All right, I think we're good. Okay, good morning. Thanks for joining us, everyone. I'm Whit Mayo. I cover healthcare providers and managed care for Leerink. This is day two of the Global Healthcare Conference. I'm pleased to be joined with Steve Filton and Darren Lehrich. Steve, you've got an announcement this morning. Maybe we'll just start there and start with the acquisition of Talkspace.
Sure, yeah. Just a few minutes ago, we announced the definitive agreement to acquire Talkspace for $5.25 a share, which equates to an enterprise value of approximately $840 million. We're extremely excited about this acquisition and the opportunities it presents to us. You know, those of us who follow us know that really for the last year or two, we have really been focused on, in our behavioral segment especially, building our presence in the outpatient space, and have done a number of internal things to accelerate that. You know, we describe in the press release the acquisition of Talkspace as an accelerant to that process, and I really like that term because I think it really is extremely apt in this case.
You know, one of the things that I think has been a bit of an obstacle to growing the outpatient business is just access to therapists, who are in great demand today. By acquiring Talkspace, we're acquiring their cadre of 6,000 therapists, many of them Talkspace believes, have additional capacity as more demand is created, and we believe this acquisition will create more demand. It is a sort of, what I think about as a bi-directional sort of benefit in acquiring Talkspace. Again, those who've listened to us in the past, you know I describe the outpatient business and behavioral as sort of having kinda two distinct phenomena to it. One is step-down, which has been sort of our historic focus.
When patients are discharged, when inpatients are discharged from our facility, they often require additional and continuing care. We call that step-down. Some of the challenges in meeting that demand is sometimes the patients don't wanna continue to receive that demand on our campus. They live far away. They're just not anxious about making... You know, they're traveling. You know, now we have this virtual option that we'll be able to offer, and I think that's a real benefit. In the case of some of our patient population, particularly the adolescent or I would say really teenage population, that's a population that I think is really drawn to virtual care. In many cases, I think they prefer that.
Now having this option in a much more comprehensive way than we have it today is significant. The payer relationships that Talkspace brings, I think are an extreme benefit to us. They are, as an example, a benefit to TRICARE. You know, I don't know this specifically, but if you're with one of the plans that, you know, Talkspace is aligned with, you know, maybe Talkspace is on your membership card, et cetera. If you have a behavioral need, just call a number, and you are speaking with somebody, and you're able to get assessed, et cetera. Now here's where I think the direction flows the other way. If people need more intensive outpatient, partial hospitalization, or even inpatient care, Talkspace now has a partner that, you know, they'll be able to refer to.
You know, extremely excited about those opportunities, which are mostly revenue-driven. A lot of times when there's an acquisition, people ask about the cost savings. I think there are some small amount of, I'll call them public company cost savings to the extent we have duplicative public audit costs or, you know, SEC costs. Obviously, I think those can be eliminated. For the most part, the Talkspace infrastructure and technology, which we think is quite an advantage, will remain in place. Their team will remain in place. We're very impressed by both their technology and their personnel and their skills, so we're excited about that aspect of it. The transaction we expect will close in the third quarter.
We expect that the transaction will be slightly accretive in its first 12 months, and then as these revenue synergies are realized over the next several years, will continue to become more and more accretive. Our leverage, which I often pointed out in these meetings is, you know, rather low, will increase by about 0.3 x. You know, I think I'd take this opportunity. When, when asked about our leverage levels, I think we often respond that we are comfortable having a lower leverage level because it gives us the ability to respond to opportunities as they arise. This is certainly one of those opportunities. There may be others in the future.
You know, we'll continue to be an opportunistic deployer of capital, meaning if other M&A opportunities arise, we'll evaluate them and respond if appropriate. We'll also continue to be an active acquirer of our own shares, which we think are a compelling investment at the moment. I'm gonna pause if there's anything I should have added. I'll ask Darren to add, and then happy to-
Sure
... answer questions.
Yeah, Steve, no, I think you covered it well, Steve. I think the only thing I'd add just as it relates to the last point that Steve made. Leverage moves up by 0.3, so that brings us to pro forma about 2.1. That's the low end of the 2x-3 x range that we've been talking to you all about as our target. I think on that point, it really is a, kind of a good example of how we're thinking about deploying our balance sheet and our capital to create new earning streams, you know, as we think about the headwinds that we have in some of the out years that you all have been asking us about.
