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spk00: The conference will begin shortly. To raise your hand during Q&A, you can dial star 1 1. The conference will begin shortly. To raise your hand during Q&A, you can dial star 1-1.
spk17: Good day and thank you for standing by. Welcome to the third quarter 2022 Universal Health Services Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 11 on your telephone. Please be advised that today's conference may be recorded. I would like to hand the conference over to your speakers today, Steve Filton, Executive Vice President and CFO, and Mark Miller, President and CEO. Please go ahead.
spk03: Thank you, Michelle. Good morning. We welcome you to this review of Universal Health Services results for the third quarter ended September 30, 2022. During the 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, 2021, and our Form 10-Q for the quarter ended June 30, 2022. 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 for a diluted share of $2.50 for the third quarter of 2022. After adjusting for the impact of the item reflected on the supplemental schedule as included with the press release, our adjusted net income attributable to UHS per diluted share was $2.54 for the quarter ended September 30, 2022.
spk10: During the third quarter, we experienced a decrease in the number of patients with a COVID diagnosis treated in our hospitals as compared to the prior year quarter. As a percentage of total admissions, COVID diagnosed patients made up 16% of our admissions in the third quarter of 2021, but only 6% of our admissions in the third quarter of 2022. In our acute segment, this decline in COVID patients resulted in reduced revenues due to the lower acuity and less of the incremental government reimbursement associated with COVID patients. While overall surgical volume tended to recover to pre-pandemic levels, there was a measurable shift from inpatient to outpatient, resulting in further overall revenue softness. And while we were able to continue to reduce the amount of premium pay in the quarter, which declined from 117 million in the second quarter to 81 million in the third quarter, there was insufficient revenue growth to offset the accelerated rate of wage increases and other inflationary pressures. The $25 million we received in quality incentive fund payments in Texas helped to narrow the gap, leading to an acute EBITDA result in the quarter, only slightly below our internal forecasts. At the same time, this decline in COVID activity allowed our behavioral hospitals to continue to reduce their labor vacancies, resulting in a reduction of the capping of bed capacity. The effect of increased volumes combined with solid pricing increases largely offset higher labor costs, leading to a behavioral EBITDA result in the quarter slightly below our internal forecasts.
spk03: We also note that the third quarter included approximately $8 million of losses related to startup facilities and $4 to $5 million of losses related to the impact of Hurricane Ian in late September. For the nine months ended September 30, 2022, we've incurred approximately $45 million of losses in connection with the startup facilities. Our cash generated from operating activities was $221 million during the third quarter of 2022. as compared to $442 million during the same quarter in 2021. The decline was largely due to the timing of payroll disbursements, the opening of new facilities, and the timing of certain receipt or the receipt of certain supplemental reimbursements. We spent $570 million on capital expenditures during the first nine months of 2022. In reaction to the earnings softness experience this year, we reduced the pace of our capital expenditures by about 22% or $165 million for the first nine months of the year. Similarly, although we moderated the trajectory of our share repurchases, we plan to continue to be an active acquirer of our own shares. For the full year of 2022, we estimate that we will acquire approximately 80% of the number of shares projected in our original guidance. During the third quarter of 2022, we repurchased approximately 1.6 million shares at an aggregate cost of approximately $158 million. During the first nine months of 2022, we repurchased approximately 5.85 million shares at an aggregate cost of approximately $704 million.
spk10: Yesterday morning, we announced the appointment of Eddie Sim to Executive Vice President and President Acute Care Division, succeeding Marvin Pember, who has announced his intention to retire. Eddie, who brings nearly 30 years of healthcare and leadership experience, most recently served as Chief Operating Officer at Centura Health in Denver, Colorado, where he led the system's three operating groups, clinical delivery and shared services, with annual revenues of approximately $5 billion. In this role, he was responsible for supporting improved care coordination, operational and clinical excellence, and alignment across Centura's ecosystem of 19 facilities and more than 250 clinics. Prior to joining Centura Health, Eddie served in senior leadership roles of increasing responsibility for 11 years at Baptist Health in Jacksonville, Florida. As president of physician integration there, he was responsible for an employed physician network of 380 physicians and a clinically integrated network with more than 900 physicians. As we look forward to Eddie joining the company in early December, we thank Marvin for his 11 years of service to UHS. Under Marvin's leadership, our acute care division has experienced robust growth and expansion in key markets. as well as achieved a significant number of industry accolades and public recognition for quality and service. Marvin will remain with the organization for a transition period following Eddie's start with us on December 5th. We are pleased to answer questions at this time.
