Oh. There you go. All right, I think we'll get started on the next presentation. We're very pleased to have Community Health Systems with us today. Kevin Hammons, Chief Executive Officer, and Jason Johnson, Chief Financial Officer. At this point, we're 10 and a half, 11 months into the year. When you think back on what we've seen so far, what have been the bright spots? What have been the challenges? Any thoughts on that, maybe to start off?
Sure. Happy to jump in here. Coming into the year, knew there was a few headwinds out there, but did not expect some of the economic headwinds to be persistent as they were. We didn't anticipate the disruption in the Middle East to have such an impact on us and the economy, certainly with the price of gas. We didn't expect the exchange and the expiration of the enhanced premium tax credits to have as big of an impact as it has. As we sit here today, I think we've all experienced bigger impacts from that, more headwinds than we anticipated. The economy in particular, which I think has been about a half the drag on us this year, there's a lot of pent-up demand. I think a lot of that's just going to be timing, and we'll see that business come back to us.
Okay. On that last point, one of the other companies, Ardent, I think, was talking about that they have traced that people are getting the prescriptions. They're going to see the doctor, they're getting the diagnostics, and they're getting referred to the surgery, but then they're not doing it.
Yeah.
Do you guys see that?
Very much so. We've had almost an 8% increase in our clinic visits. Patients are going to the doctor or their specialist. We have seen an increase in orthopedic MRIs, an increase in other screening procedures, far outpacing prior year. But it's not translating into the surgery at the same rate. Now, we are seeing the trans— For the government-insured patients, we're still seeing them come in for surgeries, but they don't have a copay and deductible to worry about to the same extent that the commercial insurance patients do. That again leads us to believe that this is more of an economic decision on the patient's part and why it's being deferred.
Okay. There's been some discussion about, well, maybe if people have traded down from silver to bronze, maybe if in their traditional commercial there's a higher copay this year, that we'll get into the fourth quarter and we'll start to see people hit those limits and then try to scramble to get to care before January 1st. I don't know whether you can even trace that. Do you have scheduling or anything that says that any of that's happening or not?
Historically, we've seen the fourth quarter, that seasonality—
Yeah.
—if you will, of people getting care in the back half of the year as they've hit their deductible. I think once you get to the fourth quarter, if you haven't hit your deductible yet, you're not going to rush in and get something done just to hit your deductible and then have it reset again. We did not see the pickup in that commercial business beginning in the third quarter like you normally do with seasonality. So, we've taken that into consideration in terms of our updated guidance that we won't see the same level of seasonal pickup in Q4 as we normally do. We're expecting it to be deferred into next year.
Okay. Obviously, one thing I have to ask you about right up front is the events of the last week, the midterms. How do you view that outcome as it relates to Community Health Systems? Are there particular areas of optimism or pessimism with how you expect the new Congress to act?
I think it is a little early to tell yet. The election probably went a little farther than some folks had expected in terms of outcomes. That said, incoming Speaker Jeffries has already indicated that top of their list of priorities is to restore the enhanced premium tax credits, and also to either delay or get rid of some of the Medicaid cuts from the One Big Beautiful Bill. So, that does appear to be kind of some top priority items for the incoming Democrats in Congress. I do think there will be some negotiations and compromise at the executive level, and likely that some of that will go through.
I think the structure of the One Big Beautiful Bill with delayed cuts to begin with and were not scheduled to start till 2028, which is going to be another election cycle, and then phasing those in over 10 years, it was unlikely that those cuts ever went into full effect anyways, giving themselves an opportunity on the Republican side to probably delay or defer some of those cuts to begin with. So, even now with a change in congressional leadership, I think it is more likely that that may be accelerated some anyways.
Okay. Your overall volume held up pretty well in 3Q, but the mix was a bit tougher. Do you want to just describe for people what you are seeing, and is that pretty much what you are expecting and has continued into the fourth quarter?
