Community Health Systems Q3 2024 Earnings Call Transcript

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October 24, 2024

Key Takeaways

  • Improved volumes: Same‐store admissions rose 2.4%, adjusted admissions 2.6%, and surgeries grew 3.1%, driven by outpatient expansion.
  • Hurricane headwinds: Hurricanes Helene and Milton forced three evacuations, causing ≈$7 M Q3 revenue loss and leaving ShorePoint Punta Gorda closed into Q4.
  • Rising denials: Payer denials, notably in Medicare Advantage, doubled year-over-year, creating a ≈$10 M EBITDA drag and slowing cash collections.
  • Cost control gains: Contract labor spend fell 24% YoY, average wage gains held to 3.9%, and supply expense dropped 1.3% per adjusted admission.
  • Guidance cut: 2024 adjusted EBITDA outlook trimmed to $1.50–$1.54 B, reflecting hurricane impacts and denial pressures.
AI Generated. May Contain Errors.
Earnings Conference Call
Community Health Systems Q3 2024
00:00 / 00:00

There are 9 speakers on the call.

Operator

Please note this event is being recorded. I would now like to turn the conference over to Anton Hife, Vice President of Investor Relations.

Operator

Please go ahead.

Speaker 1

Thank you, Dave. Good morning, and welcome to Community Health Systems' Q3 2024 Conference Call. Participating on today's call are Tim Hynchon, Chief Executive Officer Kevin Emmons, President and Chief Financial Officer and Doctor. Miguel Binet, Executive Vice President, Clinical Operations. 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.

Speaker 1

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 ks 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. 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.

Speaker 1

All calculations we will discuss exclude impairment expense as well as gains or losses on the sale of businesses, expense from government and other legal matters and related costs, expense from business transformation costs, expense related to employee termination benefits and other restructuring charges and change in estimate for professional claims liability. With that said, I will turn the call over to Tim Henshin, Chief Executive Officer.

Speaker 2

Thank you, Anton, and thanks everyone for joining our Q3 earnings conference call. I'd like to begin by addressing the impact of back to back hurricanes Helene and Milton. The hurricanes impacted several of the communities we serve, primarily in Florida, Georgia and East Tennessee. As a result, in late Q3 and early Q4, CHS hospitals most likely to experience severe impact ramp down services and canceled elective procedures. In total, 3 of our facilities were evacuated and closed consistent with local orders.

Speaker 2

The biggest impact occurred in our ShorePoint Health System located south of Tampa, Physicians Regional Health Care System in Naples and Tonova Newport in East Tennessee. Most significantly, Shore Point Punta Gorda experienced major damage due to flooding. The hospital remains closed today and remediation efforts are currently underway. Hurricane readiness and response has proven to be a core competency at CHF and I want to note that the effort to safely evacuate patients was enabled by terrific coordination between our hospitals, our CHS transfer center operation and numerous other corporate resources that work around the clock to be ready for Helene and then Milton. Our hearts go out to all affected by these terrible weather events.

Speaker 2

And I just want to mention that our CHS Cares Fund, which was established to help employees in need of financial assistance following an unforeseen disaster or situation, has already been supporting hundreds of impacted team members. Kevin will talk more about the financial impact of the hurricanes on the Q3 results in just a moment. Despite the late quarter hurricane impact, same store volumes improved with a 2.4% increase in admissions and a 2.6% increase in adjusted admissions over the prior year quarter. Surgeries improved 3.1% led by growth in lower acuity outpatient cases driven by our consistent investments into ambulatory surgery sites of care. While patient demand for services was good overall, inpatient acuity skewed lower than expected affecting net revenue, which totaled $3,090,000,000 in the quarter.

