Pito Chickering

Pito Chickering asked for a detailed explanation of the Alabama RCD (Review Choice Demonstration) experience, specifically what happens with the 7% of claims not affirmed from the 93% affirmation rate, the success rate of appeals (including at the administrative law judge level), and the percentage of claims requiring reserves. He also followed up on Medicare Advantage conversion rates, noting referrals were up but admissions were down, and asked about the legal leeway MA plans have to deny post-acute care.

Answer

Doug Coltharp (EVP and CFO) clarified that RCD is an ordinary course of business, not a new risk, and Medicare coverage requirements haven't changed. He stated that Encompass Health appeals the majority of non-affirmed claims in Alabama and is seeing good success reversing denials, expecting the 93% affirmation rate to improve, aligning more with Pennsylvania's 98-99%. He anticipates bad debt expense to remain consistent with historical rates (2-2.5%). Patrick Tuer (EVP and COO) added that RCD has had no impact on volume or occupancy in Alabama. Regarding MA, Doug Coltharp noted historical MA conversion rates of 25-30% compared to FFS mid-60%, with one specific payer dropping 500 basis points in Q4. He emphasized that MA plans are required to adhere to the same Medicare coverage criteria as FFS, and Encompass Health plans to pursue an 'admit and appeal' strategy for denials believed to be in contravention of these requirements.

Pito Chickering of Deutsche Bank delved into the specifics of Encompass Health's Alabama RCD experience, asking about the process for the 7% of claims not affirmed, the success rate of appeals at various levels, and the ultimate percentage of claims requiring reserves. He also followed up on Medicare Advantage conversion rates, inquiring about the Q4 decline and the legal latitude MA plans have to deny post-acute care.

Answer

EVP and CFO Doug Coltharp explained that RCD is an ordinary course audit, and Encompass Health appeals the majority of non-affirmed claims in Alabama, expecting the 93% affirmation rate to improve. He anticipates bad debt expense to remain consistent with historical levels. EVP and COO Patrick Tuer confirmed no volume impact in Alabama. Regarding MA, Mr. Coltharp noted a significant 500 basis point drop in conversion rates for a specific payer in Q4, which he believes contravenes Medicare requirements. Mr. Tuer detailed an aggressive admit-and-appeal strategy, including pursuing claims through all administrative levels, to ensure patient access to care.

Pito Chickering inquired about the projected capital expenditure as a percentage of revenue required to sustain Encompass Health's 6%-8% discharge growth, considering the scaling of bed additions. He also asked about target occupancy rates for facility expansion and the current percentage of facilities at maximum capacity.

Answer

CFO Doug Coltharp stated that growth CapEx at the midpoint for 2025 is about $580 million, with an average cost of $800,000 per bed addition. He explained that hospitals are considered for expansion after crossing 80% sustained occupancy, with private room hospitals potentially reaching mid-90s occupancy. He also discussed the varying speed of expansion based on physical plant and CON state regulations, mentioning the development of a 'small format hospital' for future expansion.

Pito Chickering inquired about the projected capital expenditure as a percentage of revenue required to sustain Encompass Health's 6% to 8% discharge growth range over the next few years, considering scaling bed additions. He also asked about the target occupancy rate before facility expansion, the speed of capacity expansion, and the percentage of facilities currently at maximum occupancy.

Answer

CFO Doug Coltharp stated that growth capex for the current year is estimated at $580 million, with an average cost of $800,000 per bed for additions. He explained that hospitals typically become candidates for bed expansion after crossing 80% sustained occupancy, with all-private room hospitals potentially reaching mid-90% occupancy efficiently. He noted that expansion speed depends on physical configuration and CON state regulations, with bed additions generally taking less than 24 months.

Pito Chickering of Deutsche Bank requested a bridge for the implied EBITDA guidance for the second half of the year and asked about premium labor trends and the current hiring environment.

Answer

EVP & CFO Doug Coltharp detailed that second-half EBITDA will be impacted by higher startup costs, a potential rise in bad debt, and higher employee-per-bed metrics. EVP & COO Pat Tuer noted strong hiring continues due to a centralized talent acquisition function, with turnover rates hovering near pre-pandemic levels.

Pito Chickering from Leerink Partners inquired about the unexpected increase in Medicare fee-for-service payer mix and the drivers behind the high employee-staffed bed occupancy coupled with low employees per occupied bed (EPOB).

Answer

CFO Douglas Coltharp explained the shift in payer mix was a surprise, not a strategic action, and cautioned that one quarter does not establish a new trend. CEO Mark Tarr and CFO Douglas Coltharp addressed the occupancy and EPOB metrics, attributing the Q1 leverage to strong seasonal volume, high occupancy creating patient density, and the timing of new hospital openings, while affirming their commitment to their target EPOB of 3.4 and denying being behind on hiring.

Pito Chickering requested clarity on the expected quarterly EBITDA seasonality in 2025, given various headwinds. He also asked if there is a minimum leverage ratio that would trigger deploying all excess free cash flow to share repurchases.

Answer

CFO Douglas Coltharp advised that year-over-year EBITDA comparisons will be more impacted in the first half of 2025 due to the timing of certain expenses, while new hospital preopening costs will be skewed to the second half. Regarding leverage, he declined to set a hard line but commented that if the ratio drops below 2.0x, the company would view it as an 'inefficiency' in its capital structure, implying a stronger focus on shareholder returns.

Pito Chickering asked for clarification on HCA Healthcare's 2026 guidance, specifically if there were any one-time adjustments for 2025, and how the core growth rate (3%-12% with 7% at midpoint) compares to the long-term guidance of 4%-6% after accounting for HIX and supplemental payment impacts and resiliency offsets. He also asked about the potential size of additional supplemental payment approvals.

