Matthew Gillmor

Matthew Gillmor asked for details on the favorability of the ADK metric in Q4 2025 and its expected trajectory in 2026 given the duals mix, and sought insight into Alignment Healthcare's AI investments and their anticipated business benefits.

Answer

CFO Jim Head attributed the Q4 2025 ADK in the low 140s to a favorable flu season and noted a potential tick-up in 2026 due to member mix, not underlying trend. CEO John Kao outlined over 30 potential AI use cases, emphasizing foundational work on data architecture and workflow documentation, with initial deployments expected in member service and financial reporting.

Matthew Gillmor asked for details on Alignment Healthcare's ADK (Admissions per 1000) metric, specifically what drove the favorability in Q4 2025 and the expected apples-to-apples comparison for ADK in the 2026 guidance, anticipating a potential increase due to the duals mix. He also sought insight into the company's AI investments, their strategic direction, and anticipated business benefits.

Answer

CFO Jim Head attributed Q4 2025 ADK favorability to a mild flu season, resulting in low 140s. He confirmed that ADK might tick up in 2026 due to member mix, not underlying trend, with Q1 typically being seasonally higher. Founder and CEO John Kao outlined over 30 potential AI use cases, focusing on foundational actions like a unified data architecture (AVA) and streamlined workflows to enhance scalability, accelerate cash flow breakeven, and improve star ratings. He expects mid-year deployment of agentic AI for administrative improvements, starting with member service and financial reporting, while emphasizing continued reliance on human clinicians for care delivery.

Matthew Gillmor of KeyBanc Capital Markets inquired about Alignment's efforts to deepen provider relationships and how this differs from past approaches. He also asked for color on utilization trends, particularly inpatient versus outpatient costs.

Answer

CEO John Kao explained that collaborative efforts with IPAs, using Alignment's data and tools, have improved visibility and control, leading to lower inpatient admissions (low 140s per thousand) and increased shared savings. CFO Jim Head added that medical cost trends have been stable across inpatient and outpatient services, with the notable exception of higher trends in Part D. He noted that while utilization is well-managed, rate trends are still influenced by Medicare fee-for-service increases.

Matthew Gillmor of KeyBanc Capital Markets sought to clarify utilization trends, asking if the inpatient admissions per 1,000 metric would be flat to down on a same-store basis after normalizing for membership mix. He also requested commentary on trends in other categories, such as outpatient services.

Answer

CFO Robert Freeman confirmed that on a same-store basis, the inpatient metric would have been roughly flat. He added that the stable inpatient KPI is a strong leading indicator for related spend categories. Regarding outpatient services, he noted that trends remain favorable and that this category actually ran below expectations for the full year 2024. Pharmacy spend has increased as expected, particularly in specialty drugs.

Matthew Gillmor sought clarification on the guidance for 'modestly higher utilization' due to membership mix, asking if it was related to dual-eligible members. He also requested commentary on expectations for 2025 cash flow and capital expenditures.

Answer

Executive Robert Freeman confirmed the higher utilization assumption is due to strong growth in the duals membership. For 2025 financials, he provided key figures, including an adjusted EBITDA midpoint of $47.5 million, interest expense around $14 million, and CapEx of $30-$35 million. He stated the company is well-capitalized for organic growth with over $200 million in cash at year-end 2024.

Matthew Gillmor asked for an update on the approval status of unapproved Medicaid supplemental programs (Florida, California) with CMS, and the company's visibility on Rural Health Transformation funding opportunities.

Answer

CFO Steve Filton reported that Florida's program refinement is expected to be approved, though it's taking longer than anticipated, with an estimated benefit of $45-50 million. California's program faces more significant hurdles and is less certain, with no quantification provided. Regarding Rural Health Transformation funding, Steve Filton indicated that while they have lobbied for it, the benefit is not expected to be material due to a relatively small percentage of their facilities carrying rural designations.

Matthew Gillmor inquired about the approval status of Medicaid supplemental programs in Florida and California with CMS, and Universal Health Services' visibility on the Rural Health Transformation funding opportunity.

Answer

Steve Filton, Executive Vice President and Chief Financial Officer, stated that Florida's program approval is expected but has taken longer than anticipated, with a quantified benefit of $45 million-$50 million once approved. California's program faces more hurdles and is less certain. Mr. Filton added that while Universal Health Services has lobbied for the rural program, the benefit is not expected to be materially positive due to the relatively small percentage of eligible facilities.

