Community Health Systems Inc (CYH) 2010 Q1 法說會逐字稿

Good morning. I'll be your conference Operator today. At this time, I'd like to welcome everyone to the Community Health Systems 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-&-Answer session. (Operator Instructions). Thank you. I would now like to turn the call over to Mr. Wayne Smith, Chairman of the Board, President and Chief Executive Officer. Mr. Smith, you may now begin.

Thank you, Mason. Good morning and thank you very much for joining us for Community Health Systems' first quarter 2010 conference call to review our financial and operating results for the quarter ended March 31, 2010. We issued a press release, and an 8-K, after market close yesterday that included our financial statements, slide presentation of Company's prepared remarks for those of you listening to the live broadcast of this conference call on our website. Larry Cash, our Executive Vice President, Chief Financial Officer, is also on the call with me. I would like to begin the call with some comments about the quarter and then turn the call over to Larry, who will provide additional details of 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 and other events are forward-looking statements that involve risks and uncertainties. Actual future events or results may differ materially from these 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 managements current expectations or beliefs, as well as, assumptions made by and information currently available to management. These are summarized on the cash and risk factors in the documents filed by Community Health Systems, Inc. with Securities and Exchange Commission, including the Company's annual report on form 10-K and current reports on form 8-K. These finds identify important risk factors and other uncertainties that could cause actual results to differ from those contained in the forward-looking statements.

We're very pleased with Community Health Systems solid financial performance for the first quarter 2010, with strong revenue growth and expense management net operating revenues for the quarter ended March 31, 2010, totaled $3.2 billion compared to $2.9 billion for the same period last year, an increase of 8.5%. EBITDA was $433 million, income from continuing operations was $70 million with earnings per share from continuing operations of $0.75 cents per share, compared to $0.63 cents per share, an increase of 19%.

With that, I'd like to review some key accomplishments for the quarter. As you all are aware, the volumes for the first quarter have been soft. Flu and respiratory related admissions were weaker in 2010 compared to a year ago. Our same store admissions were down 1.2%. Our same store adjusted admissions increased .1% for the quarter. Same store net revenue increased 3.7% and we also are reaffirming our 2010 volume guidance of 0% to 2%.

We have two outstanding letters intent disclosed by the sellers to purchase hospitals in Bluefield, West Virginia and Marion, South Carolina. Our Company continues to lead the industry in selectively acquiring hospitals in attractive growth markets. We have a very strong and very active pipeline. We recruited 326 physicians for the first quarter compared to 320 physicians recruited in the same period last year. Over 60% of those physicians were specialists. Our outlook is good for 2010, and our target for physician recruitment is 1,700. The Company is reaffirming its guidance in every category that is provided in 2010. The 2010, EPS range remains $2.85 to $3.00. I'd like to quickly update you on the Federal False Claim Act lawsuit in New Mexico from March 10, 2010. The court granted in part and denied in part our motion to dismiss as to the relator's complaint. The court has not ruled on our motion to dismiss the Federal Government's complaint in intervention. We are vigorously defending this action. At this point, I'd like to turn the call over to Larry to provide you a summary of our financial results.

Thank you, Wayne. The financial and operating results for the first quarter reflect our solid expense management, our consolidated admissions increased 3% in the first quarter and consolidated adjusted admissions increased to 4.7%. Our same-store admissions decreased 1.2%, as it widely reported, volumes were soft in the first quarter. The following contributed to the decrease in the same-store volume, service closures, about 10 basis points, inclement weather representing about 40 basis points, lack of flu 40 basis points, reductions in one-day stays with a corresponding increase in outpatient observations, so 50 basis and a lower birth rate driven by the economy reducing OB-related admissions of 100 basis points. It's due to these items same-store admissions growth will have increased 1.3% and same-store adjust admissions increased .1%. Again, it's due to these items adjust admissions would increase 1.9%.

Net revenues in the first quarter increased 8.5% compared to same period last year, or $3.160 billion, versus $2.912 billion. On a same-store basis net revenue increased 3.7% with inpatient revenue of 3.9% and outpatient revenue up 3.8%. Same-store net revenue per adjust admission increased 3.6% year-over-year against a tough comp of 6.9% last year. Same-store surgery volume was down 2.9% from the quarter. Approximately 80% of clients represented by a staff adjustment from 2009 and a few hospitals had physicians moving pain management GI procedures from a hospital setting to their office or an outpatient center. Weather also had an effect on surgery. Our same-store Medicare case mix decreased .4% for the quarter.

