Universal Health Services, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Universal Health Services first quarter 2020 earnings conference call. All lines are currently on a listen only mode. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question at that time, you may do so by pressing star and the number one on your telephone keypad. It is now my pleasure to hand the conference over to Mr. Steven Stilton. Please go ahead, sir.

Thank you. Good morning. Alan Miller, our CEO, and Mark Miller, our president, are also joining us on the line this morning. We welcome you to this review of universal health services results for the first quarter ended March 31st, 2020. During this conference call, we will be using words such as believes, expects, anticipates, estimates, and similar words that represent forecasts, projections, and forward-looking statements. For anyone not familiar with the risks and uncertainties inherent in these forward-looking statements, I recommend a careful reading of the section on risk factors and forward-looking statements and risk factors in our Form 10-K for the year ended December 31, 2019. We'd like to highlight just a couple of developments and business trends before opening the call up to questions. As discussed in our press release last night, the company reported net income attributable to UHS per diluted share of $1.64 for the quarter. After adjusting for the impact of the items reflected on the sub-annual schedule as included with the press release, most notably a $7.4 million or $0.08 per diluted share, unrealized loss on shares of certain marketable securities held for investment, our adjusted net income attributable to UHS per diluted share was $1.73 for the quarter ended March 31, 2020. During the first two and a half months of the quarter, volumes in our acute care segment were tracking modestly ahead of the prior year. In the last two weeks of March, however, the incidence of COVID-19 and suspected COVID cases increased dramatically in our facilities, and correspondingly, the volume of non-COVID patients declined. Consequently, we experienced a 29% decline in admissions in that two-week period at our acute care hospitals. the significant declines in patient volumes at our acute care hospitals continued into April. The decline in admissions during the second half of March as well as even more precipitous declines in emergency room visits and elective-slash-scheduled procedures resulted in a significant decline in income during the first quarter. The behavioral health segment was similarly tracking ahead of the prior year volumes until mid-March, when admissions declined 25% during the last two weeks of the quarter, resulting in a significant decline in operating income during that period. The significant declines in patient volumes experienced at our behavioral health facilities have also continued into April. In addition to the volume declines, both business segments had to deal with other material operational challenges, including constraints on COVID-related testing and a lag on results, as well as a shortage of personal protective equipment. Our paramount concern when the COVID crisis first developed was taking all the necessary steps to keep our patients and employees as safe as possible. We did recognize the severe financial stresses created by the COVID crisis, and by the end of March and the beginning of April, we undertook a series of steps to mitigate the dramatic revenue declines and to protect our capital structure, including one, cost reduction initiatives across all of our expense categories, Two, a significant reduction in planned capex spending. And three, a suspension of our share repurchase and quarterly dividend programs. Given the uncertainties in projecting when shelter-in-place directives will be lifted and when hospital volumes will return to more normalized levels, we have withdrawn our earnings guidance for 2020. Congress has recognized the severe financial strains being placed on hospitals, and it has passed a number of coronavirus bills specifically providing relief to the hospital industry. UHS's hospitals have received funding grants pursuant to the CARES Act, which are subject to meeting certain qualifications aggregating approximately $195 million to date. In addition, we have received accelerated Medicare payments totaling $375 million thus far, and we're hoping to receive additional Medicare accelerated payments in the near future. Before giving effect to receipt of these additional funds as of March 31, 2020, we had approximately $1.2 billion in unborrowed capacity under existing loan facilities to provide insulation against the decline in operating cash flow. We'd be pleased to answer your questions at this time.

At this time, if you'd like to ask an audio question, you may do so by pressing star and the number one on your telephone keypad. Again, that is star one. We'll pause for just a moment. The first question will come from the line of Steve Valliquette with Barclays.

Hi, good morning. This is Andrew Mock. I'm for Steve. I appreciate all the comments and everything you're doing as an organization. My question, can you compare and contrast the impact that the pandemic had on your two business segments and highlight any key differences in baseline expectations between those segments during the recovery phase?