Matthew Gillmor asked about any geographic variation in acute performance, specifically volume and expense trends, particularly in larger markets like Las Vegas. In a follow-up, he inquired about the breakdown of the pending SDP approvals in Florida and Nevada between the acute and behavioral segments.

Answer

CFO Steve Filton stated that Vegas market results are similar to overall results, with West Henderson ramping up nicely. He acknowledged data on declining tourist volume but noted no current impact on the Vegas economy or unemployment. No other significant geographic variations were highlighted. Filton confirmed the Nevada SDP number is predominantly acute and would provide a breakout for Florida later.

Matthew Gillmor asked about geographic variations in acute care performance, specifically highlighting the Las Vegas market. He also inquired about the breakdown of the net benefit from pending SDP approvals in Florida and Nevada between acute and behavioral segments.

Answer

CFO Steve Filton stated that Las Vegas market results are similar to overall performance, with West Henderson Hospital ramping up nicely. He noted they are monitoring tourist volume declines but are not seeing impacts on the Vegas economy or unemployment yet. For SDP approvals, he confirmed the Nevada benefit is predominantly acute, but a breakdown for Florida was not immediately available.

Matthew Gillmor of KeyBanc Capital Markets Inc. asked for a quantification of the same-store growth cannibalization from the new West Henderson hospital. He also requested an update on trends in professional fees and physician expenses.

Answer

Executive VP & CFO Steve Filton estimated the cannibalization impact from West Henderson to be around 50-60 basis points on both adjusted admissions and revenues for the same-facility pool. Regarding physician expenses, he confirmed they are tracking within the guided 5-6% growth for 2025, despite continued pressure from various physician specialties, including a recent increase from radiologists.

Asked about the sustainability of recent expense management success, with a specific focus on premium labor costs, and requested an update on the full-year expectation for Medicaid supplemental payments.

Answer

The company believes its expense controls are sustainable, driven by a stabilized labor market and active productivity management, with premium labor costs holding steady around $63 million. The full-year Medicaid supplemental payment expectation of $997 million remains unchanged.

Matthew Gillmor of KBCM asked if the $56 million in additional Nevada supplemental funding was a new development and requested quantification of the hurricane's impact.

Answer

Steve Filton clarified that the incremental Nevada benefit is a new development, triggered by the state increasing its supplemental pool size based on updated Medicaid utilization data. Regarding the hurricane, he stated the impact was not material enough to be called out as a discrete item, though it was a slight drag, potentially reducing behavioral patient day volume by 25-30 basis points.

Matthew Gillmor asked about the rollout and impact of the caregiver app, Addus Connect, in New Mexico and other states, and how Gentiva's integration would influence same-store growth metrics.

Answer

Heather Dixon, President and COO, reported strong momentum in Illinois with the app, steady progress in New Mexico, and imminent deployment in Texas, expecting greater opportunity there. Brian Poff, EVP and CFO, stated that Gentiva's performance is similar to the rest of the business, so its inclusion in the same-store base is not expected to materially alter the growth metric.

Matthew Gillmor asked for an update on the Addus Connect rollout in New Mexico, its progress, and the future opportunity for increasing authorized hours penetration. He also inquired about the expected impact of Gentiva's integration on same-store growth metrics.

Answer

Heather Dixon, President and COO, Addus HomeCare, reported that Addus Connect in Illinois consistently achieves upper 80th percentile service rates and strong flex hour utilization. New Mexico's rollout is progressing steadily, with Texas deployment imminent in Q1 2026, expected to complete by Q2/Q3, offering significant opportunity. Brian Poff, EVP and CFO, Addus HomeCare, stated that Gentiva's performance is in line with the rest of the business, so its inclusion in the same-store base is not expected to materially alter the growth metric.

Matthew Gillmor of KeyBanc Capital Markets inquired about the progress of the rollout of new caregiver systems and tools, their impact on performance, and any observable effects on caregiver retention.

Answer

President & COO Bradley Bickham detailed the rollout of their caregiver application, which has achieved 90% adoption in Illinois and is now being implemented in New Mexico. He explained that the app is designed to improve fill rates by giving caregivers more schedule visibility and flexibility. While it's too early to quantify the impact on retention, he expressed optimism that it will help long-term by addressing a key driver of turnover: insufficient hours.

Matthew Gillmor from KeyBanc Capital Markets inquired about the performance of the recently acquired Gentiva business relative to initial expectations. He also asked for an update on the outlook for state budget support and potential reimbursement rate increases.

