Hello, and welcome to the Tenet Healthcare Corporation first quarter 2021 earnings conference call and webcast. At this time, all participants are in listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Regina Nethery, Vice President, Investor Relations. Please go ahead.
Thank you. We're pleased to have you join us for a discussion of Tenet's first quarter 2021 results, as well as a discussion of our updated financial guidance for the year. Tenet senior management participating in today's call will be Ron Rittenmeyer, Executive Chairman and Chief Executive Officer, Saum Sutaria, President and Chief Operating Officer, and Daniel Cancelmi, Executive Vice President and Chief Financial Officer. Our webcast this morning includes an accompanying slide presentation, which has been posted to the investor relations section of our website, tenethealth.com. Listeners to this call are advised that certain statements made during our discussion today are forward-looking and represent Tenet management's expectations based on currently available information. Actual results and plans could differ materially. Tenet is under no obligation to update any forward-looking statements based on subsequent information.
Investors should take note of the cautionary statement slide included in today's presentation, as well as the risk factors discussed in our most recent Form 10-K and other filings with the Securities and Exchange Commission. With that, I'll turn the call over to Ron.
Thank you, Regina, and thank you all for joining us this morning. I have a few comments on the quarter and will then turn over to Dan for more specifics on our performance and forward guidance. Reflecting on the first quarter, as happens many times, there were a series of events and issues that emerged. The issue is not whether these occurrences happen unexpectedly, rather whether we can develop an organization that can adjust, flex, and importantly, make decisions that are immediately actionable. Our objectives over the past few years have been focused on transforming the entire business into an agile and responsive unit, built on sustainable fundamentals, which are improved by both experience and real learnings. This allows us to learn as we go forward and provides an action-oriented mindset to solving, not just reacting to, issues that we face but cannot always anticipate.
Let me touch on a few highlights of the quarter. First, strong business fundamentals supporting the first quarter EBITDA that was above the high end of our outlook and above consensus, even excluding grant income. Outperformance in substantially all of our hospital markets, and very solid results at USPI, both amidst continued COVID challenges and severe weather impacts created by Winter Storm Uri. The storm presented challenges across major parts of our system, and our response was immediate, focused, and it resulted in a quick recovery. We are refining and bolstering our USPI portfolio to create a singular focus on surgical care, and there'll be more about that in a minute. Conifer continues to generate strong margins and made strategic moves to further evolve the revenue cycle capabilities, expand client offerings, and build on our leadership bench.
We successfully signed a new multi-year contract with UnitedHealthcare four months earlier than the expiration of our current contract. We maintained ongoing discipline with respect to our balance sheet, delivered strong key cash flow, generation of $413 million, which builds on our progress from 2020. Although based on our expectations for the balance of the year, we're raising our outlook. Altogether, I should say. Based on our expectations, we're raising our outlook for 2021, Dan's going to get into those details. In our hospital segment, as I said, substantially all of our markets exceeded their EBITDA budget for the quarter. This positive budget variance was primarily due to high patient acuity, a favorable commercial mix, and tight management control. The outperformance is also notable given the many obstacles we had to surmount in the first quarter.
Because of Winter Storm Uri, many markets experienced a significant impact as patients canceled, and we had to manage through the related operational issues. As you know, we have a major presence in Texas and other southern states, those areas were somewhat halted during the snow and the ice, which had a ripple effect on power and water supply. The effect was about two weeks long on operations, it was not insignificant, especially for those of us who lived and worked in the impacted areas. The outperformance on hospital markets' EBITDA budgets excludes grant income, that should help provide a truer sense of how we are driving improved performance across all of our businesses. We continued to face challenges related to the pandemic. In general, COVID has ramped down, the peaks, while smaller, remain a continued focus of our markets.
We agree that vaccines are a critical component and have engaged wherever possible to speed the rollout. As of the beginning of the week, we had administered more than 327,000 vaccine doses, benefiting more than 147,000 people. We stood up countless vaccine clinics in our facilities and through partnerships with churches, educational institutions, city councils, state and local governments. We focused on enhancing accessibility and bridging the cultural disparity gaps, including helping families in underserved populations. Conifer has done an exceptional job once again with registration and scheduling processes, which are crucial components of our ability to vaccinate within those communities. The team has provided a high touch level of support, both together with Tenet and with other clients. For now, COVID does remain a real and ongoing threat, and we have learned to address it as part of what we do versus the exception.
Our knowledge of the virus and its unexpected turns has also improved sustainability. Our approach is truly centered on quality and access. Everything from providing a safe access point, the establishment of COVID infrastructure, tele-ER services, allowing visitors to see their family members, maintaining constant lines of communication with our patients, physicians, and staff, and rescheduling canceled procedures at a very high rate. USPI had a very strong quarter. By the way, it faced many challenges, lingering impacts of COVID in certain geographies and Winter Storm Uri. USPI had the most significant impact related to the storm in parts of Texas and Oklahoma, with many centers having to shut down, some for up to a week. We experienced high rates of cancellations. We recaptured over 90% of those cases, which is very consistent with the expectations given the circumstances.
