Tenet Healthcare Corporation (THC) on Q1 2021 Results - Earnings Call Transcript
Company Representatives: Ron Rittenmeyer - Executive Chairman and Chief Executive Officer Saum Sutaria - President and Chief Operating Officer Dan Cancelmi - Executive Vice President and Chief Financial Officer Brett Brodnax - CEO and President of USPI Regina Nethery - Vice President of Investor Relations
Operator: Hello, and welcome to Tenet Healthcare Corporation First Quarter 2021 Earnings Conference Call and Webcast. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder this conference is being recorded.
Regina Nethery: Thank you. We're pleased to have you join us for a discussion of Tenet's first quarter 2021 results, as well as a discussion of our updated financial guidance for the year. Tenet's senior management participating in today's call will be Ron Rittenmeyer, Executive Chairman and Chief Executive Officer; Saum Sutaria, President and Chief Operating Officer; and Dan Cancelmi, Executive Vice President and Chief Financial Officer. Our webcast this morning includes an accompanying slide presentation which has been posted to the Investor Relations section of our website tenethealth.com. Listeners to this call are advised that certain statements made during our discussion today are forward-looking and represent Tenet management's expectations based on currently available information. Actual results and plans could differ materially. Tenet is under no obligation to update any forward-looking statements based on subsequent information. Investors should take note of the cautionary statement slide included in today's presentation, as well as the risk factors discussed in our most recent Form 10-K, and other filings with the Securities and Exchange Commission. With that, I'll turn the call over to Ron.
Ron Rittenmeyer: Thank you, Regina, and thank you all for joining us this morning. I have a few comments on the quarter and we’ll then turn over to Dan for more specifics on our performance and forward guidance. Reflecting on the first quarter, as it happens many times, there were a series of events and issues that emerged. The issue is not whether these occurrences happened unexpectedly, but rather whether we can develop an organization that can adjust, flex and importantly, make decisions that are immediately actionable. Our objectives over the past few years have been focused on transforming the entire business into an agile and responsive unit, built on sustainable fundamentals which are improved by both experience and via learnings. This allows us to learn as we go forward and provides an action-oriented mindset to solving, not just reacting to issues that we face but cannot always anticipate. So let me touch on a few highlights of the quarter. First, strong business fundamentals supporting the first quarter EBITDA that was above the high end of our outlook and above consensus, even excluding grant income, outperformance in substantially all of our hospital market, and very solid results at USPI, both amidst continued COVID challenges and severe weather impacts created by winter storm Uri. The storm presented challenges across major parts of our system and our response was immediate, focused and it resulted in a quick recovery.
Dan Cancelmi: Thanks Ron and good morning everyone. Let's begin on slide six. Our financial results in the first quarter came in well above our expectations, despite a strong COVID surge early in the quarter and the impact of winter storm Uri in February. We produced adjusted EBITDA of $777 million compared to $585 million in the first quarter of last year and $623 million in the first quarter of 2019. This equates to a two year compounded annual growth rate of approximately 12%. All three of our businesses performed very well in the quarter, in particular our hospitals. As Ron noted, nearly all of our hospital markets exceeded our expectations. Our hospitals are performing more consistently month-to-month, continue to diligently manage costs despite a myriad of incremental expense pressures due to the pandemic and continue to be more disciplined and forward looking in strategy development and capital allocation decisions. These actions are contributing to hospital margin improvement. Our hospital margin in the quarter without grants was about 100 basis points higher in calendar year 2019 before the pandemic. I do want to remind everyone that our hospital margins include all of our corporate overhead costs and do not include the results of our very strong margin, ambulatory business, which is reported separately. Although hospital volumes have not yet recovered to pre-pandemic levels, especially lower acuity cases, our focus on higher acuities service line development has been a very important driver of historically high net revenue yield per adjusted admission, which increased about 19% year-over-year. Needless to say, we're very pleased with how our hospitals are performing, which gives us a lot of optimism as we think about the rest of the year and beyond. USPI also continues to deliver strong results and the integration of the SCD portfolio of centers we acquired last December is going very well. Patient acuity remains elevated as net revenue per surgical case increased about 5% compared to the first quarter of last year. USPI generated $257 million of EBITDA in the quarter, EBITDA minus NCI expense was $165 million compared to $99 million in last year's first quarter and $109 million in Q1’19 before the pandemic. Let me be clear, even though USPI recognized $13 million of grant income due to the impact of the pandemic, which was not in our guidance, USPI produced a strong quarter, especially in light of the challenges from the winter storm in February that closed many of our centers for up to a week. We remain confident in USPIs robust guidance for 2021 and its future growth opportunities.
