All right, good afternoon, everyone. I'm Marty Bonick, CEO of Ardent Health, and with me today is Alfred Lumsdaine, our CFO, and Dave Styblo, Head of Investor Relations, and we're glad to be here. Thank you for your interest and support. I'm going to run through a quick slide deck here for those of you that may be less familiar with the story, just to get everybody on the same page, and then we'll lead into some Q&A afterwards. For those that are newer to the story, Ardent Health is a leading operator of hospitals and provider services across the U.S. We operate in eight growing mid-sized urban markets across the country and across six states.
We are the leading provider of care, number one or number two in the majority of our markets, and have a very consumer-centric focus in terms of how we're growing and expanding inside of our footprint. We've got 30 hospitals, over 200 outpatient sites of care across the six states, and just shy of $6 billion in revenue for 2024. So that's just a quick overview of the company. For those that are less familiar, we've been around as a company since 2001, taking the company public last summer, and Equity Group Investments came into the investment in 2015 along with Ventas. Both of those investors are still very active, and EGI is our largest shareholder today. Very supportive, and we expect them to be a long-term supporter of the company as we continue to go forward. During the COVID years, I should back up.
When EGI came into the investment, we had a rapid period of growth, going from 14 hospitals to 30 hospitals in the first three years, and doubling the revenue from $2 billion to $4 billion. Since then, we've gone through COVID, and we've gone through a period of internal focus around how do we standardize and stabilize the operations in order to take that into the phase that we're in now. We have a very scaled infrastructure ready for that next phase of growth, and we've got multiple levers that we're going to pull on as we look at today and tomorrow, today and this year and going forward. The markets that we operate in are key to our success. Again, eight growing urban markets across the U.S.
Our markets are growing on average about three times faster than the U.S. a verage. And so we have a built-in tailwind in terms of that population growth, and we're seeing very strong, again, leading market positions. S o we're seeing strong admission growth, strong volume growth across the platform historically, pre-COVID and continuing throughout. Last year, we took care of 1.2 million unique patients in our market. That's one of the ways when we look at our effectiveness in terms of how we're growing and entering into the market is how many unique people we're encountering.
So you can see we had about 150,000 admissions, but treated over 1.2 million people, and so that's key to our consumer strategy in terms of how do we grow the numerator, the number of patients that we're serving our community through whatever modality makes sense for them, whether that's in-person care in a hospital, outpatient care in a facility, a clinic, or in the virtual environment.
Coupled with the markets that we're in, these markets have favorable growth demographics, favorable payer demographics, and good economic demographics from a baseline perspective. With that backdrop in mind, you can see over 2023 and 2024 what our volume trends have been, and this gives us great confidence continuing into 2025 in terms of the durability for that volume demand. Coming out of the first quarter of 2022, you can see a big step up in 2023 and starting to return to normal. The pandemic years were anything but normal. This used to be a very predictable and cyclical volume-based industry, and in the COVID years, threw that out the window. But you can see in 2023, we started to get back to those normal activities. 2024, very much the same, getting into those cyclical patterns.
We were benefited. We were harmed in the fourth quarter of 2023 by a cyber event, which many people know. We've successfully recovered the company through that and continued to pick up from where we left off. 2024 was also benefited by Two-Midnight Rule, which was about 200 basis points of additional inpatient volume. That largely started in Q1 of last year and continued fairly steadily throughout the year, so we expect those levels will get back to normal absent Two-Midnight Rule as we go forward into 2025. We've got three main levers that we're focused on for value creation and growth. The first is just operational excellence and continued margin improvement across the platform. As I said, during the COVID years, we spent a lot of time and energy focusing on getting our platform standardized and ready to scale for growth.
That being said, we still know that there's optimization activities across our service lines, across our supply chain, across business services and background services, and so we know that we've got multiple levers to pull there, and we'll talk a little bit more about how we see that playing out in the out years. In the middle, our organic growth. Again, we've got strong market positions and very historical strong admissions profiles, a very strong market share from an inpatient perspective, but we have a lot of room to continue to grow in the outpatient. I'll talk more about that in a moment.