spk17: Thank you. Again, if you would like to ask a question at this time, please press star 1-1 on your touch-tone telephone.
spk14: One moment while we compile the Q&A roster.
spk17: And our first question comes from the line of Kevin Fishbeck with the Bank of America. Your line is open. Please go ahead.
spk05: Great. Thanks. You know, I guess... Everyone's starting to look towards 2023. I don't know if you're in a position to provide any comments in that direction. That would be fantastic. If not, most of your peers have kind of given us kind of one-time items in 2022 to kind of level set the base we should be thinking about when thinking about 2023. Can you help us on either side of that analysis?
spk03: Sure, Kevin. You know, it has never been UHS's practice to give guidance for the following year until our fourth quarter earnings announcement in February, and we're not going to depart from that this year. I think, you know, we've been pretty clear about the non-recurring items in our financials for the year. I'll just sort of comment on the third quarter. The QIF reimbursement that we received in Texas, the $25 million, that Mark mentioned in his opening remarks. We believe it should be a recurring reimbursement item, which is why we did not sort of suggest tossing it out of the third quarter consideration. You know, other than that, we've identified, you know, the startup losses. We've identified the impact of the hurricane. You know, in theory, they should not reoccur next year. And then finally, you know, I know at least... you know, one of our peers described this DPP reimbursement in Florida, another sort of special Medicaid program. We did not record any of those funds in Q3 of this year, although we expect to record something in the neighborhood of about $30 million of those next quarter, in the fourth quarter, and a similar amount next year.
spk05: Okay, that's helpful. Are you thinking about, like, the government, you know, PHE money as kind of a headwind next year, or is that tied to COVID volumes and therefore not really necessarily something we should be backing out of this year's numbers.
spk03: Yeah, I think it's the latter, Kevin. I mean, those government programs that were meant to subsidize hospitals, whether it was HRSA or the 20% add-on or the sequestration waiver, all were designed to help hospitals deal with the higher acuity and higher expense of COVID patients. As there are fewer COVID patients, I think there's less of a need for that. I think the real variable as we think about the acute business is particularly in 2022 as COVID volumes have declined, non-COVID volumes, electives and other procedures have been a little bit slower to recover and snap back than they were in 2021. I think we see them slowly coming back and I think we think that will continue into 2023. But in my mind, the pace of that recovery is probably sort of the most important variable as we think about the performance of the acute division in addition to the other, you know, prevalent item, which of course is just the labor, the tightness in the labor market. All right, great. Thank you.
spk14: Thank you. And our next question comes from the line of Anne Hines with Mizzou Hope Group.
spk17: Your line is open. Please go ahead.
spk12: Hi, good morning. Maybe on 2022 guidance, you did mention in the press release, is that still a good gauge for this year? And directionally, would you prefer consensus estimates to go to the low to mid-range given the first three months? How should we think about that for Q4?
spk03: Yeah, and so I think consistent with our prior practice, if we don't mention guidance in the press release, we're affirming our previous issued guidance, which is what we're doing. I think during the third quarter, in some public appearances at conferences, et cetera, I think I conceded that the top end of the guidance was practically not a reasonable target. But, you know, I think we feel like as long as the trends that we saw in Q3 continue to a reasonable degree in Q4, you know, someplace in the lower half of guidance, it should be, you know, very achievable, especially with some of the, you know, non-recurring items, particularly the DPP monies in Florida that I mentioned in my previous response.
spk12: All right, and just one follow-up question. I think you said in your prepared presentation that you're reducing your expectations for share repurchase by 20%. Can you just talk about the drivers of that and how we should view it for next year and also CapEx for next year? I mean, I know you reduced your budget by 33%. Is that just a wait and see, or do you think that will continue into next year? Thanks.