Speaker 2

Adjusted EBITDA was $347,000,000 Our Q3 results were impacted by a continued increase in denials and downgrades by insurers. We are seeing some payers aggressively deny payment for medically necessary services that have been provided for our patients. For several quarters now, the challenges we and our industry are facing regarding increasing denial activity by payers has been well documented. And over the last few years and in response to this challenge, we have stood up and enhanced utilization review program and centralized physician advisor services to ensure our patients are placed in the correct care status and that we receive the appropriate payment for their care. As a result, our physician advisor service has been able to obtain a high rate of reversal on initial payer denials.

Speaker 2

Nevertheless, the rate of denial activity by payers continues to grow and has continued to pressure our top line. We are making incremental investments in our centralized patient financial services processes and team as well as our physician advisor program to continue to advocate for the appropriate classification of care for our patients and payment for the services our health systems provide. While the quarter did not fully meet all of our expectations, I remain very proud of our team's ability to face unexpected challenges head on, and I'm optimistic about our opportunities. We expect normal seasonality improvements in the 4th quarter, and we remain optimistic that our focus on adding incremental inpatient capacity, outpatient access points and recruitment of specialists necessary to grow higher acuity service lines will position our health systems for growth into 2025 beyond. We have been delivering upon our strategic growth plans across our health systems fueled by key capital investments.

Speaker 2

A few recent and notable investments include our Knoxville North Tower expansion, which opened earlier this year and is ramping up well. The new capacity was a catalyst for strong incremental patient volumes, posting a double digit increase versus the same quarter last year. And this Saturday, we are opening a new patient tower in incremental surgical capacity in Baldwin County, Alabama. These developments are core components of the nearly $200,000,000 campus expansion taking shape there, all of which will create capacity for incremental market share gains in this rapidly growing region. On the outpatient side, we now operate a total of 18 freestanding ED locations following the opening of new centers in Huntsville, Alabama and Lake Granbury, Texas.

Speaker 2

We also completed the expansion of the hospital emergency department at Grandview Medical Center in Birmingham, Alabama. All of these projects have resulted in immediate volume growth. And we recently announced a definitive agreement to acquire Carbon Health's 10 urgent care locations in the Tucson, Arizona market. This will expand our urgent care footprint to 17 locations across that market. We expect that transaction to close this quarter.

Speaker 2

My confidence in our strategic direction, health system leadership teams and especially the women and men who provide care for our patients is at an all time high. The services we provide are critically important to our patients and communities and our commitment to provide that care while also achieving strong operating and financial results is unwavering. With that, Kevin, let me turn the call over to you.

Speaker 3

Thank you, Tim, and good morning, everyone. Underlying demand for care in our markets remained strong, leading to the same store volume growth, including a 2.4% increase in admissions and a 2.6% increase in adjusted admissions. Same store ED visits were up 0.8% and surgeries were up 3.1%. As a result of Hurricane Helene, during the Q3, one of our facilities was forced to evacuate patients and several facilities saw delays in scheduled electives. We estimate an approximate $7,000,000 impact during the Q3 from missed revenue and incremental costs.

Speaker 3

However, ShorePoint Health Puna Gorda remains closed due to the extensive damage suffered from both hurricanes and will continue to be a headwind throughout the Q4 as it will be closed for the remainder of the year. Net operating revenues for the quarter were $3,090,000,000 up slightly year over year on a consolidated basis. On a same store basis, net revenue increased 5.1%, which remained consistent with our target for mid single digit growth for the year. The same store top line growth was driven by the 2.6% increase in adjusted admissions, along with 2.5% growth in net revenue per adjusted admission, which largely reflects improved rates and incremental reimbursement under state Medicaid programs, partly offset by lower acuity. We were pleased to see solid volume growth, including growth in our commercial book.

Speaker 3

However, the service line mix of the business was less favorable than expected, with overall case mix index down 60 basis points from prior year, reflecting declines in both the surgical mix and the surgical CMI. Adjusted EBITDA for the 3rd quarter was $347,000,000 compared with $360,000,000 in the prior year period. Margin for the quarter was 11.2%, down from 11.7% in the prior year period. Contributing to the lower than expected EBITDA, we have continued to experience significant increases in initial denials and downgrades by managed care plans, with more than half of the incidents coming in the Medicare Advantage book. While denial activity is not new, the tactics used by the payers have become more aggressive, and we have experienced an approximate doubling of denials in the quarter compared with the prior year, which is an increase above our expectations.

