Hello, and welcome to Tenet Healthcare Corporation's Third Quarter 2020 Earnings Conference Call. I will now turn the call over to Regina Nethery, Vice President of Investor Relations for Tennant.
Thank you. We're pleased to have you join us for a discussion of Tennant's Q3 2020 results, including an update on the impact of the COVID-nineteen pandemic. Tennant's senior management participating in today's call will be Ron Rittenmeyer, Executive Chairman and Chief Executive Officer Saum Sattaria, President and Chief Operating Officer and Dan Kusalmi, 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, tenanthealth.com. Listeners to this call are advised that certain statements made during our discussion today are forward looking and represent Tennant Management's expectations based on currently available information.
Actual results and plans could differ materially. Pennant 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 ks, subsequent Form 10 Q filings 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 everybody for joining us today. Our 3rd quarter results, I believe, underscored the operational discipline that we've put into action on an ongoing basis. As the pandemic has continued to evolve in waves, we have successfully met each sharp turn with a carefully coordinated and active response. Every step we have taken remains anchored by our commitment to the highest standards of quality and safety. We're very pleased with the performance of each of our business segments during the quarter.
Despite the COVID-nineteen case surge, which was about 60% plus in late July August compared to the Q2 across our system, we delivered solid performance in every part of our business. While we experienced the surge, we safely handled caring for COVID and non COVID patients. Notably, our performance overall for the quarter was strong in delivering EBITDA at 621,000,000 dollars without grant income. Additionally, our free cash flow was 26% above 2019 before grant and Medicare Advance dollars were considered due in part to significant improvements from our Conover operation. However, due to the new guidance issued by HHS in September, which was markedly different than the original guidance we had in June, we had to reverse $70,000,000 from Q2 in grant dollars, thus lowering our reported Q3 EBITDA to $551,000,000 We strongly believe this guidance from HHS does not recognize the structural differences across complex networks involving multiple hospitals, including mixed differences in reimbursement levels in the different service areas, capital investment made in 2019 early 2020 to effectively improve patient access and quality, as well as the incredible losses experienced in the shutdown that need to be recovered to ensure sustainable operations.
We continue to discuss these details with HHS in hopes of a more balanced outcome. But regardless, we remain optimistic on our performance and our ability to continue to improve. What should be more evident is that the operational enhancements we've highlighted on the past earnings calls have played a major role in continuing to provide benefits across the enterprise. Our continued performance should substantiate. These are not one time events, but sustainable and critical foundational improvements.
For example, enhanced analytical tools and pull through a precise real time data, which we continue to refine and develop with deeper insights. Knowledge sharing from COVID learnings real time across the company summarized and transmitted in technical and operational scheduled calls that have resulted in improved response to patient needs and an average staff infection rate of approximately 3.75% versus a national average of approximately 13.4%. That focus ensures we remain open to both COVID and non COVID cases safely and effectively, even while dealing with isolated market surges such as in the 3rd quarter. We've also demonstrated solid sustainable controls, which include responsive workforce adjustments and tightly controlled labor management. Continued development of our IT platform focused on delivering a streamlined set of tools, utilization of cloud based infrastructure and a much improved cyber platform, better purchasing and contracting methodologies, tighter capital controls and allocations based on defined needs by market.
We've also added highly qualified physician groups based on community need, tighter controls in the tenant physician resource group and consistent improvements to ensure physicians have an efficient and effective methodology to insist in their ability to support patients. And finally, the continued expansion of our very capable and effective global business center in Manila has been an important enhancement to our 20 fourseven support model. In the hospitals, volumes for the quarter ended close to 90% of pre COVID levels. This is continuing to be a solid recovery during the time period and remains very positive. Our operators across our markets have responded very well given the nature of the complexities of the pandemic and we continue to perform tightly aligned to the volumes presented.
We've experienced historically high growth in net patient revenue per adjusted admission, driven in part by a higher mix of more complex procedures and a stronger commercial mix, coupled with the sustained efficiencies we've gained operationally. Importantly, this set of improvements is represented both in the hospitals and at USPI, further emphasizing the critical nature of how hospitals in USPI play an integral role with each other, including sharing best practices. We realize and operate every day with the assumption that COVID spikes will be part of what we face until a vaccine becomes widely deployed. We've learned how to deal with these spikes and have done so effectively. We also are aware the pandemic remains a threat and our focus on staff and facility safety will continue to be paramount in our daily approach.
We continue to use resources internally and externally, including contract labor to support our operations as needed. We remain engaged in securing sufficient PPE, supplies and medications to ensure we have adequate coverage. Most importantly, we also realized that agility, speed to respond and the need for clear, precise communications, coupled with a strong and responsive real time analytical platform throughout our system is a critical part of remaining in control of these changes and surges. There is no perfect equation, but we do believe our learnings from each spike improves our responsiveness, our planning and furthers our effectiveness. At USPI, the quarter was very strong, demonstrated 1st and foremost by solid performance, but also carried by excellent quality and service recognition, service line expansion and the growth of our medical staff.
Excluding grant income, USPI had a significant EBITDA growth of 10% over prior year. As you can see on the volume charts, surgical cases remained relatively steady in terms of volume month to month, ending with September growth at 96% of the same period last year. Even with the impact of the various shutdowns and cessation of nearly all elective care that began in the Q1, the USPI team has remained diligent about energizing various operational programs to enhance facility offerings and expand our network. This includes adding service lines and complex procedures that benefit patients and physicians alike. Despite the pandemic and its disruption, we have successfully expanded our offerings at existing facilities with 54 new service line starts year to date, including 24 muscular skeletal programs and outpatient joint growth of 51% year over year.