Answer

W. Bickham, President and COO, reported that Gentiva's bottom-line performance has been slightly stronger than expected, while the top line has been a bit lighter, partly due to the Texas Medicaid redetermination process. CFO Brian Poff added that state budgets remain in good shape and highlighted Texas as the state to watch most closely for a potential rate increase.

Matthew Gillmor of KeyBanc asked about the potential for further improvement in the percentage of authorized hours served and whether this improvement is additive to growth or simply offsets shifts in labor capacity post-redetermination.

Answer

President and COO W. Bickham confirmed there is still room to improve the percentage of hours served, driven by a new caregiver application that has seen strong adoption. He clarified that this improvement is additive to overall growth, as it allows the company to capture hours that might have otherwise gone unserved, thereby increasing the productivity of its existing workforce.

Matthew Gillmor of KeyBanc Capital Markets sought details on the drivers behind the improved personal care 'fill rate' (hours served vs. authorized), asking if it was due to labor dynamics or operational initiatives. He also inquired how the upcoming Gentiva acquisition is influencing the company's strategy on value-based care, particularly in Texas.

Answer

President and COO Brad Bickham attributed the improved fill rate to both a stronger hiring environment and the deployment of new operational tools for schedulers. CEO R. Allison explained that the increased scale from Gentiva in Texas will enhance their ability to engage with payers on value-based care contracts, which he views as a tool to prove value and strengthen payer relationships rather than a material revenue driver.

Matthew Gillmor of KeyBank inquired about the moderation in volume growth during the second half of 2025, seeking clarification on prior year comparable issues and how de novo hospitals integrating into the same-store base might impact 2026 volume dynamics. He also asked about the higher Medicare fee-for-service payer mix in Q4 and growth trends across different payer classes.

Answer

EVP and CFO Doug Coltharp attributed the volume moderation to challenging prior-year comps and the timing of new hospital openings, along with unit consolidations. President and CEO Mark Tarr noted benefits from faster Medicare certifications for de novos. Regarding payer mix, Mr. Coltharp highlighted strong fee-for-service growth but significant challenges with a specific national Medicare Advantage payer due to a substantial drop in conversion rates, which Encompass Health believes contravenes Medicare coverage requirements. EVP and COO Patrick Tuer detailed plans to address this, including an aggressive admit-and-appeal strategy and leveraging growth in the VA program.

Matthew Gillmor asked about the evolution of volumes in 2025, specifically the moderation in the back half due to challenging comps, and how to think about comp issues for 2026, including the timing of de novo hospitals rolling into the same-store base. He also inquired about the payer mix, noting a higher Medicare fee-for-service mix in Q4, and growth across different payer classes.

Answer

Doug Coltharp (EVP and CFO) explained challenging comps in Q3 and Q4 2024, new hospitals skewing to the back end of 2025, and unit consolidations/closures (Sewickley, Cincinnati) creating headwinds. Mark Tarr (President and CEO) highlighted the benefit of quicker Medicare surveys for de novo performance. Regarding payer mix, Doug Coltharp noted strong fee-for-service growth but challenges with one national Medicare Advantage payer due to a significant drop in conversion rates, which he believes is in contravention of Medicare coverage requirements. He outlined plans to address this, including communication with the payer and CMS, backfilling with other payers, and implementing an 'admit and appeal' strategy. Patrick Tuer (EVP and COO) added details on the growth of the VA program and the aggressive 'admit and appeal' strategy for MA denials.

Matthew Gillmor inquired about the evolution of Encompass Health's payer mix in Q3 2025 compared to the first half, specifically regarding any normalization in traditional Medicare and VA favorability. He also asked for insights into potential headwinds and tailwinds for 2026 from a modeling perspective.

Answer

President and CEO Mark Tarr noted that Q3 discharge growth rates were relatively comparable across Medicare (up 4.4%), Medicare Advantage (up 4.8%), and Managed Care (up 9.2%), with VA Community Care Network volume increasing by almost 26%. CFO Doug Coltharp mentioned that net provider taxes might remain a wild card for 2026, but progress in premium labor reduction sets the company up well. He anticipates core SWB per FTE inflation around 3% to 3.25% and benefits expense inflation in the high single digits for 2026.

Matthew Gillmor inquired about the evolution of Encompass Health's payer mix in Q3 2025, specifically comparing it to the first half of the year, and any observed moderation in pricing. He also asked about potential headwinds and tailwinds for 2026 from a modeling perspective.