Sure. What we're seeing is a bigger impact on the reduction in HIX patients coming in as uninsured. Pretty significant portion of the increase in ER visits have all been uninsured patients. Likewise, almost half of our adjusted admission increase in the third quarter were uninsured patients. I think we're capturing business. We're, I think, picking up market share, as I'd indicated, almost an 8% increase in physician clinic visits during the quarter. Patients are still coming to see us. It's the higher acuity services that's really been a drag on margin and kind of the top line growth.
When they defer that surgery, as we talked about before, with the visits and the imaging that's being done, and people need it, can you hold onto that patient, or is that patient at risk generally of maybe down the road, for some reason, you won't get that procedure? Is there any indication of how long some of those types of procedures can be delayed?
I think a patient who defers care is always up or in play, so to speak, the capture. In this particular situation with disruption across the market, some of the work that we're doing is a system to improve our quality, improve our physician experience, improve our patient experience, some of the top priorities we've really been investing in. I think that actually becomes an opportunity for us because patients and our competitors are also deferring care. We believe that we have an opportunity to capture more of that and hold onto our own patients, but also maybe capture more of the patients who are outside of our system when they decide to come back for care.
Right. Okay.
But to your maybe last point of that question, it is hard to have visibility at this point, unless they are actually on the schedule.
Okay. I mean, there's talk about using AI and things like that to check up on patients that haven't followed through on procedures. I don't know how widespread that's deployed even in the industry, but are you looking at any of that type of stuff?
We are. So we have a patient access center, which is a kind of a centralized call center, if you will, that does reach out, that does scheduling, that can prompt patients who are in our system if they haven't followed through on orders and so forth. So we are doing more of that reach out today than we ever have, and looking at deploying some AI to help do that.
Okay. Okay. When you think maybe stepping back from the current environment, where do you see the best opportunities to grow over the next few years? Is the bigger opportunity to add more entry points into your markets or getting more out of the networks you already have?
As we look out ahead and think about where healthcare is going to be delivered in the next five and 10 years, I think the growth opportunities are in the outpatient ambulatory space, with site-neutral payment continuing to get more traction in D.C., the payers pushing more patients to the outpatient setting. Technology, for that matter, making it easier and safer for care to be delivered in outpatient settings. I think that's really the growth area. Telehealth, maybe even another area there enabled by technology. As we are looking at investments, I think there are greater opportunities for investments in that ambulatory space. Currently, we have, call it roughly 12- 13 ambulatory locations per hospital. So I see us probably leaning a little heavier there from an investment standpoint.
At the same time, that can help offload some of the care that's being delivered in the hospitals today to free up space for other service lines that we can invest in, higher acuity service lines that will result in a growth in the inpatient side as well. So I don't think that growth in outpatient is at the exclusion of inpatient, but I think overall, that's the outpatient ambulatory space is where healthcare will grow the most.
And you have added some surgery centers this year and talked about the physician alignment as an important part of your overall strategy. Maybe comment on the number of types of opportunities out there. What presents a good opportunity, and how do you see that developing over the next few years?
We still see those opportunities really anchored around our acute care hospital, building out a network of care within a community. We are really offering care across the whole continuum, from primary care, urgent care, freestanding EDs, ambulatory surgery centers, inclusive of the acute care hospital, and then post-acute, behavioral, inpatient, or outpatient rehab services, kind of those post-acute care sites. Really, each market is a little bit different in terms of whether it is a competitive environment or just the demographic needs in those communities. But looking at the services available and service necessity in each market, we kind of evaluate those by the ones.
And maybe just thinking about the resiliency of the business, if the elective demand takes longer to recover, what parts of your growth plan can still move forward without that recovery?