spk03: Yeah, and so just to clarify, what I said in the prepared remarks was, you know, our original guidance for the year presumed about $1.4 billion in share repurchases, obviously at a higher price than, you know, where we've been currently trading at. What I said is that, you know, we'd likely repurchase about 80% of the original number of shares, probably from a standpoint, that's more like, you know, 60%, you know, 800, 850 million of the original 1.4 billion. Similarly, you know, I think we've trimmed our CapEx forecast from a billion dollars originally to something, again, more in like the 800 million dollar range. You know, in both cases, we've done that, I think, as, you know, out of an abundance of caution. Obviously, in an environment of rising interest rates, And just on certain operating trends, we want to be appropriately cautious. We continue to believe that investing in our own EBITDA growth and our own earnings stream is still one of the most prudent investments we can make. So I think we'll continue to be an active acquirer of shares into next year. We'll be much more specific about what our precise assumptions are when we give our guidance in February. But, you know, I suggest that as people think about their models today, you think about, you know, CapEx and share repurchase in those sort of ranges of 2022, you know, 800 some odd million for CapEx and, you know, 800 to 850 for share repurchase.
spk15: Great.
spk06: Thanks.
spk17: Thank you. And one moment for our next question.
spk14: And our next question comes from the line of Noah Pinden with FACSET. Your line is open. Please go ahead. Noah, your line might be on mute. Okay. We'll go ahead and move to our next question. And our next question will come from the line of Austin Gurch with Wolf Research. Your line is open.
spk17: Please go ahead.
spk01: Hey, this is Justin Lake at Wolf. Thanks. A couple questions here. First, on wages, Steve, you know, obviously you guys did a great job of improving contract labor in the quarter. You're already kind of at your fourth quarter target. So, one, do you expect that to continue moderating or does it stabilize here? And then to your point, a lot of it appears to be offset by higher wage growth. Can you give us any color on what wage growth is doing for your permanent employees, just so we can get an idea of how that's kind of running in the next year?
spk03: Yeah, Justin. So, I think on the first question, yeah, I think we intend and plan to further reduce premium pay. You know, premium pay was running about $35 million a quarter in the acute segment pre-pandemic. I don't think it's realistic to get down to those levels, but I think it's not, you know, a stretch to say that, you know, we should still be able to get down maybe another $15, $20 million at least in the next quarter. To your second sort of point, yeah, I mean, not all of that reduction sort of falls to the bottom line because Some of the cost of reducing that premium pay is increased wages that we're having to pay to recruit and retain talent. I think we've said a number of times over the last several quarters that probably base wage rate inflation in both segments has been running, I'm going to say, 175 to 200 basis points higher than pre-pandemic levels. So, I think if in acute it was three, three and a quarter pre-pandemic, you know, it's closer to 5% now. And behavioral, if it was, you know, two, two and a half pre-pandemic, you know, it's closer to four, you know, four and a quarter now. You know, I think one of the reasons that, you know, we're, you know, not prepared to talk about, you know, specific 2023 guidance is we'd like to see how those trends sort out over the next several months. I think we have a perspective that, given some of the inflationary and other economic pressures out there, that it may actually contribute to somewhat of a lessening of the pressure on wages. And maybe we'll see that number probably not return to pre-pandemic levels, the wage inflation number, but maybe somewhere between where we are today and pre-pandemic levels. But I think that's to be seen over the next several months.
spk01: Got it. And you kind of already went to my second question on just inflation. You know, one of your peers talked about inflation and it seemed like they were talking beyond labor. Just curious, you know, when you think about supply costs, for instance, professional fees, you know, things outside of labor that, you know, could be impacted by inflation. Are you seeing any kind of pivots there? Anything that's, you know, trending that we should think about into 2023? Thanks.
spk03: Yeah, I mean, if you look at our income statement, clearly the biggest pressure is on the salary and wage line. But certainly, we're experiencing inflation on an overall basis throughout our portfolio. As an example, utility costs, although it's a very small percentage of our overall cost, but they have clearly risen by significant numbers in many of our facilities. But again, the key driver, I think, is wages. Our focus is on, again, reducing premium pay, filling as many permanent vacancies as we can. And I think if we can do that, number one, that will drive higher volume growth, which will help us offset some of this inflationary pressure.
