Community Health Systems, Inc.

Jay, and thank you for standing by. Welcome to Community Health Systems' fourth quarter and year-end 2021 earnings call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker for today, Mr. Ross Como, Vice President of Investor Relations.

Thank you, Jay. Good morning, and welcome to Community Health Systems' fourth quarter and year-end 2021 conference call. Joining me on today's call are Tim Hinchin, Chief Executive Officer, Dr. Lynn Simon, President of Clinical Operations and Chief Medical Officer, and Kevin Hammonds, President and Chief Financial Officer. Before I turn the call over to Tim, I'd like to 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 Securities and Exchange Commission. As a consequence, 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. For those of you listening to the live broadcast of this conference call, a supplemental slide presentation has been posted to our website. We will refer to those slides during this earnings call. All calculations we will discuss also exclude loss or gain from early extinguishment of impairment expense as well as gains or losses on the sale of businesses, expenses from government and other legal settlements and related costs, income and expense from the settlement of professional liability claims for which the third party insurer's obligation to insure the company for the underlying loss has been settled, expenses from settlement and legal expenses related to cases covered by the CBR, expenses related to employee termination benefits and other restructuring charges, change in tax valuation allowance, and gain on sale of equity interest in Macon Healthcare LLC. With that said, I'd like to turn the call over to Tim Henschen, Chief Executive Officer. Thank you, Ross.

