Operator: Good day, and welcome to the Community Health Systems Q3 2026 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by 0. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your telephone keypad. To withdraw your question, please press star then 2. We do ask that you please limit yourself to one question and a single follow-up. Please also note today's event is being recorded. I would now like to turn the conference over to Anton Hie, Vice President of Investor Relations. Please go ahead.
Anton Hie: Thank you, Rocco. Good morning and welcome to Community Health Systems Q3 2026 conference call. Joining me on today's call are Kevin Hammons, Chief Executive Officer, and Jason Johnson, Executive Vice President and Chief Financial Officer. Before we begin, I must remind everyone that this conference call may contain certain forward-looking statements, including all statements that do not relate solely to historical or current facts. These forward-looking statements are subject to a number of known and unknown risks, which are described in headings such as Risk Factors in our annual report on Form 10-K and other reports filed with or furnished to the SEC. Actual results may differ significantly from those expressed in any forward-looking statements in today's discussion. We do not intend to update any of these forward-looking statements.
Anton Hie: Yesterday afternoon, we issued a press release with our financial statements and definitions and calculations of adjusted EBITDA and adjusted EPS. We have also posted a supplemental slides presentation on our website. All calculations we discuss today will exclude gains or losses from early extinguishment of debt, impairment gains or losses on the sale of businesses, expense from government and other legal matters and related costs, expense from employee termination benefits and other restructuring charges, and business transformation costs. With that said, I will turn the call over to Kevin Hammons, Chief Executive Officer.
Kevin Hammons: Thank you, Anton. Good morning, everyone, and thank you for joining our Q3 2026 conference call and for your continued interest in CHS. I want to begin by expressing my sincere appreciation to our dedicated clinical and operational teams across all of our facilities. Their steadfast commitment enables us to advance our core vision, making the healthcare experience exceptional for our patients, our communities, and each other.
Kevin Hammons: Even with the dynamic operating landscape shaped by shifting coverage dynamics and broader macroeconomic pressures, we are taking direct, proactive steps to fortify our competitive position. Our execution remains anchored in our core operational priorities: elevating clinical quality, enhancing the patient and physician experience, and strengthening our employee engagement. Building on the quality momentum we shared last quarter, including strong Leapfrog safety grades across our network, our facilities continue to deliver outstanding clinical outcomes.
Kevin Hammons: In the Q3, we further reduced our severe sepsis and septic shock mortality rates and hospital-acquired infection metrics, continuing to outperform national benchmarks. This commitment to clinical excellence is not just an operational milestone. It directly positions CHS as the provider of choice in our communities, creating a distinct competitive advantage that positions us to expand market share as patient demand normalizes and to achieve sustainable growth into the future. To capture that demand and establish clear building blocks for future revenue growth, we are actively expanding our clinical capacity and stabilizing our core workforce. On the talent front, we reduced physician turnover by over 40% and bedside RN turnover by 10% compared to the prior year.
Kevin Hammons: This improved physician retention, along with targeted specialist recruiting, has driven a 2.5% year-over-year increase in our employed provider base, expanding our procedural capacity and referral networks to set the stage for higher acuity volume and revenue growth in future quarters. Simultaneously, our investments in technology are driving operational efficiency and clinician engagement. In September, we surpassed 1 million ambient listening encounters across our outpatient clinics and emergency departments.
Kevin Hammons: This technology significantly alleviates administrative burden, reduces provider burnout, and enhances charge capture and coding accuracy, driving productivity improvements while elevating the overall patient experience. Turning to our operating performance, Q3 adjusted EBITDA was $280 million. While overall financial results fell below our internal forecast due to the same factors that many peers are experiencing, namely elevated uninsured volumes and temporary softness in commercial elective procedures, we delivered sequential volume gains and solid cash flow performance.
Kevin Hammons: Importantly, our leading indicators clearly demonstrate that care is being deferred rather than lost to competitors. During the quarter, same-store commercial adjusted admissions, excluding exchanges, increased 2.7%. Clinic visits surged 7.9%, and MRIs and other imaging tests showed solid growth. These metrics confirm that our local networks are capturing available market demand and maintaining strong market share. To protect profitability in the current environment while elective care defers, we are proactively managing our cost structure.