We will continue to deliver solid EBITDA growth with 7.4% increase, approximately $30 million, from $403 million to $433 million. On a same-store basis EBITDA increased 4.3% from $405 million to $423 million for the quarter. For the first quarter, EBITDA margin on the consolidated basis was 13.7%, a decrease of 20 basis points from a year ago related to the acquisitions we done. The same-store margin improved 10 basis points to 14% compared to the quarter ended March 31, 2009. For the first quarter, our non-same-store margin was 7.3%. The trading margin before acquisitions and non-same-store hospitals was approximately 6%, and again, non-same-store includes expense and acquisitions costs and systems conversions costs. This number will fluctuate for the acquisitions we do in the systems conversions.

In the first quarter, consolidated operating expenses a percentage of that revenue increased 20 basis points due to non-same store acquisitions. It increased the payroll of 30 basis points coupled with increase in bad debts of 40 basis points. Which was off-set by decrease in supplies in other operating expenses and rent. On a same-store basis, total operating expenses improved 10 basis points with improvements on all line items with bad debt. Productivity improved 80 basis points. Same-store payroll improved 20 basis points. Supplies improved 40 basis points and contract labor 40 basis points. These were off-set by 90 basis point increase in provider taxes in some states with new provider programs.

For the quarter, bad debt was 12% versus 11.6%. This is increased to 40 basis points versus the same period a year ago. Same-store self-pay admissions increased 30 basis points, a percentage of total admissions. Sequentially, self-pay admissions declined 20 basis points as a percentage of total admissions for the fourth quarter, 2009. Consolidated self-pay revenue declined 20 basis points in the last year. Same-store self-pay admits increased 2% in the first quarter of 2010, versus increase of 7.3% in the fourth quarter, 2009. Our combined consolidated bad debt charity administrative self-pay discounts divided by adjusted net revenue was 19.2% for the first quarter, increase of 120 basis points and flat sequentially. Charity and self-pay discounts increased 100 basis points as percentage of adjusted revenue.

As we have constantly said, the real operating costs of treating the self-insured is represented by the cost of care our same-store operating costs less bad debts for adjusted admission increased only 2.7% for the first quarter, which compares to 2.5% for the last 12 months. Consolidated cash receipts were 102% of collectible net revenue for the quarter ended March 31, 2009. Excuse me, 2010. Our 2010 guidance for bad debt ranges from 12.4% to 12.8% of net revenue, compared to 2009 actual 12.1%. Consolidated AR days of 49 at March 31, 2010, up one day from December 31, 2009, but two -- down two days from March, 2009. The allowance for doubtful accounts and related contractual allowances for self-pay receivables were 83% of hospital (inaudible) to March 31, 2010. The allowance for doubtful accounts is $1.447 billion, or 45.8% at March 31, 2010, a total net accounts receivable.

Community Health Systems continues to have a favorable payor mix for the quarter ended March 31, 2010. Consolidated net revenue by payor source was as follows. Medicare 27.6, Medicaid 10.2, Managed Care another 50.8 and self-pay that was .4% of net revenue. Our cash flow from operations for the first quarter was $299 million versus $259 million for the first quarter 2009, an increase of 15%. The increase in cash flows, in comparison to the prior year period, is primarily increased the net income of $12 million increased in depreciation amortization of $12 million. An increase in cash flow from change in supplies per date, that are assets of $1 million in increase of cash flow from accounts payable, accrued liabilities and taxes of $99 million. Increase in accounts payable accrued liabilities income taxes represents a timing of payments. These increases were offset by decreasing cash flow from a change in accounts receivable of $76 million, an increase in other assets and other liabilities of $8 million.

Our 2010 guidance remains $1 billion to $1.1 billion. Capital expenditures for the quarter just ended $127 million replacing hospital expenditures $1.4 million. Our capital expenditure guidance for 2010 remains $650 million to $750 million or approximately 5.3% of revenue with $60 million related to replacement hospital construction. Balance sheet cash at March 31, 2010, was approximately $480 million. At the end of the quarter, the company had an available credit from revolver $640 million, after outstanding letters of credit. Looking at the balance sheet as of March 31, 2010, we had $1.3 billion in working capital and approximately $4.2 billion in total assets, to where our outstanding debt was $8.9 billion in which approximately 92% is fixed. Our debt to capitalization end of the quarter was 81%. At the end of the quarter, we were party to a $5.35 billion in interest rate swap agreements, unchanged from the end of the year. At March 31, 2010, again from 92% of our debt was fixed, and these agreements limit the effective changes in interest rates on a portion of our loan from borrowing.

