Quorum Health Corporation (QHC) CEO Bob Fish on Q4 2018 Results - Earnings Call Transcript (2023)

Quorum Health Corporation (NYSE:QHC) Q4 2018 Earnings Conference Call March 13, 2019 11:00 AM ET

Corporate Participants

Bob Fish - President and Chief Executive Officer

Alfred Lumsdaine - Chief Financial Officer

Marty Smith - Chief Operating Officer

Shaheed Koury - Chief Medical Officer

Conference Call Participants

Frank Morgan - RBC Capital Markets

Zack Sopcak - Morgan Stanley

Elie Radinsky - Cantor Fitzgerald.


Good morning and welcome to Quorum Health Corporation's Fourth Quarter and Full Year 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. As a reminder, today's call is being recorded.

Before we begin the call, I would like to read the following disclosure statement. This conference call may contain certain forward-looking statements including all statements that do not relate solely to historical or current facts. These forward-looking statements are subject to a number of known and unknown risks, which are described in headings such as Risk Factors, in the company's Form 10-K filing and other reports filed with or furnished to the Securities and Exchange Commission.

As a consequence, actual results may differ significantly from those expressed in any forward-looking statements in today's discussion. The company does not intend to update any of these forward-looking statements. Quorum Health issued a press release yesterday afternoon with their financial statements and definitions and calculations of adjusted EBITDA and adjusted EBITDA adjusted for divestitures including reconciliations to U.S. GAAP measurements. A slide presentation is available on the company's Web site to supplement today’s call.

Results discussed today are the consolidated results from Quorum's 27 owned or leased hospitals and the results of Quorum Health Resources. Same facility information excludes the results of the 11 facilities that have been divested or closed since the spin-off through December 31, 2018. In addition, the company filed their annual report on Form 10-K yesterday. All discussions today are supplemented by the press release, the earnings presentation on the company's Web site and the Form 10-K. All non-GAAP calculations discussed will exclude certain legal, professional and settlement costs, charges relating to the impairment of long-lived assets and goodwill, the net gain or loss on sale of hospitals, the net loss on the closure of hospitals, cost associated with the transition of transition services agreement or TSAs, transaction costs related to the spin-off, severance cost for the headcount reductions and executive changes as well as changes in estimate related to the collectability of patient accounts receivable.

Please refer to the earnings presentation located on the Investor Relations section of the company's Web site at www.quorumhealth.com for a further description and calculation of adjusted EBITDA and adjusted EBITDA adjusted for divestitures and a reconciliation of these non-GAAP measures to net income their most directly comparable GAAP measure.

With that, I would like to turn the call over to Mr. Bob Fish, Quorum's President and Chief Executive Officer. Mr. Fish, you may proceed.

Bob Fish

Thank you, Mike and good morning everyone. Thanks for joining us to discuss Quorum Health's fourth quarter and full year 2018 financial and operating results.

Joining me on the call this morning are Alfred Lumsdaine, our Chief Financial Officer; Marty Smith, Chief Operating Officer; and Dr. Shaheed Koury, Chief Medical Officer. We'll begin the call with some prepared remarks regarding our fourth quarter and highlights from our full year and then open the call for your questions.

The fourth quarter represented a solid finish to 2018 especially in light of some of the challenges we faced earlier in the year. We're on a good footing heading into 2019. For the full year 2018, we reported total net operating revenue of $1.88 billion and same facility net operating revenue of $1.86 billion. Adjusted EBITDA for 2018 was $126.4 million or 6.7% of net operating revenue. Adjusted EBITDA adjusted for divestitures was $150.6 million or 8% of same facility net operating revenue.

For the fourth quarter, same facility net operating revenue was $460.7 million and adjusted EBITDA was $37.5 million or 8.1% of net operating revenue. Adjusted EBITDA, adjusted for divestitures came in at $40.5 million or 8.8% for the same facility net operating revenue.