Speaker 3

This resulted in an approximate $10,000,000 headwind for the quarter. As Tim noted, we are taking action to help ensure that the care we are providing is properly classified and reimbursed, including further expansion of our centralized physician advisor program, along with additional steps to mitigate increased denials in the future. Moving to expense management. We were once again pleased with our performance on labor costs. Average hourly wage rate increased 3.9% year over year, consistent with our expectations for the full year.

Speaker 3

Contract labor spend was down 24% year over year and declined $4,000,000 sequentially to $41,000,000 in the 3rd quarter, which was better than our expectations and reflected the continued progress made possible by our recruitment and retention efforts. We continue to see a meaningful improvement in controlling supplies expense, which on a same store basis was down 1.3% per adjusted admission in the Q3. As we move more hospitals onto our new ERP, we are gaining additional insights we can leverage to improve efficiencies and reduce supply expense. Medical specialist fees increased $15,000,000 or approximately 10% from the prior year period, with notable pressure in anesthesia. This was slightly higher than expected in Q3, but overall, we remain pleased with the progress of our hospital based provider in sourcing initiative.

Speaker 3

Since launching in August of 2023, the in source platform has expanded significantly in coverage of ED and hospitalist programs and is only just beginning in anesthesia with the 1st large market coming online in the Q4. We have an active pipeline of additional programs coming in house in the coming months and many others under consideration. During the quarter, we booked a $149,000,000 increase to our professional claims liability accrual based on a review by our new actuator. This change in estimate considers the national trend of outsized verdicts and propensity for larger claim settlements that have been experienced more recently, which is broadly being referred to in the industry as social inflation and the exposure of adverse development in our outstanding claims if this environment persists. Although we've not been the subject of any recent nuclear verdicts, we have experienced increased settlement amounts over historical averages, including those in jurisdictions that have historically resisted this behavior.

Speaker 3

Furthermore, the majority of this change in estimate relates to claim activity and development from previously divested hospitals and is therefore not reflective of our current run rate of new claim activity, which has been much lower as we have made material improvements in our safety and quality outcomes. In fact, our improvements in some cases are industry leading, and I've asked Doctor. Miguel Binet to comment for just a minute on some of these most recent accomplishments. Doctor. Binet?

Speaker 2

Thank you, Kevin. CHS has a long standing commitment to advance clinical quality and patient safety, and that commitment is ingrained into our culture at every level of the organization. We're very proud of the many positive results that we are achieving, especially this year, and we are confident that we can continuously improve quality and safety, producing better outcomes and higher value for our patients. DHS began monitoring our organization wide serious safety event rate more than a decade ago. Significant improvements in this area have saved lives and spared thousands of patients from preventable harm.

Speaker 2

That work continues and I would like to highlight achievements in 3 specific areas including, first, we've achieved a nearly 20% improvement in our risk adjusted mortality index in the prior year period, which puts CHF in the top or top of all U. S. Hospitals. There are many initiatives that have led to this accomplishment, including a company wide focus on immediate treatment of patients with sepsis. We've also achieved a nearly 24% improvement versus the same period last year in our patient safety and adverse event composite from CMS, which measures effectiveness in protecting patients from complications.

Speaker 2

The improvement places CHS in the top 5% of hospitals nationwide. And we're pleased to report a 27% year over year improvement in our precursor safety event rate, continuing our trend of reducing serious safety events almost every quarter since the baseline was established in 2012. Our data science program is maturing and providing insights to help identify areas like these, where we can optimize our clinical outcomes and deliver further improvements across the organization. Of course, it is the physicians, nurses and other caregivers who commit daily to providing high quality care for their patients and make these accomplishments possible. We certainly appreciate your dedication to quality and safety.