As Wayne stated earlier -- restated our 2010 guidance. I'd like to just make a couple of points. The expense categories for the first quarter were within the annual guidance range, except for bad debts, which was slightly below the range. Our updated guidance includes all unknown anticipated Medicaid adjustments to where we are at this time. Wayne will now provide a brief recap.

Thanks, Larry. First quarter marks a solid start to 2010. We expect our growth to continue as we improve hospital operations, add and enhance services, and recruit physicians to stem out migration. With that, Larry and I will now open the call for the question & answer period and if you'd like to talk to us after the call, you can reach us at (615)465-7000.

(Operator Instructions) Your first question comes from the line of Ralph Giacobbe from Credit Suisse. Your line is now open.

Thanks. Good morning. When you had mentioned some stories out there of you signing letters of intent, any more details, or maybe timing, on those and maybe, your comments about a strong and active pipeline maybe your appetite, and more importantly, capacity for additional deals at this time?

Yes. We've been saying this for a good while, the economy is generating a lot of opportunities, particularly with the not-for-profits. These are two good opportunities for us. We really don't talk a lot about letters of intent as you know. We wait until we have a definitive agreement signed. These communities released it. But they are good opportunities and they are relatively inexpensive in the scheme of things. Our pipeline is very good. We will have other opportunities through the year as we kind of work forward and it's exactly what we anticipated. This clearly sort of fits our strategy in terms of what we've done in the past. We're too large now for three or four acquisitions to move the needle. But incrementally, it's very helpful and it's helping us in terms of filling out networks and expanding our level of services in markets, as we prepare for the future. So, I'm encouraged by what I see. I'm encouraged by what we have found. Again, we have been fairly disciplined buyers and we will continue to be so.

Okay. And, then can you maybe talk a little bit more about the surgeries down 2.9. I know you attributed a lot of that to kind of a handful of hospitals. Maybe, discuss the dynamics there a little bit and, if at all, there's concern that it spreads to other hospitals or other areas.

Yes. This is not a systemic issue. This is an issue that's been going on for a good while. I'm hopeful that we're probably working our way through it like everybody else has. This has to do with issues, like pain management, that I think the government now, and managed care companies, incentivize the physicians. They pay them more to do them in the offices and take them out of the hospitals. So there will be more of that, but as you look at our facilities across the country, we do not have a lot of pain management when it's all said and done. The stats are the issues here, not the relevancy in terms of earnings. This is not an issue around the earnings, as much as, it is the stats. Now having said that, the weather and a few other things along the way, we lost some inpatient surgery and you can see that a little bit in the revenue line and in the case mix line. Larry, you want to add?

Yes, just to add, we didn't attempt to quantify the weather. It's a little difficult to do. But clearly the surgery's were, more than a drop in services was outpatient, more related to these minor procedures. We've commented a couple times over the years about it. But it's something that will probably happen occasionally, but we don't expect it to affect our ability to grow our revenue and have a good performance.

I just would say that to sort of end this discussion, there's no systemic issue that we know of. There's no sea change in terms of the delivery system. I think we're on track as we've indicated. We've reconfirmed all of our guidance, so we feel comfortable about the year.

Okay, great. Just my last one. Can you just, again, remind us sort of Medicaid expectations and if there's been any change to states that are maybe more or less concerning to you all?

Yes. We said a couple months ago that we expect to see Medicaid go down about 1%. It's usually 0% to 1% positive, probably be closer to 1%. There's a couple states that are looking at provider tax programs, wondering now Tennessee, which may go in effect and another state to the south which may. We had one start in Arkansas start this year and we got an opportunity here in Alabama. But basically, I think the 1% is still good. If anything, it might get a little better, but it's still early in the year to say that. So, we'll just go with a negative 1%. We're watching this all the time and expect it to stay about that. Of course, 1% is only about $12 million of revenue and I just remind people a year ago, in May, we had declined over Tricare which cost us $20 million and we put guidance out before that and did a really good job with that reimbursement change. Just this year, we just reconfirmed our guidance for 2010 even though the government just put in place which we didn't know they would. We put the guidance out to 25 basis points. So, those couple things are considered in our guidance.

Okay, great. Thank you very much.

Your next question comes from the line of Darren Lehrich from Deutsche Bank. Your line is now open.

Thanks. Good morning everybody. A couple things here. I wanted to first ask about the Spokane physician practice you bought, Rockwood? Just curious to know if there are any investments or any type of one time transition expenses that we, saw in the first quarter at the salary line there? Maybe just update us on how you think it will impact the salary line as we move through the year.

