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spk08: Good day and thank you for standing by. Welcome to Community Health Systems second 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 today, Mr. Ross Como, Vice President of Investor Relations.
spk10: Thank you, Matt. Good morning and welcome to Community Health Systems second quarter 2022 conference call. Joining me on today's call are Tim Henschen, Chief Executive Officer, Kevin Hammond, President and Chief Financial Officer, and Dr. Lynn Simon, President of Clinical Operations and Chief Medical 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 followed 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. Also, 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 now turn the call over to Tim Henschen, Chief Executive Officer. Great.
spk09: Thank you, Ross. Good morning everyone and welcome to our second quarter conference call. The second quarter was challenging in many regards as we navigated through a particularly complex operating environment that simply stated we did not achieve the results we had expected. During this call, we will point to some of the issues affecting our results along with actions that are underway to improve performance. We will also discuss why we remain confident that our operational priorities and strategic growth initiatives remain the right areas of intense focus to deliver the desired results. Several factors came into play in Q2, resulting in our adjusted EBITDA decline, the most pronounced being lower than forecasted net revenue, continued pressure on the SWB line, and contract labor expenses, which improved sequentially but remained well over prior year. And lastly, a disproportionate negative impact from the operating results in two of our markets, which I will quantify later. In terms of net revenue, the decline was due to lower than forecasted volumes in a post-COVID surge quarter based upon past history and lower net revenue per adjusted admission than anticipated due to the continued site of care shifts, payer mix, and generally lower acuity of our medical admissions. Nonpatient revenues also decreased year-over-year. Unfortunately, the lower net revenue had a high flow-through to the EBITDA line in the quarter. And conversely, we expect net revenue to improve in the future, and we expect this incremental net revenue to drive a high flow-through back to EBITDA. Switching back to the quarter, on a year-over-year basis, same-store admissions were down 3.5%. A main contributor to this decline was a greater migration of higher-acuity, short-stay surgery cases that were historically inpatient status being performed as outpatient status, as evidenced by a much smaller decline in adjusted admissions, which were down 50 basis points, and in a same-store surgery decline of 30 basis points. We made targeted investments to increase surgical service lines, capacity, and volumes. and we are pleased to see these strategies producing generally positive results. Our surgical volumes are 1% higher than 2019, while surgical case mix index increased 5% versus the pre-COVID baseline. In terms of the pandemic, we provided care for approximately 2,300 COVID admissions, or 2% of total admissions, compared to 3% of admissions during the prior year quarter and 12% last quarter. On average, COVID cases during the second quarter were lower acuity and less resource intensive on a year-over-year basis and sequentially. Shifting to labor, we remain focused in our plans to retain our workforce, recruit new clinical employees, and reduce contract labor. The number of nursing hires increased by more than 30% compared to the first quarter, and our turnover rate declined 20%. These are clearly favorable trends as we work to reduce contract labor and create sufficient permanent staffing for key services and market share gains as healthcare demand strengthens. Contract labor expense declined each month of the second quarter, and we finished June with 30% fewer contract labor FTEs compared to the end of March. Still, contract labor remains at very elevated levels versus prior year, without the higher acuity inpatient revenues previously seen in the COVID pandemic, which partially offset its EBITDA impact. Already rates for contract labor are going down, and we continue to aggressively execute our recruitment and retention initiatives to build and strengthen a stronger core workforce. Through these efforts, we expect sequential quarterly improvement as the year goes on. Earlier, I mentioned that negative operating results in two markets had an outsized impact on the overall company performance in the second quarter. First, let me say that the vast majority of our 48 markets have adapted well, given the challenging macro environment. However, on a year-over-year basis, these two markets, which have historically had lower than company average EBITDA margins, accounted for 20% of the total company EBITDA decline during the second quarter. In a more normal operating environment, the impact of underperforming markets in any