Ron Rittenmeyer: Thanks Dan. Look, I live in the pollen’s capital of the work. Look, the quarter was a good quarter. We feel we delivered and delivered well, and overcame the challenges that of course you know you don't anticipate just by definition. So I think with that Regina, we’d be more served to get questions and see if we can give ample time to the question period rather than any more comments.
Regina Nethery: We are now ready for questions.
Operator: Thank you, Regina. We will now be conducting a question-and-answer session. . Our first question is coming from Josh Raskin from Nephron Research. Your line is now live.
Josh Raskin : Hi. there, good morning.
Ron Rittenmeyer: Hi Josh.
Josh Raskin : Hi, good morning guys. So question here is, we keep hearing more and more about these new sort of provider organizations that are focused on value-based care and sort of every single one of them just points to the significant reductions in bed days per 1,000 and that’s sort of one of their key. So I know it’s still early and I feel like we haven't really seen an impact for Tenet and maybe that speaks to your sort of higher acuity focus in the service line expansions you guys been sort of proactively speaking. But what's the strategy in terms of taking share of in the hospital segment? And then maybe conversely, how are you working with these companies to accelerate the growth on the ambulatory side?
Saum Sutaria : Hi Josh, its Saum, let me start. First and foremost, our commitment to value-based care is very strong. I mean, we obviously operate very efficiently. We provide a very good value to both commercial and government payers on the basis of the efficiency and obviously quality and safety of the care we provide. We’re substantial participants across the country in Medicare Advantage, which is probably the most mature value-based program that exists. And as we mentioned before, we are, if not the largest, among the largest participants in the BPCI program and continue to remain very relevant and successfully relevant in that space. I think there's a couple of things with respect to your question specifically around bed days per 1,000. Look, the seniors population obviously over this decade is growing and going to grow substantially. I mean you're talking about in excess of $20 million, $25 million new seniors most likely in the environment and aging from that perspective. So the demand is going to go up and how we use hospital beds is going to be pretty important. There is a lot of variability in bed days per 1,000 around the country, somewhat based upon health status demographics, and somewhat based on value-based care. And in every one of the markets in which we participate, when we do our strategic planning, we're very cognizant of that. We think about the capacity needs. We think about it with respect to the capital we deploy to expand our capacity if we need to expand our capacity. And obviously with USPI, we're at the leading edge of embracing the outpatient environment and seeing what things will move into the outpatient setting. Now last comment I'll make is, the other thing that Brett and team are very engaged in are direct-to-employer value-based contracts, which give access and utilization to the surgery centers. We’re early stages in that type of thing. The market is early stages in that type of thing, but again because of the value we can offer at USPI, we already participate in those types of programs, we feel pretty good about them. It brings USPI centers and doctors, patient from more distant geographies based upon employers that are looking for high-quality and high values. So, I think that touches on four or five ways in which we're kind of active in this market.
Josh Raskin : Perfect. Thanks.
Operator: Thank you. Our next question is coming from John Ransom from Raymond James. Your line is now live.
Ron Rittenmeyer: Hey, John.
John Ransom: Hey, good morning. Are you seeing in USPI any material uptick in total joints, given in the new Medicare Act?
Brett Brodnax: Hey, John, this is Brett Brodnax. Thanks for the question. Yes, I mean, just to kind of give you a sense of our growth in Q1, our total joint business grew 110% over Q1 of last year. Now a portion of that is related to Medicare hips, but obviously not a large portion of it. I would say that if you think about kind of going forward, you think about the number of total hips that we do in a given year, my guess is – our guess is that approximately 30% of those are going to be Medicare hips, the rest being commercial hips. We're also seeing because the total knee was approved in ASC last year. We've also seen a nice uptick in total knees in our business as well, including Medicare.