Answer

CFO Mike Marks reiterated the key moving parts for 2026 guidance: $600 million-$900 million adverse impact from exchanges, $250 million-$450 million decline in supplemental payments (excluding new approvals), and $400 million from resiliency. He affirmed satisfaction with the company's strength and momentum. Mike Marks declined to size potential additional supplemental payment approvals until CMS provides actual approval details.

Pito Chickering asked about any one-time adjustments for 2025 in the 2026 guidance, seeking to understand if the calculated core growth of 3%-12% (7% midpoint) still exceeds HCA's long-term guidance of 4%-6%. He also inquired about the potential size of additional approvals for grandfathered supplemental payments in 2026.

Answer

CFO Mike Marks reiterated the key moving parts for 2026 guidance: $600 million-$900 million adverse impact from exchanges, $250 million-$450 million decline in supplemental payments (excluding new approvals), and $400 million from resiliency. He affirmed the company's strength and momentum but declined to size potential new supplemental payment approvals until CMS provides actual approval details.

Pito Chickering asked for color on the implied Q4 guidance range and a bridge from Q3 to Q4, considering factors like hurricanes and supplemental payments.

Answer

CFO Mike Marks highlighted two main considerations for Q4 growth: hurricane impact and a decline in state supplemental payments compared to the prior year. He noted the implied growth rate is solid, around high single-digits, and sequential growth is in line with past trends.

Pito Chickering with Deutsche Bank questioned the Q3 earnings beat relative to updated guidance, seeking color on the implied Q4 guidance range and a bridge for moving parts like hurricane impacts and supplemental payments.

Answer

CFO Mike Marks highlighted hurricane impact and a decline in state supplemental payments as key considerations for Q4, projecting a solid high-single-digit implied growth rate. He noted the sequential growth from Q3 to Q4 aligns with past trends and the guidance range covers a spectrum of outcomes.

Pito Chickering of Deutsche Bank sought clarification on the supplemental payment guidance for the second half of the year and asked if HCA has data on how many exchange patients could opt for employer-sponsored insurance.

Answer

CFO Mike Marks clarified that about $150 million of the guidance increase stems from supplemental payments, including the new Tennessee program. He detailed a net benefit in H1 and an expected decline in H2. Regarding exchange patients, he stated that while they lack precise data, they believe a component would shift to employer plans if EPTCs expire, especially in high-growth states like Florida and Texas.

Pito Chickering asked about the drivers behind the significant operating leverage achieved in the quarter and whether the resulting low salaries-to-revenue ratio is sustainable as occupancy increases.

Answer

CEO Sam Hazen attributed the strong operating leverage to HCA's fixed-cost business model, where increased volume naturally improves margins. He highlighted progress on the human resources front, including lower employee turnover and reduced contract labor utilization, which contributes to efficiency. Hazen affirmed that as HCA grows volumes against its existing asset base, it can continue to drive further efficiencies and leverage.

Pito Chickering asked for clarification on the 2024 Medicaid supplemental payment benefit, requesting a quarterly breakdown and a bridge to the 2025 guidance.

Answer

CFO Mike Marks explained that the full-year 2024 net incremental benefit from supplemental payment programs was approximately $400 million, with Q2 being the highest and Q4 the lowest. For 2025, he stated the guidance anticipates the net effect to range from flat to a $250 million headwind, which includes an estimation for the new Tennessee program.

Pito Chickering of Deutsche Bank questioned if the preliminary 2025 outlook includes benefits from any new Directed Payment Programs (DPPs) and asked about the underlying assumptions for labor and operating expenses next year.

Answer

CFO Mike Marks deferred detailed 2025 margin assumptions to January but noted HCA now expects to be at the higher end of its $100M-$200M tailwind from Medicaid supplemental programs for 2024. CEO Sam Hazen added that they anticipate a 'stable operating environment' in 2025, with cost trends, including labor inflation, expected to be generally consistent with 2024.

Pito Chickering asked about Medtronic's positioning in the ASC setting for AF ablations, specifically regarding mappers and PFA replacements, as procedures shift to these centers. He also inquired about TAVR market share performance in the US, Europe, and Japan.

Answer

Chairman and CEO Jeff Martha views the ASC shift for PFA as an incremental market expansion opportunity, with Medtronic actively hiring and strategizing for market development in ASCs across cardiovascular and neuroscience. For TAVR, Martha reported decent Q2 global growth in the high single digits, with strong international execution. He anticipates a slight deceleration in TAVR in Q3 due to phasing, followed by a pickup in Q4, a pattern seen in prior quarters. He clarified that PFA growth will continue to accelerate into Q3 and beyond.

Pito Chickering asked two product-related questions. First, he inquired about Medtronic's positioning for AF ablations in the ASC (Ambulatory Surgical Center) setting, specifically concerning mappers and fair replacements. Second, he asked for an update on TAVR performance and market share trends in the U.S., Europe, and Japan.

Answer

Chairman and CEO Jeff Martha stated that PFA in ASCs represents an incremental market expansion opportunity, a key focus for Medtronic with dedicated hiring and product strategy. For TAVR, he reported decent high single-digit global growth in Q2, strong international execution, and anticipated a slight deceleration in Q3 due to phasing, followed by a pickup in Q4. CFO Thierry Piéton confirmed the TAVR phasing.

Pito Chickering of Deutsche Bank asked if the distributor destocking in the Medical Surgical business could be a result of those distributors pushing their own private-label products, displacing Medtronic's.

Answer

CEO Geoff Martha and Mike Marinaro, EVP & President of the Medical Surgical Portfolio, both firmly rejected this possibility. Marinaro stated there is 'no evidence of that at all,' citing specific agreements with distributors. Martha added that Medtronic's direct, 'tight contracts' with end-user hospitals provide an additional layer of security against such a risk.

Pito Chickering requested a reconciliation of the updated fiscal 2025 guidance, noting that Medtronic was absorbing a larger FX headwind while raising its EPS forecast, and asked if a lower tax rate was a contributing factor.