given quarter is typically absorbed by stronger growth and performance in other markets. This year, even in higher performing growth markets, elevated labor costs have resulted in lower net revenue conversion rates that we have historically delivered. It is important to reiterate that the majority of our markets are making progress and continue to appropriately adjust their operations and execute strategies designed to achieve long-term volume and earnings growth. Now, I'd like to cover four areas of immediate and ongoing focus for the company, opportunistic growth, rebuilding our workforce, incremental expense reduction initiatives, and leveraging our CHF centralized resources. First, opportunistic growth. Our management team has undertaken a strategic opportunities assessment to accelerate net revenue and EBITDA growth across several key markets, which includes strengthening position alignment, service line investments, payer strategies, incremental access point expansion, and evaluating potential strategic partnerships. We are pursuing newly identified opportunities aggressively, shifting labor, capital, and other resources where most advantageous, especially to markets with the highest growth potential. We're optimistic this work can accelerate more growth and earnings improvement. And we continue to invest in additional development opportunities. On the inpatient side, during the quarter, we opened Northwest Medical Center Houghton, our fourth hospital in Tucson, Arizona. We broke ground on a $66 million tower addition that will add 56 beds and more ER capacity at Tennova North, a well-situated campus in our Knoxville, Tennessee system. We announced a $30 million investment at our hospital in Warsaw, Indiana as part of the Lutheran Health Network. And later this year, we will begin to open even more inpatient beds as part of multiple expansion projects in our Naples, Florida market. On the ambulatory side of the business, we continue to expand access points in our markets, and we are growing our ambulatory surgery center footprint as more surgical care shifts to the outpatient setting. New ASCs opened in Knoxville and Cleveland, Tennessee during the second quarter. We now have 46 ASCs across our portfolio, with planned additions before the end of the year and a full pipeline in place for 2023. Second, rebuilding our workforce. As everyone knows, the COVID pandemic created seismic shifts across the industry affecting staff recruitment, compensation, and retention. But, as I mentioned earlier, we are now seeing sequential improvements that we expect to continue, including progress in new hire rates and retention rates. Our centralized nurse recruitment program supports all of our markets and is achieving solid results. and we have enhanced our benefits program to provide more tuition reimbursement and loan repayment options, which has received positive feedback from employees. Our work to provide nursing education opportunities and to develop the next generation of nurses continues through our partnership with Jersey College. Four campuses are fully operational. Another will open in the third quarter and six more by the end of 2023. Across these programs, we expect to graduate 1,000 new nurses per year. Third, incremental expense reduction initiatives. During the second quarter, non-labor operating expenses were flat the prior year. Our biggest opportunity and focus is further contract labor reduction. In response to the current operating environment and select markets, we are consolidating some service locations and intentionally reducing capacity and staffing. Of course, we will do this where it makes sense and in ways that balance the labor supply challenges with our focus on growth and expanding market presence in the long term. Fourth, leveraging CHS centralized resources. Our company-wide resource programs are driving improved operational performance. For example, our transfer center achieved a 5% increase in inbound transfers from non-CHS facilities versus prior year quarter and delivered solid gains sequentially as well. Centralized scheduling initiatives, physician and nurse recruitment teams, utilization review and capacity optimization resources, accountable care organizations, and other centralized programs and expertise continue to support the advancement of operational goals and help enhance competitive position in our markets. I will also note that our managed care contracting team is targeting opportunities to improve rates on agreements coming up for renewal as well as proactively analyzing existing contracts, and we see opportunity here. In closing, let me reiterate that we are not satisfied with our overall results in the second quarter. However, we remain steadfast in our commitment to pursue every option and opportunity to improve. And to that end, I want to thank our local health system and company leadership team who remain optimistic about our future and who share in our commitment to achieve the best results possible. With that, Kevin, let me turn the call over to you.