On a normalized basis, our fourth quarter results represent continued improvement in patient mix and acuity. These improvements resulted in lower patient volumes which Marty will speak to in a moment. Over the course of 2018, we've made meaningful progress on a number of fronts. We continue to reduce our debt by divesting three hospitals for $40.3 million in proceeds, which we use to pay down our term loan facility.

We also made the difficult decision to close a hospital in Ohio. Following a disappointing first quarter, we undertook a series of operational initiatives to improve our margins. By the end of the year, we had successfully completed these actions which drove improved EBITDA performance in the second half of the year.

We successfully exited three of our transition services agreements with Community Health Systems. We transitioned the eligibility screening services agreement during the second quarter and the physician practice support and secondary accounts receivable collection agreements during the fourth quarter.

In addition, in early January of 2019, we received a final ruling from the arbitration panel regarding our arbitration with CHS. I would speak to the ruling in more detail later on. But, we're certainly pleased to have the arbitration behind us.

As we move into 2019, we continue our efforts on several of the items we've discussed throughout 2018. First and foremost, we continue to improve the profitability of our hospital operations and our EBITDA margins as a whole. As Marty will discuss shortly, our team is expanding on a successful margin improvement initiative started in 2018 improving efficiency, pricing and volume.

We're also devoting significant time and energy to our hospital management advisory and consulting business Quorum Health Resources. While a small segment of our overall company, QHR generates significantly higher margins than our hospital business. And has a high degree of strategic importance with over 150 management and consulting clients. We're implementing both cost reduction and revenue growth initiatives in order to drive top and bottom-line improvement. This business nicely compliments our hospital operations.

We continue to refine our portfolio by divesting hospitals. We currently have a signed definitive agreement to sell a hospital in Texas, which will leave us with 26 hospitals in the portfolio. Our progress on moving letters of intent to definitive sales agreements has been slower than we would like. However, we plan to generate an increased incremental 125 million to 175 million in proceeds to the end of 2019.

We've recently added internal and external resources to support these divestiture efforts and are actively marketing both individual hospitals and groups of hospitals. Although, we're no longer providing comments on our current LOI pipeline because of the difficulty in predicting their likelihood of an ultimate sale. We continue to see active interest in the assets being marketed. Once we're able to complete our currently planned divestitures, we expect the profile of our business to consist of 18 to 20 premier rural and non-urban hospitals generating $1.2 million to $1.4 million in revenue with enterprise adjusted EBITDA margins in the mid teens. These factors will combine to achieve an appropriate and sustainable leverage profile for our business.

Finally, we're pursuing a refinancing of our debt within the next year and are examining several potential options. A refinancing will yield material interest savings and provide free cash flow allowing us to further invest in the growth and profitability of our business. Our board management team is ultimately focused on positioning the company for growth and strengthening our position as a premier rural and non-urban community based health care provider.

Our initiatives for 2019 represent important steps along the path to achieving that goal. Beyond 2019, we'll address the exit of the remaining transition services agreements with CHS. We're engaged in a comprehensive planning process to exit these TSAs in a mutually agreeable manner. We expect that the transition of our IT and revenue cycle platforms will result in material revenue and EBITDA benefit.

In addition, our ability to grow patient volumes by addressing the needs of our communities, providing high quality of care in our hospitals and leveraging the value of Quorum Health Resources will be key pillars of our long-term success.

I'm proud of the progress we've made in the time since I joined Quorum. And I'm excited about what we'll achieve in 2019 and beyond.

With that, I'll turn the call over to Marty for a discussion of our operations during the quarter. Marty?

Marty Smith

Thank you, Bob. Good morning everyone.

Before reviewing our fourth quarter and full year operating results, I wanted to update you on our operational strategy as you are likely aware during 2018, we were acutely focused on a series of initiatives that we rolled out in the second quarter. These initiatives have largely driven the improved EBITDA margins we achieved in the second half of 2018 as well as the improved payer mix and patient acuity.

