Greetings, and welcome to the Tenet Healthcare Corporation Second Quarter Earnings Conference Call. Today's call is being recorded. It's now my pleasure to introduce your host, Regina Nethery, Vice President of Investor Relations. Please go ahead.
Thank you. We're pleased to have you join us for a discussion of Tennant's Q2 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 Sutaria, President and Chief Operating Officer and Dan Kansalmi, 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. Tennant is under no obligation to update any forward looking statements based on subsequent information. Investors should take 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 all for joining us today. April, May June in our view represented 3 different stories. With each month having unique characteristics and challenges to navigate, mitigate and overcome. The pandemic quickly forced us to revisit every aspect of our business at an incredible pace. Importantly, it required us to adapt our response at every step to safely care for our patients, protect our teams and ensure we could maintain our ability to serve the public's health needs.
Starting with April, it was by any measure an unprecedented moment, created an immediate urgency across every aspect of our business. We already discussed April in some detail in our June update, so I'm not going to comment beyond the facts as shown in our slides on volume and in Slide 6, which we did add for transparency purposes on monthly EBITDA that April was a significant negative financial impact to the company. Given by the mandate to eliminate elective surgeries and stay at home orders, while ensuring every acute care hospital was fully opened and staffed, as well as some USPI facilities, our revenue took an unprecedented drop with our most profitable margin business USPI taking the greatest immediate hit as the revenue dropped by over 80%. Added to that was the cost to restructure the entire company to respond to a pandemic by relocating our teams to home, adding new tracking systems and deploying resources to ensure information was actually dispensed mid April quite an interesting challenge. But April proved we could move quickly in unison and with determination, focusing on patients and moving decision to action in an effective and efficient manner.
We never allow ourselves to be overwhelmed. As we heard May, we developed a stage reopening across the network. We implemented separate care pathways for COVID patients in ERs, inpatient units and outpatient services to minimize the risk of transmission. We also continue to actively screen patients presenting for evaluation of COVID through virtual visits, off-site locations and emergency services. Our markets amplified engagement with our physicians and increased patient education and marketing resources focused on a COVID safe awareness program at the local level.
We also coordinated with physicians and patients to very deliberately schedule procedures and to add to staff based on the demand curve. This has been a very important part of our recovery effort as we ensure we did not add staff too early or too late. Our USPI facilities ramped up quickly with heightened coordination across all departments and our health system partners. The implementation of rigorous prescreening and intake protocols to identify at risk patients as well as redesigning patient flow with key actions to take to de risk our facilities and our staff. Our ambulatory centers also provided a critical access point for care in locations to treat patients not suffering from the virus, but needing surgical care that may have been unavailable in our hospital due to COVID.
While many volumes demonstrated the beginning of the recovery, our core metrics were much stronger than the April troughs were still well below pre COVID levels. Markets with COVID surges that were ongoing such as in Michigan, Massachusetts, New Jersey, Pennsylvania and California were all much more impacted whether in our hospitals or our ambulatory business. June was the turning point, where we regain the cadence of operating our business with greater insight, discipline and data driven decisions that drove much improved performance. As executive orders were lifted or eased in most of our markets, volumes in June continued their upward trajectory with admissions and surgeries in our hospitals and our USPI facilities all reaching 90% of pre COVID levels. We are also pleased with the mix and acuity we saw in terms of hospital admissions.
And on the USPI side, even when excluding grant income, we drove double digit increases in our net revenue per case both in the month of June and for the Q2, primarily due to a higher case complexity and a more favorable payer mix. That will likely moderate over the balance of 2020, but it is a clear indication of the importance of our ambulatory division and its impact on our overall business. Unlike most others in our space, our ambulatory business impact significant to our bottom line. So when we're forced to shut it down, we feel a more significant impact than others. Likewise, when we bring it back online as in June, we can see the positive impact of how this operation fits within our overall portfolio.
In our hospitals, outpatient and ER visits, we moved the needle in the right direction from when we spoke to you in mid June. We need to improve further and we believe this is a byproduct of patient comfort levels on accessing hospital care. We focused our marketing efforts to ensure our communities that our hospitals are safe with designated COVID safe areas. The message we deliver both to our hospitals and our physicians is that your health can't wait and the long care can create profoundly serious health issues for our patients in both near and long term. We are beginning to see consumer confidence coming back and we believe that focus is really working.
Our results in the quarter and particularly in June underscore the ability of the business to adapt, flex and perform and provide clarity that we will deliver at or above expectations even in times of a crisis. On a non CARES Act basis, we generated EBITDA in June of $218,000,000 that was only slightly lower than our prior year results for the month and underscores we can deliver. While we believe given the continued COVID surges, which we are managing well in several markets, setting guidance at this time would not be feasible, we do strongly believe June is representative of how we will recover. Our performance on a non CARES Act basis of $218,000,000 for June, as shown on Slide 6, was in line with our original budget expectation. The changes we have made during the quarter are permanent, they are sustainable and they will continue going forward.
As I said, June was the turning point for us to believe we made the right changes, develop the right structure to address our performance as a company going forward. Now I'd like to touch on several other key contributors to the results in the Q2. First, let's start with the CARES Act, which was without a doubt an important bridge to minimize the financial crisis created by the shutdown of our revenue in April and helped to mitigate some, but not all, of the adverse effects on our business created by the pandemic. As required by the needs driven by COVID-nineteen pandemic, our operations remain fully staffed 24 hours a day, 7 days a week. In every case, we absorb significant costs to maintain this open status without revenue both in terms of volume and price mix to sustain the cost.
