All right. Well, next up in this room is Ardent Health. We're very pleased to have them participating in the conference this year. Dave and team, I guess just introductory comment. We're what, 10, 11, almost 11 months into the year at this point. How would you describe how the year's gone? I know you've had some transitions, but what have been the positives, what have been the challenges, and maybe level set us a little bit on that.
I'll get us started here. First of all, I'm really pleased with the team's work around expense control. The IMPACT program and the work that's been underway to sharpen what is the first of three pillars of our growth strategy, and that's operational excellence. They've been very focused at growing stronger. Secondarily, tied within there, our second pillar there is around organic growth. The team, we've stood up a team called Products and Services that is very focused on what we call Capacity IQ and strengthening our selection and service line choices so that we're providing the right service to the customer and the right business model for ourselves. Those are probably the areas I feel strongest about what our team's been doing that we can be bold about. Third, in our growth strategy, the M&A activity.
While teams have been very focused on the discipline activity there, no tangible items to produce as of yet, but very encouraging where we are, very positioned for action. But overall, really thankful for what the team's doing, very centered on impact.
Okay.
Yeah, when we think about just how the year has played out, AJ, obviously it hasn't been exactly to plan, right? I think if you look across the hospital space, volumes have been softer at the bottom of the funnel than anybody expected. So surgical demand has been weaker than anybody expected coming into the year. But to Dave's point, we've actually been able to raise the midpoint of our guidance off of our Q3 call, off of the, I'd say, controlling the controllables, really focused on delivering and executing, no matter what the volume demand backdrop is. Now, the good news is, at the top of our funnel, we think demand has been continued to be very strong.
It's been surgical demand specifically where we've seen some weakness and real focus on, again, going back to controlling the controllables and working on all the things we can do to remove friction in the process so that we set ourselves up for converting as that top of the funnel demand into surgical volume.
Right. Okay. A number of things I want to drill down operationally, but I guess given the events of the last week, maybe I'll take a step back and just ask you about those and get that out of the way. Obviously, we had the midterm elections, Democrats taking over the House and Senate. How does that changing political landscape impact the company's strategy at all and how you're thinking about the future?
For now, unchanged.
Right.
Unchanged. We are bullish about controlling the controllables. We're going to stay focused and steadfast, and if tailwinds arrive, we're going to take them as tailwinds.
Okay.
But for now, unchanged.
Okay. I know the incoming Speaker of the House, Hakeem, likely Speaker of the House, I guess I should say, Hakeem Jeffries said he wants to look at the Trump Medicaid cuts, quote unquote, and potentially restore the ACA subsidies. Any view from what you're hearing from the trade association or otherwise about whether you think there will be action quickly on that, or is it going to be another one of these Congress only acts when they're absolutely have their back against the wall, so it will be later next year or before we see something? Any thoughts?
Well, if there's anything the last few years have proven to me is that predicting what's going to happen from a policy perspective is not something I'm particularly good at. I would say, going back to Dave's comments, we're highly focused on executing in the environment we're in today. Having said all of that, we're clearly supportive of anything that expands coverage or provides enhanced access to the most vulnerable populations. We think it's good policy to provide more access and to ensure that the most vulnerable populations have access to care, and anything that provides and supports those populations, we're supportive of.
Okay. No, that's fair. So one of the things that you guys have been focused on in recent months is this IMPACT program. Maybe describe that for our investors, and how do you see that impacting growth and margin, frankly, over the next few years?
IMPACT has been an imperative initiative for us. The first portion of what IMPACT really is the improving margin portion. Inside of improving margin, we are a scaling company, not a scaled company. In scaling, it gives us the opportunity to really reinvent and follow some of the protocols that have been set before us around taking a single hospital to a campus type of structure, looking at, as we do that, how does that impact FTEs and mid-level management, and how do we coordinate and organize to reduce SWB? On our Q3 earnings, we represented a 4% improvement in SWB. That work is working. It's durable and sustainable. As parts of IMPACT as well, supply chain, a key focus, ensuring revenue cycle excellence and care transformation all fit within there.