This is a really good example of how we're using that to deploy capital and replace, you know, some of those potential headwinds that are down the road and still have, you know, a really strong balance sheet position to be able to re-respond to other opportunities that are in the environment. Whit, I'm sure you've got questions.
Yeah. Yeah, yeah
Appreciate you letting us break the news here.
No, appreciate you breaking the news here. How do I think about the potential revenue synergy opportunities over time? I know it's early and there's a lot to evaluate, but any initial thoughts on what that could look like in the coming years?
Just at the outset, I think Talkspace, their own projections for 2026 revenues were $280 million. That is roughly a 3.5% increase in our behavioral revenue. We've not quantified, and I think, you know, don't intend to quantify the potential revenue synergies down the road. We've really explored them in great detail with the Talkspace team. We think they're significant. You know, obviously, I think we'll have more to say when the deal closes, when we give, you know, our guidance for next year, when, you know, they'll, I think, be much more firmly ensconced in the, you know, in sort of this partnership relationship. I think...
We've tried to walk through, I think, you know, some of broadly what some of those opportunities are. But I think, you know, again, what, you know, I'll stress what I said at the very beginning, this focus on outpatient growth, which has really been a significant focus of ours, I think is, you know, really accelerated or potentially accelerated over the next, you know, six months, 12 months, couple years, by this acquisition.
Yeah. To be clear, there wasn't any consideration for unannounced growth within the guidance that you provided a few weeks ago, correct?
No, no, there was no contemplation of this transaction in our guidance from-
Got it.
a couple months ago.
Okay. Is this a area that you think you're gonna continue to make additional investments through M&A, or is this a new platform acquisition, we're gonna learn from this, we're gonna try to grow this? Just how do I sort of square that against sort of the capital deployment, thinking over the next few years?
Yeah, I mean, first of all, I think as we sort of often answer the question about acquisitions generally, I mean, I think we are always open to ways in which we can enhance our existing strategy. What I will say about Talkspace is, it's really one of the leading companies in this, you know, virtual behavioral healthcare delivery space with a very, you know, nationally recognized brand. There are 200 million people in the U.S. and Puerto Rico that have access to the Talkspace product through, mostly through payer relationships, but relationships sometimes with cities and that sort of thing. We'll continue to invest. I mean, they're investing in technology and we're, you know, very supportive of those investments, we'll continue to invest in their technology.
Yeah, so anyway, there may be.
Yeah
... other acquisitions, but, I think, you know, we feel like we got the pick of the litter in terms of this virtual space.
Yeah. Pretty extensive reach. When I look at your legacy behavioral outpatient business today, when there is some telehealth virtual engagement, I don't think the percentage is a lot, where do you think that could potentially go over time?
Historically, and when I say historically, I mean this obviously is really the last several years and I think it was really kind of accelerated by the pandemic, we've used virtual or telehealth largely as a means to supplement the care that we provide in our inpatient facility. If we had an inpatient facility that was lacking a therapist or a psychiatrist, a psychiatrist or a therapist from a different geography could Zoom in or Skype in or whatever and help assess patients and help create patient treatment plans and that sort of thing. You know, mostly what I describe as sort of internal. We did have some capacity to deliver virtual care and therapy on an outpatient basis, but it was, you know, relatively limited.
Again, the Talkspace capacity really accelerates that to a significant degree. You know, hard to say, again, with precision, you know, what the opportunity is, but I think we think it is measurable and one that will continue to realize the benefit for several years to come.
Remind me of the, kind of staffing model at Talkspace, how, what % of the therapists are actually employed versus being in their own independent, practice and just I presume per session, per encounter, per visit type of compensation model?
Yep. The smaller number or a smaller percentage of their therapists are employed or, you know, W-2'd. The much larger percentage are independent contractors who, I think as your question suggests, are probably, you know, either have their own practice or working somewhere else, et cetera. Again, the perspective that, you know, they've offered to us is that they believe that, I think, many of their therapists have additional capacity to take on more demand if it is offered. Beyond that, you know, with 6,000 therapists, they're, you know, very adept at recruiting, evaluating, hiring therapists who, you know, quite frankly, I think really like the flexibility of the, you know, kind of that more, flexible discretionary model that Talkspace offers.
Right.
