Community Health Systems Inc (CYH) 2009 Q1 法說會逐字稿

Good morning. I will be your conference operator today. At this time I would like to welcome everyone to the first quarter conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question and answer session. (Operator Instructions) Thank you. I would now like to turn the call over to Mr. Wayne Smith, Chairman, President and Chief Executive Officer of Community Health Systems. Please go ahead, sir.

Thank you. Good morning and thank you for joining us for the Community Health Systems' first quarter 2009 conference call. Larry Cash, our Executive Vice President and Chief Financial Officer is also with me on the call today. The purpose of this call is to review our financial and operating results for the quarter ending March 31, 2009. We issued a press release and an 8-K after the market close yesterday that included our financial statements. A slide presentation accompanies our remarks. For those of you listening to a live broadcast of this conference call on our website. I would like to begin the call with some comment about our quarterly results and then turn the call over to Larry who will follow with additional comments on our financial results. But before I begin, I'd like to read the following statement.

Statements contained in this conference call regarding expected operating results, acquisition transactions, or other events are forward-looking statements that involve risks and uncertainties. Actual future events or results may differ materially from those statements. Such forward-looking statements are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 and are made based on the management's current expectations or beliefs as well as assumptions made by and information currently available to management. You are referred to the documents filed by Community Health Systems Inc. with the Securities and Exchange Commission including the Company's annual reports on Form 10-K, quarterly reports on 10-Q, and current reports on form 8-K. These filings identify important risk factors and other uncertainties that cause actual results to differ from those contained in the forward-looking statements.

We are very pleased with our solid financial and operating results for the first quarter with our very successful operating expense management. EBITDA for the first quarter of 2009 was $403.6 million and income from continuing operations was $0.63 per share compared to $0.52 per share for the same period in 2008 representing a strong increase of over 20%. For the first quarter same store admissions decline 4.9% and adjusted admissions were down 2.4%. As many of you track these statistics and notice volume was a challenge because a loss of a day in February as well as significantly decreased flu respiratory volume in 2009 compared to 2008. We also reported very strong volume in the first quarter of 2008 compared to the rest of the industry. Approximately 80% of the volume decline can be directly attributed to the lack of flu and respiratory and leap day. Larry will discuss in more detail the effective admissions and adjusted admissions excluding the previous mentioned items.

With that, I would like to review some key operating accomplishments for the quarter. The Company recruited 320 new physicians on the first quarter, for the first quarter 2009 compared to 206 for the same period 2008. We continue to have a turnover rate of approximately 6%; as previously stated our 2009 target will be 1500 physicians.

We sold our 80% ownership of Presbyterian Hospital in Denton, Texas to Texas Health Resources effective March 31, for approximately $100 million. This sale is based on their exercise of a call right related to the change of control of Triad. Bank debt was repaid with the net proceeds. We acquired a small hospital in Solemn Springs, Arkansas February 1. Trailing revenue is approximately $35 million with a single-digit margin. We also acquired the remaining 50% interest in a joint venture for a 166 bed hospital medical center in south Arkansas in El Dorado, Arkansas on April 1. This hospital is located in the south central part of the state approximately 15 miles from the Louisiana state border.

Finally we announced the execution of a definitive agreement in Wilkes-Barre, Pennsylvania, this facility has trailing revenue of $295 million and a single-digit margin. Purchase price is less than 50% of revenue and approximately $136 million of fixed assets. We expect this transaction to close in the second quarter.

As we discussed on our fourth quarter earnings call, the government has decided to proceed with litigation against our parent Company and three of our New Mexico hospitals on allegations that they had violated the Federal False Claim Act. The gist of the allegations is that these hospitals made donations to local governments that somehow caused the state of New Mexico to submit applications for Federal Medicaid matching funds that were false. The litigation actually originated as a whistle blower suit by a former employee that was filed under judicial seal. The government has intervened in the case. The seal has been lifted but the government has not yet filed its complaint. As we have stated before we will vigorously defend this litigation.