John Ransom: Thanks a lot. And just as a follow-on for that, and going back to Saum’s comments about value-based care, where are you using the inning analogy. I mean, to me the simple, relatively simple thing to do for Medicare Advantages to package an outpatient total joint with post-acute heavily focused on home care. Where are you in all of this? Are we dreaming that this is actually going to happen or is it not going to happen, if that makes so much sense?
Saum Sutaria: This is Saum again. I think a couple of things: First of all, we partner with our physicians in both the acute care setting and in the ASC settings to provide options that are best for the patients, but ultimately the doctor-patient relationship is something that we value greatly. And the physicians, when they bring the patients into the ASC setting in particular, they have a very structured approach to thinking about what post-surgical care upon discharge might be needed, and we participate with them in helping to facilitate that. And I would tell you that it varies greatly today in terms of the type of post-acute care and the post-surgical care that is actually needed. So I'm not sure how to answer the question with proportions or numbers, but more to say that really the physicians are very thoughtful about this before they bring patients into the ASC setting.
John Ransom: I guess where I was going, and I'll get off after this is, are you able to create bundled packages where you can go to a payer or an employer and say, gosh, we'll do the whole surgery post-acute care for this bundle price and then you contract downstream with a post-acute provider and invest, get invested along with the payer in terms of steerage to a much lower cost, probably equal quality side of service?
Saum Sutaria : John, as I described earlier in the earlier question, there are employers today that we are engaging with in what I would describe as early-stage pilots in those sorts of models. But the fact is, it is not something that we're focused on broad-based within this business, nor is there market demand for that type of focus in this business from what we're seeing today.
Brett Brodnax: Yes, and the only other thing I would add John is we have talked to a couple of different payers about this and quite honestly, they would like to do it. They have a vision of being able to bundle the joints going forward. But right now, they are having problems in terms of how to administrate or judicata the claims from all the different providers that are part of the bundle. So until they figure out the technology to do that, maybe some of them have, but others haven't. I think it's going to be really hard to get a lot of traction with the bundled joints.
Operator: Thank you. Our next question is coming from Brian Tanquilut from Jeffries. Your line is now live.
Brian Tanquilut: Hey, good morning, guys, and congrats on the good quarter. So I just have one question. So as I think about your Q2 guidance, obviously pretty strong, I think you mentioned that we haven't really seen much of the recovery yet or COVID was still an issue in Q1. How are you thinking about the recovery phase as we think about the Q2 guidance and maybe what you can share with us in terms of scheduling? Are we getting people coming into schedule delayed procedures from the last year already? Thank you.
Saum Sutaria: Why don’t I start and then Dan can comment on the guidance. Look, the thing I would say is you know December and more so January, we’re probably among the highest COVID, at least in-patient months that we have seen and you know while I won't get into all of the details from a month-to-month standpoint or what's going on in April, what I would say is that as the COVID cases declined, substantially declined through the quarter and to where we are today, we feel very good about the strength that we're seeing in the non-COVID business recovering. You know we had talked before about how we put a lot of effort into building a recovery playbook when COVID cases declined from their peaks and that has been pretty effective for us and we feel very good about the non-COVID business and I would tell you, with particular strength in surgeries, in our acute care setting and it goes without saying in our USPI setting, so. You know people have asked about air pockets. At least for now we're not seeing an air pocket post COVID right now.
Ron Rittenmeyer: And the fact that we haven't seen those air pockets gives us confidence with you know some of the assumptions that we built in to our outlook Brian. You know when we developed the outlook at the beginning of the year, we assumed that as we moved through the year, particularly in the second half, that volumes would continue to recover further from the levels that we saw in the third and fourth quarters. You know the first quarter was relatively steady from a volume perspective, but you know COVID cases really spiked early on as we mentioned, and then from the results of the impact of the storm in February, so. You know what we're seeing, we still feel very comfortable with the volume assumptions as we move through the year. The commercial volume trends continue to be more favorable than the overall volume trends, particularly in the surgical side. So you know we feel good about our outlook for the rest of the year.
