Acadia Healthcare Company, Inc.

Good day, and welcome to Acadia Healthcare's third quarter of 2024 earnings call. All participants will be in a listen-only mode for the duration of the call. And should you need any assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. And to withdraw a question, please press star, then two. On today's call, we ask that you please limit yourself to one question and one follow-up during Q&A. Also, please be aware that today's call is being recorded. I would now like to turn the call over to Patrick Feeley, Hazard Investor Relations. Please go ahead.

Thank you, and good morning. Yesterday, after the market closed, we issued a press release announcing our third quarter of 2024 financial results. This press release can be found in the Investor Relations section of the AcadiaHealthcare.com website. Here with me today to discuss the results are Chris Hunter, Chief Executive Officer, and Heather Dixon, Chief Financial Officer. To the extent any non-GAAP financial measure is discussed in today's call, you will also find a reconciliation of that measure to the most directly comparable financial measure calculated according to GAAP in the press release that is posted on our website, as well as the 10-Q filed yesterday afternoon. This conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and including statements, among others, regarding Acadia's expected quarterly and annual financial performance for 2024 and beyond. These statements may be affected by important factors, among others, set forth in Acadia's filings with the Securities and Exchange Commission and in the company's third quarter news release, and consequently, actual operations and results may differ materially from the results discussed in the forward-looking statements. At this time, I'd like to turn the call over to Chris.