Part of the basic elements really are about ensuring that our processes are strengthening our CORE so that when we're prepared, we can stretch into M&A activity, and that improvement improves the yield of that M&A activity.
Okay. I think as you've said, at least $70 million in contribution savings this year, and I think the way you've described is about $20 million-$25 million of that carries over into 2027. That's just sort of annualizing what's in flight already. Is this something where there's going to be additional savings that will be recognized next year? Is there something that this is a multi-year? How should we think about the incremental on top of that potential?
Sure. Yeah, 100% this is a multi-year. It's definitely a program, not a project, so it's going to span a number of years. We've always been very clear in terms of our margin objectives that we think there's opportunity off of the existing platform to significantly grow our margins. We operate on an EBITDA basis today, call it 11.5%-12% kind of range. When we went public, we talked about expanding those margins to the mid-teens, so that would imply, call it 250, 300 basis points of additional margin improvement off of the existing platform, again, most of which would come through IMPACT initiatives.
Now, as we sit here today, that was all before the BBB and the Medicaid supplemental cuts. We are not providing any long-term margin targets specifically, but our belief that we can continue to expand margins off, grow margins off of the platform we have through generating more incremental margin through IMPACT is unchanged. I would call that at least a three more year journey. That $20 million-$25 million would be if we did nothing, but we view it as a conveyor belt where we are continuing to add to it, not to go so fast that anything breaks, but also not to go too slow that we see an atrophy in what we are doing. We will absolutely see that as a tailwind going into next year, expanding the program for new opportunities.
An example of where you will see that continue to grow, mid-October, we opened up what we call CORE. CORE is Centralized Operations for patient placement. We went from 30 patient placement and transfer centers to 13 to three to one. In doing so, you can imagine that that improves standardization and reduces variation across many things, whether it is transfer acceptance, safe transfer speed, if it is about patient placement for optimal care, or if it is about managing staffing levels. As you ramp up an organization like that, on the front side, you see the FTE savings. On the back side, you see the productivity savings and the assurance of quality. It is a program like that that you can see how it extends over time.
Okay. Is there any way to bracket sort of an annual incremental savings goal, $25 million, $50-ish million, anything like that that you would be comfortable talking about, or is that still in flux?
Yeah, I would say still in flux, and every year it could vary to a certain extent. As we have talked about this year, delivering at least $70 million, I think that is not an unreasonable number to think about. Again, I am not putting out specific targets. If you just go back to my earlier statement and think about growing margins, we are a $6.5 billion revenue company. If we want to expand margins, call it 3% over a three-year time period, you could think about it in that sort of range. Again, it is probably not going to be totally ratable, so I would say wait until we provide guidance, and I am sure we will provide a number against that next year.
Okay. One area where I know you are not alone, but the industry has faced some pressures in professional fees. Now, it did look like it moderated a little bit for you in 3Q. I think you were up 13% year-over-year in Q1, 7.5%, 7.4% in Q3. What is driving that moderation? Is that part of the steps you have taken here, or is that something else? What are the prospects for getting that further under control?
Yes, it is part of what is here and more. Yes, we did see an improvement quarter-over-quarter. Those improvements, of course, will balance over time. A portion of what is helping to accomplish those is the work inside of ensuring operational excellence of the operating rooms, which is an extension of where different professional fees will shape up. We will continue to do that work. Alfred, anything you might want to add around the financials?
No, I think, Dave, you have really hit the nail on the head that any quarter you can see some variation or fluctuation. We are pleased with the overall trend. Nice to see us going from 13% to 7.5%. We had been clear that we thought the front half of the year, we saw a big spike Q3 of last year, and as we lapped that we did expect to see some moderation to the high single digits, which we did perform at in Q3, and we would expect to continue in that range of high single digits in Q4. Blended for the year, we would expect 2027 to be an improvement over 2026, but it is still going to be well above average inflation rate.
Okay. Maybe to pivot back away from the IMPACT program and the cost side a little bit. On adjusted admissions, up 2.9% in the most recent quarter. Inpatient admissions were flat, and we have had a bunch of discussion about surgeries. What do you sort of see in underlying demand, and how do you begin to think about what it might look like in 2027?
