All right, I think we'll get started here. I'm Scott Fidel. I'm the Healthcare Services Analyst with Stephens. Thanks, everyone, for joining us for the next fireside chat panel with Ardent Health. Ardent is a leading operator of acute care and other healthcare services in hospitals around the country. The company recently did do an IPO, and so it's great to have Ardent joining us here at the conference for the first time this year. Here joining us on the podium, we've got Marty Bonick. Marty is the CEO, and Alfred Lumsdaine, and Alfred is Chief Financial Officer. Then we also have Dave Styblo, Senior Vice President of Investor Relations, in the audience. So, gentlemen, thanks for joining us today.
Marty, I thought maybe we would just start with kicking it over to you, and just given the recency of Ardent coming to the public markets and as a new investment opportunity for publicly traded investors, if you wanted to just sort of give the high-level sort of introduction to Ardent and, in particular, maybe just highlight some of the differentiating aspects of your model and particularly the JV, which is an area obviously a lot of investors have interest in understanding, which is key to your strategy. So maybe we'll start out with that, and then we'll go into the Q&A.
Yeah, thanks, Scott. Thanks for having us. It's great to see everybody here and the interest in Ardent. As Scott said, we went public on July 18th. We've been around as a private company since 2001, slow but steadily growing our system across what now spans eight markets in six states. We're primarily located in the South Central United States, with Texas, Oklahoma, and New Mexico being our largest markets, respectively. But through our joint venture model, that Scott talked about, have grown into Kansas, New Jersey, and Idaho as well. And so we operate 30 hospitals and over 200 outpatient sites of care, comprising clinics, urgent cares, ASCs, imaging centers, and the like across those eight markets. And we've got roughly 1,800 providers that we're either employed or affiliated with through those joint venture partners.
We're really building an ecosystem around the patient in our markets and in our communities around what are their care needs. These midsize urban markets that we occupy are growing about 3x faster than the U.S. average, so about 3% growth rate per year. We want to make sure that we can service patients where and when they best need those services. Whether that's a hospital facility, an outpatient facility, a clinic, or even virtual, excuse me, we want to make sure that we've got the appropriate facilities and resources to be able to care for them holistically across that care continuum. We really focus on that as a key part of our growth strategy.
So not only do we have market-leading positions in the markets we occupy, number one or number two in most of the markets, we're really focused on that total addressable growth of the patient population. So there's 5.6 million people that live in those eight markets. Over the last 12 months, we saw 1.2 million unique people inside of our system. And you can look at the math and see that only about 150,000 of those 1.2 million people were cared for in a hospital as an admitted patient. But the rest of them are accessing our services through that clinic system, through the outpatient environment, and on average, over four encounters per patient.
And so, as we really think about the stickiness of the relationships with our patients, that's a key component of how we're growing: where, when, and how do they need to best consume healthcare services. Scott, you talked about the joint venture partnership. That's been an important part of how we've grown, and we see that as an important factor in how we can continue to grow into new markets. In each of our markets, we've got a joint venture partnership either at a whole system level, like our East Texas market with the University of Texas, or in markets that we've occupied longer, we've grown through physician joint ventures with a surgical hospital or ASC or the like. And so, but in particular, these academic partnerships, we're excited about how they've helped transform markets that we've entered into and the opportunity for our future growth.
We believe that brings for us, and we don't brand Ardent in each of our markets. We have a local identity brand. But I would say if you live in Texas, everybody loves the University of Texas unless you're an Aggie. And so when we partnered to partner with the University of Texas to take on what was formerly known as East Texas Health System, putting the UT name on that instantly brought brand credibility and reputation to that. It was a leg up for us as we entered into that market. And now, four or five years later, the momentum has definitely shifted.
Not only have we seen our growth statistics and everything move in a positive direction, market share move in a positive direction, our ability to recruit and to attract new physicians to be able to grow the service lines in our hospital are benefited by that. We've opened up a labor and delivery department. We opened up a new NICU. Most recently, we just added ECMO services, which is kind of very high-end, lifesaving cardiac care, not a very high-volume service line, but creates a halo effect. Up until this summer, there was no hospital in all of East Texas, and that's a pretty big footprint that was providing these ECMO sort of lifesaving services.