spk10: Thank you, Tim, and good morning, everyone. As Tim mentioned, our second quarter results came in well below our expectations as lower than anticipated volume and net revenue per adjusted admission impacted the top line. As the quarter progressed, the return of non-COVID-related patient volumes was lower than we anticipated. Other net revenue consisting of investment losses and the runoff of transition service revenue from prior divestitures further reduced our EBITDA. And contract labor and wage inflation also impacted our financial performance. Due to the impact of these factors on the current quarter, along with our updated thoughts for the balance of the year, which includes a more gradual return of deferred care and higher than anticipated inflationary pressures, we have revised our full year 2022 guidance, which I will cover later on the call. Moving to the second quarter results, net operating revenues came in at $2,934,000,000 on a consolidated basis. On a same store basis, net revenue was down 2.6% compared to the second quarter of 2021. This was the net result of a 0.5% decrease in adjusted admissions and a 2.1% decrease in net revenue per adjusted admission which was negatively impacted by lower nonpatient net revenue. Adjusted EBITDA was $253 million. During the second quarter, we recorded $8 million of pandemic relief funds with $1 million recognized in the prior year period. Excluding pandemic relief funds, adjusted EBITDA was $245 million with an adjusted EBITDA margin of 8.4%. Volume improved sequentially but generally remain suppressed as a result of the residual effects of the pandemic, while higher operating costs, also due to the pandemic, remain inflated. Switching now to expenses, on the labor expense side, labor costs and contract labor expense remain elevated on a year-over-year basis. We experienced an approximately 8.5% increase in our average hourly rate for employees on a year-over-year basis. However, sequentially, we saw average hourly rates decline 40 basis points and expect labor inflation to remain relatively flat in the back half of the year. Our contract labor expense also increased significantly over the prior year. During the second quarter of 2022, contract labor was approximately 150 million compared to 50 million in the prior year quarter. The current quarter, however, showed sequential improvement down from $190 million in the first quarter of 22. Moderation of contract labor is slower than we originally expected, and we now anticipate future progress to continue at a pace that is also slower than we previously expected. We continue to effectively manage our non-labor related expenses. This would include supply costs as well as vendor related expenses, including insurance, utilities, rent, and a number of other fixed costs. Due to benefits from our margin improvement program efforts and focused expense management, we have held absolute dollars relatively consistent over the past six quarters. And we achieved these results while incurring ramp-up costs and opening three new hospitals, a host of new access points, and increasing use of software as a service, all during a time of record high inflation. Turning now to cash flows, cash flows provided by operations were $154 million in the first six months of 22, down from $280 million in the prior period. Excluding the repaid Medicare accelerated payments that were made in the first six months of 21, cash flows provided by operations were $414 million for the first six months of 2021. Lower EBITDA, higher contract labor costs, and the timing of interest payments contributed to the lower cash flows in the first half of the year. Moving to CapEx, for the first six months of 22, our CapEx was $191 million compared to $212 million in 2021. Due to the lower performance in the second quarter, the company's net debt to EBITDA increased to 7.1 times. Although interrupted by the current operating environment, we remain focused on our longer-term goals of lowering our leverage and increasing our free cash flow. In terms of liquidity, we have no outstanding borrowings under the ABL with $894 million of borrowing-based capacity available to us. Also, at the end of the first quarter, we had $346 million of cash on the balance sheet. As a reminder, we have no debt maturities until 2026. While the company's formalized divestiture program was completed in 2020, we continue to receive interest around other potential divestitures. As we receive this interest, we are analyzing the long-term strategic fit of specific assets, and we will continue to analyze the impact potential divestitures would have on our future financial leverage and free cash flow generation. Now I will walk you through the updated full-year 2022 guidance. Net operating revenues are anticipated to be $12.2 to $12.5 billion. Due to the lower net revenue expectation, adjusted EBITDA is now expected to be $1.3 to $1.4 billion. Net loss per share is anticipated to be a loss of $2.55 to a loss of $1.65, based on weighted average diluted shares outstanding of 128 to 129 million shares. Cash flow from operations is now anticipated to be 500 million to 600 million dollars. CapEx has been reduced to 400 to 450 million dollars to adjust for delays caused by disruptions in the supply chain and to align growth capital with the current labor market. Cash interest is expected to be 820 to 840 million dollars. As we think about the remainder of the year, we expect adjusted EBITDA to improve sequentially, with the fourth quarter of 2022 still being our highest adjusted EBITDA quarter of the year. As Tim highlighted, we have a number of initiatives that are performing quite well. As we work to address the challenges in this current environment, we remain committed to executing our strategic initiatives, which we believe are positioning the company for future growth and success and which we believe will continue to benefit all of our stakeholders. We do not view 2022 as the new baseline. Rather, it is a period of disruption and unusual events. Looking out longer term, we believe the stronger return of deferred care, the execution of our growth and strategic initiatives, our successful expense management, and continued focus on cash flow and capital structure management will allow the company to achieve its medium term financial goals, which includes targets for 16% plus EBITDA margin, positive annual free cash flow generation, and reducing our leverage below five times. Ross, at this point, I'll turn the call back to you. Thank you, Kevin, and thank you, Tim. At this point, Matt, we're ready to open up the call for questions. We will limit everyone to one question this morning, but as always, you can reach us at 615-465-7000.