And we see growing into the ambulatory environment, whether that's urgent cares, which we've made good progress on, ASCs, freestanding imaging centers, freestanding ERs, and the like, as well as our digital tools and our outreach in terms of growing that numerator of patients that we're seeing in our market and continuing to develop our touch points and interaction with our consumers in our market. And the last is opportunistic M&A. We know that this industry is not homogeneous right now. You've got those hospitals and health systems that are performing quite well, and then you've got others that are still struggling and have not quite come out of the pandemic as well as they went into it. So we know that there's going to be opportunistic M&A in our pipeline that we're going to look forward to taking advantage of in a very disciplined way.
Going back to that first point, just looking at our operating model, we've spent a lot of time, again, preparing the organization for this next phase of growth and have several key partners that are core to that success. Epic being one. As an investor-owned company, we're the only investor-owned to have one EHR system, let alone Epic, and spent a significant amount of money, over $250 million as a private company, putting the system in place across the company, and we have one instance of Epic across all of our inpatient, outpatient, clinic environments, which is fairly unique and provides us a lot of benefit both today and we see in the future as we continue to go out and optimize how well we've run the company. Epic is much more than an EHR company. It's really the clinical operating system backbone that we have.
And so our OR efficiency, our transfer efficiency, our clinical efficiency, all of these things are derivative products of Epic, and we see that continuing to provide benefit. About 2.5 years ago, we also partnered with Ensemble Health Partners as our revenue cycle partner for end-to-end revenue cycle services. They are the class leader, KLAS leader in revenue cycle services across the country, and we've got a significant presence with them. And that's been a significant lift to the company in terms of the value creation they've been able to drive in terms of helping to create revenue lift for the company, as well as focusing on capital deployment amongst their platform to combat some of the payer pressures that we see across the industry and how do we take some of the friction out of that patient collection and that payer collection business.
And so they've been great partners to us and part of our scaling as we go forward. And then lastly, HealthTrust Purchasing Group is our supply chain GPO. They are the largest and arguably best GPO out there that we're partnered with in order to deliver significant supply chain savings and taking advantage of the size and scale that they have so that we can get the supplies that we need for our patients at the best and most effective rates. And so those are just a few examples of some of our key partners that allow us to have the confidence to go into new markets and potential new M&A opportunities to be able to scale the company and continue to grow.
As I mentioned before, we have a very strong inpatient perspective in our inpatient market share across our eight markets, with over 21% of the total dollar spend and an even higher percentage of the acute discharges in our market. But you can see in the middle that we've been relatively small compared to our market size in terms of our outpatient development, and so we've got significant focus, and we talked about this when we went public last summer, of continuing to invest in our markets beyond the four walls of the hospital. I'll talk in a moment about the urgent care growth, which we said we would do and are doing, but we know that there's more to be captured.
We have competitive markets, but we also have a strong balance sheet and the liquidity to be able to continue to grow. Whether that's through M&A or through de novo projects in the coming years. S o all of that is continued growth inside of our markets that, again, have strong population and growth demographics among themselves. Talking a little bit about urgent care, this is something, again, we said that we were going to do last year. We added nine urgent cares, six through acquisition, and three de novos across our East Texas and Kansas markets last year, and then announced at the beginning of this year another big acquisition of 18 urgent cares across our Tulsa and Albuquerque footprints. Collectively, this takes our Tulsa and Albuquerque footprints up to about 25% market share, where we had very little market share going into this.
These are things that are important to us, part of our consumer strategy, part of our value-based care strategy, and most importantly, doing what we said we would do, investing and continuing to grow in our markets. Now that we have our East Texas markets up on our Epic platform, we have great visibility into the patients coming into those centers, why are they coming there, and what happens after they leave those centers. There's a couple of proof points and hopefully indicative of what we expect to see with this NextCare acquisition is 45% of the patients that came in the East Texas acquisition were brand new to us. They had never been seen in an Ardent facility before. Raising that numerator of patients, the 1.2 million, we want to get access points so we can bring more people into the system.
And we saw a great uptake there that almost half of those patients had never been seen in an Ardent platform. As importantly, and part of our thesis is that once we get them into our urgent care centers, a lot of those patients are going to need follow-up for services. And so about 15% of those patients, of all the patients coming into those East Texas centers, had follow-up care across our network within the next 30 days after care. And so when you think about the additive impact, not only do these urgent care centers typically have higher margins than our hospitals. Typically in the mid-teens. T hey also are providing added downstream benefit to our system and continuing to build that healthcare ecosystem that we've talked about. Lastly, as we think about hospital M&A and new market M&A, we've sized the total U.S. population about $2.2 trillion.