The CARES Act was instrumental in ensuring we did not have a financial crisis while we were fighting the pandemic crisis, allowing our main effort, which is to care for patients at the CARE site to go forward uninterrupted. As I've already said, to provide full transparency on the CARES Act financial implications, we created Slide 6, which outlines adjusted EBITDA both with and without grant income by month, providing a complete view to support that was vital to our ability to provide this uninterrupted care. At the same time, we have no way of knowing how long it would last, we prudently took steps to address cash flow. Again, the CARES Act stepped up with CMS providing based on history a 6 month advance of payments to our hospitals and a 3 month advance to our ambulatory centers. This was incredibly important to eliminate a potential cash shortfall.
Requirement to begin repayment to these advances starts this month and is to be completed by April, which is aggressive considering the surge of COVID cases being addressed. Hopefully, Congress will allow more time for these repayments. If not changed by Congress though, we expect to achieve the repayment date. Internally, we also took a series of actions to further ensure our liquidity was solid. We increased our credit line in April and additionally placed 2 secured note offerings during the quarter.
While we would not have done these placements were it not for the extreme uncertainty of the pandemic, they afforded us additional adequate liquidity moving forward. We're confident in our liquidity position and believe we've taken prudent steps to remove this as a concern. We also implemented a series of necessary targeted cost actions in Q2 so we could redirect additional resources to our response. These actions build from the efficiency initiatives we began implementing over 2 years ago to evolve the organization into a more effective operational structure. When the pandemic hit, it resulted in us moving even more aggressively to go deeper and use a different lens to ensure a more effective environment was created and more importantly was sustainable.
Every decision was tested and informed by learnings and analytical tools we have developed before and refined during the pandemic. The changes are permanent and have made our operations stronger and leaner. Addressing the increased the issue of increased costs related to COVID care, where costs are more substantial than typical inpatient admissions really involve various factors, including longer length of stay, expensive contract labor and additional use of supplies. Over time, we were able to develop a more targeted approach to manage those incremental expenses, including cohort care, enhanced utilization of PPE without compromising safety and of course staffing to demand. Again, well thought out solutions that are permanent and we can deploy them as needed across the enterprise.
I also want to address how we have adjusted day to day labor management. As I noted earlier, we had to strike the right balance in terms of calibrating staffing to demand in both the ramp down and the ramp up period as well as in hotspot areas. The real time data driven dashboards we created during the pandemic have been instrumental in informing our response. Our teams are constantly inputting data into each system to closely monitor staffing. Additionally, also monitoring PPE supplies, medication, equipment and bed capacity.
The ability to capture real time inventory levels of crucial things means we can dial back or accelerate as needed, keeping us balanced throughout the system and ahead in meeting the demands of our clinicians and facilities. These systems are supporting our needs and enabling us to transfer nursing support and supplies to other facilities when deemed necessary. On the USPI side, as we have said before, our approach here was to bring back our facilities online OR by OR, not center by center. It may seem like a subtle distinction, but very important as it helped us to move forward with a higher level of effectiveness and efficiency. These processes have been instrumental in ensuring we have a tight and aligned approach in every hospital and throughout USPI.
And finally, our global business center in Manila has played a critical role in providing us with dedicated, high touch support 24 hours a day. We're seeing excellent performance from the global business center and we continue to increase the leverage even throughout the pandemic of this highly effective and skilled team. Addressing Conifer, which delivered really strong revenue cycle performance during the quarter, the teams moved more diligently on cash collection and helped deliver liquidity as industry volume and revenue contracted. Based on the actions we took to reduce spend and Conifer's collection performance, we did not burn through a material amount of cash in the quarter, even when you exclude the Medicare advances, grants and the payroll tax match deferral. Conifer's work in the last corner is a testament to better operating discipline, customer focus and a more rapid pace of execution instilled by Focus leadership.
Throughout the 1st 6 months of this year, Conifer has improved quality and efficiency by shifting selected cycle functions to our shared service center, which we anticipate will generate modest benefits in the second half with more notable growth over time. We've also implemented additional training to ensure frontline team members are well equipped to drive high quality patient satisfaction amidst the pandemic and as part of our continuous improvement philosophy. And finally, we have recently made some great new additions to leadership, which includes a very strong new Chief Operating Officer and a great new Chief Commercial Operation Officer, both of whom started in late June and are ramping up quickly given their deep health care backgrounds and experience in
the space.
And as it relates to Conifer spin, despite the pandemic, we still believe we can achieve the timeline previously announced. And beyond that, there's nothing more to offer on the schedule at this point. Finally, before I turn it over to Dan, I want to make a few closing comments. The pandemic has been a challenge, but we also have learned much due to the immediate nature of having to revisit every aspect of the business. Our last 2 years of continued change was instrumental in providing an effective platform to rapidly build on these changes.
We had solid operating and financial momentum entering March, and we have exited June with financial momentum and with a clear cadence with solid non Cures Act EBITDA performance as represented in June, a stronger, better informed team across the enterprise and awareness of the importance and effectiveness of how we are aligning our ambulatory and hospital portfolio going forward for continued success. We've reduced our expenses by over 12%, which is best in class. And while we have continued COVID surges, we have shown and believe our organization has the leadership, skills and tools to continue the momentum. Guidance will come, but first we need to lock in our visibility. We are focused on continuing an effective response and in doing so, controlling the controllables.
We remain committed to absolute transparency and to keeping you updated as we have over this last couple of months to the greatest extent possible. And I also want to close by thanking our caregivers and support staff who have remained resolute in their efforts to serve the needs of our patients and to do everything possible to reduce the rate of infection in our community. And we're proud to say that our staph infections in our hospitals have averaged 1.3% versus 16% nationally. They are the heroes and we thank them along with all who have been first responders across the country and without whom we would not have achieved the results of where we are today. So with that, I'll turn it
over to Dan. Dan? Thanks, Ron, and good morning, everyone. I also want to thank our caregivers and employees across the entire company. We're very proud of their incredible capabilities and continued dedication to exceptional patient care as well as a team oriented approach that is allowing us to adapt quickly without impacting the quality of care for our patients.