Another remarkable stat that underscores our reputation in the market is that we've added 1100 new surgeons who have joined our USPI medical team during the 1st 9 months of the year. USPI facilities also continue to earn high marks for patient experience, including Press Ganey Awards last month for delivering incredible patient centric care. Additionally, 23 of 24 eligible USPI Surgical Hospitals earned a 4 or 5 star rating in the July 2020 HCAP star rating as administered by CMS. Particularly during COVID, we have adhered to the highest quality and safety standards. Out of more than 688,000 USPI surgical cases performed from mid March through September, we have not had a single confirmed case of COVID as a result of performing a surgical procedure at our facilities.
At the development front, we closed on the acquisition of an ASC in Washington and the new surgical hospital and ASC in the Central Valley of California in July, together with local physicians and 2 of our existing health system partners. Fresno Surgical Hospital is a very well known in the community with a rich history and a strong reputation for quality and patient experience. In fact, years ago, the hospital became one of the first facilities in the country to provide elective surgery and post surgical care in a non hospital setting. Going forward, our pipeline remains active with opportunities to strategically add to our network in Q4 and next year. We're very enthusiastic about continuing our stated strategy to put muscle behind USPI to grow the platform and provide physicians and patients with more convenient options for care and to continue to evaluate our hospital portfolio for fit and make adjustments in that portfolio as we deem appropriate.
Conifer continues to execute very well despite the pandemic, providing value to its clients with its traditional end to end solution and its newer point of service solutions. Conifer has remained focused on client satisfaction, performance and liquidity. I want to call out a few metrics that speak to certain improvements. 1st, cash collections are up substantially as compared to the Q3 of last year. 2nd, Conifer AR days or tenant AR days are significantly down versus the prior period.
3rd, client satisfaction continues to improve, maintaining a very strong positive trend. And 4th, expense controls remain solid with an EBITDA margin improvement of 2 70 basis points versus the prior year. These steps forward are particularly notable given the extreme challenges created by the pandemic for Conifer. The Conifer spin remains ongoing in terms of the pre work already discussed. Our view is the same as last quarter regarding the spin and we continue to maintain focus on the previous schedule.
We have filed the appropriate paperwork on schedule with the IRS. So that important step is now underway. Beyond that, we continue to search for new Conifer's CEO and have made several meetings with several viable candidates in this process. The team overall though is performing very well and we are pleased with the overall performance of the business. Before turning the call to Dan to provide an overview of our financials, I'll speak briefly for the critical support we've received from the federal government related to the pandemic.
The Medicare advance payments have been a critical source of liquidity, allowing us to focus on caregiving. Recently, the repayment terms for these advances were amended, allowing for an elongated capture period by CMS, as well as a more reasonable interest rate for any balance outstanding at the end of the recapture period. We expect to make the repayments within the allocated recapture timeframe and greatly appreciate this flexibility provided by CMS and HHS. The CARES grant stimulus funds have also been extraordinarily helpful. As I mentioned, HHS recently issued new guidance for the recognition of revenue associated with the stimulus funding, which has had a major impact on our results this quarter due to the reversal from the Q2.
While the change in methodology will reduce our flexibility, we're taking steps to ensure the change does not negatively impact us over time. Our system, as I have mentioned, has incurred a larger number of COVID cases in general. And we feel that we've taken it in stride and the change in methodology will place additional pressure on us in the recovery over time relative to the COVID cases, but we also believe we will continue to recover these CARE grant stimulus funds. It will just be over a longer period of time than we thought we were originally going to based on the June guidance. So again, we're not concerned that will hurt us over time.
We just think it is unfortunate that we had to make the change. So as I turn the call over to Dan, I want to note how pleased we are that we're able to take advantage of the capital markets, position us even more favorably in terms of both debt maturities and interest rates. While we do have many more hurdles yet to overcome, the performance of the teams across the entire Tenet portfolio remains excellent. Our performance in safety, quality and financially despite the pandemic is very positive. And while we can sit here and parse various points and speculate on the unknown, factually, we have consistently delivered results at or ahead of expectations before and during the pandemic.
I'm very proud of our caregivers and our support staff for their continued excellence. So with those comments, I'll turn it over to Dan for a discussion of the financials. Dan?
Thanks, Ron, and good morning, everyone. I also want to thank our frontline caregivers and employees across the company for their incredible efforts and exceptional executions during these very difficult times. I'll begin my remarks with Slide 5. As you can see there, we produced a very strong quarter from several perspectives. Our adjusted EBITDA of $621,000,000 before the $70,000,000 grant income reversal due to the new government guidance was substantially above our expectations for the quarter despite the surge in COVID in many of our markets.
And also the EBITDA was above consensus estimates when we exclude the grant numbers that were in the consensus numbers. We generated very strong net revenue per case growth in our hospital and ambulatory businesses, total mix of higher acuity cases and a more favorable commercial payer mix. Our continued tight control of costs mitigated the impact of incremental expenses from the pandemic, including higher temporary labor, premium pay and PPE costs. We also generated solid free cash flow in the quarter of $331,000,000 or 26% growth, even if you exclude stimulus monies we received. And we were pleased to be able to timely access the capital markets and eliminate any significant debt maturities until June 2023, while also reducing future annual cash interest payments by about $50,000,000 While we typically do not comment on consensus, we realize that the level of stimulus grant income in the consensus is not always readily apparent to everyone.