We are also adjusting our previous issued 2009 guidance to take into account the (inaudible) experience in the first quarter which was greater than anticipated. Annual same store adjusted admission growth is now expected to range from a minus 1% to a plus 1%. Our projected revenue and EBITDA range is unchanged at $11.6 billion to $11.950 billion and $1.625 billion to $1.665 billion respectively and we are not changing our annual continuing operations EPS range of $2.45 to $2.46 per share. Our primary focus for 2009 will continue to be an improvement of our operations. For the first quarter we realized approximately $27 million of targeted $100 million in improvements for the Company.

At this point I would like to turn the call over Larry who will provide you a more detailed summary of our financial results.

Thank you, Wayne. Our consolidated admissions decreased 2.2% for the first quarter. Consolidated adjusted admissions increased 0.2% for the first quarter. Our same store admissions decreased 4.9%, the extra day in February 2008 and the lack of flu and respiratory in our markets in 2009 accounting for 390 basis points of decline in same store admissions or as Wayne said 80% of the drop. Service closure, severe weather or other unusual and generally non-recurring items as well as the positive Easter effect accounted for our decrease of 80 basis points. Considering these items collectively same store admissions would have declined only 20 basis points.

It's important to note that over 80% of admission decline came from Medicare, Medicaid and self paid classifications. Same store admissions decreased 2.4%. Same store adjusted admissions would have increased approximately 1.5% excluding the previously described items. Net revenues in the first quarter were $2.892 billion, an increase of 7.6%, on a same store basis, net revenue increased 4.3%. We did anniversary [anticipation] of the self pay discount in the first quarter in February, 2008. Excluding the impact of 2008 leak data first quarter of 2009 same store revenue increase would have been 5.7%.

Same store in-patient net revenue per adjusted admission increased a strong 6.9% year over year due to good out-patient growth. This is the strongest growth in the past eight quarters. Same store surgery volume increased 2% for the first quarter driven by impressive out-patient growth. Surgery growth per business day was 3% with February and March experiencing the highest month of growth in the last 15 months.

On the same store our same store Medicare case mix increased a very strong 3.4% versus last year and increased 1.5% sequentially from the fourth quarter. The case mix increase in the case is much stronger and intensely benefited by the lack of flu and respiratory illness in the quarter and represents a much lower intensity type of business.

Consolidated EBITDA was $404 million for the first quarter versus $378 million for the same period a year ago excluding the divestitures. EBITDA increased approximately $26 million or 6.9% on a same store basis, EBITDA was $407 million for the first quarter, a 7.7% increase. EBITDA margin for the first quarter on a consolidated basis was 14% unchanged from a year ago. Same store EBITDA margin was 14.5%, a 50 basis point improvement. On a sequential basis same store margin improved 10 basis points. For the first quarter our nonsame store margin was a negative 3.6% which includes $1 million for acquisition costs and are required to be expensed versus previously capitalized and approximately $2.2 million for information system conversion costs.

Consolidated operating expenses were flat for the quarter. Quarter over quarter as a percentage of net operating revenue. Payroll and bad debt increases were offset by 70 basis points in other operating expenses and a 30 basis point increase in supplies. The payroll increas was related to the acquisitions on a consolidated basis. Same store operating expenses improved 50 basis points for an increase in bad debt, a decrease in supplies and a decrease in other operating expenses. Contract labor contributed over half of the decline in other operating, as it declined almost 30% or 50 basis points. Same store revenue minus bad debt was up 3.2% for the quarter while same store operating expenses minus bad debt was up only 2.4% for the quarter. We had very good expense management in the first quarter of 2009.

For the first quarter consolidated bad debt increased 80 basis points, 11.6% versus 10.8%. Same store self pay admissions decreased 3.1% for the first quarter of 2009 compared to same quarter a year ago. And increased 20 basis points as a percentage of total admissions. Our combined consolidated bad debt charity administrative discounts divided by [trust to] debt revenue is 18% for the quarter and our combined consolidated bad debt charity administrative discounts as a percentage of net revenue were up 80 basis points for the quarter versus last year.

Consolidated cash receipts were 103%, our collectible net revenue for the 12 months ended March 31, 2009. Our 2009 guidance for bad debt remains in the range of 11.8% to 12.5% of net revenue compared to a 2008 actual 11.2%. Total AR days were 51 at March 31, 2009, a decrease of two days from December 31, 2008. The allowance for doubtful accounts is $1.195 billion at the end of the quarter or 42.1%, compared to 40.6% at the end of December 31, 2008.

