Good day, and welcome to the Tenet Healthcare Q1 2019 Earnings Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Brendan Strong, Vice President of Investor Relations. Please go ahead, sir.
Good morning, Emma. Thank you, everyone. The slides referred to in today's call are posted on the company's website. Please note the cautionary statement on forward looking information included in the slides. In addition, please note that certain statements during our discussion today constitute forward looking statements.
These statements relate to future events, including, but not limited to, statements with respect to our business outlook and forecast and future earnings and financial position. These forward looking statements represent management's current expectations based on currently available information as of the outcome and timing of future events, but by their nature address matters that are uncertain. Actual results and plans could differ materially from those expressed in any forward looking statement. For more information, please refer to the risk factors discussed in Tennant's most recent Form 10 ks and subsequent SEC filings. Tennant assumes no obligation to update any forward looking statements or other information that speak as of their respective dates, and you're cautioned not to put undue reliance on any of these forward looking statements.
I'll now turn the call over to Ron Rittenmeyer, Tennant's Executive Chairman and Chief Executive Officer. Ron?
Thank you, Brendan, and good morning. As you can see in the materials we posted yesterday, we had a solid start to the year. We've successfully implemented several changes that are and will continue to positively impact our performance. We are continuing to make improvements in our operations that are having a positive impact. We're sharpening our organizational structures to continue to refine, simplify and effectuate change with our leadership remaining resolute about execution.
We're also continuing to maintain acute awareness of issues that may arise so that we can address them more expeditiously and with a finer point. I am very pleased with our progress and the continued improvements in our performance that will set the stage for the balance of the year. Before I turn this over to Dan, I want to add some perspective on the quarter. We delivered another strong quarter above consensus in adjusted EBITDA, adjusted EPS and revenue. We generated adjusted EBITDA of $613,000,000 or $13,000,000 above the midpoint of our outlook.
Adjusted EPS of $0.54 was well above consensus and the high end of our outlook range. Our hospitals delivered results consistent with our expectations. We were pleased that the volume growth meaningfully improved in the Q1 despite a much milder flu season. And we are optimistic about delivering even stronger volume growth as the year progresses. Looking out over the hospital portfolio, we are seeing positive momentum in many of our key markets and in specific service lines, where we are prioritizing investment.
We believe this is due in part to our alignment of marketing and community outreach efforts to meet growing patient demand and on our focus on chronic disease patients who have a greater need for our services. We believe we have opportunities for margin improvement in revenue base. The strategic investments we are making to grow and enhance our service offerings will place some near term pressure on our hospital margins, but are improving our competitive positioning as we go forward. So we see these investments as a targeted and important move. As we move throughout the year, our expectation is that we will make continued progress on margin improvements in all other business areas, particularly given the targeted initiatives we have in place to grow volumes and continue to improve expense control, coupled with increased accountability.
I've used the term pointed before to describe the way we think about cost management, meaning we are targeted on where we see opportunities versus a broad based approach that is less specific, tying that to overall organizational effectiveness. I'm confident we have the right initiatives in place to carry us forward and better serve our communities with these programs now becoming part of our DNA across the broader organization. USPI had a great quarter with a strong growth in surgical volumes. Revenue per case for all of the ambulatory was up nicely with growth of more than 3%. USPI had very healthy EBITDA gains of 12%, which is an area of consistent strength for that segment.
Conifer also had another strong quarter, driving continued improvements in adjusted EBITDA. Conifer delivered $99,000,000 of adjusted EBITDA in the quarter with solid EBITDA margins of 28.4%. And comparing that to Q1 2018, this is more than 400 basis points of margin improvement on top of really strong results at Conifer in the Q1 of last year when we really started to transform Conifer's performance trajectory. The revenue declines at Conifer were, as we have discussed previously, impacted primarily by divestitures by Tennant and other customers and will be further highlighted in Dan's remarks. We remain very focused on sales growth at Conifer through our business development and marketing teams and with the upcoming addition of a new commercial leader, which we are working on now.
On the strategic review, we continue to work as we've discussed on the exclusive basis regarding a potential transaction. As you may recall, we started this exclusivity shortly before the Q4 earnings call, which was approximately 9 to 10 weeks ago, and these discussions are continuing. We have qualified third party advisors as well as members of our team engaged in this effort. And beyond that comment, I cannot set a date for announcing the next step nor comment on the progress. Those discussions are ongoing.
