. Um, we have not seen an increase in our downgrade and denials as a percentage of of that because of those efforts. And I hope it means we're keeping more of the rightfully earned dollars. I'm coming in to our pockets versus into the payers Pockets. So that's 1 element. I would throw in there. I don't think it's material but we have not allowed that slippage to continue which we said we'd be fixated on on as a strategy for the
Tim Hingtgen: In terms of your other question regarding strategy and or technology and AI, that has also been a core strategy for CHS. I believe I mentioned last quarter our investment in growth in robotic surgery platforms. We continue to see really strong growth in our robotic-assisted surgeries in the company. So I don't think it's due to any underinvestment into emerging technologies or services in our communities. In terms of the AI component, one of the things I'm really proud of is our investment into the development of a strong data science group here at CHS. We have some of the leading industry experts supporting our efforts.
Tim Hingtgen: We have deeper insights into the business as a result of that. And I'd also layer on the investment into the ERP, the Enterprise Resource Planning Tools. Again, we're, I think, in the early innings of that investment, but the insight that's gleaning into our business and our operations and our opportunities, I think it will be a really strong benefit and tailwind of the company for many quarters of years to come. So I don't think there's really anything in terms of where we maybe missed it strategically. I think it really is a lull in consumer confidence, as we've called out.
Speaker Change: Company. Um, in terms of your other question regarding strategy, Andor technology and AI, um, that has also been a core, um, strategy for CHS. I believe I mentioned last quarter, our investment in growth and robotic surgery platforms. Uh, we continue to see really strong growth in our uh uh robotic assisted surgeries in the company. So I don't think it's due to any underinvestment into emerging Technologies or services in our communities. Um, in terms of the um, AI components. Um, 1 of the things I'm really proud of is our investments into the development of a strong data science group here at CHS, we have some of the leading, um, industry experts on supporting our efforts. We have deeper insights into the business as a result of that. And I'd also layer on the investment into the Erp, the enterprise resource planning tools. Um, again, we're I think in the early Innings of of that investment but the insights that's cleaning into our business and our operations, and our opportunity.
Tim Hingtgen: And as I said in my prepared remarks, I can't remember a time in this industry where the consumer hasn't come back. We still believe we provide absolutely essential services to the communities we serve.
Operator: Right, great. That all makes sense.
I think it'll be a really strong benefit and Tailwind of the company for many quarters and years to come. So I don't think there's really anything in terms of where we maybe missed it strategically. Um, I think it really is a lull in consumer confidence. As we've called out. And as I said in my prepared remarks, um I can't remember a time in this industry where the consumer hasn't come back. Um we still believe we provide absolutely essential Services um to to the communities, we serve
Kevin Hammons: Just a quick follow-up on the LabCorp. Were your reference labs, was that, were those assets EBITDA positive for you in the past? And then is it conceivable that having LabCorp take care of those assets is actually additive to EBITDA? We don't have an exact measure because it wasn't a business that we ran separately, but certainly we've done a fair amount of work. so that. part of our business, as I mentioned, it was not a core competency of ours. It may have been marginally, you know, EBITDA, or there may have been some marginal EBITDA generation from that, relatively small.
Right. Great, that all makes sense. Just a quick. Follow-up on the labcore were your reference Labs was that were those assets, EBA positive for you in the past and then is it conceivable that having labcore take care of those assets is actually additive to ibitta
Speaker Change: currently, but certainly we've done, you know, a fair amount of work before making the decision to sell that. Uh,
Kevin Hammons: And I think that, you know, again, overall. Getting some cash up front and providing a much better experience for our physicians will be much more beneficial to our practices and ultimately to our EBITDA going forward. Also keep in mind Even our employee physicians did not use our in-house outreach lab business exclusively. We were still sending portions of our business out to LabCorp, to Quest, to other third-party labs. We really have now an opportunity to partner with LabCorp on this. and they'll be able to deliver those services at a cost cheaper than we could provide them ourselves.
Speaker Change: Part of our our business. As I mentioned, it was not a core competency of ours. It may have been marginally. Uh you know, deep and I or there may have been some marginally but I generation from that relatively small and I think that, you know, again overall
Speaker Change: Getting some cash up front. Uh and and providing a much better experience for our physicians will be much more beneficial uh to
Speaker Change: Our practices uh and and ultimately to our I going forward. Also keep in mind that
Speaker Change: Our even our employee positions did not use our in-house, uh, Outreach Lab, uh, business exclusively. We were still sending portions of our, our business out to labcore, to Quest, to other uh, third-party Labs. Um, so we we really have now an opportunity to partner
Speaker Change: Lab Corp on this and and bring just a better solution with their technology and it is their core competency.