Sure, Andrew. To me, the biggest difference is that in the acute division, you have the increase in COVID or suspected COVID patients And effectively, that increase in patients displacing a significant number of non-COVID patients coming through the emergency room and displacing a very large number of elective and scheduled procedures. So effectively, you have this very unfavorable shift, negative shift in service mix. So you've got many more medical patients who are a little bit more expensive to treat because of all the isolation and other protective steps that we're taking to protect our patient and our employee population. And then you're losing a lot of this higher profitability, higher margin business, again, for those last couple of weeks of the month, of the month of March. On the behavioral side, while we lost not an insignificant amount of volume in those last two weeks of March, you don't have that same negative, what I would describe as service line mix shift. In other words, the patients that we lost were not necessarily any more profitable than the patients that we retained. And that's why I think that the operating income results and the operating income decline in the acute division was more severe than it was in the behavioral division.

Great, thanks. And then just a quick numbers question. Are you able to quantify the impact from the delayed dish cuts and Medicare sequestration?

Yeah, so I would, we estimate, Andrew, that combined, and I would also include in that the FMAP relief, that's probably about $35 to $40 million of additional income over the balance of 2020 from what we would have originally anticipated.

Okay, great. Thank you.

The next question will come from the line of Justin Lake with Wolf Research.

Thank you. This is Eugene for Justin. I wanted to ask about how we should think about the margins on lost revenues going forward. In Q1, acute revenues and EBITDA may start pre-COVID numbers by roughly the same dollar amount. And obviously, with cost-cutting, that should improve going forward and wanted to get some color on how to think about that for both acute and behavioral from this point. Thank you.

So, as I indicated, Eugene, in my comments, We really, the decline in volumes and the shift in business in the last two weeks of March occurred so suddenly that we really didn't have time to implement significant cost-cutting measures until the very end of March and the beginning of April. But since then, we've aggressively looked at our cost structure across the portfolio, across all of our expense categories, and are making as many reductions as we think are prudent given the significant decline in our revenue stream. But I think it's fair to acknowledge that the nature of the hospital business and the hospital business model is that given the dramatic decline in revenues, it is impossible for us to reduce costs at a level commensurate to the reduction in revenues. So difficult to project, but I would say that if we can reduce our costs at sort of half the rate that revenues are declining, then we've probably done a pretty thorough job. Now, we'll continue to evaluate that as time goes on. Obviously, our hope is that some of this lost business will be restored and We are in the process of measuring what the appropriate cost structure is for volumes literally on a daily basis. But in our business, as it would be in any business, a revenue decline that has occurred as dramatically and as suddenly as this one has is difficult to deal with purely on a cost-cutting basis.

Got it. Thank you.

The next question will come from the line at Matthew Bush with the low capital market.

Hi, this is, uh, this is Eric Glenn. I'm from that force. Um, just a quick question on the, the, we're trying to size the COVID-19 impact on the behavioral side. And you mentioned a modest increase in admissions year over year, both January and February, obviously before the fall off in mid March. Are you able to give any indication of the magnitude of that year-over-year increase in January and February prior to the virus impact?

Yes, I think it was in, you know, the lower single digits, like 3% or 4%. We were tracking, you know, 3% or 4% ahead of the prior year.

Okay, that's helpful. Thank you. And on the acute side? Or is that kind of the case?

I'm sorry. I think that was true on both sides of the business.

Okay. All right. Thank you.

Your next question comes from the line of Peter Chickering with Georgia Bank.

Hey, good morning, guys. Thanks for taking my questions. A couple ones here. On the behavioral side, can you talk about the different trends that you saw at the end of March and April between residential and acute? And within acute, are there any segments like substance abuse that saw more impact than others? And have you seen any rebounds of the segments at this point?