Because of that relationship with the university, we were able to attract and recruit the right specialists and the right team to be able to add that service and that capability to our hospitals. And now we're a referral destination center for that, which will have a halo effect on other services as well. So these university partnerships, we believe, are going to continue to yield fruit. We've got a number of conversations going on with other academics that have taken note of this model and are interested, and it gives us some visibility into a future pipeline that we're encouraged by.
All right, great. Thanks, Marty. And maybe sort of keeping on just the framework, and Alfred thought maybe if you can sort of take a moment here to sort of Marty laid out the business model and how that translates into the financials in terms of you have come out with the number of targets around your long-term growth targets, both from the P&L perspective then from the balance sheet as well. So maybe just to start out, can you sort of lay out what the long-term growth algorithm is for the company and some of the key inputs into achieving those targets?
Sure. Yeah, not surprisingly, not overly complicated from a top-line algorithm perspective. Starting with, Marty touched on, we're in high-growth markets, population growth north of 3%. We view that from a top-line perspective, that becomes kind of a baseline and the rising tide. So we think from a population perspective, we should capture that proportionally, and we start with that kind of 3% growth. On top of that, we think from a rate perspective, of course, the last couple of years, we've been benefiting from higher than historical levels of commercial rate increases as some of the inflationary pressures have been working through. But again, we think over time that call it reverts to a more normalized 3%.
So we think top-line growth in that 5%, 6% range before adding in other opportunities for ambulatory expansion inside of our markets and adding access points, whether that's urgent care, ASC, and that will accrete to share capture. And so we think we can grow for the foreseeable future top-line in mid- to- high single digits. We think EBITDA should look the same, but we also believe we have over the next three to four years opportunities for margin improvement activities, so supply chain, labor management, AI tools. And so we believe we'll be able to grow margins above where that revenue growth is before we also talk about DPP programs, state Medicaid DPP programs. That's on top of that growth algorithm with the most notable change coming in New Mexico, which New Mexico passed their program last year.
Governor has signed it, submitted to CMS in August, expected to be approved in December or January of this year. And that's a material step up. For us, it's essentially 200 basis points of margin from where we sit today. But just from an overall algorithm perspective, we think we will grow top-line in that mid- to- high single digits and call margins north of that.
All right, great. Well, given the timing, definitely want to sort of spend some time on the elections and sort of working through that in a sort of uniform way across all the different healthcare services companies to try to get a sort of an overall roadmap here. To start with, I think, why don't you just sort of give us your perspective on the sort of the key issues around the elections for acute care hospitals? There's been primarily two big topics that most of the investment community has been focused on: the exchange exposure, and you've shared some numbers, so I'll let you walk through that, and then the supplemental payment programs and how the visibility and sort of, I guess, sustainability of those programs.
It is important, and Marty, I know that you even highlighted this on the last earnings call, that a lot of those programs actually were initiated under the Trump administration. There's more than meets the eye around some of the political support around those, which has actually proven to be pretty bipartisan, especially at the state level. Why don't we start with some of the more obvious things, which are the exchanges and the supplemental payments? Maybe we'll talk a little bit about if any nuance on some of the things that may be less obvious.
Yeah, no, that's a great question. I think, okay, we're a couple of weeks past the election. The headline shock is over. The markets saw their bump and somewhat coming back down. The good news is we've worked with this administration before, and during the previous Trump administration, we saw growth. And again, a lot of that goes back to we're well positioned, we're in good growth markets, and there's a healthy demand for services. But what was talked about and sort of what's similar, what's different from last from what we've seen thus far, last time going into his presidency, Trump said he was going to repeal and replace Obamacare, and four years went by, and that didn't happen. Nine years have gone by. He's got concepts of a plan now. And what should we expect?