spk08: Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our...
spk02: Our first question will come from Jason Casorla with Citi.
spk08: Please go ahead.
spk09: Great. Thanks. Good morning. Thanks for taking my question. So there were two markets out of the 48 total that had a disproportionate impact on results. So I guess first, can you give us a sense of what the typical revenue and EBITDA contribution of those two markets are as a percent of the total company operations, just so we have an idea? And then second, does the second quarter's performance for those two lagging markets change how you're thinking about both the underlying demand and your competitive positioning within those markets specifically? Thanks.
spk10: Thank you, Jason, for the question. Let me start at the end of that. And I don't think that the performance of those two markets change how we think about the broader portfolio. We believe the dynamics were unique to those markets, and as we plan accordingly, we are planning for those dynamics kind of uniquely. In terms of their impact on the broader company, their decline in net revenue in EBITDA represented really about 20% of the decline in EBITDA we had for the quarter. And neither of those markets, I want to make sure I point out, neither of those markets are in our largest five states.
spk09: Yeah, Jason, this is Tim, and I'll add on to Kevin's comments regarding the positioning of these markets for the long term. As we said, certainly we see them as outliers, the performance of these markets as outliers. A big portion of that was on the SWBN contract labor side of the equation, where the market dynamics really just skyrocketed at levels that do not typically happen in a normal operating environment. These are some of the markets where we're being very focused on consolidating services across multiple campuses to take out some of the costs, the variable labor costs in particular, which we believe was just a large drag on the margin. Also, in terms of that, monitoring which services to perhaps exit permanently. But our goal is to position all of our markets, in the short term in particular, very well to do a better job of managing the operating expenses to make sure it matches the revenues that we're generating.
spk02: Our next question will come from A.J.
spk08: Rice with Credit Suisse. Please go ahead.
spk07: Hi, everybody. It's Nick Giovacchini on for AJ today. I appreciate you taking the question. With the volumes down so much, can you kind of give us an idea of how on both the inpatient and outpatient side the volumes exited the quarter? And can you also kind of give us an idea of how you're thinking about how they trend in the back half? Thanks.
spk10: Sure. We saw, you know, as we came out of the first quarter in March, we saw a big uptick in volumes as we started the recovery from the surge of COVID that we saw early in the first quarter. That was consistent with what we had seen from previous surges, and we saw that continue into April. But it was really in the back half of the quarter that the softness began, that return of non-COVID business fell off, seen with previous waves where the deferred business continued to come in. I would say that the back half of the quarter was softer in terms of that than the first half of the quarter. Tim, do you want to add?
spk09: Yeah, great. Nick, I'll add on to that. I would describe the volumes throughout the quarter in our experience to be relatively choppy. It fits and starts, if you will. As I said earlier, a wide array of performance across various geographies, which is not something we've typically seen. We had certain markets that had really grown quite nicely and consistently built back some business. But as I noted in my comments, I'm at a lower net revenue conversion rate, which clearly impacted results and made it more difficult to step over the underperformance of those two markets we called out today. Now, I would say we've also experienced some impacts due to vacation schedules, due to some quarantine, due to COVID. Again, that was so varied by geography. It's hard to quantify, you know, what, why, and where. But we're working very, very closely to make sure we understand those trends on a daily basis. And as I said, adjust our operating expenses accordingly in a real-time environment as well.