Kevin Hammons: Specifically, already this year, we have taken actions to generate over $100 million in projected annual savings, and we expect to implement further structural cost reductions in the future. These decisive measures demonstrate our commitment to disciplined margin management today without compromising our clinical capacity or operational readiness for tomorrow. Looking forward, we are positioning CHS to capitalize on several multiyear growth tailwinds.
Kevin Hammons: We remain focused on disciplined capital allocation, strategically expanding high-return outpatient entry points including ASCs, urgent care centers, freestanding EDs, and targeted physician practices, weighed against rigorous financial return targets. Outside initiatives, like the Rural Health Transformation Fund, present opportunities to expand healthcare access, overcome patient mobility barriers, and drive incremental patient volume into our facilities in future years.
Kevin Hammons: In closing, our industry-leading quality performance, expanding physician employment, targeted capital investments, and proactive cost management give us high confidence in our path forward. We are actively executing on the leverage within our control to navigate short-term industry dynamics and build long-term sustainable shareholder value. Let me now turn the line over to Jason Johnson to walk through the Q3 financial details in greater depth. Jason?
Jason Johnson: Thank you, and good morning, everyone. As Kevin noted during his prepared remarks, financial results for the Q3 came in below our internal expectations, despite strong discipline from our operating teams, reflecting continued outside pressures on service and payer mix that are affecting the industry as a whole. Adjusted EBITDA was $280 million, with a margin of 10.2% versus 12.2% in the prior year period. When excluding the impact of divestitures and out-of-period items from prior year results, reflected an approximate 7% core decline year over year. During the quarter, we did not recognize any out-of-period benefits from new or existing state-directed payment programs, and consistent with last quarter, did not recognize any amounts for the 2026 Florida program. Same-store net revenue growth of 3.8% year over year included a 2.2% increase in admissions and 3.6% growth in adjusted admissions.
Jason Johnson: As Kevin previously noted, almost half the growth in adjusted admissions came from uninsured patients. While overall same-store surgeries increased 2%, similar to many of our peers, demand in commercial elective procedures remained below expectations. This unfavorable payer mix and service mix shift led to a 0.2% growth in same-store net revenue for adjusted admissions. Our operating teams maintained strong cost discipline in this environment, particularly in the areas of labor management and supply chain efficiency. Along with our structural expense management program that is run corporately, we are taking steps to proactively manage profitability in the current environment. Same-store operating expense per adjusted admission increased 2.1%, and when excluding the impact of provider taxes, was up just 1.3%, significantly better than inflation.
Jason Johnson: Same-store supply expense increased 1.6% and was down on a per adjusted admission basis, reflecting ongoing improvement in procurement through our ERP, as well as lower mix of surgical revenues. Contract labor spend declined to 1.6% on a same-store basis, and average hourly rate was up 2.1%, both below our expectations coming into the year. Medical specialties, meanwhile, remained a pain point on the expense side, increasing 13% year over year on a same-store basis. The increase again primarily reflected pressure in anesthesia and radiology. While it was improved from the 19% increase in the Q2, it was well above our initial expectations for 5% to 8% growth for the year. We are pleased to see improvement in cash flows on both a year over year and sequential basis.
Jason Johnson: Cash generated from operations for Q3 2026 was $168 million when adjusted to exclude taxes on divestiture gains, up from $121 million in the prior year period, reflecting better management of accounts payable and ongoing collection of accounts receivable, including timing of state-directed payments we discussed last quarter. Total net leverage stood at 7.2x at quarter end, up from 6.6x at year-end 2025, despite the $810 million reduction in debt year to date, due to the reduction in trailing 12-month adjusted EBITDA. We ended the quarter with no amounts drawn on our ABL, and our next significant maturity is in 2029. Based on year-to-date performance and our expectations for the remainder of the year, we are updating our full year 2026 financial outlooks.