spk14: Thank you. And we'll move on to our next question.
spk17: And our next question comes from the line of Jason Casarello with Citi. Your line is open. Please go ahead.
spk02: Great. Thanks. Good morning. Just on your prepared remarks around the measurable shift in surgical volumes to the outpatient setting in the quarter, do you believe this move is a sustained construct moving forward? you know, would you call this as more of a one-time consideration and you would expect a reversion back to a more gradual shift over time?
spk03: Jason, obviously, in sort of the broader context of the industry, this, you know, shift from inpatient settings to outpatient settings has been going on for an extended period of time, certainly well over a decade. I think it accelerated during the pandemic. From a behavioral perspective, people I think were, in some cases, more comfortable receiving care in settings outside of hospitals and hospital emergency rooms. We've seen that, just as one example, our freestanding emergency departments, we have about 25 of those today around the country, have been extremely busy during the pandemic and especially, I would say, over the last six to 12 months. I think, again, for a variety of reasons, people are just more comfortable receiving their care there. I think to a degree, we'll have sort of a normalization back to a bit of a mean. People will return to the hospitals as we move further and further away from the concerns about COVID and COVID surges. But obviously, you know, there are other reasons why, you know, certainly the payers are taking advantage of this opportunity to continue to pressure, you know, more business to move to outpatient, et cetera. And part of, you know, quite frankly, we acknowledge all that. And, you know, we've been investing in outpatient development in both of our business segments for that reason. So I think it's the trend accelerated somewhat during the pandemic. But I think more broadly, it's just a continuation of a trend that's been in place for some time. And I think our business strategy in both of our businesses takes that into account. And we're very cognizant of that.
spk02: Yeah. Okay. Thanks. And then just as a follow-up here, just as we think about the potential wind down of the COVID public health emergency early next year, you know, you've talked in the past about some of the considerations on Medicaid redeterminations and on volumes. But I guess with the incremental FMAP dollars that have also rolled in the States also coming to an end, I know it's early, but I was wondering what your outlook is for Medicaid rates next year for both sides of the business and if you think there could be pressure there just given the ending of FMAP.
spk03: Yeah, I mean, I think sort of mechanically the ending of FMAP probably creates, you know, some incremental headwind, although I don't think we think it's necessarily material. Again, I think at a sort of 20,000-foot level, it's going to be difficult for our reimbursement, especially from the government at the Medicare and Medicaid levels, to fully offset inflation. I think the way we're presuming that the biggest offset to these inflationary increases will be a return to pre-pandemic volumes and, quite frankly, volumes above and beyond pre-pandemic levels. Because, you know, to be perfectly frank, I don't think that pricing can account or can offset, you know, all of the inflationary pressures that we're going to face.
spk02: Got it. Okay. Thanks for all the calling.
spk14: Thank you. And one moment for our next question. And our next question comes from the line of A.J.
spk17: Rice with Credit Suisse. Your line is open. Please go ahead.
spk09: Thanks. Hi, everybody. First, maybe just to ask you about the behavioral trends in the quarter. Obviously, that bounced back very nicely. Strong revenue up 8% and good margin leverage. I assume some of that is because COVID crowded out some site cases last year, and you're just against an easy come. But any updated thoughts on where we're at in terms of getting back to a normal growth cycle mid-single digits or a little better even in the psych hospital businesses and the mix between revenue and volumes. I know historically sort of described that as about equal 2% to 3% in each, but any updated thoughts on that given the strong quarter?
spk03: You know, I think we have said a number of times during the pandemic, AJ, that our experience has been that during periods of higher COVID utilization, the behavioral business has clearly struggled more than the acute business. There's really no benefit to the behavioral business. There's no increased acuity. There's no increased reimbursement. There's just the challenge of having to isolate COVID patients from the rest of the patient population often resulting in some closed beds, et cetera. And then there's the pressure on labor. Whenever there's a COVID surge, we have more employees out sick, even if it's only for a week or two, and it just creates more pressure in an already tight labor environment. So I think what we experienced in Q3 is what we've experienced previously, like in the second quarter of 2021, in a period of relatively low COVID utilization, which is not you know, nearly as many sort of patient matching problems and the ability to fill more labor vacancies. And when we're able to do that, we're able to admit more patients. And, you know, we've talked about being able in a sort of post-COVID environment or at least an endemic environment, being able to achieve that mid-single digit to upper single digit revenue growth that we've been able to historically achieve pre-pandemic in the behavioral business. And the third quarter, I think, was reflective of our ability to do that. You know, the challenge is, you know, I don't know that we'll have a sort of straight line of that. You know, we may see another COVID surge in the winter here. But I think, you know, as we've said many times, we think the underlying demand for behavioral services remains quite strong. And as long as we can continue to address and make progress on the labor issue, I think we're going to continue to see revenue growth that's more closely related to our historical trends.