spk02: Our next question will come from Ben Hendrick.
spk08: with RBC. Please go ahead.
spk04: Thank you very much, guys. Just a couple of staffing stats here. Where does your agency labor stand currently as a percent of total nursing hours, and how has that progressed year over year and sequentially? And then among on the employed staff side, what's your turnover rate now versus pre-COVID? Thank you.
spk10: Sure. I'll start that off here. So our contract labor for the quarter represented about 10% of our total labor costs. That compares to 13% in the first quarter. So we did bring it down. Pre-pandemic, contract labor represented about 2% of our labor costs. So we're still at very elevated percentage of our total cost is contract labor.
spk09: This is Tim. I'll add on to that. In terms of turnover, as I mentioned, we are showing a sequential improvement in our retention rate and in our higher rates. We measure everything here daily by a net R.N. gain so that we're cognizant of the two distinct variables in that equation. We're very pleased with the progress we're making. Honestly, with the COVID impact, the staff quarantine, with the hiring and the orientation that we bring under sound, we orient that takes anywhere from four to 12 weeks, depending on the nurse's experience. We have likely not seen the full benefit of the hiring that I just referenced in the second quarter. It'll come through in the third quarter as those new caregivers take on permanent assignments and we're able to release more of the contract labor. In terms of the retention rates or the nursing turnover rate, still elevated to pre-pandemic levels, but we've cut it about a half from the peak at the beginning or at the end of last year when we saw more staff leaving for travel assignments and frankly for burnout purposes. I mentioned on the last call that we were really focused on repatriating nurses who left in 2021 and frankly throughout 2022. We've had some success with that. I don't think we're done with that work yet. I think once the children get back in school, we may be able to bring some of those people back into the workforce again. So we're really focused on keeping those relationships tight with our care team members who may have left the organization previously in the pandemic.
spk08: Our next question will come from Ryan Tankelet with Jefferies. Please go ahead.
spk03: Hi, good morning. This is Taji Phillips on for Brian. So my question today is actually about leverage. Can you provide some detail on the status of your covenants and maybe discuss your outlook on cash generation in the near term? And altogether, how does that factor into your approach to deleveraging? Thanks.
spk10: Sure. So we are covenant-like, so we do not have any covenants to speak of and no concerns around that at this point. We do expect to generate positive free cash flow in the back half of the year. And for the full year, we expect to be able to be back to free cash flow neutral. So again, it's a much better position than we had been for several years historically. We've made a lot of progress in that area and believe that we can continue then into future periods. That certainly does then give us some comfort along with recovery and execution of a number of the growth initiatives that we've been talking about this morning that will allow us to get back to our medium term targets of being below five times levered here within four years. We kind of reiterated those medium term targets and still feel very comfortable that we can get those.
spk08: Our next question will come from Kevin Fishbeck with Bank of America. Please go ahead.
spk06: All right, great. Thanks. I guess obviously good to see that you're still looking at that, you know, medium-term targets on margin. But obviously given the magnitude of the decline in margin this year, we'd love to get a little bit of color if you could kind of help bridge us from here to there. The decline was very rapid. Would you expect a rapid increase? Would we be expecting a meaningful improvement on that trajectory in the next year or two and then more modest? Or is it kind of a slow, steady rebuild over the next four years? You know, it's just interesting to me, I guess, if you also within that answer kind of comment on, you know, the improvement in labor that you're expecting against The improvement in volume that you're expecting, it seemed to be difficult to show improvement on both at the same time. It feels like there's a push and pull there. So any color on that? Thanks.