Yes. If you look at Rockwood, and most clinics, we as a company run 40% of revenue and clinics will probably run more like 60% to 70% of clinics of this size, and maybe small ones a little bit more. So, it did affect it and on a same-store basis which Rockwood is left out in both years. We did improve salaries by 20 basis points, but it will have an effect on the company as it relates to the consolidated. There was really no movement, or unusual expenses, in this quarter as it related to Rockwood. I think we will do some movements later in the year, and some office space, which could create a little bit of a cost. We're aware of that and that's something that we probably will have later in the year, but nothing in the first quarter.

Okay. That's helpful. And then just as it relates to pricing, I guess, Larry, you mentioned this in passing, but the 25 basis points is obviously subsumed in guidance now, and how are you thinking about the 2011 IPPS rates impacting Q4? Maybe just update us on that and secondarily, on the Managed Care side, can you just talk about how your contracts are being structured and if there's any visibility at this point in 2011? How long term in nature are your contracts going out?

Yes. The first comment, I don't think we simply put a number for October 1, 2010, increase based on what was put out of negative 10 basis points, you got to add 25 basis points to it. I think that would make us make a change in our guidance range looking at that today. It may get better between now and August when they finally announce it and consider 2011 activity. I don't think it will affect what we think about 2010 and we're aware of that. We reconfirmed guidance. As far as managed care, we're about 90% done for 2010. I think we've been using a range of 5% to 7%, and we're comfortable with that for 2010, and as far as we can see going forward anyway we should be inside that range. We're about 70% done for 2011, so we're in pretty good shape for 2010 and pretty good shape for 2011 and I think we'll continue to have a good position. As we often point out, we got 80 hospitals or so providers which helped us in our contracts and negotiations. I think we'll be okay for this year and, as best we know, for 2011, also.

That's great. Thanks very much.

Your next question comes from the line of Gary Taylor from Citi. Your line is now open.

Hi, good morning.

Good morning.

A couple questions. First, can you comment on volume through ER, either quantify or just kind of qualitatively? Obviously would have been impacted by the weaker respiratory season, but what kind of growth were you seeing through the ER?

We're still -- ER was down just a little bit. The admit rate was in the 15% to 16% range, a little above 15% that we run. And I think we did have a little bit less admissions through there, but the volume itself was down about 1%.

Okay. And I want to just ask a little bit about potential refinancing. Obviously, I'm not anticipating you would signal anything to the market on anything imminent obviously. But over the next four years you think about the bank debt and you think about how receptive the high yield market has been of late. Can you just kind of lay out your latest thinking on managing the balance sheet?

Yes, Gary. You know our debt structure very well and you know we don't have a call 2014, 2015. Our view of this is that we continually consider options and opportunities. We certainly do not want to find ourselves out until to late in 2013 having to do a big refinancing. So we'll be working on this all along. It's probably just a little early for us today, but we're certainly considering our options and the options -- the good news is our earnings improved. And as we continue over the quarters our debt structure improves in terms of, clearly, in terms of visibility. So we're working on it and thinking about it. We're just trying to make sure that we do our conservative in the way we approach it and don't find ourselves in a problem.

Can I just add there's plenty of cash on the balance sheet now and plenty of liquidity in the revolver. We have another $300 million in A/R securitization. So, we got plenty of availability to do whatever we need to do going forward, we think.

Okay. Thank you.

One other point. We're in very good shape on our covenants, which is probably the most important thing in relation to debt.

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

Hey, thanks. Maybe first looking at the contract labor. It was down about 40 basis points in the quarter. Can you remind us, Larry, where you are with contract labor as a percent of revenue now and how much more room do you have to really bring that number much further? It kind of strikes me as a pretty large number even with the softer volume. So, if you can just sort of comment on what happened with that line through the quarter.

A year ago we were about 1% of revenue which puts us about 60 basis points. A part of getting to where I think we started doing a really good job in the second quarter of last year in March of 2009. So, we're getting down to the point where you probably won't see quite a 40 to 60 basis points improvement. I think we can sustain that, and maybe some improvement ,but not near as much as we've had historically. And of course, the contract labor actually makes the payroll go up a little bit. We do internal audits it and we're better by labor 20 basis points, same-store. We had pretty good improvement overall, of about 80 basis points in productivity in the quarter, when we had a declining inpatient volume.

And this may just be a nuance, but it doesn't seem to me like you gave quarterly guidance. Is this a philosophical change or a shift for you? I guess I'm just trying to interpret, fact that you didn't provide quarterly guidance.

