Community Health Systems, Inc.

Good day and thank you for standing by. Welcome to Community Health Systems First Quarter 2022 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 Investors Relations.

Thank you, Jay. Good morning and welcome to Community Health Systems First Quarter 2022 Conference Call. Joining me today, are Tim Henschen, 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 debt and impairment expense as well as gains or losses on the sale of businesses. 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 first quarter conference call. The COVID-19 pandemic and specifically a surge in cases due to the Omicron variant impacted our results in the first quarter. We provided care for approximately 13,000 inpatient COVID admissions, 12% of our total admissions in the quarter. The surge was most acute in January when our hospitals cared for approximately 9,000 inpatient COVID cases. or about one quarter of total admissions for that month. While the acuity level of the Omicron variant was below the delta wave, the highly contagious nature of Omicron affected our workforce, with more staff members and healthcare providers requiring time off due to exposure or illness. The need for contract labor increased for our hospitals. At the same time, other healthcare systems also needed labor support, driving up the cost of temporary staffing. And even though we intently managed capacity, longer length of stay was unavoidable for some patients and in some markets. It took longer to discharge patients to various post-acute services such as skilled nursing facilities and home health because those organizations were dealing with their own labor challenges. All of this negatively impacted elective volumes, net revenue, and EBITDA during the first two months of the year. March was a much stronger month for the company as COVID admissions declined and non-COVID demand accelerated for both inpatient and outpatient care and across most service lines. As a result, we finished the quarter with much stronger net revenue and meaningful improvements in adjusted EBITDA. COVID cases currently remain low and we have carried forward March's improved volume trends into the second quarter. With the exception of contract labor, expenses were well managed. Contract labor expense increased sequentially versus the prior quarter, and the contract labor was higher than we anticipated. And unlike prior COVID waves, where we saw contract labor expense moderate relatively quickly, the expense remained elevated throughout the first quarter. Contract labor was necessary as we upheld our commitment to provide essential health care services in the communities we serve and to remain available for the patients who rely on us. Even with the difficult labor environment, we also believe that it was critically important to maintain momentum from recent capacity expansions and high-acuity service line investments because they remain key to CHS's long-term strategic growth and success. Currently, our contract labor usage and rates are moving lower, and contract labor expense has continued to decline. We are very focused on executing upon opportunities to further reduce contract labor expense moving forward. Specifically, we have recently completed the full rollout of our centralized nurse recruitment function with a specialized team of more than 60 clinical recruiters driving this work. This company-led service utilizes digital marketing tactics and coordinated processes to expedite the recruitment process. We are also focused on repatriating nurses who had left for travel or other opportunities. As a result of these tactics, our nurse hiring rate is up 10% compared to the prior year. To further increase the number of qualified hiring candidates, all of our hospitals have relationships with nursing colleges in their markets, and we are focused on deepening those partnerships. We're also sponsoring a new generation of nurses through our partnership with Jersey College, which enables nursing students to integrate into our healthcare facilities during their respective training programs. We have commenced a number of cohorts already across four distinct campuses, and we're seeing very strong applicant pools for each new class of students. After a full rollout of 10 campuses is completed in 2023, we expect to graduate approximately 1,000 nurses annually through the Jersey College partnerships. This week, we are excited to announce a significant investment into new and enhanced benefits for existing employees. which are designed to help team members eliminate student loan debt faster, pursue additional professional education, and advance their careers within our organization. We expect this investment will further improve employee retention and satisfaction and support their career advancement for years to come. We also believe this enhanced benefit program will support recruitment efforts as well. Shifting now to our markets, we remain optimistic about the growth potential of our portfolio. We operate in 48 distinct markets with more than 1,000 sites of care, and we are intently focused on building comprehensive healthcare delivery systems offering the right blend of both inpatient and outpatient services. During the first quarter, we added two new ASCs, one freestanding emergency department, and new behavioral health beds to the mix. Our healthcare systems are in areas with attractive population and economic growth. Looking at recent 2021 U.S. Census data, approximately 30% of our hospitals are in or adjacent to the 60 fastest growing counties with more than 100,000 residents. These areas include our hospitals across Florida, including the western portion of the state in the Panhandle, in parts of Alabama, including Huntsville and Foley, across northwest Arkansas, in parts of Texas, such as Cedar Park and the Austin Market and Lake Granbury, and in other markets as well. We continue to invest in growth projects, which include building higher acuity service lines, adding new beds and procedural suites, and expanding our ambulatory surgery, freestanding ED, and urgent care and walk-in care footprint. Our development pipeline is robust, and our capital investment plan remains in flight. Physician recruitment remains a cornerstone of our growth strategy. we are adding primary care and specialist providers aligned to the unique needs and growth opportunities of each healthcare system. During the first quarter, on a same store basis, we increased the number of newly signed physicians 11% over prior year, and by more than 30% versus our 2019 pre-pandemic baseline. As we move forward, we expect healthcare demand in our markets to grow, and we are well positioned to serve more patients and capture more market share across the portfolio. While the first quarter did not meet our expectations due to a number of the challenges I mentioned earlier, we remain focused on achieving our medium-term and long-term goals. In March and April, we have seen a number of key metrics incrementally improve, including net revenue and volume, along with reductions in various expense categories, including contract labor and premium pay. We expect these improved operational trends to continue as we capture healthcare demand, leverage recent investments, and appropriately manage our costs. Finally, before turning the call over to Kevin, I want to thank the employees, physicians, and our hospital leadership teams for rising to the challenge during the Omicron surge and for always making quality patient care their top priority. Kevin, I'll now turn the call over to you to cover a number of financial topics, including our updated guidance.