First of all, we're encouraged by the top of the funnel. The demand pipeline on the top of the funnel with urgent care is high single digit, with provider growth in the single digit plus. We're encouraged. In order for 2027 to shape up the way we want it to, we're really focused on two of the flywheels. One around referrals to ensure that those patients are able to get the specialty care they need, and secondarily, from referral to the operating room, making sure that the prior auths are not delayed. We're encouraged. A little too early for 2027, but overall encouraged.
Yeah, and it's hard to know exactly. Again, the year's played out on the demand spectrum different than anybody thought coming into the year. And we've seen the most pressure in those payer sources that carry deductibles, large deductibles and co-pays, specifically commercial and exchange, and particularly where we saw exchange metal levels. A lot of people moved out of Silver. We saw a 12% move in our book from Silver to Bronze, higher deductible, and that's where we've seen most of the volume pressure is in those areas. Now, is that just creating some pent-up demand? It could be. Could be that, Ken, if my deductible is $7,000, that maybe I'm deciding to do more rehab instead of doing my shoulder. Can you put off that forever? Again, the pressure has been most acute in those payer sources that carry higher deductibles.
I think that's indicative of some consumer pressure from an overall economic—
There has been some debate with, like you said, people trading from Silver to Bronze, also just the growth in deductibles and co-pays, that we get into the fourth quarter here, we might see people hitting those limits and starting to schedule procedures to try to get ahead of the resets in January 1. I mean, I don't know if it's easy to track scheduling or anything like that. Are you seeing any of that kind of activity that's unusual relative to just the normal seasonality?
The work that's underway for us is in that space. We mentioned in Q3 that quarter-over-quarter, we saw improvement. We still see that improvement. The work underway that we're really focused on is meeting the consumer where they're at. Deductible or not, they're having to be more planful with their spend, and that planfulness may put them in Q1, it may put them in Q4. If they didn't hit their deductible, but they're still planning, we know that patient will need care.
Right.
But we're trying to meet them with payment options that allow them to get the care they need.
Okay. It does seem like the company's called out that looking at urgent care, imaging, physician visits, it would suggest that there's surgical volume that's probably being recommended by the physician, but they're not following through on that. Is that a more prevalent activity this year than what you've seen in previous years? Is there anything that can be done specifically to try to get people to follow through on those procedures? Is it really an affordability question?
I think the answer to that is yes to both. Is it affordability? Yes. Do we have a pent-up demand potentially brewing? Yes. A kind of a third yes, are we working very diligently to make sure that we can move the patients through who can progress with their care through those two flywheels of friction that we mentioned, making sure they can get to the specialty visit and making sure that they can get the OR room scheduling as needed.
Yeah, I don't have good stats for you, AJ, in terms of just, okay, how many more patients are not choosing surgery than in past years. Anecdotally, it is absolutely happening, and that we're saying, again, evidence that people are making decisions to defer care. So, to Dave's point, what are the friction points that we can improve on? In many of our markets, we've expanded imaging hours to be sure that that gap between referral, imaging, surgery is being closed, because we do think speed and removing the things that do become barriers in that journey and in the patient receiving the most appropriate level of care are as frictionless as possible.
Okay. It does sound like some of the surgical pressure you've seen, maybe about half of it, is proactive things you're doing, cutting lower margin procedures, low acuity ENT, I think you've called out ophthalmology. Where are you at in making that adjustment? Does that become less of a drag on volume growth, surgical growth in 2027? Did you sort of anniversary some of that, or is there considerable work ahead still to be done?
Yeah, you are right. Those numbers are accurate. The Capacity IQ team, which is focused on right services, right patients at the right time, we have been optimizing. That optimizing is part of strengthening that CORE. We do see 2027 more as a growth year around smart additions and future work around M&A activity, less around optimizing.
Okay. When you think about leaning into service line opportunities over the next year or two, where is the focus at this point?
