A.J. Rice

A.J. Rice asked about any meaningful differences in performance across Community Health Systems' diverse portfolio, specifically comparing mid-sized city markets to smaller community properties and any geographical variations over the last quarter to year. He also inquired how achieving positive free cash flow changes the view on capital spending, particularly regarding investments in AI and its potential benefits for hospitals.

Answer

CEO Kevin Hammons noted a wide range of performance but emphasized that most hospitals, including smaller rural ones, fit within a network of care, serving as access or transfer points for higher acuity services captured within the network. He confirmed that capital spending levels remain consistent in absolute dollars but increase per hospital, allowing for investments in growth opportunities. He detailed several AI use cases, including administrative and clinical applications, and leveraging AI built into Oracle ERP tools.

A.J. Rice of UBS Group AG inquired about the updated volume assumptions in the second-half guidance, the drivers of the full-year operating cash flow forecast, and the status of pending state-directed payment (DPP) programs in states like Indiana and Florida.

Answer

President & CFO Kevin Hammons explained that full-year adjusted admission guidance was lowered to 0-1% due to declining consumer confidence, though volumes began to stabilize in late June. He affirmed the cash flow guidance, citing the exclusion of a $74M tax payment from operating cash flow and expected cash inflows from DPP programs in the second half. Hammons also confirmed that new or updated DPP programs in Florida and Indiana are progressing and expected to provide a material benefit.

AJ Rice asked about the realization of the transformation initiative's $1.6 billion-$2 billion pre-tax earnings improvement by 2028, specifically how much will be realized in the 2026 outlook and the progressive realization over the next few years.

Answer

CFO Celeste Mellett explained that in terms of member volume and CenterWell pickup, Humana is close to 2028 expectations. However, cost cutting is just beginning, with significant pickup expected in 2027 and 2028. She also noted continued upside from clinic growth, strategic pharmacy initiatives, group MA margin improvement (with several hundred basis points still to go), and progression through the J-Curve in Medicaid and CenterWell PCO clinics.

AJ Rice asked about the progress on the transformation initiative, which targeted $1.6 billion-$2 billion in pre-tax earnings improvement from 2025 to 2028, inquiring how much of this has been realized in the 2026 outlook and the expected progressive realization over the next few years.

Answer

Celeste Mellett (CFO) explained that in terms of member growth and CenterWell volume pickup, Humana is close to its 2028 expectations. However, cost-cutting efforts are only just beginning, with significant pickup expected in 2027 and 2028, following a deliberate and sustainable approach. She also mentioned expected continued growth in CenterWell clinics, progress in pharmacy strategic initiatives, and further margin improvement in Group MA and Medicaid as they move through the J-Curve.

AJ Rice inquired about the overall MA market growth, whether members are shifting to fee-for-service due to market disruption, and the mitigation efforts Humana can employ during AEP if growth is too high.

Answer

Jim Rechtin, President and CEO, stated that CMS forecasts are typically inaccurate and expects market growth to be similar to last year's mid-single digits. He noted that Humana is at or below the richest plan in many geographies. David Dintenfass, President of Enterprise Growth, mentioned that beyond decommissioning plans, Humana can use its own distribution and marketing levers to manage volume.

AJ Rice asked about Humana's view on overall MA market growth, whether plan exits are leading to members choosing fee-for-service, and the mitigation factors Humana can use during AEP if growth becomes too high.

Answer

Jim Rechtin, President and CEO, stated that CMS forecasts are often inaccurate and expects overall market growth to be in the mid-single digits, similar to last year. He noted that Humana's benefits are often below or at parity with competitors in many geographies. David Dintenfass, President of Enterprise Growth, explained that while commission adjustments have notice periods, Humana can use other levers like its own distribution and marketing to manage volume dynamically during AEP.

A.J. Rice from UBS Group asked about the growth drivers for CenterWell's value-based care and requested an update on the potential impact of the proposed home health rule.