And as we said before, there can be no assurance that these negotiations will result in a transaction. We remain committed to delivering the best outcome for Conifer, Conifer customers and for Tenet shareholders. And before I turn it over to Dan to provide additional details on our results for this quarter, I just want to mention that we are reconfirming our 2019 outlook for revenue, adjusted EBITDA and adjusted EPS. Dan?
Thanks, Ron, and good morning, everyone. We generated $613,000,000 of adjusted EBITDA in the quarter, above the midpoint of our outlook range. Adjusted EPS was $0.54 which was above the high end of our range for the quarter. Our Hospital segment generated $337,000,000 of EBITDA, which was consistent with our range of expectations. Ambulatory EBITDA was up 12% to $177,000,000 and EBITDA less facility level NCI was $112,000,000 up 9.8% after adjusting for the divestiture of Aspen, our former UK business.
Conifer's EBITDA was $99,000,000 with margins up 4 10 basis points to 28.4 percent. And adjusted free cash flow was an outflow of $148,000,000 The first quarter is typically a softer cash flow generating quarter for us and we anticipate much stronger results as we move through the year. Turning to hospital volumes, as shown on Slide 5, our performance meaningfully improved in the Q1, especially given the difficult flu season comparison. Adjusted admissions grew 0.6% and admissions were essentially flat. Revenue per adjusted admission increased 1.3% and we continue to benefit from a modest increase in acuity compared to strong acuity growth in last year's Q1.
Expenses increased 4% per adjusted admission compared to last year. As anticipated, malpractice expense contributed to this growth as we continue to resolve larger cases. Increased malpractice will also remain a source of pressure in the 2nd quarter. Looking forward to the second half of the year, stronger expense management combined with more favorable malpractice comparisons should result in lower level of expense growth. If we exclude the $38,000,000 increase in malpractice as well as the $11,000,000 of increased costs on our risk based contracting business in California, cost per adjusted admission only increased 2.5% in the Q1.
Moving to our ambulatory business on Slide 67. In our surgical business, revenue grew 4.2% on a same facility system wide basis with cases up 2.8% and revenue per case up 1.4%. On a same business day basis, surgical volumes were up 4.5%. In the non surgical business, which represents our urgent care centers and freestanding imaging centers, revenues increased 4.3%. Non surgical visits declined 1.8%, primarily due to lower flu related visits in our urgent care centers and revenue per visit increased 6.3%.
EBITDA in the ambulatory segment grew 12% to $177,000,000 and EBITDA less facility level NCI increased 9.8 percent. Both of these growth rates exclude the $7,000,000 of EBITDA and EBITDA less NCI that Aspen generated in the Q1 of last year. Let me now transition to Conifer on Slide 8. Conifer continues to deliver higher margins on a lower revenue base, which was consistent with our expectations. Once again, Conifer's EBITDA performance was incredibly strong with EBITDA of $99,000,000 and margins up 410 basis points.
Conifer's EBITDA was up 12.5 percent once you adjust for the $10,000,000 of customer termination fees in the Q1 of last year. As expected and previously discussed, Conifer's revenue declined 13.6% in the Q1, primarily due to hospital divestitures by Tenet and other Conifer clients. The vast majority of these were in sourced by the customer, including a sizable one that occurred on December 31. Moving to our outlook, we are reconfirming the key components of our outlook for 2019, including our views on revenue and EBITDA by segment, adjusted EPS and adjusted free cash flow. Additional details on our 2019 outlook are contained on slides 9 through 12.
I also want to reiterate my 4th quarter call comments regarding the California Provider Fee Program. As you may recall, the current program expires on June 30th this year. For modeling purposes, please note that we do not anticipate recognizing any revenue under the program in the Q3 of this year. As a result, approximately $65,000,000 of this revenue should be shifted into the 4th quarter, which means we are assuming about $130,000,000 of revenue from this program will be recognized in this year's 4th quarter. If the accounting criteria for recognizing this revenue under the new program are not met as of year end, then we would record the $130,000,000 of California revenue next year, plus a full year revenue from the program in 2020.
In summary, Tennant delivered solid financial results with EBITDA in the upper half of our outlook range for the quarter and EPS was above the high end of our range. Volume growth strengthened in our hospital business. USPI continues to deliver strong and consistent operating results. Conifer is driving meaningful margin improvement and we have reiterated our outlook for 2019. Let me now turn the call back to Ron.