We estimate the 3rd quarter consensus estimates reflect an average EBITDA benefit on grant income of about $70,000,000 This compares to the $70,000,000 negative reversal of grants that we had to record this quarter due to the new guidance. Turning to our individual business units, each segment continued to execute well, demonstrating the ability to operationalize the strategic direction of the company despite the day to day difficulties of the pandemic. Our Hospital segment produced historically high net revenue for adjusted admission growth of about 17%, driven by a combination of higher patient acuity, more favorable commercial trends as well as negotiated rate increases. This helped confront the incremental labor and supply costs associated with the significant increase in COVID cases over the summer. Our COVID admissions during the Q3 were approximately 60% higher than what we experienced in the Q2.
Our USDI Ambulatory business generated strong top line growth with revenues for surgical case up 13% on a same facility system wide basis, which drove surgical net revenue growth of 6.3% compared to last year. This growth was also attributable to higher patient acuity as well as growth in procedures from newer service lines. In terms of adjusted EBITDA, USPI delivered a year over year growth rate of 10%, excluding a $13,000,000 grant income reversal. Despite surgical volumes being about 6% lower than last year, UCI's adjusted EBITDA margin for the quarter, excluding the grant reversal, was 40.4% compared to 39.7% last year. Conifer also continues to exceed our expectations, especially its cash collection performance for our hospitals and its other clients.
And Conifer's adjusted EBITDA was 7% higher than last year. And as Ron pointed out, its margins increased by 270 basis points, that's primarily due to various cost efficiency initiatives that they've been executing on over the past several quarters. Let's turn to Slide 6 now and review how our volumes trended during the quarter. Despite the surge in COVID cases, hospital admissions, ER volumes and surgeries held relatively steady compared with the month of June, while outpatient visits grew as patients became more comfortable with the safety of seeking elective care. Clearly, more complex and emergent procedures have recovered from the pandemic at a stronger pace than less critical lower acuity care.
ER volumes are an example of more critical care recovering at a faster rate as ER inpatient volumes during the quarter were about 93% of last year's levels, while outpatient ER volumes were about 74% of last year's levels. As I mentioned earlier, the higher acuity, more emergent mix drove our very strong hospital net revenue per adjusted admission growth of 17% in the quarter. Our USPI Surgical volume trends improved during the quarter compared to the month of June, recovering to about 96% of last year's levels in September 94% for the entire quarter. Similar to our hospitals, USPI's more critical higher acuity cases have rebounded at a stronger rate than lower acuity cases. This mix also drove USPI's very strong net revenue per case growth as well.
Although not on the slide, if you look at the supplemental materials we posted, you also see on Page 6 that USPI's non surgical visits grew about 8% in the quarter and that was driven by very strong growth at our urgent care centers. Let's now move to Slide 7, which reflects how our EBITDA trended each month during the quarter with and without the stimulus grant funds. As we mentioned last quarter, we are providing this monthly information externally in the interest of full transparency given the unprecedented nature of the pandemic. As a reminder, the top section of the slide shows our monthly EBITDA in the quarter without the grants. The middle section of the slide highlights the grant income we recognized in July August before the rules were changed.
And then we also point out the amount we had to reverse in September due to the new guidance. And the bottom section of the slide summarizes our EBITDA, including the grant activity. You'll see in the top section of the slide, even as COVID cases began to ramp back up again in July, our EBITDA in July excluding the grants was $220,000,000 which was consistent with the month of June. As COVID cases continued to accelerate, our August results did moderate, but our EBITDA in September grew sequentially as we continued to adapt operationally and COVID levels declined. An important point is that before the grant reversal, our $220,000,000 EBITDA performance in the month of September was above our original pre COVID budget for the month, even though our volumes were about 5% to 25% lower than last year depending on which volume metric you look at.
Overall, we were pleased with how our operators managed through these times and produced EBITDA for the quarter before the grant reversal that was substantially above our expectations despite the elevated COVID levels. Next, let's go to Slide 8 and review our liquidity. We currently have sufficient cash resources and available liquidity under our $1,900,000,000 line of credit facilities. As of Monday, we had approximately $3,300,000,000 of cash on hand and no borrowings outstanding under the line. Let me now provide an update on Medicare Advances.
As you may recall, we applied for and received approximately $1,500,000,000 of accelerated payments, substantially all of which was received in the Q2. Originally, repayment of the advances was scheduled to begin in August. However, in the continuing resolution signed by the President on October 1, the repayment time line for the advances was extended. The repayment period now begins next April, April 21 rather than this past August and extends through September of 2022. Also, any balances not repaid by September 'twenty 2 will be subject to a 4% interest rate rather than a 10.25% rate under the original repayment terms.
We certainly appreciate this government support and the repayment period being extended as it alleviates a substantial near term cash outflow providers were facing while confronting the challenges of the pandemic. Also just an update on the amount of grant funds we received. We received additional stimulus grant funds of $178,000,000 in the quarter and to date we've received about $890,000,000 of grant funds. Of this amount, dollars 453,000,000 has been earned so far and recognized as grant income. Given the new guidance and the uncertainty as to the level of future COVID cases and costs, it is difficult to predict with any precision how much of the remaining grants of about $437,000,000 will be earned by us in future months.