So it's difficult to make really broad generalizations here, Pito. I think what we saw in the behavioral business was, I'll sort of call it the downstream effects from our referral sources. So when schools closed around the country, we definitely saw a decline in our adolescent business in a number of markets. We certainly saw a decline in outpatient revenues in which tend not to be quite as emergent. Outpatient treatment tends not to be quite as emergent. We've tried to replace a lot of that outpatient capacity with telemedicine capabilities and other things like that. You mentioned substance abuse, and again, I think substance abuse treatment can be or tends to be a little bit more discretionary than some other psychiatric diagnoses, so we saw, you know, decline in that in some of our markets, but it did vary by market. We saw as acute hospitals, I think, around the country were overwhelmed with COVID and COVID-dispective patients, we were definitely seeing fewer behavioral referrals from acute emergency rooms as well, and I think fewer behavioral patients were going to acute emergency rooms. So, again, across the board, I think, you know, we've seen that. But, you know, the hope is that as the COVID, the incidence of COVID patients stabilizes around the country, we'll return to kind of a more normalized pattern of referrals from our various referral sources.

Okay, great. But on the expense side, there are a lot of moving parts. Can you walk us through the P&L statement for each segment and just Help us think about what is the mixed of variable versus fixed cost for S&B, other OPEX, et cetera.

Yeah, so you can start with supply expense, because I think that tends to be the most variable of our expenses. It's almost 100% variable, not quite. Now, I will say that, obviously, there's been a lot of focus on the supply chain items for the coronavirus patients, including personal protective equipment, et cetera. So we've really tried to stock up on those sorts of items where possible. I think salary expense tends to be sort of semi-variable or semi-fixed, however you want to look at it, maybe at a 50% level. And I would say the same thing about operating expenses. I think those expenses tend to Deflect on a step level so as volumes decline in larger chunks. You know we start to make more reductions in costs that are You know not sort of directly variable so in other words as patient volume goes down We're obviously going to reduce the number of nurses at the bedside because there are fewer occupied beds, but as volumes go down we're also going to reduce headcount and other expenses in more overhead departments like ancillary departments and general overhead departments like dietary and housekeeping and billing and collection, et cetera. So that's the exercise our hospitals are going through literally at this point on a daily basis and I think are being pretty effective and pretty conscientious about doing this in a responsible way so that we're still providing the highest level of quality of care for the patients that remain, and that we're also prepared to provide that level of care as those volumes sort of return to more normalized levels.

Great. Thanks so much.

Our next question will come from the line of Frank Morgan with RBC Capital Markets.

Good morning. I guess I wanted to focus in on what you're seeing today, right now, and then maybe some more color around your plan to kind of restart the business, what you're thinking about the timing there, and what kind of feedback are you getting from either state regulators or from physicians that operate in your hospitals? And then finally, how much more accelerated payments do you expect to receive? Thanks.

Yeah, so let me tackle the last question first. The payments that we've received so far, the outright grant payments are from the first two tranches of the CARES Act, the $100 billion dedicated to hospitals. So the first two tranches were $50 billion and that's the $195 million is our share of those first two tranches. So the government has identified three more tranches at $10 billion each for rural hospitals, for hotspots, and for uncompensated care of COVID patients. We don't know exactly how the government is going to allocate or what methodology they'll use to allocate those dollars, so it's a little difficult for us or it's difficult for us to project what our share of that will be. The remaining $20 billion on the original $100 billion has not really been identified in any way by the government as to how they're going to distribute that. And then there was the fourth coronavirus bill that was passed that includes $75 billion of relief for healthcare providers and there's been no indication how those funds will be distributed so we really can't estimate that. As far as your first question, Frank, about sort of how the volumes and the business has trended since the end of March, I think it's fair to say, I think as at least one of our peers indicated, things got a little bit worse in the first half of April before they seemed to plateau and in some cases start to get a little better. We've seen a number of states already lift their ban on elective and scheduled procedures, Texas for us being probably the most notable state to have done so. And in some of our hospitals in Texas and some ambulatory facilities, we've actually started to see the resumption of elective and scheduled procedures. I think in most of our other states of consequence, Florida, California, Nevada, the general expectation is that the states will lift their bans sometime in the first half of May. And we would expect, and we are certainly working very closely with our own employees and with our physicians to be, to do everything we can to be ready for that resumption so that, you know, we can, you know, we can begin to treat those patients as quickly as the bans are lifted. And again, the hope is that that will occur in most of our geographies by early May. How quickly that's going to occur I think is sort of beyond our control in a lot of cases. I think it'll be dependent on how patients themselves feel. We're certainly doing everything we can from a procedural perspective to make sure that patients feel like the hospital is a safe place to come and they can be protected. They'll be tested before they're treated and therefore we can make sure that people are not being unnecessarily exposed to the virus, et cetera. So the hope is that things begin to improve in late April and early May. But again, the trajectory of that and how quickly it occurs is very difficult to say at this point.