Speaker 2

With that, Kevin, I'll turn it back over to you.

Speaker 3

Thank you, Miguel. Back to our financial review. Cash flows from operations were $67,000,000 for the Q3 of 2024 compared with $29,000,000 in the year ago period. The year over year improvement in cash flow primarily reflects improved cash flow from changes in working capital, including conversion of accounts receivable as expected. Capital expenditures for the Q3 of 2024 were $70,000,000 and for the year to date were $251,000,000 on track for our 2024 guidance range of $350,000,000 to $400,000,000 In August, we completed the divestiture of Tenova Cleveland and used part of the proceeds to extinguish approximately $143,000,000 of principal value of our 5.5 percent senior secured notes due 2027 through open market repurchases utilizing cash on hand.

Speaker 3

We continue to make progress towards our $1,000,000,000 divestiture plan. We anticipate the majority of the remaining transactions to be complete to complete this plan will likely be signed in the Q4 with final closings carrying over into the Q1 of 2025. At the end of the order, net debt to trailing adjusted EBITDA was 7.6x, consistent with the prior quarter and improved from 7.9x@yearend2023. We continue to believe we have more than adequate liquidity to meet our needs going forward, with approximately $440,000,000 of borrowing capacity under the ABL, along with pending asset sale proceeds. Our implementation of a new ERP and workflows along with standardization of data under our project Empower enters the final innings.

Speaker 3

As of October 1, we have all of our subsidiaries up and running on the new financial and supply chain platforms and transitioned into our shared service environment. We are on track to complete the implementation of the ERP by transitioning onto the new workforce management tools for HR, payroll and timekeeping, thus completing the bulk of the transition work in the Q1 of 2025. As we enter 2025, we will benefit by having the investment in disruption behind us, and we can focus on optimizing our use of the new tools and benefit realization. With 1 quarter remaining in 2024, we

Speaker 2

are adjusting our guidance range

Speaker 3

as we continue to assess the impact of Hurricane Tulane and Milton on our operations. Specifically, we now anticipate 2024 adjusted EBITDA of $1,500,000,000 to $1,540,000,000 which, consistent with prior guidance, does not include any contribution from potential new supplemental payment programs nor does it assume any future divestiture activity. While not yet providing formal guidance for 2025, in response to repeated investor inquiries and in the interest we are providing an initial estimate of the potential benefit from the new or expanded state directed payment programs in New Mexico and Tennessee. Both programs have been approved by the respective legislatures and governors and submitted to CMS where they are currently awaiting approval. At this time, based on our interpretation of the programs as designed and the various puts and takes, we estimate an aggregate EBITDA benefit of approximately $100,000,000 to $120,000,000 annually.

Speaker 3

This concludes our prepared remarks. So at this time, we'll turn the call back over to the operator for Q and A.

Operator

We will now begin the question and answer session. Our first question comes from Brian Tanquilut with Jefferies. Please go ahead.

Speaker 4

Hey, good morning guys. Maybe Kevin, I'll touch on that last comment you made just on the DPP. So $100,000,000 to $120,000,000 this is just for New Mexico and Tennessee? And then is this net of provider taxes? Just to clarify that.

Speaker 3

Yes. That is the aggregate amount from both Tennessee and New Mexico on an annual basis and is the net EBITDA benefit. So that would be net of the provider taxes. So there would be a gross up impact on net revenue and then additional expense. It is also net of what we may see in terms of sunsetting some existing reimbursement benefit and maybe some additional cost that we could incur as a result of these plans being approved as we've seen in the past in some other states.

Speaker 3

So that is what our current estimate is of our EBITDA benefit on an annual basis. I would remind everyone that if those are approved in the Q4 as we expect, they will be those plans are retroactive back to July 1, 2024. So we could potentially get 6 months worth of that again if CMS approves them during the Q4.