Answer

Interim CFO Gary Corona explained that the EPS impact from foreign exchange is in line with previous expectations due to the company's hedging program. He stated that while revenue is up and margins are in line, the tax rate is actually 'up a little bit.' The EPS guidance raise was driven by stronger underlying operational performance.

Pito Chickering asked for a breakdown of the gross profit margin in Q3, specifically the moving parts including tariffs and FX changes, given the strong constant currency growth from pharmaceuticals, and inquired if the Q4 gross margin ramp-up would be primarily driven by enVista's return.

Answer

CFO and EVP Sam Eldessouky attributed the 130 basis point year-over-year decline in Q3 gross margin primarily to the reintroduction ramp-up of the high-margin enVista IOLs and product mix. He confirmed that the Q4 gross margin ramp-up would be driven by the continued recovery of enVista IOLs and the typical seasonality of the business, where Q4 tends to be a stronger quarter.

Pito Chickering asked for a breakdown of the gross profit margin in Q3 2025, specifically the moving parts including tariffs and FX, given the strong constant currency growth from pharmaceuticals. He also inquired about the drivers for the Q4 gross margin ramp.

Answer

CFO and EVP Sam Eldessouky attributed the 130 basis points year-over-year decline in Q3 adjusted gross margin primarily to product mix and the impact of the Invista IOL recall. He explained that the Q4 gross margin ramp is expected from the continued recovery of Invista IOLs and the typical seasonality of the business, with Q4 generally being a stronger quarter.

Pito Chickering of Deutsche Bank asked about the proposed reimbursement for AF ablation in Ambulatory Surgical Centers (ASCs) for the upcoming year. He sought an estimate of the proportion of AF ablations that could potentially shift to ASCs and how this increased capacity might contribute to overall market growth.

Answer

Chairman and CEO Mike Mahoney noted strong interest in ASCs in states without certificate of need requirements (e.g., Arizona, Florida), which could help address hospital backlogs for FARAPULSE. He estimated that 40% of U.S. AF ablations are in states that do not require a certificate of need. Mahoney anticipates a minimal impact from ASCs in 2026, with a slow ramp over the long-range plan due to capital deployment for building ASC capabilities. He emphasized Boston Scientific's unique position to succeed in this market due to FARAPULSE's reliability, favorable COGS/gross margin profile, and complementary cardiovascular products. Chief Medical Officer Dr. Ken Stein added that the FARAPULSE ecosystem is well-suited for these procedures.

Pito Chickering asked about the growth outlook for China and Japan in the second half of the year, considering the comps from VBP/DBP and reimbursement cuts, and inquired about the key drivers in those markets.

Answer

CEO Mike Mahoney and CFO Dan Brennan explained that these pricing pressures are already factored into the guidance. They expect China to grow in the mid-teens for the full year, driven by the FARAPULSE launch and portfolio diversification, which will overcome increased DBP headwinds. Japan is also expected to have a strong year, led by the FARAPULSE launch. Brennan added that both countries are still expected to deliver operating margin improvement despite the price cuts.

Pito Chickering asked for an update on the growth of "number of tests per requisition" year-to-date and insights into the durability of this growth moving forward, as a factor for organic growth in the next year.

Answer

CFO Sam Samad stated that "tests per requisition" has continued to improve quarter after quarter since 2019, currently north of 4.2, compared to 3.5-4 pre-2019. He attributed this to clinical guideline adherence, Quest's clinical franchise strategy, a broader test menu, and the availability of new screening tests like AD-Detect, as well as the wellness business. While expecting continued positive direction for 2026, he cautioned that the pace of improvement is likely to slow down.

Pito Chickering asked for an update on the growth of tests per requisition year-to-date and the durability of this growth moving into next year, in the context of organic growth.

Answer

CFO Sam Samad stated that tests per requisition have continued to improve quarter after quarter since 2019, now north of 4.2, compared to 3.5-4 pre-COVID. He attributed this to clinical guidelines, the clinical franchise strategy, a broader test menu, and the availability of screening tests like AD-Detect, as well as the wellness business. He expects continued improvement in 2026 but anticipates a slowing pace of growth compared to historical trends.

Pito Chickering of Deutsche Bank asked for quantification of the tariff impact from China and Europe, its expected timing in Q3 and Q4, and whether the Q4 impact should be used as a baseline for 2026.

Answer

CFO Sam Samad stated that while there was some tariff impact in Q2 and more is expected, the total amount is manageable within the company's updated guidance and would not be quantified. CEO James Davis added context, noting that over 80% of spend is US-based, less than 1% is from China, and European contracts are favorable, which collectively minimizes the overall risk.

Pito Chickering sought clarification on the percentage of Quest's $2 billion supply spend that could be sourced from China. He also asked for an update on the M&A pipeline, noting the recent lack of a closed deal.

Answer

James Davis, Chairman, CEO and President, reiterated that less than 1% is directly sourced from China and that about 80% of reagent spend is manufactured in the U.S. Regarding M&A, he described the funnel as healthy, comprising both hospital outreach and regional labs. He highlighted the new collaboration with Fresenius Medical Care, which includes acquiring a lab services business and will add significant volume later in the year.

Pito Chickering of Deutsche Bank inquired about the competitive landscape in 2025, specifically regarding net changes in payer access and whether to expect an increase in RFPs and state-level contract turnover.

Answer

CEO Jim Davis stated that Quest Diagnostics is net-net better off on payer access entering 2025, gaining over 1 million more lives from new contracts with Elevance and Sentara than it lost elsewhere. He noted that the company renews 25-30% of its health plan contracts annually, and 2025 will be a typical year in that regard.

Pito Chickering asked for details on the new Elevance and Sentara Health contracts, including why Quest was not previously in those networks, if pricing concessions were involved, and who the prior lab service providers were.

