Universal Health Services, Inc. (UHS) Q3 2020 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by and welcome to the Third Quarter Earnings Conference Call. All lines are currently in a listen-only mode. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] It is now my pleasure to hand the conference over to Mr. Steve Filton. Please go ahead sir.

Thank you and Good morning. Alan Miller and Marc Miller are also joining us this morning and we welcome you to this review of Universal Health Services results for the third quarter ended September 30, 2020. During the conference call, we'll be using words such as believes, expects, anticipates, estimates, and similar words that represent forecasts, projections and forward-looking statements. For anyone not familiar with the risks and uncertainties inherent in these forward-looking statements, I recommend a careful reading of the sections on Risk Factors and Forward-looking Statements and Risk Factors in our Form 10-K for the year ended December 31, 2019, and our Form 10-Q for the quarter ended June 30th, 2020. We'd like to highlight a couple of developments and business trends before opening the call up to questions. As discussed in our press release last night, the company reported net income attributable to UHS per diluted share of $2.82 for the quarter. After adjusting for the impact of the items reflected on the supplemental schedule, as included with the press release, our adjusted net income attributable to UHS per diluted share was $2.88 for the quarter ended September 30, 2020. As of September 30, 2020, we have received approximately $396 million of funds from various governmental stimulus programs, most notably the CARES Act. Included in our reported income for the nine months and three months, respectively, is approximately $213 million and negative $5 million of net revenues recorded in connection with these stimulus programs. For the nine months, approximately $161 million of these revenues were attributable to our acute care facilities and $52 million were attributed to our behavioral health facilities. In addition, during 2020, we received approximately $695 million of Medicare accelerated payments, which had no impact on our earnings during the first nine months. As previously discussed in our first quarter conference call, beginning in mid-March, the incidence of COVID-19 and suspected COVID cases increased in our acute facilities and correspondingly, the volume of non-COVID patients declined significantly. These declines in patient volumes generally continued into the first half of April. Beginning with the second half of April, our admission and patient day metrics began to rebound. By the first half of May, local authorities had lifted restrictions on elective surgeries and other procedures, and those volumes began to rebound sharply as well. ER visits, while also gradually improving, have been the volume unit slowest to recover, but the increased acuity of our patient population suggests, at least in part, that the more acutely ill patients tended to return to the ERs and the less acute patients were the ones continuing to avoid that care. In late June, and continuing throughout the third quarter, most of our hospitals experienced the second wave of COVID cases, although to date, this second wave has not been accompanied by the same magnitude of non-COVID case declines that we experienced in the first wave in that March-April timeframe. Generally, our hospitals were able to better prepare for this second wave with greater ICU and isolation room capacity, as well as more ample inventories of PPE. The Behavioral Health segment experienced a similar pattern of volume changes, with patient day metrics hitting a trough in early April and incrementally recovering for the rest of the quarter. Despite a number of headwinds, including a decline in referrals from acute care emergency rooms, from schools which have not fully returned in-person learning and from travel restrictions on potential patients, patient days at our Behavioral Health facilities improved during this year's third quarter to approximately 97% of the volume realized during last year's third quarter. As we noted in the first quarter, our paramount concern throughout the COVID crisis has been taking all the necessary steps to keep our patients and employees as safe as possible. We did, however, also recognize the severe financial stresses created by the COVID crisis, and we undertook a series of steps to mitigate the dramatic revenue declines and to protect our capital structure, including cost reduction initiatives across all of our expense categories. Our approach in this regard, especially as it relates to labor expenses, has been a balanced one, reflecting our expectation that the dramatic decline in volume would in many instances be temporary in nature, and also recognizing the severe strains that the crisis has created on our employee caregivers. As the crisis has continued, it has increased the pressure on our ability to staff our hospitals at competitive rates and to meet current demand levels. We've also implemented a suspension of our share repurchase and quarterly dividend programs. As a result of these actions as well as the funds received in connection with the governmental stimulus programs and Medicare accelerated payments, the company had closed to $1.45 billion of aggregate available borrowing capacity as of September 30, 2020, along with approximately and cash equivalents. While we are strongly encouraged by the mostly stable volume trends in the quarter, we acknowledge the potential material impact that COVID-19 could have on our future operations and financial results. And since the nature of these COVID developments are largely beyond our ability to control, we have continued to withhold any further guidance -- earnings guidance for the balance of 2020. We would be pleased to answer your questions at this time.