Before I wrap up my remarks, let's now turn to Slide 9 to discuss our noteworthy cash inflows and outflows during the quarter. You may recall last quarter that we discussed our objective was despite the pandemic was to not burn through a material amount of cash in the Q2 excluding stimulus funding and proceeds from issuance of new notes. We did accomplish that last quarter and we did so as well again this quarter. In fact, in Q3, we produced strong net cash flow growth excluding those items I mentioned of about 231,000,000 One other item I wanted to point out was that we did accelerate $105,000,000 of interest payments into the Q3 that normally would have been paid in October and that was due to us early retiring our notes that were scheduled to mature in 2022. We also continue to be very diligent and about how we allocate capital, including CapEx.
You'll recall at the outset of the pandemic, to ensure we preserve sufficient liquidity, we dialed back our anticipated CapEx spend for 2020 by about 40% to $425,000,000 from our original estimate, which was $725,000,000 Given the various actions we've taken over the past few quarters to enhance liquidity and our improved cash collection trends, driven in large part by Conifer's strong performance, we now estimate that our 2020 CapEx spend will be about $525,000,000 These additional investments are primarily attributable to growth capital opportunities and necessary spend for COVID. With that, I'll end by saying again that we are incredibly grateful for the unwavering efforts of patient caregivers and the employees during the pandemic. I'll now turn the call back over to Ron.
Thanks, Dan. I have really no other comments to add. I think we've covered everything. And I think it'd be smart if we get into questions. So we've got about half an hour, I guess, dedicated left to cover questions.
So operator?
Thank you. The tenant management team is now ready to take your questions.
To help ensure all those in
the queue are given an opportunity, Our first question today is coming from A. J. Rice from Credit Suisse. Your line is now live.
Hi, everybody.
Hi, Jason. I just wanted to ask, it sounds like
you guys have obviously been trying to do assessments of the market, data analytics around these different hotspots and you sort of had a unique portfolio where you had some markets that were hit early on pretty hard and then you're in other markets that have had hotspots develop. Can you maybe just drill down a little bit on how you feel you are at being able predict where the next hotspots are going to be, what you've learned in terms of managing through a hotspot and also assessing how the community is managing through that hotspot and then coming out the other end and recapturing deferred procedures and things like that?
Okay. Long question there. Tom, do you
want to handle that?
Yes, sure, A. J. Thanks for the question. I think we in terms of predicting where the hotspots are going to be, I mean, we obviously follow very carefully a lot of the public health information that's available with respect to new testing, positive testing incidence rates and the you can really track the spread of the virus that way pretty quickly. Obviously, by the time these cases are hitting our urgent care centers or emergency departments, it becomes quite obvious there's going to be a surge.
I mean, what we've learned is generally speaking, there is somewhere between a 4 to 6 week cycle that you'll go through in a market when there's a COVID surge. Usually, there's a couple of weeks of ramping up. You end up spending about 4 weeks kind of at a high level plateau, and that mix includes both med surg and ICU patients. And then it sort of ramps its way down. Our priority during that phase obviously is maintaining very good throughput in operations within our environment, separating COVID from non COVID care.
Our focus on having adequate PPE and testing has allowed us to make sure that we are able to process those patients adequately, but also keep our staff safe. We've not had, especially in recent surges, any need to shut down procedures or elective surgeries. That's a very important point because we want to maintain access for the community. And then as those cases ramp back down, we ramp back up very, very quickly. That's probably the most important thing that I focus on, which is at the end of that 6 week period, that recovery work is a playbook that we've got down from having had a number of markets go through surges.
And our September results are very much a reflection of that. If you look at the COVID activity in the quarter, it was very much spiking in the 1st part of the quarter. By the end of the quarter, as those cases had ramped back down, we're very capable of getting back to normal business, getting anything that was deferred on the schedule and most importantly, working with our community and doctors to ensure that patients in the community realize that they can come back into the hospital for necessary care. And that really is why when you look at September, the results reflect basically our ability to get back to business as usual from patient care and from an earnings standpoint.
Okay, great. Thanks.
Thank you. Our next question today is coming from Josh Raskin from Nephron Research. Your line is now live.
Hi, thanks, Josh. Good morning. Appreciate you guys take I wanted to ask about the increase in revenue per adjusted admission and just try to break out the buckets there. How much of that is coming from actual COVID patients? It sounds like that was a bigger impact than I had expected.
How much of it is mix, specifically commercial? And how much of it is actual acuity? And then within that, how are you and your physician partners prioritizing the patients and the procedures that come back first? It sounds like you're getting more of a high acuity and more of a commercial back and I assume that's similar in ASC.
Dan? Hey, Josh, it's Dan. I'll start off and then Saum can address the last point. But listen, the 17% growth in the revenue per case was on the hospital side. All three of those components have some element to it.
The predominant factor driving the growth in the net revenue per adjusted admit is due to the higher acuity cases. Now listen, COVID is part of that, right? But that's not the primary driver of it. You have the mix of higher acuity cases, you have a stronger commercial mix compared to our overall volume trends, which makes sense to a large degree. Medicare patients are probably a little more reluctant to seek care unless it's necessary.