Thank you, Patrick, and good morning, everyone. Thank you for being with us for Acadia's third quarter 2024 conference call. We have a lot to cover today, but I want to begin with our results and key highlights of the quarter. I'll then provide a broader update on our quality standards here at Acadia, followed by a legal update. I will close with the discussion of how we drive outcomes for the vulnerable populations we serve and how we are expanding access to high-quality care for a patient population that so desperately needs it. During the third quarter, we reported strong results, with total revenue of $816 million, representing growth of 8.7% over the third quarter of 2023, driven by both rate improvement and patient day growth. This top-line growth, combined with solid operating leverage led to adjusted EBITDA growth of 10.5% over the same quarter last year. Underlying labor costs continue to trend favorably, and our initiatives around recruitment, retention, and engagement have helped attract and maintain talent. We've also made consistent progress against our bed growth targets. We are on pace to complete construction on approximately 1,200 beds this year, including nearly 700 beds in the fourth quarter from several new wholly owned and joint venture facilities. This includes hospitals and partnerships with Henry Ford Health in Detroit and Intermountain Health in Denver, Colorado, as well as a new acute care Novo facility in Madison, Wisconsin that was completed earlier this month. We're also on track to add over 400 beds to our existing facilities for the year. including over 300 expected in the fourth quarter. With that, I'd like to take this opportunity to remind you about our ongoing commitment to quality, safety, and compliance. At Acadia, our mission is to provide compassionate care that improves lives, inspires hope, and elevates communities. And when you consider the patient populations we serve in behavioral health and addiction treatment, They are truly amongst our nation's most acute, at-risk, and underserved. We play an incredibly important role in supporting these patients, and we take that role seriously. With respect to recent and accurate media reports about the care at our behavioral health facilities, we want to share more about how our facilities operate and how we aim not only to meet but exceed the standards that regulation requires. First, I want to be clear, medical necessity drives patient care decisions at Acadia. These decisions are made by licensed providers and adhere to all associated legal requirements. The allegation that Acadia systematically holds patients longer than medically necessary is false and goes directly against everything we do and stand for when it comes to patient care. If you've not already done so, I would encourage you to read our response at quality.acadiahealthcare.com, which importantly includes data that shows the average length of stay across Acadia's hospitals is in fact in line with the industry average and below those in government and nonprofit-run facilities. Behavioral health is complex. but it is clear that the need has never been greater for high-quality behavioral health care given the severe mental health crisis that our nation faces. It is estimated that more than one in five Americans live with a mental illness, and one in three Americans with serious mental illness are still receiving no treatment. Yet the United States has 40% fewer psychiatric beds per capita than comparable countries. It's a disease that impacts every family in our country. And every day, our 23,500 Acadia employees help fulfill our mission to provide compassionate care that improves the lives of patients and their families. We operate in one of the most highly regulated and supervised subsectors of healthcare. Our facilities, clinicians, and practices are routinely subject to oversight and inspection by various agencies to ensure compliance with regulatory requirements, including but not limited to robust CMS guidelines on all aspects of patient care documentation and billing. To give you just a sense of the oversight at our facilities, consider that over the past five years, our acute psychiatric hospitals have been subject to routine inspections and surveys by independent third parties and government agencies, such as the Joint Commission, CMS, and various state agencies an average of roughly five times per hospital per year. Like other well-run provider organizations, these hospitals are routinely subject to third-party audits, including chart reviews, both as part of routine regulatory reviews and part of our own internal compliance programs. They are also routinely subject to oversight from third-party payers. with utilization management efforts taking place before, during, and after patient stays. This oversight ranges from payer's own clinicians rounding with local providers within our facilities to retroactive chart reviews and payer audits. I want to stress that this type of oversight is important to help ensure that patients receive the best care available. The work we do matters. and our clinicians often must make difficult, critical decisions about life-saving care on a daily basis. We also believe it is important not to perpetuate myths that psychiatric care is ineffective or even harmful. At Acadia, clinicians follow industry standard, clinically driven admission and discharge criteria, and we hold ourselves to an incredibly high standard. With that, I'll provide a brief legal update. As we disclosed last month in September, we received a voluntary request for information from the U.S. Attorney's Office for the Southern District of New York, as well as a subpoena from the U.S. District Court for the Western District of Missouri related to admissions, length of stay, and billing practices. On the same day, one of our acute care hospitals also received a subpoena from the Western District of Missouri regarding similar subject matter. Since that time, the Southern District of New York has withdrawn its request. Furthermore, the Department of Justice, which issued the original subpoenas from the Western District of Missouri, has since withdrawn both of those subpoenas and is permitting the company to produce documents and information on a voluntary basis. As the organization within the federal government tasked with law enforcement, The Department of Justice is leading and coordinating efforts on behalf of multiple federal agencies and departments investigating similar matters, any of which may make their own request. The company recently received a subpoena from the SEC requesting similar information, and it's reasonable to assume that we could receive additional requests for information from other federal agencies in the future as long as the investigation is ongoing. We are fully engaged and will continue to work through this process. We believe strongly that quality care is foundational to everything we do. This is not new. We believe that quality, compliance, and safety not only are important from a patient experience and regulatory standpoint, but also are simply good business practices in the best interest of all stakeholders. I'd like to share some updates. on our quality focus and efforts since I joined the company back in 2022. For those who may have covered us for a while, you'll recall that in 2022 we committed to spending approximately $100 million in incremental technology investments to enhance patient and staff safety as well as augment care coordination. As a result, our acute care hospitals today employ wearable remote patient monitoring systems to make sure we're doing the best job we can of keeping patients safe. Similarly, our hospitals have implemented wearable safety technology for staff that enables expedited response times and mitigation of adverse events. We've also implemented software solutions that provide real-time tracking and oversight on clinical and quality operations at our facilities, including compliance with regulatory requirements. You will also recall that psychiatric facilities were specifically excluded from the 2009 HITECH Act, which provided billions in funding to hospitals and physicians for the implementation of electronic health records. As a result, the prevalence of EMRs in psychiatric facilities has lagged other parts of the healthcare industry. At Acadia, we found that unacceptable, and over the past two years have been implementing electronic medical records across our acute hospitals. This is enabling our clinicians to spend more time doing what they do best, focusing on patient care while enhancing our ability to leverage data and analytics, as well as enabling our providers efficient access to care information to provide the very best in care. Part of our quality reviews include an executive committee review, a peer review, and a review by the Joint Commission of Patient Charts, all of which are facilitated on a much more granular and simplified basis with EMRs in place. To highlight a few other areas of focus, two years ago we separated quality and compliance into two distinct specialized teams. Our chief medical officer and chief quality officer provide direct oversight on patient safety, clinical quality, and regulatory compliance initiatives, while our chief compliance officer provides direct oversight of our corporate compliance program, including ongoing chart audits to ensure accurate documentation, coding, and billing. Over the past two years, we have also implemented quality dashboards across our hospitals, and last year implemented monthly quality reviews to hold leaders accountable for quality. These efforts are resulting in better care, better outcomes, and better lives for our patients. In 2023, for instance, Eighty-one percent of our patients who responded to follow-up surveys, including involuntarily admitted respondents, reported feeling hopeful as a result of the care they received in our hospitals. And our payer partners have seen these results in their members as well. Many of our facilities have received Center of Excellence designation from some of the largest payers in the market. I'd like to conclude by speaking briefly about our ongoing commitment to expanding access to lifesaving treatment. As I noted, there remains a significant unmet need for behavioral health care services in our country. Behavioral health-related deaths in the United States remain at or near all-time highs. According to the CDC, 49,000 Americans died of suicide in 2022. During that same year, more than 100,000 Americans died due to drug overdose deaths. Meanwhile, the inpatient psychiatric industry remains fragmented and underbedded, a result of decades of underfunding and underinvestment that has exacerbated the supply-demand imbalance. Notably, based on standard clinical benchmarks, It's estimated that approximately 75,000 additional beds are required across the country to meet estimated needs. And according to SAMHSA, nearly 30 million Americans with mental illness receive no mental health treatment. Put simply, the need for behavioral health care in this country is increasing, while the number of available beds has been decreasing, creating a broadening gap and leaving those patients who need the most care unable to get it. So to meet that need, Acadia is in the process of investing billions of dollars to expand access over the next several years, including the expected construction of over 2,000 beds over the next two years. This continues to be an attractive use of capital, and we expect new bed capacity will help drive accelerating volume growth in 2025 and beyond. We remain committed to investing to expand access to the high-quality behavioral care that is so desperately needed in this country. Finally, and has always been the case, we also cannot indefinitely fund facilities if there is not a path to viability or strong patient utilization. That would be an irresponsible use of resources that could be deployed where more acutely needed. Therefore, as we've done historically, from time to time, We will take action to deploy resources or close facilities. During the third quarter, we made the decision to close two subscale satellite programs in one of our markets that together comprised 104 beds. With that, I'd like to turn the call over to Heather to discuss our financial results for the quarter and forward guidance.