[Operator Instructions] Your first question comes from line of Andrew Mok with Barclays.

Hi, good morning. Wanted to follow-up on the strong pricing in both segments this quarter. On the acute side, can you give us the surgery statistics for the quarter and give us a sense for how acuity trended on a comparable basis, excluding COVID patients?

Sure, Andrew. So, I would suggest that the drivers of the really strong acuity on the acute side are number one, the acuity of the COVID patients themselves. COVID patients, I think, on average, have a case mix that is about 50% higher than non-COVID patients. So, that's a driver. Our non-COVID case mix is also up. And one of the things, I think, that we note and hear from our hospitals is that at least a portion of the patients who come to our hospitals have delayed or deferred their care during the pandemic. And so when they come to the hospitals, they tend to be more acutely ill than they would have been had they come sort of on a more timely basis. And then finally, consistent with what I said in my prepared remarks, I think that the absence of -- the decline in emergency room visits, we believe, is largely concentrated in the lower acuity patients. So, the mix of patients we have is, by nature, are a higher acuity mix because so many of those lower acuity patients are absent from the emergency room.

Great. And on the behavioral side, the length of stay moderated on a sequential basis but revenue per adjusted admission remains strong. What supported the strong pricing there? And how should we think about the sustainability of that in Q4 and in 2021? Thanks.

Sure. Because the behavioral revenue per adjusted patient day was as high as it was, we certainly did a deeper dive ourselves to try and understand. I don't know that there's one particular element of explanation. I think we found that we are getting the benefit of some higher contractual rate increases. We're seeing the impact of a little bit more leniency on the part of managed care companies in terms of things like denials and concurrent utilization management. There were small amounts of positive reimbursement adjustments in this quarter and also some negative adjustments in last year's third quarter. Again, none of these were material. My gut, Andrew, is that, that number at 5% to 6% revenue per day growth will moderate some next quarter and probably more into that 3%, 4% range.

Got it. Thanks for the color.

Your next question comes from the line of Matthew Borsch with BMO Capital Markets.

Realize that you're not wanting to give guidance here, but would you be willing just to tell us what are maybe some of the headwinds and tailwinds that you're thinking about as we contemplate 2021?

Yes, I mean the way that I think we're thinking about the business, and I think our results in this quarter are emblematic, is that on the acute side, broadly, and I think our peers have seen very similar trends. We are seeing some more moderated volumes than we were seeing pre-pandemic, but those lower volumes have largely been offset by higher acuity. The reason I think we'd be reluctant to give any further guidance is we don't know how the COVID trajectory is likely to play out over the course of the fourth quarter and into next year. And until -- I think some of those trends are more stabilized, it would be difficult to say. But I think that, again, what we were able to demonstrate in the third quarter is that we could produce acute care bottom line growth with lower volumes and higher acuity. I think our sense is that as the COVID crisis stabilizes some, volumes will increase and acuity will decline and will start to approach metrics that look a little bit more like what they look like pre-pandemic. But the cadence of that and the trajectory of that is what, I think, we find challenging to project. On the Behavioral Side, I think what we have found is that, there are a number of hospitals, several of which I tried to enumerate in my prepared remarks, that are preventing our behavioral hospitals from getting back to pre-pandemic volume levels. They're a little bit short of that. But they've largely made up for it through, again, higher revenue per day, as well as strong cost-cutting initiatives. Again, I think we have a perspective that as the COVID crisis stabilizes, behavioral volumes will increase, the timing and cadence of that is what's difficult to predict.

If I just, 1 follow-up on the behavioral volumes. Do you agree with the characterization that COVID has perhaps created a larger bolus of people needing mental health services, or is it just too much of a mix of things to make that call?

Yes. So I think -- again, what I tried to say in my prepared remarks, Matt, is that, I think, COVID has created some practical headwinds for the behavioral business. The decline in emergency room visits has clearly affected our referrals from emergency rooms, which are a significant source of behavioral patients. The intermittent sort of return to schools has certainly affected our adolescent referrals from school systems. Some of our hospitals rely reasonably heavily on travel, patients who are traveling, and, obviously, that's been diminished. So we're actually encouraged by the fact that our behavioral volumes are as high as they are, given these other dynamics because as your question suggests, we do believe that the COVID crisis has created a significant amount of incremental stress on the entire population and obviously, particularly on those who are predisposed to have behavioral issues. So again, I think we have a view that as the country returns to sort of more normalized patterns of work and school and travel, and I'm not exactly sure when that will be, but when that occurs, I think we believe that there is a reservoir of behavioral volumes still to be satisfied.