Community Health Systems has a favorable payer mix for the quarter ended March 31, 2009. Net revenue by payer source on a consolidated basis is broken down as follows. Medicare, 27.8%, Medicaid, 8.4%, managed care and other, 52.2%, and self pay, 11.6% of net revenue. Cash flow from operations for the first quarter was a strong $259 million versus $55 million for the same quarter a year ago, an increase of $204 million. The increase in cash flows compared to the prior year is a result of increases in non-cash expenses of $21 million consisting primarily of depreciation and increasing cash flow from proved collections on accounts receivable of $82 million and increases in cash flow from net changes in supplies, prepaid expenses and other current assets of $19 million and net changes in accounts payable and accrued liabilities and income taxes and other working capital assets and liabilities of $62 million. We did receive a $63 million tax refund in the first quarter and will make a 401(K) contribution with $50 million in the second quarter of 2009 that was made in the first quarter of 2008.

Capital expenditures for the quarter just ended were $136 million versus $142 million. This is approximately 4.7% of net revenue and includes $0.3 million for replacement facilities. Capital expenditure guidance remains at the range of $600 million to $650 million or 5.2% to 5.4% of net revenue which is below our 2008 capital spending of $684 million. Balance sheet cash at March 31, 2009, was $532 million and included the proceeds for the Denton sale. As of March 31, 2009, the Company had available credit from the revolver of $660 million after outstanding letters of credit. We drew the final $200 million from the low cost delayed draw prior to January 2009.

Looking at the balance sheet as of March 31, had $1.424 billion and working capital to $13.9 billion in total assets. Total outstanding debt at March 31, 2009, was $9.1 billion of which approximately 90% is fixed. Our debt to capitalization at the quarter end was 83.7. We did obtain a reconfirmation of our ratings from both Moody's and S&P during the first quarter allowing an additional $200 million repurchase opportunity of either bonds or stock. We bought $60 million or the eight and seven eighths coupon bonds back in open market during the first quarter and an additional $20 million in the second quarter. With approximately $120 million that could be repurchased of bonds or stock from this authorization.

At the end of March we were a party to a $5.350 billion interest rate swap agreements unchanged from the end of December. These agreements limit the effect of changes in interest rates on a portion of our long-term borrowings. We also entered into a short term thirty-day swap for a $750 million resets over 30 days.

As Wayne stated earlier we have not changed our 2009 guidance significantly but for volume. Our same store annual admissions adjusted admission guidance had been lowered to maybe 1% to positive 1% reflecting higher than expected volume challenges that we faced during the first quarter. The guidance includes the two new acquisitions one of which has been completed. 2009 interest expense will range from 5.5% to 5.7% of revenue and assumes that the borrowing rate under our senior secured credit facility will remain relatively stable for the year. We do expect to complete $180 million of senior notes repurchases during 2009. We've done $80 million so far this year.

We have also changed our presentation of income taxes and associated guidance to reflect the new reporting requirements for minority interest. Our 2009 guidance will now range from 33% to 34.5%. The 2009 first quarter tax rate would have been 38.3% versus last year's 38.5% without the change. There was no material changes in our tax rate this year versus last year. The 2009 projection assumes an estimate of $0.02 to $0.03 of acquisition costs that will now been expensed due to the business combination rules. A change that was made was that the expected second quarter care reimbursement reduction of approximately 10 basis points calendar 2009 revenue has now been factored into our guidance. This has not been done previously. The 2009 EPS guidance remains $2.45 to $2.65 based on the outstanding weighted-average due to shares of $92 million to $94 million and no significant share repurchase has been done for 2009. Wayne will now provide a brief recap.

Our first quarter of 2009 demonstrates that one of the Company's strengths is expense management where the macroeconomic trends indicate further and future and further pressure on hospital volumes. We believe that our continued success in enhancing healthcare services and recruiting and retaining qualified physicians to our markets will support our growth in 2009 and the foreseeable future. We have a proven ability to deliver favorable operating results through our standard business platform and the use of best practice throughout our Company. With that I will be happy to now open the call for questions.

(Operator Instructions) Our first question from the line of Ralph Giacobbe with Credit Suisse.