Answer

CFO Celeste Mellet explained that CenterWell's patient growth is driven by the successful ramping of new clinics, not a specific patient type. Regarding the home health rule, she expressed disappointment with the proposed rate cut but noted Humana has a natural hedge in its insurance business and other enterprise-level levers to mitigate the potential impact.

A.J. Rice sought clarification on whether the new rebate-free model's outlook had contemplated the FTC settlement and other legislative changes, and asked about the need to renegotiate manufacturer deals and potential formulary changes.

Answer

David Cordani confirmed that the 2026 outlook and the direction of the new PBM innovation remain consistent, as its architecture, developed in early 2025, was congruent with anticipated regulatory and legislative trends. He noted that work includes technology enhancements and restructuring economic arrangements with manufacturers, but formulary changes will continue to be guided by clinical efficacy and comparative effectiveness, not directly by the transitional model.

A.J. Rice sought clarification on whether the FTC settlement and other recent developments were already factored into the Q3 2025 outlook for the new rebate-free model. He also asked about the need for significant renegotiation of manufacturer deals on the pharmacy side and potential formulary changes.

Answer

David Cordani, Chairman and CEO, confirmed that the 2026 outlook and the direction of the new PBM innovation remain consistent, as its architecture was designed in early 2025, anticipating regulatory trends. He acknowledged ongoing work to restructure economic arrangements with manufacturers and stated that formulary changes would continue to be guided by clinical efficacy and comparative effectiveness, not directly by the transitional model.

A.J. Rice of UBS Group AG asked about the strategic advantage Cigna gains from integrating Evernorth's PBM insights to manage commercial healthcare trends, particularly concerning specialty drugs like GLP-1s.

Answer

Chairman and CEO David Cordani emphasized the growing importance of pharmacy services, now over 25% of total medical costs, and the interdependency between medical, pharmacy, and mental health. President and COO Brian Evanko added that this integrated model is crucial for managing the Medical Care Ratio (MCR) by providing a longitudinal view of patient care across both medical and pharmacy benefits, which is a key differentiator.

A.J. Rice from UBS inquired about the observed impact of improved CKD management and new drugs on disease progression, time to dialysis, and patient longevity on dialysis, and sought details on the nature and expected benefits of the Elara Caring investment.

Answer

CFO Joel Ackerman stated that no shifts in disease progression or time to dialysis have been observed yet, noting it's too early for new drugs to show full effect and that CKD management impacts take longer to manifest. CEO Javier Rodriguez explained the Elara Caring investment has a dual thesis: achieving a good capital return on the $200 million investment and operationally benefiting patients by reducing hospitalizations, readmissions, and missed treatments through specialized kidney protocols for the quarter of patients using home health.

AJ Rice asked about observed shifts in disease progression for kidney patients, specifically regarding the time to dialysis and duration on dialysis, given improved CKD management and new drugs. He also inquired about the nature of the Elara Caring investment, distinguishing between financial and operational impacts.

Answer

Joel Ackerman, CFO and Treasurer, stated that no shifts in disease progression have been observed yet, noting it's too early for new drugs to show a full effect and that CKD management programs are relatively new. Regarding the Elara Caring investment, he explained it has a dual thesis: achieving a good capital return on the $200 million investment and improving patient outcomes by reducing hospitalizations, readmissions, and mistreatments through specialized kidney protocols in home health.

A.J. Rice requested more detail on the $40 million revenue pull-forward in the Integrated Kidney Care (IKC) business and why it wasn't indicative of a better underlying trend. He also asked for the reason the cyber attack negatively impacted revenue per treatment (RPT).

Answer

CFO Joel Ackerman explained the IKC revenue was a timing issue, as the company gained actuarial clarity on shared savings from 2024 plan years earlier than anticipated, pulling revenue from Q3/Q4 into Q2 without changing the full-year expectation. He stated the RPT impact from the cyber attack was due to an expected lower yield on claims processed manually during the disruption and a reduced ability to collect on older, previously denied claims.

A.J. Rice questioned the company's long-term growth outlook, specifically asking if the targets of low double-digit earnings growth in 2027 and traditional growth in 2028 remain achievable, given the impact of the MA rate notice and underlying assumptions for gradual margin improvement.