Our efforts to manage our hospital service lines in a way that maximizes cost, maximizes value -- minimizes cost and maximizes value while maintaining a quality of care has become central to our operating philosophy. We are carrying this discipline into 2019 and are extending our focus into a few major areas.

First, we want to continue to manage costs through ongoing service line management. In the second half of 2018, we significantly improved our EBITDA margins by eliminating negative and low volume service lines. Obviously these decisions have had a negative impact on our volumes as we'll see, but they have enabled our hospitals to use our resources to better serve their communities.

Second, we are focused on improving the cost profile of our hospital and clinic-based physician services. We saw improvement in our clinic operations in the second half of 2018. We added new senior leadership and as Bob mentioned, we took control of our physician practice revenue cycle by moving off the TSA with CHS. Additionally, our medical specialists' fees for hospital based provider services have been a notable cost headwind for us in the past. We've added additional expertise and management controls around evaluating these contractual relationships. We believe that by adding these resources and controls, we had a positive impact in the last half of 2018 and we can avoid unnecessary fee increases on contract providers in 2019.

Our third area of focus is our managed care contracting. As you are aware, we moved away from certain Medicaid managed care contracts in 2018 particularly in Illinois. These decisions have resulted again in lower volumes, but they have improved overall operations. We've also added senior leadership in this area and we believe there are opportunities for us to improve our pricing and overall contract management.

Lastly, we are continuing to focus our strategy on growing volumes. We have implemented targeted plans for each of our facilities that we believe will be focused on their market needs and drive the appropriate return on investment. These strategies include certain physician improvement initiatives, which are considerably more strategic than they have been in the past. Even with the clinic decisions we made in 2018, we still employ more than 400 physicians at mid-level providers and these employed providers will be simple to growing our volumes going forward.

Additionally with the continued impact of higher cost co-pays and deductibles, we are in the process of rolling out a prepaid cash pricing strategy for outpatient services. We believe this will make a difference in several of our competitive markets. As I mentioned, we made some difficult decisions in 2018 regarding the discontinuation of certain service lines and cutting off clinic cost.

As you can see these decisions have negatively impacted our volumes relative to prior year, but yielded improved profitability in the third and fourth quarter relative to the first half of the year.

Looking forward into 2019, we expect that the volume trends will show some normalization in the second half of the year compared to the second half of 2018.

Moving to our volumes in the fourth quarter of 2018, total admissions were down 4.4% versus the fourth quarter of 2017 with over 100 basis points of that coming from lower flu volumes particularly in December. Adjusted admissions declined 2.5% year-over-year as we continue to see the impact of the margin improvement initiatives on our volumes.

Same facility surgery volumes decreased 8% year-over-year driven by an 8.8% decline in outpatient surgeries and a 5.5% decline in inpatient surgeries. The overall decline in our surgeries is the result again in margin improvement initiatives, a decline in lower patient acuity procedures like ophthalmology and GI as well as a pretty difficult comp comparing to fourth quarter of 2017.

I would also note that we continue to see growth in our higher acuity surgeries which includes neurosurgery and heart and vascular procedures. Our ER visits declined 4.9% year-over-year in the fourth quarter, we attribute 95 basis points of that decline to again a significantly lower flu activity relative to last year.

On the acuity front, we continue to focus on a high acuity volumes and as a result our case mix index was up 5.2% to a record high level primarily the result of a 5.2% increase in managed care and commercial case mix index as well as a 3.5% increase in our Medicare case mix index. This was partially driven by again a reduction of lower acuity low margin volumes in conjunction with our margin improvement initiatives.

When looking at the full year 2018 compared to the full year 2017, our same facility admissions fell by 2.9% adjusted admissions fell at 1.4%, surgeries fell 4%, our ER visits decreased by 1%. The same facility net patient revenue per adjusted admission did increase, however, 4.4% relative to the full year 2017.