So the commercial trends are more favorable than the overall trends. There's also the growth in the revenue yield due to our contracting position. We've been very clear about that over time. We're very well contracted this year and into next year. And our growth just from negotiated rates depending on the facility can be depending on the payer can be 3%, 4%, 5% or so.
So they've all played a part. I would say in terms of I mean, this addresses COVID and the revenue yield from that. I would say this before I turn it over to Saum. Yes, the in aggregate, the net revenue for COVID cases is higher than the overall net revenue per admit, okay? But you got to keep in mind, you have to case mix adjust that rate.
There is obviously incremental cost, caring for those type of patients. And when you case mix adjust that rate, it's very similar to what our overall net per admission is. And the other thing I'd point out in terms of the mix of the COVID patients, COVID patients related to commercial payers is roughly 20% of the total COVID cases. So the other 80% is either Medicare, Medicaid or uninsured. As you well know, obviously, the commercial reimbursement would be more favorable than the other payers.
But again, it's very important to consider the fact that when you case mix adjust those particular type of services and consider the cost, the incremental cost associated with them, the profitability isn't necessarily there that a lot of people think is there. I don't know if there's anything else you want to add, John.
Yes, I mean I'd make a couple of points to you again, just thinking about what I said, which is the most important thing to really look at is the nature of the recovery. So let me frame it this way. When you think about the number of COVID cases from the beginning of the quarter declining at the end of the quarter and we're basically able to maintain and rebuild the business at roughly 10% under prior year. The thing I would tell you is that the commercial, as Dan pointed out, the commercial admissions performed better than that. And more importantly, given our long term strategy of building a base of higher acuity procedures and services, our commercial surgeries you can see the surgery numbers look more attractive, even the commercial surgeries were performing by the end of the quarter better than those averages.
So, and surgeries are not really relevant in the COVID environment. So what we did was we built back last couple of years, including having a number of markets that were performing better than prior year, especially in commercial surgeries. And if you say what's driving that, well, I mean, even over the last 4 or 5 months, and primarily in the last quarter, we've opened up and built 2 new trauma programs. We have a new and expanded neurosurgical and spine program in South Florida across multiple hospitals that's been coordinated, big push in surgical oncology and building a network in San Antonio. I mean, there are just a number of things in rebuilding the strength in our business very specifically consistent with our long term strategy that we have continued to execute on over this period of time.
And that's helping to drive the strength in the recovery. So as I pointed out before, the COVID cases may come and go even on a commercial basis, because the costs of those cases are high, I would never want to substitute a COVID commercial case for the types of business that we're building. We obviously do the best we can to take care of those patients, but we're very quick to recover in the normal lines of business that we've been strategically focused on.
Perfect. Thanks.
Thank you. Our next question today is coming from Justin Lake from Wolfe Research. Your line is now live.
Hi, good morning. This is Eugene on for Justin. Thank you for the question. As a follow-up to Josh's question earlier, are you able to quantify the number of COVID related admissions during the quarter? And I think you said COVID mainly impacted July August.
So can you comment on how your admission volume and acuity were tracking towards end of September and possibly early October?
Thank you. Yes. This is Dan. Let me address couple of those points. The COVID inpatient census in the Q3 was about 15,000 cases.
And as we pointed out in our remarks, it's roughly 60% higher than the Q2. One thing that's important to keep in mind with the previous conversation we were just having, the sequential change in earnings from August to September was not due to the mere growth in overall cases. Our in fact, our admissions were actually about 1% lower in September compared to August. So you see the impact of the COVID cases have on earnings. In August, when the COVID cases were higher than September, it did.
It had an impact on earnings. That sequential growth in EBITDA from August to September was not just due to while cases were higher normally because that's sequentially what happened. Our aggregate volumes in September were roughly down 1% compared to August. But you see the growth in the earnings from August to September as the COVID cases declined.
Thank you. Our next question today is coming from Pito Chickering from Deutsche Bank. Your line is now live.
Good morning, guys. Thanks for taking my questions. I'll sort of ask the same question in a different way. There's obviously a pretty big debate on the investment community about the sustainability of hospital EBITDA observed during Q3. So a multipart question, any chance you can give us sort of how much sort of EBITDA in Q3 came from COVID and more specifically how much you saw in September?
I understand it doesn't give a whole picture, but at least help us understand how that works. And more importantly, can you give us color on your October trends, what you've seen, what you're seeing in November OR scheduling blocks of times? And then walk us through sort of the headwinds and tailwinds, help us think about the revenues and margins over the next few months?
Well, that's 3 questions. We'll do our best. So Dan, do you want to start?
Hey, Pete, it's Dan. Yes, let me try to address that and Ron or Sung can fill in. In terms of we obviously haven't provided EBITDA by service line. But again, I'll go back to when COVID levels were much higher in August, it had an impact on our earnings. In August.
You can see the sequential change from August to September. Again, our aggregate volumes from August to September were roughly flat or down about 1%. So let's just call it flat. But earnings increased and in large part that was due to COVID cases leveling off and coming down. The COVID cases have substantially more costs associated with them, particularly if they get if a patient ends up in the ICU.
And I said earlier, yes, the revenue per COVID case that we've experienced per admit so far is higher than our aggregate net revenue per admit. But again, the CMI or the acuity, Pito, as you know, of those cases is higher and that brings with it incremental costs. And that's why I said, when you case mix adjusted, it's pretty close to what our average net per admission is. So that I think, Tom, I don't know if there's anything else you want to add.