Jason Johnson: Net revenue is now expected to be $11.3 to $11.5 billion, and adjusted EBITDA range is now $1.225 to $1.275 billion, or a 6.5% reduction at the midpoint. We have also reduced the cash flow from operations guidance to $100 to $300 million, primarily reflecting the lower EBITDA. The guidance reflects our updated views of the impact from higher uncompensated care trends as a result of coverage loss and the softness we have observed in commercial elective demand through the end of the year. Finally, our year 1 awards under Rural Health Transformation Program are expected to be $25 to $30 million, primarily related to capital expenditures and software upgrades. We expect to receive most of the grant funds associated with the year 1 awards and to fund the grant-related expenditures in 2027. The income associated with year 1 awards will be recognized over multiple periods starting in 2027.
Jason Johnson: We plan to actively evaluate and pursue year 2 funding opportunities as they become available. This concludes our prepared remarks. I will now hand the call back to the operator to open the line for questions.
Operator: Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, we ask that you 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 2. And once again, we do ask that you please limit yourself to one question and one follow-up. Today's first question comes from Brian Tanquilut with Jefferies. Please go ahead.
Brian Tanquilut: Hey, good morning, guys. First question, maybe as I think just about the volume performance this quarter. Volumes are pretty good, but I think you called out acuity, and obviously, the payer mix is not as good. When I think about the higher acuity cases, specifically ortho, what do you think is happening there? On the payer mix side, as we think through the mitigation or some of the offsets that you can push through, Kevin, how are you thinking about this? Because obviously, there is an earnings power reset that has happened here, and how do we think about the ability to grow going forward? Thanks.
Kevin Hammons: Sure. Thanks, Brian. I will start off here. What we think is happening is certainly the copays and deductibles continue to go up, and with the macroeconomic pressures, I think with higher gas prices, grocery prices, and higher cost of insurance and rent that we have been talking about, are just putting pressure on people's ability to pay those copays and people are deferring care. As I mentioned, our clinic visits are up 7.9%. We are performing orthopedic MRIs at a rate that outpaces prior year. So we are capturing more of those patients in our system. They need the care. But as we speak to our doctors, and they are speaking with their patients, what we are seeing more of is people kind of deferring that ultimate procedure of getting the surgery.
Kevin Hammons: Those office visits, those tests, are not translating into the higher acuity procedure at the same rate as we have seen in the past. Again, that gives us confidence that that business is just being deferred. There is pent-up demand. Ultimately, we think that it comes back into the system because when you need a joint replacement, it is not going to heal on its own. So we think that as we either get into our initial expectations we got into the back half of this year, we would see that seasonality grow. We did not see as much of that in Q3 as we had previously expected.
Kevin Hammons: Now as you get to October, if people have not met their copay and deductible, it is likely they could push that off till next year, get their procedures in H1 of the year and have a longer period of time to have other medical procedures done without having to pay a copay and deductible again. So we have adjusted our guidance accordingly to reflect our outlook on that.
Brian Tanquilut: And then maybe my second question, Jason, as I think about the building blocks for 2027. I know without going to guidance, it is a little early, but how should we be thinking about thinking through the 2027 outlook?
Jason Johnson: Yeah. You are right. It is a little early for us to give guidance just yet. We are still in the process of forecasting and setting our budgets. But I think we can speak broadly to some of the puts and takes as we see them today, and I think some of the commentary is going to be consistent with what I have seen so far from some of our peers. But maybe for us, starting with some of the more certain items, that was the out-of-period and divestiture activities. So for the out-of-period state-directed payment programs, there was about a $15 to $20 million net benefit in 2026 that will not repeat in 2027. As you may recall, that includes positive contributions from Florida for the program year 2025 and Georgia, partly offset by some negative prior year true-ups in Indiana and Arizona.
Jason Johnson: Divestiture activity, 2025 divestitures are actually going to be a wash. Basically zero EBITDA contributed this year. First, there should be tailwind from solid commercial rate updates, as well as the Medicare inpatient and outpatient rule as proposed. The final outpatient rule is expected in the coming days, I believe. We also think it is reasonable to anticipate some of the deferred elective procedures to return next year, which should contribute to solid volume growth and improvement in payer and service mix versus what we saw this year in 2026, which we view as uncharacteristically unfavorable mix.