spk05: Okay.
spk09: And maybe just a question on the acute side. If I look at some of the metrics, length of stay showed a meaningful improvement. That obviously is a favorable benefit for you. Any comment on what was going on there? And then some of the companies you're talking about, even if not year over year, because last year had a lot of COVID, sequentially they're starting to see stabilization in metrics like payer mix and in revenue per adjusted admission, particularly on the commercial side with a little bit of optimism around rate updates for next year. Any comment on any of those metrics that you would want to give?
spk03: Yeah, I mean, I think, you know, as to the length of stay question, it's directly related to the metrics that Mark discussed in his opening remarks. Last year's quarter had 16% of our acute patients as COVID diagnosed. This year it's 6%. The reduction in the number of those high acuity COVID patients, I think, is sort of directly related to the length of stay decline. I would add that I think we believe that further reductions in length of stay are possible and are actually maybe one of the most, if not the most, significant opportunity we have to be more efficient and control costs. For many of our patients, certainly for almost all of our government patients and for even a significant chunk of our commercial patients, we're paid on a per-admission basis. So to the degree that there's an extra day or two of length of stay that is really unnecessary. We're just incurring additional costs without additional reimbursement. And we've struggled during the pandemic for a number of reasons. A lot of it has to do with the inability to refer patients to traditional subacute venues because they're struggling with some of the same capacity issues we have and other issues. But we're very focused on the continued reduction in length of stay. As far as your other question, you know, I don't think we've had a lot of volatility in payer mix during the pandemic. So, I would say it's probably stable and continues to be stable. Again, you know, I would say the same thing I've now said a number of times. I think, you know, what we look forward to as more and more people just get accustomed to living and working and getting their healthcare in a COVID environment or an endemic environment that more people will be comfortable seeing their physicians, you know, getting primary and specialty care that they've historically gotten and getting that care in hospital settings and hospital outpatient settings. And, you know, we think that that trend has started to manifest itself and will continue. Okay. Thanks a lot.
spk14: Thank you. And one moment for our next question. And our next question comes from the line of Andrew Mock with UBS.
spk17: Your line is open. Please go ahead.
spk08: Hi, good morning. I wanted to follow up on Justin's later question. Steve, I think you mentioned another $15 to $20 million in potential improvement in the fourth quarter. Do you have visibility into that level of improvement today based on the current trend and anything else you would point to that's going to drive sequential EBITDA improvement in the fourth quarter?
spk15: Thanks
spk03: All I would say, Andrew, is we've obviously had a significant amount of success in the acute division in reducing premium pay. It peaked at about $150 million in Q1. It was $117 million in Q2, as Mark said, and then $81 million in this third quarter. So we've seen that trending down and believe that we can continue to propel that further reduction. Obviously, there is some sort of level of fixed amount of premium pay that is appropriate. I was saying it was $35 million pre-pandemic. I don't think that's a realistic target at this point, but that's the basis on which we believe that we can continue to reduce that number. It's clearly a trend, and it has not yet flattened out, and I don't think it will.
spk08: Got it. Okay. As a follow-up, I think Steve, you mentioned earlier this year that you're starting to enhance your footprint in the Medicaid-assisted treatment line. Can you update us on your progress there, and how would you characterize the broader MAP opportunity over the next 18 months? Thanks.