Also, the case volume appears to continue the acuity levels that we've anticipated and experienced. As I mentioned earlier, we've made some changes to the operational scope of USPI. In addition to the sale of our urgent care platforms, which we expect to complete shortly, we're transitioning 25 imaging centers over to the hospital segment that were previously managed by USPI because they were tightly linked to our integrated delivery system in those markets. Those two moves support critical elements of our 2021 strategic priorities, including establishing a singular focus on surgical care at USPI. We have already established USPI as the best elective specialty-based surgical platform in the country, which we will continue to scale.
Our program focuses on care that is of the highest quality, provided by leading clinicians in their field, that is easily accessible, and that is delivered at a lower cost than the traditional hospital setting. Of course, you are all familiar with the SCD transaction we completed in December, which brought 45 quality centers to USPI, primarily in the high acuity musculoskeletal space. In Q1, we added three more SCD centers, thanks to our ongoing relationship with SCD and its partnered physicians. The integration of the SCD portfolio is on track and is going very well. Our new employees appreciate the comprehensive onboarding process, along with the additional support and resources, and we've had positive feedback from our new physician partners.
USPI continues developing and addressing a strong portfolio and strong pipeline, including tuck-in acquisitions, de novos, and other deals in various stages to keep us on schedule with our stated plans. In addition to the M&A activity in USPI, we also, in the first quarter in USPI, had 16 new service line starts covering a range of specialties, including total joints, spines, and robotic-assisted surgeries. In addition, about 530 physicians joined our medical staff at USPI. These are both really clear indicators of demonstrable growth, both organically and by acquisition. Net, by every measure, USPI had a great quarter. Dan will explain the outlook and guidance for USPI clearly has upside. Let me move on now to Conifer. Conifer had delivered another solid quarter and continued strong margins. Last year was a banner year for Conifer in terms of cash and AR day improvement.
Both continue to be strong in the first quarter, and we also increased clients' reference ability across all primary lines of business versus the prior year. We have early signs of progress with our new growth initiative with contract extensions of existing clients like NorthShore University HealthSystem and LCMC Health. Our new business pipeline is also growing as we look at how we can further differentiate Conifer with point solution capabilities, which are essentially capturing opportunities on the front, mid, and back end of the cycle. When you think about the overall healthcare journey, there are roughly eight or nine points along that spectrum. While some clients may still seek the complete end-to-end solution, others can benefit from Conifer's best-in-class service and years of expertise at other point solutions throughout the revenue cycle.
Finally, Conifer continues to grow its executive leadership team, adding a new CHRO transition from within Tenet, who led our GBC efforts to boost talent efforts as we prime for growth and enhance our global workforce and prepare for the spin. We also created a new position of Chief Technology Officer, who will join Conifer this week and will help accelerate our innovative Nearmap patient experience and tech-enabled programs. The first quarter was another very vivid example of how the business fundamentals properly adjusted for the situations we face, results in sustainable performance. These are not a result of luck, but rather data-driven real-time analysis, properly executed and repeated. With that, I'm now going to turn it over to Dan for discussion of the quarter and guidance. Dan?
Thanks, Ron. Good morning, everyone. Let's begin on slide six. Our financial results in the first quarter came in well above our expectations, despite a strong COVID surge early in the quarter and the impact of Winter Storm Uri in February. We produced adjusted EBITDA of $777 million compared to $585 million in the first quarter of last year, and $623 million in the first quarter of 2019. This equates to a two-year compounded annual growth rate of approximately 12%. All three of our businesses performed very well in the quarter, in particular, our hospitals. As Ron noted, nearly all of our hospital markets exceeded our expectations. Our hospitals are performing more consistently month to month, continue to diligently manage costs despite a myriad of incremental expense pressures due to the pandemic, and continue to be more disciplined and forward-looking in strategy development and capital allocation decisions.
These actions are contributing to hospital margin improvement. Our hospital margin in the quarter, without grants, was about 100 basis points higher than calendar year 2019 before the pandemic. I do want to remind everyone that our hospital margins include all of our corporate overhead costs and do not include the results of our very strong margin ambulatory business, which is reported separately. Although hospital volumes have not yet recovered to pre-pandemic levels, especially lower acuity cases, our focus on higher acuity service line development has been a very important driver of historically high net revenue yield per adjusted admission, which increased about 19% year-over-year. Needless to say, we're very pleased with how our hospitals are performing, which gives us a lot of optimism as we think about the rest of the year and beyond.