Yes. I think we're the only company that does that. We provided it in February and just decided that, just reconfirmed all the annual guidance instead of work on changing each quarter up or down a little bit and we were comfortable with the $2.85 to $3.00. Again, we did cover the Medicare reduction of 25 basis points, inpatient and outpatient, which was not aware of when we did it and we gave quarterly out the first of the year and I guess it's pretty much a benchmark of where we're thinking to go.

I mean, are you generally comfortable with the previous ranges that you laid for us?

There's nothing more than other than we just didn't want to continue to change every quarter doing that. It just made more sense to give it out annually. We're thinking about to giving it out next February, to give a guidance there, and actually the company will be a little bit more stable as mentioned. The size, we got acquisitions aren't contributing that much. We didn't have any acquisitions happen in the quarter. Something did happen that we thought would make the second quarter, or third quarter, a lot different than we'd originally thought we could have changed it. Right now we thought what we gave was adequate enough information.

Maybe just one last question just back to Medicaid. Wayne, just to be curious on your general thoughts about FMAP and maybe your confidence level around that potentially getting extended and my sense is that the lobby is pretty bullish but it is a dangerous legislative environment. I'd just be curious on your thoughts with regards to that?

Yes. I think if you think about healthcare reform and you're going to put 16 million people in the Medicaid programs in 2014, I don't think the Federal Governments going to let too many catastrophic things happen to the Medicaid programs across the country. So, I think you're going to see more support, instead of less, kind of going forward even though the states are having a lot of difficulty and a lot of trouble. FMAP will continually get, approved on a short term basis or even a longer term sooner or later. But, I do think you will see support for Medicaid programs going forward. I just can't imagine trying to develop the infrastructure to manage another 16 million people and at the same time having these programs deteriorate.

Thanks a lot. I appreciate it.

Your next question come from the line of Kevin Fischbeck from Bank of America. Your line is now open.

Okay, great, thanks. You mentioned, a number of headwinds in the volume number this quarter. Can you talk a little bit about how you think those headwinds will progress throughout the year? I guess, obviously we're not expecting weather to be the same, the same headwind, but as far as OB or the reclassification, do we start to anniversary some of those comps going forward?

Let me just in general terms, I don't think we saw anything that was systemic. I think I said this. I don't think we have seen anything that's systemic in terms of our volumes or surgeries or anything else. I think there's a couple of big issues that I think are, this quarter particularly, the weather and lack of flu, but you also have probably some development of the unintended results of the economy in terms of unemployment. You may see some of that. I think the OB clearly fits that category. So, as the economy gets better and I noticed the jobs were a little less this quarter of this week than they have been. So, as that gets better, I think, some of that will change. But that's really not the big issue for us, is that we recruited a lot of physicians. We got a lot of opportunity for growth. So, I think we're positioned very well and I don't see any other big issues out there in front of us. Larry, you want to talk about the details?

Yes. If you think about weather shouldn't be an issue and probably the flu is usually not that big of issue for the second quarter or third quarter. Service closures will probably continue anywhere 10 to 20, 30 basis points and there's 10 in the quarter and that usually helps profit. The one day stays probably will continue probably, maybe, a little bit lesser number than it's been. But it was 50 basis points last year which was a little higher. Wayne's already mentioned, OB probably has got a few more quarters to run its nature if you look at the statistics. The births were down in '08. Had the economy last quarter. They're starting out nationally and the births are probably down nationally, as I understand it in the first part of '09. So, that's probably going to continue. The other thing I just want to pair them in perspective, Managed Care enrollment was down 2% last year. It's probably going to be down another 1% or 2% this year. That's probably going to have some effect on commercial enrollment because if they're not enrolled prior to coming to the hospital, they won't be, but that will probably continue. I think our Managed Care revenue was pretty good for the quarter down just a little bit sequentially.

Okay. And then I guess, is there anything about the weak flu season or the weather that you think might have positively impacted bad debt in the quarter?

Not substantially. I mean most of the flu is Medicare. There's probably some ER business that you may get into flu, not having it may have helped the ER a little bit, and the weather there's only a few hundred admissions. I'm not for sure if it affected that much and there's several different locations.

Okay. And then just one more, I guess, question about when things start to anniversary. The provider taxes that you mentioned bumping up other operating expenses, when did those go into effect and when should we expect the year-over-year pressure to?

Yes. They'll probably be there most of 2010 as a comparison comment because they start the first part of the year.

Okay. Great, thanks.

Your next question comes from the line of Gary Lieberman from Wells Fargo.