spk03: Yeah, I mean, it's a, at the moment, it's a relatively sort of fragmented process in the sense that really doing it kind of boots on the ground, developing some MAT facilities, you know, doing or pursuing some kind of, you know, small one, two, three off acquisition type areas. And I think as I've mentioned before, you know, we don't necessarily see this as a huge driver of growth in the future as much as we see it as really enhancing our very fulsome continuum of care in the behavioral space. You know, we treat virtually all diagnoses across inpatient and outpatient settings, and MAT was just sort of a gap in that. So, you know, we're going to continue to pursue the opportunity to do that, at least in some of our markets. You know, but it's really much, much part of a much broader strategy of being, you know, one of the more comprehensive providers or maybe the most comprehensive provider of behavioral services in the country.
spk14: Great.
spk15: Thanks, Nicola.
spk14: Thank you. And one moment for our next question. And our next question comes from the line of Stephen Baxter with Wells Fargo.
spk17: Your line is open. Please go ahead.
spk07: Yeah, hi, thanks for the question. I wanted to ask a follow-up on the pricing discussion earlier. I think you suggested that it might be challenging for your pricing yield to keep up with inflationary pressures, but just wanted to clarify that. Was that commentary specific to your government yield or your overall pricing yield? And I guess my actual question would have been, Just wanted to get an update on your commercial rate negotiations for 2023. I guess what percentage of your commercial book will be in the first year of a new contract in 2023? And then what do you think the incremental yield would be compared to a typical update? Thank you.
spk03: Yeah, so I think my previous comments clearly called out the fact that because, you know, half of our revenue comes from government sources, and we know that they are certainly not at the moment keeping up with inflation. although I think we believe that we'll continue to get incremental increases from those government sources over the next couple of years, that that was probably the bigger challenge. I think on the commercial side of things, we continue to seek higher rates and more acknowledgement from our commercial payers that we need greater reimbursement to operate in this sort of inflationary environment. On the behavioral side of that, overall pricing has been strong, it was strong in the quarter. We've talked in previous calls about our relatively aggressive stance that we've been taking with a number of payers in part because that's a business in which we've been capacity constrained. So it makes sense to us or for us to go to our lowest paying payers and either require them to come up to market levels of reimbursement or terminate those contracts because if we're going to turn patients away, it makes sense to terminate those that are sort of the most inadequate, if you will, payers. You know, on the acute side, and again, this idea of sort of, you know, how many of our contracts have been renewed, et cetera, I think is a little bit outdated in the sense that virtually all of our managed care contracts have short-term outs. Most of them have 90 or 120-day outs. So we're renegotiating contracts in both our acute and behavioral spaces. where we think there's an opportunity, where we think that a payer may be under market, where we think that, you know, we might have an appropriate amount of leverage to press for, you know, greater rates, et cetera. So, yeah, we will definitely get more relief on the pricing side, clearly, on our commercial side of the business, and we're aggressively seeking that. And, you know, again, I was sort of describing the shortfall clearly as being more on the government side.
spk14: Thank you. And we'll go to our next question.
spk17: And our next question comes from the line of Whit Mayo with SBB Securities. Your line is open. Please go ahead.
spk04: Thanks. Just wanted to follow up on contract labor for just one second. Steve, how much of the improvement in the third quarter was utilization versus bill rates? And do you have an idea of what your exit rate was? In the quarter, I've got you pegged at around 10% of acute SWB in the quarter, but just wondering if that trended maybe a little bit more favorably towards the end of the quarter. Thanks.
spk03: Yeah, I mean, I think, and in my mind, this is sort of intuitive, that the improvement in premium pay is a combination of both rate and utilization. Obviously, as the demand for those temporary and traveling nurses comes down, the rates that are required or being, you know, demanded for them comes down as well. So, I would say it's a pretty even, you know, mix of rate and volume coming down. I don't have the specific, you know, month-by-month premium pay numbers in front of me with, but as, you know, I was sort of referring to in my, you know, in a previous response, I mean, what we, I think, have seen is a steady incremental decline in premium pay since the beginning of the year when COVID volumes peaked. I think our exit rate in the quarter was certainly higher, however you want to view it, a lower amount of premium pay or a greater reduction than it was at the beginning of the quarter.
spk04: Do you have a number for the contract labor spend in the behavioral segment? I know and recognize that it's not as significant of a pain point. Just wanted to see if you had that.