Anything that changes in our mind is going to be incremental or evolutionary versus revolutionary. When you look at the exchanges, yes, he says this time, he's not talking about really repealing and replacing. He's going to make it better, whatever that looks like, but with Republican Congress, Senate, and administration, I don't think that you can argue you're making it better if you're disenrolling millions of people off of the health exchanges, and so as we look at it, our company is maybe under-indexed compared to some of our peers, only 3% of our admissions, about 3.6% of our revenues are covered by health exchanges right now, and while they've grown each year, they're not growing as precipitously as some of our peers. If no positive action is taken to extend the enhanced subsidies, we look at it similar to how the Medicaid redeterminations happen.
There was a lot of fear about what was going to happen with Medicaid redeterminations, and the output was the majority, great majority of people redetermined back into Medicaid. The next biggest group went into a commercial or exchange product. Another group maybe graduated into Medicare, and a small percentage was disenrolled from Medicaid. But the net impact was a slight tailwind to us in the industry. We look at exchanges the same way. If there is no positive way, and I can see Trump doing something in a Republican surrogate way that he can claim, "Look at how I made exchanges better," and doing something maybe absent subsidy, but some other way of creating access and allowing people to afford to stay on those programs. But if nothing happened, a great number of those patients were on the exchanges before the subsidies. Some will pay up.
Some may transfer from a gold product to a silver product or something like that. Some may go find employer-sponsored insurance, which would be better than the exchanges. And there may be some that either move into a Medicaid program or are disenrolled. So we don't see sort of a doomsday scenario here. I think it's incrementalism, if anything. And just given that the timing of the exchanges expiring at the end of 2025, going into the midterms, having no one to point the finger to blame, I think it's going to be really tough for him not to do something to ensure that access is preserved for those exchange patients.
On the DPP side, yeah, you sort of hit it off, Scott. These programs started in 2016 under the former Trump administration. Some of the Texas and Florida were some of the early states to take advantage of those programs and have continued to benefit and flourish. But now you've got these programs in 44 states across the country. So if you look at sort of the history of Medicaid add-ons, whether that was DSH or UPL or UCP, these programs over the last several decades have added, and they've never gone away.
They've just sort of had new things piled on. And this is essentially how we believe that our country is choosing to deal with healthcare for all. We don't have a government healthcare for all, but we have government healthcare for all who need it. You've got Medicare for the elderly. You've got Medicaid for the lower-income population. You've got the exchanges for those in the middle. And so that low-income population is an important, vulnerable portion of society.
These subsidies or these DPP programs are helping to cover that group of people and give them access to services. And hospital systems like ours are benefiting, but the nonprofit systems are also benefiting. And you still have roughly a third of the hospitals across the U.S. that are losing money. And so if these programs were to have any significant change, you're really threatening the safety net of healthcare across America. And so we think that the programs are durable, again, started under Trump, grew, and really have broad bipartisan support. So with 44 states having these in place, we feel pretty good about that. Last at a point, I'd push out there, CMS has already published guidelines for sort of uniformity or conformity of these programs as they go forward. So they have durability by 2028. And so Alfred mentioned New Mexico.
It's a big program that we're watching the approval process go through that process right now. The New Mexico plan is already in conformity with those 2028 guidelines, and so again, CMS is future planning for these programs. I think the CBO has put something like a 6% CAGR growth over the next decade, so this is already sort of built into the budgeting thinking, so we feel good about the need for these plans, the benefit of these plans, and the durability.
Great, and I was hoping that as we started to see some announcements on the staffing of the healthcare roles, we'd start to get a little better visibility into sort of where the nuance may be in policy. I think with RFK Jr., it's not necessarily so clear where he stands on some of these traditional topics, so I guess all eyes will maybe be on the CMS administrator might help us a little bit more, and we'll see sort of where they come out on that front. I did want to ask you guys too on just sort of that sort of second derivative or unintended consequences or however you want to sort of frame it. Have you started to think about what if you're trying to game scenario out, sort of what else to prepare for, right?