Thanks, Dan. I'd like to close this out by just saying that we, as Dan pointed out and as I've said, we had a very good quarter. But we're not sitting back on that and we're going to move forward as strongly as we have in the past. We continue to execute well. I think we're beginning to see the benefits of the plans we've been implementing and talking about.
Positive traction on volume in our hospitals and outpatient facilities, maintained very tight expense control across the enterprise and that will continue. And on the Conifer strategic review, we remain in exclusivity regarding a potential transaction and I'm as bullish as that as I was in the past. And we are reconfirming our outlook for 2019. So net, I think we had a great quarter. With that, I'll now turn it over to the operator for questions.
Emma, I'll turn it over to you and Brendan.
We'll take our first question today from Anne Hynes from Mizuho Securities.
Hi, good
morning. Could you let me know one thing that stood out is that the acute care business over tough comps still posted positive admission trends. I don't think you said in your prepared remarks what the one less day had on that. So if you can let me know what adjusted admissions and maybe same store revenue in acute care was if you had to adjust for the one day? And secondly, obviously, a reacceleration of admissions is a big focus for you guys this year.
If you can go into a couple of near term actions you're taking to even improve it further?
Thanks. Good morning, Anne. This is Dan. Let me address that. So, yes, we were pleased to see improvement in our hospital volumes in the quarter.
Adjusted admissions were up 0.6% and admissions were essentially flat. The flu comparison had an impact on admissions, it was about 80 basis points and adjusted admissions, it was about 60 basis points. So the volume trends would be better absent the tough flu comp. The and your point about the one less business day in the quarter, as I pointed out in my prepared remarks that had about 1.7% impact on USPI surgical volume. So their growth was 2.8%, but it was 4.5% on a same business day basis.
But that also impacts the hospital surgical volumes as well. Our surgeries were done 2.2%, but you would have roughly the same type of impact on the hospital surgical volumes too. So the surgical trends were, I would say, consistent to slightly improved in the quarter. In terms of the year over year impact on net revenue yield, The certainly in the Q1 of last year, acuity was incredibly strong last year in the Q1. Our net revenue per adjusted admission growth was in line with our expectations from a pure pricing perspective.
Again, Q1 last year was tough comp, good growth in net revenue last year was over 4%. And we're very comfortable with our pricing. We have good visibility into our pricing from a commercial perspective for the rest of the year. And we're over 90% contracted for this year and 60% for next year. We know where Medicare is at, about a 2% rate update went into effect in the Q4 last year.
And the most recent proposal from Medicare was in line with our expectations. So we feel good with where our pricing is at.
Thank you. We'll now go to our next question from Pito Chickering from Deutsche Bank.
Good morning, guys. So two questions here. First one on cash flows. So normally, Q1 can be a little lighter than the rest of the year, but this quarter from a cash flow from ops is significantly lighter. Can you sort of go into that in a little more detail and why you have confidence on your annual guidance of cash flow from operations?
Hey, Peter, this is Dan. Let me address that. Yes, the Q1 is typically our softest cash flow generating quarter, primarily due to certain annual working capital requirements such as our employee 401 match. And we do expect our cash flows to be much stronger as we move through the year and that's why we reconfirmed our cash flow guidance for the full year. In terms of some of the variances year over year, we did invest additional resources and capital expenditures about $49,000,000 year over year.
It's some of that's timing. We have not changed our estimate for capital investments this year from what we previously talked about. A couple of other things I'd point out in terms of the year over year comparison. We did see about $25,000,000 of lower cash from the California Provider Fee Program. No concern there whatsoever.
It's just a matter of timing in terms of how the payments flow based on the timing of the approval of the programs. Also in the Q1 last year, and I called this out in the Conifer section where we had $10,000,000 of revenue in the Q1 last year, that was also received in cash related to a contract termination. So that had somewhat of an impact also year over year. Additional malpractice settlement payments were about $20,000,000 year over year. So that had somewhat of an impact too.
And then with our days in AR did tick up a bit in the Q1.
Historically, if you go back through the
years based on seasonality that oftentimes we have seen slight uptick from say Q4 to Q1. We also we're improving our back office or central business office functions at our USPI in our USPI platform to improve efficiencies on a long term basis and that had somewhat of an impact too. So we'll get all that back. But when you add it all up, we're still comfortable with our cash flow guidance for the year.
Great. The one follow-up question for you on the risk based contracting. Going back to Q3, you saw $21 of losses, 4th quarter it's $4,000,000 $11,000,000 in the Q1. So $35,000,000 of losses on I think $100,000,000 of revenue. I think you talked about these coming from higher acuity patients.