Thanks. Good morning. Just wanted you to maybe talk about the physician recruitment in a little more detail. What's the environment like? Is it incrementally any better because of the economy and maybe some more granularity on number of specialists recruited versus nonspecialists and sort of what the physician employment trends are?

Yes. We're on track. We recruited 326 in the first quarter and about 60% of those were specialists. There's not been a big change in terms of the activity level and difficulty in recruiting. We seem to be doing fine. We obviously had a very strong year last year, stronger than the year before. I think we're on track to have a strong year this year. Probably employment side of it is up a bit on average. I suspect we've been employing about 30%. It might be up a little bit here recently over the last year and this year. I expect that trend to continue based on what's going on around the country, but I also think that there will be a shift back to more primary care physicians as we think about the future and delivering services to the 32 million new people that are going to be insured. But there's not really any big change. There's nothing that is concerning to us. I think we feel comfortable that we'll get there in terms of recruiting opportunities, and we still have a lot of opportunities for physicians in our markets as well, which is a very positive thing.

We probably average eight physicians every 10,000 population on market, nationally it's 20. So, it shows the opportunity we have on a global basis to recruit doctors.

Thanks. Maybe one just quick follow-up on your supply expense. Looks like you had pretty good control there. Is there anything specific that you guys have made better inroads on this year versus in years past?

No. It's actually a little bit of everything. Blood was down just a little bit. Film was down, food. Our rebate program, our non-chargeable supplies are pretty well managed. There wasn't anything that really went the opposite direction. Actually, six or seven different categories on a same-store basis. Our Chief Purchase Officer and his materials people did a good job this quarter on the supplies and, of course, probably the surgery drop affected it some, but those are the categories we saw the drop in.

Thanks a lot.

Your next question comes from line of Tom Gallucci from Lazard Capital Markets.

Good morning, Thanks. I guess just one big picture question with respect to acquisition environment. Have you seen any changes either in availability or in pricing expectations out there since reform passed?

No. I think it's way too early for reform to have any impact so far on acquisitions, but I think it possibly will as time goes forward. I think people have to think about and prepare for two things. One, is that you have the baby boomers moving forward as we talked about, which is going to put some pressure on hospitals. The second thing is, the 32 million people. In addition to that, there's a lot of large not-for-profits that are going to have a lot of trouble figuring out what they're going to do in terms of IT improvements for the future. So, I expect the acquisition market to be good. I would expect that it would be good for the rest of this year starting probably next year if the economy's picking up, it would probably slow down, slow a little bit because of the fact that the not-for-profits have the ability, their investments in the markets are doing better and they'll start doing a little better in terms of operations. But I think it's a fairly decent environment currently.

Okay. Larry, uncompensated care trends in total were pretty steady sequentially. I think bad debt was 12%, a little lower than sort of your guidance for the year. I guess four months into the year. So, how are you thinking about your guidance on bad debt? I know there's a little seasonality there. Do you expect it to uptick throughout the year or maybe is it looking a little conservative where your guidance was?

Well, we're 12% for the quarter and the guidance is 12.4% to 12.8%. Last year we're 11.6% for the quarter. We turn out to be 12.1% and you had a whole lot more decline in unemployment from the first part of '09 to the end of '09. So, it would seem to say that possibly we're looking a little bit better if you just look at the overall macro basis and the growth in unemployment has slowed down. Our collections are looking good. Our collection company's doing a pretty good job. Our mix is looking pretty good. We did not have much of a change in our net self-pay receivables from end of the year even though the receivables were up. Our allowance is looking good. So, we're feeling reasonably good. It's too early to really change guidance. But looking at it, we do feel comfortable that the 12.4%, 12.8%'s a good range to have.

Okay. That's fair. Thanks.

Your next question comes from the line of Adam Feinstein from Barclays Capital. Your line is now open.

Lance Key [ph] on behalf of Adam. Just a follow-up question on your comments on acquisitions. With the recent announcement of a couple larger deals over the past months, are you seeing some of those larger deals in your pipeline or is it mainly on the single facilities? And just wanted to gauge your appetite for some of these larger deals?

Well, there are all kinds of opportunities out there, that you know, these two that are out are, you know are sole providers relatively small transactions. But there are other opportunities out there and we always take advantage of opportunities that we see and if one comes along that we like a lot, then we certainly take advantage of it. We do know the couple of big transactions that have happened in Detroit, Massachusetts wouldn't be things that we'd be interested in, but there are other markets where we think there may be opportunities to develop an integrated network. So we'd look at those very seriously.