And just on the Medicare accelerated payment request, did you say there was also some additional dollars there you were expecting to receive? Thanks.

Our applications for those funds would indicate that we've only received about half of them. There's been some reporting that the government has slowed down those payments, I think mostly to Part B providers, which in theory should not have an impact on us. But we're waiting to see. We've been told, at least informally, that those applications and those requests that are in the queue will be paid. and our requests were filed timely, et cetera. So our hope is that we will receive an amount similar to what we have already received, but we're waiting to see how that plays out. Okay, I think we'll take the next question.

Our next question comes from the line of Kevin Fishbeck with Bank of America.

Great, thanks. Just wanted to try and understand, I guess, when you think about the procedures that have been delayed or potentially deferred, I guess, what percent do you think will end up coming back into the system? And then if you could, in both segments, and again, after you say that, can you just spend a little more time on the psych side? Because it's not really clear to me. I understand elective procedure, deferred, you reschedule it. That makes sense on the acute side. How does pent-up demand, if at all, come back into the system if most of your volume is coming from, you know, ERs and things like that? I don't know if there's the same elective deferred process there.

Thanks. Yeah. So, look, Kevin, you know, the world has changed. And, you know, if you had asked me two months ago, you know, how much of our elective and scheduled procedures were sort of discretionary or deferrable, I would have told you that I think it's a relatively small percentage. And obviously, in the context of this pandemic, I would have been wrong. I think a lot of what's being deferred are things like cardiac procedures, invasive cardiac procedures, stents and pacemakers, cardiac caths, surgeries like oncology surgery, neurosurgery, heavy duty orthopedics where patients are in a significant amount of pain. And I think generally I would have described those procedures as not very deferable. And I think our point of view is that over a period of time, and I think it's difficult to define exactly what that period is, but I think our perspective is that most of those procedures will wind up getting done. We don't do a lot of what I would, again, describe as purely discretionary sorts of procedures, cosmetic procedures and ophthalmology procedures and things that certainly really are absolutely discretionary. We just don't do those kinds of procedures in the hospital and haven't done them for years. So I think our point of view is that most of these procedures that have been postponed and deferred will ultimately take place. I mean, that's the feedback we get from our physicians and that's the sense we get as we ourselves analyze that on the acute side. On the behavioral side, we struggle a little bit with the same question that you posed. We don't exactly know where these patients are at the moment. We don't believe they're being treated in other forums, you know, etc. And again, as a consequence, we believe that ultimately behavioral volumes will return to normal. As a matter of fact, I think it's not unreasonable to speculate that we're in an extremely stressful environment for the vast majority of people and that folks who are you know, have a chronic mental illness are more likely to struggle with some of those illnesses in this environment and with these stresses than they might be in a normal period. So, ultimately, I think, you know, we feel like, again, behavioral volumes will get back to normal. I'm not sure there's that same sort of sense of recapture that there is in the acute side, but I think there's a sense of being able to get back to normal values once I think the majority of our referral sources start to resume some level of normal activity. Now we're spending a lot of time in our behavioral business trying to understand where these patients are at the moment, where they are in the system, if there are efficient ways for us to capture them without them going through the sort of traditional referral sources. And again, I think we've made some progress, and as my earlier comments indicated, in the latter half of April, I think we're seeing some glimmers of hope that behavioral values are bounding at least in an incremental way.