But can you sort of talk about these contracts and when they come up because if those numbers are right, those are pretty margin, big nice margin pressures for you guys?
Yes, Peter, this is Dan. Let me hit that. We anticipate those losses are going to come down quite a bit from what we've seen. As we move through the year, the losses in that business we anticipate to be much lower on a quarter to quarter basis. We have changed that management in that business entirely.
We're on it. We're fixing it. We're not done yet. We're also evaluating to your point about the contracts. We're evaluating all contracts to continue to see if they make sense going forward.
But we'll get that business on the right footing.
All right. Thanks so much.
Thank you. We'll now move to our next question today from A. J. Rice from Credit Suisse. Please go ahead.
J. Rice:] Thanks. Hi, everybody.
One of the areas of outperformance, and again, this quarter, in the last number of quarters, has been the conifer, particularly the margin strength. And I wondered just to flesh out 2 aspects of it. On the revenue side, as you guys are doing divestitures and have gotten rid of assets and you said others have as well that are Conifer customers, it doesn't seem like much of that business is being retained. Do you have any data on how much you tend to retain? And I'm assuming if it's doing a good job, I would think you'd have a better chance to keep holding on to it.
Is there some systemic reason why it tends to move away from you? And then the other aspect of it is, I know most of the margin improvement, it sounds like you're attributing that to management cost savings, but is there something inherent about the Tenet OR CHI legacy business that's more profitable than what's being divested? And is that helping your margin in Conifer be so strong?
A. J, this is Dan. Let me try to address some of those points. In terms of the decline in revenue because of divestitures, yes, they were divestitures by Tenet as well as other customers fully anticipated. In terms of your point about when the hospitals are sold, do we retain the business?
Sometimes we do, sometimes we don't. There are certain customers, buyers when they take the facility over are more comfortable with their own internal revenue cycle process. However, many customers look to us for maybe at a minimum transition services for a certain period of time until they get their arms around the business and evaluate all aspects of the business and get everything up and running and then they oftentimes just make a decision to bring it in house too. So it sort of cuts both ways. We've obviously understood that some of this business was going to be lost.
And so that's why we certainly had day lighted it previously. The margin improvement has been very, very strong. Cost actions that have been implemented over the past year or so have been successful. They're sticking. They're going to continue to stick and there's opportunity for more efficiency as we move through this year and next year.
We've talked about our most recently announced $200,000,000 additional $200,000,000 cost efficiency program and Conifer is part of that. And so we feel good about continuing to be able to improve performance of Conifer. Revenue, as Ron mentioned in his prepared remarks, that's obviously an area of focus and that's what we're working toward to rather top line.
And I would add this is Ron. I would add that the revenue takes a bit of time. It's not there's a lot of relationships, a lot of time. It's not as simple as just retail sale. It takes time to get your target work with that target and develop a relationship and provide insight where you can actually do a better job and usually at a lower cost.
Your comment about are the tenant contracts or CHI contracts inherently more profitable? I wouldn't say they are. There is something about scale that helps and obviously they're the big players in the mix and that scale does help. So beyond that I don't know much more I can add.
Okay. Thanks a lot.
Thank you. We'll now go to our next question from Whit Mayo from UBS. Please go ahead.
Hey, thanks. Maybe a question for Dan or Jason, if he's around. But looking at USPI, the consolidated revenue in the quarter was down year over year unconsolidated. Looks like it was up about 15%. So I'm trying to sort of reconcile some of the moving pieces there.
It looks like there are 3 fewer total facilities this quarter. So did you deconsolidate anything? I think you've historically focused more on consolidating. So maybe just help me tease out some of the moving pieces there. Thanks.
Sure. Hey, Wood, it's Jason. How are you?
Good, man.
Good. Let me start with the last question first. We sold 2 facilities in the quarter and we merged 2 locations into 1. And that's something that we often don't talk a lot about. Usually, we're adding facilities, but it's a constant and routine process with our portfolio, the size that it is at this point.
And after I'm done, I'll let Brett talk a little bit about M and A. To your first question, you've seen this in a lot of quarters in the past. We're going to have quarters where the unconsolidated outperformed the consolidated facilities for that quarter and then vice versa many quarters. This quarter, if you look at the equity and earnings line, you see 15% growth compared to the overall growth of 12% that we talked about. So this was just a quarter where the unconsolidated facilities were particularly strong relative to the consolidated.