And what we do know are things around what Trump wants to do from an overall policy perspective. And clearly, tariffs is one, and changing the backdrop around the undocumented is clearly another, and that could have effects on the labor market. Obviously, we know that 2025, the tax bill is going to be a major focus in Washington. Clearly, the enhanced subsidies for the exchanges get a lot of the focus, but maybe there's other things that end up playing out from that too. So I want to just throw it back out to you around that and sort of that second derivative effect, whether it's sourcing from international suppliers, whether it's labor, whether it's just general economic impacts of some of Trump's policies for the acute care hospital industry, for Ardent's, anything that you would call out there that you're thinking about.
Yeah, I'll start and let Alfred jump in here. I think the other policy change that has gotten a little bit of attention has been around site-neutral payments, but even that, the forms that are being talked about are somewhat muted, and so those are things that we'll be continuing to watch on. From a labor market perspective, we don't see any great impact to Ardent from a supplier perspective. I think that that's perhaps an unknown, although we've got local domestic distributors and a lot of great manufacturers in this country around medical supplies and devices. And so I think that's an unintended consequence we'll be watching for any dependency overseas from a supply chain. But Alfred.
Yeah, no, just that. And obviously, the pandemic has one of the consequences coming out of it is there is more domestic sourcing naturally because some of the challenges post through the pandemic. So yeah, we've thought through some of those things, haven't thought of any. Again, hard to always know what's around every corner with policy, but we haven't been able to think through sort of any direct impacts as we think about our business model.
Okay. Why don't we just sort of shift over to talking about your markets and how you approach those from the, I guess, sort of the summary level. Ardent focuses on midsize urban markets that have attractive long-term demographic profiles to them, and then also ideally a partner that could fit well with your JV strategy to leverage into a leading market sort of position with that partner. The company currently has eight markets you're in across six states for your acute care hospital business, and you've talked about a $38 billion market footprint within those markets.
Just when we think about the acute care hospital side, because obviously I do want to go over and talk about the ambulatory strategy as well, can you give us some insight in terms of from those criteria and how you've approached it, what the outlook looks like, the planning for as we think out over the next 12-24 months and potential expansion into new markets that have a predictable type of profile to that? Help us walk through sort of how you're thinking about that, maybe what type of expectations investors should have in terms of what we may see from an activity level on that development side.
Yeah, so I'll start, and Alfred can join in here. So if we look at our markets, those eight markets we're in, we like that midsize market where it's not quite as competitive from a competition standpoint. We don't compete with our for-profit peer group in just one market. In Amarillo, we've got a dominant market share position, leading market share position there, but UHS has a hospital also. Beyond that, we're competing largely with either local or regional nonprofits and good competition, but many of them still struggling with the aftereffects of the pandemic, and so this is our time to play offense, not only to grow our hospital service lines and margins, but also grow out into the ambulatory environment beyond the hospital and our clinics, which we've been taking advantage of, and Scott, you talked about it, the criteria.
Those midsize urban markets, we've sized that about 150 across the country that are target ground for new market expansion. Some other characteristics, we don't have any nursing unions today, not to say that that's something that would be a rule-out criteria, but we believe in the culture that we've created and the belonging that we've created for our employees, and we believe that we can manage those relationships very well. We're going to be looking for that positive growth demographic somewhere we can enter into a market and get a sizable foothold of multiple facilities where we can land and then expand and grow the outpatient, grow our clinic infrastructure, our population health and value-based care programs and the like. Those are going to be important sort of top-line characteristics we look for.
And so it's a really big SAM when you add it up in terms of what the potential could be. And we're going to be very disciplined in terms of how and where we grow. We're going to be sensitive to price and our ability to enter a market where we can see line of sight in terms of how does our operating model benefit that potential acquisition target, how can we deliver a purchase price in a relative near term first couple of years or so. And so we're going to be opportunistic where we go into a new market with those criteria and having a partner. We don't have to do it with a partner, but presumably with a partner, we believe a lot of times we'll be able to go further faster.