I'll begin my remarks with Slide 4. Our patient volumes, cost management and earnings significantly improved as the quarter unfolded. For the entire quarter, we generated net income from continuing operations of $88,000,000 compared to $24,000,000 last year, And our adjusted EBITDA in the quarter was $732,000,000 which was significantly better than our expectations and analyst expectations, even excluding stimulus grant income we received. As we moved through the quarter and restrictions were eased, we carefully ramped up our facilities to provide essential health care services for the communities we serve. We were also diligent in adding back resources to meet the care demand as it grew through the quarter rather than simply adding back costs at pre COVID levels and assuming the volumes would return.
We certainly appreciate the stimulus relief egg received quickly from the government and we were able to recognize in the P and L $523,000,000 of grant income, which partially offset the significant amount of expenses required to keep our hospitals open and our lost revenues as a result of the pandemic. As you can see in our release, our operating revenues declined $912,000,000 compared to the Q2 of last year. Let's turn to Slide 5 and review how our volumes evolved over the past several months. We've been pleased with the volume improvement since the low point in April. As a reminder, through mid March before the pandemic took hold, we are off to a good start of the year building on our momentum from strategies we have been working on through 2019 and the early part of this year.
As restrictions were eased by state and local officials, volumes in May began to recover and continue to build in June as we worked closely with physicians and patients to assure them of the safety of our facilities and the scheduled procedures. As a result, in June, we recovered to about 90% of pre COVID levels for hospital admissions and surgeries and our USPI team grew its surgical cases back to about 90% of pre COVID levels. As we mentioned before, hospital ER and outpatient volumes continued to rebound as well, but at a somewhat more moderate pace. Another encouraging trend is that our volumes in July have generally held steady or improved compared to June despite the spike of COVID cases in July in many of our markets in Arizona, California, Florida and Texas. Let's now move to Slide 6, which reflects our EBITDA improved substantially as we move through the quarter even when the stimulus grant income is excluded.
We are sharing this monthly information externally in the interest of full transparency given the unprecedented nature of the pandemic. Reporting monthly financial results is unusual and we are not committing to do this long term, but we thought this information would be helpful for you to understand our trends in this difficult environment. The top section of this slide shows our monthly EBITDA in the quarter without the grant income. The middle section of the slide highlights the grant income relief we were able to As you can see in the top section of the slide, our monthly EBITDA excluding grants improved from a loss of $123,000,000 in April to positive EBITDA of $218,000,000 in June. There are a couple of important points that I want to mention.
First, our EBITDA in the quarter, excluding grants, was $209,000,000 which came in much stronger than we anticipated when we were modeling various scenarios at the outset of the pandemic. Another important point is that our June EBITDA of $218,000,000 excluding grants was better than our original budget developed at the beginning of the year before COVID despite the fact that our June volumes were 10% to 20% lower than our budget and last year depending on the metric you look at. This demonstrates that our necessary cost actions were effective and how we diligently ramped back up our facilities helped to offset the impact of the lost volumes in June. Next on Slide 7, I want to discuss our cost performance during the quarter. We can always do better, but our operators did an exceptional job managing costs given all the pressures they faced.
Our continuing focus on cost management, together with the necessary reductions as a result of the significantly lower volumes due to COVID, drove a dramatic year over year decline in our operating expenses. As you can see on the slide, consolidated expenses declined by $475,000,000 or 12% and our Hospital segment operating expenses declined by $377,000,000 or 11%. We believe our cost management in the quarter was very strong, especially since our Detroit and Massachusetts markets encountered elevated levels of COVID patients in Q2, which constrained our ability to reduce costs in those two markets to the same degree as our other markets. As Ron mentioned, our adoption of the use of additional real time data over the past several years allowed our operators to respond quickly to the pandemic and make the necessary adjustments to cost levels as volumes declined and as volumes began to ramp back up. Over the past several years, we've been effective at identifying and executing on cost efficiencies and managing our costs.
But when this crisis began, our teams across the company dug even deeper and stepped to the plate and realized more profound actions were necessary to manage through this pandemic and they delivered. Although these type of cost actions are never easy, they were necessary and make us stronger as we continue to recover. Let's go to Slide 8 and review our cash flow during the quarter and how our cash balance increased $2,900,000,000 in the quarter. In recent updates we've provided, I've talked about our expectation to not have a material cash burn in the second quarter. As we anticipated, based on the actions we took to reduce spend and Conifer's strong cash collection performance, you can see we did not burn through a material amount of cash in the quarter, even if the benefit from Medicare advances, the grants, the payroll tax match deferral and the net proceeds from debt transactions are excluded.
As a result of our improved liquidity, we were able to fund $79,000,000 for the company's 401 match to employees that was deferred from the Q1 due to uncertainties as a result of the pandemic. Before I wrap up my remarks, let's turn to Slide 9 to discuss our liquidity. We currently have sufficient cash resources and available liquidity under our $1,900,000,000 line of credit facility. As of yesterday, we had approximately $3,100,000,000 dollars of available cash on hand and no borrowings outstanding under our line of credit. We took various important actions during the quarter to enhance our liquidity position and appreciate the support we received from our investors and banks to accomplish this, along with the critical pandemic relief aid from the government.
