Community Health Systems Inc (CYH) 2012 Q1 法說會逐字稿

Good morning. My name is Matthew, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Community Health System (sic) 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 Instruction). Thank you. Vice President of Investor Relations Lizbeth Schuler, you may begin your conference.

Thank you, Matthew. Good morning and welcome to Community Health Systems' first-quarter 2012 conference call. Before we begin the call, I would like to read the following disclosure statement.

This presentation may contain certain forward-looking statements provided by Company management. These statements are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements include all statements that do not relate fully to historical or current facts, including statements regarding future operations, financial results, cash flows, costs, and cost management initiatives, and can also be identified by the use of words like may, believe, think, will, would, should, expect, project, target, estimate, guidance, anticipate, intend, plan, initiative, continue, or words and phrases of similar meaning.

These forward-looking statements speak only as of the date hereof and are based on our current plans and expectations and are subject to a number of known and unknown uncertainties and risks, many of which are beyond our control.

These risks and uncertainties are described in headings such as Risk Factors in our annual report on Form 10-K and other reports filed with the Securities and Exchange Commission. As a consequence, current plans, anticipated actions, and future financial position and results of operations may differ significantly from those expressed in any forward-looking statements in today's presentation.

You are cautioned not to rely unduly on such forward-looking statements when evaluating the information presented, and we do not have any obligation to and do not intend to update any of these forward-looking statements.

The presentation also contains certain non-GAAP financial measures. This presentation and the Company's earnings release for the first quarter of 2012 located on the Company's Investor Relations page at www.chs.net include a reconciliation of the difference between certain non-GAAP financial measures with the most directly comparable financial measure calculated in accordance with GAAP. These non-GAAP financial measures should not be considered as an alternative to the GAAP financial measures.

References to the Company or Community Health Systems used herein refer to Community Health Systems, Inc., and its affiliates, unless otherwise stated or indicated by context.

With that said, I would like to turn the call over to Mr. Wayne Smith, Chairman, President, and Chief Executive Officer. Mr. Smith?

Good morning and thank you for joining the Community Health Systems quarterly conference call. Larry Cash, our Executive Vice President and Chief Financial Officer, is also on the call with me.

The purpose of the call is to review our financial and operating results for the first quarter ending March 31, 2012. We issued a press release and an 8-K after the market closed yesterday that included our financial statements. A slide presentation accompanies our prepared remarks, for those of you listening to the live broadcast of this conference call on the website.

I'd like to begin the call with some comments about our quarterly results, then turn the call over to Larry, who will follow with additional details of our financial results.

We are very pleased with our consistent financial and operating results for the first quarter ended March 31, 2012. First, our same-store admissions were down 2.3% for the quarter, better than forecasted when we presented our fourth-quarter results in February.

Net revenue for the first quarter increased 11.6%, $3.3 billion versus $3 billion in 2011.

Reported adjusted EBITDA for the first quarter of 2012 was $535 million, an increase of 17.2%. EBITDA was affected by several one-time adjustments. We recorded approximately $71.8 million for the industrywide budget neutrality agreement settlement, the SSI adjustment update implemented by CMS. EBITDA was also affected by a $14 million reserve established for certain specific legal matters.

Income from continuing operations, including loss on the early extinguishment of debt, was $0.85 per share diluted. Adding back the loss from the extinguishment of debt of $0.44, including the favorable one-time adjustments of $0.38, our EPS for the quarter would have been $0.91.

With that, I would like to review some key operating accomplishments for the quarter. The Company recruited 423 new physicians during the first quarter of 2012 compared to 281 for the same period in 2011. In addition, we added 44 mid-levels during the quarter.

Physician recruiting remains a key component of our operating strategy. Adding new physicians improves not only the quality, but also the availability of services provided in our communities.

As we discussed last quarter, we purchased the assets of Moses Taylor Healthcare System in Scranton, Pennsylvania, a two-hospital system, on January 1, 2012. Trailing revenue for this acquisition was $200 million, with a low-single-digit margin, and the price was approximately $150 million. We now have 16 hospitals in Pennsylvania.

We also acquired the assets of MetroSouth Medical Center in Blue Island, Illinois, our eighth hospital in that state. This 333-bed hospital has trailing revenue of approximately $160 million, with a mid-single-digit margin. Purchase price was approximately 25% of the trailing revenue.