Answer

CEO Jim Davis explained that Quest previously had limited or no network access in specific markets with Elevance and was not in the Sentara network, which was served by other labs. He attributed these wins to the health plans' strategic decisions to partner with high-quality, cost-efficient independent labs like Quest, rather than pricing concessions.

Pito Chickering from Deutsche Bank questioned why a 300,000 increase in Care Gap patients didn't raise guidance and asked for the drivers behind the sequential revenue decline in medical transport.

Answer

CEO Lee Bienstock clarified the Care Gap patient growth was anticipated from existing contracts, with the current focus on scaling field operations to meet demand. CFO Norm Rosenberg attributed the transport revenue dip to seasonality after a strong Q1 and noted the Colorado exit was a year-over-year factor, not a sequential one.

Pito Chickering questioned the 2025 revenue guidance, asking if the faster-than-expected wind-down of migrant contracts implies a significant acceleration in the base business to maintain the same overall guidance. He also pressed for details on the incremental investments impacting the EBITDA margin guidance, questioning why these costs weren't anticipated a few months prior.

Answer

CEO Lee Bienstock confirmed that any shortfall from migrant revenue would be replaced by growth in the base business, citing a robust pipeline with over 120 payer/provider deals and 27 municipal contracts. He attributed the increased investment to enhancing the tech stack, training field personnel, and hiring business development staff. CFO Norman Rosenberg added that the company is making a discretionary choice to retain infrastructure to support future growth, leading to a more measured approach to cost-cutting.

Pito Chickering of Deutsche Bank sought clarification on the 2025 guidance, questioning the lower 8-10% EBITDA margin despite higher revenue, and asked about the margin profile of the growing care gap closure business.

Answer

CEO Lee Bienstock and CFO Norman Rosenberg explained the margin guidance reflects strategic investments and resource reallocation from migrant work to scale new payer programs. Lee Bienstock added that while care gap contracts are priced in line with historical margins, the rapid expansion requires upfront costs that are factored into the 2025 outlook.

Pito Chickering of Deutsche Bank inquired about the remaining runway for patient demand from preferred providers and what inning of growth this represents. He also asked about potential negative actions state Medicaid directors could take as their budgets tighten.

Answer

CEO Jeff Shaner described the demand situation as being in the 'middle innings' of a long game, stating that they will likely never fully satisfy the demand from MCO partners, who consistently ask for more coverage. Regarding state budget risks, he explained their strategy is to be a 'thoughtful partner,' demonstrating the value and cost-savings delivered from prior rate investments to position Aviana as a solution, not a problem, for states.

Pito Chickering from Deutsche Bank asked for clarification on the one-time EBITDA items in the quarter, the normalization timeline for PDS wage pass-throughs and spread per hour, and the outlook for PDS hourly growth.

Answer

CFO Matt Buckhalter detailed the $11 million one-time EBITDA benefit, attributing approximately $6 million to the collection of old, fully reserved AR and the remainder to retroactive rate increases. CEO Jeff Shaner added that wage pass-throughs for these rate hikes are ongoing and expects the PDS spread per hour to normalize below $11 by Q3. He also projected PDS volume growth to settle into the higher end of the 3-5% range after a strong 6.1% in Q1.

Pito Chickering asked for an outlook on 2025, focusing on headwinds and tailwinds related to pricing increases, labor market trends, and the expansion of preferred payer networks. He also questioned the implied sequential margin decrease in Q4 guidance.

Answer

CEO Jeff Shaner noted that 2024 rate increases provide strong momentum for 2025 and that the preferred payer strategy is now being applied to the Medical Solutions segment. CFO Matt Buckhalter added that rate improvements allow for higher caregiver wages, aiding hiring. Regarding Q4 guidance, Buckhalter explained that Q3 margins were boosted by one-time items in Medical Solutions and that Q4 reflects minor hurricane impacts and a return to a more normalized profitability level after a stronger-than-expected Q3.

Pito Chickering sought clarification on the process by which managed Medicaid plans are blocking admissions and asked for an assessment of how potential Medicaid work requirements could impact Acadia's various service lines.

Answer

CEO Christopher Hunter described the managed Medicaid pressure as manifesting through authorization challenges and increased friction throughout a patient's stay. Regarding work requirements, he stated a belief that the significant majority of Acadia's patient populations, particularly those with mental health and substance use disorders, will be exempt.

Pito Chickering asked if any specific acute referral channels, such as ERs or courts, were more impacted than others, and similarly, if any specific division within the specialty business was disproportionately affected.

Answer

CEO Christopher Hunter and CFO Heather Dixon both stated that there were no specific referral channels or specialty divisions to call out as being more impacted, indicating the volume pressure was broad-based.

Pito Chickering questioned how DaVita is maintaining its operating income guidance despite lower treatment growth and revenue per treatment. He also asked for an update on volume drivers like incidence and mortality, and why mistreatments would be a structural issue.

Answer

CFO Joel Ackerman attributed the stable guidance primarily to better-than-expected performance on patient care costs, driven by labor productivity, and a one-time benefit in the international segment. Ackerman clarified that mortality remains elevated post-COVID but is consistent with the prior year, and the change in the mistreatment rate assumption is a short-term adjustment, not a structural shift. CEO Javier J. Rodriguez added that they are not seeing an impact from GLP-1s on new patient admissions.

Pito Chickering from Deutsche Bank asked for details on new patient admissions in Q1 and mortality trends post-flu season. He also sought quantification of the phosphate binder impact on RPT and commentary on managed care rate increases. Finally, he inquired about the reduction in IKC patients and the competitive landscape.

Answer

CFO Joel Ackerman described Q1 new admissions as strong, supporting the view that Q4's weakness was normal variability. He noted mortality was elevated in Q1 due to the flu. CEO Javier Rodriguez broke down the RPT growth, stating roughly half comes from the core business and half from oral phosphate binders. Regarding IKC, he cited disciplined financial modeling amid aggressive competitors and removing physicians unwilling to adapt their practices as reasons for the patient decline. Joel Ackerman added that improved prediction of retroactive patient removals also contributed.