Certainly our investment in quality and patient experience and physician experience, kind of our vision of making the healthcare experience exceptional, which has been a little bit of a transition for us this year, will continue, even with some slower recovery in elective procedures, because I think that sets us up for improved growth in the future and sustainable growth in the future. That will also set us up for taking additional market share. We are continuing to focus on that. I think the outpatient, as we have invested in surgery centers a little more heavily recently with the acquisitions we did earlier this year, continuing to focus on those opportunities. Whether it is acquiring or just partnering with existing physicians in the market, those are all things that we are focused on.
And then maybe one more point on physician experience is we're able to improve that and make improvements in physician retention, will allow us to grow the physician base at a faster rate. As we do that, I think that sets us up for further growth by adding, whether it's primary care physicians or specialists, those doctors that are building patient panels in our communities, that's where the growth will come and will insulate us a little bit more from some of the uninsured business.
Yeah, you have expanded your employed physician base this year, and you've talked about improving retention. What specialties are you most focused on adding, and how long does it usually take for that investment in the new physician to translate into more procedure volume?
Really, the focus on cardiology, orthopedics, and general surgery is probably the three top kind of service lines that we would be focused on recruiting, as well as primary care, because you want a base of primary care doctors who are referring to those specialists. So, that's really been our focus. Those are higher margin service lines as well. So that's kind of where the direction we're going.
Is the availability of those specialties improving, about steady, or how would you describe it in this environment?
It's difficult.
Okay.
It can take a year or more to recruit a physician in some cases, but we've also had some really good luck with not only recruiting physicians from maybe outside the community and bringing them into the community, but also aligning with physicians who are already there. When we're able to do that and take a specialist, for instance, or even a primary care doctor who is with the competing network and bring them into our network, they're bringing their patient panels with them, so the ramp-up time is also shorter, and we get an immediate lift.
Okay. All right, interesting. Maybe pivoting over to the expense side of the income statement is, labor's your biggest expense item, supplies second, and then you've got all the other, including professional fees. Where is the best opportunity for further margin improvement from here, and where is your biggest challenge?
Kevin, I'll jump in to give you a little bit of a break. Expenses have been well controlled this year. For the third quarter, same store operating expense per adjusted admission, when you exclude the provider taxes, because there's a revenue offset, we're just up 1.3%, so lower than inflation. Salaries and wages and benefits is the largest single one. I think it was up 2.3% on the same store basis, so still well managed. Supplies expense has been successful at managing that. The one outlier has been medical specialist fees, which were up 14% year-to-date on the same store basis, and that continues to be anesthesia and radiologists. In terms of opportunities to address those, it really is a market-by-market situation where we look at the contracts there, we consider what the right model is. Is there an opportunity to insource?
Is there an opportunity to lease our employees to the provider and have them bill for everything? It just depends, and ultimately it comes down to a supply-demand issue on those specific positions. There's not enough of them to go around.
Is it more having to pay up to get them in there, or is it the volume dynamic where you're needing to subsidize existing groups that you have, or is it a little of both, probably?
It's a little of both, and it's them coming to the table on the contract demands with demanding more or pulling the service, in which case you look at potentially having to pay even more for locums than had you had a contracted rate, even if there's subsidies in it.
Okay.
Overall, we've got the ERP that we put in place, which has been a big help for us in controlling both labor and supplies. I think there's still opportunities there to continue to drive those expenses down, and also to look at some more of the purchase services side on the supply chain.
I know you've talked about taking actions that would generate about $100 million in annual savings. How much of that benefit is already showing up, and how much is still in front of you?
Yeah, so that $100 million is actions that we had taken, and that's what we expect to realize on an annual basis starting in the fourth quarter. I think fourth quarter we expect to be about $15 million-$20 million of that, and kind of view that as ways to keep the operating expenses down below inflationary amounts and perhaps even pay for other investments that we're making in areas such as quality and patient experience, physician experience.
Is that any particular areas where that was focused on?
It's a lot of the corporate and shared services cost, supply chain, and certain actions there. Again, we come back to the ERP, but we also brought that into a centralized service and were able to do more purchasing centrally, making sure that we're managing our contracts appropriately. Even if you're buying on contract, perhaps it's better to have fewer items that you're able to purchase rather than many. Just the more insight into data and processes.