And Whit, just this is Dan, before I turn it to Brett. On a same store basis, system wide, again, as we pointed out, revenue was up 4.2% year over year.
Hey, Whit. This is Brett. How's it
going? Good.
Only thing I would do is reiterate a little bit of what Jason said. I mean, when we think about the portfolio optimization for the company, that is a normal part of our process. We sell facilities from time to time that we don't view as strategic to the company. We also merge facilities where we think we can capture synergies And that's exactly what happened in this particular situation. As it relates to the M and A for the quarter, as you may recall, we had a really busy 2018.
We invested $240,000,000 in the space. We added 27 facilities last year. And notwithstanding that, our pipeline continues to be very strong. So we expect the latter quarters of the year to be very fruitful from a M and A perspective.
Okay. So the $26,000,000 gain through the unconsolidated income statement that relates to the 2 facilities that were divested. Is that correct?
No. There wasn't a gain on those. What I was talking about was the growth in equity and earnings over prior year, so $31,000,000 versus $27,000,000 last year.
Okay. So the $26,000,000 gain that is flowing through
Whit, I'm not sure. I'll have to get back to you.
That's fine.
There wasn't a gain on those facilities.
Yes. And maybe my other question, I've struck out on this a number of times and I know you don't want to comment on Conifer in the process, which I think makes a lot of sense. But in the event that the business was separated, is there any framework that you can provide for us to help think through what the cash flow profile of the remain co would be anything that you could say would be particularly helpful? Thanks.
On your second question about conifer, I don't I'm not prepared to answer that today. Obviously, if we get to that point, we would have to discuss that and show that. So I think at this stage it'd be a little premature for us to get into that. So Dan any other comment about that? No, that's not what we're doing.
Yes. Okay.
Thank you. We'll now go to our next question from Kevin Fischbeck from Bank of America.
Good morning. Actually, this is Joanna Gajuk filling in for Kevin today. Thanks for taking the question. So coming back to your commentary around the hospital segment and your expectation for margin improvement the rest of the year. Can you flush it out?
I mean, you flagged the California program payments in Q4. So anything else you will flash out in terms of the margin progression? Because clearly Q1 EBITDA overall decline, Q2 implies 2.5% growth or so. Still you talk about 4% to 7% for the full year growth. So that implies is a steam drop in the second half.
So can you just remind us again the different pieces that drive that? Thank you.
Jim, this is Dan. Let me hit that. In terms of the hospital business as we move through the year, certainly we are focused on continued improvement in volumes, which will certainly help. There are certain year over year items that we pointed out in Q1 that such as the additional malpractice year over year as well as the risk contracting business in California, those losses will come down. The malpractice year over year comparison as we get into the back half of the year, we'll also that growth will be much smaller than what you saw in the Q1.
In terms of the other drivers of how we view margins in the hospital business, We continue to be very tight on cost management that's going to continue. We'll continue to execute on cost efficiencies, which will also contribute to margin improvement as we move through the year. As I mentioned from a pricing perspective, we feel very good about our pricing. So a lot of the initiatives that we're focusing on will continue to take hold as we move through the year.
Great. And if I may, commentary around leverage targets, any changes there in terms of your 5 times leverage targets? Thank you.
Yes. So this is Dan. We remain very focused on improving cash flows and we remain committed to reducing leverage to 5 times or lower primarily through EBITDA growth. As I mentioned on our call in late February, one can do the math based on our guidance we have. We still have some work to do to achieve 5 times and that's what we're focused on.
Again, I can assure you that when we evaluate any capital allocation decision, we are always thinking about the impact on leverage and what that means.
Thank you. Emma?
Thank you. We'll now go to our next question from John Ransom from Raymond James. Please go ahead.
Hi. I guess if I were to pick on a pretty good quarter, the surgery volumes, I know we talked about that in the Q4, but what is the strategy on the hospital side to try to get a little more flow going on the surgery side of your business?
Hey, this is Saum. So a few different things. First of all, I recognize that the surgical declines are important to us to turn around. So a few things. First of all, we're very, very focused in the near term on improving our care coordination, our operations, our throughput, our access to the operating rooms and ultimately the flow there will help us in the near term.
Now obviously more fundamentally long term, we're very focused on building up greater presence as our communities demand it in surgical service lines. That includes the expansion of trauma programs and other higher acuity surgical service lines. And then finally, as you can imagine, the benefit that the Tenet markets on the hospital side get from the partnership with our ambulatory platform through USPI allows us to focus on many of the surgical service lines that overlap between the 2. So all of those things both from the near term operational to the mid term sort of investments and thought process around surgical service lines and obviously over a longer period of time rebuilding significant high acuity surgical services in our markets where they're demanded, including trauma programs, represents the pathway that we're on.