Again, a key focus for us is improving our payer mix, we showed improvement during 2018 compared to 2017, when normalized for the prior year bad debt change in estimate, our managed care and commercial mix increased 219 basis points to 41.7% of total net patient revenue the highest percentage since the spin.

In addition, our Medicare case mix increased 30 basis point to 29.1% and the Medicaid payer mix declined 187 basis points to 19.5%.

Now I'll turn the call over to Dr. Shaheed Koury and he will update us on our clinical operations.

Shaheed Koury

Thanks Marty. Good morning everyone.

I'd like to first provide an update on our key patient safety and quality metrics. We've been on a high reliability journey for the past three years and through this we have seen serious safety events decrease 87% from our baseline and 40% from the April 2016 spin-off resulting in a significant number of lives saved from serious harm or death.

In addition, we've had an executive quality dashboard by which all hospitals and corporate staff are held accountable. Over the last three years, we have seen a 13% cumulative improvement to the average score across our facilities.

During 2018, Quorum entered into a Medicare shared savings program Accountable Care Organization. And as a result, we have seen an increase of 58% in our quality visits for our Medicare patients. We have also initiated a transition of care program for certain DRGs. This involves multiple callbacks in education of our patients. Due to this effort, we have seen our readmission penalties decreased 22% from 2017 to 2019.

We know the emergency department is the front door for our hospitals and we have decreased the number of patients leaving without treatment well ward rate in our emergency departments by 8% over the past two years.

Lastly, we have placed a strong emphasis on improving our retention of nursing staff. Through these efforts, our overall nurse turnover has declined from 20.4% in 2016 to 17.5% in 2018 a 14.2% improvement.

Going forward, in addition to contain all of the mentioned efforts, we'll be focusing on improving our patient experience for our facilities by addressing our HCAP stores. We anticipate this improving our CMS five star ratings, which currently average three stars across our 27 hospitals. By increasing our focus on patient experience in addition to our quality and safety metrics, we will continue to be good stewards for our patients and will solidify our position in the communities we serve to be our patient's first choice for health care.

With that, I'll turn the call over to Alfred to discuss our financial results.

Alfred Lumsdaine

Thank you, Shaheed and good morning everyone.

I'd like to first cover our results for both the fourth quarter and for the full year of 2018. And then, I'll review our 2019 guidance before turning the call back to Bob for some final thoughts.

For the full year 2018, total net revenue was $1.88 billion and same facility net operating revenue was $1.86 billion. This compares to full year 2017 total net revenue of $2.07 billion and same facility net operating revenue of $1.82 billion. Same facility net operating revenue for the full year 2017 includes approximately $15 million in reduction in revenue for a change in estimate to reduce the net realizable value of patient accounts receivable that was recorded in the fourth quarter of 2017. When normalized for the impact of this change in estimate, same facility net operating revenue grew 1.3% year-over-year.

For the fourth quarter of 2018, same facility net operating revenue was $461 million compared to $483 million for the fourth quarter of 2017. Fourth quarter 2017 revenue not only included the $15 million decrease from the change in estimate that I just mentioned but also nearly $23 million of increased revenue from the California hospital quality assurance fee or HQAF program, which related to the first three quarters of 2017.

When we normalize for the impact of the HQAF and the change in estimate, fourth quarter same facility net operating revenue decreased 3% or $14 million relative to the fourth quarter of 2017.

Now turning to expenses for the fourth quarter same facility salaries, wages and benefits decreased 1.5% compared to a year ago as a result of both staffing efficiencies and lower volumes. Same facility supply expenses decreased 5.3% in the quarter again primarily as a result of lower volumes and cost management initiatives.

Same facility other operating expenses decreased 3.9% compared to a year ago. This reduction was primarily driven by cost control efforts at the hospitals, the impact of out of period HQAF provider fees in 2017 as well as some initial cost savings associated with the exit of three TSAs which I'll discuss further in just a moment.