And just my last question, if you think about this pent-up demand concept in both businesses, how do you think about the margin on that? I guess we can model things coming back to normal pretty easily, but If there's pent-up demand, does that come in at normal margin, higher margin, lower margin because you have to hire more nurses or temp staff? How do you think about what the profitability of that business looks like if there's an above-average amount of pent-up demand coming back in the second half of the year?

My sense is it would come back at the traditional margin. The reality is The staff that historically treats those patients is there and available. They've largely been the ones that have had hours reduced, et cetera, just because there is a lack of patients. So maybe there is some element of overtime or some temporary labor required if we're gonna run the ORs over the weekend or later hours during the day. But I think for the most part, those patients get treated under a cost structure that, you know, very much resembles the traditional cost structure that they would have been treated under.

Okay, thanks. And again, to ask an audio question, you may do so by pressing star 1. The next question will come from the line of Matthew Gilmore with Baird.

Hey, thanks for the question. Steve, I was hoping you could talk about the behavioral length of stay metric. It seemed to improve a little bit in the quarter, and I was curious if you're seeing payers sort of reduce some of the utilization restrictions and how that's been trending.

Yeah, I think that's a tough one to answer, Matthew. It's hard to know whether that's kind of a meaningful change in the way payers have approached the business or it's just as the rest of the world was focused on COVID patients, so there was just, you know, less attention. And I think we also have always had this sort of perspective that when volumes drop some in the behavioral business, there's a little bit less pressure to turn patients over as quickly, so I think you saw some of that. But I, you know, the last couple of weeks of the quarter and even, you know, into April are so different and unusual from anything we've ever experienced. I'm reluctant to draw any conclusions from trends in statistics like length of stay.

Fair enough. And then, Steve, could you quantify the reduction to CapEx? I think you had been talking about $800 million previously. Can you just give us a sense for how much you think you can reduce it going forward?

I think that it's at least a twofold sort of approach on our part. One is obviously as we're seeing our revenue stream and ultimately obviously the cash flows that will decline commensurate with that revenue reduction, we're trying to conserve our capital and make the capital investments that are sort of most necessary to most impactful from a return perspective in the short run. And I think ultimately we have a point of view that over the course of 2020 we'll probably wind up spending a quarter to a third less than what our original projections were. At the same time, and I think this is relevant to the bigger construction projects that we've been contemplating and had included in our CapEx for the year and for several years, we've been experiencing several years worth of escalating construction costs and pricing pressures, et cetera. And, you know, certainly have a sense that one of the benefits of this downturn is that those construction providers will be under some pressure as their demand, as the demand for their services lessens. And so I think we feel there's an opportunity for us to reprice, recast, rebid, many of our projects, et cetera, at, you know, more reasonable prices. So we're going to certainly make the effort to do that. And if we have to delay or elongate the timeline for some of those projects, I think we're willing to do that in this period. So, you know, I think we're focused on accomplishing both of those objectives over the course of the next several months.

Great. Thanks a lot.

Our next question will come from the line of David Cumming with JPMorgan.

Great. Thanks. Good morning. Thanks for taking my question. My question relates to the inpatient sides of both of your segments. I wonder if you could frame for us what percentage of normal census you're running at, say, currently or for the month of April, whatever comes to mind, as a percentage of sort of normal for this time of the year. Thank you.