Okay.
This is kind of switching to capital allocation. Tenet is starting to finally generate, not this quarter necessarily, but on an annual basis, a fair amount of free cash flow. I just look at your capital structure with all those bonds and maturity dates and the make whole provisions, it's pretty inefficient as you start generating cash to actually work your leverage down on an actual basis. And particularly if you get a slug of cash from Conifer. So I'm just wondering, the legacy management team was in love with fixed rate debt.
Most companies have at least, say, a turn of EBITDA or more in floating rate debt. Has the thinking around that changed especially as the leverage targets as you drive towards your 5x leverage target to be a more aggressive user of floating rate debt from banks?
Hey, John, it's Dan. Good morning. Certainly, as we look ahead to some debt refinancing decisions that we'll be making. Variable rate debt will that tool will be in the toolbox and then we will evaluate whether that makes sense at that point in time based on where the environment is at. So I wouldn't say that we're definitely going to do it, but I'm also saying we're open to it if it makes sense for us.
So absolutely, it's something we will consider as we move forward. I would say also in your point about some of the debt and some of the make whole costs, as we move through the year and get closer to next year, certainly there are maturities in 2020. The breakage costs come down as you move forward to those maturity dates.
And just last one for me. Kenneth, a loan of all the hospital operators calls out Med Mal probably more much more than your peers. Is there something structural in place or developing to try to make this line item less volatile? And is it what, in your opinion, kind of legacy practices have led to a spike in this line item, especially relative I know you
can't speak to your peers,
but it does kind of stand out as something that Tenet seems to struggle with a bit more than the other guys. Thanks. That's it for me.
Well, John, it's Dan. Well, certainly we were very transparent about it and we call it out when the numbers move around. We obtain actuarial valuations on a quarterly basis. We also have internal actuaries look at it as well. So the movement from quarter to quarter, absent the change related to the treasury rate or the discount rate, is really a function of where we're at with certain cases, typically larger cases and the decisions we make to resolve a case, a larger case rather than maybe proceed to trial.
So obviously, we've been focused on it. As we talked about, probably continue to have some headwinds as we move through this year. But your other point about structurally, listen, some markets are more challenging from a litigation perspective than others. Not sure I'll say, won't necessarily call out any particular one.
Thank you.
Thank you. Thank you. We'll now go to our next question today from Ralph Giacobbe from Citi. Please go ahead.
Thanks. Good morning. Just on the ASC side, the volume and revenue were better in I think typically what's a seasonally slower quarter, and not to mention, obviously, the one must stay. And if I recall, 4Q was actually a little bit lighter in a seasonally stronger quarter. So just any thoughts about whether there's a change in seasonal pattern and any explanation about what or why that may be occurring?
Then I just want to sneak in one more. I was a little surprised, I guess, on the Medicare rate, the IPS proposal for 2020, your commentary that it was sort of in line with your expectations. I think the rate was sort of 3.5%. So is that just what you thought the number was or is yours a little bit lower given sort of wage changes and other considerations? Thanks.
Hey, Ralph. Good morning. This is Dan. Let me address the Medicare rate update in the proposed rule and then I'll turn it over to Brett to address your USPI comment. In terms of the proposed rule for Medicare inpatient rights that will go into effect October 1, it was in line with our expectations.
Net net, it's about a 1.1% increase. And that does include the impact of the change in disproportionate share revenue in next federal fiscal year. I would say globally the market basket was a little bit above maybe what people were thinking, but and then you also have to take into consideration the impact from any wage index adjustment. So all in, it was in line where we thought it was going to be. Brett, do you want to?
You bet. Hey, Rob, it's Brett. You're right. I mean, we had a very strong Q1 related to same store same day at 4.5%, which we're very pleased with. And as we alluded to in Q4 of last year, what we're seeing is the consumer being a little bit more rational as to how they deal with their high deductible health plans.
So if they haven't met their deductible in November or December, they're just saying, well, why don't I just delay that surgical procedure to the Q1 so that once that surgical procedure is done, they have a full year of their deductible being met. So we saw that as a nice tailwind in Q1. We're not expecting that to continue through the remaining part of the year, but it certainly helped us for this quarter.