We will also look to gain scale on our current markets, the eight-market footprint we have today. We do believe that there's ability for us to expand. We operate largely with a hub-and-spoke model from a hospital perspective and then round out with the ambulatory services, round out with the clinic services so we can create that ecosystem around the consumer we talked about earlier. We do believe that there'll be opportunities for us to gain further scale in our current footprint and geography as well.
I think the important takeaway that Marty touched on is that price discipline. There's plenty of deals out there to do, but we will need to see that we can take that and add shareholder value in a relatively near timeframe. What are we bringing from a model perspective potentially with a partner? How are we creating value and bringing that purchase price down in a relatively short, call it one- to two-year timeframe? That's going to be a very important dynamic as we look at market standpoint. I might just touch on how we think of it from a balance sheet perspective. We're sitting on a lease-adjusted basis through Q3 at about 3.5x leverage. As we go through Q4 and lap the cyber outage that we had a year ago, we expect that leverage ratio to come down.
It'll start moving closer to 3x . And that's a very comfortable place for us from a lease-adjusted perspective. Not that we wouldn't go up a little for the right acquisition, but we have to have visibility towards how does that come down and get us into that 3x or below, which is where we view the business, where we want to run it sustainably.
Just wanted to follow up on you both sort of called out price and valuation and the focus on price and discipline, which is clearly great to hear overall. Maybe can you sort of give us some insight into what behind the scenes, I guess, where those potential partners, sort of where their sort of views are or expectations? It sounds like maybe we're at the higher end of sort of the range right now, just around sort of some of the comments you've made around pricing discipline.
When we think about analogs to investor-owned valuations, we've generally been at the higher end of the trading ranges. Obviously, we've seen some recent volatility around the elections, but overall, it's been a good sort of healthy valuation backdrop for the sector. That probably translates intuitively into some of the private partners as well. But maybe give us some insights into sort of what's really playing out there on the valuation side.
I think it depends on the particular target. You've certainly seen some headline multiples that are north of where the sector is trading. And I think those are largely one-offs where there was a strategic sale to a strategic buyer that was worth them paying up, and perhaps they had the synergies and line of sight that they could deliver. For the types of markets we're looking at, I think we're going to be looking at multiples that are likely in that sort of trading range of where the sector is at. And again, to what Alfred talked about, we're going to have to have line of sight in terms of what does our operating model do to find a pathway to deliver that transaction and bring it below our current trading multiples for it to make sense for us in the long- term.
I think the wild card is when you've got hospitals that are losing money and you don't have that EBITDA multiple to go after, as typically they're trading at some percentage of discounted percentage of top-line revenue as a purchase price. And those things can be structured in a number of different ways, whether they're capital commitments, outright purchases, et cetera. And I think it's going to be a little bit nuanced based upon the type of target that we find, but that's generally how we're seeing things.
And I do think you are seeing more portfolio rationalization happening. I generally believe the pipeline is growing and momentum is building on the transaction side. And I go back to it is for us an opportunistic strategy. We continue to have so much opportunity to build out the ambulatory assets inside of our markets and grow those, as well as improve our margins through our margin enhancement initiatives that, again, we don't view that new markets as like our only growth. We really have three legs to the margin enhancement stool.
Well, that's the perfect segue into going into the next topic, which is getting into the ambulatory side in a bit more detail. Personally, we feel our investment thesis that this is a real opportunity for Ardent and definitely something that feels very tangible in terms of the opportunity to have a bit of a differentiated lever to pull just in terms of getting your positioning up to a similar level that some of the leading other investor-owned chains may already be at. So maybe against that backdrop, maybe can you start with just sort of framing that opportunity in terms of just even within the existing markets, your current TAM.
I always have to think about TAM and SAM with you guys, but sort of what type of financial opportunity you could realize in a sort of perfect state if you were able to get it up to, let's say, using an HCA as a comp that everybody knows well in terms of their sort of strategy and their positioning around their ambulatory networks.