Pito Chickering from Deutsche Bank asked about new patient start trends versus USRDS data, the impact of SGLT2 inhibitors, the normalization of peritoneal dialysis (PD) supplies, changes in IKC patient counts, and the nature of a $19 million reserve in Brazil.

Answer

CEO Javier Rodriguez and CFO Joel Ackerman stated that SGLT2s are not yet a major factor, with COVID-related mortality being a more likely driver of admission trends. They confirmed PD admissions are back to normal but the 2025 volume forecast is impacted by patients lost in Q4. Ackerman explained the IKC patient count fluctuation is normal attribution and the $19M Brazil charge was a reserve against aged receivables, which impacted Q4 OI.

Pito Chickering asked for quantification of patient flow metrics beyond mortality, details on the IKC segment's third-quarter payer true-up, trends in 2025 commercial and MA pricing, and whether depreciation would be a tailwind next year.

Answer

CEO Javier Rodriguez reiterated that elevated mortality is the main volume headwind, with new admissions remaining healthy. CFO Joel Ackerman cautioned against using quarterly non-acquired growth for trend analysis due to volatility. On IKC, Ackerman confirmed the segment is on track for its full-year guidance and that payer true-ups are proceeding as planned. Rodriguez noted 2025 pricing is tracking as expected. Ackerman also confirmed depreciation will be a tailwind for 2025 EPS.

Pito Chickering inquired about the drivers of hospital administrative fee growth, the financial flow-through of these fees, the reasons for strong NICU volume, and the anticipated impact of recent healthcare legislation on Medicaid in expansion states.

Answer

EVP & CFO Kasandra Rossi stated that hospital admin fees contributed about a third of pricing growth, with a 30-40% immediate flow-through to physician compensation. CEO Mark Ordan attributed the 6% NICU day growth to multiple factors, including higher acuity. Regarding legislation, Ordan expressed cautious optimism, noting that 60% of Pediatrix's volume is in non-expansion states and the bill appears to protect expectant mothers.

Pito Chickering of Deutsche Bank inquired about several topics, including the trend of hospital contract subsidies, expectations for 2025 seasonality, and the health of accounts receivable. He later followed up on the M&A environment, the status of divestitures, and the driver behind strong investment income.

Answer

Executive Mark Ordan described hospital subsidies as a normal and stable part of business and stated that 2025 seasonality is expected to be typical. Regarding M&A, Ordan noted they are comfortable with the current portfolio post-restructuring and see a favorable environment for acquisitions. CFO Kasandra Rossi added that the strong investment income was due to interest earned on cash balances and that accounts receivable collections remain healthy with no major concerns.

Pito Chickering of Deutsche Bank asked for a bridge to explain the $20 million reduction in full-year EBITDA guidance, questioning the impact of divestitures versus investments for the new capitated deal. He also asked about the Sleep Health segment's performance relative to market growth and when new starts would translate to market-rate growth.

Answer

CFO Jason Clemens clarified the EBITDA guidance change is unrelated to divestitures. He attributed over half the reduction to the timing of certain payer rate negotiations slipping into 2026 and the remainder to the decision to maintain infrastructure for the new contract rather than making planned cuts. Regarding the Sleep segment, he highlighted the 3% year-over-year growth in new starts and expressed confidence in future momentum. CEO Suzanne Foster added that the full impact of operational improvements will be visible in Q3.

Pito Chickering from Deutsche Bank asked for more detail on the lower-than-expected new starts in the Sleep segment, questioning if it was a market-wide issue or a market share loss and what steps are being taken to address it. He also sought confirmation of the Q2 guidance figures and clarification on the implied revenue and EBITDA ramp in the second half of the year.

Answer

Executive Jason Clemens clarified that the shortfall in Sleep starts was minor and not due to an external factor, but rather a need to improve setup speed and execution in specific geographies where they are losing ground. He confirmed the Q2 guidance and explained the back-half ramp is largely driven by the diminishing impact of a non-cash shift from purchase to rental revenue in the Sleep business, which heavily affected H1 results.

Pito Chickering from Deutsche Bank requested quantification of the CGM reordering issues, asked why these occurred given the company's strong resupply model in other areas, and questioned the relative growth rates of the pharmacy versus DME channels.

Answer

CFO Jason Clemens explained that the diabetes resupply operation had not yet been integrated into the highly efficient Nashville-based sleep resupply center. This integration is now underway. He broke down the overall revenue compression into three roughly equal buckets: payer reimbursement shifts to pharmacy, lower-than-expected new patient starts, and operational failures in processing recurring orders. He did not provide specific growth rates for the two channels but reiterated the focus is on fixing internal execution.

Pito Chickering of Deutsche Bank requested a breakdown of the EPS guidance increase between pricing, FX, tariffs, and core operations. He also asked for an explanation of the strong 19%+ growth in the U.S. Endoscopy business.

Answer

VP & CFO Preston Wells explained the EPS raise is primarily driven by the flow-through from strong top-line performance and some favorable FX, with a wider range to account for macroeconomic uncertainties. Chair & CEO Kevin Lobo attributed the 'boomer' Endoscopy quarter to stellar, broad-based performance across its portfolio, including communications (booms and lights), the 1788 video platform, and a 'on fire' sports medicine business fueled by recent shoulder product launches.

Pito Chickering asked about the timing of the full run-rate impact from tariffs on the P&L and whether the flat performance in 'Other Ortho' reflects a cautious capital environment.

Answer

CFO Preston Wells explained that the tariff impact varies by business, but the Q4 run rate should be a good indicator based on current policies. He clarified that the 'Other Ortho' performance reflects a continued customer preference for Mako rental and lease agreements over direct purchases, rather than a sign of broader hospital capital caution.