Thanks, good morning. First, I guess the strength sort of underlying strength in out-patient and surgery I guess a little bit surprising just given the macro environment. What do you think is driving that? And I guess do you think it's sustainable?

I'll just start on that. I think that is a result clearly of our physician recruitment and the market share opportunities that we have going forward. One of the things that I think we believe is that and we've said this all along absent this extremely difficult comp that we had and the absence of flu and leap year and all of those kinds of things, but we think we have a lot of opportunity in the market for market share growth and I think we are beginning to see that. We have not had any major issues or difficulties that relates to our market operations so I think we are on track in doing the things that we think we need to do and physician recruiting obviously is a big piece of that. Larry?

I would just add out-patient revenue growth was up I think 6.4% and our inpatient 2.3% which is clearly very good in our out-patient surgeries; most of our surgeon was driven by out-patient growth and I think it's part of the physician recruitment that's helped us accomplish that.

Okay. And I want to go back to what you said on the market share side of things. Is it just because of the physician recruiting efforts or are you seeing some of the not for profits maybe in nearby markets pull back at all and create an opportunity for you all?

I think it's all of the above. I think primarily it's driven by physician recruiting but we also in some of our markets are seeing people do things like cut back all their cap spending, doing layoffs, all of the above. And it's really market by market. And we've said all along it's very difficult to peg volume to for example unemployment. And we believe that's related to the Cobra issues but as we look at unemployment across the country some of the states where we have higher unemployment we have, our volume seems to be even a little better than some of the states where we have lower unemployment. It's very difficult for to us make a determination about what's driving what in terms of the economy side of it. But there clearly are hospitals in our areas that have pulled back. I do think though the vast majority of it is our continued improvement in our hospital operations and our physician recruiting.

Just around the guidance change in admissions. Even the low end implies sort of around 0.5% growth for the remainder of the year. Anything coming on or that we should thinking about? Comps really don't get that much easier until the fourth quarter. So anything we should keep in mind?

Well, what we did was we reprojected both the second quarter and how we are hospital by hospital and we did that a couple of times and basically the answer to that is what led us to our guidance and I think what we are seeing happen, we feel comfortable we should be able to stay in that range of negative one to one. It was redone on a hospital by hospital basis and we are having a strong year in physician recruitment which should help us in the last half of the year as that comes down. Also the number of physicians that we recruited last year we look to see how they are performing and they have got a lot of opportunity to get up to the same performances that the ones did say in 2007 from a productivity perspective. So there should be some growth (technical difficulty) up to full productivity yet for ones done for 2008.

Then my last one, mix obviously up pretty strong, I think you didn't mention sort of the intensity level, flu. So do you think that's sustainable? Do you think it tapers off as we move through the year? How should we think of that mix as it sort of applies to this strong pricing number?

One of the obvious things is when you don't have a lot of flu you do have increase in intensity because you don't have that to dilute (inaudible). I do think the fact that we've done a good job in recruiting and we are beginning to see improvements, we said all along, by the way that we have a number of opportunities. We said earlier we have volume and market share opportunities. We have expense opportunities. But we also have case mix opportunities as we continue to work on and recruit specialists that do more high end cases. I think we will see, our case mix should do fairly well this year.

You're right I would just add one thing. The case mix did increase 1.5% sequentially and there wasn't much flu in the fourth quarter so does it show that we made some progress in the first quarter 2009 other than just not having flu so it was up 1.5% sequentially.

That's helpful. Thank you.

Our next question comes from Darren Lehrich with Deutsche Bank.

Thanks, good morning everyone. I just wanted to talk a little bit more about the guidance with respect to the changes that you are making. I think if I heard you right, obviously we saw the volume declines in there and there are some other components that you've changed with regard to Tricare. Could you just maybe give us a sense for what you are seeing favorably that allows you to keep the earnings intact? I'm assuming it's better pricing and some of the cost controls you have been able to put in but can you just talk through that a little bit more please?

Before Larry gets back into the details of the guidance I think this is, what we think we've done and I think what we think we've demonstrated and I think this is a great credit to our executives across this Company is that they have the ability to adjust and make things work properly even when the volumes go down. I don't think there are a lot of companies that do that and produce 20% earnings, growth in earnings at the same time. So I think that is probably the greatest strength that we have and Larry can talk about the details of the guidance.