Overall, our adjusted EBITDA adjusted for divestitures was $40.5 million and that reflects one of our strongest margin quarters in 2018 at 8.8% of same facility net operating revenue. In fact combined with the third quarter, our margins in the second half of the year represent a 184 basis point improvement relative to the first half of 2018 resulting from the implementation of the margin improvement initiatives that Marty mentioned during the second quarter.

So I'd like to briefly expand on the recent exit of three of our TSAs as well as discuss the financial impact of the ruling in the arbitration with CHS, which we announced on January 7 of this year. As we've previously discussed during 2018, we agreed with CHS to exit three TSAs specifically the eligibility screening services or ESS TSA, the physician practice support or PPSA TSA and the secondary accounts receivable or PASI TSA.

We exited the ESS TSA at the end of the second quarter of 2018 and the PPPSA and PASI TSAs during the fourth quarter. Overall, these transitions have progressed well and as I just mentioned, we've already begun realizing cost savings during the fourth quarter of 2018. The transition of the PASI TSA which was the most complex of the three naturally resulted in a temporary deceleration in our self pay collections during the initial months post transition. But since this initial deceleration, we've seen increases every month and expect to see continued improvement through 2019 to levels that match or exceed the pre-transition levels.

Turning to the arbitration in the January 2019 ruling, the arbitration panel upheld our claim regarding approximately $9 million of contested payments related to services performed under the shared service centers or SSC TSA, while at the same time denying our claim related to disputed payments for services performed under the computer and data processing or IT TSA.

As a result, our fourth quarter adjusted EBITDA results include the recognition of approximately $2 million in previously disputed expenses related to the IT TSA. Going forward, we don't expect this arbitration ruling will have a material financial impact on our results.

So I'd like to move next to cash flows. Cash flow from operations was approximately $40 million for the full year. Our full year cash flow from operations was negatively impacted by approximately $5 million in legal costs related to the arbitration. Nearly $12 million in cash costs related to the closure of one hospital and finally almost $13 million in cash costs related to headcount reductions and executive severance.

Capital expenditures were approximately $49 million for 2018 compared to $68 million in 2017. This reduction in CapEx primarily relates to a $60 million reduction in spending on our Springfield, Oregon expansion project, which now has been substantially completed at the end of 2018.

With regard to the balance sheet, our total debt at December 31 was $1.2 billion this includes approximately $791 million outstanding on the term loan and $14 million outstanding on our ABL revolver. Cash and cash equivalents totaled just over $3 million. Our EBITDA cushion for compliance purposes at December 31, 2018 was 12% of EBITDA. Our compliance ratio at the end of the quarter as calculated under the credit agreement was 4.38x.

I'd like to conclude by reviewing our financial expectations for 2019. We anticipate 2019 same facility operating revenue will be in a range of $1.825 billion to $1.875 billion and full year adjusted EBITDA adjusted for divestitures will be in a range of $160 million to $180 million.

Our 2019 guidance takes into account a number of assumptions. In the first half of 2019, we expect that volume and rate trends will be similar to what we've seen over the second half of 2018 primarily as a result of our margin improvement initiatives. We expect these trends will obey as we progressed through the second half of the year with volumes beginning to trend flat to slightly positive and year-over-year rate improvements slowing. For the full year 2019, we expect volumes to be flat to slightly down on a same facility basis influenced again by the continued impact from our 2018 margin improvement initiatives.

Our revenue guidance assumes a 2% to 3% rate increase across our managed care contract. For wage inflation, we expect an overall increase of approximately 2% partially offset by expected savings from benefit plan design changes. We also anticipate some headwinds in Medicaid rates particularly in the state of Oregon. As it relates to the TSA transitions, we've assumed an $8 million to $12 million EBITDA benefit from the transition of the ESS, PPSA and PASI agreements. The cost improvement portion of these transitions has already started in the fourth quarter as I noted. And we expect to see revenue benefits ramping through the course of 2019.