Answer

Stephen Hemsley, Chairman and CEO, declined to provide specific 2027 guidance but expressed strong confidence in the business's ability to operate within its long-term growth rate margins of 13-16%. He cited a stronger business foundation, AI-driven productivity, innovation, the emergence of value-based care, and thoughtful capital stewardship as factors making the long-term growth outlook more compelling than ever, contingent on execution.

AJ Rice with UBS inquired about the recent deal activity, specifically if current market conditions facilitated the California and Utah acquisitions, and whether buyer and seller pricing expectations are more aligned. He also asked about markets where pricing remains elevated, such as Texas, and if other buyers are stepping in. Additionally, he sought an update on the company's behavioral health initiatives and any traction with managed care companies regarding placing residents due to capacity constraints.

Answer

Head of Investor Relations Chad Keetch stated that the Utah deal was driven by a long process of sellers preparing to transition their legacy, while the California deal was complex due to multiple operators. He noted pockets of irrational pricing, particularly in Texas, due to financial buyers, emphasizing Ensign's discipline and multiple growth levers. Chairman and CEO Barry Port confirmed significant traction in behavioral health, with units being added in states like Arizona and California, building on long-standing relationships with county programs and managed care partners.

AJ Rice inquired about the drivers behind recent deal activity, specifically the California and Utah portfolios, and whether current market conditions are aligning buyer and seller pricing expectations. He also asked about markets with elevated pricing, such as Texas, and the presence of other buyers. Additionally, he sought an update on discussions and traction regarding behavioral health residents with managed care companies.

Answer

Chairman and CEO Barry Port explained that the Utah deal was driven by the seller's emotional decision to choose an inheritor of their legacy, while the California deal was complex due to its size and multiple operators. Head of Investor Relations Chad Keetch noted that Ensign remains disciplined in pricing, avoiding markets like Texas where financial buyers have driven prices to unsustainable levels, and confirmed a pipeline for Q1 2026. Barry Port also reported significant traction in behavioral health, with new units added in states like Arizona and California, building on existing relationships with county programs and managed care partners.

A.J. Rice from UBS Group questioned if the outperformance of recent acquisitions is due to faster-than-historical improvements or more conservative initial assumptions. He also asked if recent legislative chatter has impacted the M&A pipeline or state rate discussions.

Answer

COO Spencer Burton attributed strong acquisition performance to a better labor environment, higher cluster density enabling faster resource deployment, and continuous operational learning. CIO Chad Keetch noted that while reasons for selling may change, the M&A pipeline remains consistently strong. CFO Suzanne Snapper added that the company has operational levers to mitigate potential state rate decreases.

AJ Rice inquired about Centene's ability to re-engage Marketplace enrollees, particularly younger and healthier individuals, if EAPTCs are extended mid-cycle, and the efforts in place for such a scenario. He also asked about the anticipated impact of Medicaid work rules and program integrity measures on the 2026 outlook.

Answer

CEO Sarah London stated Centene is prepared for a multi-layered enrollment process, including potential special enrollment periods and additional marketing, if EAPTCs are extended. She anticipates some market contraction in 2026 (high teens to mid-30s range) even with extensions due to abrasion. For Medicaid, London noted that states planning early work requirements have largely shifted to a 1/1/2027 start, with significant CMS guidance still pending, thus not expecting a huge impact on 2026 Medicaid margins. Program integrity measures are expected to cause some membership attrition but not a major swing factor for 2026.

AJ Rice inquired about Centene's ability to re-engage Marketplace enrollees if eAPTCs are extended mid-cycle, particularly for healthier members, and the potential impact of work requirements and program integrity measures on the 2026 Medicaid outlook.

Answer

Sarah London, Chief Executive Officer, stated that Centene is prepared for a multi-layered enrollment process, including potential special enrollment periods, and will mobilize marketing and broker efforts to re-engage members if eAPTCs are extended. She anticipates market contraction in the high teens to mid-30s range for 2026. For Medicaid, she noted that work requirements are largely expected to impact 2027/2028, with 2026 seeing minimal impact, and program integrity measures are not a significant swing factor for next year's profitability.