We have a definitive agreement to purchase a 100-bed hospital in York, Pennsylvania, with approximately $115 million in trailing revenue and low-single-digit margin. We expect it will close early in the third quarter. We continue to be very selective with our acquisitions, and we have a very strong pipeline.

Our CMS inpatient core metrics improved for the 20th consecutive quarter and the 15th consecutive quarter for our outpatient core measures. Both inpatient and outpatient core measures continue to be better than the national average.

Our patient safety organization has completed phase 1 of our higher liability initiative with regard to patient safety at 10 pilot hospitals. This initiative implements behaviors and practices to prevent error and harm, as is used by other high-risk industries.

The Company is updating the guidance that was provided February 2012. Revenue for 2012 has been increased $100 million on both the low and the high end of the range, $12.8 million (sic - see press release) to $13.2 billion. We have increased our adjusted EBITDA estimate by over $50 million -- $1.970 billion to $2 billion. Income from operations has been revised to $3.85 to $4.10 per share. These increases reflect the favorable settlement recently announced by the government and good results for the quarter.

Now I would like to update you on the pending significant litigation and investigation matters. First, the Company did prevail in the litigation Tenet Healthcare filed against it last April. The district judge dismissed with prejudice Tenet's suit against the Company, Larry, and me, citing Tenet's lack of standing to bring the case. We are very pleased to put this distraction behind us.

The New Mexico qui tam case is ongoing. Both parties filed motions for summary judgment last month, and the briefing will continue over the next couple of months. The judge did rule against us on our motion to disqualify the government's and the relator's expert, but that doesn't mean the judge thinks the expert is correct in her conclusions, just that he will allow that testimony to be presented.

We are continuing to cooperate with the Department of Justice and the OIG on their investigations. From the questions that have been raised by some of you, I think it's important to point out our view and belief that these matters, to the extent they involve medical necessity for inpatient admissions, should be looked at as a group. This includes the investigation that we received notice via the broad April 2011 subpoena for the Reuille case in Indiana; the May 2011 Shelbyville, Tennessee, subpoena; certain aspects of the investigation in Laredo; and most likely the state of Texas Attorney General investigation, although these investigations are different facts raised at different times.

For example, the Lutheran Hospital in Indiana has never used Pro-MED information system. They are -- now all these cases are linked together. At the end of the day, it will be in our best interest if all of these matters are concluded and resolved at the same time.

To achieve that objective, we have joined in a motion with the federal government and the relator in the Indiana case to extend the stay in that case for an additional 180 days. As of yesterday, the judge approved the stay for 180 days.

As noted in that court filing, we have been cooperating with the investigation by producing a large volume of documents, making the witnesses available for interview, and most recently by working together with the government to design and conduct a joint probe audit. The probe audit will involve a sample of medical records at a small number of hospitals. Independent clinical and physician reviewers will be engaged to conduct these studies.

We are currently working through the details, and it is hoped that the information from this probe audit will assist the government in determining the next steps in these investigations.

There are a number of options that could follow that review -- more investigation, including interviews or more record review, and end to the investigation, or some sort of settlement. We're providing this update to keep you advised of these investigations and cannot speculate on any potential outcome. As we've said all along, this matter is dependent on the review of medical records, and it comes down to individual physician medical judgment.

The SEC continues to receive the same documents that we produced for the Department of Justice, as does the Tennessee Attorney General. Class action security cases and the shareholder derivative action case are moving slowly with no significant developments at this time. As always, our Board of Directors, audit and compliance committee of the Board, and our senior management team continue to be very focused on these matters.

At this point, I would like to turn the call over to Larry Cash to provide you with additional details of the first-quarter 2012 financial results.

Thank you, Wayne. Consolidated admissions increased 3.2% in the first quarter of 2012. Adjusted admissions increased 8.1% for the same period. On a same-store, admissions decreased 2.3%. Same-store adjusted admissions increased 2.5%, which is one of the best improvements we have had for several quarters.

The quarter had the same number of business days as the first quarter of 2011, even though we picked up an extra weekend day, with leap year minimizing the effect of seasonality. The leap day effect was approximately 70 basis points' benefit. And I'd like to highlight some of other specifics that contributed to the decrease -- [lack of fluid respiratory], 180 basis points; service closures, 20 basis points; lower GYN admissions, 30 basis points; and increased competition from new services at key hospitals, including a new hospital at one of our locations, and also certain changes in physician relationships.