So overall, I expect that the majority of our adjusted EBITDA improvement over 2018 will be weighted towards the second half of the year given both seasonality as well as the timing of the impact from several of the initiatives that we've planned for the year. Also, in prior years, we recognize the benefit from the sale of tax credits in the state of Illinois during the third quarter of each year.

Beginning in 2019, we'll be able to recognize revenue from the sale of these tax credits on a pro rata basis evenly throughout the year, thereby eliminating some of the lumpiness in our quarterly numbers. For 2019, we expect the amount of the tax credits to total approximately $8 million or roughly $2 million per quarter.

I'd also note that our guidance assumes the divestiture of the Scenic Mountain Medical Center in Texas, which is currently under IPI as well as continued recognition of revenues and EBITDA associated with the California HQAF program in the second half of the year after the current program expires.

Our ability to accrue revenues related to the HQAF program beyond the expiration of the current program in June of '19 will be dependent on the timing of the program's approval by CMS.

With that, I'd like to turn the call back to Bob for some closing remarks.

Bob Fish

Thanks Alfred.

I'm pleased with the strong close to 2018 and believe we're well positioned to carry this momentum through 2019. I want to thank our physicians, our hospital leadership teams, our nurses and teams at Quorum Health Resources and the corporate office for their continued dedication and hard work. You'll all being integral to helping Quorum reach its full potential. I look forward to continuing to update you on our progress as the year unfolds.

Operator at this point, we're ready for questions.

Question-and-Answer Session


[Operator Instructions] Your first question comes from Frank Morgan from RBC Capital Markets.

Frank Morgan

Good morning. Just appreciate the color around the divestiture and understanding you don't want to go into a lot of detail about the additional ones that have been designated. But, just any kind of general handicapping if you will of your ability to actually complete those divestitures over the balance of this year and what would be the strategy if you're unable to get any kind of divestitures affected for the balance of the year for those assets that you touch around?

Bob Fish

Thanks Frank. Certainly, we're frustrated not being able to have moved some of the LOI discussions into APAs in order to share those with you at this -- on this call. I think I have a fairly high confidence level that we will be able to move individual facilities and groups of facilities during this calendar year. So yes, for me to handicap it, I'm frustrated that I know I haven't achieved that so far, so I'm a little reticent to do that. But I'm confident we're putting certainly all the time effort and energy into it that it needs. So I'm feeling positive about it. Failing to do that, we would look at other financing options for those facilities that we would be holding for sale.

Frank Morgan

Got you. Any color around the remaining, obviously you're doing a lot of things right now from a strategic standpoint to recast the direction of the company. But any additional color around what you think the margin upside potential on your existing portfolio is today in those sort of not what I'll call non-volume related areas the things that these different specific cost and issue if you're working at. How much margin upside that we could we expect absent any incremental volume growth?

Marty Smith

Thanks Frank. Well, I think Bob in his comments mentioned we see the company being a mid teens type margin profile long-term. Now some of that is addition by subtraction of divesting of some of the lower volume -- lower margin hospitals.

At the same time one of the things we longer term that we anticipated the transition of the remaining TSAs to platform that's more appropriate for our business. And we think that presents some upside as well. So again, I would point to Bob's comments of opportunity to grow the business to a mid teens margin type business. Again, there will be some addition by subtraction as we divested lower margin. That's how we think business longer term.

Frank Morgan

Got you. What about just from the completion of the TSA conversions. Could you handicap either on a dollar basis what that might be worth once it's fully phased in?

Marty Smith

We've tried not to do that because we don't know on a dollar basis what the profile of the business will look like when we transition. So without knowing what the revenue opportunity is because of the portfolio of hospitals. It's difficult to put a dollar value on it. We've had some commentary in the past, some ranges and dollar value ranges that was based on a bigger portfolio. We do think the opportunity is significant.