Jason Johnson: The payer and service mix improvements we expect to be further supported by the investments that we have made in outpatient and ASC footprint, including the material acquisition of an ASC we discussed in Q2 and three other acquisitions or de novo openings this year, as well as the recent physician recruitment activity and improved retention. I mentioned Rural Health Transformation Program, which we think will be a modest positive impact to EBITDA next year. So that is the $25 to $30 million of year one funds, mostly related to capital expenditures and software upgrades. But that income begins to be recognized over a multiple year period, starting in 2027. For some headwinds, the spike in uninsured volumes from the HIX subsidy really began to ramp up in Q2 2026.
Jason Johnson: I think it is reasonable to expect another quarter of that, along with some potential future degradation in coverage, depending on the outcome of the 2027 open enrollment, although we think it will be to a lesser extent than 2026. With regards to the Medicaid work requirements under OBBBA, we think there will be a modest headwind there. We have a little over half of our Medicaid volumes and revenues come from expansion states. We think it is likely that the very large majority will qualify for continued coverage under the various exemptions like age, caregiver status, or medical frailty. But we really just do not know exactly what the impact will be until the data starts coming in on how many might drop off, including for technical reasons like failing to provide the documentation.
Jason Johnson: There is also a potential modest headwind in Q4 2027 from the OBBBA funding cuts to provider taxes. Then finally, maybe on the cost side, I think we expect to continue to maintain our strong discipline across labor and supplies, including through our corporate-run structural expense management program. The big question mark on cost is medical specialties, which we expect to continue to grow well above inflation next year.
Brian Tanquilut: Awesome. Thank you, guys.
Operator: Thank you. Our next question today comes from AJ Rice at UBS. Please go ahead.
AJ Rice: Hi, everybody. For my first question, I was going to ask about the cash flow. I know you did take down the expectation for the full year, but you are still looking for about $100 million to $300 million in positive cash flow. I think, if I got it right, through year-to-date, you are a negative $15 million or so. I just wonder about your confidence in being able to get to that positive $100 million to $300 million. Has the decline in cash flow made you take a look at any of the capital spending targets and maybe push those out or revisit them?
Jason Johnson: Yeah. This is Jason. Our adjusted cash flow from operations when you exclude the taxes that we paid on the divestiture gains is a positive $15 million. Our updated cash flow guidance assumes an $85 million to $185 million cash flow from operations generated in Q4. That compares to the prior year was a positive $309 million, and Q3 it was $168 million. I feel good about, comfortable that we can achieve that $85 million to $185 million. We did not change our capital expenditure guidance, and still expect to come in between the range provided of $350 million to $400 million.
Kevin Hammons: AJ, it is Kevin. Jason is absolutely right. I think we are confident with our updated guidance. As we look ahead, about 50% of our capital spending has been on growth projects, and we do have a little bit of flexibility as we look out into 2027 there. We are continuing to look at opportunities to grow and expand our service footprint and position ourselves and get good returns from that capital spending. We will continue to look at it closely and have discipline around that.
AJ Rice: Okay. For my follow-up, I think you are the first of the public companies to comment on the Rural Health Transformation Fund, and how that is playing out. Maybe, can you just sort of walk through how it did play out? Did this end up being about what you expected? Were you hoping for more? Was this a positive surprise? Anything about the way it was processed as we think about future years on that fund?
Jason Johnson: Yeah. This is Jason. I would just say if I went back a year ago, we expected to receive more than we did for year one. However, as we began to kick off the process for evaluating and pursuing, and we actually saw how the states were proposing to use the funds, this probably is more in line with what we expected. I was trying to advise caution in some of the comments I made previously about how beneficial this could be. However, $25 to $30 million year one, I think, we submitted a lot of applications, and I think it is probably about a 30% success rate, which I understand from talking to others is actually pretty successful. Year two and beyond, the states did not have a lot of time to prepare for year one, so they are already kicking off year two.