Speaker 4

Understand. And maybe, Kevin, as I think about your EBITDA guidance change and the free cash flow guidance change, maybe if you can bridge me from that $40,000,000 cut to EBITDA to the $100,000,000 or $100,000,000 or so cut to free cash flows, just curious?

Speaker 3

Sure. There's a couple of other things that I'd point out. So obviously, a big one there is the reduction in EBITDA. The denials, and it's really the slowdown in the adjudication process, is also having an impact, on our cash collections. A number of the claims that have been denied are still not through the final adjudication process, and that seems to be continually slowing down.

Speaker 3

So we've taken that into consideration. There is a small amount of some state program monies that we had thought might get approved in the Q3 that will be approved in the Q4, but the cash for those will likely slip into the Q1 of 2025. So that's just a matter of timing. And then with one of the divestitures in Pennsylvania that we have announced that we expect to close in the Q4. We are selling working capital with that.

Speaker 3

So that working capital will get pulled out, and the anticipated collections related to those receivables won't be in the Q4.

Speaker 5

All right. Got it. Thank you.

Operator

The next question comes from A. J. Rice with UBS. Please go ahead.

Speaker 6

Thanks. Hi, everybody. Just to go back to that guidance change on the EBITDA. So reduction of about $40,000,000 at the midpoint. I think $18,000,000 of that is in 3rd quarter variance, hurricane and otherwise.

Speaker 6

So that leaves about 22 for the Q4, if I've got the numbers right. You've got, I'm sure, additional hurricane impact given the timing of the second hurricane. You probably I don't know whether there's a change in your accruals for liability based on the update charge in the Q3, but is that part of the dynamic? And then are you making any operational changes in your assumption for the Q4?

Speaker 3

Thanks, A. J. So I think your math there is right, about $18,000,000 of the $40,000,000 change at the midpoint is the quake of the miss in Q3. Then I would say the remainder is really split between the Q4 hurricane impact with Puna Gorda being shut down for the entire quarter as well as the disruption we had when Milton hit early in the quarter. There's certainly some EBITDA or some EB business that we won't get back from those days.

Speaker 3

Hopefully, we'll recover some of the elective surgeries. There really is no operational changes being made. In terms of the Med Mile expense, our increased liability really does not impact our go forward run rate materially. We have already been increasing the run rate of expense. So that's kind of been baked in.

Speaker 3

And this adjustment really was going back and looking at the base claim amounts. But in terms of run rate, we don't see that having a big impact. I do also want to point out relative to our guidance change on net revenue, we did bring down net revenue of $100,000,000 at the midpoint. And that's largely due to reflecting the announced divestitures in Commonwealth and North Carolina, the one small hospital in North Carolina and taking the 4th quarter revenue down because we expect those to be complete deals to close here during the quarter. And then a smaller portion of that net revenue adjustment was again the hurricanes and denials.

Speaker 6

Okay. That makes sense. Maybe just my follow-up question on those denials you're seeing. You said it's mainly concentrated Medicare Advantage plans. When you drill down, is this mostly related to the change associated with the 2 midnight rule that MA plans are having to absorb and that's creating confusion?

Speaker 6

Or is there other areas of focus on these denials that are being implemented?

Speaker 3

How I would describe that is, I think maybe the 2 midnight rule is the impetus, but we're just seeing the payers be more aggressive across many areas of denials. So they're expanding the population of claims, which they're denying. And we're seeing it again, the majority of it is in the MA book, but we're seeing more denials in the commercial book as well. So that's where we're seeing the impact above what the prior trends and above what we had previously anticipated.

Speaker 6

Okay. Thanks a lot.

Operator

And the next question comes from Andrew Mook with Barclays. Please go ahead.

Speaker 5

Hi, good morning. Just wanted to follow-up on this denied claims headwind. 1, when did that start to materialize as a headwind in the quarter? And 2, what can you do to combat this going forward? Do you have a stronger appeals case for these newer denials than what you would typically have?