Thank you.

Your next question comes from the line of Kevin Fischbeck with Bank of America.

Great. Thanks. I wanted to ask if you could give a little color on the Las Vegas market. I wanted to see if you're seeing anything substantially different in the trends there as far as the economy goes or volumes and payer mix?

Sure, Kevin. I mean, I think, that it's fair to say that almost all of our acute care hospitals, certainly all of our larger acute care hospitals, whether they're in District of Colombia or South Florida, Vegas, Texas, Riverside County, California, were in geographies that were considered COVID hotspot in the third quarter. So the dynamic of more COVID patients when we clearly saw an acceleration of COVID patients in the third quarter in virtually all of our markets, we saw an increase in acuity that we've already discussed. But again, I think that was largely all across the board. Many of the markets that I enumerated are also experiencing higher levels of unemployment than the national averages. I don't think that at least at the current moment, we've seen a really significant impact of that yet in these geographies, I think, in part because -- and I think our peers have mentioned the similar dynamic a lot of the decline in ER volumes seems to reside with those poor paying or lower patients with a lesser ability to pay so -- I mean our payer mix remain relatively stable despite the fact that we're in markets, including Las Vegas that are experiencing some higher unemployment. Obviously -- specifically to Las Vegas, how that economy rebounds and how quickly it recovers, I think, is dependent in large part on travel patterns and particularly airline travel patterns. I think that the Vegas market reports, for instance, that casino volumes amongst the local population, people in Las Vegas and Nevada and California and Arizona are pretty strong, not all that far off from pre-COVID levels, but these are, for the most part, people who are driving to Las Vegas. I think those tourists who are coming by airline to Las Vegas are down much more significantly. And how quickly that rebound will be, I think, determinant of how quickly the economy recovers in Vegas. But again, at the moment, I think that's a little hard for us to speculate on.

Okay, great. And then I guess, when we think about the acuity improvement, are you actually seeing then just a lack of low acuity patients -- that low acuity is dropping faster than high acuity is dropping, but high acuity is also still dropping?

Yes. So as I said in an earlier response, I mean, I really think it's three things, and you enumerated two of them. The COVID patients themselves are much sicker and more acutely over the non-COVID patients. The absence of the lower acuity patients sort of mathematically drives up acuity. But we are also finding that non-COVID patients are coming in generally more acutely ill, and we attribute that dynamic to the idea that many patients are delaying and deferring care so that when they do come to the hospital, maybe a month or two after they've started to experience whatever symptoms they're having, they may well be sicker than had they come on a more timely basis.

So, you would say that your actual -- that high acuity patients are actually up year-over-year despite total volumes being down?

Yes.

Okay, all right. Great. Thanks.

Our next question will come from the line of A.J. Rice with Credit Suisse.

Thanks. Hi everybody and I want to wish best wishes to Alan and Marc as they transition roles there. Maybe to look at your cost management, which looks like meaningfully positive there. I guess the rate increase -- or the relative rate increases, pricing helps on that. It looks like labor and other operating expense did show a nice year-to-year trend. Is that also a function of some of the cost initiatives? Can you tell us where that stands? And I noticed that was true for both acute and behavioral that you saw similar -- or you saw improvements in labor and other operating expense?

No, I think that's accurate, A.J. I think you have to put all this in context. So, in mid-March, when the COVID crisis really first began in earnest and we saw this dramatic decline in non-COVID visits and ER visits in elective and scheduled procedures on the acute side and behavioral patient days almost sort of complete sort of lockdown across the country. It was very difficult to predict where business was going, what we would be dealing with, et cetera. And so both our business segments and our operators, I think, took dramatic and prudent steps to try and right-size the labor force and right-size our hours in response to the demand declines. And obviously, we were fortunate and both businesses have recovered relatively quickly, and demand has come back. But I think, again, both operating managers in both segments have been prudent in restoring the labor that had been sort of rightsized. And so I think we benefited that from clearly in Q3. I think as the demand continues to increase, I think labor will continue to also increase and be rightsized. But one of the dynamics are, it's difficult to make dramatic cuts to labor in the hospital business because after you adjust for the immediate demand, now you're cutting into fixed and semi-fixed costs and overhead costs, et cetera and that's difficult to do. But once it's done, I also think that there's a sustainability kind of aspect to it. And we saw this during the recession -- The Great Recession 10 years ago, where there were some pretty dramatic cuts made at the beginning of the recession and they were relatively slow to be restored. And I think you're seeing some of that same dynamic here today