Is there one particular supply category that's in focus as a potential area, or just we're talking about everything across the board?
Well, it's a lot of the high-dollar items, pharmacy, generally everything, but yeah, it's definitely the higher-dollar implants, pharmacy, et cetera.
I know one of the things you talked about is rolling out ambient listening, and I think you've said you've got that now used in more than 1 million encounters. Where are you seeing the clearest benefits so far? Is it giving providers more time with patients, improving documentation, starting to show up financially in any way?
I think it's improving documentation, certainly. It's also been a big satisfier, physician satisfier. So, not giving them so much in terms of time with patients, but it's giving them back time that they call pajama time. They're not having to spend as much time, personal time at night after they go home filling out charts. Those charts are being completed. They're able to just review them more efficiently, and I think the quality of that patient record is significantly better using the ambient technology.
Okay. A lot of discussion about AI opportunities in healthcare more broadly beyond the ambient listening. What other applications are you looking at, or what are the other opportunities, if any?
There is a number of opportunities that we are pursuing both in administrative functions as well as even some of the clinical functions, including, as we just talked about, with the patient acquisition and being able to provide a better experience or make scheduling easier and that sort of thing. With our ERP that Jason just mentioned, when we purchased Oracle about four or five years ago and started the implementation, the build, then the implementation, there was no AI built into the ERP system.
Okay.
Today, there is over 600 AI agents built in—
Whoa.
—to that ERP platform. That is a cloud-based platform, so we have access to all of those. Now, we haven't implemented all of those.
I was going to say, are you deploying some—
Yeah.
—better days?
We are evaluating and deploying. Some of them have been deployed. We are starting to deploy those agents, but we did not have to invest in developing those agents because we are using a cloud-based ERP product. Oracle has developed the products, tested them, or been ensured they work appropriately. Now it is just us kind of doing the work necessary in our workflows to start to deploy them and take advantage. There is significant opportunity out there as we continue to roll those out.
Okay. We talked about earlier, exchange coverage has been a challenge this year given the loss of the enhanced subsidies. Can you just remind us, are you seeing those patients diminish their utilization, or are they still utilizing, and are you seeing them almost 100% go to uninsured, or are we getting any commercial coverage out of that?
We're looking at a population of patients and not on a one-by-one basis, but what we have seen is that the reduction in the exchange is having. We've seen a one-for-one basically increase in uninsured. It looks like as a whole, that population of people who lost enhanced premium tax credits largely became uninsured.
Usually, when someone becomes uninsured, it does affect their utilization patterns, but it doesn't seem like that's happening this year. Is that what you would say?
I think that's right. I mean, sorry. I think what we've seen is these folks haven't changed their behavior, and they were probably, they were large utilizers of the ER when they had a HIX plan, and they've continued to do so. We didn't collect a significant portion of their portion of the bill when they had in HIX plan insurance, and they continue to come in and not pay through the ER.
A lot of debate about how to think about year two of the loss of these enhanced subsidies. Is there a meaningful incremental tailwind, a headwind rather? Would you guys have an early view on that?
I think we have one quarter. I think it is fair to say we have one quarter left before the expirations in a full 12-month run rate because it started to ramp up in the second quarter of 2026. As it relates to open enrollment that is going on right now, I think seeing something like a 13% increase in premiums, which is actually lower than the maybe 20%—
Right.
—last year. So, still elevated, but less than last year. So, we are keeping our eye on what that enrollment does look like.
So, your initial thoughts being less than—
Yeah, I would.
—your headwind.
I would think it could be some headwind, but I think it would be less than certainly, by the time you get to the full 12-month impact, the $110 million impact from the—
Right.
—the expiration of those premium tax credits.