This is Jason. If I could just add on, Whit, if you're still on, I finally caught up to you. What you were looking at on Page 16 is our unconsolidated facilities presented as a whole. The number at the bottom of that page, the equity and earnings, that's our total portion of that, which is the 31. The 26 was a unconsolidated real estate entity that sold, but USPI's portion of that was only $1,000,000 which is in the equity and earnings at the bottom.
Sorry about that,
Whit. Thank you.
Ralph, did you have any other questions?
Yes, I'm all set. Thank you.
Thanks, Ralph.
Apologies. Thank you. We'll now go to our next question today from Ana Gupte from SVB Leerink. Please go ahead.
Hey, thanks. Good morning. So following up on the Conifer, Ron, you said that you remain as bullish as ever on the transaction. And just trying to get a sense if you can give us any color on what the drivers of this longer timeline are? Are you exploring both the tax efficient merger spin or sale or both?
And is it due to the mechanics of a spin? Is it something to do on the negotiations on pricing? Or is it around your current contract that Tenet has? And if you're going to spend it out, what happens to that contract and putting some guarantees around that one?
Well, thanks for the question, Anna. Unfortunately, I'm not going to comment beyond that. That's what I said last quarter, it's going to stay the same. I just pointed that out because I don't want someone to read my tone as saying it's continuing that there's some message in there. There's no messages.
We're pursuing this as we were in the past and we'll continue to pursue it. And that was my point of saying that we're as engaged as we've been and we haven't stopped that. But as to getting into specifics that you just asked for, I'm sorry, I just can't do that given the agreement that we signed. And that's what I said last quarter, and I just have to stick with it. So we will get to it.
Like I said, it's only been 8, 10 weeks here. If we were already that far in a conclusion, I would say we probably didn't do the job well enough. So this require when you do these things, it requires the appropriate amount of effort. So I just can't give you the kind of color you're asking for because I may as well not even be in exclusivity if I start doing that. So anyway, I'm sorry, but that's the best I can give you.
I'm glad to hear you're still bullish. Thanks for the color.
Thanks, Jaime.
Thank you. Our next question now comes from Matthew Gillmor from Robert Baird.
Hey, I wanted to ask about the admission trend through the ER. You mentioned overall admits were flat, but I think ER admits were up about 4%. So can you talk about that trend and what you'd attribute that to? Was that some of the marketing efforts or were there other factors?
Yes, this is Saum. Thanks for the question. I think, a few different things. One is, obviously, we have been focused, as I mentioned, on access and operational improvements and throughput in
all of
the parts of our facility. That includes, from my earlier comments, the emergency department. And look, the second thing is we've been focused on better care coordination. And again, that applies to the emergency department so that we can get patients into the appropriate level of care for what we are seeing them present with. So both of those things, I think have been important to that improvement in emergency department admissions that you note.
Got it. Thanks very much.
Thank you. Frank Morgan from RBC Capital Markets has our next question.
Good morning. I wanted to touch on the inside of USPS, specifically just the ASC portion of that. It seems like the pricing in that segment has been sort of in a slow deceleration over the last couple of years. And I know in your guidance you had 2% to 3% assumed pricing growth for ASCs. And I'm just curious what's been causing the deceleration?
Is it more case mix or payer mix, some other kind of shift in business? And then what gives you confidence in that pricing number for the guidance? Thanks.
Hey, Frank, this is Brett.
So you're right. I mean, it's primarily
a mix issue. Our GI business was up 16% in the quarter. And as you know, the GI business is primarily governmental. And as a result of that, our governmental mix was basically outpacing our commercial mix for the quarter. That said, we expect that payer mix to improve in subsequent quarters.
Thank you.
Frank, do you have another question or
I? No, I'm good. Thank you.
We'll take your next question. Thanks, Frank.
Thank you. Patrick Feehley from Barclays has our next question. Please go ahead.
Hi, good morning. Thanks. I was just wondering if you can provide any update on the cost saving initiative. Any color today on how that savings is going to break down by segment? Any change in the timeframe for realizing the savings?
And maybe just how the process has compared so far to your own expectations? Thanks.
Patrick, this is Dan. Let me address that. So just let me just sort of recap the entire program and then where we're at with it. So we initially started off with the end of 2017. We talked about $150,000,000 cost efficiency program.