Frank Morgan

Got you. In the end, on the guidance, you gave some useful information, but in terms of cash flow from ops, what should we be thinking about that something like of the 40 million run rate plus, yes, I think I added that up it was something like $30 million worth of sort of onetime cash costs. So should we be thinking about cash flow from ops number for '19 somewhere north of $70 million, or is there any other additions or subtractions we should be thinking about there.

Marty Smith

I think that's not an unfair way to look at it. At the same time obviously, the midpoint of our guidance would suggest growth year-over-year from an adjusted EBITDA perspective to say you'd want to factor that in as well. But, I think your rough justice is probably directionally the right way to think about it.

Frank Morgan

Okay. And just one final, I'll hop off here, just as you mentioned the potential refinancing coming up down the road sometime maybe later this year. Just any color there? And I'll hop off. Thanks again.

Marty Smith

Well, I think Bob touched on it relative to our folks and we've been very transparent about our desire to move the profile of the business to a 6x perspective profile that would facilitate, what we think is a meaningful refinancing interest savings of over 300 basis points.

As Bob also mentioned -- and to your first question failing to achieve that certainly doesn't remove the opportunity for material benefit from our refinancing, but probably reduces how much interest we might save. So those are all things that we're looking at. I think we've been very clear that in the next year, we would like to one of our objectives is to complete that refinancing.

Frank Morgan

Okay. Thank you.

Marty Smith

Thank you.


Your next question comes from Zack Sopcak from Morgan Stanley.

Zack Sopcak

Hey good morning. Thanks for the question. I wanted to first clarify on the divestiture targets. The 40 million delta, I guess the midpoint between last quarter and this quarter. Could you just clarify is that just a lower assumption for the -- what you would get for the assets there for sale or is it a different mix of hospitals that we should be thinking about that are for sale?

Marty Smith

Sure. Thanks Zack. How I would characterize that change would be a couple different things that are impacting it. We when we gave the range last year of 165 to 215 was before we had one divestiture which was -- while a low amount of proceeds had a more meaningful impact from reducing the EBITDA burn at the hospital. So that goes into the calculation right. The range of 125 is based on achieving that 6x leverage. So the other thing that's happened of course is, we have an API at Scenic Mountain and we've now provided updated guidance for 2019, which also goes into the nexus of math to determine what is the range required to achieve a 6x leverage multiple. And the width of the range is clearly driven by hard to predict the exact mix of hospitals that will be sold ones that have either a loss or lower EBITDA contribution would mean that we would have to dispose -- we would have to generate lower proceeds. And if we're disposing of higher EBITDA contribution hospitals we'll have to be at the upper end of that range.

I would say it's simply math to achieve the 6x leverage and the updated range is simply driven by the things that have transpired since we first gave the previous range.

Zack Sopcak

Okay. Thanks. That's helpful. And then a question on Slide 12 in your presentation, the acuity and rate. So, if I look at Q4 year-over-year, case mix jumps up seven hundreds of a point and but revenue per adjusted admission was basically flat, they were bellow $10,000. How should I think about those two? Is it just a function of something else with the timing or how should I think about that progressing going forward on the revenue per addition side?

Bob Fish

Yes. I think a couple things there. I think we do continue to see this increase in our case mix with higher acuity cases. I think you'll have to see that case mix kind of roll into our 90 day average of our run rate of revenue before you kind of see the full impact of that.

Zack Sopcak

Okay. That exactly makes sense. One more question that I had on the cash flow side and this is following up on Frank's question. When I looked back to 2017, were there any one time things in that $67 million baseline that I should think about or should I think when you take out the headwind in 2018, you're basically flat?

Alfred Lumsdaine

Yes. At the top off my head both having not been here, but not having taken a look at. It would be hard for me to say. So I'd have to come back to you with a quick one might be in the 2017 numbers. But I think, again, I would go back to how Frank is thinking about it is the way how we think about the bridge from 2018 to 2019.