spk03: Yeah, I mean, I think historically it's been about a third of what it is in the acute side, but I don't have the specific number in front of me.
spk04: Okay, well, one last one. Just corporate overhead, I know this number bounces around, but came in lower than sort of where we thought it might shake out. Just any developments or anything to call out would be helpful. Thanks.
spk03: Yeah, I don't think anything terribly specific. I will say that, you know, the decline in corporate overhead, in Q3 of this year was pretty consistent with what we experienced last year. But as we've analyzed those numbers, there's nothing terribly material driving that. Thanks, guys.
spk17: Thank you. And one moment for our next question. And our next question comes from the line of Gary Taylor with Cowan. Your line is open. Please go ahead.
spk11: Hi, good morning. Just a couple quick ones for me. Doesn't sound like on the hurricane any material impact expected to continue into the fourth quarter. That was just a disruption, but nothing damaging that would be continuing.
spk03: That's correct, Gary. We didn't suffer, fortunately, any significant physical damage in any of our facilities, so I think all the impacts were temporary and most should be recovered in the fourth quarter.
spk11: And then on the Florida DPP for 4Q, I know you'd mentioned that earlier in the year. I just want to make sure I understand the $30 million, is that the EBITDA impact or is there, I'm thinking of the other companies have had like a gross revenue number or a provider tax number associated with it and then a net sort of EBITDA contribution?
spk03: Yeah, so that $30 million is the EBITDA impact.
spk11: Okay. And then last one, when I look at modeling the acute segment, the line that really is most challenging for me, and I'm just struggling to stay up with it and perhaps understand it, is that other operating expense line that's up almost $100 million year over year. I don't think there's any contract labor in there. I think it's professional fees and utilities and insurance are always like the most largest items cited in that bucket. Could you just maybe confirm that and maybe just help us think about that up $100 million year over year, what the two or three largest drivers of that are?
spk03: Sure. So clearly, and we've talked about this on previous calls, the most significant driver and I think the biggest distortion is the insurance subsidiary where we record our medical loss ratio in that line. And because the medical loss ratio for our insurance subsidiary, like any insurance subsidiary, is 85 or 90 percent of revenues, and otherwise that other operating expense line for our hospitals is more something like 20 percent of revenues, to the degree that there's a revenue increase in the In the insurance subsidiary, it sort of distorts that line. So in the third quarter, there's about $30 to $40 million increase in insurance subsidiary revenues and expenses. If you adjust that out of other operating expenses, I think rather than like a 15% increase quarter over quarter, it's certainly like 10%. And I think that's probably a reasonable go forward. I don't have the year-to-date numbers in front of me, but we can certainly provide those We'll make a point, I think, you know, when we give guidance for 2023 of, you know, trying to separate out the impact of the insurance subsidiary on those numbers so it's easier for people to follow. I understand the difficulty that creates.
spk11: Do I have the three largest buckets of spend on the acute other objects, correct? When you think about professional fees and utilities and insurance, yeah.
spk03: Yeah. I would say after adjusting out the insurance, there's a bunch of miscellaneous things. Probably the other most volatile item in the last most recent path has been physician payments. Our payments to physicians, including locums physicians and increased subsidies for hospital-based physicians, et cetera, would be recorded on that line. So you're seeing some impact of that and then just the impact of broad general inflation.
spk11: Thanks.
spk14: Thank you. And one moment for our next question. And our next question comes from the line of Peter Chickering with Deutsche Bank.
spk17: Your line is open. Please go ahead.
spk06: Hey, good morning, guys. Thanks for taking my questions. Three follow-up questions to A.J.' 's focus on behavioral health. Number one, how did behavioral emissions track in September, October? Is it fair to think about 3Q admission growth continuing into fourth quarter? Number two, is 3Q margins and behavioral the right sort of run rate for the fourth quarter? And number three, thinking about sort of 2023 and behavioral, if pricing is in the 45% range and wages are in the low 4% range, is there any reason we should not think about margin improvement in behavioral in 2023? Thanks so much.