The service line, we look at growth around service lines in both buckets, the areas that are organic to the existing markets and obviously the inorganic. The existing markets are unique enough that we will be very in tune with making decisions that are personalized specifically for those markets. We are encouraged by all things mom and baby in general, and want to do our part to make sure that the right care is happening in the right place at the right time.
Okay. Maybe I will pivot over and talk about payer mix a little bit and pricing. Revenue per adjusted admission in the third quarter was up about 0.7%. Obviously, part of that was what is going on with surgeries that we have been talking about. If you put that aside, can you talk about just what you are seeing in underlying pricing trends, commercial contracting, et cetera?
Yeah. [Referring] to your point, relatively flat, up just under 1% this year, largely driven by lower acuity, some of the higher surgical volumes that are not flowing through the funnel, as well as when we look at payer mix this year as well. Again, we have talked about the pressure on the consumer, and that is certainly skewed with some pressure on those payer sources that carry higher deductibles, meaning traditional commercial and, of course, exchange. When we look at the overall payer backdrop, we have certainly been very deliberate this year. We had a number of key negotiations that were multi-year, three to five-year negotiations. I would say it is a larger, just in terms of the cycle, it was a larger renewal year than most. As we sit here today, we are 85% contracted for 2027, but we are actually further 75% contracted for 2028. So 2027 becomes a lower year for commercial renewals.
We have been very deliberate and thoughtful in our approach, going back to the work we have done to centralize and standardize. That has applied to what we call our revenue integrity, our payer contracting, and revenue cycle operations. We have had to bring, I would say, a higher degree of discipline to those negotiations. We have brought in better data sources to ensure that we understand where we are priced in the market and that we want to be the highest value provider in our markets, but that also requires us to be compensated fairly. We have found that it requires a more deliberate approach to negotiations, including often going to the last minute. It is not our preference.
We don't want to have our patients worried about receiving a letter about going out of network. "Gee, is my surgery that's scheduled 30 days from now going to be covered or not?" But we have had to, I guess, use the word be more aggressive in our approach to ensure that we're compensated appropriately, and that's been a change. We've brought in a new leadership team in that area, but we feel like we've yielded very positive results in advancing our rates that are more comparable to our competition.
You called out, I think, one nice contract. Are there more opportunities like that when you look across your contracting to potentially take advantage of?
We had four key negotiations in 2026, all of which yielded above plan and above historical levels of increases, and those increases are multi-year in nature. Very pleased with the outcome of our new team and the approach that we've taken to ensure that we're, again, competitive inside of our markets.
Okay. In terms of just generally what you're seeing, Medicare, Medicaid mix, we talked a little bit about the commercial side. Anything to call out there in payer mix trends going forward?
Really nothing beyond what we have already talked about, that clearly the pressure this year has been on where there has been the highest level of deductibles, and we have seen some commercial volume pressure that we have not seen, say, on the government program side of the equation. Exchange, of course, has been a source of pressure from a mix standpoint, but very consistent with what our expectations were coming into the year. Perhaps compared to some other public companies, we have a little bit less exchange exposure, and some of the markets we are in, like New Mexico, there was significant support from the state for the subsidies. Again, perhaps less impacted, and very consistent with what our expectations were.
Again, maybe the volumes have actually been a little bit stronger, but because of the shift in metal levels, we have seen some of the surgical demand particularly weaker inside of exchange. On average, 100% consistent with our expectations.
I think your outpatient percentage tends to be a little lower than some of the other public peers, but we did get this outpatient Medicare rule finalized in the last week or so, and there have been some speculation they might roll back some of the cuts to the 340B program, but they largely kept it in place. Have you sized how much of a benefit that might be for you next year relative to just a normal update that you get?
We have. We have said that increment could be as much as, say, a $10 million bottom line impact. Again, that will be a nice tailwind going into next year as we aggregate the headwinds and tailwinds. Do not want to get ahead of ourselves, but yes, if everything stays in place, that is a nice above kind of the normal for us. We would size it as maybe up to $10 million.