Okay. Just one more, if I may? Just on the cost management over the last couple quarters, you showed some strong management there specifically in declines in payroll. As you continue to give wage increases and match the 401(k) benefits, can you tell us a little bit about the opportunity there going forward?

Well, we had pretty good productivity with the low volume of 80 basis points. I think we'll continue to see opportunity to exist just pretty much what we got now. We do a pretty good job of managing payroll, the operating people do. Our contract labors come down. So, I think it will be more of the same. Clearly, as the consolidated could look a little challenging by a few small acquisitions, but on a same-store basis I think we still got a 20 to 30 basis point opportunity in salaries and benefits going forward.

One of the things I continue to point out is that ours is more normalized. I don't know what other people are doing, but I do know there are a number of people that did cut their 401(k) and reduce their salary increases and had layoffs in all the above. So there may be some abnormal changes in the wage and salary line, which I would not think would be a trend going forward. It would be adjustments based on their past reductions.

And I think I may have said earlier but anyway it's worth repeating that our controllable expenses, operating expenses less bad debts were up 2.7% the last 12 months. It's 2.5% for the quarter. First quarter is pretty much in line with the good results we had last year.

Great. Thank you.

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

Thanks. I just want to go back to our payor mix in the meeting. A few comments on that story. But when I look at payor mix this year, , so particularly Managed Care and Medicaid compared to last year, when you look at the shift in those two categories, is there any impact there on acquisitions that have come into the mix with them or do you that as mostly about fewer people with commercial

If you think about it, we ended up last year at 51.9, last quarter was 51.2, this was Managed Care and others and the first quarter's 50.8. We actually lost a little bit of OB that we lost is clearly Managed Care. So, that's on that line there. The Medicaid was 10.2% last year. The whole year was 9.8% and last quarter is 11%. Actually, the consolidated self-pay is 11.4%, actually down from last year pretty close to what our whole year was, close to what it was last quarter. It's fairly consistent with the end of the year and the fourth quarter. It moved around a little bit from the first quarter of '09 which probably the Medicaid program did grow some throughout the year. We do a very good job of getting people qualified for Medicaid. It's one of those strategies we work on. I would expect Medicaid to probably continue to stay in the 10% range, 10% to 11% range.

Okay. Yes. I was more comping it to the year-ago quarter and that shift and just wondering if there's any, if any of the acquisitions had impact? But it sounds like it was just more from the macroeconomic background.

Yes. There was one in Arkansas, which has got a higher Medicaid and a second one in Arkansas and one in Pennsylvania has got a little less and, of course, it's up. So, I'd say it didn't have much of an effect.

Your expectation would be kind of this a similar level of mix here as you progress throughout the year and I guess unless employment starts coming back a little more?

I would expect it to stay where it is now and possibly Managed Care might move down a little bit as enrollment, the Managed Care Company moves us. If you look on a same-store basis it's not much different than on a consolidated basis.

Quickly back on your OB commentary, so that sounds like it that was more macro. Were there any Doc losses there that had impact too, or any closures or was that fully --

No closure there's at all and there's not much moving around about the OB. I think it's more economy driven.

No physician losses in OB, or anywhere else of any significance, no more than just the normal.

Okay. You haven't been able to measure any share shift really in the markets. This is just the backdrop, the macro backdrop here?

As best we can tell it's more economy. We saw some last year a little bit and we did not go into detail. We did this time. We decided to analyze the OB a little differently in more detail.

Great. Thank you.

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

Thanks. I guess my first question, could you give us an update on where we are today with the margins as the group of recently acquired hospitals?

Yes. The class of 2008 overall is probably running at about 11% margin or class of 2009 is approximately 10%, 11% margin. Class of 2008 is 7% or 8% margin and the class of 2007, which is probably in the 14% range, a little above, a little better than 14%.

Great, thanks. Can you talk a little bit about your decision to increase the self-pay reserve?

Yes. Clearly we analyzed the result and looked where we were last year it was 11.6%. We were up last year 90 basis points from 11.1% or excuse me, 11.2% to 12.1%, and looking at our collections and we go through our analysis and try to develop bad debt within a range and based on that, that's where we came out looking at both collections and self-pay dollars, self-pay receivables. Actually self-pay receivables are pretty much flat from the first quarter through the end of the year as a result of the reserves we put on. So we're very comfortable where allowance is at the end of the first quarter. I think the allowance, all allowances, compared to the self-pay receivables are like 83%. In the last year we're about 80% and at the end of the year we're 82%.

Do you feel like that gives you some extra room if the quality of receivables deteriorates through the year?

