All right. Next up, in this room is Community Health Systems. We're very pleased to have Kevin Hammons, the President and Chief Financial Officer for Community Health. Kevin, I've been starting these off by asking people, to sort of give a little retrospective on the year. We're 10, almost 11 months in now. What have been some of the wins for Community Health? What have been some of the challenges that you would highlight in that? Sure. First, let me thank you for having me here today. Yeah. I really appreciate it, and I appreciate everyone participating. You know, some of the big wins, I think we had coming into this year, a couple of things I'd point to is, one, our improvements we've made both in quality and reputation. I think that we've made continuous improvement kind of throughout the year, and certainly as we recover from a pandemic and the you know, the stress that had been on the whole healthcare delivery system, and to see how our healthcare workers have done has been tremendous. From a financial perspective, you know, our non-labor expenses, being able to control those in a period of record high inflation, in a period where we're making investments and adding new access points and even a couple of new facilities, and being able to maintain all those non-labor expenses at a relatively flat amount in this environment, I would say was a big win. In terms of headwinds, or you know, things that really didn't go as well, labor markets continue to be problematic. The volume recovery kinda post the COVID surges has just been more disappointing than we had hoped for. Yeah. We'll get into that a little bit to make sure I understand where you're at and level set people. You did have some impact in the Hurricane Ian. Mm-hmm. In two of your facilities, Punta Gorda and Port Charlotte. We hope those people are doing well. Any update on that? And does that spill into the fourth quarter and impact you? Sure. You know, we have really eight hospitals across the Gulf Coast that we're all preparing, not knowing exactly where the hurricane was. Right. Gonna hit. In the couple of days leading up to the hurricane making landfall, you know, we saw some impact across all those markets as, you know, people are canceling procedures and buttoning down the hatches, you know, in preparation. It did hit Punta Gorda and Port Charlotte. It was a direct hit in those markets. We operated and maintained operations throughout the hurricane in both those hospitals. For a period of about three weeks, we were the only two hospitals in the county that remained open. Now, we did still experience significant disruption because a big portion of our workforce, both clinicians and non-clinicians, were impacted on a personal level. Did not have homes to go to. There was a period without water and electricity. Operations are pretty much fully restored at those locations currently. You know, we're still seeing some disruption as a result of, you know, again, people's homes being destroyed and that type of thing. We're seeing significant increase in ER business, probably at 30% levels above what they were. Mm-hmm. Okay. Okay. Kinda pre-hurricane. All, you know, we're fully operational and did not have any significant damage. Okay, great. When you think about volumes over the course of this year, different companies have had different experiences. I know you said, particularly in the most recent quarter, that you really saw the pronounced vacation season, clinicians and patients taking time off early in the third quarter, as you might expect. Mid-August and onward, it started to rebound. You know, we've had a lot of chatter at this conference about flu season, about, you know, the pickup that sometimes you see in a normal seasonal- Mm. -pattern in the fourth quarter. What have you guys seen? Maybe just explain a little bit of what your perception is of what happened in mid-August and beyond. Yeah. You know, I think as kids returned to school and people returned back to some of their normal activities, returned back to their primary residence, even work remotely. I think, had an impact on people's behavior if they were able to, you know, go rent a place somewhere for a month, and they may still have been working, not necessarily on vacation, but they weren't in their primary residence. Right. I think particularly in some of our locales across the Southeast and Southwest, we saw that, you know, people were heading to the beaches in those locations and doing just that for extended periods of time. School starts back, people kinda return to some normal activities. About that time, we start to see the volumes pick up. You know, we saw that kinda end of August coming into September, those volume increases are continuing on into the fourth quarter. Have you seen much flu yet or not? We're not seeing a lot of flu. Okay. Yet. You know, as I look at the flu maps, we're starting to see it hit, you know, states like Florida has a pretty high concentration of flu, but we're not seeing a big impact yet. Okay. in our hospitals. Okay. Another thing you've called out is, and it's not uncommon, but you maybe have talked about a little more is the shift to outpatient, the outpatient volumes being strong, maybe a little bit, sounds like at the expense of inpatient. Can you just comment on what you're