Right. There's also a lot of debate about Medicaid work requirements and what that could mean. When you go back to the original discussion, it was targeting the proverbial 30-year-old male on the parent's couch in the basement playing video games. That does not seem like a high utilizer to me of hospital care, but it does seem like each hospital company's calling that as a potential headwind for next year. How are you guys thinking about it?
Yeah, we think, and this is based on what we've seen in independent studies, that by and large, the Medicaid population will qualify or won't be subject to the work requirements, or likely meet those requirements to work or have community engagement. We think that's the case for our markets, and we're trying to look at correlation between what's happened with Medicaid enrollment in our states versus what we've seen in our hospitals as a percentage, and we're working through that still. But I think the risk is going to be ultimately on the redetermination moving up to every six months, and how will the states execute that, and how hard of a line will they take, and then what will the people with the Medicaid who are able to get enrolled do the actions that's necessary.
It'll be on us to, when they present, and if they've lost or don't have coverage, to try to take steps to educate them and get them re-enrolled if they happen to have lost just because they didn't take the step—
Right.
—of doing the redetermination.
One thing that we hadn't talked about for a couple years, and now all of a sudden with the election results, has come back into a bit of focus is the 10 states that have not expanded Medicaid and whether any of those might revisit it. Do you guys have any view in your states whether there's any that might actually take a look at it?
There hasn't been any talk at this point of states re-looking at it. I don't know that we, at the end of the day, there's been a significant difference in terms of, because about 50% of our states did expand Medicaid.
Yeah.
The other half didn't, and we haven't seen a measurable difference between utilization of Medicaid in each of those states. I'm not sure at this point it would have a tremendous amount of impact, but our states also haven't. It's too early that they haven't really begun talking about it.
There's the debate about, well, in the states that didn't expand, some of those people got covered by exchanges. Now, I don't know whether those have generally lost coverage because of the loss of the credits. But then there's also the dynamics of how the supplemental payments ratchet down, whether you're an expansion state or not.
Right.
I mean, there's a lot of variables in there. Are you guys thinking, "If I've got state XYZ, I want them to expand," or, "I'm not even 100% sure if that'll be positive for me"?
I think I would say we're not 100% sure that'd be positive—
Okay.
—for us. What we do think is maybe more likely the case is that some of these Medicaid cuts won't go into effect—
Right.
—or will get delayed. Before we would want the dust to settle on any additional expansion or not expansion, get more clarity on what the rules are going to be around reimbursement, would certainly weigh into that equation.
Yep. I think you did call out commercial rate updates as being a bit of a tailwind for 2027. How are those conversations going, and are we talking mostly about rates? Are we talking about prior authorizations, or what else would you call out there?
Yeah, on the rate side, I think we're still seeing 3%-5%. We're mostly contracted for 2027 at this point, and we're seeing 3%-5%, which is consistent with what we saw for 2026. The negotiations, a rate is obviously part of it, the payment terms and practices, et cetera, also part of it. Ultimately, there's an interpretation of these contracts for what's considered a clean claim that's paid more timely, and—
Right.
—that's where I think a lot of it comes down to. We think it's a clean claim, they may—
There's a lot of policy focus on prior authorizations. Have you seen any change on—
We've not seen any material change in prior authorization. In fact, if anything, it's slowed down.
Okay.
I think part of it's hard for us, particularly with a number of our physicians, the primary physician base at our hospitals are independent physicians. In that case, a prior authorization coming from an independent physician that's been denied, we may not have visibility into that. So, we may be not seeing a patient because of a delayed prior authorization. I do know that, at least on the orthopedic side, they are slowing down authorizations for procedures or requiring additional weeks of physical therapy before they'll approve the next step, even requiring physical therapy before they'll approve an MRI. Some of that, I think, is also, we're seeing the impact of that in terms of slowing down of some of these procedures translating into surgeries.
What is the latest on the 2026 Florida supplemental payment? Has that gotten addressed?
No change yet. We are still waiting for CMS to approve the waiver.