Yeah, great question. So going back to something you said earlier, Scott, I think you mentioned our local market, TAM, our current market, so those eight markets, about $38 billion in health spend. It's about $21 billion on the inpatient side, $17 billion on the outpatient side. And obviously, the trends would suggest that that outpatient side is growing at a faster clip and generally better margin profile, as Alfred talked about earlier. And so as we look at that, we've got market-leading positions on the inpatient side and the inpatient market share. But on that outpatient side, that $17 billion, we've been about a single-digit, mid-single-digit market share. So that represents the opportunity for growth. And so it's not that it's not there, it just historically wasn't a big focus of the company, but we see that as the growth factor, as you talked about.
So as we look at growing that outpatient, we today have about seven outpatient facilities for every hospital compared to our HCA that you mentioned was probably roughly double that. And so their markets are in general larger and may be able to support more than we have, but we know that that number can grow significantly. We added eight urgent cares the first half of this year. We expect to do more of those types of acquisitions. We like them from an access point, the ability to cross-pollinate those patients that come into those centers into our primary care environment, and then further downstream for the services that they may need. The early proof point around that is about 30% of the patients coming into those new centers have never been seen at an Ardent facility before, Ardent Clinic, and so brand new to us.
And we're seeing good uptake with those and the patients coming in, seeing downstream impact, double-digit percentage of those patients translating into further services within the next 30 days after that initial ambulatory site of care or urgent care visit. So we see great trajectory growth for us to grow both sort of the number of outpatient facilities per hospital and the percentage share that we have there.
Yeah, I think Marty hit on the key points. And going back to these assets generally are carrying above acute care margins, and we're also benefiting from that downstream impact. And so net-net, we view it as a key component of our margin enhancement from an intermediate-term basis. I would expect us to be in the near term to see more growth on the urgent care side. ASCs will take longer, whether those are de novo or acquisitions, and of course, be fewer, but I would expect that we'll see a relatively, call it rapid build-out of incremental urgent cares, which are an easier and grows the market share pie for us.
Understood. And on the ASC side, and clearly that is a relatively larger capital commitment and sort of that, right, than the urgent cares. But I guess sort of two things in specific, was curious about there that I guess maybe sort of overall what the pipeline of opportunities to begin with looks like on the ASC side, but then separate from the pipeline. So you mentioned, Marty, the site-neutral sort of policies that are swirling around. How important is getting some level of visibility on sort of what may develop from there around you triggering capital allocation on the ASC side? And so that part from the policy perspective, and then on the valuation side as well, how much friction, I guess, is there or not around sort of setting expectations at this point?
Yeah. So I mean, we don't think the site-neutral is a headwind to our growth. As Alfred talked about, the margin performance of these facilities is generally north of where the acute care sector has been for us, and so call it mid-teens plus, particularly as you get into the ASC side. And so that doesn't really hamper our thoughts around growth. The pipeline is strong. We've gone through, and our development team is sort of with our regional presidents have looked at each one of our individual markets where we have penetration, where there's saturation, and do we have a build versus a buy strategy. And it's going to be a mix, but there will be a mix probably in each market. Again, price discipline is going to be important.
The urgent cares that we bought earlier this year, we bought at a multiple less than we were trading at. And you might see that the sector is generally trading higher than the hospital sector. And so we're looking for good buys where we can add, bring them, integrate them into our network. And we see that as a continued focus. On the ASC side, if we can't get that in a multiple where we see, again, where we can deliver that, we will be looking at de novo builds. And again, Alfred said those are going to take a little bit longer to mature and develop, but presumably those are going to be done in partnership with surgeons that we've got good relationships with, and we know that they're going to support the growth of those centers.
And so we feel even though that there's an extended roadmap, we're looking at the long game here and the continued growth of these markets. They're growing faster than average. We're going to need more facilities to be able to service that population. And so I could see us growing a little bit more on the de novo side from an ASC perspective. And the capital cost of entry when shared with the physicians is down, and you're not paying a multiple of a business at that point. So we can see that multiple accretion accrue to us and it's affordable.