Answer

President and CEO Mark Tarr reported relatively balanced growth across payers in Q3, with Medicare up 4.4%, Medicare Advantage up 4.8%, and Managed Care up 9.2%. He highlighted a 26% year-over-year increase in VA Community Care Network volume, which pays at the Medicare CMG rate. CFO Doug Coltharp mentioned that net provider taxes could remain a 'wild card' for 2026, but progress on premium labor sets the company up well. He noted that capacity expansion costs would be comparable to 2025.

Matthew Gillmor from KeyBanc Capital Markets asked how Encompass Health shares its quality results with stakeholders and what was driving the uptick in managed care mix and pricing.

Answer

CEO Mark Tarr explained they share key metrics like discharge to community and patient satisfaction scores with partners. EVP & CFO Doug Coltharp added that the improved managed care pricing is largely driven by growth in the VA Community Care Network contract, which pays at Medicare rates and now comprises nearly 18% of their managed care business.

Matthew Gillmor from KeyBanc Capital Markets questioned the drivers of the modest growth in Salaries, Wages, and Benefits (SWB) per FTE and the sustainability of lower premium labor costs, and also asked about the impact of the flu season on patient volume.

Answer

CFO Douglas Coltharp confirmed that SWB inflation was below guidance due to a year-over-year decrease in premium labor spend, but he was not ready to declare it a new trend. CEO Mark Tarr added that teams are focused on reducing contract labor. Regarding the flu, Mark Tarr stated its impact on Q1 volumes was negligible, with CFO Douglas Coltharp noting that patient mix growth was broad-based across conditions like stroke and brain injury.

Matthew Gillmor asked about the accelerated pace of bed additions in 2025, questioning if it was a timing issue or a strategic acceleration. He also sought details on the assumptions behind the 2025 guidance for Salaries, Wages, and Benefits (SWB) per FTE.

Answer

CEO Mark Tarr described the 2025 pace as a normal year-over-year fluctuation. CFO Douglas Coltharp added that strong discharge growth has created more opportunities for bed expansions, which are now moving forward. Regarding SWB, Coltharp explained the 3.25%-3.75% growth forecast reflects stable premium labor costs, anniversarying high medical benefit costs in the second half, and positive impacts from lower staff turnover.

Matthew Gillmor asked how HCA Healthcare's exchange reforms and subsidy expirations would impact the 2%-3% volume outlook for 2026, specifically if there's a drag absorbed within that range, and how the company is thinking about the decline in utilization from individuals moving to uninsured status.

Answer

CFO Mike Marks confirmed that the 2%-3% volume outlook does absorb an impact from exchanges. He detailed the modeling assumptions: a 15%-20% decline in HIX volumes in 2026, with migration to employer-sponsored insurance or uninsured. For those becoming uninsured, HCA anticipates a 30% decline in utilization compared to when they had exchange coverage. He also noted that uninsured patients almost entirely use the emergency room, and these are early judgments that will be tested against actual experience in Q1 and Q2 2026.

Matthew Gillmor followed up on the exchange discussion for 2026, asking if the 2%-3% volume outlook already absorbs a drag from exchange reforms and subsidy expirations. He also sought clarification on how HCA is modeling the decline in utilization for individuals who transition to uninsured status.

Answer

CFO Mike Marks confirmed that the 2%-3% volume outlook does include an impact from exchanges. He reiterated the model contemplates a 15%-20% decline in HIX volumes for 2026, with a portion migrating to employee-sponsored insurance and the remainder to uninsured. For those becoming uninsured, HCA anticipates a 30% decline in utilization compared to when they had exchange coverage, noting their tendency for heavier emergency room use.

Matthew Gillmor asked about the growth in surgeries, specifically inquiring about service lines performing better and any notable highlights.

Answer

CEO Sam Hazen identified strong outpatient general surgery and urological service line activity. Inpatient neurosciences, orthopedics, and cardiac surgeries also showed good year-over-year performance. CFO Mike Marks added that solid payer mix, with commercial and Medicare strength, contributed to good net revenue growth in outpatient surgery.

Matthew Gillmor with KeyBanc inquired about the growth in surgeries, the improvement observed this quarter, and specific service lines contributing to better performance.

Answer

CEO Sam Hazen highlighted strong general and urological surgery activity on the outpatient side, and robust neurosciences, orthopedic, and cardiac surgical capabilities on the inpatient side. CFO Mike Marks added that solid payer mix, with commercial and Medicare business, drove good net revenue and earnings growth in outpatient surgery.

Matthew Gillmor of KeyBanc Capital Markets requested more details on the drivers of underperformance in the few markets HCA mentioned and the actions being taken to address the issues.