Okay. And then a follow-up one would be around your ER volumes, I guess, or down 26% above that right? Two things, I guess, on that is, you're saying it's mainly the low acuity. So the percentage of those ER visits that end up on the inpatient side? Are you seeing that increase and sort of validate the thoughts that the people that are showing up were sicker what it would be in a normal environment? And then on your outpatient volume in general, is that also still lagging substantially in terms of coming back or is that doing better than what you're seeing with the ER?

So, in response to your first question, we are clearly seeing what we describe as a higher conversion rate of ER visits. That is a much higher percentage of people who are coming to the ER, are being admitted to the hospital. And I think that's a function of exactly what we've been talking about, which is the lower acuity patients, the scrapes and bruises and ear infections and strep throats are not necessarily coming, but the cardiac patients and stroke patients are coming and so they're being admitted at a greater frequency. As far as the second question goes, I think a big -- at least on the acute side, the decline in ER visits is what's driving a lot of the outpatient decline. Obviously, there's a lot of attendance sort of revenue that goes along with an ER visit could be pharmacy, it could be radiology, it could be lab. And so to the degree that ER visits are down 25% to 30%, we're going to see outpatient revenues in that other -- in those other areas down as well. Outpatient surgeries and scheduled and elective surgeries have remained pretty strong. They're not at pre-COVID levels, but they're pretty close and stronger than ER volume certainly.

Okay. Thanks a lot.

The next question comes from the line of Sarah James with Piper Sandler.

Hi, thank you. I was hoping that you could update us on where you are on catching up on delayed procedures. And it would be really helpful if you could break that out into procedures that were delayed from the first half versus the third quarter.

So Sarah, what we said last quarter was elective and scheduled procedures had come back by the middle of June to something pretty close to pre-COVID levels. And then with that second wave that began in late June and then certainly carried into July and for most of the third quarter, we saw a moderate step back in those elective and scheduled procedures. And it is varied by market because in the markets that go through particularly significant COVID wave, you see more pressure on those sorts of things. But generally, I would say that for the third quarter, across the portfolio, elective and scheduled procedures have been in that 90% to 95% range of pre-COVID levels, although it does vary by market and it does vary by the markets that are experiencing COVID surges.

Does that mean that the delayed procedures have been rebooked? So I'm just trying to parse between the surgeries that were for a specific quarter going through versus the catch-up being completed?

Yeah. So I think it's difficult. And I know some of our peers have given some pretty precise numbers about that. I think it's difficult to say -- when we schedule a surgery or we schedule a procedure, it's difficult for us to know when that patient was originally seen by their doctor, whether they were sort of in the pipeline, whether they were deferred, et cetera. We don't really become aware of the patient until they are at their hospital procedure schedule. So I would say our experience in large part has been that -- in that mid-April to mid-May timeframe as physicians returned to more normal practice patterns that they did just that. They returned to their more normal practice patterns. If they did surgeries two days a week and office hours, two days a week, that's largely what they did. Some physicians certainly made more of an effort to catch up and get through the backlog than others. But I think we have a feeling just generally that we haven't really seen a bolus of catch-up and that the rate of surgical procedures that we're experiencing certainly sustainable. It's not like, I think, we have a sense that there's been a bolus and now we're going to see a real dip just because we've worked through that bolus.

That’s helpful. Thank you.

The next question will come from the line of Pito Chickering with Deutsche Bank.

Good morning guys. Thanks for taking the questions. Going back on behavioral demand. Can you give us a little more color on what segments you saw strengths and weaknesses during the quarter? Any geographic areas or strengths and weaknesses? And any color on where you exited the quarter on behavioral demand? Anything you can tell us about October would be great.