If we look at the types of markets that we would like to be in, those mid-size urban markets, we think that there's about 350 of them representing about $800 billion of total addressable market that was likely for us to go out after. And you can see we're about $5 billion, almost $6 billion today across $38 billion of market opportunity. So as we continue to go forward, we're going to be looking for those mid-size urban markets where we can come in, get a group of hospitals, and land and expand, take our inpatient, our outpatient, our clinic growth, and continue to put deep roots into those communities that we serve. In each of the eight markets, we have multiple expansion plans on both the ambulatory physician and hospital side that we're continuing to build into, and we expect to continue that model as we go forward.
One of the ways in which we've had and seen successful growth is through our unique joint venture model. In each of our different markets, we've got a combination of different academic, nonprofit, or physician joint ventures that have either allowed us to enter into a new market or helped us to grow once we're in a market.
And so you can see some of the percentages and the types of partners that we have, but those academic partnerships we think are going to be additive to us as we look at new hospital market M&A and bringing partners into that where we can come into a market where the system may have a good bone structure, as I like to say. They've got good roots, but maybe didn't weather the pandemic as great as they would like to, and bringing in a partner that can bring, whether it's physicians, whether it's the name brand recognition, the reputation that comes with that, the medical education, all of those things become additive.
We've got a historic track record of success in working with both academic and nonprofit partners to be able to extend this model and develop a core competency that we feel is going to be seen as a value add as we look to enter into new markets. We would look to buy a market outright without a partner, but we think that this partnership model just gives us another option in our tool bag to be able to show for creative growth. All that growth is supported by the strength of our balance sheet. You can see we've got about $850 million of liquidity today on the balance sheet and ready to deploy. We've got a scaled infrastructure and operating structure that we have confidence that we can go into a new market and provide a creative value, and we've got the capital to do that.
As you look at our leverage and the continuing performance of that over the last couple of years, that leverage is coming down nicely, and we expect by the end of this year to be at that target leverage or slightly below. So that's all continuing to be additive to the story. And with that, I'll talk a little bit about where we're going for the next year and turn that over to Alfred to talk about our long-term growth algorithm as we look at 2025 and beyond.
Sure. Thanks, Marty. Yeah, just looking at our long-term growth algorithm, we're splitting it between organic and inorganic on this slide. We view the algorithm from an organic perspective, from a revenue growth, mid-single digits, that split roughly between population growth.
Marty mentioned the good markets that we're in with a strong both population and economic growth, as well as rate increases, again, representing about half of that organic revenue growth. From an adjusted EBITDA perspective, we would expect to be north of that mid-single digits growth from the standpoint of the margin improvement activities that we are expecting over the next three-year to four-year period. And that translates organically to achieving a mid-teens margin profile in the next three-year to four-year period. A little more speculative, of course, when we think about capital deployment of buying both acute care, entering new markets. Marty talked about the two growth levers of entering new markets and building out our ambulatory network within existing markets, which would obviously accelerate growth beyond that mid-single digits, as well as adjusted EBITDA growth being at or even above 10%.
It would largely depend on the profile of the new markets that we would enter, so then when we think about some of our 2025 financial considerations, we're not prepared to give 2025 formal guidance at this time. We'll provide it in February with our year-end results. However, we did want to provide some preliminary commentary as we think about 2025. We expect the volume growth we've been experiencing to be very durable. Of course, 2024 benefited from Two-Midnight Rule. We quantified that as almost 200 basis points of admission growth, but that excluded, we would expect to continue with this very durable volume growth that we've seen in 2024 and even before that. We do think we'll see above historical levels of commercial rate increases. Those have sustained as we've entered into the 2025 period.
We've renewed right at 90% of our 2025 commercial book and over 50% of our 2026 book. We continue to push for above COLA- type increases, given the, and we'll talk about some of the headwinds that we're trying to overcome as embedded in those asks for rate this year and going forward. From a margin expansion, we would expect to continue to see throughput from our margin improvement activities, primarily in the supply technology enablement, as well as the scale we're achieving. And we have $140 million in incremental EBITDA coming from DPP programs, primarily New Mexico, which went live. The 2024 program was approved late in the year, and the 2025 program has been submitted for approval as well, with approval expected shortly.