And we have talked around some of the headwinds and tailwinds, thinking about 2027. We talked about the IMPACT program. We've talked now about this outpatient payment level. Again, not formal guidance, but what are some of the big buckets of headwinds and tailwinds that we should keep in mind as we're thinking about modeling out for next year?
Well, I think it's a little early given all—
Right
—the changes. But I think you really hit on the majority. I think you've heard me mention a few times, we really focus on what we can control, and we hyper-manage what we can control. I think you're going to see us lean into growth. I think you're going to see us lean into IMPACT savings to help us to generate tailwinds, and for sure to overcome any headwinds. Alfred, what you might add.
Yeah, the headwinds are probably nothing that no one is not going to be very familiar with as we think about next year. Another year of exchange pressure, the commercial rate increases you're hearing about, low double digits, that's going to continue to drive employers to have to think about plan design with more shift of financial responsibility to the consumer. So, the things that we're doing this year to help with translating demand from the top of the funnel, we think will continue to pay off because of that. I think we're in for another year of the same type of financial pressures that we saw in 2026.
There's a lot of debate about the exchange carryover into next year. I know you've said that relative exposure compared to some of the peers is less just to begin with. But are you thinking about it relative to what you absorbed this year being a meaningful step-down, or any early thoughts on that?
I would say, we do think we're in for another year of pressure and that it probably does step down modestly. I wouldn't want to size it, but I think it's not going, I don't know, meaningful step-down. The other thing we've got, of course, will be Medicaid work requirements—
Right
—which will impact us. Again, as I think about it, I don't think that it's going to be on aggregate much greater than we saw from a pressure that we sized this year on exchange as $35 million. We're probably talking plus or minus as we think about it as a tailwind. But that's how, again, little early to be adding—
Okay
—all those puts and takes up.
On the—
To loop on that, AJ, I'd also say during the third quarter call, we talked about, while our midpoint of guidance is about $518 million of adjusted EBITDA, we did serve as a reminder that during the first quarter of 2026, we recognized an $11 million unrealized gain. So, think about adjusting for the base for that as well as we'll have the Kansas divestiture. That'll be a few million dollars as well. So, that's sort of the jumping off base would be closer to the $500 million level as we go forward. That kind of puts all, I think, all the puts and takes that we've discussed—
Right
—in public form already.
Okay. The Medicaid work rules, I mean, when they implemented that, the population they're talking about trying to get back working is not a population that's a high utilizer of hospital services. However, all the hospital companies are saying, "We're watching this, a potential headwind." Is this just worries that administratively some people who are qualified might get disqualified because they don't adhere to all the administrative rules, or do you really think that population maybe has more utilization than was originally expected?
Our preparation around it is really tied to revenue cycle excellence for 2027, and it's making sure that patients, as they enter their point of care, and often it's the ED, that their eligibility requirements and eligibility support is there. We can't control pieces we can't control, but the piece we can control is ensuring if they do qualify for coverage, we help them to get that coverage, both then and then later after billing, we also try to support their efforts there. Other than that, I think it's a little too early to speculate on that one, but that's going to be our approach to controlling.
Okay. Thinking about capital allocation, you ended 3Q with about $766 million in cash. How do you weigh organic investments that you've identified, some of the programs we've talked about here, acquisitions, share repurchases, or other uses of capital?
Yeah. First of all, I think we're pleased to be in a position of strength. When I think about capital, I'm definitely thinking about, we have three big areas of focus. Number one is continue to run operationally strong and support the teams in what they need with the right maintenance items and so on, so that we have a strong foundation. Secondarily, around organic and the growth that's there, of this year's expenditure and capital expense, about a third of that is going to operating room improvements, which helps the entire flow of specialty and OR. As a matter of fact, we have interrupted some of the OR rooms during the construction that's going on now in order to be prepared for 2027.
Lastly, that last bucket, which we have been doing a lot of diligence on, which is the M&A inorganic acquisition, we're very focused in doing a very high degree of work right now so that we are prepared for a system that is in the right market, has the right health to it, an asset that's in good shape, and a population that's growing. We're narrowing in and we're enthusiastic about opportunities that exist in 2027.