Yeah, I mean, so my, you know, my prepared comments indicated I think that, you know, acute care admissions were down about 29% in the last two weeks of March and behavioral were down 25%. I think acute census and patient days and admission activity has sort of settled in around that number. In April, I think the behavioral numbers have gotten a little bit better. But those numbers are kind of reflective of, again, the declines we saw in March into early April. In both cases, I think they're getting a little better in the back half of April, but they're reflective of the level of decline we've seen.

Thank you.

We haven't heard from AJ. Steve, have you been in touch with him?

Yes, I have spoken with AJ.

Our next question will come from the line of Whit Mayo with UBS.

Hey, thanks. Steve, I was just wondering if you could talk a little bit about payer mix and how you're working on, you know, identifying Medicaid coverage and triage just from a process standpoint. It might be helpful to hear what you're doing operationally I would think that some of the presumptive eligibility rules may help you, but just from a registration process standpoint, you know, just could you talk a little bit about, you know, your revenue cycle?

Yeah, I mean, I think in the short run, you know, again, over the last, I'll call it six weeks, we haven't really seen our payer mix change a great deal or see in particular, you know, a significant uptick in patients without insurance. Obviously, not obviously, but I think a lot of employees who are not working have been furloughed, and I think a lot of furloughed employees are retaining their health benefits in many industries, et cetera. Obviously, the expectation is that going forward, to the degree that unemployment rises significantly, as I think it's expected to do, we'll see, you know, an uptick in uninsured patients. Unlike the recession from a decade ago, there is some greater cushion here. Obviously, there's Medicaid expansion in a number of our states that should sort of help insulate some of that increase in uninsured volumes. There's some talk that Congress will provide extended, you know, COBRA benefits. There obviously are the state and federal exchanges which should provide, you know, some additional or an additional outlet for some patients. And so, you know, our admitting folks and our folks who deal with coverage issues are prepared You know, make sure that our patients and prospective patients, you know, use every tool available to them to get the coverage they need. This is not the first time we've gone through this drill. I would say that a recessionary sort of environment is something that we're at least accustomed to working with and that there are models for us and procedures that we employ a little bit different than the COVID crisis where, you know, or rewriting the playbook almost from scratch in certain cases.

That's helpful. And maybe just two clarification questions. The Medicare accelerated payments, did you give a number for what you expect to receive? And the $20 million malpractice increase in the quarter, just any more color on sort of the trends driving that would be helpful. Thanks.

Yeah. So what I said previously was we received the $375 million and have filed for and expect to receive a similar amount in the future as long as CMS doesn't change their approach or change the rules in midstream. As far as the malpractice adjustment, it was really based on a relatively small number of large cases that sort of had negative outcomes over the course of the last quarter or two and in our minds required an adjustment to our reserve. I think it's a little too early for us to make a judgment about how that will affect our going forward expense provisions, et cetera. So obviously right now we feel like the $20 million adjustment gets us to where we need to be, but it's an area that we'll continue to monitor as we go forward.

Okay, thanks a lot.

The next question will come from the line of Sarah James for Piper Sandler.

Hey, thanks. This is Chris Neiman, and this is on for Sarah. I just wanted to check in and see, I know you mentioned expanding capacity in the OR for when procedural volumes do come back, but can you clarify or maybe quantify just how much capacity you'd be able to add to meet some of that pent-up demand?

Yeah, look, I think it's fair to say that most of our hospital ORs, many most hospital ORs in general, you know, they're not operating anywhere close to 100% capacity, and they operate from early in the morning usually until sometime, you know, mid-afternoon or so. So we certainly have the option to operate later into the day and on the weekends, et cetera. You know, I think a lot of that is dependent, quite frankly, on, you know, surgeon capability and their capacity to operate safely, et cetera. I think we have the employees and I think we have the physical capacity to, you know, expand our capacity if there is a sort of a catch-up or, you know, a pipeline of demand that's greater than our normal, you know, volumes. But, you know, a lot of that, again, I think is going to be dependent not so much on, and negating mechanisms we have in the hospital, but on patient perception and patient willingness to come back to the hospital, et cetera. And it's incumbent upon us as hospital providers to make our patients feel like it's a safe place to come and they can come and be treated in a safe environment. I think we have a whole host of procedures in place to do that. And we're doing everything we can to make our patients feel like they should not have any significant concerns about coming in to be treated.