Dan Cancelmi: Yes, and the only other data point I would add is, it's a very relevant data point, especially on the ASC side of the business, the circle side of the business is our cancellation rates for Q1 and obviously a significant result of COVID cancellation rates were about 19.4% for overall quarter, but in March they normalized down to 16%. So I think that's a pretty good indication that you know folks are getting a little bit more comfortable. Once they schedule a case, keeping the case, which should play well as we move into the second quarter.
Brian Tanquilut: Awesome! Thanks.
Operator: Thank you. Your next question is coming from A.J. Rice from Crédit Suisse. Your line is now live.
A.J. Rice: Hi everybody, and thanks for all the details. And it looks like cost trends were well contained, but I might just if it's okay, drill down a little bit more and have you talk about what you're seeing on the labor front in terms of wage updates, turnover rates, we hear about nurse burnout, I wonder if you've seen any of that and use of temporary staff. And then maybe also related to labor a little broader question; the administration seems very pro-union and I'm wondering how that's translating into any discussions you're having or activity you're seeing. Are you seeing a little more of union activity, utilization activity than you previously had seen, maybe under the previous administration as a results of maybe then feeling encouraged by what they get here in Washington.
Saum Sutaria : A.J., its Saum. Let me start. I'm going to take your questions in reverse order. First of all look, we realize that in many ways we lead a nursing organization of substantial scale. We respect our nurses, we respect the tremendous work that they did last year and actually we respect the fact that many of them choose to be you know members of unions and actually our track record shows both, during the pandemic and before the pandemic and even in the last few months with the vast majority of unions that we work with, we maintain very positive relationships that have successful negotiations and you know very successful contract renewals that have benefited both parties as we look forward. So in aggregate I feel very good about that. Look, in terms of contract labor, you know as we talked about back in the fourth quarter 2020 call, contract labor rates had increased substantially. The COVID cases obviously had spiked to their highest levels and you know we like others were very focused on making sure that we had adequate nursing for the care that needed to be provided, both COVID and non-COVID. The fact is that you know we made a lot of effort to improve our length of stay over the third and fourth quarter and into this year in order to ensure that patients got good care, but we did not have excessive lengths of stay, which resulted in excessive use of contract labor and that's been a good strategy to manage the demand and also better for the patients and we continue to focus on that. Our contract labor has obviously been more expensive than anybody would have anticipated in a non-pandemic situation, but we've tried to manage it well. Rates are coming down from a contract labor standpoint as the market moves more towards -- I wouldn't say totally normal, but certainly in a direction that is more normal and you know that's a good thing. So I think the nursing community is settling down into more full time and less traveling type of roles.
A.J. Rice: Okay. In your own wage updates with your own labor force, is that pretty steady at this point?
Saum Sutaria : It’s in-line with our expectations.
A - Ron Rittenmeyer: Same with unions. I mean didn't – you know when you look at the total labor force I would say we're in line with the sides of our expectations and relationships.
A.J. Rice: Okay, thanks a lot.
A - Ron Rittenmeyer: Thanks.
Operator: Thank you. Our next question today is coming from just Justin Lake from Wolfe. Your line is now live.
Justin Lake: Hey, good morning. I wanted to follow-up on some of the questions around pricing and acuity in the quarter and what you're seeing out there. I think you mention that commercial volumes were better. So maybe is there anything you could tell us in terms of growth in commercial versus overall? I know you give that commercial, but it includes somewhat Medicare or Medicaid. Can you kind of exclude that and tell us what grow is doing there or maybe how that looks relative to 2019. Same thing with higher acuity cases, maybe kind of talk about the low acuity versus 2019 versus the high acuity versus 2019. Anything like that would be helpful. Thank.
A - Dan Cancelmi: Hey Justin, its Dan, I can start. The commercial trends that we have been seeing, really since you know the middle part of last year overall are more favorable than the overall aggregate volume trends, which you know may not necessarily be surprising given the Medicare population may have been a little bit more reticent about seeking care, typically before vaccines were started to be delivered. But the commercial trends have been positive in terms of you know comparison to overall trends. In particular as I mentioned earlier, our commercial and surgical trends are particularly encouraging over the past several quarters in not only the USPI business, but also in the hospital business, in particular which has been a key driver of our net revenue growth from a real perspective. So you know when we look at our commercial book of business, we’re essentially fully contracted for this year, about two-thirds contracted next year, so we have very good visibility into pricing from a commercial side across the entire portfolio and our continued focus on higher acuity service line development should continue to generate strong yield as we move through this year and into next year.