And then lastly, we do have some announced M&A with the NextCare acquisition, 18 urgent cares in Tulsa and Albuquerque, which will be embedded in our 2025 guidance as well. From a headwinds perspective, we've seen the durability of the cost increases for hospital-based physician services to be sustained longer than we would have expected. This is not accelerating beyond what we saw in 2024, but we are seeing a continued pressure for the types of increases we saw in 2024, not as pronounced as in the 2023 period, but it is enduring at a longer period than we would have expected. And that will be embedded in our guidance, as well as, as you've heard from the whole sector, aggressive denial practices, which really elevated in the 2024 period. We're not seeing that getting any worse in 2025, but I wouldn't expect a significant improvement either.
From an overall revenue commentary, we are, as I previously mentioned, on the long-term growth algorithm. We would expect 2025 to be very consistent from a revenue perspective in that mid-single digits growth. In addition, we would expect approximately $200 million in incremental revenue, largely attributable to the New Mexico program, with one quarter of additional throughput from Oklahoma. Then from an adjusted EBITDA perspective, we're expecting mid-single digits growth that is slightly below the target, the organic target that I mentioned, excluding, of course, the $150 million in incremental EBITDA from those DPP programs. The key considerations I've touched on. We've talked about the elevated professional fees. Again, this is not a pressure that's getting worse, but it is sustaining longer than we previously expected. We do want to be conservative as it's our first full year as a public company establishing guidance.
We are obviously recognizing that there is a change in political administration. There could be some headwinds as a consequence. There's been a lot of talk about things such as tariffs. We certainly want to take a conservative approach as a consequence of some of the narrative that we've heard, and our guidance will not include any unannounced M&A, and that would be upside to the guidance that we provide for 2025, so I would just say, in conclusion, when we think about Ardent, we think about a footprint that is very attractive from a growth, both from a population and an economic driver perspective. We have a leading share, number one or number two in essentially all of our markets, and we have the opportunity for in-market expansion, building out the ambulatory footprint of those markets.
From a margin expansion, we continue to be on a journey of improving our margins through margin improvement activities and supply chain and tech enablement and other initiatives, which over the next three years, we think will drive 100 basis points-200 basis points of margin improvement from where we sat in 2024. And these are largely initiatives that are under Ardent's control. And then lastly, we're very excited about the capital deployment opportunities, the opportunities to grow into new markets from where we are today, building out our ambulatory assets. And we have the balance sheet to execute on that plan, as Marty already touched on, the liquidity available and the low leverage profile of the company.
All right. Well, thank you for that. Appreciate the commentary and introduction here. As a brief intro, my name is Ben Rossi.
I'm part of the Healthcare Services Research Team here at JP Morgan. So 2024 marked a turning point for Ardent with your IPO last July. So starting there, before we talk about your forward outlook, would you just mind providing us with a brief retrospective on 2024 and go through some of the key drivers behind your financial performance during the year?
Yeah, I'll start off, and Alfred can chime in here. Obviously, 2024 started off, unfortunately, with the recovery of a cyber attack that happened on Thanksgiving of 2023. But very proud of how our team responded to that and really got the company back in working order in very short order to its previous trajectory. So throughout the year, we saw, again, a return to normal in terms of those typical seasonal volume demands, in terms of what you would typically expect in this industry.
We saw continued proliferation of our strategic plans, both from a service line development as well as rationalization and just continuing to optimize the platform. We really feel like we were in a position as we launched public in July to have a scaled operating platform that was ready for its next trajectory of growth. We came out saying that we were going to focus on ambulatory growth in our current markets while we opportunistically look for new market M&A. Very proud to say that we were able to do that in executing nine urgent care center growth in our markets and then finishing off the year, starting off this year with another 18 urgent cares. Very much on plan to what we expected to have happen and starting to see the results of our strategies play out.
Gotcha.
And obviously, we're not in a position to talk about 2024 year-end results yet as we continue to close the books. However, what I would say, and Marty touched on it, 2024 was largely a return to normal in terms of volume growth as well as the seasonality dimensions of the business. And so again, given the coming out of the pandemic and then in 2023, we had the cyber event, I would call 2024 a good baseline year that we expect to continue to grow consistent with our long-term plans.
Gotcha. Thanks for that color.
So looking ahead then, you already gave us a bit of a preview already. But would you just give us an update on what's going on in Ardent and generally how you're approaching 2025 in terms of headwinds, tailwinds, and then maybe some key milestones that we should be looking for from Ardent this year?