It's a little hard to answer the question, Pito, about the behavioral division only because the geographic dispersion of our behavioral facilities is so much more to piece than it is on the acute side. What I will say just sort of generally is our behavioral hospitals in markets where there was a COVID surge tended to be impacted more than in markets where there weren't. So -- and again, through some of the reasons that I enumerated earlier, ER volumes would go down in a market where there was a COVID surge. People were staying at home or they didn't want to necessarily, again, go to what we would consider to be the normal access point to hospital ER, mental health center, private psychiatrist office and so we were challenged there. We're also challenged in our behavioral division, when we get a COVID patient or COVID patients because we're not as prepared necessarily as we are in the acute care hospital. So we'll create and isolate a unit, a 10-bed unit or 15-bed unit for COVID patients. But if we only have 1 or 2 COVID patients, it's more inefficient, quite frankly, than it tends to be on the acute side. So other than making the point that, I think, probably the most variable sort of element that we're seeing in our behavioral volumes is the incidence of COVID patients in the market and in particular facilities, that's sort of the one overarching observation I make.

It's -- Steve, it's well agreed that COVID has had a very detrimental effect on general mental health. Number of suicides, number of depression, alcoholism has all gone up. And as the COVID-19 gets better treatment, which we'll see in the future, I think we're going to see a volume of these patients come to the hospitals, which they have been avoiding now because of the COVID-19 threat.

Okay. And actually, my next question is either for Mark or Alan. Relative to your peers, the balance sheet is definitely running under-levered versus everyone else. I understand there are a lot of issues going on with COVID and Medicare Funds and Grant Funds going around. But in general, how should we think about leverage ratios going forward? Are there any minimum levels where we can assume the excess free cash flow goes to share repurchases? I'm just trying to understand how far sort of deleveraging can go before it finds a floor?

Peter, let me respond quickly. And then certainly, Alan and Mark can add their perspective. We certainly acknowledge that we're in a very favorable capital structure position and leverage position at the moment, and we feel comfortable with that. We still feel like there's a significant amount of uncertainty in the business, obviously, not just for UHS, but broadly for the country and the hospital business in general. There's lots of speculation that things could get worse from a COVID perspective as the winter progresses and with the holidays come around and people are less strict about their social distancing, etcetera. And I'm not wanting to tell you how that's all going to play out. But I think from our perspective, we'd like to probably get to the other side of the New Year at least and then sort of take a step back and recalibrate where we are, et cetera. But certainly at the moment that we're in a really strong position. And if that continues, I think that we would have every intention to resume our share repurchase and dividend programs early next year. But certainly, Alan or Marc further thought, they can weigh in. So that means that we have a relatively consensus view of things.

We have always been conservative. We've never had or sought to have a problem with regard to funding. And that's the case at the moment. So that will continue. That will – I don't always be universal. I mean we will be prudent with regard to our cash and our cash expenditures.

Great. Thanks so much, guys.

The next question comes from the line of Ralph Giacobbe with Citi.

Thanks, good morning. Steve, can you give us a sense of COVID admissions in the quarter and maybe revenue contribution? And then just give us a sense maybe more broadly of the month-to-month volume trend and any early for October within the acute segment?

Yes, Ralph, I mean, COVID admissions in the third quarter were about 12% of our total acute care admissions. That was a significant increase over the second quarter where, I think, it was probably about 5% was an equivalent number. The trajectory of it was that July was clearly the peak and then we saw the COVID cases come down in August and then come down again a little bit in September. Data for October is a little bit harder to give you with precision because we got the complication of the cyber attack that occurred late in September and our recovery was ongoing for a good chunk of October, and we continue to backload some of our data, et cetera. So we don't have as sort of good information as we would at this point in a month as we might otherwise have. But, I think, our general sense is that COVID volumes are relatively stable in October with the exception of a couple of hospitals that have seen pretty significant surges.

Okay. All right. Fair enough. And then…

And you think about the – just on that revenue – I am sorry, Ralph. You asked about the revenue contribution. I think I mentioned before in a previous response that the case mix index of COVID patients was about 50% high than the non-COVID patients. I don't have the exact revenue – sort of the commensurate revenue information. But, I think, order of magnitude, you would expect revenue to be similar.

Okay. All right. That's helpful. And then I wanted to go to the just general sort of rate backdrop. First on the Medicaid side. Obviously, some fairly hefty cuts in Nevada, I believe. So, I guess, what's the outlook for rates in Medicaid next year? And then if you could just touch on the commercial rate backdrop as well. Just give us a sense of maybe how much you've locked in for 2021 and 2022? And maybe a rough range of what those rates are and if there's still generally three years in length? Thanks.