USPI also continues to deliver strong results, and the integration of the SCD portfolio of centers we acquired last December is going very well. Patient acuity remains elevated as net revenue per surgical case increased about 5% compared to the first quarter of last year. USPI generated $257 million of EBITDA in the quarter. EBITDA minus NCI expense was $165 million compared to $99 million in last year's first quarter and $109 million in Q1 2019 before the pandemic. Let me be clear. Even though USPI recognized $13 million of grant income due to the impact of the pandemic, which was not in our guidance, USPI produced a strong quarter, especially in light of the challenges from the winter storm in February that closed many of our centers for up to a week. We remain confident in USPI's robust guidance for 2021 and its future growth opportunities.
Let's now turn to Conifer for a minute. Their EBITDA for the quarter exceeded our expectations, and they produced another strong margin of 27.7%. Conifer continues to deliver very effective revenue cycle performance for us and other customers. Our cash flows were another bright spot in the quarter as we generated $413 million of free cash flow. Conifer's cash collection performance for our hospitals was an important contributor to our strong cash flow in the quarter. As we previously announced, we early retired $478 million of 7% debt in March with cash on hand. Turning to slide seven, here we summarize our EBITDA by quarter for our three business segments over the past year you can see how our operations have been managing through the peaks and valleys of COVID cases with and without the stimulus funding.
Despite the increase in COVID cases in the early part of Q1 and the impact of the Winter Storm, we delivered strong first quarter results that built on the positive momentum we produced in the back half of last year. Let's now look at volumes for the quarter on slide eight. Overall, volumes held relatively steady compared to the third and fourth quarter of last year when you consider the significant spike in COVID cases in January and the impact of the Winter Storm. As a result of the storm, some of our USPI facilities had to close for a brief period of time, and certain of our Texas and Memphis hospitals were also adversely impacted by the storm. Nevertheless, all of our facilities were back up and running soon thereafter, and a large portion of the delayed elective procedures were rescheduled.
Let's now turn to Slide nine and review cash flows and liquidity. We continue to be in a strong liquidity position. We have over $2 billion of cash on hand and no borrowings outstanding under our $1.9 billion revolver. As I mentioned earlier, we retired our 7% unsecured notes, which will save us over $30 million of interest going forward. Our cash flow generation continues to strengthen. We produced over $400 million of free cash flow in the quarter compared to negative cash flow of $53 million last year and negative $182 million in the first quarter of 2019. Our leverage ratio at the end of the first quarter was 4.37x EBITDA and 5 EBITDA minus NCI expense. We will receive about $80 million of cash proceeds from the sale of most of our urgent care centers, which we expect will close by the end of April.
We recently renewed the $400 million upsizing of our revolver capacity to $1.9 billion, and we now have almost $3.4 billion of available secured debt capacity. Slide 10 highlights key cash inflows and outflows during the quarter. We've been providing this analysis since the outset of the pandemic to illustrate we've generated net positive cash flows when you exclude non-routine cash from stimulus funding and cash used for non-routine transactions, such as the early retirement of debt. I want to remind you that in April, we did begin repaying the Medicare advances we received last year. The repayment of those advances, as well as the payroll tax match, are included in our cash flow outlook for 2021. Turning to Slide 11, let's review our updated 2021 guidance.
As we disclosed in our press release, we have increased our EBITDA guidance for the year by $100 million to $3.1 billion at the midpoint. Slide 11 provides a walk forward of our 2020 actual EBITDA to the midpoint of our expectations for 2021 by business unit. Several key changes to this walk forward since we initially previewed it during our Q4 earnings call in February include the elimination of the Medicare sequestration revenue reduction that was scheduled to be reinstated April 1st. As you're probably aware, the President signed legislation last week that extends the suspension of sequestration through the end of 2021, which will provide us additional revenue this year. You may recall, in February, we indicated sequestration would be a $46 million headwind this year.
We added a line to the slide that shows the stimulus grant income of $37 million we were able to recognize in the first quarter due to lost revenue as a result of the pandemic. We had not projected any grant income in our original guidance due to the uncertainties as to the realization of grants this year. As a result of these uncertainties, we are not incorporating any additional grant income in our guidance for the remainder of the year. We have realigned our imaging business under our hospital teams effective April 1st, that were previously operated by our USPI team. This will result in a shift of about $25 million of EBITDA from USPI to our hospital business. The transfer of the imaging business to our hospitals is the reason why we reduced USPI's 2021 revenue guidance by $100 million.