We increased that to $250,000,000 As we moved through last year, we were ahead of pace and we ended up realizing more in 2018 than we had originally thought when we began last year. So we had very strong performance there. We executed on a few items faster and the savings were greater in many cases. So we entered this year ahead of well ahead of where we thought we would be. We had as we talked about on our Q4 call, we had about $55,000,000 of additional efficiency savings that would be realized this year.
And we're on pace to realize those, absolutely. Then we also talked about a new $200,000,000 cost efficiency initiative and performance improvement. And we indicated that we would exit 2019 end of this year on a run rate to be able to achieve that and we would capture roughly $50,000,000 of those savings this year. So we are on track. We have line item visibility into many, many actions that we're focused on and executing on and we feel very good where we're at.
Great. Thanks. And my other question was just, it looks like uncompensated care trends continue to tick up a bit over time here. And I'm just curious if there's any color there what you're seeing around that? Thanks.
This is Dan. Let me hit that. The trend actually the uninsured trends are somewhat consistent with what we saw in the back half of last year, I'd say. Some growth on the inpatient side and outpatient roughly flat. It was down outpatient was down about 50 bps in the quarter year over year.
Inpatient was up 4.2%. I would say that the numbers as we're dealing with smaller numbers here, but there was a growth and it's in a couple of states that did not expand the Medicaid program. So that's partly the reason for the driver. But I wouldn't say and nothing unusual compared to what we've been experiencing.
Okay. Thank you.
Thank you. We'll now go to our next question from Matt Larew from William Blair. Please go ahead.
Hi, good morning. Thanks for taking the question. You've been discussing deliberate pivot towards patients with chronic illnesses, multiple chronic diseases. And have discussed kind of inpatient and outpatient investment to support that focus. Could you just talk a little bit more about how you anticipate capital allocation perhaps changing or being more focused to support your own focus on patients with chronic illnesses?
Yes. Hey, it's Saum again. I think good question. And obviously, at the highest level, the continued focus on expanding our presence and care for those with multiple chronic illnesses is important in addition to all of the work we're doing with respect to the rest of the patient base that we tend to see through either the emergency department or for elective surgery. So I wouldn't say that we're focused on chronic illness at the exclusion of building those other service lines, but it's in addition to with greater emphasis and focus.
And then to your question about how we think about that, well, there's really 3 or 4 different components. The first is we think about realigning our emphasis and focus in our primary care and specialty areas, including our employed physicians to be much more focused on aggregating patients with chronic illness. So you think about diabetes, heart failure and other things, where we're best provided to manage and offer that care. The second thing is from a capital perspective, obviously, we're going through at this point a refreshed understanding of our technology footprint and also our procedure room footprint that would support many of those service lines that are required by those patients that have multiple chronic illness. And that, of course, will play right into the service line focus that I described earlier, which will move us towards better and more deep focus on higher acuity service lines that we can deliver in our hospital setting and very much in conjunction with the business that we coordinate within our markets on the ambulatory side with USPI.
Okay. Thanks, Tom.
Thanks, Matt. Emma, let's take one last question. We're going to try to end in the next couple of minutes. I know people are trying to get on another call starting at
the top of the hour here.
Thank you. We'll take our last question now today from Steve Tanal from Goldman Sachs. Please go ahead.
Good morning, guys. Thank you for that. Just wanted to follow-up on the cash flow outcome in the quarter and specifically just on accounts receivable, kind of maybe a little bit more color would be helpful on what drove the jump in accounts receivable days? And similar question for inventories and other assets. And then finally, just tying the whole thing together, if 1Q was in fact sort of a little lower than normal, which quarter do you expect to make that up and which quarter should be above average?
Thank you very much.
Hey, Steve, it's Dan. Let me address that. As I mentioned on answer to another question, there was an uptick in days in AR a couple of days from year end to the end of the quarter. As I mentioned, a good portion of that can be attributable to historically from Q4 to Q1, there can be an uptick in days in AR based on seasonality of the revenue flows in the hospital segment. As you know, there's roughly 60 days in AR.
So depending on the timing and the level of revenue streams, the days in AR can move around from quarter to quarter. I also mentioned that there was roughly half day impact from on the USBI side. We made specific decision to consolidate several business offices to improve performance on a longer term basis. So that had a partial impact as well.
All right, great. Well, Emma, I think we're going to conclude the call there. We'd like to thank everybody for joining us today. We're going to be at the Bank of America Conference on May 14. We look forward to you there.
If we don't see you there, we look forward to seeing you at UBS on May 21. If you have any questions, please call me at 469 893-6992. Thanks very much.
Thank you.