Yes. I think the percentage of long-term contract is not as great as it was a few years ago. I mean, I think, we're largely locked into our 2021 rates, although it's fair to say that we're always working with our payers where we think our rates might be under-market or there has been a long time since we've gotten what we believe to be reasonable rate increases. Particularly on the government side of things, I think on the commercial side, that process tends to be a more sort of regular and scheduled process. When I said the government side, I'm talking about managed Medicare, Medicaid, and particularly, Medicaid. Look, I think we have a point of view that the managed care companies across the board are doing quite well, and they're doing quite well in large part because of a reduction in provider payments during the pandemic. And so where we think that our rates are not so competitive, we're going to use that particular data point as yet another way of working with the payers to get what we think are at a rate. And obviously, that's a two-way process. So, we'll push forward, they push back, and hopefully, the end result is one that's fair to both parties.

Okay. Thank you.

The next question comes from the line of Josh Raskin with Nephron Research.

Hi thanks. I think you've talked to a couple of points here that may be part of the answer. But the basic question is, do you make money fee on low acuity patients? It just seems like the low acuity is disappearing. I understand there's a little bit more high acuity patient mix. But EBITDA doesn't appear to be impacted by this, or is it just significant cost-cutting is kind of hiding the impact and you do make money on those low acuity patients?

Yes. Look, I think it's a pretty broad question, Josh, and maybe difficult to answer in a pervasive way. But I think we've always made the point that low acuity patients in the ER are probably not very profitable. And again, I cited the bumps and bruises and strep throat and ear infections before. But I think we've always had the view that those patients for a variety of reasons are probably more effectively treated somewhere else in the system, in large part because the overhead in the hospital -- and the overhead in the hospital ER is much more significant than it would be in a lower acuity setting like an urgent care center or a retail pharmacy clinic, that sort of thing. At the end of the day, I think we have a point of view, however, that we are probably able to earn a reasonable profit on any patient that is insured, whether they have Medicaid, Medicare or commercial insurance. The real challenge with hospitals and with emergent -- acute care hospitals and emergency rooms, in particular, is that uncompensated burden. And again, one of the interesting things in this sort of pandemic environment seems to be that those lower acuity patients who are not coming to hospital emergency rooms tend to be also the lower paying Medicaid and non-insured patients. And I think that's partly why that decline in volume has not been as costly to hospitals as you might have otherwise expected.

That's perfect. And then just taking a step back, as the pandemic made you think differently about your geographic concentration, specifically in the acute care segment, is there sort of an opportunity to juxtapose that with the balance sheet conversation to help struggling systems in other urban areas? Is this a time where you should be thinking about your financial strength being able to help others?

So I'll take this. This is Marc. Our development activities have continued throughout the year, almost at the same clip as they had pre-COVID. That said, a lot of the deals aren't closing right now. There's a lot of conversations. You read a lot of articles about systems all over the country that are struggling. But most or many of them are not at the point where they're making determinations to change from their current situation to something new. That said, I do think we're laying groundwork for the future near and longer term, where something like that could happen, either within current acute care markets, which we're most familiar with, or other markets, either markets where we have behavioral presence, but not yet acute care or markets that we don't play in right now, but we track for different reasons, mostly because there's opportunities there, possible future opportunities. So I do think that, that rate happen, but we're not seeing that happen right at this time.

Sounds like it's more on their end than your end. It sounds like you guys, Mark, are well prepared and sort of waiting for those systems to figure out where they are?

Yes. And it gets back to that cash issue on the balance sheet, we are -- we always take a conservative approach. I think we're in a great financial position to move when there's an opportunity. So we want to remain in a good financial position so that when that does happen, we can make decisions quickly. So yes, I would agree with you, though, that a lot of those things are on the other side. And when they -- those health systems do make their determinations, we'll be ready to act.

Thank you.

The next question will come from the line of Gary Taylor with JPMorgan.

Hey good morning. Most of my questions answered. But I just wanted to go back for a moment, Steve, just on the acuity again. And I missed just the first couple of minutes, but did you actually break out on that net revenue per adjusted admission, the acuity versus the payer mix contribution? And you talked about the COVID CMI being higher. Do you have the actual change in your overall your non-COVID CMI in the quarter?