seeing there? Yeah. You know, there was a pretty big movement of procedures off the inpatient-only list to outpatient. Some of that's been unwound. But we did see a bigger shift earlier in the year to more outpatient business. Some of that was caused by, I think, an absence of some of the inpatient business. As I look at our net revenue, which is about 53% outpatient, some of that is caused just by the absence of some of the inpatient business that we still expect to get back. We are capturing, and I guess one of the things I'd point out because I think there's been a little misinterpretation, as that business has moved to outpatient, and we saw the impact on net revenue per adjusted admission, it doesn't mean we're not capturing it. Yeah. It's not necessarily we're not losing the business to someone else. We're still capturing the business in our network. It's just being billed as an outpatient service versus an inpatient service, which does have a negative impact on net revenue per adjusted admission. I mean, it's a little bit, for someone sort of newer to the hospital industry, they may not appreciate there are some differences between the companies. They hear an HCA or a Tenet which have a lot of big urban facilities come in. Mm-hmm. You've moved away from the really small rural properties, but you're still in sort of secondary markets. Mm-hmm. Predominantly. That dynamic of volumes moving to the outpatient, and HCA and Tenet come in and say, "Hey, we're investing in these ultra high-end cardiology and neuro cases," or whatever. Is that a little bit more of a challenge to you to backfill that, given your facility profile, or are you doing the same type of thing? We are investing in higher acuity service lines. As we have, as you pointed out, we've kind of changed our portfolio of hospitals a little bit over the years. We're more in those mid-sized metropolitan suburban markets, but we have significant opportunity to still invest in higher acuity cardiac care, neuro care, and so we are making investments in those in both the inpatient and outpatient space. Okay. I think in the most recent quarter, your surgery volumes on the same-store basis were up, like, a couple of percent- Mm-hmm. -2.2, I believe. Is that, in your mind, sort of normalized versus where you were pre-pandemic at this point? I know different people talk about baseline and trend line differently. Sure. Second, is the mix of procedures materially different today than where you would've been a few years ago? You know, we're back from a surgery standpoint about where we were pre-pandemic in terms of volume of surgeries. Now, given that we're a couple years past that baseline, you know, we would hope that we would be at higher levels and exceeding that. I still think we have a ways to go to continue to recover. I think there's more volume out there. When we compare our acuity to those pre-pandemic 2019 levels, our acuity is materially higher. Okay. Than it was. We are making progress on both acuity, and I still think there's more progress to maybe made in terms of volume of that recovery, but it is finally getting back to the pre-pandemic levels. When you say your acuity is higher, do you think that is you've moved up in the type of services you're offering? Is the patient population coming to you sicker? What is driving a pickup in acuity? I think it's our offerings. Okay. Yeah. I think it's the offerings. You know, we are anecdotally seeing some patients come back, present now that have you know foregone screenings- Right. Care during the pandemic. I think that's a little more on the inpatient side. Okay. I think the higher acuity. You know, what we're really missing still is some of the higher acuity elective inpatient care. On the outpatient side, I would say it's more of a service offering. When you say high, higher- end, inpatient elective care, just for someone that may be a generalist, what would be a couple of those procedures you're talking about? You know, there's some, you know, come the higher, some GI procedures. Okay. Some cardiac procedures. Okay. Probably cardiac being the biggest one. Okay. Company's been adding a few surgery centers. I think you most recently had Tucson- Mm-hmm. Huntsville you've called out. Where are you at on that spectrum? Is there still a lot of opportunities to be had there, or do you have those in your key markets at this point that you're focused on? Yeah. We do have surgery centers in all of our key markets. In fact, about 85% of our markets we have surgery center locations. The kind of premise as we see it from a surgery center and ASC perspective, at least as it relates to the patients, a convenience factor. Mm-hmm. Being in the more mid-sized metropolitan suburban markets, generally smaller hospitals compared to large urban centers, our hospitals are already easier to navigate, easier to park close to the entrance, and so forth. There's less of a differential in terms of convenience from a surgery center versus a hospital, so we're still performing a fair amount of outpatient procedure at the hospital. That being said, there are opportunities to also stand up surgery centers. Where those make sense, we're absolutely doing that. We'll continue to add, you know, a few surgery centers every year. Okay. One of the other things