Justin Lake: Got it, thanks.
Operator: Thanks. The next question is coming from Pito Chickering from Deutsche Bank. Your line is now live.
Pito Chickering: Good morning, guys, and thanks for taking my question. The rates on the cash you generated this quarter is helping push your leverage ratios down. I know that we didn’t ask this, but once you're in the forex leverage range, waiting for it to delever or will you begin to deploy free cash flow into things like share repo, as you’re always having acquisition candidates.
Ron Rittenmeyer: I would say they are going to continue to delever for now, but obviously we are – you know we got a good pipeline in USPI and we are going to continue to look at potentials there. We’ve already talked about our hospital strategy. You know we got a couple of small things. We got online and we'll probably do something in San Antonio, but you know that's more market driven than any other reason. We're going to continue to trim that portfolio, so the strategy has not changed, but I don't think at this stage share repurchase is on the list. I think we're more focused on deleverage our self to a better position and then acquisitions.
Pito Chickering: Did you have a leverage ratio where if you don't have enough deal flow you will actually then start to see convert into repo or how should we think about sort of where that limitation really you know starts at this point.
Ron Rittenmeyer: Right now I would tell you that we're – we said we'd be below 5, we are below 5. You know there was a time where people looked at us when I said that like we were in la la land. We are there. Some of that is by performing, some of that is by how we restructure our entire capital portfolio. So look, I don't want to give you a number, because then every quarter you’ll be asking me, how I'm doing against 4 point – you know I’verightly done it. You know the reality is we're focused to stay below 5 and we just need flexibility within that range than to go do the things we think are right. You know the last USPI acquisition I think was when we had a lower ratio, more capacity options, we have options and I want to use those options to grow the basis of the business in line with the strategy that we’ve talked about, which is clearly a higher based USPI and maintain the best hospital markets and actually run them the most efficiently and effectively we can and make sure we stay strong in those markets. So look, we're going to deploy capital in the best way possible to get a return to the shareholders over the long term.
Pito Chickering: Great! Thanks so much.
Operator: Thank you. Our next question today is coming from Ralph Giacobbe from Citigroup. Your line is now live.
Ralph Giacobbe: Great. Thanks, good morning. You know there's been a lot of headlines around COVID spikes in Michigan. Just given your presence in Detroit, I was hoping maybe you can give us a sense of trends in that market, both you know COVID related and core. And then more broadly, if you can just give us what COVID admissions were in the first quarter. Thanks.
Saum Sutaria : Hey, it’s Saum. Let me start and then, I'll pass it to Dan. So you’re right to note that COVID cases have increased in Michigan, while in most of our markets I would say the COVID volumes are about a fourth to a fifth of the peaks that we saw before. In Michigan were about half of the peak that we saw before. The COVID spike in Michigan, may be one of the reasons we're hearing a lot of noise about it is that unlike the first two spikes which really did hit much more downtown Detroit and some of the more vulnerable communities, while that is the case this time, we put a lot of effort into vaccination and other things there. I think this spike is hitting a little bit more in the suburbs and our operations at the Detroit Medical Center throughout all of the hospitals, both the adult, children and rehab facilities are open. We're not deferring or delaying or canceling any types of procedures at this point and obviously as those suburban hospitals are more affected, we represent a great choice for patients who need care to come to, because our operations are more seamlessly opened.
Ron Rittenmeyer: In terms of the COVID admissions or the percent of the titled admissions, you know over the past three quarters they've been running in you know 10 – I’ll call it the 10% to 12% range each quarter. I would tell you in terms of how it evolved during the first quarter this year. Obviously COVID cases were at their highest peak in January and have steadily declined to up roughly 5% in the month of March.
Ralph Giacobbe: That’s helpful. Thank you.
Operator: Thanks. Your next question today is coming from Kevin Fischbeck from Bank of America. Your line is now live.
Kevin Fischbeck: Great, thanks. I was wondering if you did kind of a related talk about the concept of pent up demand. I guess you mentioned that you know you're not really seeing air pockets as far as drafting and coagulation coming back. So I wanted to see what you thought how this would all play out, either you know on the lines you think some COVID continue to drop. What are you seeing as far as your doctors and their backlogs and just interesting to see some of those deferral percentages. You have any color you can give there as far as how you think pent up demand – like is that going to be an overall positive or should we not really expect the line to get above normal by the end of the year.