Speaker 3

I think it was really kind of throughout the quarter. That they've continued to ramp up. And really, it's the slowdown of the adjudication process that continues to kind of expand. And we're as noted by our adjustments in our guidance in the Q4, at this point, we're expecting that to continue to be a problem somewhat going forward as well. So I can't say that there's there wasn't one event during the quarter that would have pointed to, hey, this is changing, but we just continue to see a slow ramp up in denials as well as the time frame for the adjudication process.

Speaker 3

We have been successful in about 25% of the cases that have been denied. And these are we're looking at cases greater than 2 midnights that have been denied. We've been successful in about 25% of those, getting those paid and inpatient. But there still remains a material amount, almost 70% of those initial denials from claims this year that are no longer or that are still out of the field, still in the process of not being final adjudicated.

Speaker 2

Yes. Andrew, this is Tim. I'll add on to that. We have been experiencing increased denials throughout the year, but most of that claims activity is coming out of the prior year because there's quite a tail on the actual denial appeal process. So what we saw in this quarter was an acceleration off of the run rate that we had in the 1st and second quarter and that's the $10,000,000 delta Kevin called out.

Speaker 2

It was that's the incremental increase that we did not expect that bounced in the Q3.

Speaker 5

Got it. And if I could just follow-up, is this broad based activity across most of your payers? Or is this more concentrated among a few? Thanks.

Speaker 2

It's relatively broad based.

Speaker 3

Yes, I would agree. And maybe to your other question about things that we're changing or can do going forward, we do now are in a position to have physician advisor coverage across our entire portfolio as well as having a more robust kind of appeals capabilities to go after some of these initial denials.

Speaker 5

Great. Thanks for the color.

Operator

The next question comes from Ben Hendricks with RBC. Please go ahead.

Speaker 7

Thank you very much. Just to follow-up on the $22,000,000 of the EBITDA guidance that's expected in the 4th quarter. Is it possible to parse that out between the impact from Punta Gorda and the other hospitals versus claim denials? Just trying to get an idea of if those claim denials are expected to continue to accelerate into Q4? And then if there's any impact on acuity in that number from the outpatient acuity, if there's just if you can just parse out kind of the impact within that 22,000,000

Speaker 3

dollars Yes. I would say more than half of that $22,000,000 is hurricane impact. I would say the denial impact would look similar to Q3 and then the remainder being hurricane impact.

Speaker 7

Thanks for that. Just a quick follow-up on the softer acuity. Can you talk to the drivers of that outpatient acuity softness? Is that just calendar related? We heard one of your peers talk about kind of forecast expectations for maybe some higher volume of lower acuity in the second half.

Speaker 7

I'm just wondering if you see that persisting through the rest of the year and then how that might look like for 2025? Thanks.

Speaker 2

Ben, this is Tim. I'll start us off and invite Kevin or Miguel to chime in. Just to clarify, the softness in the acuity that we called out was on the inpatient surgery side of the business. We had good strong surgical growth in the quarter as we pointed out earlier in our remarks, but that was primarily on the outpatient side of the business. We did see growth on inpatient surgery, but they were in the lower acuity inpatient surgery category.

Speaker 2

I think impacting that inpatient surgical acuity was just continued side of care migration of our total joints to the outpatient side. So last year and in previous quarters, we had more inpatient total joints. We see more of that migrating into the ambulatory surgery environments. And just to clarify, we believe we're capturing that within our ambulatory surgery environments. We did a large expansion in one of our orthopedic focused ASCs in Indiana that is really ramping up very nicely.

Speaker 2

So that does have an impact on the surgical acuity. We did see softer inpatient surgery volumes on elective spine cases. We saw some softness on the CVT and vascular services. Those are the areas where we believe we'll pick those back up in the Q4 with focused efforts of nugging those patients back in for their care. Just to point out, our clinic visits in the Q3, we always say that's a decent bellwether of what we can expect for volumes down the road.