Yes. I mean, I think a couple of things. I think it's important to realize that the nature and mix of our COVID activity given the markets we're in and the types of especially types of urban centers that we have, as Dan pointed out earlier, are not they're not mix enriched. In fact, relative to our average, it's slightly below our commercial mix. So we're dealing with a lot of work in the Medicare, Medicaid and even uninsured space with respect to the COVID care that at least we're seeing in our system, again, a consequence of some of the markets that we're in.
And so when you look at September, again, I don't have any other way to do this, but to just continue to give additional examples of what we're doing to drive the recovery. So in addition to some of the stuff I mentioned before, I mean, we've had expansions in many of our surgical service lines, very consistent with our strategy over the last couple of years. We've built the robotics in Urogyne program in El Paso. We've got rehab facilities that we've expanded in South Carolina. We've got a CT surgery program that has gone through material expansion in parts of Texas.
I mean, our point has been continuing to advance this strategy of expanding surgical service lines for the community as a way to drive and be prepared to manage the recovery over time, recognizing that some of the lower acuity business that was in hospitals, let's say, very low acuity ER visits, may take a long time to come back. And so we're not trying to create a replica of what 2019 looked like from a mix. We're looking at where the market is headed and we're trying to address that market as part of our recovery. And not surprisingly, the comments that Ron made earlier about USPI, we're tracking exactly the same way. Number of orthopedics cases, for example, in that environment has grown materially because we're basically servicing where the demand is rather than trying to create a replica of 2019.
I think that's going to end up serving us well over time rather than trying to wish for everything was in the hospitals, including the low acuity business to come back. And it ought to drive an enhanced earnings profile because of the case mix intensity and net revenue per case that becomes more sustainable.
Then any color on the October November trends or our scheduling? Thanks.
I mean, our we don't show any signs of a shift from the strength that we saw in our September recovery as I look forward. And I can look at that at any metric, whether it be our scheduling of cases at USPI or the hospitals from a surgical standpoint or high acuity service standpoint that we're looking at, at this point at all at this point in time at all.
Thank you. Our next question today is coming from Whit Mayo from UBS. Your line is now live.
Hey, thanks. Good morning. I wanted to shift topics a little bit and go back to USPI, maybe for Saum or Brett. The 1100 new docket, I was wondering if you could frame that relative to your current base. And I think I heard Saum say that in terms of specialties, I think ortho was certainly an additional benefit there.
And are you re syndicating more equity to new 1,000 stock adds?
Yes, Brett, please comment.
Yes. Hey, how's it going, Whit? So just to back up a little bit, we've certainly seen an increase in the number of physicians that are interested in operating in the ASC setting, that's without question. And as year. And that's partly as a result of COVID, but I think the increase is more related to our ongoing business development and service line expansion activities.
And there's no question some physicians are moving more of their business to ASCs as a result of patient preference related to COVID, but others are simply continuing to find it's a more efficient site of care for their surgical patients. If you going back to your question related to how much of an improvement that is over our base, you think we have about 10,000 we have about 4,000 physician partners across the portfolio, about 10,000 physicians on our medical staff. So this represents in a 9 month period over a 10% improvement and the number of physicians on our medical staffs overall. I don't have a specific breakdown in terms of how many of those are partners versus non partners. As you know, some most physicians join their medical staffs.
They make sure it's a good fit for them, good fit for their patients, good fit for the overall partnership. And then at some point down the road, they may exercise the opportunity to actually buy into a partnership. But that's not our focus day 1. Our focus is making sure that we bring in the right high quality physicians to our medical staffs that they're happy with the service that we're delivering to them and their patients. And then over time, we add those physicians potentially as partners to our facility.
So I think the number and the amount of physicians that we've added to our medical staffs over the 1st 9 months is clearly better than we have in historical years. And again, primarily, I think, a result of our business development activities and our service line expansion activities. And to a minimal degree, a result of the COVID related activity.
Perfect. Thanks a lot.
Thank you. Our next question today is coming from Brian Concannon with Jefferies. Your line is now live.
Hey, good morning. I guess I'll follow-up on that comment from Brad and Tom's comment earlier to Pia's question.
So do
you guys think that there is a structural change that's happening that's actually not a bad thing where you're pushing more procedures or visits either to the ASC, whether it's joint replacements or ER visits that are low acuity going to urgent care? And how do you think that if that's the case, what should be the margin outlook going forward?
Yes, that's a good question. And let me clarify what I said before, which is what we're focused on is understanding where the demand is today and making sure that we're leading the charge in helping to service that demand by shifting our focus into the areas where we see that activity happening. In other words, the higher acuity surgical, higher acuity emergency department, even our we track very carefully even our emergency department visits by acuity level. And at the higher acuity levels, we're performing better than we were in prior year. So those data have some lag to them, but when we look at our own data, we're convinced that in our high acuity ER business, we may be moving market share.
And so again, we're very focused on that. The clarification I would offer is, look, I'm not yet committed to saying that there is a major shift in the demand pattern that's permanent as a result of COVID, especially in the lower acuity areas. When I look at the areas, lower acuity areas in particular that are down quite a bit, for example, they're much more down in pediatric visits than in other services, especially in the emergency department, okay? Schools are not back online, sporting programs that kids are in are not back online. I don't know that that's some sort of a shift from the ER to the urgent care setting.