Saum Sutaria : Hi! This is Saum. I’ll start and then others can pile on. So a couple of things, in the acute care segment, you know I do think we're seeing some effective, either whether it's pent up demand or just people who had chronic illnesses that you know deferred or delayed their care and you know some of the higher acuity that we're seeing is probably related to the fact that their underlying conditions got a little bit worse because of the pandemic and you know that to some extent is not surprising. I mean it's the reason that we put a lot of effort into maintaining access for the community in these acute care hospitals and keeping them open throughout the pandemic. I don't see you know a major surge of higher acuity business at this point that is you know going to come washing in to the acute care hospitals or surgical hospital from that standpoint. Now, I think the lower acuity business that’s being deferred, you know it remains to be seen what happens there, because I think that falls into two camps. The example I use every time is one camp is simply that demand that doesn't exist right now, because schools aren't open or you know there's less people on the road, there's less trauma, there's less sports injuries. You know as those activities get back to normal, you would expect that demand to return. And then there's the demand in the second camper bucket that is you know what people are avoiding because of the fear of the emergency department due to COVID and I think that's going to be a much longer ramp back to normal as people get comfortable from that standpoint.
Kevin Fischbeck: Okay, what does that mean that as long as that was reflected completely – do you indicate there’s going to be pent up demand given on the outpatient side, not on the in-patient side?
Saum Sutaria : Well, specifically what it means is that if I had to guess and this is purely a guess, that as we get into the fall and you know for example schools and other things are most likely fully open around the country, I expect there to be an up-tick in for example outpatient emergency department volume and outpatient visits and other things to some extent, closing the gap between where we are right now and what we saw in 2019. For the remainder of the gap, I expect especially those things where people have to get more comfortable coming back to the acute care hospital, I expect it's going to be a longer ramp for that to come back and you know I… One of the things at least from our standpoint that we try to focus on is not necessarily replicating or trying to achieve the exact volume and patient mix that we saw in 2019, because we're a believer that some of that business either won't come back or will take a long time to come back from a low acuity standpoint. So more important is that we put our energy into building a business where we see the demand, growing market share in those areas, focusing on the high acuity and using that as a way to deliver on the earnings expectations that we have for ourselves and that investors have for us, rather than trying to do it by you know attempting to mimic the 2019 volumes. This is two different approaches.
Ron Rittenmeyer: And we also believe the children’s hospitals will pick up volunteers. As the school goes back for student degrees, etc. but right now we're not seeing as much of them.
Dan Cancelmi: The only thing I would add to this related to the ASE business is I don't agree with Saum. I don't think we're going to see a big surge in 2021. I do think we'll start to see some recovery and some of the lower complexity business that we haven't seen recovered at the higher complexity business, those specialties like ENT and pain, to a lesser degree ophthalmology and GI, those haven't recovered as quickly as our acuity business like the MSK especially. So we would anticipate some of that business starting to come back in Q2 and the rest of the year, but I would not describe it as a huge pent up demand where we're going to see some massive surge in business.
Kevin Fischbeck: Thank you.
Operator: Thanks. Our next question is coming from Frank Morgan from RBC Capital Markets. Your line is now live.
Frank Morgan: Good morning. Sort of a two part question here. Just to go back to the recovery in volumes that you saw in the month of March, is there any way to parse out how much of that was due to say whether, those deferrals from Texas and Oklahoma versus a return of volumes that were say COVID induced. And then the second part of the question is like on Kevin's. As we think about pricing and this whole concept about how the mix of the business, where does it stabilize, it sounds like you're saying that there's a good chance that pricing, at least relative to historical averages is probably not going back that low, either because of the slowdown in this recovery of low acuity or better pricing and complex procedures. So I’m just curious to – wanted to go with that as well. Thanks.