I also want to mention that we received additional stimulus grant proceeds in July of about $150,000,000 dollars which will help to partially offset lost revenues and costs we've been absorbing as a result of the pandemic, which are greater than the total funding we've received to date. With respect to capital expenditures, I want to emphasize again that our planned reduction this year of about 40% was based on very specific project by project analysis. This is the target approach with individual projects evaluated at the senior level of our company. We want to ensure you that we reduce spend in the right places to allow for continued investments that position us for growth as we recover and get past the pandemic. We also continue to evaluate other opportunities to enhance our liquidity, including our expectation that the sale of our Memphis facilities will close by the end of the year as well as pursuing the potential sale leaseback of certain medical office buildings if the economics make sense.
From a debt perspective, we do not have any significant maturities until April 2022. However, we are very mindful of the unsecured notes scheduled to mature in April of 2022. As a result, in June July, we repurchased $239,000,000 of the 'twenty two notes and we will continue to evaluate further repurchases depending on market conditions. We remain committed to improving our cash flow generation and lowering the total amount of our debt and leverage. We realize many of you may have questions about our projected cash flows in Q3 and for the remainder of the year.
Due to the uncertainties of this environment, we have not provided earnings or cash flow guidance for the rest of the year. Although I do want to remind everyone that we will begin to repay the Medicare advances in August that have to be repaid in full by next April unless Congress acts to extend the repayment terms. However, I can assure you that we're very focused on cash flows and executing on other liquidity opportunities. Fortunately, we continue to believe we are well positioned from a liquidity perspective to confront these challenges. Once again, I want to thank all our caregivers and employees for their remarkable efforts over the past several months.
It is a reminder of how inspiring healthcare is. With that, I'll now turn the call back over to Ron.
Thanks, Dan. I have nothing else to add. So why don't we just move right into questions?
Thank you. We'll now be
conducting a question and answer session. Our first question today is coming from Ralph Giacobbe from Citi. Your line is now live.
Thanks. Good morning. So the July trends obviously were helpful. Can you maybe just give us a little bit more sense of trends by either state or major markets, since your footprint, you know, obviously covers areas currently in hotspots and other areas that sort of hit peak earlier, just trying to get a sense of variance there? Thanks.
Hey, Ralph, it's, just a couple of points about July. As you know, the from the news, the COVID hotspot activity that's probably affecting our markets the most on the hospital side would comprise Arizona, Texas and Florida. That's obviously different than what we saw in the first part of the pandemic surge in April May. So the markets have changed. The strength in July reflects of the volumes reflects a couple of things.
The first is obviously our ability to have learned and managed the COVID cases in the 1st wave and now being able to in parallel perform good COVID care, but also maintain in a responsible fashion elective work in the hospitals, despite COVID surges. And then the second thing is the markets that Dan referenced earlier, Massachusetts, Michigan and some of the other areas maybe in California that had initial COVID surges, California that had initial COVID surges, demonstrated ability to recover those markets back to normal as their cases have come down. And we feel very good about the fact that we can see markets that really went through a significant surge and the ability to bring them back into a normal range very, very quickly. On the USPI side, the strength in the markets is broad based. We continue to see strength in the markets even where there's COVID hotspot activity because these centers, especially the ASCs, are really a respite from the activity in the hospitals.
And increasingly, we're seeing physicians making choices to come into those ASCs to perform necessary care. And that's reflecting that is reflected in the strength of the ongoing volume recovery that you see on the USPI side.
Okay. That's helpful. And if I could squeeze in just one follow-up. When I look at the monthly back half, especially if most of the volume metrics will seemingly get better as we move through the year? Or maybe you can help us with factors like seasonality or pent up demand or maybe cost coming back up as to reasons why that wouldn't be fair?
Thanks.
Hey, Ralph, it's Dan. Good morning. No, listen, certainly, we were pleased with June. As I mentioned, we basically hit our original budget for June despite volumes obviously being substantially lower than what we originally anticipated. If someone had asked me at the beginning of the year, hey, do you think you can hit your June budget if your hospital volumes and surgical volumes are going to be off 10% to 20%, I always said, I don't know about that.
That seems like a stretch. So I do think that's certainly a very good indicator of the actions that we've taken. As Ron pointed out, it will be able to stick. And as we move through the rest of the year, obviously, it depends on various markets and how COVID moves up or down, but we think that's a reasonable baseline to move forward, ultimately depending on what happens from a COVID perspective.
Okay. That's helpful. Thank you. Thank you.
Our next question is coming from Pito Chickering from Deutsche Bank. Your line is now live.
Good morning, guys. Thanks for taking my questions. To follow-up on the June EBITDA, very impressive considering the impact to volumes. So a few questions there. What was the pricing mix in June?
Just trying to understand what the revenue impact was in June. Give us actually some more hard details exactly what the cost containment was during June and the sustainability of that as you roll into the recovery in the back half of the year? And I have
a follow-up. Yes. Hey, Peter, it's Dan. The mix, I would let me frame it this way. The mix between the various payers, Medicare, commercial, Medicaid and uninsured, I would say the commercial mix was very much in line with our overall volume trends.
And in July, in fact, it's gotten even better. The commercial trends have improved in July. Not surprisingly, in the quarter, the Medicare volume was a little bit softer than the overall volume metrics on the hospital side as well as on the ambulatory side and for logical reasons. But it wasn't dramatic, but it was somewhat softer than the overall volumes. Medicaid was pretty much consistent with the overall trends, maybe slightly better.
And then uninsured, the numbers are much smaller there, but uninsured volumes were a little bit lower than or I would say a little bit the decline was a little less than the overall. But the mix was good and the mix is fine in July, which is very encouraging. From a pricing perspective, USPI side. A number of reasons. 1, the USPI side.
Number of reasons. 1, the level of higher acuity procedures that were retained and performed in our facilities. It's a math issue, right? A lot of the lower acuity business wasn't there in the quarter. And the revenue per unit for the lower acuity business is lighter than the higher acuity stuff.