If you look at it, I think we had some progress made in the first quarter, a little bit more progress was made in March as relates to productivity and I think that will carry forward and we always do a summer staffing plan which allows us to help control or cut our cost when the volume does come in a little less in the second and third quarter versus the first quarter. We have a lot of synergy opportunities, improvement opportunities is $100 million. We've got $27 million. We think the executives and officers working on that will be able to hit the other $70 million $75 million the rest of the year which will help us achieve that. We got the opportunity for some acquisitions in Spokane and Solemn Springs and a lot more opportunity to do better the rest of the year and (inaudible) this quarter. I think we will see a little bit of benefit from the interest buying the bonds back, we lowered it about 10 basis points and on the opposite, the negative side we did go ahead enough to recognize the Tricare which in essence is somewhat of a raise in guidance because we had not thought that was going to happen, but we'll have to climb over that $12 million revenue reduction the rest of the year starting the second quarter.

One of the things I would add to that is the fact that not all of our opportunities are related to the economy. Some of them, a great number of them are related to expense management and the way we manage kind of going forward. For example, you see there's a pretty good number and I don't know if Larry has broken this out, probably not but in terms of program closures for the first quarter. If you keep this in mind will you know historically through the years we've had a number of program closures. Those are not profitable programs like some OBs and OB programs and things like that across the country. We just started that process with the Triad hospitals. There is opportunity for us there as well. But I think one of the things to keep in mind, not all of our opportunities are around the economy issues. We still have a lot of opportunities in terms of expense management.

That's helpful. Just on the topic of service closures. Could you just give us your thoughts about the impact on volumes between admissions and adjusted admissions? I'm assuming the underlying assumption that we should have is that the inpatient piece may be a little bit worse than the adjusted admission piece but you're guiding to one single metric so I just want to get your thoughts on record on that.

Well, the service closures are about 50 basis points of the decrease of 80 basis points there and that's as Wayne said that's the first quarter has already got ten locations and it's already close to what we had all of '08, a little bit less and on scale to be more than what we had in 2007. That's the primary one there. We did have a small on that reconciliation we had a little bit of a positive Easter effect that was positive going the other way. Then we of course had some weather which is not much but most of the stuff we talk about other than the respiratory and flu related to service closures which is spread out I think in this quarter, like I said, ten locations and a lot of it's OB, a little bit of site business and some (inaudible) and stuff like that.

Just on the self pay mix can you give us the absolute growth of self pay admissions and then just maybe talk to the trend that you are seeing inside the quarter with regard to uninsured patient volumes? Wayne, I don't know if you have any commentary just about unemployment trends in your markets but what you are seeing when you talk to business leaders in your markets?

Let me just start on the unemployment stuff and Larry can talk about all the detail. It looks like we are getting close to the national average in terms of unemployment. We have basically been behind about a percentage point or two historically. I do think as I said earlier very difficult to predict volumes related to unemployment because of the effect of Cobra, the staggered effect of Cobra as the different parts of this in every state is different. For example, Tennessee is about 9.5%. But our volumes are very good in the state. So it is really hard to peg the two and so far we've been unable to do that.

The self pay business was down I think 3.1% on a same store basis. It ended up being 6.4% of the same store admissions which gives you pretty much the numbers I think you want to know, and people have been asking why is that happening? Wayne just sort of said it's hard to correlate it. A lot of people probably uninsured, there's probably 40% of the people becoming unemployed probably didn't have insurance anyway because that's the national (technical difficulty), through the end of the year a higher percentage of the people, 18 to 35, who are lower utilizers of people, lower utilizers of healthcare, I meant. So we did see a drop. Some of that could have been self pay last year, the flu and we think we built in for the rest of the year enough bad debt increase to take into consideration what could be an increase in self pay going forward.

Also one of the things that I think is what has helped us and will help us is the $87 billion in the stimulus package that has really stabilized the states in terms of Medicaid programs. So without that piece there and without the 60% of Cobra piece, I think it would be different than it is.

Lastly, just your confidence level in the range that you're providing with regard to the Medicare updates, obviously some discussion now around lower market baskets and maybe even coating adjustments?

I don't think we know. I think we are like everybody else in terms of all this. Larry you can do the math on it but it's a little, I think it's one of the times we just don't have a clear indication on where it's headed.