I just think demand is down because activity is down because of partial stay at home orders that are still active in many of the markets we're in. And I would say that's true for a variety of other activities that result in ER visits and you're not going to get a broken bone fixed and set necessarily at urgent care centers permanently in the future or in other centers. So I actually think some of that demand will come back as the communities fully open back up, schools fully open back up and other things, but it may take some time. And so my point was attempting to work that side of the equation right now doesn't make a lot of sense. But again, I'm not yet committed to the concept that that demand is gone forever from hospitals.
We'll see how that plays out over the next year or 2. And it's clear that telemedicine won't be able to service a lot of those types of injuries and stuff that drive a lot of low acuity ER visits. It will go somewhere. It's just a question of how much will come back to hospitals. Does that help?
Yes. No, that's exactly what
I was looking for. Thank you. Appreciate that.
Thank you. Our next question today is coming from Kevin Fischbeck from Bank of America. Your line is now live.
Great. Thanks. I want to get a sense of how you're thinking about the incremental profitability of volumes returning back to normal. I guess, obviously, usually we think about incremental volumes coming with a nice fixed cost leverage. But if we're talking about lower acuity volumes coming in, How should we think about that?
And then I guess, incrementally, you've been able to manage labor. Does that get more difficult as volumes come back? I'm just trying to think about the interplay of low acuity and potentially labor cost pressure as volumes come back and how we should think about incremental margin on future normalized growth? Thanks.
Yes, good question. Yes, I can start and Dan you can maybe add on. It's a good question because as you move to a higher acuity mix, obviously, you're going to need more support and staff, especially in the ICU and critical care units and other things. Thus far, we have not seen a tremendous amount of pressure related to the work we're doing more strategically in expanding in those areas. I would point out again that as COVID surges come through, we have had to use a fairly significant amount of contract labor in the quarter, especially in the 1st couple of months in the quarter that affected our costs.
But we've been very, very disciplined about using a question that was asked earlier, I think, by A. J. About the predictability of these COVID surges and declines, we've basically gotten pretty good at just estimating how much contract labor we're going to need for how many weeks and then shutting it off, sometimes in advance of the surge disappearing because we know what the curve is going to look like. And that really is reflected in our September results from the standpoint of managing margins. So look, the other thing I would say is there is no question about the fact that the foundation we've laid over the last couple of years to have a more daily driven management process in our not just labor productivity, but labor mix that we are utilizing for patient care has served us well and probably has accelerated some of our recovery.
And we have no intention of changing from that approach to management even if the COVID activity dissipates or goes away more permanently with the vaccine. We know it's our responsibility to continue to drive efficiency in that setting. Probably the more important opportunity looking forward for us is also in the area of purchase services in many cases, which are labor based, right. So many of the services that we have either partnered with outsourcers or others where we're really working on managing the productivity of that staff at the same time. And that will result in incremental opportunities for savings as we right size effectively to the portfolio of cases that we're seeing in the hospitals these days.
I'd just add to that, that it also spills all the way through the whole concept that Saum just talked about also spills through that we talked a lot about all the way back through our overhead and our overhead operations. Our global business center will continue to play a major role in better allocation of overhead and better allocation of support since that's 20 fourseven type operation and it's staffed accordingly and it can be very responsive and it's done a great job through the pandemic. We've actually more than doubled the size of it through the pandemic even while it was going on. So that has proven to us to be a great source of balancing workload and balancing in the right places with really good talent, but at the same time being able to be much more responsive to our facilities on a 20 fourseven basis. Dan, do you have anything else you want to add?
I can see the only other thing I'd add, Kevin, is you'll recall before the pandemic occurred that we had been focused on over the past several years realizing about 450,000,000 dollars of cost efficiencies since we started this back in 2018. And we're fully on track for that for this year. And what we as we talked about last quarter too, as a result of pandemic, we've dug deeper. We've identified more efficiencies that we've been realizing or will realize into the future. And it's really across all the cost elements of our cost structure, whether it's labor management, supplies or other operating expenses.
Saum's point about some providers that were in other operating it's had it's had an impact. And we also, at times, will take actions to terminate a contract even if it costs a little bit of money to get out of it if long term the return is going to be better. So obviously, we'll keep working on this and we feel very good about our ability to continue to manage costs well.
Yes. The last point I'd add to, Kevin, is that we've added a significant amount of analytics and we look now in a much more database driven finite level at where we have people, what are they doing, what's the impact of that, is there a better way to do it, where do we automate, where don't we automate. So we approach all of this, I think, with a much clearer vision. And the pandemic, to Dan's point, has enhanced and pushed us to question just about everything. So I think we've become much more effective at this and over the next year we'll even continue going deeper.
So I hope that answers your question.
That's perfect. Thanks.
Thank you. Our next question is coming from Ralph Giacobbe from Citi. Your line is now live.
Great. Thanks. Good morning. Just wanted to ask about the EBITDA trajectory. You've been running at a monthly level about $220,000,000 for I think 3 out of the last 4 months.
And then the dip in August, I think you mentioned was related to some of the COVID activity and maybe some seasonality. I guess the question is, typically we see a seasonal ramp into the Q4. Do you still expect that to be the case in higher EBITDA run rate? Or is that maybe unlikely to move from that 220,000,000 just given the underlying circumstance? Thanks.