Answer

CEO Sam Hazen explained that it's normal for a couple of their 15 U.S. divisions to underperform annually due to variable factors. He noted one division faced competitive dislocations and another had a service mix shift. He expressed confidence in the seasoned leadership and recovery plans in place for the second half, highlighting the benefit of HCA's diversified portfolio in absorbing such impacts.

Matthew Gillmor asked about the competitive landscape, inquiring if policy and macroeconomic uncertainty is causing competitors to alter their investment priorities, potentially creating opportunities for HCA.

Answer

CEO Sam Hazen responded that HCA has not yet seen substantial changes in competitor behavior. However, he acknowledged that challenges for others, such as reduced NIH funding for academic centers, could create future opportunities. He emphasized that HCA's scale and diversification are key advantages, and noted the company is already successfully gaining market share in many of its markets against existing competition.

Matthew Gillmor asked if the California wildfires had any notable impact on HCA's facilities in the Los Angeles area.

Answer

CEO Sam Hazen confirmed there was no impact on their Southern California hospitals from the fires. He mentioned one facility in Ventura County was on high alert but was not directly affected, and that the company continues to evolve its fire mitigation tactics.

Matthew Gillmor inquired about the impact of member mix normalization on InnovAge's margins and cost trends, specifically asking about the progress of acuity normalization and its effects on utilization metrics. He also sought clarification on the V-28 Medicare Advantage payment model's expected impact on revenue growth for fiscal year 2026 and beyond.

Answer

CEO Patrick Blair and CFO Ben Adams explained that the member mix has largely rebalanced since sanctions were lifted, with the population's age and acuity progressing as anticipated, now largely achieving targets. While this shift can negatively impact risk scores, it is managed with the right clinical model. Regarding V-28, they confirmed it is factored into the fiscal year 2026 guidance and is expected to be a headwind over the next couple of years.

Matthew Gillmor of KeyBanc asked for details on the drivers behind the decline in external cost PMPMs, particularly the lower utilization for assisted living and SNFs, and requested an update on the company's provider network management initiatives.

Answer

CEO Patrick Blair attributed the cost improvements to the maturation of Clinical Value Initiatives (CVIs) targeting inpatient, skilled nursing, and in-home care. President and COO Michael Scarbrough added that a favorable census mix from new, healthier participants also contributed. Regarding network management, Scarbrough confirmed it's a key focus of their transformation, involving investments in contracting, claims administration, and payment integrity to enhance their 'payer capabilities.'

Matthew Gillmor of KeyBanc Capital Markets asked for the financial size of the out-of-period risk adjustment true-up from the prior year and sought more details on the recent pharmacy acquisition, including the prior approach and expected future benefits.

Answer

CFO Ben Adams clarified that the out-of-period adjustment was a one-time Medicare Part C true-up that benefited Q2 of fiscal 2024 and was not sized at the time, suggesting the six-month comparison provides a better view of performance trends. CEO Patrick Blair explained the pharmacy acquisition is part of a broader strategy to insource critical functions. He stated that InnovAge will now directly manage fulfillment and distribution to enhance compliance and participant experience, while a third-party partner will continue to handle the call center and network management.

Matthew Gillmor requested a breakdown of which clinical and operational value initiatives are progressing fastest and asked for an update on the EMR implementation's impact on risk score documentation.

Answer

CMO Dr. Richard Feifer stated that clinical value initiatives (CVIs) focused on reducing inpatient and skilled nursing facility utilization are progressing fastest. CFO Ben Adams described operational value initiatives (OVIs) as newer efforts targeting core operations like fleet and food service, with impact expected later in the year. Regarding the EMR, Dr. Feifer explained they are leveraging Epic to improve chronic condition recapture rates, while CEO Patrick Blair emphasized that this data also enhances care management programs and that new COO Michael Scarbrough will focus on maximizing the EMR's value.

Matthew Gillmor asked for clarification on the timing-related items that benefited Q2 cash flow. He also requested an update on progress in securing delegated claims arrangements in Texas and the overall performance of non-California markets.

Answer

CFO & COO Chan Basho explained that Q2 free cash flow was positively impacted by the timing of ACO REACH payments and income taxes, which are expected to normalize by Q4, and reiterated the full-year free cash flow guidance. President & CEO Brandon Sim added that they continue to make progress on securing delegated contracts in Texas and Nevada, with the path to profitability in those states remaining on track.