So there's a natural impact on the overall metric, but pricing was strong. And between the mix and by payers. So it was encouraging. As Ron pointed out, listen, as we continue to build back the lower acuity services for the rest of the year, that overall metric, the net revenue growth on a per adjusted admission basis or per case basis, it will moderate as the lower acuity stuff comes back. But and we are very well positioned from a commercial managed care contracting perspective.
And so we got good visibility into pricing moving forward. So we're pleased with the revenue yield that we've been able to realize.
And then sort of follow-up there, August is typically a slow month as surgeons take vacations. Any color for hospitals about how they see surgeon demand in August? And do you think that the docs are motivated to work through the backlog and provide good growth on easy comps?
Hey, Pito, it's Saum. A couple of thoughts. First of all, in looking back over the past few years, I mean, August doesn't soften that much. We tend to have a pretty good cycling through the summer of and staggering of physician vacations. This year, I would say on a qualitative basis, because of the COVID surge that we've seen in July, many of the specialists are booking cases into August pretty actively actually and we feel very good about that.
And when you look at the ambulatory business in particular on the ambulatory surgery side, they're performing almost 100,000 procedures a month and the vast majority of those are new procedures that are booked and not deferred cases from a backlog. And that's a testament to the fact that the physicians are running their offices and attempting to ramp up their offices to full throttle to what they were before because they have ongoing demand. So we actually feel pretty good about the strength and the trends all the way from the upstream activity to what ends up what they end up choosing to put in our facilities downstream looking into August. I actually think that on a go forward basis, as the cycle of the COVID surge, which peaked in the 2nd or 3rd week of July in places like Arizona and Texas, Florida is still pretty high. If those numbers continue to come down and create more capacity, we'll see a similar type of effect in the hospital business as well.
Great. Thanks so much.
Thank you. Our next question today is coming from Whit Mayo from UBS. Your line is now live.
Hey, thanks. Maybe for Brett or Son, I'm not sure if Brett is on or not, but I wanted to hear more about some of the changes that you guys made with scheduling and block time in the quarter. Are you making any modifications to that going forward? Not sure if you're giving block time yet. Just wondering what the response was from your physician partners?
Go ahead, Brett. Hey, Whit.
How's it going? This is Brett. Yes, Whit, I think we did a good job flexing down quickly to match the sharp drop offs in demand in a short period of time. Obviously, when COVID hit, we flexed down by about 65%. Similarly, our governing boards and our operators have done a very good job as we've ramped back up our volume, led it to ramping up our capacity in staffing.
It's obviously very demand driven, but we put in place an algorithm to continue to ramp up our capacity in staffing in a very thoughtful and data driven manner. Our goal for OR utilization in staffing is built off our most efficient and high margin month, which is December. So I think we can continue to ramp capacity with this high bar for efficiency. We'll ensure we don't kind of over rotate in terms of opening up too much capacity for the level of demand at any one point in time. So generally speaking, I think we did a good job of ramping down capacity quickly and obviously with the opposite intent of ramping up capacity, slowly as demand came back.
Okay. And maybe just my follow-up for Ron, just any updated perspectives on some of the offshoring initiatives, how that's tracking versus planned? I don't know if there are any productivity metrics that you can share. Just any surprises that may have developed in the quarter? Thanks.
We have over 900 associates now in Manila, and they're doing very good. They also had to shelter in place. Country required that. So we were able to bring them up within a week, pretty close to a week from home. We had a very good, from day 1, built a very good business continuity process, which typically is good over there just because sometimes typhoons and other storms do hit and requires that.
So from experience, we knew that and therefore we started that way. But we came up very fast and we've had very good support. Performance is high 90% level. We added throughout this whole process, we continued to place more people over there. So we've done some of that, not major numbers, but some of that.
And look, it's going to continue to develop and we'll probably double in place going forward without any issue, maybe even more. We'll see how it develops. But right now, we're very comfortable with the process. We've got a defined schedule laid out for the next 6 months and we follow it pretty religiously. It's interesting, we started this last February and it's gone incredibly well.
I don't know how else to describe it. We've been able to hire incredibly highly talented people. From a financial standpoint, I think Dan would agree that from a financial standpoint, we've really added some outstanding talent. And so support wise, we've been very good. So we're very pleased with it.
It will continue to grow, but we're doing it in a methodical way. And so far, I've got no concerns other than we've watched very closely during the pandemic, but they've gotten through all of it. So we'll see where it goes, but I'm very comfortable with what we've got and where we're going. So
Okay, great. Thanks for the time.
Next? Thank you. Our next question is coming from Kevin Fischbeck from Bank of America. Your line is now live.
Kevin?
Great, thanks. I wanted to ask about that again the June kind of run rate number. You've said a few times that the CARES money isn't really enough to fully offset what the impact has been so far. But I guess you didn't book the full CARES money that you received so far. Should we expect the rest of the $850,000,000 to be booked at some point in the back half of the year kind of on top of that June run rate?
Kevin, it's Dan. We'll be able to recognize a fair amount of it. I can't say with precision the exact amount at this point. It will be dependent on the amount of lost revenues that we have to absorb as well as additional costs for the remainder of the year. Listen, if everything got back to normal and we were above at or above pre COVID levels, that would be great.
That's a great story. And we probably wouldn't end up recognizing as much. But obviously, COVID levels have spiked as we pointed out in certain markets here in July. So we'll be able to recognize a lot of the money in the back half of the year.
And it's by hospital.
Yes. In fact, Ron, but it raises a good point. It's you look at it on
a hospital by hospital basis. So, some hospitals, we were way short. Other hospitals were over. So, we can only recognize based on need. And again, it's allocated by hospitals.
So, it's not allocated for the system. And therefore, we have to work through that yet to figure out how that's going to work.