You know, you can kind of work when you want and they'll match you with the demands of patients, et cetera, which is a little bit different than, let's say, the inpatient model, which tends to be more restrictive in terms of hours and that sort of thing.
I would just add to what Steve said, you know, we've assessed the capacity that they have and feel good about our ability to, you know.
Generate more virtual services as a result of the capacity of the 6,000 therapists that are part of Talkspace. The overlap is very good in that they're in all 50 states, and so we feel good about that. Then, you know, as we've dug into the business and better understand it, therapist turnover is very low, so they have, you know, very good satisfaction, not just among patients and consumers, but within the therapists that are on the Talkspace platform. That makes us feel really good about our opportunity to introduce that virtual access to care to the UHS enterprise.
I might just stop for a second to see if anyone has a follow-up question in the audience as it relates to the transaction. Probably put everybody on the spot, so I can keep going. Maybe just shift to the outpatient investments you have been making over the last number of years. It's been a pretty significant increase in the outpatient capacity. Just maybe talk about where you are in terms of the size of the number of outpatient access points and the growth that you've seen over the last few years.
The last couple of quarters, we've been disclosing a count of outpatient facilities in our behavioral segment, roughly 120 or so. To be fair, those are not all new. We've not historically reported all of them. Historically, most of our outpatient facilities have been on the campus or very close to geographically proximate to our inpatient facilities, and we have generally not counted those or disclosed those in our count of facilities. We recently have sort of changed the way we count and report because we want people to know that, you know, we're very focused on this outpatient, you know, growth. At the same time, we've also talked about really developing kind of freestanding facilities, which is relatively new for us.
One of the main reasons for that is that we find that people who are entering, or what we'd call stepping into the behavioral system, often don't wanna receive their care on a hospital campus branded with an inpatient hospital name. They have this, I'll call it fear, angst, et cetera, being kind of swept up into, you know, that sort of what I'll call the inpatient net. While I don't think that's really a legitimate fear necessarily, we acknowledge that it is the way some people feel, and they'd much prefer to receive their care in a freestanding setting, et cetera. We've talked about the fact that in the last couple of years, we've created this new freestanding segment of the business. We've branded it separately with this Thousand Branches brand.
We opened, I think 10 new facilities in 2025. Expect to open another 10 a year for the next several years, and we'll continue to pursue that. I think, you know, we definitely see a need for that. Again, you know, the nice thing in my mind about Talkspace is, you know, now we offer this end-to-end continuum that really offers behavioral services almost of every sort and variety that you can imagine, from inpatient to intensive outpatient, to partial hospitalization, to 50-minute therapy sessions, to virtual assessments. You know, there's really, I think, no other provider in the behavioral space that offers the continuum of services that we're now or will be able to.
You've always said historically one of the larger pain points that you've had in opening up an outpatient clinic has been the availability of therapists. This sort of opens that up. I think I get the strategic element of the transaction. Congrats on the announcement this morning. I wanted to shift to a topic and question that I think has sort of entered the picture this earnings season for the acute care segment that, you know, it feels like many of your peers have cited, you know, perhaps a new earnings stream sort of coming into the picture with resiliency and cost initiatives, and I know that you have a lot of things underway.
You may not have, branded it or called it out as a specific program, but maybe just spend a minute talking about some of the technology, the AI, the things that you're excited about, perhaps contributing to, you know, incremental growth this year versus prior years.
Yes. Well, I think you framed it quite accurately. I think on the fourth quarter or year-end call, Marc, in particular in his both prepared and responsive remarks, you know, really tried to address the fact that, you know, in our minds, driving productivity, driving efficiency, is not something that just sort of has arisen as a result of the challenges that, you know, face us as a result of the Big Beautiful Bill. It's something we've been ongoing, and I think particularly, had ongoing really since the pandemic ended. If you look, I think, at our acute results since the pandemic ended, you know, we've driven length of stay, particularly case mix adjusted length of stay, to levels that are now below where they were at the beginning of the pandemic.
We've really, I think, driven a number of productivity improvements. If you look at the growth in our salaries and wages in the last couple of years, they've clearly been, you know, even less than sort of inflation. You know, suggesting that we're driving productivity increases, and we're gonna continue to do all those things. I think, you know, Marc tried to touch on, as your question sort of suggests, the, you know, the ability to use information technology, AI, and other technologies to drive some of that productivity. We've talked a little bit about specific examples of that.