As for cash flows, at the midpoint, we anticipate generating free cash flow of about $1,250 million this year before taking into consideration the repayments we'll make this year of approximately $700 million for Medicare advances and a deferred company payroll tax match. After subtracting expected cash NCI payments of $470 million, results in positive cash flows of approximately $780 million this year. As I mentioned in February, while we will have to repay the $700 million of Medicare advances in deferred payroll taxes this year, we have already sufficiently reserved for that amount in our balance sheet cash. The recurring underlying free cash flow generation of our business has significantly improved over the past several years. We delivered strong results in Q1, which gives us more confidence about the year as we move into the second quarter.
Before I turn it back over to Ron, I want to thank all our caregivers, physicians, and employees who are devoting exceptional service to support the delivery of quality care for our patients during these very challenging times. Ron?
Thanks, Dan. Look, excuse me.
I live in the pollens capital of the world. Look, the quarter was a good quarter. We feel we delivered and delivered well and overcame the challenges that, of course, you don't anticipate just by definition. I think with that, Regina, we'd be more served to get into questions and see if we can give ample time to the question period rather than any more comments.
Thank you.
We're ready for questions.
Thank you, Regina. We're now conducting a question and answer session. We ask you please ask one question, then return to the queue. If you'd like to be placed into question queue, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. Once again, that's star 1 to be placed into question queue. If you're on a speakerphone, you may need to pick up your handset before pressing star 1, and we do ask that you ask one question, then please return to the queue. Our first question is coming from Josh Raskin from Nephron Research. Your line is now live.
Hi, Josh.
Hi, good morning, guys. Question here is, we keep hearing more and more about these new sort of provider organizations that are focused on value-based care, and sort of every single one of them just points to these significant reductions in bed days per thousand, and that's sort of one of their keys. I know it's still early, and I feel like we haven't really seen an impact for Tenet, and maybe that speaks to your sort of higher acuity focus and the service line expansions that you guys have been sort of proactively seeking. What's the strategy in terms of taking share in the hospital segment? Maybe conversely, how are you working with these companies to accelerate the growth on the ambulatory side?
Hey, Josh, it's Saum. Let me start. First and foremost, our commitment to value-based care is very strong. I mean, we obviously operate very efficiently. We provide a very good value to both commercial and government payers, on the basis of the efficiency and obviously quality and safety of the care we provide. We're substantial participants across the country in Medicare Advantage, which is probably the most mature value-based program that exists. As we've mentioned before, we are, if not the largest, among the largest participants in the BPCI program and continue to remain very relevant and successfully relevant in that space. I think there's a couple of things with respect to your question, specifically around bed days per 1,000. Look, the seniors population, obviously, over this decade is growing and going to grow substantially.
I mean, you're talking about in excess of 20, 25 million new seniors most likely in the environment and aging from that perspective. The demand is going to go up, and how we use hospital beds is going to be pretty important. There's a lot of variability in bed days per thousand around the country, somewhat based upon health status demographics, and somewhat based on value-based care. In every one of the markets in which we participate, when we do our strategic planning, we're very cognizant of that. We think about the capacity needs. We think about it with respect to the capital we deploy to expand our capacity, if we need to expand our capacity. Obviously, with USPI, we're at the leading edge of embracing the outpatient environment and seeing what things will move into the outpatient setting.
Last comment I'll make is the other thing that Brett and team are very engaged in are direct-to-employer value-based contracts which give access and utilization to the surgery centers. We're early stages in that type of thing. The market is early stages in that type of thing. Again, because of the value we can offer at USPI, we already participate in those types of programs. We feel pretty good about them. It brings USPI centers and doctors patients from more distant geographies based upon employers that are looking for high quality and high value. I think that touches on four or five ways in which we're kind of active in this market.
Perfect. Thanks.
Thank you. Next question is coming from John Ransom from Raymond James. Your line is now live.
Hey, John.
Hey, good morning. Are you seeing in USPI any material uptick in total joints given the new Medicare regs?
Hey, John, this is Brett Brodnax. Thanks for the question. Yeah, I mean, just to kind of give you a sense of our growth in Q1, our total joint business grew 110% over Q1 of last year. A portion of that is related to Medicare hips. Obviously, not a large portion of it. I would say that if you think about kind of going forward, you think about the number of total hips that we do in a given year, our guess is that approximately 30% of those are going to be Medicare hips, the rest being the commercial hips. We're also seeing because the total knee was approved in ASC last year, we've also seen a nice uptick in total knees in our business as well, including Medicare.
Thanks a lot. Just as a follow-on for that, and going back to Saum's comments about value-based care, where are you using the inning analogy? I mean, to me, the relatively simple thing to do for Medicare Advantage is to package an outpatient total joint with a post-acute heavily focused on home care. Where are you at all? Are we dreaming that this is actually going to happen, or is it not going to happen because it makes too much sense?