A.J. Rice from UBS Group AG asked for clarification on the Marketplace business, questioning why the risk adjustment miss occurred given Centene's market scale and what the updated target margins and potential disenrollment impacts are for 2026.

Answer

CEO Sarah London explained the risk adjustment miss was driven by a higher-than-anticipated exit of healthy members due to new program integrity measures, a dynamic that became clear only with full market data. For 2026, she stated that while it's too early for specific margin targets, the company is repricing its entire book to account for the new morbidity landscape and potential EAPTC expiration, with the goal of returning the business to profitability.

A.J. Rice of UBS Group AG asked for details on the Marketplace risk adjustment miss, questioning why it was identified only now. He also sought clarity on the 2026 repricing strategy, updated target margins, and assumptions for market-wide disenrollment.

Answer

CEO Sarah London explained the risk adjustment miss resulted from a significant, unexpected morbidity shift after healthy members left the market due to new program integrity measures. She confirmed Centene is repricing its entire 2026 book to account for this shift, aiming for profitability, but noted it's too early to provide specific target margins. She added that some expected 2026 market contraction was likely pulled forward into 2025.

AJ Rice asked about the timing of the $25 million in miscellaneous incremental DPP payments (Q3 or Q4) and the booking of the Nevada litigation settlement. He also questioned the sustainability of the strong pricing gains seen in both acute and behavioral businesses, even excluding DPP payments.

Answer

CFO Steve Filton confirmed the Nevada litigation settlement was recorded in Q3 within non-same-store acute results, and the additional DPP is spread between Q3 and Q4. He stated that while acute revenue per adjusted admission was strong (5% core ex-DPP), sustainable acute pricing is closer to 3-3+%, with the excess due to revenue cycle initiatives and one-time items. For behavioral, he noted 4-5% pricing (ex-DPP), but sustainable levels are likely 3.5-4.5%.

AJ Rice asked for clarification on the updated guidance components, specifically if $25 million of miscellaneous DPP payments would be booked in Q4 and whether the Nevada litigation settlement was booked in Q3 or Q4. He also inquired about the strong pricing on both businesses, even excluding DPP payments, its sustainability, and any specific call-outs.

Answer

CFO Steve Filton confirmed the litigation settlement was recorded in Q3 and reflected in non-same-store acute results, while the additional DPP is spread between Q3 and Q4. Regarding pricing, Filton noted acute care revenue per adjusted admission increased by nearly 10%, with about 5% from core results, which is on the high side. He estimated sustainable acute pricing at 3%+, attributing the excess to revenue cycle initiatives, denial appeals, dispute resolutions, and small one-time items. Behavioral pricing was 4%-5% (adjusted for DPP), with sustainable levels at 3.5%-4.5%.

A.J. Rice of UBS Group AG inquired about the impact of managed care disruption on payer negotiations, labor trends in both business segments, and an update on pending state directed payment programs. He also asked for a breakdown of the long-term DPP headwind between the acute and behavioral segments.

Answer

Executive VP & CFO Steve Filton stated that while payer negotiations on the behavioral side remain strong due to access scarcity, the main challenge is the 'daily slog' of revenue cycle interactions like denials. He noted labor inflation has decelerated but staffing remains a challenge in some behavioral markets. Filton confirmed the Washington D.C. DPP is still pending and broke down the long-term DPP headwind as approximately 60% behavioral and 40% acute.

A.J. Rice asked for the key assumptions behind the estimated $50 million headwind if ACA exchange subsidies expire and inquired about the expected 2025 impact from the new West Henderson and D.C. hospitals.

Answer

Executive Steve Filton clarified the $50 million figure is a high-level estimate, assuming about half of the 5% of acute patients on exchange plans would lose coverage. Regarding new hospitals, he expects the two facilities to be EBITDA positive on a combined basis in 2025. While they will likely depress same-store volume metrics due to cannibalization, they are not expected to be a drag on overall earnings.