Okay. I want to pursue a little more on that M&A, but I did want to also ask you about the Topeka situation and the review. Should we think of that as a one-off, or should we think of that as an effort to think about pruning the portfolio in light of your coming on, taking over, and so forth?
You're right. We're going to keep a very close eye and view all of the reviews of the assets as we described we would. Kansas is, I'll call it a bit of a one-off, but we're going to continue to look at other opportunities. This is really a bit of a one-off. What Kansas represents is a challenging market for population growth, and that's not our ideal market. What has been very successful, though, is the track record of Kansas, and that the opportunity is there for both parties to really come out and move forward with what they're most excited about. The timing of this situation and the asset review coincided very nicely. What I would not read into it, I would not read into it that JV relationships or JV partnerships are an issue. That is untrue.
What it actually represents is that we know the right time, and when the right opportunity comes, we're going to take advantage of both growth and divestiture, and that we're ambidextrous. We can do both. We can succeed in a JV world and enjoy it and find great strength and futures in it, and we can succeed in our own ventures in the same manner.
Right. Surgery Partners is involved with you on that one, and they are doing a transaction of their own. I guess my initial reaction was it probably had something to do with the transaction they were doing, but it sounds like this was more of a deal that you guys were looking at, and you just made the decision yourself that this is something we need to do.
I think the timing worked out really well for both parties.
Okay.
Alfred, David, anything?
Yeah. No, I think to the first part of your question, I wouldn't look at more of these. I mean, we're always undergoing portfolio review, and that's every day, every month, every year. Do we have the right assets that are strategically positioned for and align with our long-term objectives? In this case, to Dave's point, market population wasn't growing, essentially a single asset, not a system. And then as we look around, population was not growing, and our ability to expand our presence was very limited as well. It just made strategic sense, because it didn't fit the profile of we're looking at mid-sized markets with above average population growth, with assets that we can scale and develop into a full system.
From a divestiture standpoint, as for markets, it is a complete one-off.
Yeah.
Just being crystal clear.
Okay.
Yep. It wasn't before.
You're talking about looking at M&A proactively. A lot of your public peers have been more in a divestiture mode, taking advantage of 340B opportunities that a nonprofit might have to buy some of their one-offs. It's just interesting to me that you Sounds like you see a little bit of a pipeline out there. Maybe expand on that a little bit more, if you could. Is this more because of your willingness to sort of JV with a larger system, that that may be something unique and that's providing some opportunities? I guess it just seems different than what we're hearing from others.
One of our advantages is the size in which we fit into a mid-size growing market. I don't want to speak on behalf of any other company—
Right. Sure.
—what their strategies might be, but I think it's an area where there's a bit of opportunity where it might be just a little small for some of the bigger players, and it might be a little large for some of the community to grow. We're aimed at the mid-size markets with population growth and good assets. We see an array, a small array of those. There's certainly plenty of assets that are not a system that are available, but we're not interested in the onesie-twosie asset exchange of those. Timing is really critical, ensuring that our CORE was strong, ensuring that we've got the right financial framework. That really matters to us. The timing of those decisions, they present themselves uniquely. Sometimes there was a primary bidder or a secondary bidder, and something changes.
They place a lot of bets, and they may not make a move on one. We'll be prepared when we see that opportunity, and we'll do our discipline and diligence to make sure it's the right opportunity for Ardent, and it's the right timing for us to grow.
I know sometimes with the nonprofit negotiation, it's hard to predict timing, but is this the kind of thing that sort of front burner, we may see something in the next 6-12 months, you'd think?
Well, we're going to work in a disciplined fashion to create opportunities. That being said, the not-for-profit competitive nature, we're not interested in a game where anybody outbids.
Okay.
The community doesn't win there. We're interested in scenarios where the community wins, and we're able to support them with the right scaling organization. We're going to continue on that track. We're going to continue to create opportunities, and we're excited for what 2027 may bring.
Okay. All right. Well, that sounds exciting, and we appreciate you guys participating this year, Ardent, and look forward to hearing more about that.
Thank you.
All right. Thanks so much.
Thank you.