Anything you are hearing at all?
We do not.
Don't get anything?
It's a black box.
Yeah, it's a black box.
Mm-hmm. When we think about, obviously, as you said, there's some hopes and maybe it's even picked up with the midterm results, but the industry is facing these supplemental payment cuts in 2028 and beyond. Is that something where you're taking steps even now to prepare for that, or is it something that you have to wait and just sort of see how it plays out?
I think we're taking steps. Some of the cost-cutting measures that Jason was talking about, some of those things we're putting in place, looking to further expand AI and just become more efficient in our administrative functions, looking to expand in the ambulatory space. I think all of that starts to create a faster growth profile for the company and ultimately will benefit us even when those cuts potentially go into effect.
Okay. I think you did mention that you think you might get $25 million-$30 million on the Rural Health Transformation Fund, largely to fund capital and software projects. How should we think about that award and looking beyond the first award, anything you learned through that process that will help you in subsequent years?
Yeah, so $25 million-$30 million of year one awards, that will [audio distortion] the cash that will be 2027. The income recognition, since it's mostly capital, will be multi-year, maybe five-year on average, something like that. Year two has kicked off, or starting to kick off. States may not have released all the grants or said exactly what they're going to be, but they're beginning to engage. What we've learned from year one to year two is that I think we got to look for more opportunities to try to find partnerships that seem to be favorable in certain states. We applied for everything that made sense, and I think we'll continue to do that. We were successful for about a third of our applications, which I understand is pretty positive.
Right.
I think it's more about maximizing those dollars and continuing to look for ideas to partner and—
And is the amount that's likely to be distributed consistent from year to year, or is it going to step up?
They have just announced the year two allocate, they being CMS, to the states, and for our states, it's a slight increase.
Okay.
There's some differences within the states, but our states have received just a slight increase from what they got in year one.
Given the lack of preparation by the states coming into year one, in the relatively short window that we had to actually put in applications, we looked largely for what you might call shovel-ready projects or very simple projects. I think doing that served us well, which is why we had a 30% success rate on our applications. With more time, as we look into year two and even begin to look into year three and four, although states haven't come out with anything yet, we will have time to start being maybe a little more strategic, thinking about different types of projects, as Jason just mentioned. Maybe it's partnerships, maybe it's working with some community foundations or other partners to build out more strategic opportunities to provide access to care within our communities and may open up some more opportunity for us to get some additional dollars.
When I hear you and others talk about this, the One Big Beautiful Bill, the reason they threw this in there was to help mitigate the pressure from the supplemental payment cuts that were coming down the path. Doesn't sound like to me that what they've done with it is going to, in any way, really make much of a difference.
No, it doesn't. We've got three, four more years to try to make sure that everyone understands that there's certain things that could be helpful for us, including some of the limits that they put on those dollars.
But very little of those dollars are going to providers.
Yeah.
Right. Just a question on the balance sheet as we wrap up here. I know you reduced debt about $810 million this year. You've got cash flows, you've got some divestitures you've done. How should we think about it? I know you don't have a major maturity until 2029, so you've got some time, but how do we think about the capital structure and priorities?
That's a great tee-up for you, Jason.
Yeah. First, in the 2029 debt, we have a first lien tranche of $600 million that's due in the first quarter of 2029, and then we have a second lien of $1.244 billion 6.875% notes due, I think, in April. We actually just launched an exchange last night after market, so people have seen this come out yet, offering to exchange for first lien 2035, 10.25% notes. So that will push out the maturities, give us more time to add value, and it will leave that $600 million left of first lien that we'll take care of and clean up in the next year, within the next year.
Okay. All right. Well, I really appreciate you guys taking some time with us today.
Yeah. Thank you, A.J..
That was great. We covered the waterfront. Let me just see if there's. Next up in this room at 5:00 P.M. will be Delcath Systems. But thanks again.
Yeah. Thank you, A.J..
Thank you.