Well, I think we're pretty comfortable where we are. I wouldn't want to say we got all this extra room. That's probably not a good word to use, but I think we're pretty comfortable where the balance sheet reserve is.

Okay. And then I guess just on HIT can you update us? I think you implied, I think we heard something about the potential for increased CapEx guidance at some point during the year. If you decide to move forward with HIT implementation, can you tell us at all about where you are if you're looking at vendors at this point?

We use the four primary vendors now and, as we know now, they'll be ready to do some pilot implementations. Latter part of the year, I think, we're targeted to do four pilot implementations, one for each of the vendors we use. I don't think it will be a big number. I think it will be $3 million or $4 million per location. But we're working towards doing something latter part of the year with each of our vendors and they all seem to be ready. We've met with all of them quite frequently, keep in touch with them. So, hopefully, their pilots will be ready late in the year.

Okay. Great. Thanks so much.

Sure.

Your last question comes from line of Doug Simpson from Morgan Stanley. Your line is now open.

Hi, thanks. Good morning, everyone. Could you just touch a little bit on your thoughts on COBRA admissions in the second half of the year? Just how are you thinking about the potential for the 18 month window for those that signed up in the early part of last year? How are you thinking that will play out looking into the latter two quarters?

When you -- we try to analyze COBRA admissions. We both have said, Larry and I both have said this a lot over the last year or so, very difficult to analyze COBRA now because of the fact that it's layered in. If you go back to 9/11, we had a huge number of people, it was pretty easy to see the effects of COBRA now because it's layered in. It's pretty hard to determine it. By the way, a COBRA patient to us looks like Blue Cross or anybody else. Don't have a COBRA stamped on their cards. So, it is pretty hard to quantify that in the scheme of things. Obviously it's had some impact, probably positive impact so far, but it's a little hard to quantify that to any great extent.

Yes. All we can really do, versus our own information, is look to see what the Managed Care companies are talking about. And as I think you're aware. they may say it's moved from around maybe up 1% or total all enrollment, talk about it being much effect under costs, 20, 30, 40 basis points. I didn't see anything where they said about it helping them the first quarter. I don't know if it did or didn't. So, it's been a relatively small group in an overall Managed Care enrollment. Clearly utilization gets in there it's probably about 100%, 150% lower than average utilization of 70 admissions per 1,000 probably going up to 100 or 120, but it's hard to say for us COBRA enrollment, although you would probably have thought we had some benefit in 2009.

Okay then. and maybe just one last one. Relative to 5% to 7% on the commercial pricing could you just give us any sense about the variability across the portfolio from market to market? I mean is that five to seven pretty consistent if you had to maybe bracket your high and low? Would be it far outside that range, do you think?

One of the good things for us is that it has been fairly consistent if you've listened to us over the last 10 years. It's pretty much been the same. It's been 4% to 6%, 5% to 7% across the board throughout the company primarily because we still have a lot of sole providers which is very helpful to us and we have pretty well developed networks in a number of markets now and it is, it's very hard. I mean, we don't provide that kind of detail in terms of all that, but other than the fact that it's been very consistent. That's different than some people that are in big large markets where they've gotten big increases at one time and relatively small increases other times and a good thing for us is it has been consistent. That's been very helpful in terms of consistency in earnings.

If you look at our five additions which geographically they're all pretty close in that same range.

Okay. And then maybe I'm just sneak one last one in. If you looked at the facilities over the last couple years that have come into the portfolio, is it fair to say there's probably been a little bit of a lift in those facilities in terms of pricing over that period? Are they on an equivalent footing at this point with the rest of the portfolio?

Well, when you buy facilities, it may take a while, sometimes have existing contracts. I'd say if you've been around since 2006, 2007 probably so. Part of the class of 2009 and 2008 there's probably still some opportunity.

Okay. Great. Thank you.

And this concludes the Q and A portion of today's conference call. I will now turn the call back over to Mr. Wayne Smith.

Thank you for spending time with us today. Our strategic objective is clear. Deliver consistent results and ensure that our hospitals achieve a position as a dominant healthcare provider in their respective marks. While we acknowledge the changing dynamics in today's healthcare market, we remain confident in our ability to execute our strategy and continue to deliver substantial results. We look forward to another successful year at Community Health Systems. We want to specifically thank our management teams and staff, hospital Chief Executive Officer, Chief Financial Officers and Chief Nursing Officers and Division Operators for their excellent operating performance in the first quarter. We remain focused on our business strategy and improving results. Once again, if you have any questions you can reach us at (615)-465-7000.

And this concludes today's conference call. You may now disconnect.