Matthew Gillmor asked for details on the timing issues that benefited quarterly cash flow and whether they would normalize. He also sought an update on progress in securing delegated claims arrangements in Texas and the performance of non-California markets.

Answer

CFO & COO Chan Basho explained the cash flow benefit was due to the timing of ACO Reach payments and income taxes, which are expected to revert in Q4, and reiterated the full-year free cash flow guidance. President & CEO Brandon Sim added that there is continued progress in moving towards delegated contracts in Texas and Nevada, with the path to profitability in those states remaining on track.

Matthew Gillmor asked for clarification on the timing issues that benefited cash flow during the quarter. He also requested an update on the company's progress in securing claims delegation in markets outside of California, such as Texas, and their performance.

Answer

CFO & COO Chan Basho explained that the strong cash flow was due to favorable timing of ACO REACH payments and income taxes, which are expected to normalize in Q4, but reiterated confidence in the full-year guidance. President & CEO Brandon Sim added that the company continues to make progress toward securing fully delegated contracts in Texas and Nevada, with the path to profitability in those states remaining on track.

Matthew Gillmor of KeyBanc Capital Markets Inc. sought clarification on the oncology trend, asking where the Q1 trend ultimately settled and requesting quantification of the assumed "pull forward" of utilization in the exchange business.

Answer

CFO John Johnson clarified that the 10.5% trend was for the first half of 2025, with Q1 being slightly lower. He stated the guidance for the second half assumes a conservative 12% trend, which nets out modestly better underlying expectations against a potential benefits rush in the exchange business ahead of possible 2026 membership changes.

Matthew Gillmor of KeyBanc inquired about the visibility into oncology cost trends, asking for the completion rate of paid claims for the quarter and the specific nature of the leading indicators Evolent monitors.

Answer

Executive John Johnson explained that leading indicators are pre-service authorizations that provide prospective insight into utilization. He stated that for Q1, claims were approximately 55-60% complete, which is a typical level. He noted that while early data is promising, the company wants to see more claims completion before updating its full-year guidance.

Matthew Gillmor asked about the sources of confidence in the 2025 guidance and sought clarification on whether long-term margin maturation and AI efficiency savings were separate drivers.

Answer

CEO Seth Blackley confirmed the company's confidence stems from restructured contracts and a higher mix of fee-based business, aiming to meet or exceed expectations. CFO John Johnson provided a sensitivity analysis, noting a 2% higher oncology trend would impact EBITDA by $9 million, while a 2% lower trend would provide a $12 million benefit, indicating favorable asymmetry. CEO Seth Blackley also confirmed that the 300 basis points of margin maturation and the $50 million in long-term AI savings are discrete items.

Matthew Gillmor of KeyBanc Capital Markets Inc. requested clarification on the adjusted EBITDA run rate heading into 2025, considering the revised 2024 guidance and expected rate increases.

Answer

John Johnson framed the company's core earnings power by highlighting a theoretical $200 million adjusted EBITDA floor, which could be achieved by converting underperforming risk contracts to a fee-based model. He suggested that successfully renegotiating rates would result in an earnings power 'quite a bit higher' than that floor, but deferred specific 2025 guidance to the next earnings call.

Matthew Gillmor asked about the sequential increase in G&A expense from $18 million to $22 million and the factors driving this change.

Answer

CFO David Mountcastle explained that the increase in G&A was primarily due to higher bonus accruals reflecting the company's strong performance and increased contractor expenses related to market growth. He emphasized that despite the rise, the company continues to see significant operating leverage in G&A.

Matthew Gillmor from KeyBanc asked how Privia has factored the unresolved physician fee schedule cut into its 2025 guidance and whether a failure to fix the cut could actually help drive more providers to Privia's platform.

Answer

CEO Parth Mehrotra stated that the company's best estimate of the impact is already embedded in the guidance and is not considered a material driver. He emphasized that regardless of the outcome, persistent financial pressures on independent physicians only strengthen and validate Privia's fundamental value proposition, which helps providers navigate such challenges.

Matthew Gillmor from KeyBanc pointed out that the high end of the updated Practice Collections guidance seems to imply a sequential moderation in Q4 and asked for commentary on this observation.

Answer

CEO Parth Mehrotra stated that the company is simply being prudent with its guidance, as it has always been. He confirmed there is nothing specific in the business to suggest a slowdown and expressed hope that final results could be better.

Matthew Gillmor of KeyBanc Capital Markets requested a breakdown of the estimated $150-$175 million OBBA impact, specifically between different provisions like work requirements and supplemental payment cuts. He also asked about the expected timing of these impacts and the drivers behind the trend in outpatient surgery volumes.