Jason Johnson: I think in the future, there are lobbying efforts and making sure that we can begin to align with strategies more than shovel-ready projects, which were a lot of the equipment uses that were this year, just due to timing.
Kevin Hammons: One other comment I might add to that is, as we are now observing where some of the states are spending the money, there are more social programs run by local communities that are getting a lot of the Rural Health Transformation money. There are also some academic institutions. But we believe this could be a halo effect across. So even though we are not directly receiving some of the Rural Health Transformation money, that money is being directed to many of our communities through other forms to benefit people's healthcare. There may be some halo effect and some reimbursement potential for us, or these programs may direct people into getting more care.
AJ Rice: Interesting. Okay. Thanks so much.
Operator: Thank you. Our next question today comes from Ben Hendrix at RBC. Please go ahead.
Drew Sterdan: Hi, guys. It is Drew Sterdan for Ben. Operating expense per adjusted admission, excluding provider taxes, well below inflation. What is driving that discipline, and how sustainable is that level of cost control heading into 2027?
Jason Johnson: Well, I think maybe start with the labor and the supplies. That is our ERP investments and improving processes are a big driver for both of those items. I think it is sustainable. Again, the headwind that would be even a better story if the medical specialties were not this high this year. On salaries, I guess that also points to the improved retention that Kevin called out in his comments. The specialties are just going to take a little time because it is a market-by-market analysis, and the scenarios depend on the dynamics in each market.
Drew Sterdan: As a follow-up, you flag interest in urgent care and freestanding EDs and surgery centers as more insulated from payer dynamics. How quickly could you deploy capital into those assets, and what are you seeing valuation-wise in those?
Kevin Hammons: We've already been deploying some capital. In Q2, we announced the acquisition of two surgery centers, one of them being the largest multi-specialty surgery center in the state of Alabama. We also built two de novo surgery centers that were opened in Q2. We are continuing to pursue some opportunities with acquisition and/or developing new. The big barrier there is typically making sure that we are aligned with the right physician groups in the markets. That is the thing that can probably take the longer period of time in terms of deploying capital, is just making sure you have the correct physician alignment. But I would anticipate us continuing to make progress in those ambulatory sites over the course of the remaining year and certainly well into next year and beyond.
Operator: Thank you. Our next question today comes from Stephen Baxter at Wells Fargo. Please go ahead.
Stephen Baxter: Hi. Thanks. It looks like the surgical trends actually improved a pretty good deal in Q3, had actually pretty solid growth there. I think 2% was the same store number. But you are still talking about a bit of a shortfall in the acuity and I guess, elective procedure environment. I guess, can you talk a little bit about the type of surgeries that improved and drove that growth, and I guess, were you expecting more growth, or was it just not the right kind of surgical mix inside of that number?
Kevin Hammons: Yeah. We did bend the trend on surgical procedures. We have had several quarters now where we have seen negative year-over-year surgeries. In this quarter, we kind of bent the trend and turned that positive to 2%. It really was a mix issue. Inpatient surgeries were down, outpatient surgeries were up. We saw more cardiac procedures and more GI procedures this quarter.
Kevin Hammons: The cardiac procedures, though, particularly like TAVRs and WATCHMANs, are low margin because of the high cost of the devices. We are short on were the elective orthopedic and elective general surgery type procedures that are our higher margin business. Those are more elective type procedures, and that is what is being deferred. Again, fits back into the story of, we believe this is a patient decision around care and being influenced by financial decisions. So it is patient behavior is what I was trying to get at there.
Kevin Hammons: But we feel very good about the growth and about capturing the business within our markets, and that gives us another level of confidence that as these elective procedures come back, they will come back into our system.
Stephen Baxter: Got it. Just wanted to ask for an update on the latest thinking on the medium-term targets. It looks like maybe that slide from the presentation isn't there anymore this quarter. Should we think that there's some element of reassessment given the challenges at the moment and the amount of moving parts in the industry, or is that just a streamlining thing and we shouldn't think about it as any change there?