This is Saum again. I think a couple of things. First of all, we partner with our physicians in both the acute care setting and in the ASC setting to provide options that are best for the patients. Ultimately, the doctor-patient relationship is something that we value greatly. The physicians, when they bring the patients into the ASC setting in particular, they have a very structured approach to thinking about what post-surgical care upon discharge might be needed. We participate with them in helping to facilitate that. I would tell you that it varies greatly today in terms of the type of post-surgical care that is actually needed. I'm not sure how to answer the question with proportions or numbers, but more to say that really the physicians are very thoughtful about this before they bring patients into the ASC setting.
I guess where I was going, and I'll get off after this, is are you able to create bundled packages where you can go to a payer or an employer and say, "Gosh, we'll do the whole surgery post-acute care for this bundled price, and then you contract downstream with a post-acute provider and get invested along with the payer in terms of steerage to a much lower cost, probably equal quality side of service?
John, as I described earlier in the earlier question, there are employers today that we are engaging with in what I would describe as early-stage pilots in those sorts of models. The fact is, it is not something that we're focused on broad-based within this business, nor is there market demand for that type of focus in this business from what we're seeing today.
Yeah, the only other thing I would add, John, is we have talked to a couple of different payers about this. Quite honestly, they would like to do it. They have a vision of being able to bundle the joints going forward. Right now they're having problems in terms of how to administrate or adjudicate the claims from all the different providers that are a part of the bundle. Until they figure out the technology to do that, maybe some of them have, others haven't, I think it's going to be really hard to get a lot of traction with the bundled joints.
Thank you. Our next question is coming from Brian Tanquilut from Jefferies. Your line is now live.
Good morning, guys, and congrats on the good quarter. I just have one question. As I think about your Q2 guidance, obviously pretty strong. I think you mentioned that we haven't really seen much of the recovery yet, or COVID was still an issue in Q1. How are you thinking about the recovery pace as we think about the Q2 guidance and maybe what you can share with us in terms of scheduling? Are we getting people coming in to schedule delayed procedures from last year already? Thank you.
Why don't I start, and then Dan can comment on the guidance. Look, the thing I would say is December and more so January, were probably among the highest COVID, at least inpatient, months that we have seen. While I won't get into all of the details from a month-to-month standpoint or what's going on in April, what I would say is that as the COVID cases declined, substantially declined, through the quarter and to where we are today, we feel very good about the strength that we're seeing in the non-COVID business recovering. We had talked before about how we put a lot of effort into building a recovery playbook when COVID cases declined from their peaks, and that has been pretty effective for us, and we feel very good about the non-COVID business.
I would tell you with particular strength in surgeries, in our acute care setting, and it goes without saying, in our USPI setting. People have asked about air pockets. At least for now, we're not seeing an air pocket post-COVID right now.
The fact that we haven't seen those air pockets gives us confidence with some of the assumptions that we built into our outlook, Brian. When we developed the outlook at the beginning of the year, we assumed that as we moved through the year, particularly in the second half, that volumes would continue to recover further from the levels that we saw in the third and fourth quarters. The first quarter was relatively steady from a volume perspective, but COVID cases really spiked early on, as we mentioned. There was also the impact of the storm in February. What we're seeing, we still feel very comfortable with our volume assumptions as we move through the year. The commercial volume trends continue to be more favorable than the overall volume trends, particularly on the surgical side.
We feel good about our outlook for the rest of the year.
Yeah. Brian.
Thank you. I got it.
Brian, the only other data point I would add is, and it's a very relevant data point, especially on the ASC side of the business or the surgical side of the business, is our cancellation rates for Q1, and obviously, a significant result of COVID cancellation rates were about 19.4% for the overall quarter. In March, they normalized down to 16%. I think that's a pretty good indication that folks are getting a little bit more comfortable
Once they schedule a case, keeping the case, which should play well as we move into the second quarter.
Awesome. Thanks.
Thank you. Our next question is coming from A.J. Rice from Credit Suisse. Your line is now live.
Hi, everybody, and thanks for all the detail. Looks like cost trends were well contained, but I might just, if it's okay, drill down a little bit more and have you talk about what you're seeing on the labor front in terms of wage updates, turnover rates. We hear about nurse burnout. Wondering if you've seen any of that, and use of temporary staff? Then maybe also related to labor, a little broader question. The administration seems very pro-union, and I'm wondering how that's translating into any discussions you're having or activity you're seeing. Are you seeing a little more union activity or unionization activity than you previously had seen, maybe under the previous administration as a result of maybe them feeling encouraged by what they're hearing in Washington?
Hey, A.J., it's Saum. Let me start, I'm going to take your questions in reverse order. First of all, look, we realize that in many ways, we lead a nursing organization of substantial scale. We respect our nurses. We respect the tremendous work that they did last year. Actually, we respect the fact that many of them choose to be members of unions. Actually, our track record shows, both during the pandemic and before the pandemic, and even in the last few months, with the vast majority of unions that we work with, we maintain very positive relationships, have had successful negotiations and very successful contract renewals that have benefited both parties as we look forward. In aggregate, I feel very good about that. In terms of contract labor, as we talked about back in the fourth quarter 2020 call, contract labor rates had increased substantially.