Same-store adjusted admissions increased 2.5% for the quarter, one of the best adjusted admissions growths versus managed care. We continue to have strong outpatient equipment admissions growth of approximately 8%. And again, hospitals with less than $1 million in revenue continue to lag the rest of the Company.

Net revenues in the first quarter were $3.297 billion and increased 7.6%. The BNA settlement and the SSI/CMS recalculations were included in consolidated revenue, but not same-store.

On a same-store basis, net revenue increased 4.3%. That compares to a restated 2011 over 2010 of 3.8%. We had very strong same-store outpatient [revenue] growth of over 10%. Same-store net revenue per adjusted admissions increased approximately 1.7% year over year. Our same-store Medicare case mix increased [0.8%] for the quarter.

Same-store surgery volume increased 3.2%, with outpatient surgery up over 4% for the first quarter, continuing the trend established back in 2010 in the fourth quarter. This increase is driven by very strong outpatient growth in many areas. In fact, our outpatient surgery procedures are up in almost all classifications. Our same-store surgery case mix for the quarter increased 1.1% for the quarter.

Consolidated EBITDA was $535 million for the first quarter versus $457 million, an increase of approximately 17.2%. The industrywide budget neutrality settlement included expenses associated with the settlement. The SSI adjustment implemented by CMS, and a reserve for certain civil litigation cases, were included in our consolidated EBITDA. Excluding these items, consolidated EBITDA would have been up -- would have been $478 million or an increase of 4.5% on a same-store basis, $476 million for the first (technical difficulty) percent increase versus an 8.4% comp in the first quarter of 2011.

EBITDA margin for the first quarter on a consolidated basis was 16.2% versus 15.5%. Again, excluding these adjustments previously mentioned, EBITDA margin would have been 14.9%. Same-store EBITDA margin decreased 10 basis points for the quarter, 15.5% versus 15.6%.

Consolidated operating expenses, including an offset from HITECH incentives, decreased 70 basis points as a percentage of revenue in the first quarter of 2012. The 80-basis-point benefit from HITECH was offset by a 20-basis-points decline in equity and earnings of unconsolidated affiliates.

Same-store operating expenses first quarter decreased 10 basis points compared to the same period a year ago. And supplies improved 10 basis points, offset by an increase in payroll, benefits and other operating expenses.

Total A/R days were 56 at March 31, 2012, unchanged from December 31, 2011, up from 53 for March 2011.

The allowance for doubtful accounts was $1.996 billion at the end of the quarter or 49.7%. The allowance for doubtful accounts and related contractual allowances for self-pay was approximately 84% of the hospital segment self-pay receivables at March 31, 2012, unchanged from December 31, 2011.

Community Health Systems has a favorable payer mix for the quarter ended March 31. Net revenue by payer source on a consolidated basis, without the change in bad debt reporting, was as follows -- Medicare, 26.6%; Medicaid, 8.5%; managed care and other, 51.5%; and self-pay, 13.4%. Please note that this breakdown excludes the BNA settlement and the SSI adjustment.

I would expect 2012 managed-care pricing to increase 5% to 7%. We have been able to maintain stable pricing and made sure that companies are not focused on the longer-term contracts. The Medicaid reduction for 2012 was -- versus 2011 was approximately 3%, is the current estimate.

Cash flow from operations for the first quarter was $187 million, flat with 2011, a two-day accounts receivables -- or actually a three-day accounts receivable improvement from the first quarter of 2011. And we had an increase in accounts receivable due to recent acquisitions in late 2011 and early 2012, as well as the timing of the [unloid] Medicaid payment that we discussed last quarter. We also recorded receivables for HITECH and the BNA settlement, and these receivables will be -- should be collected in subsequent quarters.

On the liability side of the balance sheet, the payroll liabilities decreased as a result of the first quarter comp payments and also a decrease in payroll taxes payable. Additionally, our 401(k) match we made in the second quarter this year was made in the first quarter last year.

Our 2012 guidance for net cash provided by operating activities ranges from $1.2 billion to $1.3 billion, unchanged since February. The cash payment of the government settlements is expected by June 30, but could be delayed if they want to pay some interest after June 30.

Total capital expenditures for the quarter just ended were $185 million or 5.6% of net revenue. Capital expenditures for replacement hospitals was approximately $41 billion or 1.2%.

Our CapEx guidance for 2012 is from $800 million to $900 million and includes replacement spending of $170 million or 1.3% of revenue.

Our balance sheet cash was $129 billion at (technical difficulty) 31, 2012, and the Company had available credit from the revolver of approximately $700 million after outstanding letters of credit.