spk10: Sure. So, you know, as I mentioned, this year was somewhat unique, and we don't believe that 2022 is really a new baseline. The decline in revenue had a very high flow through to EBITDA, and likewise, we expected SFO. revenue returns, it's going to have a very high flow through to even on the plus side. We think that there's a fair amount of preferred business still out there. If we consider where we were pre-pandemic in 2019, we've made a lot of progress. We've added a number of service lines and access points. We've taken market share in a number of our markets. And we believe that as that preferred care comes back into the system, At large, in our markets, we are going to capture that, and we will get, again, a high flow through into EBITDA. We're staffing and want to be prepared to accept that volume when it returns, and we've made some investments in a number of these growth areas and will continue to do so, albeit we may take some targeted looks at certain service lines in some markets. and make some other decisions. But generally speaking, we're preparing ourselves to do that. On the expense side, a number of things. Contract labor we believe will moderate as traveling nurses will come back into more of an employed arrangement. That will continue to take pressure off the contract labor line. And we are continuing to see improvement in that, albeit at a slower pace than we had expected. And there's some macroeconomic factors probably in that causing that slowdown. But it is still trending in the right direction. And then on other expenses, which is a percent, or maybe it's a percent of net revenues, not the right measure. But if you look at our other operating expenses per adjusted admission, based on our volume I think may be a better measurement or way to look at it. We have managed those expenses quite well. We've managed to keep our non-labor expenses flat over a number of quarters despite a number of additions as I mentioned. We think there's more opportunity and runway for us to continue to manage those expenses well and step over And as revenues return, we think we can still get leverage on our expense line and continue to grow markets.
spk02: Our next question will come from Josh Raskin with Nefron Research.
spk01: Please go ahead. Thanks. Good morning. I was wondering if you could give us a little bit more color on the monthly progression of EBITDA through the quarter, not necessarily monthly EBITDA numbers, but you know, just sort of directionally how that was improving. And then, you know, would June put you on a trajectory to attain the second half guidance or are you still assuming, you know, some meaningful improvement for there? And then just lastly, back on the intermediate term margins, you know, where do you need to get occupancy to in order to attain those margins? You know, just look at occupancy down almost 600 basis points sequentially in the quarter and how much that has to come back in order to achieve you know, margins given your fixed cost leverage.
spk10: Let me start off, you know, EBITDA for the second quarter kind of throughout the quarter was a little bit choppy and up and down kind of throughout the quarter. We do feel good about where we are exiting the quarter and our opportunities in front of us in Q3 and Q4 to achieve these results. Now, we did bring guidance down from our previous expectations, largely due to some uncertainty around what the economic impacts may have on patient behavior, which we don't have clear insight into. But seeing where we were in light of where we did at exit 2Q and knowing that For instance, we had a 75 basis point rate in interest rates yesterday, the announcement of a second quarter GDP decline today. We don't know what the broader impacts will be on patient behavior in a recessionary period, probably for the first time when patients have higher co-pays and deductibles. initiatives and we're positioned well that some of this terror will be coming back. Ultimately, it will come back and we're going to be positioned to capture it.
spk09: Hi, Josh. It's Tim. I'll answer the occupancy question or at least touch on the occupancy question. A couple points on this one. Obviously, we're always looking to better utilize our fixed capacity, our fixed operations. We know with every incremental case or volume that comes in, we do a better job of covering that fixed cost. I do want to point out that throughout the quarter, variable labor spend, variable labor staffing was very well managed, but I think we found out on this new higher cost structure on that variable labor. the negative impact on flow through a net revenue conversion to EBITDA, that's where it really hampered our ability to drive through the earnings in a quarter. But in terms of occupancy rates, the reason we have a difficult time just saying we want to be at 65% by this period, we have some markets that are at 100% and we're adding more beds. I mentioned the Naples market will be opening up over 100 beds over the next couple of quarters into that market because they run at high occupancy rates. We have other markets that just have larger physical footprints where it dilutes the overall occupancy performance in our strongest market. But what I would also share with you, even though occupancy percentage is publicly reported, it's a little bit more difficult to assess the full use of our fixed capacity with such site of care shifts. As we mentioned, we had a large movement of inpatient surgeries to outpatient classification in the quarter. It's a continuing trend, something that's unique to us, but those patients by and large are still occupying our fixed inpatient beds. They're just not captured in that occupancy calculation, so just to clarify that. In terms of that site of care, movement, those types of things, we're plenty happy to have that in an ASC setting, which we're expanding rapidly as well. The vast majority of our most competitive markets do have an ambulatory surgery asset located within them, so we certainly are positioned well in that regard. But we also have no problems with that care taking place within our hospital setting to help us drive that better fixed cost leverage throughout the margin profile for that market.