Kevin Hammons: Yeah, I think we're reassessing given the current dynamics in the industry right now. Some of the headwinds causing the macroeconomic issues, if you think about gas prices, the disruption in the Middle East, have not yet been resolved. As we sat here even a quarter ago, there was more talk in the media that those things would be resolved in the near term. But now we're here into October, they're still not resolved. So I think it makes sense to reassess and pause on those before we have a little more clarity on some of what's impacting people's decision-making and the patient behavior.
Operator: Thank you. Our next question today comes from Jason Cassorla with Guggenheim. Please go ahead.
Jason Cassorla: Great. Thanks. Good morning. I was hoping to get your thoughts on uninsured utilization activity. You obviously have the patients that are transitioning off exchange coverage that are going uninsured, but are you seeing any changes in the utilization on a per-uninsured individual basis, or any pressures because patients who are newly uninsured are leveraging your inpatient emergency departments for lower acuity services instead of their PCP or some other setting that they would have otherwise used when they were previously insured? And maybe backstopping all this, can you remind us how you are thinking about bad debt and reserving levels for that as we think about next year? Thanks.
Kevin Hammons: Sure. So, if you look at just numbers, it seems to be about a one for one decline in former exchange business versus increase in uninsured business. We think that those uninsured people, though, are utilizing the system at a higher rate. Certainly utilizing our EDs. Substantially all of the growth in ER visits have come from uninsured patients across our system, and that is pretty even across all locations. It is widespread, so it is not a geographic phenomenon. And because of not having insurance, they are no longer going to the primary care doctors. They are coming into the hospital EDs for those lower acuity services.
Jason Johnson: From a revenue recognition standpoint, we do estimate the amount of uncollectible revenue and update our estimates every quarter considering the trends in cash collections, which we have seen collections on the self-pay portion continue to decline. But I think we are not expecting any kind of one-time adjustment in the future from the current self-pay volume increase.
Jason Cassorla: Got it. Okay. Very helpful.
Kevin Hammons: Maybe the last bit of color I would add on that is we look at our clinic visits, though, that were up 7.9%. Those are capturing more of the insured business. As we look at the growth in our clinic visits, we are capturing more of the insured patients, whether it is government insured or commercially insured, in the clinic visits.
Jason Cassorla: Got it. Okay, very helpful. If I could follow up, I wanted to go back to your prepared comments. I think you said $100 million of projected savings. Could you expand on that, how much you have harvested year to date, what the visibility is for savings yet to be realized in 2027 and beyond, and where those major buckets of savings are coming from would be very helpful. Thanks.
Kevin Hammons: Sure. My intent on our prepared remarks is I would expect that the actions we have taken to date have a future benefit of something in that $100 million range plus. We are continuing to work on this program. We have taken steps across several areas in the company, including restructuring some departments, gaining benefits through the use of our ERP and technology, through purchase service contracts as we use our ERP and have better visibility into certain spend and the availability to control that, leveraging scale through supply contracting and so forth. There is a number of areas that we have an organized program around. Our dollar amount there was what we would expect at a minimum going forward for the actions we have already taken. But the work continues on to identify additional opportunities and expand that budget.
Kevin Hammons: I think particularly as it relates to supply chain items, many of our contracts do not come up for renewal all at the same time. There is a runway of opportunities going forward for us to be able to capture additional savings on many of these items in the future that we have not yet taken steps on.
Jason Cassorla: Got it. Okay, thanks.
Operator: Thank you. Our next question today comes from Sean Dodge at BMO Capital Markets.
Sean Dodge: Yeah, thanks. Good morning. Kevin, maybe going back to your comments around the top of the funnel activity you are seeing with things like clinic visits and imaging, that all continuing to be healthy, but just not converting as much in elective surgical volumes. What are the tools or levers you have to try and drive better conversion? Are there things you can do, like payment plans, financing options, more patient outreach? What can you do there? What are you doing to try and pull more of that through?