that people have talked about is some differences in how much the ER volume has come back, emergency departments. Mm-hmm. I think you're saying, in your case, you're pretty much back to pre-pandemic levels. Others are saying in maybe more larger urban markets that it hasn't fully come back. Do you think it's a function of where your markets are and people don't have as many urgent care alternatives, and so they're coming back to your ERs? Or and have you seen that sort of low acuity come back, or is it still more skewed to high acuity? I think it's been still skewed to higher acuity. You know, we're still slightly below pre-pandemic levels. It has been slower to come back, and I do believe it's that real low acuity business that has not come back to the emergency rooms. But it is coming back, and it is often, you know, kind of that first opportunity we have with the patient that is their, you know, the path they have. Right To becoming an inpatient. This is even pre-pandemic, but with this management team, there's been a focus on transfer centers. Mm-hmm Making sure volume that's coming out of one facility goes to another of your facilities if it has the capability to do that. With all the labor issues we hear about and so forth, are you having to transfer a significant percentage of your patients or of that potential volume to non-Community hospitals that might ultimately come to Community hospitals down the road? Where are we at with that? We're making significant improvements there. I think our transfer center continues to benefit us, particularly the calls that the transfer center receives from hospitals outside of our network, allowing us to accept transfers in from outside our network. We are still missing out on some opportunities or having to you know not accept those transfers because of staffing in certain markets. I do think that indicates to us and one of the good things about running this transfer center is now we have that intelligence. We know which markets that there's business that we're missing because we're not able to accept it, if it's because of staffing constraints or because of service offering. That gives us then the intelligence of where we need to make investments- Mm-hmm ...where we can bring in additional labor, because we know what types of cases we're missing out on. Interesting. Okay. On the volume side, one last question. Length of stay has been a topic of discussion, obviously in a lot of your payers, most Medicare and some commercial, your incentive to get the patient out as quick once they're stable. There's been issues around post-acute discharges, home health, etc. Mm-hmm. Is that eased in your mind, or are you still having patients back up a little bit into your facility? It's easing. Okay, okay. It's getting better. We were able to bring length of stay down this past quarter, partially due, you know, as we have fewer COVID patients. It is helpful. Even sequentially, where we did not have, you know, COVID patients in Q2, we're still able to bring down length of stay because we are seeing some easing in that post-acute care space. So we're able to get those patients discharged. Okay. Maybe pivoting over, talk a little bit about pricing revenue per adjusted admission, payer mix, etc. I know your number on revenue per adjusted admissions is getting impacted by the lack of COVID year-to-year. Mm-hmm. When you look below that, what's the trend with your non-COVID, and do you see us maybe as we move into next year, getting back to sort of the traditional low single digit pricing updates? I mean, I know there's some reimbursement changes you got to take into account there from COVID add-on payments going away. Anyway, just sort of give us the lay of the land on that. Yeah. You know, we are seeing improvement in the non-COVID business in terms of net revenue per adjusted admission. I think that's returning to kind of the pre-COVID levels. I do think that there's opportunity going into 2023 to continue for that to increase, and maybe even increase a little bit faster than we saw historically, because of some of these investments we're making in higher acuity service- Okay ...lines, as well as, you know, capturing improved payer mix. Okay. When you think about managed care contract, you're hearing a lot of different things. Some managed care guys are saying, "Yes, we're having to help the hospitals and the health systems out because of their labor issues." Others are saying, "Well, we're doing more value-based contracting." And others are saying, "No, it's sort of status quo." What are you seeing as you contract with managed care and go into 2023 and 2024? I know not every contract gets renewed every year. Mm-hmm. In the ones that are getting renewed, are you seeing any relief? Not as much as we like. Yeah. I'm never gonna get as much as I want. We are seeing rates higher than we've seen historically. Okay. I, you know, we're thinking probably 2023s in the 4%-6% Okay. Range of average increase. That includes averaging in those contracts that don't renew, so there's zeros in there. You know, individual contracts that we're renewing, I would say are generally in the mid to high single digit- Really? Okay. ... Increases. That's gonna get averaged out because not every contract renews every year. You know, historically, we've