Community Health Systems, Inc.

Good day and welcome to the Community Health System's fourth quarter 2022 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal conference specialists by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note that this event is being recorded. I would now like to turn the conference over to Ms. Shelly Shushley, Senior Director of Investor Relations. Please go ahead, ma'am.

Thank you, Chuck. Good morning and welcome to Community Health System's fourth quarter 2022 conference call. Joining me on today's call are Tim Hinchin, Chief Executive Officer, Kevin Hammond, President and Chief Financial Officer, and Dr. Lynn Simon, President of Clinical Operations and Chief Medical Officer. Before we begin, I would like to remind everyone 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. We have also posted a supplemental slide presentation on our website. We will refer to those slides during this call. All calculations we will discuss exclude gain or loss from early extinguishment of debt, impairment expense as well as gains or losses on the sale of businesses, expense from government and other legal matters and related costs, income or 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, expense related to employee termination benefits and other restructuring charges, gain from core trust transactions, gain on sale of equity interest in Macon Healthcare LLC, and change in estimate for professional claims liability related to divested locations. With that said, I will turn the call over to Tim Henschen, Chief Executive Officer.

Tim Henschen Thank you, Shelly. Good morning and welcome to our fourth quarter conference call. Before we begin, I would like to take a moment to express our heartfelt sorrow for the loss of our friend and colleague, Ross Como. Ross served as our Vice President of Investor Relations from 2016 until his passing last month. Many of you knew Ross personally and appreciated his work to build strong relationships with our shareholders and the analysts who cover our company. For those of us who work closely with Ross, this is a tremendous loss. He was a dedicated son, brother, husband, and father. Our deepest sympathy goes out to his entire family and all who called Ross a friend. Now turning to our fourth quarter and year-end results. 2022 was a challenging and in many ways a pivotal year for healthcare providers in terms of our work to rebuild volumes as the pandemic subsided, stabilize our workforce, and offset inflationary pressures. At CHS, we made considerable progress in each of these areas, especially during the second half of the year. Let me start with volume. We finished the fourth quarter with our strongest volume performance of the year, and that was true across all key volume categories. Same-store admissions increased by 4.4% on a year-over-year basis, 2.3% sequentially, and at 99% of our 2019 pre-COVID baseline. COVID-related inpatient admissions were 3% of total admissions compared to 8% in the fourth quarter of last year. Our focus on expanding outpatient access as well as capturing surgery and procedural cases that have shifted from inpatient to outpatient classification resulted in a same-store adjusted admissions increase of 8.2% year-over-year and exceeded the 2019 baseline. Same-store surgeries increased 4.2% from the prior year, 2.5% sequentially, and continued to perform above the 2019 pre-COVID baseline. Same-store ED volumes were very strong in the quarter, increasing 8.7% year over year, 3.6% sequentially, and finished at 102% of 2019. In the fourth quarter, same-store net revenue declined 1.3%, due largely to the decreased volume of COVID medical admissions in the prior year quarter. However, our focus on building higher acuity service lines continues, as demonstrated by further strengthening of our surgical case mix index. Compared to the 2019 baseline, the surgical CMI is now up 3%, despite the large movement of orthopedic cases that have migrated to outpatient classification. we continue to invest in service line development and provider recruitment to further grow acuity across our markets. Inflationary pressure continues to impact operating expenses and margins, but we made progress reducing contract labor throughout 2022. We've also managed non-labor expenses below inflation. Excluding pandemic relief funds, EBITDA performance was at its highest level in the fourth quarter of the year, in line with our expectations as well as historical trends. In addition to the improving operational trends, we extinguished approximately $378 million of notes outstanding during the quarter. We continue to pursue opportunities to lower overall debt and leverage and to improve our capital structure. Kevin will talk about that more in his remarks. Looking ahead, We remain focused on our four priority areas, which we believe remain essential to driving stronger results for our markets and the company. The first is accelerated growth. Strategic capital investments in access points, outpatient services, and inpatient capacity are enabling near-term volume gains and increasing our potential for long-term growth. We have been consistently investing in our portfolio. Over the last five years, we have added more than 640 new licensed beds as well as 80 surgical and procedure suites to our existing health systems. Across many markets, we continue to expand our geographic footprint and to increase market concentration with new primary care, specialty care, urgent care, freestanding emergency centers, and ambulatory surgery locations. And provider recruitment remains essential to continuous growth. In 2022, we had our best recruitment year of the past five years. Our transfer center received a record number of requests for placement last year, which is an important growth driver for the majority of our health systems. Last year, inbound transfers increased 14.5% over the prior year. As we continue to recruit additional staff and further optimize capacity through our length of stay reduction efforts, we expect even more volume from the Transfer Center, including incremental higher-acuity admissions. Our second area of focus includes specific actions to strengthen our workforce. We made very significant progress reducing contract labor during the year and ended 2022 with strong gains in employee recruitment and retention. Contract labor totaled approximately $80 million in Q4 compared to $140 million in the prior year and $100 million last quarter. Through our company-wide centralized nurse recruitment function, nurse hiring is up 18% for 2022 compared to the prior year, and our retention rates have improved 500 basis points, resulting in a strong net gain in nursing FTEs for the year. Our Jersey College Nursing School relationship expanded with new campuses in Tucson, Arizona, and Scranton, Pennsylvania in early January. We now have seven active programs and expect three more to commence in 2023. Our first cohort of students graduated last month in Port Charlotte, Florida, which was a celebratory milestone for those new nurses and for us. When the Jersey College Partnership is fully deployed, we expect to graduate approximately 1,000 new nurses each year. Next, our work to control expenses includes our margin improvement program, supply chain initiatives, and productivity enhancements. During 2022, we made positive strides, including measures to consolidate service lines in some markets, creating greater efficiencies in those healthcare systems. For 2023, we remain focused on incremental contract labor reduction and other specific tactics to mitigate the inflationary pressures in this operating environment. Finally, our commitment to advance safety and quality is at the heart of everything we do. There are many measures that demonstrate results in this area, but today I'll just highlight one. In 2012, CHS hospitals embarked on a journey to create inherently safe healthcare systems. And now we have a full decade worth of data that shows how much progress we have made. In 2022, we achieved an 87.9% decline in the serious safety event rate from the baseline established 10 years ago. This equates to thousands of patients who experienced better outcomes as a result of this focus. Our safety program is one of the longest running and most successful in the industry. I want to congratulate and thank our clinicians, support teams, leadership, and everyone at CHS who makes safety their top priority every day. Kevin, at this point, let me turn the call over to you.