I think what we provided in our guidance was what we knew historically to 2.5% to 3% and right now we understand similar to market basket should be somewhere around 2%, 2.5%. But I think they're supposed to be out sometime next week. Usually what happens the increase ultimately put out in August has usually beeb a bit higher than what's put out in April and we will have to wait and see what it turns out to be.

The only historical view of it I can give you is what I do all the time is over the last 30 years or so it's been average 2% even if you take into effect maybe 97 it's been an average of 2%.

Our next question comes from the line of Whit Mayo with Robert Baird. Your line is open.

Thanks. Good morning. Just a couple of questions. I guess first maybe going back to volumes for just a second in the quarter. You knew going into the first quarter that flu and leap year was going to be a bit of a challenge. You provided guidance sort of in mid to late February and it sounds like March was stronger than maybe you had anticipated. So what was it that you think you underestimated or did you underestimate anything on the volume side?

I think we clearly knew about leap year. I'm not sure we knew about the flu season because it's totally unpredictable and as a matter of fact up until somewhere late in the quarter the flu looked like it was moving up everywhere and then all of a sudden it just disappeared. So I think flu, as we said over (inaudible) and over again as we said last year in the first quarter in terms of our volume being up 3.8% you don't count on this because you never know if the flu is coming or not coming.

When the CDC gets their formula correct or whatever, so.

And by the way, we clearly believe there's a correlation between flu and upper respiratory problems that drive this as well because what happens of course is when elderly people get the flu they get pneumonia and then they end up in the hospital. That's totally unpredictable and we can't pick the time either. It's been spread out everything from November to April so that's a tough one for us. Obviously we knew about leap year.

Yes, Whit, if you sort of look at the flu and respiratory and the volume itself was actually down this quarter over a year ago, 15%, it's actually below as best we can tell what it was in 2007. So not only did it sort of get back what happened in '08 it went back to levels below '07 and it dropped from a percentage of total admissions about 200 basis points. And I think in the middle of February you can look at the flu map and it looked like there would be some flu coming but it did not. While that quarter just turned out to be lower than we thought it would that we adjusted expenses and fortunately had good revenue growth and surgery growth to offset it.

That's fair. Just wanted to make sure I wasn't missing anything. Looking at the slides you have in your presentation, you've got 90% of your debt now that's fixed. If I recall that's down a couple hundred basis points. Is that all just from buying back the bonds or did you not reswap any more debt?

We didn't swap any more debt. We took the $200 million delayed draw. I think we were 93%. So we added $200 million and we bought back $60 million of bonds and that brought the 93% down to 90%.

Do you happen to know what the weighted-average LIBOR expense you have on your swaps is now.

I think it's 4.4%, I believe.

And you paid some bank debt down in the quarter. Was that exclusively from Denton?

I think that's actually paid down right after the quarter.

Right after the quarter.

Right. That $110 million is paid down right after the quarter.

You've got another hospital I think sitting in discontinued on ops. Have those proceeds been factored into your interest expense from, if I understand I think your bank agreement makes you pay down your debt?

They have. To the extent that that transaction has not occurred it's been there for a little longer than we would like it to be but it's not a material transaction from the net proceeds.

Okay. And any idea when that facility may run a risk of coming back into continuing ops or?

It could be in the foreseeable future pretty quick because it's been there awhile. So it could be this quarter or next quarter.

Any sense for what the drag would be on an annual basis from that?

I don't think any significant. It's a facility that had some challenges but we made some progress since then so I don't think it would have a material effect to our results considering the size of the Company.

Maybe just one last question. Looking at the share count was pretty low for the first quarter, presumably from the stock price. Am I just missing anything? For the full year you maintained and it implies a pretty significant ramp so any thoughts around that?

Well, you have to factor in some of the stock price going up there were some option shares and restricted shares we have in the first quarter and that would have an effect a little bit. I think it was around $90.9 million and the low end of guidance is $92 million. It's pretty close and there was some restricted shares that were given out in late February.

Okay. That's good. Thanks.

Thanks.

Our next question comes from the line of John Rex with JPMorgan. Your line is open.