been closer to you know, kinda 3%-4%, 3%-5%. Right. Yeah, improved. A little bit of a pickup. Yeah, at least 100 basis points or more. Okay. Of improvement than historical. In terms of terms or timing, are payers stretching it out a little bit to get a better picture on the economy and labor? Are you being asked to do more on the value-based side in any way? We're not being asked to do much in the value-based side. You know, with all the talk about value-based care, absent the Medicare population, we're just not seeing much interest from the payers to do anything on the commercial side. Okay. From a value-based care perspective. You know, there's some. Right. We're heavily invested in ACOs, you know, but that's really geared more towards the Medicaid or Medicare patients. In terms of timing, nothing really changed. Okay. You know, people are trying to figure out, okay, we've got Medicare sequestration going away, we've got some COVID add-on payments going away. Some companies are sort of more concentrated in places where Medicaid supplemental payments have been sort of out of period this year. If you were to look down that list of unusual items or potential headwinds for next year, how do you parameterize that and do you view that as a headwind or do you know, some companies are saying, "Well, we were getting paid that for COVID cases, and so it's not really a headwind because we don't have those COVID cases. Right. How do you think about that whole thing? You know, there seems to be a lot of moving parts this year. Right. A lot more than normal. In terms of things like HRSA and the Public Health Emergency and some of those special payments, really don't view those as being that meaningful because they are really related to COVID, and we do not expect to have a significant, you know, COVID surge in the future. Medicare rates overall, the base rate certainly was better than we've seen in the past. That's being offset, you know, particularly on the outpatient side with the 340B. But overall, I think, you know, outpatient is probably pretty much of a wash. Medicare a little bit better than historical. On the inpatient side, Medicaid's a slight negative. Okay. Maybe just speaking a little more granularly about labor. Obviously, that's been a challenge for a lot of healthcare providers this year. Maybe first on the contract labor piece, I think in the second quarter, if I have this right, you were at $150 million. You sort of stepped down to about $100 million in the third quarter. Do you think you'll make further progress into the fourth quarter? Is that sort of a run rate in your mind to take into next year? Do you think there's further progress to be made next year? I do think we'll make continued progress going into the fourth quarter. We've seen steady progress every month really since the peak. Okay. In the first quarter. And each month has progressively gotten better, and I think that will continue into the fourth quarter. Now, the fourth quarter reduction will not be near what the reduction we saw sequentially Q2 to Q3, for a couple reasons. One, I think the rate's starting to stabilize. Okay. A little bit, as well as our seasonality, particularly in Florida, with people moving for the winter to winter in Florida. We've always used contract labor in the fourth quarter and first quarter. Okay. To treat that seasonality. We'll have that will be actually in a little bit of an offset. I would expect us to continue to bring down the contract labor in Q4, and that will probably be, you know, the way we're looking at it, pretty close to kind of a run rate for 2023, with maybe some more, you know, moderation by the back half of 2023. I think if we get down to, you know, historically, we ran average $30 million a quarter contract labor. Don't think it gets back to that. Right. If we get it down to $50 million-$60 million a quarter, I think it's really no longer part of the story. We can manage through that. I think it's gonna take a little while to get there. If you were to, let's take the conservative side, that's 60, be it 240 for a year. How much of a tailwind does that create versus what you saw this year? Is there a way to think about that? Yeah. I mean, we're looking this year at probably being somewhere in the $520 million range- Big number. ... Of contract labor, so a significant tailwind. Mm-hmm. I would think about it as about 70% of that reduction flows through to EBITDA. Okay. Because some of that does get replaced with full-time labor. Full-time labor, right. It's, you know, maybe 30% comes back as full-time labor and about 70% would flow through to EBITDA. Okay. No, that's a big number. When you said something about, obviously as your hiring picks up, your onboarding, you're going through orientation, and I assume that'll continue into the fourth quarter. Does that then go down? Are you spending a lot of money there, or is that just sort of a new normal because you'll be hopefully hiring people to get these offsets on the contract labor? Yeah. It eventually slows down, because, you know, once we kinda level off in terms of the contract labor, and I think we took a big chunk out of contract labor this past quarter. Right Bringing on, you know, more new hires than we have in, you know, in the past. I do think that we saw a