Pito Chickering asked how the spine business divestiture would impact quarterly EPS seasonality in 2025. He also inquired about the growth outlook and key drivers for the Medical division for the upcoming year.

Answer

CFO Glenn Boehnlein stated the spine divestiture is not material enough to alter Stryker's typical seasonality, which should mirror 2024. CEO Kevin Lobo projected another year of double-digit growth for the Medical division, citing broad-based momentum across its portfolio, including Sage, emergency care, and Vocera.

Pito Chickering analyzed the gross profit dollar growth acceleration from Q1 to Q2 after adjusting for the Stellara headwind and asked about market share gains in both acute and chronic therapies, as well as potential negotiating leverage with payers.

Answer

CFO Mike Shapiro acknowledged the strong underlying gross profit dollar growth, driven by execution in acute therapies and solid performance in chronic, including rare and orphan drugs. CEO John Rademacher explained that the broad portfolio and national scale provide leverage in payer conversations, which are focused on total cost of care and bed day management.

Pito Chickering inquired about the mechanics of potential tariffs, asking how pharmaceutical price increases would flow through to reimbursement under AWP and ASP models and why IVIG therapies might be exempt. He also requested details on the quarterly phasing of the Stelara gross profit headwind and the outlook for Stelara biosimilars.

Answer

CFO Michael Shapiro stated that while not a perfect hedge, reimbursement reference prices (AWP/ASP) generally correlate with their drug procurement costs over time, which should mitigate margin impact from price inflation. He noted IVIG's reliance on domestic plasma as a reason for lower tariff risk. He also confirmed the full-year $60-$70M Stelara impact is unchanged, with only $5M felt in Q1, implying a ~$20M step-up in the headwind for subsequent quarters. CEO John Rademacher added that the biosimilar environment is developing as expected.

Pito Chickering of Deutsche Bank asked if the guidance assumes any impact from STELARA biosimilars and whether new contracts would be accretive. He also inquired about labor costs related to scaling for market exits and whether increased importance on the acute side gives them more negotiating leverage with payers for chronic therapies.

Answer

CFO Michael Shapiro clarified that the guidance reflects known procurement dynamics for STELARA and does not assume a material impact from biosimilars in the current year. CEO John Rademacher addressed labor, stating the company has a strong playbook for recruiting and has the capacity to handle new volume. He confirmed that they leverage their comprehensive portfolio in payer negotiations, using their ability to manage total cost of care as a compelling value proposition to extract fair value.

Pito Chickering pressed for specifics on STELARA, asking about the patient mix, the mechanics of biosimilar pricing versus rebates, and a potential price range for 2025. He also asked for a quantitative range for the 'material impact to gross profit' to aid in valuation.

Answer

CFO Michael Shapiro declined to provide specific patient mix data but reiterated that most require clinical oversight. He clarified the issue is a direct compression of their acquisition spread, which is different from reference price changes due to biosimilars. He stated they were not in a position to provide specific ranges for pricing or the gross profit impact but were raising the issue for transparency.

Pito Chickering of Deutsche Bank asked about the long-term EBITDA impact from the 'One Beautiful Bill Act' and the company's strategy to offset these headwinds. He also inquired about the volume split between inpatient and outpatient behavioral health and the outlook for outpatient growth.

Answer

Executive VP & CFO Steve Filton and CEO Marc Miller addressed the legislative impact, noting the reductions don't begin materially until 2028, providing time to pivot strategies, such as altering program mix in the behavioral segment. Miller added that he views the projected $360M-$400M impact as a 'worst-case scenario' and expects legislative changes. Regarding behavioral health, Filton confirmed that outpatient volumes grew faster than inpatient in Q2 and that capturing a larger share of the outpatient market is a significant focus for future growth.

Asked for details on the Pavilion case settlement, the amount of remaining commercial insurance coverage, the status of the Cumberland case, and the drivers behind the improvement in acute care supply costs.

Answer

The Pavilion case settlement is tentative and confidential. If approved, substantial insurance coverage will remain for other 2020 cases like Cumberland, which is progressing slowly. The improvement in supply costs was a mix of lower surgical volumes and active cost management, with modest inflation expected for the full year.

Inquired about the company's target leverage ratio and willingness to borrow for share repurchases. Also asked about the rationale and impact of recent behavioral hospital closures.

Answer

The company is comfortable with leverage in the high 2x range and considers borrowing for additional share repurchases a 'real possibility'. The hospital closures are part of an ongoing portfolio rationalization strategy to address underperforming facilities based on local market dynamics, despite overall strong demand in the behavioral sector.

Pito Chickering inquired about Universal Health Services' target leverage ratio, given it is now below 2x, and asked about the rationale for closing behavioral hospitals despite a favorable supply-demand environment.

Answer

Executive Steve Filton stated that UHS has historically operated at a leverage level in the high 2s and is comfortable targeting that range, suggesting that levering up for share repurchases is a possibility. Regarding hospital closures, he explained that portfolio rationalization is an ongoing strategy to address underperforming facilities based on local demand, reimbursement, and efficiency, which can involve closure, sale, or consolidation.

Pito Chickering of Deutsche Bank AG asked about UHS's target leverage ratio and its strategy for share repurchases, including the potential for borrowing. He also questioned the rationale for closing two behavioral hospitals given strong demand.

Answer

Executive Steve Filton stated that UHS targets a leverage ratio in the high 2s and that using debt to increase share repurchases beyond free cash flow is a 'real possibility.' Regarding hospital closures, Filton explained it's part of an ongoing portfolio rationalization strategy to exit or retool underperforming facilities based on local market dynamics and efficiency.

Inquired about the maximum occupancy for the portfolio before it impacts growth, whether high occupancy would trigger tougher negotiations with MA payers, and if other physician specialties beyond ER and anesthesia are seeing expense pressure.