Yes. So I think that the CMI for COVID patients in the quarter was something like 2.4 and for non-COVID patients was 1.6, and I talked about it being about 50% high, but those are actual numbers. As far as the payer mix acuity, I don't think we touched on that other than, I know that some of our peers have talked about their higher revenue in the quarter being driven by sort of a combination of higher acuity and improved payer mix. I think for us, it is more an acuity issue than a payer mix issue. I did say in an earlier response, I forget exactly what context, that our payer mix was sort of stable in the quarter. And I think, as best as I can speculate, the reason that we didn't see some of the improvement that our peers saw is because of our elevated level of COVID patients who, I think, tend to be more Medicare and less commercial. So with a higher percentage of COVID patients, we didn't necessarily see the same improved payer mix that some of our peers saw.

Got it. And is there anything – and I'm sorry if I missed this and just move on, if I did. But on the IT sort of system attack that you had, is there anything contemplated where you feel like there's some additional spend in terms of IT infrastructure going forward?

Yeah. I mean, I think, that at this point, we're still going through forensic audit to make sure we understand exactly what happened here. We have a robust security apparatus here. And even with that, we did get hit. We are reviewing everything having to do with our cybersecurity. We've got a very strong internal cyber team, and then we work with various external partners, some of which are nationally known names that others work with as well. So we're reviewing all aspects at this point, and we have not made any determinations as of yet as to how we might want to spend dollars, either differently or enhance our spend. But we will be continuing to review this to make sure that we are as secure as possible going forward.

Okay. Thank you.

The next question will come from the line of Nicolas Sopant [ph] with PNC.

Good morning. Thank you for the call. Given the increase in unemployment under insurance and non-insurance, have you made any changes to your provisions on collectibility or allowances?

Yeah. So we have, and I think as most hospitals have over the last several years, enhanced our revenue recognition or conversely, our bad debt or charity care recognition to make it more precise, more accurate so that in real-time, as patients are presenting to our hospitals, we're identifying their ability to pay their insurance or lack of same, et cetera. So those have been in place for quite some time. I think that, therefore, if payer mix deteriorates as a result of higher unemployment, as we move forward into continued levels of higher unemployment, we're in a position to recognize that from an accounting and financial reporting standpoint in real time, and we'll do that. What I was saying earlier is, I don't think, we're seeing that yet. And I think, there's a variety of reasons for that. I think while some employees are being furloughed, but they're keeping their health benefits. Some employees who are being laid off were able to access COBRA. Some employees who were laid off deferred their procedures, if that's possible, if they're not emergent. What we have seen, if you go back and you look at the experience in The Great Recession 10 years ago, for instance, is that unemployment increased pretty dramatically, but the impact on hospitals in terms of elevated levels of uncompensated care increased more incrementally over a two or three-year period. Now, obviously, the unemployment created by the pandemic occurred probably faster and more – in a more accelerated manner than it did back in The Great Recession. But to some degree, I think you're seeing that same delayed effect. So I wouldn't be surprised if we see more uncompensated care in the future, but it will probably be a more gradual incremental sort of impact. But I believe our reporting systems are well-established to be able to do that properly. Any other questions, operator?

The next question will come from the line of Scott Fidel with Stephens.

Hi, thanks. First question, just interested in your thoughts on the latest CARES guidance that came from HHS in October, I know that the guidance from HHS has really been a moving target. But just, Steve, interested in terms of, first, which is the guidance you were using in terms of accounting for the third quarter? And then whether directionally that did seem to become a little bit more accommodating as it relates to booking loss revenues relative to the prior September guidance?

Yes. Scott, so you raised a good point. So first of all, I think we took the position along with our outside accountants that the way that we recorded the CARES grant revenues in the third quarter was based on the HHS guidance that was effective as of September 30. And as you pointed out, and I saw you had a note out this morning about one of our peers, HHS has made a couple of changes to that guidance subsequent to September 30. I think there are still things that we'd like to clarify with HHS or have a better understanding with HHS before making any firm decisions. But, I think, we have a point of view that there's a reasonable chance that when we take into account the revised HHS guidance and clarify some of the things that we think are not absolutely clear today, we'll be able to properly record more CARES revenue and incremental CARE revenue in Q4.