The COVID cases obviously had spiked to their highest levels and we, like others, were very focused on making sure that we had adequate nursing for the care that needed to be provided, both COVID and non-COVID. The fact is that we made a lot of effort to improve our length of stay over the third and fourth quarter and into this year, in order to ensure that patients got good care. We did not have excessive lengths of stay, which resulted in excessive use of contract labor. That's been a good strategy to manage the demand and also better for the patients. We continue to focus on that. Our contract labor has obviously been more expensive, than anybody would have anticipated in a non-pandemic situation, but we've tried to manage it well.
Rates are coming down, from a contract labor standpoint as the market moves more towards, I wouldn't say totally normal, but certainly in a direction that is more normal. That's a good thing because I think the nursing community is settling down into more full-time and less traveling type of roles.
Okay. In your own wage updates with your own labor force, is that pretty steady at this point?
It's in line with our expectations.
Same with unions. We look at the total labor force, I would say we're in line with, at least as of now, with our expectations and relationships.
Okay. Thanks a lot.
Thanks.
Thank you. Our next question today is coming from Justin Lake from Wolfe.
Thanks. Good morning. Wanted to follow up on some of the questions around pricing and acuity in the quarter and what you're seeing out there. I think you mentioned that commercial volumes are better. Maybe, is there anything you could tell us in terms of growth in commercial versus overall? I know you give that commercial, but it includes managed Medicare and Medicaid. Can you kind of exclude that and tell us what growth is doing there or maybe how that looks relative to 2019? Same thing with higher acuity cases. Maybe kind of in a talk about the low acuity versus 2019 versus the high acuity versus 2019. Anything like that would be helpful. Thanks.
Hey, Justin. It's Dan, I can start. The commercial trends that we have been seeing, really since the middle part of last year, overall are more favorable than the overall aggregate volume trends, which may not necessarily be surprising given the Medicare population may have been a little bit more reticent about seeking care, particularly before vaccines started to be delivered. The commercial trends have been positive in terms of in comparison to overall trends. In particular, as I mentioned earlier, our commercial surgical trends are particularly encouraging over the past several quarters in not only the USPI business, but also in our hospital business in particular, which has been a key driver of our net revenue growth from a yield perspective. When we look at our commercial book of business, we're essentially fully contracted for this year, about two-thirds contracted next year.
We have very good visibility into pricing from a commercial side across the entire portfolio. Our continued focus on higher acuity service line development should continue to generate strong yield as we move through this year and into next year.
Got it. Thanks.
Thank you. Our next question is coming from Pito Chickering from Deutsche Bank. Your line is now live.
Good morning, guys, and thanks for taking my question. The very strong free cash flow generated this quarter is helping push your leverage ratios down. I know it's crazy to even ask this, but once you are in the 4x leverage range, will you continue to delever, or will you begin to deploy free cash flow into things like share repo, if there aren't acquisition candidates?
I would say we're going to continue to delever for now. Obviously, we've got a good pipeline at USPI, and we're going to continue to look at potentials there. We've already talked about our hospital strategy. We've got a couple of small things. We've got Fort Mill online, and we'll probably do something in San Antonio. That's more market-driven than any other reason. We're going to continue to trim that portfolio. The strategy has not changed. I don't think at this stage share repurchase is on the list. I think we're more focused on deleveraging ourself to a better position and then acquisitions.
Do you have a leverage ratio where if you don't have enough deal flow, you will actually then start to convert into repo? How should you think about where that leverage ratio stops at this point?
Right now, I would tell you that we said we'd be below five. We are below five. There was a time where people looked at us when I said that like we were in la la land. We are there. Some of that is by performance, some of that's by how we restructure our entire capital portfolio. Look, I don't want to give you a number because then every quarter you'll be asking me how I'm doing against four point blankety blank. The reality is we're focused at staying below five, and we just need flexibility within that range then to go do the things we think are right. The last USPI acquisition, I think, was a great example of that. When you have a lower ratio, more capacity options, we have options.
I want to use those options to grow the basis of the business in line with the strategy that we've talked about, which is clearly a higher base in USPI, and maintain the best hospital markets and actually run them the most efficiently and effectively we can and make sure we stay strong in those markets. Look, we're going to deploy capital in the best way possible to get a return to the shareholders over the long term.
Great. Thanks so much.
Thank you. Our next question today is coming from Ralph Giacobbe from Citigroup. Your line is now live.
Great. Thanks. Good morning. There's been a lot of headlines around COVID spikes in Michigan. Just given your presence in Detroit, I was hoping maybe you can give us a sense of trends in that market, both COVID-related and core. More broadly, if you can just give us what COVID admissions were in the first quarter. Thanks.