Answer

The executive explained that acute inpatient occupancy is a less relevant metric today, and they are not at max capacity. Behavioral occupancy is more relevant but is in the low 70s overall, with expansions happening where needed. On physician expenses, while there are requests for subsidies in other areas like radiology, the most significant pressure has been from ER and anesthesia, and the overall situation has stabilized.

Pito Chickering of Deutsche Bank questioned what the maximum occupancy for the portfolio is before impacting growth and if other physician specialties could become pressure points.

Answer

Steve Filton explained that acute care inpatient occupancy is a less relevant metric today due to the importance of ER, OR, and cath lab capacity. He noted that behavioral occupancy is more relevant but is currently in the low 70s, indicating capacity. Regarding physician expenses, he confirmed that while ER and anesthesia were the biggest pressures, there have been one-off requests from other specialties like hospitalists and radiologists, but the situation has largely stabilized.

Pito Chickering of Deutsche Bank inquired about the drivers behind the favorable trend in Days Sales Outstanding (DSOs) and asked if the capital allocation strategy would prioritize share repurchases of around 10% of market cap annually.

Answer

Chairman & CEO Saum Sutaria attributed the strong collections performance to Conifer's standardized workflows, increased use of technology and automation, and a focus on accurate initial coding. EVP & CFO Sun Park reiterated that capital allocation priorities remain balanced between USPI M&A, hospital CapEx, and share repurchases, stating that the pace of buybacks will depend on market conditions rather than a fixed run-rate.

Pito Chickering explored the drivers of SWB leverage, asking if the decline in average length of stay was due to flu seasonality or productivity, and if lower uncompensated care, driven by implicit price concessions, contributed to margin improvement.

Answer

Saumya Sutaria, Chairman and CEO, clarified that the uncompensated care figures are not same-store and are distorted by divestitures of assets in markets with less favorable payer mix. Sun Park, EVP and CFO, added that while there was likely some flu impact on length of stay, it primarily reflects operating discipline. She also stated that the total uncompensated care percentage of revenue has been consistent, so it is not a driver of margin improvement.

Pito Chickering inquired about Tenet's 2025 cash flow guidance, capital deployment strategy, target leverage ratios, and the potential for share repurchases.

Answer

Dr. Saum Sutaria, Chairman and CEO, stated that Tenet is comfortable with its current leverage, which provides significant strategic flexibility for USPI growth and share repurchases. He noted that with no urgent debt maturities, the return on share repurchases is attractive at current valuations. Sun Park, EVP and CFO, added that the company plans to be active repurchasers.

Pito Chickering asked about the durability of medical admissions outpacing surgical admissions and whether surgical volumes might accelerate in 2025. He also requested a quantified revenue impact from recent hurricanes.

Answer

Chairman and CEO Dr. Saum Sutaria explained that strong medical admissions are a direct result of strategic initiatives in emergency department excellence and an improved ability to accept high-acuity transfers. He declined to quantify a specific revenue impact from the hurricanes, instead reiterating confidence in meeting the full-year USPI guidance that was previously raised.

Pito Chickering inquired about the outlook for cash flow generation for the remainder of the year, the reasons for the increase in contract receivables despite a revenue decline, the drivers behind higher NEMT revenue metrics, and the rationale for a recent regional contract loss.

Answer

L. Sampson, an executive, explained that cash flow is driven by EBITDA, which is expected to improve through new contract wins, cost savings, and automation. He attributed the rise in accounts receivable to the structure of legacy shared-risk contracts, which are now being restructured to improve collection times. Sampson confirmed that the increase in NEMT revenue per member and per trip was a result of a change in contract mix and expects these metrics to normalize. The contract loss was attributed to a national plan's decision to consolidate vendors and was described as not representative of broader performance.

Pito Chickering of Deutsche Bank asked for an update on NEMT and monitoring membership numbers after Q4, the operational performance of the Matrix Medical investment, and the cause of negative organic hours in the Personal Care Services (PCS) segment.

Answer

Executive L. Sampson and CFO Barb Gutierrez reported that NEMT's Medicare Advantage membership mix fell from 16% in Q4 to under 10% entering Q1. They noted that while the Matrix Medical investment faces MA-related headwinds, a sale is not a current priority. The Q4 decline in PCS hours was attributed to typical seasonality and a shift in business mix.

Pito Chickering asked for an update on the potential sale of the Matrix division or other assets and its timing. He also questioned how ModivCare would defend its NEMT business from payers using rideshare apps directly under a fee-for-service model and if competitors sticking to full-risk models posed a market share threat.

Answer

CEO L. Sampson stated that the company continues its dual-path strategy of operating and evaluating its businesses for potential monetization to delever the balance sheet, acting only when timing and value are optimal. He noted the timeline for a Matrix sale is TBD due to Medicare Advantage headwinds. Sampson defended the FFS model by highlighting ModivCare's advantage in managing complex benefits and higher-acuity members, which rideshare alone cannot handle, especially in the Medicaid space.

Pito Chickering of Deutsche Bank questioned the timing of NEMT risk-contracting cash flow pressures, the reduction in free cash flow conversion guidance, and the reasons for high churn in the RPM segment's largest customer.

Answer

CEO Heath Sampson explained that the cash flow timing is a function of contract design, with settlements for 2023's high utilization occurring now. The free cash flow conversion guidance was lowered from a potential 40-50% to 30% primarily due to higher interest costs from the recent debt refinancing. Sampson attributed the RPM churn to its largest MA client losing state contracts and broader supplemental benefit pressures in the MA market, rather than service or pricing issues.

Pito Chickering requested a bridge from the previous full-year EPS guidance to the updated range and asked about the drivers of U.S. wins in the Care and Connectivity Solutions (CCS) division, the reasons for international softness, and the outlook for a rebound.