All right, great. And then as far as the volume ramp that you guys are talking about, I guess, you mentioned that a lot of the volume seems to be new volume coming in rather than working up in inventory. But your volumes were down 20% in Q2. So where is that 20% of volume, I guess, as far as in its process to returning back through the system? Is there some percentage that you expect won't come back?
And any early thoughts based upon the markets that aren't seeing COVID as to how that will play out in the COVID hotspots today?
Hey, Kevin, it's Saum. Let me break this down between the ambulatory business and surgery centers versus the hospitals. 1st and foremost, we're not anticipating that there was volume deferred that won't come back at some point in the ambulatory business. The rescheduling of cases continues. It's just all I'm saying is it's a minority of the cases that are being scheduled at this time and going into July August, that is certainly the case.
The vast majority are new cases that were not specifically deferred. There are cases that are higher acuity. This really breaks down by service. There are higher acuity cases that have come back faster. There are lower acuity cases and some types of preventative procedures where people may delay those cases for 4 or 6 months.
But based upon our relationships with those patients and physicians, we fully anticipate that those cases will come back into the USPI environment. It's just a question of when. Not everything is getting rebooked immediately. On the hospital side, it's a little bit different. You have 2 types of deferred care.
The first type of deferred care has been the reduction in emergency department and elective outpatient type visits that were the result of probably a bit of people feeling fear of coming to a hospital setting. Those emergency visits eventually, the patients will come back, but I'm not sure there's a makeup on those types of visits, right? They're emergency visits. They come back when they have a need. And the good news is, into July,
we are seeing
a very strong trend in all of our markets towards further recovery in the outpatient and emergency department arenas with the same trend Dan described earlier, the commercial side demonstrating significant strength relative to the overall mix. From a deferred elective surgical standpoint in the hospitals, we worked down a lot of that deferred activity in June July, but it's staggered based upon the COVID hotspots. So those facilities that did not have any COVID surge in the early part of April worked down a lot of those cases in May June. Those happen to be the markets that are seeing a little bit more of a surge right now. So we're building a second deferred list, which we will work down in August September.
And then, as I noted earlier, the markets that were hotspots in April May, places like Detroit and Massachusetts, They're ramping back up in June July and we're seeing consistently strong results in volumes there working down deferred cases, but also booking new cases. So this is it's not going to be one answer for every market across the portfolio. It's really going to depend on when the COVID surge come and how we work them down and then ramp back normal operations.
All right, great. Thanks.
Thank you. Our next question is coming from Sarah James from Piper Sandler. Your line is now live.
Thank you. I was hoping to get a better understanding of how much of the pressure you're experiencing right now is related to demand versus capacity. So maybe you could tell us what percent of capacity is your OR schedule operating at currently? And are you able to flex locations across your system, suggesting alternate locations for surgery that may have an open slot? Thanks.
Hey, Sarah. It's Saum. Let me just make a few general comments on that rather than getting into specific OR utilization. First of all, in our hospital markets, we have where possible cohorted our COVID care in order to have scale of expertise, care processes and other things available so that we're providing the best possible care to those patients. That has also been important to creating some capacity and space in order to allow people with needs, whether emergent or related to their chronic conditions, to have ongoing access to surgical and procedure based care or even medical admissions that are necessary for those patients.
And that's been an important part of how we've managed, especially markets. From an ambulatory perspective, I would say that the ability to manage our operating room capacity effectively the way Dan described and Brett described has been critical to creating capacity without necessarily bringing back all of the costs related to having the centers fully opened all at once. So we are not short capacity in the ambulatory environment. We are managing the OR utilization to high levels, in fact, better than we managed it last year. And then we're bringing operating rooms back online as the demand continues to grow, consistently grow in the ambulatory surgery environment.
So we feel very good about that. It also means that on a prospective basis, as the volume comes back, we are very confident about the ability to perform that business at consistent margins.
Great. And just to follow-up there, it sounds like you're able to see the timing of the initial surgical referrals for your ASC business. So are you able to see how much of the previously referred surgeries you've already rebooked? Are you able to calculate that?
Yes. So let me again emphasize a couple of different things. One is, if you think about US on an ongoing basis in the surgical business, it's about 100,000 cases a month roughly is a rough number that are performed there. And again, the vast, vast majority of those in July and going into August as we look out at the schedule are new cases and not deferred. The cases that were deferred that have been rebooked, which supported the demand that USPI saw in May June and also into July, dropped off pretty quickly from the standpoint of what percentage were deferred and rebooked versus new cases.
Again, that is not to say that certain types of procedures, GI, aerosolizing procedures and things like ENT and others have not been deferred for a longer period of time. So we continue to maintain those lists. Some of those may end up being deferred for 4, 6 months, but we continue to maintain those lists and I'm sure those cases will over time trickle back into USPI based upon the relationships we maintain with those patients and physicians.
Thank you.
Thank you. Our next question is coming from Frank Morgan from RBC Capital Markets. Your line is now live.
Good morning. I was hoping you could maybe bifurcate between the markets that are actually back above 100% pre COVID levels and the averages are very impressive that things are improving. But is there still an opportunity a lot of the markets where you're still below 100% of the pre COVID levels? And then the second question was just in terms of you think about your ability to adjust your staffing with these ebbs and flows that you had with demand. Is this just part of the new normal going forward?
I mean, is this a model of staffing that's sustainable over the long term? Thank you. Yes.
So two comments there. The first to your first question, remember, we exited the middle of March and entered this pandemic with a fair degree of momentum in our volumes and the growth and development of our service lines across the hospital and portfolio. It was not our intent this year to simply deliver 2019 volumes. So our goal is not to that we are measuring ourselves against 2019 volumes for the purpose of these discussions. Our goal is not to end up at 2019 volumes.