Speaker 2

We did have really strong clinic visits even factoring in the hurricane impact market. We have no reason to believe that demand is just softening overall. We believe it's more of a timing issue.

Speaker 7

Thank you.

Operator

And the next question comes from Stephen Baxter with Wells Fargo. Please go ahead.

Speaker 5

Hi, thanks. I know it's early for 2025 commentary, but just wanted to get your sense of how we should think about perhaps 2024 revised guidance as a jump off point because I guess first wondering like is it reasonable to expect essentially getting back all of the hurricane headwind as we move into 2025 or would you expect that there would be any lingering disruption there? And I guess as we think about this incremental $10,000,000 of denials, I assume obviously you're factored in something similar for the Q4. I guess, what we also then have to consider the headwinds and maybe Q1 and Q2 before you lap that and maybe all these things are offsetting and this is a good jump off point? Or should we think about it perhaps differently, let's get some insight there?

Speaker 3

Sure. So there are some moving parts, but I think 2024 is a good jumping off point. We will have some divestitures here either in late Q4 or early Q1 that would need adjusted. Certainly, the DPP programs, which are not in 2024 and not in our guidance, that we're hopeful to get approved here in the Q4, but we certainly expect those to be in place in 2025, assuming CMS approves those. So that's kind of a meaningful change for us.

Speaker 3

In terms of disruption around the hurricane, it will take some time before we get insurance, business interruption insurance settled. But some of this disruption that we're seeing here in the 3rd Q4, we will be getting reimbursed through business interruption insurance. But again, that will take some time, and it's not going to be this year. And I would hope that with a full year ahead of us in 2025 that we can come to some agreement with the insurance companies and get that settled in, in 2025 as well as having some reimbursement for property damage in 2025 as well. So again, some moving parts, but I think from base operations, we're continuing to make progress with some of our strategic investments, opening the new tower

Speaker 1

here in the Q4 that Tim mentioned

Speaker 3

and earlier in the year another one in Knoxville. And as we continue to recruit specialists and make other investments in outpatient locations, I think we can continue to grow volume and grow earnings from there.

Speaker 2

I think that's well said. Stephen, I'll add on in terms of hurricane disruption. For the Punta Gorda facility that remains closed, that's part of our Short Point Health Network, which has a larger hospital in Port Charlotte. We have been successful in migrating some of that care over to the Port Charlotte campus to mitigate some of that disruption of having a campus shutdown, but we do not have the access for ED services. We also had a larger behavioral health program that is running at a more reduced capacity in the Port Charlotte campus.

Speaker 2

So there's some things that we can't necessarily overcome within 1 quarter. So just want to put some color around that. In terms of the timing of Milton unlike Helene happening in the last week of the quarter, with Milton being in the 1st week of the quarter, we do see opportunities to work those patients back into the surgical side, the procedural side of the business for sure through the remainder of the quarter. We stay close to those patients and providers. Right now, it's commonly the case after a major Nashville disaster.

Speaker 2

Those patients maybe don't come back the 1st week or second week after an incident like this. They're trying to get their homes and their lives back in order, but we believe we can get them back in by the end of the quarter.

Operator

And the next question comes from Brian Tanquilut with Jefferies. Please go ahead.

Speaker 4

Hey, thanks for letting me ask a follow-up. Maybe Kevin, as I think about the revenue per adjusted admission, the KPI for the quarter, just curious, I mean, as I look at the payer mix improving, obviously, you called out acuity, but how should we be thinking about putting all that together and the outlook for revenue per admission?

Speaker 3

There's opportunity to continue to grow that. Certainly, getting acuity back will be beneficial. A couple of the other moving parts there, Brian, I would point out is with redetermination, and we've lost some Medicaid business, but we are picking up more in health care exchanges, which is beneficial to us. We have seen some movement from commercial insurance into health care exchanges, which isn't beneficial but still in the managed care numbers. We've had some geographic movement during this quarter.