AJ Rice inquired about a potential step-up in Q4 elective procedures due to public exchange concerns and HCA's ability to help patients re-sign up for coverage if an extension comes late.

Answer

CFO Mike Marks explained that it's too early to size the potential impact due to the fluid policy environment and upcoming enrollment period. He confirmed HCA's financial counseling teams can connect patients to resources for coverage navigation.

AJ Rice from Credit Suisse asked about anticipated step-ups in Q4 elective procedures due to public exchange coverage worries and HCA's ability to re-enroll patients if special enrollment periods are established late.

Answer

CFO Mike Marks stated that HCA is not currently sizing the potential impact due to the fluid policy environment, awaiting more information for the Q4 call. He confirmed HCA's financial counseling teams can connect patients to resources for navigating coverage but cannot conduct on-site enrollment.

A.J. Rice of UBS Group AG inquired about the drivers of HCA's updated EBITDA guidance, specifically the inclusion of the Tennessee DPP program, and sought commentary on the revised admissions outlook and underlying volume demand trends.

Answer

CFO Mike Marks explained the $300 million guidance increase is split between state supplemental programs, including the new Tennessee program, and improved portfolio performance. He noted volume guidance was adjusted due to lower-than-expected Medicaid and self-pay volumes. CEO Sam Hazen added that despite headline numbers, underlying qualitative growth was strong in areas like cardiac and obstetrics, marking 16 consecutive quarters of volume growth.

A.J. Rice asked about Molina's assumptions for public exchanges regarding subsidies (enhanced subsidies, etc.) embedded in the break-even comment for 2026, and the potential variability depending on how subsidy rules evolve.

Answer

CEO Joseph Zubretsky explained that 2026 Marketplace pricing includes a catch-up for 2025's negative margins, a conservative trend estimate, and an estimate for acuity shifts due to enhanced subsidy expiration. He noted Molina's product will be less competitively priced, leading to reduced volume but aiming for at least break-even, with pricing targeting mid-single-digit margins. CFO Mark Keim clarified that pricing assumes the expiration of subsidies, and if subsidy rules change, pricing would adjust to maintain the break-even or better objective.

AJ Rice asked about Molina Healthcare's assumptions regarding public exchanges for next year, particularly how various scenarios for enhanced subsidies affect the embedded break-even comment and the potential variability.

Answer

CEO Joseph Zubretsky and CFO Mark Keim explained that 2026 pricing includes rate increases averaging 30% (15-45% range) to recover from negative margins, estimate trend, and account for acuity shifts from subsidy expiration. They are conservatively priced, aiming for at least break-even on reduced volume, with pricing models targeting mid-single-digit margins. The current pricing assumes the expiration of subsidies, and if subsidy rules change, pricing would be adjusted to maintain profitability.

A.J. Rice from UBS Group asked about the margin deficit Molina faces heading into 2026 and whether upcoming rate updates would be sufficient to reach target margins. He also inquired about the potential acuity impact from the budget bill's work requirements and exposure related to undocumented immigrant coverage.

Answer

CFO Mark Keim stated that the January 1 rate cycle is critical to return to target margins and that if the industry is funded appropriately, Molina will be well-positioned. CEO Joseph Zubretsky addressed the budget bill, asserting the impact would be gradual and manageable. Regarding undocumented immigrants, he noted the exposure is minor for Molina, with California being the only material state, which they are monitoring.

AJ Rice inquired about the pipeline for new client wins, including the mix of cross-selling existing housekeeping clients into dining services versus acquiring entirely new customers, and the growth outlook for 2026. He also asked for an update on the 'education' segment's performance and acquisition strategy.

Answer

CEO Ted Wahl highlighted Q3 as the sixth consecutive sequential revenue increase, driven by new business wins and strong client retention. He projected Q4 revenue between $460M-$470M and a mid-single-digit top-line growth target for 2026, noting the new business pipeline is evenly split between EVS and dietary, with cross-selling in EVS as a key opportunity. CCO Matthew McKee clarified the 'education' segment is now referred to as 'campuses' to broaden scope, noting its growth and cross-selling synergies. CFO Vikas Singh confirmed that the campus initiative is the primary M&A target.