little bit of a peak. May see that a little bit in the fourth quarter, and then I would expect that to start to level off, you know, next year. I think about the wage in your base employee levels. I think historically that was sort of a 2%-3% number or maybe 3%-4%, and you stepped it up to 8%-8.5% in the first half, which is pretty big. Yeah. Now it's sort of you're saying 5%. Do you have any visibility on what that looks like heading into 2023? Do you do a one across the enterprise update, or do you do it sort of market by market? We do manage that market by market. Okay. Those occur throughout the year as well. Okay. They don't all hit at the same time of the year. We did see, you know, really starting the third quarter of 2021 through the second quarter of 2022, kind of that 8%-8.5%. Had thought we had kind of hit, you know, the new normal in terms of base rate. Saw it continue at about 5% in Q3, which was more than we had initially anticipated in terms of rate lift. We're also being aggressive, I think, in bringing full-time labor back in to take out contract labor. I do think it moderates some. What we've called out for 2023 is at this point without, you know, great visibility in, but our best guess at this point would be something in the 4% range. Okay. Still higher than the 2%-2.5% we've seen historically. Yeah. Moderating. Yeah. You've got this relationship that's sort of interesting with Jersey College. Talk a little bit about what you're doing there and how quick that could impact the pipeline. Yeah. We have entered into an affiliation agreement with Jersey College, where they run the kinda the academic portion of the nursing school. We offer some administrative functions and then provide space for them. They're actually setting up the nursing schools within the four walls of our hospital to train you know the future generation of nurses. We have opened up. I think we're somewhere around eight locations today, servicing you know multiple hospitals in some of our networks. By the time we're completed, we're targeting about half of our hospitals will be serviced by one of the schools operating in our hospitals. Yeah. Our first graduating class will be in January. Okay. By the time we're fully ramped up by the, I think, January of 2025, we'll be graduating approximately 1,000 nurses a year. Many of those nursing students are already our employees. Not all of them. Some of them are just coming from the communities, but many are our employees who are in, you know, various positions, whether, you know, housekeeping or nursing assistants or LPNs that wanna become an RN. Okay Get their license. They're doing their clinical work in our hospitals. Okay With our nursing teams. They'll be familiar with us, and it'll be a natural, I think, hiring pipeline for us. I was gonna ask you, is it more just, you know, we're the best place, you're familiar with us, come work for us? Are you sort of funding their education with an understanding they'll come to you for a year or two or so afterwards? Some of both. Okay. You know, as I said, many of them are our employees, so they're already, you know, somewhat loyal to us, wanting just to increase their opportunities. We're offering scholarships in many cases, particularly to employees, but also to non-employees. We also have a commitment. We started what we call the Pathways Program, where for any of our clinical staff, nurses, we are paying their student loans. Mm-hmm. Even if they would go through this program, and have a loan, and graduate with a loan, we will pay that loan off, you know, and take over their monthly payments for as long as they're an employee. Right. That is, you know, just another mechanism. So far, we started that earlier this year. Been very successful in terms of both retention and recruiting. Interesting. Okay. Have to spend a few minutes on the capital structure and the cash flow. Sure. There's so much noise in everyone's numbers this year with all these add-on payments coming in and out, some repayment of accelerated Medicare payments from previous years. I think normalizing for that, you're looking at about $667 million. Maybe that's year to date versus $400 million. Is that a good run rate for you? Does that have to be adjusted more? How do we think about what you look like going forward, and are you solidly cash flow positive at this point? Yeah. We were cash flow positive coming out of 2021. Not solidly cash flow positive this year. I think we should be close to neutral. With the disruption in EBITDA, you know, has certainly not been beneficial to cash flow generation. Managing through it with the work we did on our capital structure and our debt over the past couple years, we were able to take out over $230 million of cash interest expense, which has been very helpful. As EBITDA returns and as we look ahead into 2023, we feel we have a very good opportunity to be, you know, cash flow positive with the return of some EBITDA now with lower cash interest. We think we're still making adequate investments on the capital side. I was gonna ask you about CapEx. I get asked about that a lot. How would you describe that? I mean, your facilities may not require the same level as some of the ultra high-end that HCA or Tenet has. Mm-hmm. Right. Are you able to make the capital investments