And we do expect, as a consequence of this strategy, a step up in our CapEx spend from historical levels, which has been (call it) around 3% of revenues and skewed towards maintenance CapEx more than growth CapEx. We'll see. We expect we'll see a move towards closer to 4% of revenues in the next couple of years as we, with that incremental step up dedicated primarily towards that ambulatory expansion.
Okay. And then one other initiative that you have underway is around service line optimization. We saw some impact on the 3Q P&L around some of the activities that you did there, which had some effect on revenue growth, but also some positive effects on margin. Maybe sort of give us some insight into, I guess, that sort of broader initiative. How many other opportunities do you see similar to that that you could potentially pull the lever on and any specific sort of specialties or service areas in particular that we should be thinking about as areas where you may have a level of activity here?
Yeah, so I mean, that's an important topic that we've been really dialed in over the last 12, 18 months in terms of how do we make sure that we're able to, from a market perspective, offer the right level of services in the right setting, and so it's an important part of why we want to grow the outpatient setting because there's services that may be done in a hospital environment today, like some cataract surgeries or ENT ophthalmology types of cases that are important surgical cases, but maybe not best done inside a hospital setting. We want to have the ambulatory setting to be able to shift those over to.
But regardless, right now, from a margin perspective, taking some of those sort of higher volume, but lower quality of earnings surgeries and moving them out of the hospital has created room for us to bring in higher level cases, higher level acuity cases as we're growing service lines. So rationalization isn't always about shrinking. It's about creating the right balance and mix for future growth. So we've added acute services in cardiology or NICU services at some of our hospitals. And so we want to make sure that we can best maximize the utility of our footprint that we have for the right types of cases in that care. And so it's very much an and strategy. But to answer your question, Scott, around where are we at?
We believe that the lion's share of those sort of services, particularly when we talk about the surgery side or the oncology side, are largely in flight. And once we get past this year, we expect to return to sort of normalized volume trends in those areas. But there's always going to be a little work that we're doing to continue to optimize our footprint.
Maybe we could translate that into just sort of your volume outlook for the balance of the year. You're coming off a 3Q where your admissions growth was very strong, and it did accelerate from the first half of the year. Obviously, you do have some of these inputs like we're talking about with the service line optimization. Maybe let's sort of frame it from how you think about the normal seasonal trends in the fourth quarter for your volumes. Then as we think about this year, whether it's any of the sort of well-focused on sort of drivers of strong demand that we've seen or some of the supply dynamics, sort of how does that all balance into your thinking on sort of how you feel about sort of wrapping up the volume trends for the fourth quarter?
Yeah. I started in August of 2020, right, as COVID was picking up. And for those first couple of years during COVID, there was anything but normal happening in this industry, as we all know. As we look into last year, 2023, we started to get back to sort of those normal seasonal patterns and sort of got back to what felt like the historical usage patterns. Last Q4, we were having a really strong quarter until the cyber outage that Alfred mentioned. And so this year, we've seen sort of a continuation of that trend. The normal seasonal patterns have kind of reemerged. And so I think that would be our thought or expectation is fourth quarter is generally our best quarter from a volume perspective. And we'd hope to see the same.
Yeah, obviously, from a year-over-year perspective, the cyber outage messes all comps up. And so we'll have very strong growth, I can guarantee. And growth this year has been very good. We talk a lot about, and we get a lot of questions around kind of, okay, are you still seeing the pent-up demand coming out of COVID? I don't know that we really subscribe to that. It feels like that pent-up demand would have already worked its way through to the extent it existed.
And so it does feel like we're in a world that we'll call normal. Of course, as we look at admissions growth this year, we benefited by the Two Midnight rule. And as we looked at our growth year- over- year through Q3, about a quarter of our admissions growth we would attribute to Two Midnight . But that still leaves kind of for Q3, mid 4% growth from an admissions basis.