Zack Sopcak

Okay. And then, one quick question.

Alfred Lumsdaine

The one time things, we'll call them one time-ish thing that impacted the 2018 numbers.

Zack Sopcak

Okay, perfect. One last question in your 2019 guidance, the commercial rate increase of 2% to 3%, is that in line with what you saw in 2018 or within your expectations or was that perhaps lower than you're expecting?

Bob Fish

Overall, you saw that our net revenue per adjusted admission went up by about 4%, 4.5% in 2018. I think that's a pretty conservative number. I mean we do have to calculate in some certain situations where we may have to take on some rate reductions, certain contractual relationships maybe where we've had a beneficial rate over a period of time. But I think it's a pretty conservative number right there for this year.

Zack Sopcak

Okay. So of that 4.5% in 2018, some of that was mix, right, as well as rate, anything like 2 to 3, okay. That's 2 to 3 is probably somewhat comparable. Okay, great. Thank you. That's all I have for now. I appreciate it.

Bob Fish

Thank you.


[Operator Instructions] The next question comes from Elie Radinsky from Cantor Fitzgerald.

Elie Radinsky

Thank you for taking my call. When you talk about refinancing, is that just a straight debt refinancing, or are you looking at other alternatives like REITs buying into the facilities that you have or potentially asking others for an equity contribution for a stake in the company. I just want to find out how are you defining refinancing?

Marty Smith

Well, I think while we would [love] [ph] to take any options off of the table as we are talking about it now, we are contemplating what I would categorize as a conventional refinancing.

Elie Radinsky

Okay. How many of these facilities that you believe that you have to sell in order to get to or you have internally designated for sale in order to get to the numbers which have been articulated to us. Do you have a letter of intent or a definitive agreement on?

Bob Fish

Well, we've stopped giving the letter of intent pipeline information simply because it's so difficult to predict whether those initial indications of interest are going to move to an APA. So, we've found in the past that people get all excited and focused on the LOIs, but they're not a good predictor of being able to get those facilities into an APA and close. So, I can't respond to that. We're focused primarily on eight facilities to give you some size of the effort as we spent a good time in this call talking about we've had some significant increases in profitability in some of our summer buildings. And some of our initiatives have taken hold.

When I began here eight or nine months ago that number might have been different. And there are certainly some facilities in that eighth that we're currently working on that we would like to keep if financially we could do that and still meet our refinancing goals. So, hopefully that gives us some color around what the current activity is.

Marty Smith

But the one thing we can definitely response because to Bob's point it is a good predictor, it's a definitive agreement which we have 100 definitive agreement currently and we expect that to close in the next roughly 30 days.

Elie Radinsky

Okay. So, you have seven but you're not at the definitive state, but your shopping actively, is that correct?

Marty Smith

I think when Bob was mentioning eight that were very active. He was not including it and so it would still be eight.

Elie Radinsky

Okay. Thank you very much.

Marty Smith

Thank you.


That was our last question. At this time, I will now turn the call back over to Mr. Fish for closing remarks.

Bob Fish

Well, thank you all for joining us on the call. We look forward to continuing to keep you updated on our progress. So thanks again for being with us.


This concludes today's conference call. You may now disconnect.

Top Articles
Latest Posts
Article information

Author: Prof. Nancy Dach

Last Updated: 12/17/2022

Views: 5348

Rating: 4.7 / 5 (77 voted)

Reviews: 84% of readers found this page helpful

Author information

Name: Prof. Nancy Dach

Birthday: 1993-08-23

Address: 569 Waelchi Ports, South Blainebury, LA 11589

Phone: +9958996486049

Job: Sales Manager

Hobby: Web surfing, Scuba diving, Mountaineering, Writing, Sailing, Dance, Blacksmithing

Introduction: My name is Prof. Nancy Dach, I am a lively, joyous, courageous, lovely, tender, charming, open person who loves writing and wants to share my knowledge and understanding with you.