Yeah, I think one of the things that is on people's mind is just what's happening with volumes. And again, I go back to the strength of our markets and the fact that we've got leading positions in those markets coupled with the strategies to continue to develop our service lines and the strength of our services in our markets, both in an inpatient and outpatient environment. That gives us great confidence that we will continue to see that demand from services through our transfer center optimization processes.
We know that there's good incoming demand from outside of our core markets into our hospitals. A nd we've made good progress on capturing more share there, but we're still not capturing all of it. S o we're going to continue to focus on operational efficiencies, length of stay improvements. How do we turn those beds over to get more patients in that need that services. And through our value-based care initiatives, work on taking some of those lower-level patients that don't necessarily need that hospitalization or don't have the same acuity level. And work on treating them in that outpatient environment and making sure we've got the continuum of care of facilities, both inpatient, outpatient, clinic, and virtual to service those needs wherever they might be. S o this is just a continuation of where we started this year and see that continue to ramp up in progress.
Gotcha.
I guess digging into volumes a bit, in lieu of full guidance here. How are you thinking about volume trends for 2025 compared to historical norms? And then could you just describe how you're thinking about volume contribution from Two- Midnight for 2025 and beyond? You mentioned that 200 basis point tailwind for 2024.
Certainly. We wouldn't expect that same kind of step up. In fact, what we saw with Two-Midnight Rule was essentially the volume stepping up that close to 200 basis points in January and then effectively sustaining that throughout the year. So that contributed a significant driver, about 40% of the volume growth in this year. But excluding that, which again, we don't think changes one direction or another, we think it sustains at the current level that it's at. We would expect, again, a repeat of a very robust volume growth here.
And again, it goes back to the strength of the markets that we're in, the overall population growth and economic growth, as well as just the strategies that we have for service line optimization or the urgent care growth and the impact that that's driving downstream. So from a growth perspective, we think we hear a lot. We get a lot of questions about, "Jay, are you still seeing catch-up from the pandemic?" And our perspective is no, that the durability of our volume growth is largely attributable to the strength of our markets and our strategy.
Gotcha. Appreciate that. So big one here is going to be the incoming administration. And so with the new administration coming in and more details coming to the fold regarding personnel and nominees in areas like HHS and CMS, how are you approaching policy discussions with your regulatory counterparts?
And then are you finding them to be receptive to some of the changing dynamics for hospitals as we navigate this post-COVID landscape?
Yeah, it's still early, obviously, as the new administration hasn't taken effect. But through our industry connections, whether it's through the American Hospital Association, the Federation of American Hospitals, the insights that we're getting, I think are going to probably be more moderate than some of the fear that might exist. We saw President Trump in his first administration, and there was a lot of talk about healthcare, but at the end of the day, not a lot changed. From a negative perspective, we saw the birth of the DPP programs under his first administration, and those proliferated across the country. So we see good durability in those. The second administration, healthcare has not nearly been the same focus of what we saw the first term.
It is a tough industry. So the biggest headlines that we're going to be watching and cautious around are going to be the health exchanges, the inaction of not renewing the subsidies is in action across the industry. I don't think from the rhetoric that we've heard from the administration thus far would suggest that there's no talk about repeal and replace as there was in the first term. Now there's talk about making it better. I don't think you can disenroll millions of people from the health exchanges and say that we've made things better. Particularly given the midterm election and the timing of these subsidy renewals, we would expect to see some type of Republican surrogate-friendly way of advancing that.
At the same time, if the worst were to happen and no action were to take place. We are a little bit indexed, under-indexed compared to our peers. Only about 3.6% of our revenues are through health exchange volumes, which is lower than the peer group average. And if that were to happen, we also look at Medicaid redeterminations as a potential indicator. There was a lot of fear about what would happen with redeterminations, and what ended up happening was a slight tailwind of the industry. Not saying that would be exactly the same case, but some number of patients that are enrolled in health exchanges would continue to be in those exchanges. Some that would have subsidies may pay up. Some may go find commercial employer-sponsored insurance, which would be a positive.
Some may have Medicaid, new defect to Medicaid, which with the DPP programs is not a bad alternative anymore, and some may disenroll in a sort of worst case, but we think that whatever pressures might be on that end would be muted beyond the headline of fears.
Gotcha, so you touched upon the Medicaid supplemental payments and the ACA exchange enhanced subsidies a bit. Just pivoting to Medicare site-neutral, so site-neutral payments are certainly an area of curiosity as the broader discussion on federal spending has picked up. Generally, where do you think these conversations currently stand regarding site-neutral, and how are you thinking about this impact to Ardent?