Looking at the balance sheet, at March 31 we had $1.1 billion in working capital and $15.8 billion in assets. Total outstanding debt at March 31 was $9.3 billion, of which approximately 77% is fixed. And our debt to capitalization at quarter end was 79%.

At the end of March, we were a party of the $4.15 billion in interest rate swap agreements. During the quarter, we extended approximately $1.6 billion on our Term Loan B to January 2017 at a LIBOR plus 3.50%, an increase of 125 basis points.

We announced an additional $1 billion senior notes offering of an 8% coupon due in 2019. The proceeds were used to [tender] $850 million of our 8 7/8% coupon high-yield bonds and additional cash used for general purposes and cost of the transaction.

We recorded loss on early extinguishment of this debt of approximately $63 million or $39 million after tax. This represented a loss of $0.44 per share in the first quarter.

Additionally during the quarter, we replaced our $750 million revolver with a new $750 million revolver with an October 25, 2016, maturity. We also issued a new $750 million term loan with the same maturity, and the proceeds from the Term Loan A were used to repay the term -- 2014 Term Loan B. [Both of our original loan A] accrue interest at LIBOR plus 250 basis points. We also completed a $300 million A/R securitization in the first quarter.

I'd like to highlight several items as it relates to guidance in the first quarter. Our equity and earnings of unconsolidated facilities decreased $6 million in the first quarter. We recognized about $26 million in HITECH incentives, all Medicaid-related, for the Company's hospitals and primary Medicaid for some of the Company's employed physicians. This is the first quarter that we've recognized any HITECH for physicians.

Associate extensions at HITECH were approximately $12.7 million for the quarter and included $6.1 million of depreciation. We expect the second-quarter HITECH to be approximately 30% lower than the first quarter. And we maintain our 2012 related guidance.

Bad debts as a percentage of operating revenue increased approximately 100 basis points versus the first quarter of 2011. Our collection results during the first quarter of 2012 were not as strong as they were in the first quarter of 2011, which was better than usual. The first-quarter 2011 bad debt increase reduced our EBITDA and margin growth.

In the first quarter, the Oklahoma provider tax program has been approved. We are still waiting on CMS approval for programs in West Virginia, Indiana, as well as extension in California.

In the first quarter of 2011, we had approved Pennsylvania provider tax program.

Our EPS for the first quarter, adjusted for the BNA settlement, the SSI adjustment reserve and specific civil legal matters, was $0.91 versus consensus of $0.87 as described in slide 5 of our earnings release slides.

We have increased our annual 2012 revenue, EBITDA and EPS guidance to reflect these adjustments, as well as our strong performance in the first quarter.

And Wayne will now provide a brief recap.

Let me correct one thing that I may have misspoken in the first part, when I was giving you the update on the investigation. When I was talking about -- I think it was in the area where I was talking about people who are receiving documents, I may have said the Tennessee Attorney General. I meant to say the Texas Attorney General. Minor correction.

Our results for the first quarter of 2012 are an indication of a strong start to the year, with solid financial and operating performance. We continue to show strong same-store topline growth of 4.3% versus a year ago. We are especially encouraged by our volumes, which show more favorable year-over-year trends than we experienced in 2011.

We continue to focus on fundamentals of our business and believe our prudence in assessing and recruiting physicians and other healthcare practitioners, improving operational efficiencies, enhancing essential healthcare services, and careful deployment of our capital will continue to support our long-term growth strategies.

So with that, I will now open the call for questions.

(Operator Instruction). Adam Feinstein, Barclays.

Wayne, I liked your picture on the cover of Modern Healthcare this week.

Yes, that was my hospital picture.

Maybe just as a starting point, you talked about the improving volumes in the quarter. Maybe you could just provide some more clarity in terms of what you guys have been doing to get the volumes back. It seems like it's working. So just wanted to get some more clarity in terms of what you guys are doing and then just the outlook going forward there.

Yes, I think there's no question that after we were -- we came under significant scrutiny that we overreacted. We very quickly made a change, introduced an entire new system. We were not as deliberate as we could have been or should have been in terms of our process in education and training. So we have corrected that over the last three to six months. And I think you are now beginning to see the result of that.

So anyone else I think in this same circumstances would have reacted very strongly, as we do. As you all know, we are a strong management group, so when we decide to do something, we do it fairly quickly. We just didn't do it very effectively to start with.