Answer

President & CEO Marty Bonick clarified that the work requirement impact is expected to be minimal, similar to the Medicaid redetermination outcome. He noted the structural impacts of the bill would ramp slightly heavier in the early years (post-2028) and then moderate. Regarding outpatient surgeries, Bonick reiterated that the decline is due to service line rationalization, specifically in lower-margin areas like ophthalmology and ENT, which frees up capacity for higher-acuity inpatient procedures. CFO Alfred Lumsdaine added that the two-midnight rule also had a small impact.

Matthew Gillmor from KeyBanc asked for details on the growth of health insurance exchange volumes and its current share of revenue. He also inquired about the moderation in professional fees and the durability of that trend.

Answer

CFO Alfred Lumsdaine reported that exchange admissions grew 40% in Q1 and now represent a mid-single-digit percentage of revenue. CEO Martin Bonick added that while the growth rate of professional fees is moderating, it remains above general inflation as forecasted, with continued pressure in specialties like radiology and anesthesiology.

Matthew Gillmor inquired about the drivers behind the reduction in length of stay, the progress of the BioButton device rollout, and the specific accounting mechanics for recognizing the 2025 New Mexico DPP revenue.

Answer

CEO Marty Bonick credited the length-of-stay improvement to both the Two-Midnight Rule and operational efficiencies, including the BioButton device, which is having a positive impact. CFO Alfred Lumsdaine clarified that the New Mexico DPP revenue for 2025 will be recognized cumulatively in the quarter when CMS approval is officially received.

Matthew Gillmor of Baird inquired about the specific factors driving the sequential acceleration in patient volumes and asked for context on why Ardent Health's exposure to health insurance exchanges is lower than its peers.

Answer

CEO Marty Bonick and CFO Alfred Lumsdaine attributed the volume growth to a combination of the two-midnight rule, improved length of stay efficiencies, and better performance from their transfer centers. For the lower exchange exposure, Mr. Bonick explained it is a result of operating in mid-sized urban markets with strong employer-sponsored insurance coverage.

Matthew Gillmor asked about the volume trend cadence for acute Medicaid throughout Q2 and into July, and inquired about the drivers behind stronger commercial and Medicare volumes.

Answer

CEO Christopher Hunter noted that volumes started the quarter higher, declined, and then leveled off. He attributed the strength in commercial and Medicare volumes to the success of the managed care team in securing new contracts and deliberately diversifying the payer mix over the past year.

Matthew Gillmor asked for specific details on the operational actions being taken to improve performance at the underperforming facilities. He also sought to confirm if the financial drag from these facilities should be modeled as a consistent 2% headwind.

Answer

CEO Chris Hunter outlined a comprehensive, localized turnaround strategy that includes reviewing the competitive landscape, business development functions, admissions processes, leadership teams, technology adoption, and physical plant needs. CFO Heather Dixon confirmed that modeling an approximate 2% drag from these facilities, consistent with the Q4 impact, is a reasonable ballpark assumption.

Matthew Gillmor asked for more color on the statement that labor was 'trending favorably,' specifically requesting details on wage inflation and turnover trends.

Answer

CFO Heather Dixon elaborated that wage inflation has remained below 5%, a significant moderation from the 8% peak at the end of 2022. She confirmed this favorable trend has been steady throughout the first nine months of the year and is expected to continue.

Matthew Gillmor of KeyBanc Capital Markets requested more detail on the company's procurement and efficiency initiatives, asking if any specific factors were making them a larger opportunity this year.

Answer

CEO Jon Rousseau described procurement as a continuous, broad-based effort driven by a dedicated team and the company's increasing scale. He expanded on the theme, highlighting ongoing investments in technology, automation, and AI across all processes. He noted these initiatives could unlock significant cost opportunities, such as a potential $200 million in savings in the home and community pharmacy business over the next three years.

Matthew Gillmor asked for more detail on the drivers behind the updated guidance, which saw a larger revenue increase than EBITDA, and inquired about the long-term opportunity from the company's efficiency initiatives.

Answer

CFO Jennifer Phipps reiterated that the guidance increase reflects stronger-than-expected pharmacy volume growth and the expected benefits from margin expansion initiatives in both the provider and pharmacy segments. Regarding efficiency initiatives, CEO Jon Rousseau added that this is an institutionalized, ongoing program that has been in place for nine years, with annual savings used to fund investments, offset headwinds, and contribute to EBITDA.