A.J. Rice inquired about the Genesis Healthcare bankruptcy, asking if the Q2 and planned Q3 charges would fully write off the exposure and about the potential for recoveries. He also asked about business growth, client retention rates, new business additions, and current trends in food inflation.

Answer

President & CEO Ted Wahl confirmed that after the Q3 charge, the Genesis exposure will be fully reserved, but it is too early to speculate on recoveries. He highlighted that Q2 marked the fifth consecutive sequential revenue increase, driven by new business wins and a strong 90%+ client retention rate, which is expected to continue. Chief Communications Officer Matthew McKee added that while food inflation is fluctuating, the company has contractual rights to pass through increases and actively works to mitigate costs for clients.

A.J. Rice from UBS Group inquired about the Genesis Healthcare bankruptcy, asking if all exposure will be written off after Q3, the prospects for recovery, and the status of the resolution process. He also asked about the normalization of client retention rates and new business trends, as well as the current outlook on food cost inflation.

Answer

President & CEO Ted Wahl confirmed the Genesis exposure will be fully reserved after Q3 but noted it's too early to speculate on recoveries. He highlighted that Q2 marked the fifth consecutive quarter of revenue growth, driven by new wins and a return to 90%+ client retention, which he expects to continue. Chief Communications Officer Matthew McKee added that while food inflation is fluctuating, HCSG has contractual rights to pass through costs and uses menu management to mitigate impacts.

A.J. Rice from UBS Group inquired if hospital hiring freezes were boosting the supply of clinicians for travel assignments. He also asked about the current state of the MSP market, including trends in client model preferences and AMN's opportunities to gain market share.

Answer

President & CEO Cary Grace responded that clinician supply is healthy and the primary challenge is demand and attractive pay packages, not a lack of interested professionals. Regarding MSPs, she explained that while there was a post-COVID bias toward vendor-neutral models, the pipeline is now showing a slight bias back to supplier-led programs. Grace emphasized AMN's strategy to serve all models, which has helped maintain market share.

A.J. Rice from UBS Group AG sought clarification on whether the proposed 6.4% rate cut would be a one-time reset or if further recoupments would follow. He also asked about the drivers of ongoing pressure in fee-for-service home health volumes.

Answer

CFO Ryan Solomon characterized the proposed temporary adjustment as a 'clearing event' for prior years, with future updates being prospective market adjustments. CEO Barb Jacobsmeyer attributed the fee-for-service pressure to a combination of high Medicare Advantage penetration in certain markets and a strategic focus on referral sources with a balanced payer mix. Mr. Solomon added that the company is outperforming its internal goals for slowing the rate of decline in Medicare volumes.

A.J. Rice inquired about the implications of the recent proposed physician fee schedule rule, particularly its focus on prioritizing office-based and primary care physicians.

Answer

CEO Parth Mehrotra viewed the proposed rule as a 'net positive' for Privia's business. He expressed that it rightfully recognizes the need for community-based physician reimbursement to keep pace with inflation. Since Medicare lives constitute 15-25% of their panels depending on the state, he expects the changes to positively impact their physician practices and, ultimately, Privia's results.

A.J. Rice inquired about the specific drivers of weaker Medicaid volumes in the acute care business and the reasons for the $10 million increase in projected startup costs for the year.

Answer

CEO Christopher Hunter attributed weaker Medicaid volumes to evolving utilization patterns by managed Medicaid plans facing cost pressures, impacting admission trends. CFO Heather Dixon explained the higher startup costs are due to an accelerated pace of opening new facilities, effectively pulling forward expenses from 2026.

A.J. Rice of UBS inquired about current managed care contracting dynamics and the status of the de novo development pipeline, including discussions with potential JV partners.

Answer

EVP & CFO Doug Coltharp noted that aside from the favorable VA contract, managed care pricing is standard with 2.5-3% annual increases. He confirmed the development pipeline remains robust at around 50 projects. CEO Mark Tarr added that growth includes entering new states like Connecticut, Utah, and Nevada.