We had made investments and plans to grow the business beyond that. And that's what we're continuing to maintain our focus on as we look forward. We won't be satisfied when we hit 2019 levels. And that's an important thing to realize in the hospital and the ambulatory business. So those markets that were really hit by COVID early on are recovering and yes, they still have more opportunity to come back.
Some of the USPI centers that were in states that were hit by COVID hard, examples New Jersey, Southern California, they also are continuing to recover and have more opportunity to come back. The good news is that the facilities on the hospital side that didn't have a COVID surge really ramped back up in June very, very well. And now that Texas, Arizona and Florida have had a real COVID surge, we know how to deal with that. We know it's a cycle. We know the cycle will go down and we'll ramp them right back up like we're doing in the other facilities.
So, in short, I would say, internally, we maintain our goals above the 2019 levels. To your second question, Ron alluded to this in his comments. The pandemic has been an opportunity for us to take our operating teams on the hospital, physician and USPI side and really rethink all of our cost structure, both variable and fixed. That's an ongoing activity. So, yes, we have developed a sustainable new labor management process that's analytically driven and on the hospital side is being managed daily.
On the USPI side, they're managing their operating rooms and the capacity and labor that they bring online for the demand on a daily basis. It's a new way of doing business and certainly a more efficient way of doing business. Obviously, there are employees that are not related to frontline caregivers, where that cost structure, as we've learned to do things differently, may not be necessary on an ongoing basis and we'll make some of those furlough reductions permanent. And then finally, we're looking at and executing on in an ongoing process all of our expense in our purchase services and supply categories on a very active basis because we have to rebase our what used to be considered fixed cost structure for the situation that we're in. And I would expect that those savings will continue to develop and accrue through the second half of this year, launching us into 2021 as a more efficient company.
We've really also, I think, as part of that, taking the basis that there are no fixed costs. I mean, we really do believe that the concept of fixed costs, variable costs, I mean, it is real. We're not denying that, but we cannot excuse the some of the overhead and stuff on the basis that it's fixed. So we are really pushing harder to variabilize everything we look at. And therefore, it makes us more aware of where we spend money, where we spend capital, how we spend capital.
It's changed the whole approach, I would say, to our cost management. Thank you.
Thank you. Our next question is coming from A. J. Rice from Credit Suisse. Your line is now live.
Hi, everybody. Maybe just to follow-up and discussion a little bit about your employee base. To what extent either looking back at some of the hotspots you had earlier or some of the new hotspots, are you having to pay hero pay to any of your workers? And then as you think about Massachusetts and Detroit, some of the markets that have come out the other end a little bit, we've been hearing anecdotally at least some talk about people being burned out and maybe a little bit of a pickup in turnover. Are you seeing that in any way?
And just comment on your use of temporary labor throughout all this. How has that trended? And are you having to use that to deal with hotspots now?
We this is Ron. We haven't done anything different on pay. We pay our people well and we ensure that people get paid timely and appropriately. We certainly pay over time and we have been we've had a fair amount of overtime and premium pay, but we manage that also very tightly, which helps reduce burnout. But clearly, where we have pressure points, people are working a lot of hours.
And it's not just the frontline employees, it's the support staff, it's the team, it's the people in this room. Everybody has been pretty much engaged since April with minimal time really that you would normally think about especially over summer. But turnover has not been exceptional anywhere significantly that we've seen. But Saum, do you want to add more color? Yes.
Let me I mean, I'm talking about as
a corporation. So go ahead.
Yes. I just I want to add a little bit of color to that because I think the caregivers across the industry and certainly in our all of our facilities have been working extraordinarily hard with a great degree of commitment to patient care. I think and I'll emphasize it again because I think it's among the most meaningful things we've done during this COVID crisis is we committed early on to a COVID care framework and set of processes that would minimize the exposure to our staff related to COVID. And a lot of the workflows, the PPE processes, the choices we made around purchasing those supplies was built around that principle. And the reason we did that from day 1 was we knew that this pandemic, once we began to understand it, could last for a very long time.
And we wanted to do everything we could in the ambulatory business and the hospital business to minimize those risks to our caregivers because we knew they would be putting in long hours for an extended and potentially multi surge type of pandemic. And that's what we've seen. And so I think that's actually serving us well. And look, we're grateful for the support that we've gotten from nurses that have traveled around the country, nurses within our own system, from USPI that traveled to support other hospital markets and in select cases, support that we've received from the federal government and the Department of Defense in terms of both nursing and physician capacity in markets where it was necessary. All of those things come together to hopefully create a more sustainable environment for the workforce.
But look, I will acknowledge, it is hard work. I'm sure there are caregivers that are tired and we're very committed to continuing to have rotations in order to make this sustainable for them because they've done a great job so far. And we have
to be
aware Okay.
And maybe my follow-up Go ahead. I'm sorry, Mark.
No, I'm just saying we try
to be very, very aware
of that market by market, location by location, even here.
Sure. Of course. Yes. It's sort of a sign of the times that we're this late in the call and no one's asked you about Conover, but maybe I'll do that. One of the issues in thinking about how it's performing, it's not easy just to go back and use last year's base because obviously you've got some divested hospital dynamics that are going on as well as the less claims.
Handling. Can you just maybe give us your feeling handling. Can you just maybe give us your feeling for how they're doing and any comment on any of the initiatives that the new management team is taking there and any update on the spin off thinking?
Well, as I said earlier, the spin off, we said even without the pandemic, I mean, we're still even with the pandemic, we still see that as something that we're on track and we're working against schedule. So I mean that is moving forward. As far as performance, I'll let Dan talk about it in a minute. But from my standpoint, they had an excellent quarter. They were on top of things.
They did a really good job on collections for us. And for their other customers, they were on top of all that. Communication was good. The new management organization, like I said, we've added 2 really super good people. And the organization has been very resilient and has done very well.