Kevin Hammons: We are doing more patient outreach, so I do think it starts there. Some of this is really based on patient behavior and financial decisions. We do offer some payment terms on patient responsibility. We are limited in our ability to waive co-pays and deductibles because the payer contracts do not allow us to do that. That really becomes the decision largely between the patient and their physician, in terms of the need for care and when it can be done.
Kevin Hammons: Some of this delay, and we do not have complete visibility into it because a number of our physicians are independent physicians as well, that practice at our facilities, and we capture the surgeries. But insurance can be delaying some of this by requiring additional physical therapy, some delays in pre-authorization. Ultimately, we expect that to come through.
Sean Dodge: Okay. Then just relating to the cash flow, last quarter you all mentioned a slowdown in payments from the payers. I do not think you have commented on it yet, but just any update there. Has this payer behavior dynamic, has that stabilized? Has that worsened, gotten better? Just anything there.
Jason Johnson: Yeah, Sean, this is Jason. It has continued. It has not worsened. We continue to see a slowdown in the payment of claims. No worse than it was in Q1 when we really first started seeing that shock. But it has not changed either. Our days in AR are consistent with from 6/30 to 9/30, so we have kind of maintained.
Sean Dodge: Okay. Thanks again.
Operator: Thank you. Our final question today comes from Andrew Mok at Barclays. Please go ahead.
Andrew Mok: Hi, good morning. Appreciate all the color on deferrals and consumer behavior. Do you have any insights into who is deferring these elective procedures within the commercial population, whether by income, job type, or other demographic factor? To the extent it does come back next year, would you expect those procedures to return relatively evenly throughout next year, or would the recovery be more back-end weighted given similar deductible dynamics? Thanks.
Kevin Hammons: Yeah. What we do have is a lot of this deferred care is coming from your commercially insured patients who have the highest co-pays and deductibles. We don't have demographics directly on each of those, again, because some of that deferral is coming through independent physicians. We wouldn't necessarily have captured that information.
Kevin Hammons: We're not seeing the same level of deferral among government-insured patients that don't have to worry about co-pays and deductibles. We are seeing the deferral among patients that have co-pays and deductibles. We can deduce that it's commercially insured, and we know that those co-pays and deductibles are increasing year over year, so it's becoming a bigger burden. In terms of the pace at which recovery comes, hard to estimate that. I wouldn't want to get ahead of myself on that one.
Jason Johnson: Yeah. Andrew, maybe one other way to think about the population of patients who we think are deferring. The median income in our markets is like $68,000 a year, I think, something like that, which is below the national median. I don't know, I think that's probably generally, our market tends to be cost-conscious.
Kevin Hammons: They have the same deductibles that everyone else has.
Jason Johnson: Right. They have the same deductibles, and I think they are making decisions based on that to the extent they can defer.
Andrew Mok: Got it. That is helpful. If I could just follow up, I think your revised ACA headwind implies that the headwind gets a little bit better from Q3 into Q4. Is that right? Can you explain the rationale behind that? Thanks.
Jason Johnson: Yeah. Thanks for asking that. We have not exactly clarified that. So after the second quarter, we estimated that the impact of the HIX dis-enrollment and movement to self-pay would have about a $50 to $75 million annual impact. That amount ended up being $30 to $35 million in the third quarter, and we now expect the full year to be $80 to $90 million.
Jason Johnson: So at the midpoint, that is about a $20 to $25 million increase from our previous estimates. We do think that the fourth quarter will go down to maybe $25 to $30, so just slightly from what we saw in the third quarter, and that is because the prior year third quarter had the highest amount of HIX volumes and revenues for the year. So we think that comes down a little bit. We saw it come down a little bit in the fourth quarter of 2025.
Andrew Mok: Great. Thank you.
Operator: Thank you. That concludes our question and answer session. I would like to turn the conference back over to Mr. Hamels for any closing remarks.
Kevin Hammons: Thank you, everyone, for joining the call today. As always, if you have additional questions, you can reach us at 615-465-7000. Have a good day, everyone.
Operator: Thank you, sir. That concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.