Yeah, I mean, site-neutral has been talked about for many years.
While there does seem to be, at least from the chatter we hear, some bipartisan support, there's not necessarily coalescence around what does that exactly mean. There's various degrees of what site-neutral can look like. The things that seem to have some bipartisan support and traction are fairly innocuous around clinic-based injections and some things that are far short of the full facility fee. So again, we don't see a huge risk in this. Something has potential to happen there, but there's big consequences to the industry if it were to go in a very dramatic fashion. Once again, for Ardent, as we look at the company, it's a little bit of a good news, bad news story. We talked about our outpatient development and our focus around growing deeper in our communities.
That being said, we don't have the same exposure of those many outpatient facilities as some of our peers, and so if something dramatic were to happen on that avenue, we don't have as much exposure and don't have as much bottom line risk as a result.
Got it. Now, on that topic then, as you mentioned the ambulatory expansion, you announced the recent urgent care acquisition in New Mexico and Oklahoma. Could you provide us an update on your ambulatory pipeline and how you are prioritizing the expansion of ambulatory assets as part of your broader capital allocation across your markets, and then what criteria do you use to evaluate potential targets?
Yeah, I'll start, and Alfred can chime in. In each of our markets, our eight markets. There's unique growth characteristics.
And we started off with the urgent cares, as we said we would, and we're making good on that. We continue to look at that as an expansion into new access points for patients to enter our system. Beyond that, our focus, the next focus that we expect to see is around ambulatory surgery center growth. Again, with the population growth of our market and the strong physician-clinic relationships that we have, we know there's opportunity for additional centers. Those are likely to be more on the de novo side versus the M&A side, just given the current trading multiples of those assets. But we do know that we've got physician interest and demand as well as a population support that. So that will be a little bit of a longer build.
The immediate focus of getting new patients in the system was fueled by that urgent care, and we're making good on that. We potentially could see more opportunity in the urgent care space, whether that's M&A and/or de novo, and then we'll look into urgent or freestanding imaging centers and freestanding ERs, perhaps even micro- hospitals as additional points of growth. Given the background around site-neutral, that will also play into our factor of when we grow these, do we keep them site-neutral to begin with to prevent some of that future risk, and so that will be taken into consideration as we continue to grow.
Gotcha. Thanks for that. So turning to labor, in your 8-K, you mentioned professional fees being more persistent than initially expected. This has been a significant macro theme for the hospitals in terms of full-time, contract, and third-party labor.
What has been your approach towards navigating broader labor tightness among nurses and physicians? And then what have been some of the steps you've taken to attract and retain clinical talent?
Yeah, we've put a lot of focus on our clinical recruiting and retention efforts. Our culture really plays into having a place where nurses want to work. And we're proud to say that we've returned back to sort of pre-pandemic levels of attrition. Each month now, we're gaining more nurses or retaining more nurses and hiring more nurses than we're losing to attrition and to retirement. And so we see that that has been improving over the last 1.5 years , and we expect that to continue. The labor market is not easy, but it's certainly better. And we've seen it return back to near normal terms in terms of typical COLA adjustments and the like.
But our focus around creating a culture where people want to work and making it easier. Some of the investments we've made in technology, for example, virtual nursing, our BioIntelliSense, patient monitoring. These are things that are helping nurses to do their jobs, making it easier for our caregivers to deliver care and safer and more effective for our patients to receive care. But we know that that has a factor in terms of where do nurses choose to practice is where do they feel they're most supported. And so we're very proud of the quality of care that we deliver and the service aided by that technology and creating a place where nurses want to work. And that will help to ease that transition. Contract labor, as we look at that, has largely come back down in terms of the rates of contract labor.
It's essentially back to pre-pandemic levels if you normalize for inflation over the last several years. So there's not a lot of room to improve on that end from our expectation. The utilization is still slightly elevated from where we were pre-COVID, but that's largely based upon us being able to service the demand for services coming into our hospitals and choosing to keep some of that additional labor in there just to make sure we can service that volume and those patient demand.
Gotcha. Okay. As a quick follow-up there, you mentioned that the professional fees, the growth there has not been accelerating. But is it fair to think of them as being like a high single- digits, low double- digits kind of increase at this stage?
High single-digits.
High single-digits. Okay.