Yeah, and I think it just goes back to, again, we've got strong growing markets. We've got good positions in those markets, and we're growing the ecosystem of cross-care for our patients to access this in multiple access points and throughout the system, so we feel good about the durability of volume going into next year.
Great. I know we're getting towards the tail end here, so I did want to just pause. See any questions in the audience room?
For the right transaction, how far would you flex the balance sheet [audio distortion]?
Yeah, I guess somewhat right-sized transaction is sort of hard to come up with exactly what that looks like. However, I would say we would always, again, we want to have a path towards leverage coming down if we are flexing up, but it's hard to see us going north of 4x as suggested.
Other questions, Arthur? All right. I think I'll try to round us out here, just sort of looking out to 2025 and sort of bringing everything together here, and I guess we'll use the obligatory headwinds and tailwinds type framework here, but within it, I guess one would be your thoughts on, obviously, we did talk about you talked about some of that, your view being the pent-up COVID demand largely having played out here, but how would you sort of see underlying sort of volume demand sort of continuing into the 2025?
Anything on the labor side that you think is worth calling out from either an availability perspective or a wage trend perspective? Obviously, the temp labor sort of pressures have definitely diminished substantially. Pro fees has obviously been a big area of dynamic sort of impact over the last couple of years. A few different, want to leave it to you to sort of walk us through it, but I think volumes, pro fees, labor, wages, all things that everybody's always interested in your forward outlook on.
Yeah, I'll start and Alfred could jump in here. Obviously, the biggest tailwind we have is the DPP programs, the continuation of Oklahoma. We've got another quarter of benefit coming in 2025. And then with the presumptive approval of New Mexico, those are both big opportunities for us that'll improve cash flow margins and just getting compensated fairly for those patients that we've been caring for for so long. So those are the couple of the obvious ones. But we do think that, again, if the last two years now are an indicator that volume should sort of get back to these seasonal trends, we know that we've got an opportunity to continue with our M&A pipeline, both for in-market growth and ambulatory growth that we should expect to see further penetration of our outpatient development in our markets. And so I think those are all strong positives.
The labor also, as you referenced, Scott, has subsided. Contract labor has subsided greatly because of the demand for services. We've opted to keep some contract labor in, but the rates have largely normalized back to pre-pandemic levels if inflation adjusts over the last couple of years, and we'll use that as a strategic lever to make sure we can service the demand for growth in our services. Again, strong positions, strong incoming transfer request. We want to be able to take care of every patient that needs care in our markets, so we feel good about those sort of macros. The headwinds, could there be any regulatory headwinds? That's the great unknown, I guess, but contract labor, again, seems to be coming back in line. Professional fee services has moderated this year from last year. 2023 was a pretty big step up in fees.
It's come down this year, but probably still expect some pressure, and we're going to push back with managed care companies to offset that because that's largely a transfer from them to us, and we're going to continue to push for those higher rates to help offset that, but those are the major things that come to mind.
Yeah, I hate to end on a tailwind, but I guess that's where we are. I mean, on a headwind, Marty touched on the managed care environment. And I think it is becoming more contentious. This year, we've seen denial activity spiked in January. It's stayed at an elevated level. But we've got a very strong revenue cycle with Ensemble Health Partners, and they are able to work on our behalf at scale. And that's been extremely helpful in muting the impact of that increased denial activity. But certainly, the payment cycle has lengthened. I don't see any near-term changes to the payer behavior as you just listened to the talk track on the payer side. So as Marty said, we're going to continue to seek the type of reimbursement increases that we've been getting the last few years to help offset some of the inflationary pressures that we felt.
But I could see those, again, just as I listened to the same narrative on the payer side, I could see those negotiations becoming more contentious. Could that end up with potential members getting letters, that type of thing? Often that is sort of the only point of leverage that providers have. So we'll see. But as Marty said, we believe strongly we need to be reimbursed fairly for the care we're giving.
All right. Great. Well, with that, we'll wrap it up. I want to thank the Ardent team for joining us at the conference. Thanks.
Thank you Scott.