A.J. Rice of UBS Group sought clarification on the comment that the company may be at the lower end of its EBITDA guidance, asking about the in-year contribution from M&A. He also asked if the mix of same-store volume versus rate growth would rebalance in the second half of the year.

Answer

CFO Dave Doherty confirmed the guidance commentary was due to the timing of M&A. The initial guidance assumed a mid-year deployment of $200 million, contributing about $12.5 million to EBITDA, which is now less certain due to the slower H1 pace. CEO Eric Evans added that while case growth will remain positive, he expects a more balanced contribution from volume and rate by year-end to achieve the full-year target of near 6% same-store growth.

A.J. Rice of UBS Group inquired about the fundamental supply-demand dynamics in the LTAC business, separate from reimbursement pressures. He also asked for an update on expense trends, particularly labor costs, across Select Medical's main business segments.

Answer

Co-Founder & Executive Chairman Robert Ortenzio confirmed that underlying patient demand for LTACs is very strong, driven by demographics and the need to decompress hospital ICUs; the primary challenge is the reimbursement structure, not patient flow. EVP & CFO Michael Malatesta added that labor rate inflation has moderated to below 3% from post-COVID highs of 5%, and agency costs are no longer a major headwind. The slight labor margin increase in the critical illness division was attributed to revenue pressure, not rising costs.

A.J. Rice of UBS Group asked for the specific reasons behind the $20 million full-year guidance increase, which significantly outpaced the Q2 earnings beat. He also inquired about the company's M&A pipeline and strategy in light of the pending divestiture and focus on debt reduction.

Answer

CEO Jon Rousseau attributed the guidance raise to broad-based momentum, particularly in the provider segment, continued growth in infusion and home health, and the impact of efficiency initiatives and favorable rate changes in the second half. Regarding M&A, Rousseau stated the focus remains on small, accretive tuck-in deals while prioritizing deleveraging to their target of 2.0-2.5x, which he believes is achievable by next year.

A.J. Rice of UBS Group AG asked about the quarterly dip in the cemetery preneed recognition rate, the moderating pace of the cremation rate increase, and the long-term sustainability of cash tax benefits from recent federal legislation.

Answer

Executive VP & CFO Eric Tanzberger attributed the cemetery recognition rate dip to the normal ebb and flow of construction project timing, expecting it to rise in the second half. Chairman, President & CEO Thomas Ryan noted the cremation rate's slowing increase is likely due to high saturation in metro areas and a favorable demographic mix, revising the expected revenue headwind down. Tanzberger also confirmed that cash tax benefits from accelerated depreciation are expected to be recurring due to ongoing capital improvements, not a one-time event.

A.J. Rice questioned if the sequential increase in inventory was related to tariff preparations, whether manufacturer contract terms are changing post-Stelara, and what is driving the OpEx growth embedded in the second-half guidance.

Answer

CFO Mike Shapiro clarified the inventory increase was a deliberate response to robust business growth, not primarily for tariff hedging. CEO John Rademacher stated that manufacturer conversations are focused on clinical capabilities, not significant contract changes. Shapiro attributed higher OpEx to the Intramed acquisition burn and opportunistic investments in future growth initiatives.

A.J. Rice asked for the drivers behind the accelerated mid-teens growth in the acute business, questioning if it was due to market restructuring or other factors. He also inquired about the company's focus regarding potential policy changes from Washington, such as site-neutral payments, and whether this uncertainty was affecting the M&A environment.

Answer

CFO Michael Shapiro attributed the strong Q1 acute growth to both ongoing investments and the company's ability to capitalize on specific competitive dynamics in certain markets, but reiterated that mid-teens is not the sustainable underlying growth rate. CEO John Rademacher stated that the M&A pipeline remains steady. On policy, he said the company is focused on site neutrality and pricing transparency, positioning Option Care Health as a low-cost solution, and continues to advocate for expanded Medicare home infusion access.

A.J. Rice of UBS Group AG inquired about the potential impact of the proposed elimination of the inpatient-only rule on Tenet's hospital and ASC businesses, and also requested an update on public exchange volumes and the outlook if enhanced subsidies expire.