So Dan, I mean specifically, do you want to
touch on
some points?
Yes, hey, Jay. Listen, Conifer had a really, really strong quarter from a cash collection performance perspective, getting bills out the door, following up with payers. And I would put a good word out for the payers too. They've been
very cooperative through all this too. So Conifer's performance,
can see it in our cash flows. So we're very pleased with how they responded during this crisis. Their overall numbers from revs and EBITDA and expenses, Conifer continued to do a good job managing cost and finding additional efficiencies. And they're obviously a big part of our Global Business Center initiative as well. So all that continued.
I mean, the biggest pressure Conifer had on their numbers was the top line, predominantly due to their clients and their hospital clients or physician clients where their revenues
trailed off.
And so as their customers' revenues go down in many cases under the contracts that Conifer has that there's including Tennant, there's an impact on their client fee income, so to speak. So rebounded, obviously, will continue to rebound as its hospital customers continue to recover as well. But we're overall very, very pleased with Conifer's performance in the quarter.
Okay. Thanks a lot.
Thank you. Our next question today is coming from Josh Raskin from Nephron Research. Your line is now live.
Hi, thanks. Good morning and thanks for fitting me in. Just one question here, I guess, what changes permanently externally to Tennant as an one impacting downstream procedures?
Hey, Josh. It's, I just want to make sure I understand the first part of your question. When you ask about permanent changes, are you talking about in our cost structure or are you referring to external market changes that may become more permanent?
Yes. No, I meant more external market changes that are becoming more permanent site of care, things like that.
Yes. Okay. So a few thoughts and actually the telemedicine place is a good place to start. So I think as we indicated in some of our updates through the quarter, we have implemented both consumer based telemedicine and also hospital based specialty to specialty telemedicine capabilities. We had over 190,000 visits in the quarter from a telemedicine standpoint within our physician business and we had tens of thousands of hospital to hospital telemedicine visits from a transfer standpoint.
So we've ramped up those capabilities incredibly quickly. We have also for our COVID care environment, seeing tens of thousands of visits with we literally have a care algorithm chatbot, for example, on our website that patients have been using to figure out whether they need to be seen immediately, whether they need to get a test, etcetera. So I think the virtualization of some of this care is definitely something that seems to be more permanent. I mean, the executive orders yesterday only reinforced that from a telemedicine standpoint. We feel very good about our level of preparation there from a primary care and specialty standpoint in order to continue to take advantage of those opportunities for care in that setting.
Look, the other thing that I think is going to be really important is ensuring that patients feel safe in the emergency department setting. I continue to believe that the emergency department setting is one that will recover based upon the types of cases that we see down right now. For example, there is a significant decline in pediatric visits to emergency departments. Well, schools have been off, sports have been off. As those kinds of things start to come back, we will see a significant increase over time back to normal levels for those types of emergency department visits.
So I think we're going to have to put effort into ensuring that for a very long period of time, we maintain the communication about the safety of our ER environment. And then I don't know if it's permanent, but I certainly think, for the coming year, at a minimum, ensuring the high degree of safety that we have in our ASCs in a setting where we don't see any COVID transmission is going to become an important site of care choice for doctors to make for some of their low acuity procedures. And creating capacity in that environment without adding infrastructure is something we are very capable of doing and are already doing. And I think over time, that will lead to a more permanent change in the utilization rates of those assets. And that's only a good thing because it's a fixed cost base from that standpoint.
Thanks. Operator, we have time for one more question.
Certainly. Our final question today will come from Gary Taylor from JPMorgan Chase and Company. Your line is now live.
Hey, good morning. Thank you. Given how well you guys have done on expenses over the years finding new staffing models and expenses is pretty impressive, commended for that. I want to make sure I understand what you're saying. It sounds like you're saying the end result of this as we get back to a normalized operating environment is really a permanent increase in your expectation for consolidated margins?
I want to make sure I'm just understanding that.
Gary, it's Dan. Yes, the various actions that we have taken are permanent and will be sustainable. So as we recover from a volume perspective and get back to growing the business, the cost actions that we've taken will help support driving margin growth.
Got it. And do you have a June 2019 EBITDA number that we could compare that $218,000,000 to?
Yes. No, we didn't do monthly reporting last year. But I would tell you, Gary, it's very consistent. Ron pointed it out in his remarks that June this year compared to last year when you exclude the grants from this year's June was relatively consistent.
Got it. And then last question, just thinking about cash flow, you've been continue to point out that excluding all the Medicare accelerated payments, cash, our CARES Act, stimulus funds, etcetera, no material cash burn. Of course, the quarter benefits from revenue decline, the decline in working capital primarily driven by a decline in AR. So as your revenue recovers, theoretically, seemingly there would be growth of AR, growth of working capital again that would weigh on cash flow. Is there any obvious offsets to that if we get back to higher quarterly revenue in the next couple of quarters?
So when you think about our cash flows in the back half of the year, without providing any specific numbers, assuming we have to repay the Medicare advances based on the current terms, that would obviously be a use of cash in the quarter. As revenues grow, sure, your receivables are going to start increasing. But one thing I would tell you that's very encouraging about Conifer's performance that we've really been encouraged by is the time from build to collection the quarter, which will help to mitigate the natural growth in receivables as the business ramps back up. Unfortunately, we're not providing specific cash flow numbers for Q3 or for the back half of the year in total. But we're very satisfied with where we're at from a liquidity perspective and we feel comfortable that we'll be able to manage through the ups and downs as working capital changes based on how the business recovers.
Great. Thank you very much.
Okay. Thank you. Thanks, everyone. We appreciate it. Thank you.
Thank you. That does conclude.
Thank you, operator.
You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today.