You know, we're finding a number of examples in the revenue cycle space, you know, in terms of coding assistance, in terms of denials appeals, in terms of ensuring that bills are going out as, you know, complete, you know, complete with complete documentation, et cetera. All those things. I think there are many, you know, other opportunities. You know, one of the things that I think we've reported on, or maybe in contrast to what others have said that they've seen an increase in payer denials and payer patient status changes, and, you know, just sort of complained about the heightened aggressive behavior from payers.
I'm not suggesting that we haven't seen that, but I think some of the improvements that we've made in the revenue cycle area and the investments that we've made in people, process, and technology over the last several years, particularly in the acute space, have helped us at a minimum, stay even with the payers, because I do think they're getting more aggressive as they feel the pressure on their medical losses, et cetera. You know, we undertook a significant sort of third-party consulting review of our acute care revenue cycle a couple of years ago. We've been implementing a number of improvements since then, and I think it's worth noting that we're undertaking a similar review in our behavioral space this year, and I'm sure that'll carry over into next year as well.
Okay. Is most of the revenue cycle opportunity more on yield, improving yield, or is it eliminating this friction, the just the back and forth with the plans and the denials and everything?
I think it's really falls into a few different categories. I mean, one is the nature of revenue cycle processing in our space is it's complicated, but it's also sort of routinized, it's recurring, et cetera. In my mind, that's sort of the perfect application for AI technology. You know, I'll go back to these denial letters. You know, again, this is a perfect example of, I think, where we're just effectively countering what the payers are doing, because I think we've had some sense for a couple of years now that payers are generating denials and generating their denial letters through AI technology of their own.
What we've been doing is, you know, using a nurse or another professional to, you know, look at denial, go through the medical records, you know, create a denial appeals letter, get that process started. You know, on average, that was taking an hour or two of a nurse's time for every single, you know, denial, of which there are many. Now what we're finding is that AI generates the denial letter. A nurse spends five minutes reviewing it, making sure it's complete, making sure it's accurate. From a productivity standpoint, you know, we're just doing better. We're using a vendor who uses AI technology to do ER coding. ER coding is much simpler and more straightforward than inpatient coding, which is tends to be much more complicated.
Again, we found that, they're able to do it accurately. We've done a lot of parallel testing, and they do it accurately, and they do it, quite frankly, more productively than, human beings are gonna do it. Again, another example of that. So, so I think it does a number of things. It just, I think AI helps us complete these routinized tasks in a more efficient, productive way. I think the opportunities to do that in other ways are significant and, you know, we'll continue to... You know, one of the challenges I think we have in what I would sort of describe as the early innings of AI development and, you know, AI, initiatives is prioritizing and, you know, choosing the applications that, are most practical.
Right
... that can be developed the most quickly, that are the most impactful. We have sort of an AI steering committee that spends a lot of time and effort on just that aspect of it, making sure that. I think, you know, the number of potential uses is vast, and you wanna skinny that down to a manageable number and then sort of decide how you're gonna approach it. Some of these things we're developing on our own with internal coding capabilities, et cetera. Some we're using vendors for who have already developed these applications. In some cases, you know, we talked on our call, our year-end call that we've invested in a company called Hippocratic AI, which is a company dedicated exclusively to developing AI applications in the healthcare space. You know, we've used those as well.
It's a multi sort of tiered, you know, approach to really getting the best uses from AI.
Coming out of the fourth quarter, there was a little bit of noise, you know, within the acute care segment, a lot of out of period directed payment stuff in 3Q that didn't recur into 4Q. You had an ACO payment. A lot of stuff kind of obscured the growth. Do you wanna spend a minute just sort of framing the 3Q - 4Q walk forward and then sort of how you're looking about the growth quarter-over-quarter?
I think particularly from an acute care perspective, we did get this question post the quarter that it appeared to some people that the sequential results in acute care were actually a sequential decline from Q3- Q4. That's not the way we, you know, we saw it and we analyzed it. We did highlight a number of non-recurring items in the third quarter, the most significant of which was the DPP program and the out of period DPP benefits from the District of Columbia that we recorded in the third quarter. I think we also mentioned an opioid settlement. We mentioned some revenue cycle benefits, including, you know, a discrete settlement with a payer. I'm not sure that we called out precisely the, you know, the magnitude of each one.