Speaker Change: And they'll be able to deliver those services at a cost cheaper than we could provide them ourselves.
Operator: That's a perfect thing.
Gotcha, perfect. Thanks.
Ben Hendrix: The next question is a follow-up from Ben Hendrix with RBC, please go ahead. Great, thank you very much for squeezing me in here with one more. I just, we've gotten a lot of questions on the Rural Health Transformation Program and the $50 billion allocated under the OBBB Act. Any way to frame kind of your contribution there, to what extent you're including those funds in your outlook, and how do we frame kind of what the benefit could be, even if just, you know, an assessment of how much of your program would be eligible for those, or for that program?
Speaker Change: The next question is a follow-up from Ben Hendricks with RBC? Please go ahead.
Kevin Hammons: Thanks.
Ben Hendricks: Here, uh, with 1 more I just we've gotten a lot of questions on the rural Health transformation program in the 50 billion dollars, allocated under the uh, obb act. Um, any way to frame kind of your contribution there to what extent you're including those funds in your outlook. And how do we frame kind of what what the benefit could be even if just uh you know an assessment of how much of your program would be eligible for those uh, or for that program? Thanks.
Kevin Hammons: Great question, Ben, and one we've received a couple times already, and one we're thinking about quite a bit. Again, we're investing in lobbying efforts around that. There is no clear answer at this point as to how that money is going to be spent or divvied up amongst the rural health providers. So that's all yet to be determined. I believe my understanding is 50% of that will be at the discretion of CMS and the other 50% given to the state to determine. And even they may determine differently in each state how they distribute the money.
Kevin Hammons: So a lot more to come. I also understand that there's been a proposed bill in the Senate to increase... amount from $50 billion to $100 billion, so that is still yet to come. As we look at our portfolio of hospitals, I would say roughly 40% of our beds, we believe, would qualify in terms of a definition of rule, but even that isn't entirely clear because throughout the medical regulations and CMS, there's multiple definitions of what is rule, and I'm not sure which is the exact one that will apply here. We're given our best estimate that it's about 40% of our beds.
Speaker Change: Great question, Ben. And and what we've received a couple of times uh already and 1, more thinking about uh quite a bit again, we're investing in lobbying efforts around that there is no clear answer at this point as to how that money is going to be spent, uh, or or divvy up amongst the rural Health Providers. Uh, so that's all yet to be determined. I, I believe my understanding is 50% of, that will be at the discretion of CMS and the other 50% given to the states to determine. And, and even may may determine differently in each state how they distribute the money. So a lot more to come. I also understand that there's been a proposed bill in the Senate to increase the uh amount from 50 billion to 100 billion. Uh, so that is still yet to come, is we look at our portfolio of hospitals? I would say roughly 40.
8% of our beds. Uh we believe would qualify in terms of a definition of rule uh but even that isn't entirely clear because uh throughout you know the medical regulations and CMS there's multiple definitions of what is Rule. Um, and I'm not sure, you know, which is the exact 1 that will apply here. We're giving our best estimates. Uh, that is about 40% of our beds.
Operator: Thank you.
Speaker Change: Thank you.
Operator: This concludes our question-and-answer session.
Tim Hingtgen: I would like to turn the conference back over to Mr. Tim Hingtgen, Chief Executive Officer, for any closing remarks.
Tim Hingtgen: Please go ahead, sir. Great. Thanks, Chuck.
Speaker Change: This concludes our question and answer session. I would like to turn the conference back over to Mr. Tim Henson, chief executive officer for any closing remarks. Please go ahead, sir.
Tim Hingtgen: And thank you, everyone, for joining the call today. I want to close by thanking the amazing people who work across the CHS organization for the opportunity to serve as their CEO and to support their commitment to provide quality, compassionate care for all of their patients. And I want to say once again that I'm grateful to be passing the torch to Kevin Hammons because he's a capable and committed leader for CHS. I look forward to all of the good things ahead for community health systems. If you have any additional questions, you can always reach us at 615-465-7000.
Operator: Have a great day, everyone.
Tim Henson: Great, thanks, Chuck. And thank you everyone, for joining the call today, I want to qualify thanking the amazing people who work across the CHS Organization for the opportunity to serve as their CEO and to support their commitment to provide, quality Compassionate Care for all of their patients. And I want to say once again that I'm grateful to be passing the torch to Kevin Hammond's because he's a capable and committed leader for CHF. I look forward to all of the good things ahead for Community Health Systems. If you have any, any additional questions, you can always reach us at 615-465-7000, have a great day, everyone.
Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Tim Henson: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect
Tim Henson: Thank you so much.