Answer

EVP & CFO Joel Grade provided a high-level bridge, noting strong operational performance and favorable interest/tax were offset by a roughly $0.15 impact from tariffs and FX. He and COO Heather Knight attributed U.S. CCS strength to a strong order book (up 20%), digital enhancements, and competitive wins, expressing confidence in an international rebound as orders pick up.

Pito Chickering asked if the recent hurricane-induced supply crisis for IV solutions will change their perception from a commodity product, potentially leading to better pricing, and questioned if the lost Q4 revenue from IV solutions should be expected to return in 2025 via channel restocking.

Answer

CEO José Almeida asserted that Baxter has long viewed IV solutions as non-commodities due to high barriers to entry and automation, highlighting the company's rapid recovery and global manufacturing network as proof. While not commenting on pricing, he acknowledged a potential restocking upside in 2025, similar to past events, but stated it has not yet been factored into guidance pending certainty on production volumes.

Pito Chickering asked if Edwards could confirm rumors of an imminent TAVR NCD update in May or June and requested an update on the demand for EVOQUE physician training.

Answer

Larry Wood, Group President of TAVR, dismissed any specific timing for an NCD update as 'pure speculation,' stating the decision rests entirely with CMS. Daveen Chopra, Global Leader of TMTT, reported that demand for EVOQUE training remains very strong, with sites booked months in advance. The company is focused on steadily expanding its training capacity to a portion of the ~850 U.S. TAVR centers over several years.

Pito Chickering asked for details on the number of hospitals and physicians trained on the EVOQUE system beyond the initial trial sites. He also requested a geographic breakdown of TMTT revenue between the U.S. and O.U.S. for Q4.

Answer

Daveen Chopra, Global Leader of TMTT, described the EVOQUE rollout as a continuous, linear expansion from the initial ~50 trial sites to other high-volume centers, emphasizing they are still early in the process. While not providing specific figures, he confirmed that O.U.S. (primarily Europe) remains the largest TMTT market but noted the U.S. will be a significant growth driver in 2025.

Pito Chickering asked for clarification on the full-year guidance, questioning if the strong U.S. thrombectomy growth was offsetting the removal of $5 million in China revenue. He also asked about the drivers of strong international thrombectomy growth outside of China.

Answer

CEO Adam Elsesser confirmed the removal of China revenue from the forecast. EVP of Strategy Jason Mills clarified that the Q1 outperformance of roughly $8-9 million more than offset the $5 million China reduction. Adam Elsesser added that international growth is driven by CAVT adoption where affordable, but the U.S. will remain the primary growth engine for the next couple of years.

Pito Chickering of Deutsche Bank AG asked about the expected seasonality of the 19-20% U.S. thrombectomy growth guidance for 2025, given the strong 27% exit rate in Q4 2024. He also asked for a breakdown of price versus volume for the Q4 growth.

Answer

CEO Adam Elsesser and EVP of Strategy Jason Mills explained that growth is not linear due to seasonality and product launch timing. Jason Mills noted that Q4 2024's strength creates a tough comparison for Q4 2025, suggesting growth could be front-end loaded in 2025. Adam Elsesser clarified that the recent growth was driven almost entirely by volume, not price, highlighting record case volumes in December.

Pito Chickering sought clarification on the full-year 2024 guidance, asking why total revenue guidance was maintained at the midpoint while U.S. thrombectomy guidance was raised. He also asked about the potential for SG&A leverage over the next few years.

Answer

EVP of Strategy Jason Mills explained that maintaining the midpoint of total revenue guidance reflects the raised U.S. thrombectomy outlook being balanced by known international headwinds, particularly in China. CEO Adam Elsesser added that the company can achieve significant SG&A leverage while still investing in its four-pronged strategy (innovation, data, commercial teams, market access), and that the business is structured to be highly profitable.

Pito Chickering questioned BrightSpring's expansion into rare and orphan diseases, asking how the company can succeed in this new area given its historical strength was deeply tied to oncology, and whether this represented a strategic pivot.

Answer

Executive Jon Rousseau clarified that the move is an expansion, not a pivot, and that the company's focus on oncology remains unchanged. He explained that the core operational capabilities, processes, and relationships required to succeed in oncology are directly applicable to rare and orphan diseases. The strategy is to leverage these existing critical success factors to pursue adjacent therapeutic opportunities where the company's model can be effectively applied.

Pito Chickering from Deutsche Bank asked for a breakdown of the drivers behind the strong margin improvement in the Provider segment, specifically the relative contributions from pricing, mix shift, and SG&A leverage.

Answer

CEO Jon Rousseau attributed the margin improvement to four key factors: 1) leveraging fixed costs on strong volume growth; 2) a positive mix shift toward higher-margin services like home health and hospice; 3) over $20 million in cost reductions from corporate procurement and efficiency projects; and 4) favorable rate support, particularly in hospice and community living, which helps fund caregiver wages.

Pito Chickering of Deutsche Bank asked for a breakdown of the mid-single-digit growth forecast for the Early Development business between pricing and volume. He also inquired about the reasons for the difference between guided EPS growth and free cash flow growth in 2025.

Answer

CEO Adam Schechter explained that growth in the Early Development business is driven by volume, with pricing remaining relatively flat. CFO Julia Wang addressed the free cash flow question by noting that after a very strong Q4 2024, the 2025 guidance of $1.1B to $1.25B reflects growth driven by higher cash earnings. She affirmed the company is targeting a cash conversion rate consistent with historical levels.

Pito Chickering asked about the net impact of recent managed care contract shifts on 2025 volumes, referencing a competitor's announcement about expanding a deal in states where Labcorp was previously exclusive.

Answer

CEO Adam Schechter stated that across all contract negotiations this year, the net impact for Labcorp is neutral to slightly positive. He reiterated his preference for non-exclusive contracts, as they foster competition based on service and prevent the price erosion that often accompanies exclusive deals. He expressed strong confidence in Labcorp's managed care position and momentum heading into 2025.