Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Same-store net revenues increased by 4.7% compared to the same period last year.
- Adjusted EBITDA for the quarter was $387 million, up from $373 million in the second quarter of 2023.
- Same-store admissions improved by 3%, and adjusted admissions improved by 3.2%.
- Strong outpatient volumes, including growth in emergency department visits, urgent care, and physician practices.
- Successful recruitment and retention of workforce, with nearly 3,000 registered nurses hired in the first half of 2024.
Negative Points
- Novant Health ended its plans to acquire Community Health Systems Inc (CYH, Financial)'s North Carolina hospitals, creating uncertainty in that market.
- Continued payer scrutiny on observation status cases, leading to significant denials and downgrades.
- Provider and other business taxes increased by $25 million compared to the prior year quarter.
- Net debt to trailing adjusted EBITDA remains high at 7.6 times, though slightly improved from previous quarters.
- Potential risks related to the expiration of enhanced subsidies for exchange business in 2026, creating uncertainty for future revenue.
Q & A Highlights
Q: How are you thinking about the visibility into asset sales or your ability to announce further divestiture opportunities over the course of this year?
A: Kevin Hammons, President and CFO: With the Novant deal, many buyers are now looking outside their traditional areas of service. The FTC has been an issue for transactions for a few years, but current deals involve out-of-market buyers, typically out-of-state. We don't see significant headwinds in completing other deals we're negotiating.
Q: Can you provide any comment to help us try to frame the benefit from the DPP payments in New Mexico and Tennessee?
A: Kevin Hammons, President and CFO: We believe these programs are material to us, but until we get more clarity on what's going to be approved and in what form, we're hesitant to provide quantification. However, we do believe they will be materially beneficial.
Q: How has the two-midnight rule and public exchange volumes impacted your results this quarter?
A: Kevin Hammons, President and CFO: We've seen a decrease in observations and an increase in short-stay admissions, partly due to our physician advisor group's work. We've also seen a decrease in Medicaid patients but an increase in commercial business, likely due to commercial exchange business.
Q: Are you still seeing labor costs reflected in your managed care rates, and how is utilization review activity post-Change Healthcare cyber attack?
A: Kevin Hammons, President and CFO: Our new contracted rates for next year are similar to this past year, with incremental labor costs flowing through rate increases. We did not experience significant disruption from the Change Healthcare cyber attack, and there are no lingering impacts.
Q: What are your thoughts on the impact of enhanced subsidies on exchange volume growth and the potential roll-off in 2026?
A: Tim Hingtgen, CEO: The political scene will determine the future of these subsidies. We remain active in advocacy to ensure the affordability of exchange business continues. We can't size up the risk yet, but we are advocating for the continuation of funding.
Q: What are your expectations for same-store growth on the volume side in the back half of the year, and what drove the increase in other OpEx dollars sequentially?
A: Kevin Hammons, President and CFO: The increase in other OpEx dollars is primarily due to supplemental provider tax payments. For same-store volume growth, key drivers include returns on investments in bed expansions, successful physician recruitment, and improvements in capacity optimization.
Q: What are your views on structurally higher demand for acute admissions in the back half of the year?
A: Kevin Hammons, President and CFO: We see demand continuing to come back into the healthcare system, with the back half of the year typically being stronger. We expect balanced growth between commercial and government-insured patients to continue through the remainder of the year.
Q: Were there any timing issues in the quarter that affected cash flow, and what drove the increase in accounts payable?
A: Kevin Hammons, President and CFO: The big timing issue was our annual 401(k) match payment, which is about $65 million to $70 million. This is a headwind in the second quarter, but we expect it to be helpful in the back half of the year. Collection is always stronger in Q4.
Q: What drove the shift in inpatient and outpatient volumes this quarter?
A: Kevin Hammons, President and CFO: Inpatient growth was driven by new bed towers and higher acuity service lines. Outpatient growth was strong due to investments in ambulatory surgery centers and other outpatient access points. We target investments to grow both inpatient and outpatient areas.
Q: What are your expectations for the back half of the year in terms of revenue and EBITDA?
A: Kevin Hammons, President and CFO: We expect revenue and EBITDA to be slightly better in the back half of the year, heavily weighted to Q4. We see a balanced growth between commercial and government-insured patients, with demand continuing to come back into the healthcare system.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