Answer

Chairman & CEO Saum Sutaria explained that eliminating the inpatient-only rule is a positive for the USPI business, as it plays to Tenet's advanced capabilities in high-acuity ASC procedures. EVP & CFO Sun Park provided an update on exchange volumes, noting a 23% year-over-year increase in admissions and a 28% increase in revenues, now representing about 8% of total admissions and 7% of consolidated revenues.

A.J. Rice asked how Tenet is preparing for potential healthcare policy uncertainty from Washington, such as changes to exchanges or site-neutral payments, and if this uncertainty affects their approach to multi-year managed care contract negotiations.

Answer

Saumya Sutaria, Chairman and CEO, outlined a prioritized strategy: 1) Continue growth and utilization momentum, 2) Enhance cost controls, including new actions on the supply side, 3) Engage directly in Washington policy discussions, and 4) Contingency planning, which is not yet a top priority. Regarding contracts, he sees little reason to deviate from typical 3-year deals, preferring the stability of fair, long-term partnerships with plans.

A.J. Rice asked about the managed care contracting environment for 2025, including rate updates, and for an update on payer denial activity and prior authorization challenges.

Answer

Sun Park, EVP and CFO, stated that commercial rate increases continue in the 3-5% range, with some contracts at or above the high end. She noted they are over 90% contracted for 2025. Dr. Saum Sutaria, Chairman and CEO, added that while the denial environment is unchanged, Conifer's effectiveness results in lower denial rates than the industry average.

A.J. Rice inquired about the relative impact of ACA versus Medicaid on the guidance revision, the expected timeline for Medicaid rate recovery, and the difficulty of repricing ACA products for 2026.

Answer

CEO Gail Boudreaux stated the revised outlook is prudent and does not assume near-term trend improvements. She noted the forecast embeds elevated morbidity in ACA and a gradual rate alignment in Medicaid. CFO Mark Kaye added that the guidance reduction is slightly more weighted towards the ACA business.

Questioned the variance in reported rate and FTE declines versus prior guidance, asking about the role of business mix. Also inquired about the competitive landscape and a potential shakeout of smaller firms.

Answer

Executives attributed variances in rate and FTE performance primarily to business mix, with stronger growth in lower-bill-rate segments like Homecare, but noted overall results were in line with expectations. They confirmed the market remains highly competitive and that a shakeout of smaller players is still "in process."

A.J. Rice of Crédit Suisse inquired about Amedisys's strategy to differentiate itself in a competitive labor market to attract nurses and whether the company is currently turning away patient volume due to staffing constraints.

Answer

Chairman and CEO Paul Kusserow acknowledged turning away some business (NTUCs) in certain markets but stated it's under control. Chief People Officer Adam Holton detailed the strategy, highlighting a record month for clinical offers in January, targeting specific care centers in need, broadening talent pools, and investing in technology to simplify hiring. He also emphasized retention efforts through improved benefits and leadership development.

A.J. Rice asked for updated thoughts on the pending home health final rule, the company's ability to mitigate potential cuts through cost savings, and how quickly the M&A market for home health might reopen post-ruling.

Answer

President and CEO Chris Gerard stated that while a market basket update might soften the proposed cut, any reduction is unacceptable and will be fought aggressively. He confirmed Amedisys has already locked in $20 million in 2023 G&A savings. CFO Scott Ginn added that he expects M&A to accelerate quickly once there is regulatory clarity, potentially in early 2023, as the pipeline remains full.

A.J. Rice from Crédit Suisse asked about contract labor utilization trends and rates, as well as the potential timing and mitigation strategies for the proposed PDGM rate cut.

Answer

EVP and CFO Scott Ginn reported contract labor at 3.5% and noted rates have softened slightly. President and CEO Chris Gerard outlined mitigation plans for a rate cut, including centralization and automation initiatives with a potential $15-30 million savings opportunity. Chief Legal and Government Affairs Officer David Kemmerly added that legislative action to pause the cuts is likely to be attached to a year-end Medicare Extenders package.