Good morning, everyone, and welcome to our fourth quarter and year-end conference call. 2021 was another strong year for CHS. We advanced key clinical and operational initiatives and made strategic investments that positioned the company for future growth. Leaders across the organization executed their plans to achieve strong operational and financial performance, and we finished 2021 with a solid fourth quarter. We certainly confronted the same challenges as others in the healthcare industry as COVID-19 negatively impacted patient volumes and various expense categories. But once again, our teams demonstrated their ongoing commitment and resourcefulness. adeptly managing through the evolving and at times unpredictable environment. I remain deeply grateful for all of our caregivers. The exceptional work of our healthcare teams, including nurses, physicians, therapists, and others, has been essential to the delivery of high quality patient care. We are proud of the service we provide in our communities and the critical need our healthcare systems fulfill in cities across the country. COVID remained widespread in the second half of 2021. First, the Delta variant peaked in the third quarter, and as those cases slowly dissipated during the fourth quarter, the Omicron variant spread across many of our markets, eventually peaking in January. During the fourth quarter, we provided care for approximately 8,000 inpatient COVID admissions, or 8% of our total admissions, which was lower than the 13% of total admissions experienced in the third quarter and similar to our experience in the first quarter of 2021. Non-COVID healthcare demand during the fourth quarter was higher than prior quarters despite elevated COVID-19 cases. Looking at the fourth quarter on a same store and year-over-year basis, net revenue increased 6.7%. Same store admissions decreased 3.9% while adjusted admissions were up 1.7%. Surgeries increased 5.7% and ER visits were up 11.8%. Comparing our fourth quarter volumes to the pre-pandemic fourth quarter of 2019, same-store admissions were at 93%, while surgeries showed strengthening, finishing at 98%. While non-COVID-related volumes continue to trail pre-pandemic baselines for the industry, we expect to meet deferred demand as it returns to the healthcare setting over the next several quarters. On a consolidated basis, adjusted EBITDA was $540 million in the fourth quarter. Excluding pandemic relief funds, adjusted EBITDA was $494 million, up 7% year-over-year. An adjusted EBITDA margin of 15.3% was up 50 basis points compared to the prior year. As a reminder, we raised the midpoint of our adjusted EBITDA guidance three times last year. and we ended up slightly above the high end of our updated full year guidance. And it's worth noting that cash flow from operations was also strong and came in above our previously increased guidance range. Our strong financial performance is made possible by targeted operational initiatives and strategic investments that also advance patient care, enhance competitive position, and that will drive incremental EBITDA growth and generate additional free cash flow going forward. And over the past couple of years, we have transformed and strengthened the company. Today, we operate across 48 specific markets in 16 states. Our markets are primarily suburban and medium-sized metropolitan areas, mostly across the Sunbelt and locations with good economic and population growth. We've expanded our markets well beyond traditional hospital operations and now operate more than 1,000 healthcare sites across the continuum of care. In addition to our 83 hospitals, the portfolio consists of 42 ambulatory surgery centers, 17 freestanding emergency departments, 60 urgent care and walk-in clinics, and more than 600 physician practice locations. Scalable initiatives across the enterprise are designed to achieve clinical advancements, operational improvements, and growth. Beginning with growth, we invested $469 million of capital into our markets in 2021. using a balanced investment approach that increases inpatient capacity while also expanding access and outpatient services. We have recently added new hospital beds in surgical and procedural suites in key markets, including Birmingham and Huntsville, Alabama, Knoxville, Tennessee, and Austin, Texas, among others. New hospitals have been opened in Fort Wayne and La Porte, Indiana, and in Tucson, Arizona, where another new hospital, our fourth hospital in the Tucson market, is planned to open in the first half of this year. On the outpatient side, we opened three new ambulatory surgery centers and three new freestanding emergency departments in 2021. And strategic joint venture partnerships are expanding our services in the areas of behavioral health, rehabilitation services, and long-term acute care. A good example of our balanced investment approach can be seen in our Naples, Florida market, Since 2019, we've increased bed capacity by 38% by expanding our two existing hospital campuses. And in January, we opened a new campus on the north side of the city. At the same time, we've expanded outpatient access with two new medical office buildings totaling over 130,000 square feet, and we've aggressively recruited physicians in this community. The market's focus on service line development has produced organic growth in nearly every specialty. with notable advances in cardiac services, digestive health, and urology. We have increased market share and will grow further with an additional 80 licensed beds on track to be added before the end of this year. Other growth initiatives include our ACOs, provider outreach programs, and our transfer center, which is now supporting 65 of our hospitals and continues to function well above original expectations, producing volumes from inbound transfers from both CHS and non-CHS affiliated sites of care. Primary care growth is an important focus and is supported by a centralized physician recruitment team that was able to recruit 14% more physicians to our markets in 2021 versus 2019, our pre-pandemic comparison. Our patient access centers, which offer centralized scheduling for primary care providers, help patients receive appointments faster and increase provider productivity. Online scheduling for primary care increased more than 90% in 2021 compared to 2020, as consumers increasingly expect this level of convenience. And it's worth noting that our fourth quarter same-store primary care visits were up 13% versus the prior year, which bodes well for future patient volumes. We have many focus areas for continuous operational improvement, and I will highlight a few today. The pandemic has meaningfully increased wage rates and demand for nursing contract labor in many markets. We expect contract labor to normalize as COVID cases decline and we are accelerating strategies that help us attract, support, and retain our valued employees. We've expanded our centralized nurse recruitment program and that effort is yielding very good results. We also are sponsoring a new generation of nurses through our partnership with Jersey College with four hospital-based nursing school programs operationalized so far and three more starting in 2022. The pandemic requires a higher level of capacity management focus. So we have several programs underway to optimize capacity by managing throughput and length of stay, which not only helps keep needed beds available, but can also improve patient satisfaction. And our Strategic Margin Improvement Program completed its second full year in 2021, driving meaningful savings through the organization. This work continues to permanently reduce costs across the corporate offices and shared service centers and decrease nonpatient-facing hospital expenses. In 2022, we have planned for further expense reduction in areas including supply chain, vendor-related costs, rent, and other expense categories. Finally today, I want to mention our investments in innovation and partnerships, artificial intelligence, and other technologies that can improve patient safety and clinical outcomes. Last week, we announced a strategic partnership with Cadence to deploy remote patient monitoring and virtual care solutions to support patients managing hypertension, heart failure, diabetes, and pulmonary disease. Working directly with our network of primary care physicians, We anticipate this partnership will create benefits that include higher patient engagement in managing chronic health issues, better outcomes, and a reduction in preventable hospitalizations. At CHS, our shared purpose is to help people get well and live healthier, and initiatives like this one make that possible. We enter 2022 optimistic about the opportunities ahead and determined to achieve our goals for this year and beyond. Kevin will now provide some additional thoughts in the quarter and he will walk you through our 2022 guidance and provide an update to our medium term targets.