spk03: Yeah, I mean, and look, I think we made these comments broadly, and I think most hospitals have made these comments broadly. You know, July volumes in both behavioral and acute were really rather soft. You know, August tracked better, you know, and I think September was sort of a reflection of the two earlier months combined. So, I think the trend is upward, but, you know, I think what we've learned during the pandemic is the trends are a bit more volatile than they have been historically. But again, I think the thing that we say with some confidence is that in periods of lower COVID utilization, behavioral volumes will tend to trend upward, and that's been our experience. And as far as the sort of question about if we continue to have mid-single-digit and upper single-digit revenue growth as we did in Q3, um you know should that be enough to uh allow for margin improvement i think the answer is yes i mean i think we saw that in the quarter and you know i i don't think there's any reason why we shouldn't continue to see that going forward uh one quick follow-up on the acute weight is are you seeing your competitors to raise full-time employee wages multiple times during 2022 like it did in 2021 or are we generally all coming up the same levels and hence why i think the wage inflation
spk06: and acute should be less in 23 than in 22.
spk03: Yeah, I mean, we definitely saw our acute care peers raising wage rates often multiple times during 2022, and again, particularly during COVID surges. As I said, I mean, I think that our hope is that with COVID volumes more stable and hopefully without another really significant surge like we saw in January 20 and January 21, wage rates will be more reasonable, wage rate increases will be more reasonable in 2023. But the other issue is, I think as most people know, I think most of our not-for-profit peers are struggling financially, and that may be an understatement. uh i think again the hope is that their willingness to give what we believe characterizes outsized pain increases they're going to have much less of an appetite for that in 2023 maybe they did great thanks so much thank you and one moment for our next question and our next question comes from the line of sarah james with barclays your line is open please go ahead
spk16: Thank you. You said in your prepared remarks that you were able to lower the previous admission cap in behavioral due to filling the vacant positions. Can you give any color on what percentage of admissions you had to turn away in 3Q and what that looked like
spk17: pandemic?
spk03: Yeah, Sarah, we generally don't give those metrics because I think they're hard to measure across the portfolio consistently. Not every hospital tracks it the same way, et cetera. We do try and track it internally, but I've been reluctant to give those metrics out publicly. What I will say is what we do know during the pandemic is that the percentage of inbound call volume or, you know, we call it call volume, but it could be, you know, over the Internet, et cetera, that we were able to satisfy was significantly lower than it was pre-pandemic. And the main reason for that was because of, again, I'm going to describe it as capped beds, and the beds could have been capped either because we were isolating COVID patients in certain units or because we didn't have enough staff. And, again, what we have, you know, manifested, you know, many times when COVID volumes decline is we know that the number of uncapped beds, you know, increase as COVID volumes come down. You know, it's difficult to give a precise impact of that. But again, I think you can see it in the, you know, the 8% same-store revenue growth in Q3. Got it.
spk16: And given the roughly $200 million reduction in CapEx guide in conjunction with your commentary, in 2Q that you're leaning on de novo openings this year related to staffing shortages. What impact does that have on openings going forward and influencing your thoughts around what new builds might happen in 23?
spk03: I think it's mostly a timing issue. You know, I think that we have a view that CapEx investments that make economic sense, that pencil out to a reasonable return, et cetera, make sense. They may not make sense from a timing perspective to add capacity in an environment in which we're already having difficulties staffing the existing capacity we have, but ultimately they'll get built. So I don't know that there's any 2020, because the reality is 2023 large expansion projects that would be adding capacity, scheduled capacity, are probably, you know, already well committed to. You know, I think that our deferral or delay in CapEx, you know, probably pushes out some 24 projects to 25 and 25 to 26. It's that sort of thing rather than, I think, an immediate impact in 23. That makes sense.
spk16: Thank you.
spk17: Thank you. Thank you. One moment for our next question.
spk14: Our next question comes from the line of Noah Pinden with SACSET. Your line is open. Please go ahead. Noah, your phone may be on mute. All right.
spk17: I am showing no further questions at this time, and I would like to turn the conference back over to Cecil for any further remarks.
spk03: We'd just like to thank everybody for their time this morning, and I look forward to... Please go ahead.
spk17: This does conclude today's conference call. Thank you for participating.
spk14: You may all disconnect. Everyone, have a great day. The conference will begin shortly. To raise your hand during Q&A, you can dial star 1 1.
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