Thanks, I'm just, first question here is I was wondering if you can just tell us a little bit how you evaluate the opportunity in the ER and I'm talking in particular how you look at your ER protocols, your coding protocols that you've been using for some time now versus the substandards? And how you have over time evaluated opportunity there, I just wanted to get your perspective on differences there?

I think we've been very consistent about our views in terms of our emergency services and management of our emergency services. As you know we have the same system located throughout. One of the things that we were able to accomplish relatively quickly within the first 12 months of the Triad acquisition was to implement our Promed system. Throughout the system, I think we have got it in all but three hospitals which have a little different system but it all rolls out the same. All that provides us really good detail and information about demographics and clinical information, all of the above and as we said earlier we've gotten a little bump in terms of our ER admissions because by focusing on that in terms of the Triad hospitals.

We have our own system in term of the way that we look at pricing and our emergency services and we've yet been able to determine whether or not the (inaudible) space, CA would be helpful to us or not. It's a little early. It will take us a while to figure that out. I think we are actually in pretty good shape and I don't know if that number was gross or net or any of those kinds of things so we will just have to work through that. But we don't think that, so far we don't know that there's anything there that would work any different for us. We've been doing this for a long time in terms of how we work on our emergency services and we do have a new component to that now which we are beginning to see some results in terms of we call it discharge call back where we are calling back all of our patients, or a large percentage of our patients. They come to our emergency rooms. We are beginning to see a lot of benefit from that now and as we go forward we should see more. But in terms of quantifying from a pricing standpoint we seem to be doing pretty well and I'm not sure there's a lot there for us. Larry, do you want to?

We've had a scoring system in place for several years that has moved up over the last couple of years and looking at us versus the national average. I don't see the kind of opportunity other people saw with what they had in place. It's a little different than the American College system that it accomplishes nearly the same thing.

Were there any specific reasons when you looked at the American College system, I know you had yours in place for a long time. But did you just not see it as all that significantly different than what you were doing? Would that have been the prime driver?

Not to date it would not, no.

All right. Okay. Just give a little more color in the quarter on the commercial or managed care volume trends versus government programs volumes?

Yes, if you look at the reported statistics I think the commercial was not -- managed care was not down as much as overall was down and so was, it was down but it wasn't down as much as the overall admissions were down.

I mean would it be fair to kind of put it maybe like half the overall level?

It's in that range, yes.

Great. Thank you.

Our next question comes from the line of Shelley Gnall from Goldman Sachs. Your line is open.

Thanks very much. First, a couple of questions on the volume trend. So it sounds to me like this -- it sounds like there's some evidence that Cobra, maybe the uptake of Cobra has been better than we expected. Can I clarify, did you say that March was the strongest month of the last 15 months?

On surgeries February and March were the two -- on a business day basis they were the best two months over the last 15 months.

I know it's only one month of data point but is it fair to think that March was stronger than February?

They are both strong. They were both strong from a surgery perspective versus a year ago. And we decided do look at it per business day.

Okay. Then admissions growth in the markets at the higher unemployment does that sounds to you like there's been more Cobra uptake in those markets.

That's really hard for us to tell Shelley. The people carry the same insurance card, there would be some perception. I do know that the implementation of the government's Cobra probably hasn't gone quite as smooth as you want it to be. I know people got the opportunity to go back to September and October to apply. I know we are making every effort to make sure if there are Cobra opportunities and people take advantage of it. But we really don't have a good roll up way of knowing if Cobra's utilization is up or not. We talked to some managed care companies and they don't seem to be saying it's as high now as it was back in 2002 when we could retrospectively tie some growth in commercial business to unemployment.

Maybe just one other way to ask it. Did you see any change in bad debt trends since the start of March 1, or is it just too soon to be asking that question?

It's probably too soon. I would say the bad debts which were up about 80 basis points that bad debt is up about 80 basis points. It's about 10 or 12 states so it was spread throughout so it would be really hard to pinpoint it to any one time.

Okay. That's fair. Then on the delay draw it sounds like, is it fair to think about the use of the delay draw, the $200 million, the way you view it are you basically applying that out towards the bond repurchase?

Basically, yes. We may not spends all the $200 million but that's -

Like, what the $180 million?

-- money is sort of fungible but that would be a good way of citing it.