Speaker 3

And not all commercial contracts in all locations are equal. So if you lose have lower commercial business in one location that may have higher rates and you're picking up commercial business in another location that has lower rates, It's still flowing through his commercial business and commercial volume, but we may have been reimbursed less for it. So there was some geographic movement during the quarter. All that, I think, kind of washes out

Speaker 1

in the end over the course of

Speaker 3

the year, and we don't see that being a headwind for us going forward and think we'll continue to grow off of that. Reimbursement rates, as you know, for Medicare are going to be favorable for next year. On our commercial contracting, we're seeing increases similar to what we've experienced this year. And then with some of the Medicaid PPP programs could materially increase our realization on Medicaid business going forward.

Speaker 4

And then maybe Kevin, one last for me. As I think about the divestitures, I mean, you sound fairly confident that we're still on track to hitting some of your goals there. How are you thinking about valuation and just the ability to close deals or at least announce deals by year end given

Speaker 2

some of the

Speaker 4

moving pieces in the industry right now?

Speaker 3

Yes. I would say for this $1,000,000,000 book that we're trying to get completed here, it's going to average out to about a 10x multiple. And these facilities will average out. There'll be probably high single digit margin hospitals at a 10 multiple. So 1, it should help our leverage.

Speaker 3

2, it should help our margin profile going forward. So and that's pretty consistent with where our valuations have been in the past, over the past several years, at least on average, where we've been in the 10 to 12 times multiple. So still feel very good about the multiple that we're getting and being able to get these across the finish line.

Speaker 5

Awesome. Thank you.

Operator

And the next question comes from Josh Raskin with Nephron Research. Please go ahead.

Speaker 8

Hi, thanks for fitting me in here. So just want to confirm Tennessee and New Mexico, I know you talked about a potential retro of a half year, maybe $50,000,000 $60,000,000 I assume that's not in guidance for 4Q, right? You're waiting for that to be completed at CMS level, right?

Speaker 3

That is correct. It is not in our guidance for 2024. We've kept it out of guidance because it's not approved by CMS yet and had not previously quantified it. But at this point, we did want to quantify at least what an annual amount looks like to give you some insight of how we're thinking about this going forward.

Speaker 8

Got you. And then I'm just curious, we're hearing a lot about these IV shortages. And I'm curious if you're seeing any impact that you're at the hospitals in terms of procedures and at that level. Are you seeing any impact from these IV shortages at this point?

Speaker 2

Hey, Josh, this is Miguel Vane. So far, we have not experienced any operational disruptions in large part because faster is not our primary source for IV fluids. We largely partner with BD for sourcing those stocks. Also, we are aware, of course, of the broader risk in the industry because of the shortages due to the faster plant destruction and about potential buying across the industry to basically ramp up stock. So in preparation for that, teams have implemented, the logistics efforts and the shifting of inventory between our affiliated hospitals and basically stocking up so that we can stay ahead and keep our operations flowing without interruption.

Speaker 8

Okay, perfect. And then just last one for me. Just on the exchanges, do you get a sense of what percentage of your admits are coming from the exchanges at this point? And then has that slowed down at all as the reverification process in Medicaid has come to an end?

Speaker 3

Our kind of percentage exchange business is about 7%, roughly, which is consistent with national averages of kind of the population enrolled in exchange business. So I think we're pretty close to national average as it relates to that. We've not seen any real material change recently, I guess, in that other than to say that we are picking up some additional exchange business as states have taken some of the Medicaid people off the Medicaid roles. We have seen a decline in Medicaid volume and a pickup in exchange volume without seeing much of a change in our uninsured business.

Speaker 8

Thanks.

Operator

This concludes our question and answer session. I would like to turn the conference back over to Mr. Tim Hinchen for any closing remarks.

Speaker 2

Thank you, Dave, and thanks to all of you for joining our call today. As always, if you have additional questions, you can reach us at 615 465-7000. Have a great day.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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