Hey, it's Saum. Let me start, and then I'll pass it to Dan. You're right to note that COVID cases have increased in Michigan, while in most of our markets, I would say the COVID volumes are about a fourth to a fifth of the peaks that we saw before. In Michigan, we're about half of the peak that we saw before. The COVID spike in Michigan, maybe one of the reasons we're hearing a lot of noise about it is that unlike the first two spikes, which really did hit much more downtown Detroit and some of the more vulnerable communities, while that is the case this time, we've put a lot of effort into vaccination and other things there. I think this spike is hitting a little bit more in the suburbs.
Our operations at the Detroit Medical Center throughout all of the hospitals, both the adult, children, and rehab facilities are open. We're not deferring or delaying or canceling any types of procedures at this point. Obviously, as those suburban hospitals are more affected, we represent a great choice for patients who need care to come to because our operations are more seamlessly open.
Hey, Ralph, it's Dan. Yeah, in terms of the COVID admissions as a percent of our total admissions, over the past three quarters, they've been running in the 10, I'll call it the 10 to 12% range each quarter. I would tell you in terms of how it evolved during the first quarter of this year, obviously COVID cases were at their highest peak in January and have steadily declined to roughly 5% in the month of March.
That's helpful. Thank you.
Thank you. Our next question today is coming from Kevin Fischbeck from Bank of America. Your line is now live.
Great. Thanks. Can you give your latest thoughts about the concept of pent-up demand? I guess, you mentioned that you're not really seeing air pockets as far as COVID dropping and core utilization coming back. I just wanted to see what you thought or how this would all play out, either in your guidance as things come back to normal, COVID continues to drop. What are you seeing as far as your doctors and their backlog? It was interesting to see some of those deferral %, but any other color you can give there as far as how you think pent-up demand plays. Is that going to be an overall positive, or should we not really expect volume to get above normal by the end of the year?
Hey, this is Saum. I'll start and then others can pile on. A couple of things. In the acute care segment, I do think we're seeing some effect of either whether it's pent-up demand or just people who had chronic illnesses that deferred or delayed their care. Some of the higher acuity that we're seeing is probably related to the fact that their underlying conditions got a little bit worse because of the pandemic. That, to some extent, is not surprising. It's the reason that we put a lot of effort into maintaining access for the community in these acute care hospitals and keeping them open throughout the pandemic. I don't see a major surge of higher acuity business at this point that is going to come washing in to the acute care hospitals or surgical hospitals from that standpoint.
I think the lower acuity business that's being deferred, it remains to be seen what happens there, because I think that falls into two camps. The example I use every time is one camp is simply that demand that doesn't exist right now because schools aren't open or there's less people on the road. There's less trauma, there's less sports injuries. As those activities get back to normal, you would expect that demand to return. Then there's the demand in the second camp or bucket that is what people are avoiding because of the fear of the emergency department due to COVID. I think that's going to be a much longer ramp back to normal as people get comfortable from that standpoint.
Okay. I guess, what does that mean, though? I guess as volumes come back, we should be expecting really, you're saying if there's going to be pent-up demand, it's really going to be on the outpatient side, not then on the inpatient side?
Well, specifically, what it means is that if I had to guess, and this is purely a guess, that as we get into the fall and, for example, schools and other things are most likely fully open around the country, I expect there to be an uptick in, for example, outpatient emergency department volume and outpatient visits and other things to some extent, closing the gap between where we are right now and what we saw in 2019. For the remainder of the gap, I expect, especially those things where people have to get more comfortable coming back to the acute care hospital, I expect it's going to be a longer ramp for that to come back.
One of the things, at least from our standpoint, that we try to focus on is not necessarily replicating or trying to achieve the exact volume and patient mix that we saw in 2019, because we're a believer that some of that business either won't come back or will take a long time to come back from a low acuity standpoint. More important is that we put our energy into building a business where we see the demand, growing market share in those areas, focusing on the high acuity, and using that as a way to deliver on the earnings expectations that we have for ourselves and that investors have for us, rather than trying to do it by attempting to mimic the 2019 volumes. This is two different approaches.
We also believe that children's hospitals will pick up volume, too, as school goes back, orthopedic injuries, et cetera, that right now we're not seeing as much of.
All right.
Kevin, the only thing I would add, just related to the ASC business is, I agree with Saum. I don't think we're going to see a big surge in 2021. I do think we'll start to see some recovery in some of the lower complexity business that we haven't seen recover as the higher complexity business. Those specialties like ENT and pain, to a lesser degree, ophthalmology and GI, those haven't recovered as quickly as the higher acuity business like the MSK specialty. We would anticipate some of that business starting to come back in Q2 and the rest of the year. I would not describe it as a huge pent-up demand where we're going to see some massive surge in business.