Great, thanks. And then just a quick one. You also mentioned a decline in adolescent psych. But any chance you can maybe kind of clarify here, too, just how much of the behavioral business is dependent on referrals coming from schools?

Yeah, so that was a comment, particularly I think about the residential business. Our residential behavioral business is probably about 15% of our overall behavioral revenues. We certainly had adolescent patients in our general psychiatric hospitals, but I was specifically referring to the residential business before, and that's about 15% of our overall revenues.

Got it. Thank you.

Again, to ask an audio question, please press star one. Our next question will come from the line of AJ Rice with Credit Suisse.

Hi, everybody, and good to hear you guys are doing okay, Alan and Steve. Maybe a couple of things. One, on the protective equipment, I know you said that that was something that was a little bit more costly now, but I wonder, because it seems like that's also a gating factor on when Some of these locations are willing to, or some of these public health officials are willing to allow people to reopen. How are you standing in terms of your supply of that? And do you think that the public health officials in your markets are starting to feel comfortable that there's enough of a supply of that to allow for some of these procedures to come back?

Yeah, AJ, so I mean, you know, in my, again, prepared remarks, I had talked about two of the challenges that our hospitals have faced thus far. Operational challenges have been testing capacity and the supply of PPE. And I think you're right. I think that in order to resume elective and scheduled procedures in a meaningful way, you have to be able to test all those patients in advance. and obviously get their results in a timely fashion and obviously you also have to, you know, be assured that you have adequate protective, personal protective equipment for those cases and also in reserve if there is a, you know, a sex wave or a surge in COVID patients, et cetera. I think that we have worked very hard over the last several weeks to ensure that the supply chain is adequate for the various items of personal protective equipment and that the testing capacity and testing timeliness has improved. And I think in both cases we feel like we've made progress, but I think that both of those items will continue to be an issue as we move forward. And I agree with you. I think that to some degree our ability, not just for UHS, but our ability as an industry to resume kind of a normal schedule of elective procedures will

require us to continue to make progress on both of those issues okay um and obviously labor was a challenge late last year and the acute side and obviously you're implementing uh cost reduction efforts now but i wonder if more broadly it may be just too early for this but obviously the uncertain economic backdrop what's happening with procedures has that in any way sort of adjusted expectations around labor that might be something that will help you on that spot going forward, even beyond just some short-term cost reductions that you're pursuing?

I mean, certainly what we've seen, again, in the last six or seven weeks is a dramatic reduction in our use of overtime and temporary nurses and registry personnel. And, you know, I think as long as where both in a period of somewhat muted demand as well as a period of higher unemployment that we will struggle less with those issues because I think they tend to be issues that are reflective of a much tighter labor market. That is certainly a side benefit of the revenue decline and the decline in demand that we've seen.

I know there was all this discussion before about what was happening in the Vegas market with HCA getting back into the network with UNH, and you had some expectations around what that would do. Obviously, maybe it's hard to understand whether that's playing out as you thought or not, but at least maybe up to the last two weeks of March, can you comment on what you were seeing there and whether that was progressing as you had expected?

Yeah, so the comments that we made on our year-end call were that our expectation was that the dynamic of HCA getting back in the Sierra United network would largely be a push for us. That is, we would see a decline in volume as some amount of market share shifted to HCA's hospitals, but that would largely be offset by an increase in rates that we were getting from Sierra United on those patients. I think, again, for the bulk of the first quarter, we were able to satisfy ourselves that that was the case. Obviously, in the last couple of weeks of the quarter, we saw a decline in Sierra patients as we did in all of our other patients, so it became a little more difficult to do that analysis in March, and certainly for the last half of March, but I think we're of the mind that our original contemplation of the impact of this was correct, and this is, at least in its initial stages, turning out to be either a wash or a very slight benefit to us.