spk02: Our next question will come from Steven Baxter with Wells Fargo.
spk08: Please go ahead.
spk05: Hi, thanks. I wanted to ask about the contract labor outlook. I appreciate the comments that it's maybe declining a little bit more slowly than you would have hoped for. So just trying to understand how that fits into the context of maybe some slower return of demand here. I would have thought if that were the case, you know, maybe the contract labor would kind of be the first thing to go to to match up with that lower revenue. And then just with your hiring up so much, I was a little bit surprised to hear you say, I think at least I heard you say the hourly wage decreased a little bit from first quarter to second quarter. You know, how should we be thinking about that? And then as hiring picks up, Should we be thinking about maybe some sequential increases to those numbers? Thank you.
spk10: Sure. On the contract labor, we were at $190 million in the first quarter of contract labor, $150 million in the second quarter. We had previously indicated we expected to exit the year at approximately $70 million for the fourth quarter. I would say our updated guidance considers us now exiting the year closer to $100 million in the fourth quarter of contract labor. It's been sequentially lowering from where we are now to getting to that $100 million in the fourth quarter. In terms of our expectation on the labor cost, we had initially projected our labor inflation to be about 4% for the year, and I think we're close to being on track for that. We've seen about 8.5% growth in this last quarter, similar 7% to 8% in the first quarter. But we've anniversary or believe we're going to anniversary most of those increases that were put in place. to the back half of the year. And so we're not expecting much labor, sequential labor inflation in the back half of the year. And then for the year, those will average out to about a 4%.
spk08: Our next question will come from Andrew Mock with UBS. Please go ahead.
spk00: Hi, this is Robin on for Andrew. Average length of stay was down 10% sequentially. Can you help us understand the drivers of that? Specifically, how did that trend between COVID and non-COVID volumes? Thanks.
spk09: Sure. I'll kick that one off, Robin. Thanks. In terms of length of stay improvement, we've mentioned previously in prior quarter and at a few investor conferences, our focus on improving our capacity optimization and We've stood up a centralized utilization review program, standard case management protocols have been rolling out throughout the first half of the year. I believe we're getting really solid traction on those initiatives. As you pointed out, it frees up certainly some critical capacity, helps us take out some of those variable expenses on staffing if we're more efficient with how we're operating on the length of stay. In terms of the breakdown between COVID and non-COVID. We obviously saw a nice decline in the COVID-19 state because the acuity was so much lower for the most recent admissions versus what we saw previously. Fewer critical care, fewer vented patients, what have you. But we saw relatively the same improvement across both COVID and non-COVID care. We saw some easing of placement of patients into post-acute settings that was upon us in the first quarter. So I think that really helped us, again, drive better placement. But even on discharge to home, every indicator we look at, we, by and large, saw some good progress because of our focused efforts and initiatives.
spk08: We'll now turn the conference over to Mr. Henschen for any closing comments.
spk09: Thanks, Matt. And thanks, everyone, for spending time with us today. While the second quarter was challenging, we remained focused on the opportunities we have across our portfolio to improve results and to achieve long-term stability and growth that benefit all of our stakeholders. I would like to once again thank all of our caregivers and leadership teams for their ongoing commitment to help people get well and live healthier and to ensuring that we continue to provide high-quality healthcare services in the markets we serve. We look forward to updating you on our progress as we move forward and to continue to work diligently to achieve our results. As always, if you have additional questions, you can reach us at 615-465-7000. Thank you and have a great day.
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