Great. Thanks.
Thanks. Our next question is coming from Frank Morgan from RBC Capital Markets. Your line is now live.
Good morning. Sort of a two-part question here. Just to go back to the recovery in volumes that you saw in the month of March, is there any way to parse out how much of that was due to, say, weather, those deferrals from Texas and Oklahoma versus a return of volumes that were, say, COVID induced? The second part of the question is on Kevin's. As we think about pricing and this whole concept about how the mix of the business, where does it stabilize, it sounds like you're saying that there's a good chance that pricing, at least relative to historical averages, we're probably not going back that low either because of the slowdown in this recovery of low acuity or better pricing in higher complex procedures. I'm just curious, want us to verify that as well. Thanks.
Hey, Frank, it's Dan. In terms of the volumes in March and how much those volumes may have included cases from February that were delayed because of the storm. Sure, there was some of that, not only in the hospital side, but also on the USPI side as well. Yeah, there's no question about that. Because, as you know, it takes oftentimes several weeks or more for patients and physicians to have cases rescheduled and have them fit into their calendars, so to speak. We're optimistic, again, as we've been talking about it, in terms of our volumes as we move through the remainder of the year. In terms of your question or point on pricing, we're not going to stay at 19% growth in perpetuity, as the lower acuity cases come back.
I think here, certainly in the near term, until more lower acuity business does come back, you're going to see stronger levels of net revenue yield on a per adjusted admission basis. Again, as I mentioned earlier, we have very good visibility into our contracting positions across the portfolio, whether it's the hospitals, whether it's our physicians, whether it's USPI centers. We're essentially fully contracted this year. Next year, we're about two-thirds contracted. We know where we're at from a pricing perspective, and we continue to focus on growing, to Saum's point, the higher complexity cases. That should be a tailwind in terms of net revenue yield growth down the road.
Thank you.
Thank you. Our next question is coming from Jamie Perse from Goldman Sachs. Your line is now live.
Hi, good morning. I wanted to just follow up on the revenue per adjusted admission. I think you've been guided to minus three% to minus five% previously. Just confirming if you're updating that or any changes there. I might have missed that. That's the first piece. Just on EBITDA. You beat by about $100 million this quarter. You're raising guidance by $100 million or so. You talked to the hospital outperformance, in particular, the sequestration, the contract labor rates coming down, all these positive things. I'm just curious if you're just flowing through the 1Q beat and that's about it, and not expecting continued outperformance, or if you do think there could be continued outperformance.
This is Dan. Let me address that. In terms of the net revenue growth, as I mentioned, we delivered 19% in the first quarter. Again, this is on the hospital side. USPI was 5%. On the hospital side, that 19%, we're assuming that comes down as lower acuity business comes back. I would tell you that that metric is going to fluctuate over the course of the year as volumes ebb and flow due to the pandemic and the recovery, particularly if lower acuity cases rebound stronger than we assume. Where we could be? It could be mid-single digits in terms of the pricing growth for the full year. We'll see. The primary driver will be the rebound in lower acuity cases and at one level. In terms of our guidance, we increased our guidance $100 million. We had a very strong first quarter.
As I pointed out, we did get a benefit, or we will receive a benefit from sequestration being suspended through the rest of the year, as we pointed out. That was helpful. We did recognize some grant income. We did have an outperformance in the first quarter. It's early in the year. What it does give us is a lot of optimism as we move through the year, and as we think about the year, that we have a wide range, and if we continue delivering and performing like this, we can be above the midpoint. We feel very good about where we're at right now.
All right. Thank you.
Thank you.
One more question, operator.
Go ahead. Our last question today is coming from Scott Fidel from Stephens. Your line is now live.
Hi. Thanks. Good morning. Just had a question. I know this just happened last Friday, so I'm not sure if you have any visibility into this yet, just if you're expecting any business impact from CMS rescinding the long-term waiver in Texas, also if we assume that they may do the same thing in Florida as well. Thanks.
Hey, Scott, it's Dan. No, we really don't. Listen, the current waiver expires in September of next year, so there's not an immediate threat to current funding. CMS, our understanding, based on our read of their correspondence, was they rescinded the 10-year extension, which is a rather long period of time for an extension. That was rescinded based on procedural grounds. We fully expect the state will undoubtedly apply for an extension in the coming months. We think it's premature at this point and unreasonable to assume that it's going to result in a significant loss of funding. We obviously will be following it and then providing our input to the appropriate constituents on that matter.
Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over to management for any further closing comments.
We just appreciate everybody joining, and as usual, we're available for follow-ups. Regina?
Thank you everyone for joining us. We look forward to chatting with you again soon. Have a good day. Bye.
Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.