Okay. All right. Thanks a lot.

Again, to ask an audio question, please press star 1. The next question will come from the line of Ralph Geocope with Citi.

Thanks. Good morning. I hopped on a little bit late, so apologies if this was asked already. But I was hoping you could talk a little bit more, Steve or Alan, about sort of the current backdrop and if it changes sort of your forward views on the business in terms of, you know, strategy or positioning, whether that's sort of investing more downstream, taking more risk, partnering more, Just any sort of thoughts around that and potential sort of structural changes in the industry.

Ralph, I think, you know, I would make a couple of broad comments. I mean, we, again, in our prepared comments, we made the point, as I think a number of our peers have made, that up until the middle of March, et cetera, both businesses were operating properly. in a pretty robust environment. They were, you know, tracking ahead of the prior year. I think they were meeting our own internal expectations. The business was good. The demand was good. And I think in our own minds that none of that is sort of fundamentally changed. I think that the COVID crisis has altered patient practice patterns, if you will, in the short term. And I'm not exactly sure how to define the short term. But ultimately, I think that demand, as I said before on the call, will return. And so I don't know that we're thinking about the business fundamentally differently because of the COVID crisis. Some of the questions that you asked, you know, about are we thinking about sort of, you know, taking more risk and, you know, and partnering with others to do that, et cetera. I think we've talked on a number of occasions about the things that we're doing to do that well before the COVID crisis. We're doing that through Medicare Advantage products in a number of our markets. We're doing that through our insurance subsidiaries. We have accountable care organizations established in virtually all of our markets. And so I think we were employing and implementing many of those strategies and recognizing how the healthcare landscape is changing, again, long before the COVID crisis. So I don't know that the COVID crisis has really altered that trajectory at all.

This is Alan Miller. Our business is in good shape. Facilities are modern. We are well located. We have a nice division between behavioral and acute. And we've just been interrupted in what was on the way to be a very strong week. We are financially strong. Our reputation is excellent. And we just got interrupted. I am thankful that at this point it seems that that COVID-19 is on the way down or is down. Business will open up, and I fully expect that by some point, June, July, end of May, our business will return. As a matter of fact, all of the elective surgery that have been not completed will come to the hospitals. And I expect, given time, we'll pick right back up. I'm very positive about the future whenever we start again.

Okay. That's certainly helpful. And just my last one, sort of along those lines, I guess as you consider the competitive backdrop then in your market specifically and you know, perhaps potential fallout even if things sort of come back. I mean, do you see or buy into the argument of share gains or M&A opportunities stemming from all this? Or you think it's sort of it's bounced back from an industry perspective and within your markets you don't see that, you know, competitive dynamic really changing to create opportunities for you? Thanks.

Ralph, I think, you know, and I think Alan articulated this, and I tried to say it to some degree again in my prepared comments. I think we feel like we're well-positioned, we're, you know, conservatively capitalized, and so I think we have every expectation that we can deliver and continue to deliver high-quality care and efficient care even in this difficult environment. While we hope that it rebounds quickly to the degree that it doesn't, I think we're in a position to operate and survive in this environment better than most of our peers in our geographies in which we compete. any time that there's a crisis, it also becomes an opportunity for those companies that are stronger and better positioned. And while I don't think we relish the notion that others will suffer in this environment, we're prepared to step in if they do. And if others can't provide the level of service and the level of capital investment that's required in our markets, we certainly feel like we can do that.

Fair enough. Thanks for the thoughts.

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Okay. We thank everybody for their time. Hope everybody stays safe and look forward to talking with everyone next quarter.

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