And then flipping to top line for commercial contracting in 2025, 2026, and 2027, how are those conversations coming along, and how much of those contracts have already been negotiated at this point? And then are you still seeing similar receptivity to the cost inflation argument that has been present in the last couple of negotiating cycles?
Sure. Good question. As I mentioned, we're 90% renewed for 2025, over 50% for 2026. Overall, I would say the tenor of those negotiations are more contentious than they had been through the pandemic, which candidly was a period of less contention than historical with the providers, I mean, with the payers. And so we're kind of getting back to the normal, I would say, tension. And it has accelerated. Now, that hasn't yielded any. We haven't had to go out and network with anybody or send letters to members at this point.
But it is, I would say, more contention. And we are committed to being reimbursed appropriately for the types of inflationary dynamics that we've seen, including the aforementioned professional fee pressure. So yeah, we continue to believe until we see some of those inflationary pressures abate that we have to continue to stick to targeting above the historical COLA- type adjustments.
Got it. And you mentioned the MCO utilization management behavior. This has certainly been a point of contention for providers. And you mentioned in the last quarter that denials haven't necessarily accelerated. They still remain elevated over the past couple of years given the broader utilization demand. Could you just speak to the changes coming from MCO plans over the past year? And are those trends generally consistent across your different books of business?
It has been. We have seen an acceleration in from 2023 - 2024.
There was a clear step up. I'm not going to say it was entirely attributable to midnight, but it certainly was an impact at the same time that Two-Midnight Rule went into effect. Level of frontline denials increased approximately 30% for us, and that has sustained at that higher level throughout the year. Now, on the whole, the impact of Two- Midnight has been positive when considered against the impact of that increased denial activity. But it is, again, a kind of that constant push and pull and a bit of whack-a-mole when we always go to the negotiating table trying to work on those areas of potential dispute and disagreement and negotiate those out, and as soon as you take away one, another seems to pop up.
So, it is. We're not, I would say, optimistic necessarily that it improves, but we do believe that we can continue to work with our revenue cycle partner, Ensemble Health, who has both great technology and know-how in terms of at a payer level because this dynamic isn't spread equally among all payers. It differs by payer. And their expertise in combating both those frontline denials as well as ultimately achieving successful overturning of those denials.
Got it. Thanks for that commentary. So, I'd be remiss to not mention capital structure here. So, following the IPO and in tandem with your broader capital allocation goals, how are you thinking about Ardent's debt structure and what is your general approach to leverage? And then as a kind of a secondary, do you plan to buy back any of your real estate as part of your go forward capital allocation?
Yeah, I'll start with the last part first. I would say no, that's not envisioned now. We don't view that as the highest use of capital. We have a great relationship with Ventas. And while that's a we get that question quite a bit because it makes us a little bit different than some of our peers. We're very happy with the structure of those lease agreements, and we think we have better capital deployment options through our acquisition program. From an overall cap structure perspective, we sit today with very modest leverage. We've talked about, Marty talked about the New Mexico DPP program, which was approved. That was approved retroactive to July. So there will be an impact to our 2024 that we're still working through to quantify.
When you incorporate that, we're likely to be at or below 3x lease adjusted net leverage when we close the year, which is a level we're totally comfortable with. As we think long term, we're certainly willing to think higher than 3x , at least for the right acquisition. I would say we would likely remain under 4x . That there's unlikely to be a scenario where even temporarily we would take it above 4x . But we would certainly be comfortable escalating above 3x for the right acquisition so long as we had a clear path towards that leverage coming back down at or below 3x with clear visibility to that time period.
Gotcha. And yeah, I can appreciate with time coming out here. Just one more for you. So one year from now, what will investors appreciate about Ardent that they don't today?
I think people will see the ability for us to show hopefully outsized growth compared to our peer group. We like to say that we're big enough to be relevant, but still small enough to be nimble. At about $6 billion in EBITDA, you can see if we continue our organic expansion plans in the market, continue to build out our ambulatory sites, that we've got strong organic growth. But we also have this opportunity for opportunistic M&A and a balance sheet to be able to execute and a platform that's scaled to be able to deliver on that. And so as we look forward, we hope that investors will see that that opportunity, that the capital structure that we have and the operating structure that we have will allow us to continue to scale and hopefully grow faster than our competition.
Got it. Well, thank you, Marty, Alfred. Really appreciate your time and your informative answers. That's all the time we have here today.
Thanks, Ben. Thanks for hosting us.