Matthew Gillmor asked for commentary on the seasonality of adjusted EBITDA and how management expects it to pace throughout 2025, wondering if historical patterns would hold.

Answer

CFO Jennifer Phipps confirmed that prior years are a good indicator of seasonality. She explained that Q1 is typically impacted by the reset of payroll taxes, while Q4 tends to be one of the strongest quarters. She concluded that Q1 and Q4 are generally the 'outlier quarters' and that this pattern is expected to continue in 2025.

Matthew Gillmor of KeyBanc asked for a delineation of the $10 million in nonrecurring items between start-up costs and the payer settlement, and questioned if these items were already contemplated in the company's guidance.

Answer

CEO Jon Rousseau and CAO Jennifer Phipps confirmed that both the customer start-up costs and the payer settlement, which related to a six-year-old issue, were included in the company's guidance. Phipps also added that acquisition and integration costs were a factor in the quarter's nonrecurring expenses.

Asked for more detail on the nature of the settlements that were called out as discrete items, specifically if they were mostly tied to value-based care contracts and if the 2025 OptumHealth outlook was burdened by a significant amount of non-recurring settlements.

Answer

John Rex clarified that the settlements were spread across businesses and not predominantly in one area. They include items like provisions for questionable receivables from other companies and resolutions of long-standing disputes with customers or providers. He provided a breakdown: ~$850M in UHC, ~$500M in OptumHealth, ~$200M in OptumInsight, and under $100M in OptumRx, plus other corporate items.

Matthew Gillmor from KeyBanc Capital Markets asked about payer contract negotiations amid industry pressures and whether there has been any discernible shift in denial activity.

Answer

Chairman & CEO Saum Sutaria stated that Tenet's approach of creating long-term, predictable value with payers remains effective, and he sees nothing unusual in current negotiations. He acknowledged that denial and dispute activities have increased post-COVID, but explained that Tenet's Conifer segment has adapted by deploying more technology and automation to manage these requests efficiently.

Matthew Gillmor asked for an update on cost management, seeking to identify particular areas of focus for driving efficiency in 2025 and beyond.

Answer

Dr. Saum Sutaria, Chairman and CEO, stated the focus remains on labor, supplies, and purchase services. He identified asset utilization in the acute care segment as a key area for improvement. He also highlighted the expanding role and material savings contribution from Tenet's global business center, which now handles complex functions like clinical analytics.

Matthew Gillmor asked about the sustainability of the strong 19% growth in total joint replacements at USPI and how this trend connects to the company's development pipeline.

Answer

Chairman and CEO Dr. Saum Sutaria attributed the growth to a deliberate strategy to lead in outpatient musculoskeletal care. He explained that moving these procedures to lower-cost ASCs expands the total market, rather than just cannibalizing inpatient volume. He sees a continued multi-year opportunity for migrating cases from hospital outpatient settings to freestanding ASCs.

Matthew Gillmor from KeyBanc Capital Markets asked for more detail on the 'operating system improvements' driving margin expansion and whether the flu season impacted Q1 volumes.

Answer

CEO J. Evans identified the improvements as spanning supply chain, scheduling, and revenue cycle. CFO David Doherty elaborated on the multi-year revenue cycle standardization project, which is now yielding benefits in collections and net revenue. He also noted ongoing IT integrations of acquisitions are unlocking further scale efficiencies. CEO Evans confirmed the flu season had no material impact on scheduled surgical cases.

Matthew Gillmor asked if site-neutrality policies could have a positive downstream effect on the company's development efforts, such as increasing interest from hospitals for joint ventures or from physicians seeking ASC partnerships.

Answer

CEO J. Evans agreed that while the development pipeline is already strong, site neutrality legislation would likely accelerate interest from both health systems and physicians. He noted that anything driving patients to the most appropriate care setting aligns with Surgery Partners' core strategy and will likely force more discussions with potential partners, further strengthening their already robust pipeline.

Matthew Gillmor of KeyBanc Capital Markets inquired about the pace of physician recruitment, which appears to be accelerating, and the typical maturity curve for new doctors. He also asked about the company's exposure to the Affordable Care Act (ACA) exchanges.

Answer

CEO J. Evans confirmed that 2024 is on pace to be a record year for physician recruitment, driven by data-led targeting and the appeal of the ASC model for high-acuity specialists. He noted that new physician cohorts typically double their revenue contribution in their second year. Regarding the ACA, Evans stated their exposure is relatively limited and they are well-positioned to deliver value regardless of future policy changes.