Did I catch, Larry, did I catch that you had refixed an interest rate swap, or -- I missed your opening comments.

The interest rate swap. We had the same amount of swaps we had now at the end of the year and we also have about a $715 million 30-day interest rate swap which is a little bit cheaper rate than it had historically been.

That's was spoke to in your prepared comments. Okay. Great. Thanks.

Yes.

Okay. I guess just my final question then. On the surgery growth were you able to take share? It sounds like it's because of the physician recruitment but were there any specific dynamics in the markets where you weren't able to take share different from other markets? So was it the large urban markets where there was a not for profit competitor there or was it the smaller rural markets where you are stemming out migration more? Is it there any way to sort of classify where you've had more success?

No. Really looking at it we look at it on a divisional basis. We had pretty good surgery growth in most all of the divisions and I think it would be something that's, there is no one particular area and recruitment would be good in the small markets and we also partner in the more competitive and some of the larger markets. But it was spread throughout; most of the divisions had pretty decent surgical growth.

Okay. Great. Thanks a lot.

Thanks.

We have time for one final question. Our last question comes from the line of Christine Arnold with Cowen. Your line is open.

Good morning and thanks for fitting me in. A couple questions. The 6.9% revenue per adjusted admit is really strong. Can you parse out how much of that was flu comp, how much of that was helped because program closures were probably lower intensity? How much is increase in acuity kind of community versus former Triad, is former Triad doing better coding?

Doubt it.

Let me see if I can take that. If you take the 6.9% we have a measure of out-patient intensity that probably gives about 20% of that 6.9% rate, so it's probably about half managed care rates, the Medicare case, mix is probably about 15% of it and then probably government reimbursement would be to Medicare, Medicaid is about 15%. So probably looking at it somewhere breaks down in those type of components.

That's collectively and we are not breaking out the separate piece.

So out-patient intensity is about 20%, managed care rates are how much? I'm sorry.

50%.

50%. Got it. And then government 15%. And then I'm missing a piece.

Medicare case mix about 15%.

Okay. And going back to kind of Cobra and stimulus do you have specific programs you've implemented in order to make sure that people that walk in -- my understanding is that somebody can sign up who became unemployed between September of '08 and today and they can go back 60 days with retro activity. If they were in the hospital 60 days ago you could get coverage. Do you have a coordinated effort among your hospitals to take advantage of that?

Our VP of Patient Financial Services has been doing a lot of educational efforts and conference calls to make sure that (inaudible) there's opportunities for somebody to have Cobras pursued and we don't have a roll-up of the success of that because it sort of loses it's identity after a person does do it because it's with the same insurances they had before but there is some effort to try to make sure if someone is unemployed and recently unemployed that there's a Cobra opportunity they take advantage of it.

Are you going backwards for people for the last 60 days have been hospitalized--?

We will try. We probably would try to do that some but I think probably it's more concurrently going forward.

Final question is [SWMD] looks a little bit high. Is this physician recruiting so you are getting the return in the intensity and the services? How do I think about SWMD?

If you look at it consolidated if you back out the acquisitions it's actually, there's a slight improvement there and also keep in mind the contract labor for us is in other operating. That was down 50 basis points. Some of that probably where people we might have hired as a result of opportunities to eliminate contract labor which is twice as expenses there. So when you look at contract labor and payroll together we have really good management of total payroll, payroll and contract labor expense. And we also had a couple of acquisitions since payroll costs run a lot higher than the Company average.

Okay. So some of these smaller acquisitions you've done. Perfect. Thank you.

This does conclude today's question and answer session. I would now like to turn the call back over to Mr. Smith for any closing remarks.

Thank you. While we acknowledge the challenges of an uncertain market we are confident in our ability to perform. We believe that our ability to deliver quality healthcare services continue to differentiate Community Health Systems in the nonurban and mid-size hospital market. We want to specifically thank our management teams and staff, our hospital Chief Executive Officers, Chief Financial Officers, Chief Nursing Officer and division operators for their continued support and operating efficiencies during this challenging operating environment.

In closing, I continue to be excited about our business prospects and we are convinced that solid performance will propel the Company to another level of success extending our leadership position in the healthcare facility sector. Once again, if you have any questions you can reach us at (615)465-7000.

This does conclude today's conference call. You may now disconnect.