that are appropriate for your type of facility at this point? Absolutely. We believe our facilities are well-maintained from a maintenance standpoint, and we still have room to make, you know, those growth capital, in investing in those growth capital projects. I think as evidenced by the fact we opened up a new de novo hospital in Tucson this year. Excuse me, one late last year, a small community hospital. We opened up a replacement hospital at the beginning of this year in Fort Wayne. We're investing in a number of access points that are really lower cost, lower capital cost access points like freestanding EDs, some urgent care, some ASCs, that really don't require a significant amount of capital. Yet we're still making, you know, those types of investments. Right now, given the labor market, I think we're naturally constrained a little bit to. Okay To going faster- Okay ... on capital because you couldn't stop. Right. I think that, you know, that's serving as a little bit of buffer right now. It wouldn't do us any good to go quicker. We did announce at the end of the third quarter on our call, we're opening 118 beds in Naples in the fourth quarter. You know, again, a significant size expansion, you know, given the size of our typical hospital. Right. A hundred and eighteen bed- Yep Inpatient expansion is a meaningful increase to that market. On paper, you're a little over seven times leverage. You don't have maturities for a while. Mm-hmm. You can maybe just remind people of where that is. Sure. I did notice that you looked in the quarter, you were able to buy some bonds on the open market- Mm-hmm ... which is sort of interesting. Comment on that, and if you're gonna have free cash flow, is that sort of a strategy you might pursue given you have an opportunity to buy bonds at meaningful discounts? It is. Our next maturity is 2026, so we have some runway. Then in both 2026 and 2027, we only have first lien debt that's due. Generally in most markets that's, you know, relatively easy to refinance. It's fully collateralized. Then in 2028, we have a small stack of unsecureds. Really, as we look at our capital structure, we think we're in very good shape and have plenty of time and runway to continue to grow, kind of both grow into the capital markets but also recover from some of the disruption we're seeing today. We did buy back some bonds on the open market this quarter. We had, throughout the pandemic, been carrying more cash on the balance sheet than we had historically. We also positioned ourselves to have the full availability of our ABL, which historically we've not had. I think from a liquidity standpoint, from a balance sheet management standpoint, we're in extremely good shape. As we get past the pandemic, get further past it, and have some more insight into, you know, what we think is the runway of the recovery, I think that when the market provides opportunities, it's a pretty good return, at least given where the bonds are currently trading, to be able to go out there and help accelerate some of that deleveraging. There's no technical restrictions covenant-wise or anything that would preclude you from doing that as long as. No. You've got the cash flow capability to do it. Correct. Last question. Just on divestitures, it seems like you had a big divestiture program, came to the end of that. You did just divest another facility and sort of hinted on the call that maybe you're looking. You say, and you've said for a while you get a lot of inquiries. Mm-hmm. It sounds like maybe you're looking at a little bit more of that. Is that right, and what would you be looking to do there? Yeah. We are looking at it. I think now that we're, again, a few years past, we went through a formalized divestiture portfolio rationalization program, I think we called it. We made a lot of changes in the company during that time. The rationale for some of those divestitures was really to get us to more of a network structure, so we could take advantage of scale. We implemented our transfer center during that time. Right To again take advantage of our hospitals working in a network. As we know, after a couple years of the pandemic, we've seen some demographic shift in the country, some economic shift in the country, seeing opportunities now just in the normal course of what we should be looking at in terms of our portfolio. We still have a few locations that do not fit in a network. Okay that may be opportunities. We have locations that the demographics and the economics of those markets are growing significantly. We may be better positioned to double down on our investments in those markets- Okay ... versus some of our others. As some of this inbound interest continues to come in, you know, we're exploring that, I think, a little bit deeper. Okay. I don't see it turning into a big program, but I think it's more opportunistic, normal course of looking at our portfolio and saying, "What can we be doing differently, or what could we be doing? What might be an opportunity for that would accelerate growth down the road? Okay, that's great. Kevin Hammons, thanks so much for participating in the conference this year, for Community Health, for being part of our conference. Everyone, have a great afternoon. Thank you for having me. All right. Appreciate it.