Ultimately, when we sorted through it all, we generally viewed the acute care results between Q3 and Q4 as relatively flat. To be fair, I think most people have expected historically there to be a bit of a step-up in Q4, and I think we attribute the lack of a step-up to relatively soft volumes, not only that we experienced in acute care in Q4, but, you know, seemed to be sort of industry wide. Otherwise, I think, you know, we generally viewed the Q3, Q4 acute care results as pretty flat and pretty stable.
Yeah. No, maybe just turn to the expiration, the subsidies. Maybe it's a little bit too early. I think you've talked a little bit about some of the activity you've seen. Quarter- to- date, a little bit of softness on HIX volume, and I don't think you can conclude whether or not those patients are going to another payer class yet. Maybe spend a minute there and sort of how you think about the slope of the headwind this year as the year progresses.
you know, in our fourth quarter call and in our, you know, earnings guidance for next year, we have outlined the fact that we've assumed a $75 million headwind, effectively, you know, in our acute segment as a result of the expiration of the ACA subsidies. The two biggest assumptions we made there were that about 25%-30% of our HIX patients would lose their coverage. The HIX patients and again, in our acute segment, represent currently about 6.5% of our total adjusted admissions.
So assuming that 25% or 30% of that is lost, we assumed a small percentage of those people, maybe 10%-20%, would get other coverage, largely commercial coverage, either through their employer or potentially by stepping down, you know, from a Gold plan to a Bronze plan, something like that. Using those projections, you know, we play that out, you know, based on the utilization patterns of that population, et cetera, and we come up with this $75 million number. You know, people have asked us appropriately, well, you know, now we've got a couple of months under our belt in 2026, are we sort of tracking those assumptions? I think what we've said is, the actual, you know, reduction in HIX patients is a little bit less than the 25%-30%.
We expect that number to grow as the next couple of months progress, because what we think will happen in a practical way is some people who are sort of believed or supposed to be, still having HIX coverage will not make their premium payments or will stop making their premium payments, and that number will grow some. I think it's too early, and I think other providers have, you know, made the same comment. A little too early to sort of precisely say, "Yeah, here's where we are, here's you know, how our assumptions compare with, you know, the actual reality." You know, I think we'll all, have, I think, you know, more insight and, you know, more to say, at the end of April when everybody reports the first quarter results.
At least at the moment, feel comfortable that the assumptions we've made seem pretty reasonable.
Should we think that this is potentially, you know, a headwind that recurs into 2027? I don't know if you've spent much time thinking through, like, beyond 2026 at this point.
Yeah, I mean, my gut wit is that, you know, if you can afford, you know, the HIX subsidies, you know, or the HIX payments without the subsidies in 2026, you can probably afford in 2027. You know, I mean, that's a possibility. No, I mean, you know, not that we've given guidance for 2027 and beyond, but I'm not sure we're necessarily-
Yeah
... assuming that this, you know, continues to compound.
You've had a number of new hospitals that you've opened in the last year or so, and opening, particularly one in West Palm Beach. Do you wanna maybe talk about how those are tracking versus internal expectations and what the incremental growth could be in 2026?
Yeah. I think as far as new hospitals go, the major assumption that we made is in the second quarter of 2025, we opened Cedar Hill Medical Center in Washington, D.C., our second hospital in that market. Had a number of challenges in terms of delayed Medicare certification and some other challenges. Lost about $50 million in 2025. Lost about $25 in Q2, $25 in Q3. The facility pretty much broke even in Q4. We assume the facility will be profitable in 2026. Have encouraged people to think about it as whatever profitability we generate from Cedar Hill in 2026 will be offset by the start-up costs and losses at our Palm Beach Gardens Hospital. Broadly, very excited about the Palm Beach Gardens Hospital. That's a, you know, a very attractive demographic market.
The hospital is extremely well located right off, you know, I-95. You know, while I think with most new de novo hospitals other than in Las Vegas will likely, you know, be a bit of a drag in its first year, will continue to accelerate pretty significantly after that. Looking, you know, very much forward to the ultimate contribution from that facility.
Okay. We've just got, like, a few seconds here left. I don't know if there are any questions in the audience. Okay. Well, I think we can just wrap it up with six seconds to go.
Thanks.
Darren, thank you so much for coming.
Yep. Appreciate it. Thank you.