Got it. That's helpful. And then just had a follow-up question and would be interested in just your perspectives on the labor dynamics right now in the acute care hospital side. Just as it relates to – there have been some headlines more relating to some of the peers around the unions and some contentious situations that have risen relating to demands there. And just interested in your perspective on whether you see this as just the typical noise or if the pandemic just continues to drag on, whether those types of situations could ultimately drive increased wage pressure over time?

Yes. I mean, we're certainly watching what's happening with our colleagues, I think, at our hospitals. We try to pride ourselves on having open lines of communication and making sure that our employees understand what our thought – what our thinking is for the decisions that we're making. So as far as we're concerned, I think we're in a good position right now. I do think that there are some cost pressures on the labor side, where some systems that are struggling are throwing dollars at this. And so you do see anecdotally in certain specific areas where you have some people jumping for a couple of bucks here and there. But as far as labor strike and some of the other things, we've been fortunate that I think that because of the way we manage and communicate with our employees, thus far, we've been able to avoid some of the things that we see happening at some of our competitor facilities.

Okay. Great. Thank you.

The next question comes from the line of Justin Lake with Wolfe Research.

Thanks. Good morning. Just kind of a couple of other quick follow-up numbers questions for you. Steve, I think yourself as well as most of your peers during the third quarter, you were at a conference and things like that, were talking about my recollection was kind of mid- single-digit declines in patient admission. It looks like you were closer to the high single-digit. Just curious how inpatient admissions overall kind of trended through the quarter and in October did September take a step down or am I recalling that incorrectly?

Yes. So -- and just have a little trouble hearing you. So if I don't answer your question on point, you clarify. But I think you were asking about our overall absolute admission numbers. We do disclose for the quarter in our selected statistics table, overall admission decline, which I think on the acute side was about 9.5% versus the 17% on the adjusted side. And obviously, the difference is the decline in outpatient volume, which I think, again, based on the earlier questions was driven by that emergency room decline more than anything else. As far as sort of the trajectory of cadence during the quarter, I talked about a little in the context of COVID. COVID definitely peaked in July and then declined for us in August and September. And I think our non-COVID volumes sort of have the opposite trajectory. I think our overall volumes were relatively consistent during the quarter.

Okay. And into October, you're seeing similar?

And again, I'm going to have to take a little bit of a path on that as I sort of indicated in an earlier question. Because of the cyber attack, our information on October is still not perfect. But my gut is that, we saw a bit of an interruption in our volumes in the early part of October, some ambulance diversions and some canceled surgeries. But I think by the end of October, things were largely back to normal, but it's just difficult to be a whole lot more precise than that at the moment.

Thanks.

Our final question will come from the line of Whit Mayo with UBS.

Hey thanks. Just one question on the cybersecurity development, and I appreciate comments on the robust IT infrastructure. I'm more curious what this really means sort of out in the field with your operators. I presume that you've got contingency plans that you've put into place to periodically take hospitals off-line, work on paper and so your clinicians and operators are probably well prepared for this. But just any color on the contingency plans and thoughts about just the field level disruption that perhaps this may have or may not have? Thanks.

Well, you actually said it right there. I mean we go off-line often for different maintenance updates and things like that. So our plans are – have been put into practice many times. That said, when you're in a regular downtime and you know it's going to be for a period of time, I don't think there's the level of stress that you get when something like this happens, where you don't know how long it's going to last for. But saying that, we've all been incredibly impressed, not just with the leadership from our IT folks, but from all the leaders on both sides, both divisions right down to the folks on the patient care level right at the bedside, how they've handled this. They really worked diligently to keep perspective, make sure that we were able to treat patients in a safe and efficient manner. If we were worried at all that, that was not the case, then we slowed things down, we delayed procedures where necessary. But I do think that our preparations for things like this really paid off for us because most of our hospitals were able to act in a fashion that we would have hoped would have happened, but you never really know until something like this happens. And I think that was another reason why we saw just the ability to get back up and running so quickly because we did things in a very organized and efficient manner. So I do think that all of those policies and procedures played out well. And all of that said, I hope it never happens to us again, but we'll continue to enhance those protocols just in case we have to deal with that again.

Okay. Thanks. Good luck on the new role Marc.

Thank you.

We show no further audio questions. I'll hand the conference back for closing remarks.

Okay. Thank you. We thank everybody for their time and look forward to our call early next year.

This does conclude today's conference call. We thank you for your participation and ask that you please disconnect your lines.