Ron Rittenmeyer: Hey Frank, it’s Ron. In terms of you know the volumes and margins and you know how much those volumes may have included, cases from February that were you know delayed because of the storm, sure there was some of that, not only in the hospital side, but also on the USPI side as well, yes. There is no question about that, because you know, as you know it takes often times several weeks or more for patients and physicians to have cases rescheduled and have them fit into their calendars so to speak. But you know we're optimistic, again as we've been talking about it in terms of our volumes as we move through the remainder of the year. In terms of your question or point on pricing, in terms of – we're not going to state 19% growth in perpetuity, there's a lower acuity. Cases come back, but you know I think here and certainly in the near term and until more lower acuity business does come back, you're going to see you know stronger levels of net revenue yield on a per adjusted admission basis. Again as I mentioned earlier, we have very, very good visibility into our contracting positions across the portfolio, whether it's the hospitals, whether it’s our physicians, whether it’s USPI centers, we're essentially fully contracted this year, next year our acuity is by two-thirds contracted. So we know where we’re at from a pricing perspective and we continue to focus on growing. To Saum’s point, the higher complexity cases, that should be a tailwind in terms of net revenue yield growth down the road.
Frank Morgan: Thank you.
Operator: Thanks. Your next question is coming from Jamie Perse from Citi. Your line is now live.
Jamie Perse: Hi! Good morning. I wanted to just follow-up on the revenue per adjusted admission. I think we guided to minus 3% to minus 5% previously. Just confirming if you're updating that or any change about it, I might have missed that, but that's the first piece and then just on EBITDA you beat by about $100 million this quarter, you're raising guidance by $100 million or so and you know you talked to the hospital out performance in particular, the sequestration, the contract labor rates coming down, all these positive things. So I'm just curious if you are just going to do 1Q and that's about it and not expecting continued out performance or if you do think there could be continued out performance.
Dan Cancelmi : This is Dan, let me address it. So in terms of the net revenue growth, as I mentioned, you know we delivered 19% in the first quarter, again this is on the hospital side. The USPI was 5%, but on the hospital side that 19%, we are assuming that comes down as low acuity business comes back. But I would tell you that, you know that metric is going to fluctuate over the courses of the year as volumes ebb and flow due to the pandemic and the recovery, particularly if lower acuity cases rebound stronger than we assume. You know where we could be, it could be you know mid-single digits in terms of pricing growth for the full year, we’ll see. It really is dependent on the primary driver will be the rebound in lower acuity cases and at one level. In terms of our guidance, we increased our guidance $100 million, okay. We had a very strong first quarter. As I pointed out, we did get a benefit, we will receive a benefit from sequestration being suspended through the rest of the year as we pointed out, that was helpful, and we did recognize some grant income. We did have an outperformance in the first quarter; it's early in the year. But what it does give us is a lot of optimism as we move through the year, and as we think about the year that you know we have a wide range and we continued delivering and performance like this, where we can be above the mid-point, but we feel very good about where we're at right now.
Jamie Perse: Thank you.
Ron Rittenmeyer: One more question operator. Go ahead.
Operator: Our last question today is coming from Scott Fidel from Stephens. Your line is now live.
Scott Fidel: Hi, thanks. Good morning. So the question, I know this just happened last Friday, so not sure if you have any visibility into this yet, but just if you're expecting any business impact from CMS rescinding the long term waiver in taxes and then if also if we assume that they may do the same thing in Florida as well. Thanks.
Dan Cancelmi: Hey Scott, its Dan. We really don’t. What's in the current waiver expires in September of next year. So there's not an immediate threat to current funding. You know CMS, our understanding based on our read of their correspondence was they rescinded the ten year extension, which is rather a long period of time for an extension. That was you know rescinded based on procedural grounds. We fully expect the state will undoubtedly apply for an extension in the coming months and so you know we think it's premature at this point and unreasonable to assume that it's going to result in a significant loss of funding. So we obviously will be following it and then providing our input to the appropriate constituents on that matter.
Operator: Thank you. We’ve reached the end of our question-and-answer session. I’d like to turn the floor back over to management for any further or closing comments.
Ron Rittenmeyer: We just appreciate everybody joining and as usual, we are available for follow-ups. So Regina.
Regina Nethery : Thank you everyone for joining us and we look forward to chatting with you again soon. Have a good day! Bye!
Operator: Thank you. That does concludes today's teleconference and webcast. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today.