A good question. Dan, do you want to jump first?
Yes. Harold, certainly, throughout the last four quarters have been in that $220,000,000 territory. As you mentioned, as we talked about, August numbers were more moderate because of COVID. It's certainly we obviously haven't provided guidance, but we're certainly working toward that and then some. The Q4, as you know, is typically sequentially stronger, particularly on the ambulatory side as well as the hospital side as patients have met their deductible in a given particular calendar year.
Now sometimes have seen a little bit over the past couple of years that people have maybe managed that a little bit differently than in the past. But last year in Q4 was incredibly strong. We'll have to see. We don't know, right? We'll have to see how it plays out this year.
We are obviously working toward driving incremental volumes in the Q4. And you've seen the trajectory with the ambulatory business. It's improved nicely. And again, just putting COVID aside for a second because if there are significant spikes that obviously will have some type of impact. But we're going to be working for sequential growth.
And I think the big variable is ultimately going to be 2 things. 1, level of COVID and 2, the comfort and level of patients returning to facilities, other than hospitals or surgery centers, for elective care.
Okay. Fair enough. Thank you.
Thank you. Our next question today is coming from Gary Taylor from JPMorgan. Your line is now live.
Hi, good morning. Thanks for taking the question. Just a quick one is we're trying to look through all the COVID impact on all the operating metrics, etcetera. Just trying to get a sense of the underlying recovery in the commercial business that you've talked about. It's difficult to look at the revenue mix because that includes your MA business, it also includes COVID.
So is there any additional detail you could provide just on commercial adjusted admissions excluding COVID, commercial case mix index excluding COVID? Is there any additional detail or color you could provide on that?
Hey, Gary, it's Dan. As I pointed out earlier, our COVID cases related to commercial payers or exchange payers is roughly 20% of the total COVID cases, which as Saum pointed out is slightly lower than our normal pure commercial mix. The other 80% is either uninsured, Medicaid or Medicare. So that's the mix of the volumes from a COVID perspective.
The commercial
Sorry, Mitch. I'm sorry. I'm sorry. I was saying, if you exclude COVID and we looked at underlying commercial adjusted admissions growth, excluding COVID, is that up, down or flat year over year? I'm just trying to parse out the impact the COVID emissions.
Yes. Again, as I said earlier, the commercial trends are more favorable than the overall trends for the hospitals. You see the monthly percent of recoveries for the overall admissions, the overall visits, surgeries. The commercial trends are more favorable than the overall trends.
Well, that's helpful. But if we exclude COVID, admissions are down 20%. So commercial is down less than 20%. I guess that's that's where we're going to get to? Okay.
Yes. I mean, we like again, the obviously, the hospital volume trends in aggregate have not recovered to pre COVID levels and that's the same thing with commercial. But the commercial, rebound has been stronger than the overall, rebound.
Okay. The only additional point I would add there is that the point I made before, which is I look more at surgeries and because that's not really a COVID related activity. And the strength in surgeries and in particular in commercial surgery is probably the best area to really look at with respect to the recovery. And as I pointed out earlier, our strength in surgeries and in particular to Dan's point, commercial recovering better in commercial surgeries is the strongest marker I have when I look at a comparison across different lines of business there and I feel very good about that.
And Saum
to that point, I know Gary wasn't specifically asking about USPI, but we obviously had very favorable payer mix with our commercial mix, outpatient outpacing governmental. More specifically, Q3 commercial was up 34 bps, while Q3 governmental was down about 30 bps. So overall, a positive trend in that regard.
That was revenue mix, right?
Correct. Okay. Thank you.
Okay. And I'm giving you one do you want to do one more?
Sure.
Let's do one more and then we'll wrap it. So, probably one more.
Certainly. Our final question today is coming from Frank Morgan from RBC Capital Markets. Your line is now live.
Good morning. This one's real quick. Dan, you called out your acceleration in your CapEx program, how you've upped those numbers. I think one of the things you called out was COVID related CapEx, and I'm just curious what that would be? Thanks.
Hey, this is Dan. Yes, so the incremental investments that we're going to make is roughly $100,000,000 It's predominantly related to growth capital opportunities, let me be clear. But there is some additional spend that we believe is necessary to appropriately care for COVID patients. And I don't know, Tom, if there's anything else you want to add to that. Yes.
I mean, examples of that would be there are just equipment and supplies and things, some of which are more capital related. Think about some of the purchases of ventilators and other things that might be relevant in that space. The other infrastructure, there's a little bit of infrastructure spend in there just because we as we pointed out earlier, we've been so disciplined about making sure that we minimize our infections of our own staff because that is again, that is probably the most important marker in my mind of being able to maintain support in the hospital for always continuing elective work. So we've put infrastructure into some of our hospitals, separation of COVID from non COVID care areas and things of that nature so that it's more structural. And again, it's all in the spirit of keeping that environment safe and also creating an important perception for everybody who's in and out of the hospital, that they're not going to be exposed.
And it has the added value of working,
So, just good.
Okay. I think that's it. We appreciate everybody joining. I'm sure there'll be some follow ups. But we think again, we had a we feel we had a very good quarter and we appreciate the time you gave us to ask your questions.
Hope we were clarifying and straight as could be. So with that, I guess, operator, we'll conclude the session.
Thank you. That does conclude today's teleconference and webinar. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today.