I will just add, we didn't highlight any changes in one-day medical admissions or short-stay inpatient surgery because there wasn't any significant difference. It was pretty close to a year ago. And we would expect that to hopefully be the case going forward.

Okay, great. And then just a quick follow-up, if I may. So just on the physician integration, obviously a big area of interest, and it comes up on every call. Maybe just give us an update in terms of you guys have bought some high-profile physician practices, and just how some of that integration has been going, and just in terms of as you are thinking about future opportunities there, too.

Yes, and you know, we have been thinking about this for a long time. As you go back, you will have heard me over the last two years say that we think there's two or three things that are really important, particularly if healthcare reform goes forward.

One is infrastructure. What I mean by infrastructure is having the resources and the services in a particular area. The other is demonstrating quality. And as you can see from our core measures and our other quality standards, our quality is at the top of the mark. It is better than national averages, better than most of our competitors when it's all said and done.

So that is one piece of it. This integration piece of it in terms of having infrastructure, as you know, we have acquired a number of large physician practices over the last couple of years, have historically been using the Spokane and Rockwood Clinic, which has about 130 physicians in 32 or 33 or 34 locations.

All of that is going extremely well. We are seeing and continue to make good progress in terms of integrating our physicians and our facilities together and working together as a unit.

This doesn't mean that we think accountable care organizations are the end-all of the be-all. We will be prepared for whatever might happen. And I think I've said all along, it's difficult for providers to take risk, and they have to think carefully about the risk side of it as we don't really employ actuaries.

But I think we're as capable and we're as well positioned to do that going forward as anybody. We just don't think we ought to get out and get too far ahead of the curve here, depending on what's happened.

So I think we have made good progress, and you will continue to see it, and we will continue to report on it as all of our other markets -- a lot of our other markets continue to develop.

One other thing I would say is that this is not as critical in our markets where we are the sole hospital, when in 80 of our markets we're the only hospital. We already have this network; we already have the facilities; we already have the resources in there.

So it's not as critical as it is in our large markets. Again, that's the reason that we acquired all these facilities in Spokane, and we've acquired a couple of fairly large practices in Spokane -- I'm sorry, in Scranton -- for the same reason. And we already had that set up in Indiana and in the Lutheran network.

Do you want to add anything to that?

Yes, I would just add from a financial statement perspective, it's a little challenging on same-store margin. For instance, I think we've carved out that we're up 40 basis points on payroll and benefits. Some of that is a benefit issue, but it's -- that will correct itself out. But primarily, by acquiring physicians, we are driving our payroll up. It would probably be absent that, probably down 20 basis points. So it does it seems to affect our same-store margin there.

And also, if you go back 10 or 15 years ago, when you had competition, [Promedco, Abet Partners and Firecorp], all companies which are gone, they were probably driving the price of deals up. I think that ability to buy physicians at a reasonable price and make it work is much better today than it was back in the mid-'90s, when these companies existed. There's not such companies out there now for the most part to create challenges. I think the prices are much more reasonable and in line with what they should be.

And physicians are a lot more receptive today.

Okay, great. All right. Thank you very much.

A.J. Rice, UBS.

A couple questions, if I could ask. First of all, just to follow up maybe on the comments about physicians, I know you've seen an acceleration, that you're reporting in your slides acceleration in physicians added this quarter versus a year ago, significant, I would say. Is that all the physician practices you have bought, or is that in addition to what's recruiting?

That's people who joined the medical staffs. And clearly, when we do acquisitions, it's going to have an increase in numbers of physicians who join the medical staffs. But I don't think we report those acquired physicians, Larry, do we, in that category?

No, if they are already on the medical staff they wouldn't be captured like that. But there could be, if you acquired 90 doctors somewhere, it could have been 10 or 20 of a group that maybe were not; they would be picked back up. We were up pretty good year over year. Actually, the first quarter 2011 was down just a little bit for the slow start. I think we are well over 300, if you go back to 2010. But we are off to a good start.

Okay. And I know you're at 77% debt fixed at this point, and you have a little range in your guidance there. Maybe comment on where you really think equilibrium is for you, given your current capital structure, on the amount of fixed versus floating?

And you have done a lot in the restructuring and the balance sheet on the debt side in the last six to nine months. Can you comment on priorities or what else you might be thinking about doing?

Yes. I think the range is 77% to 72%, and we are at 77%. And it probably would -- probably go down inside that range. That is for a year. So it could get somewhere around 70% or maybe a little less by the end of the year.

There's still some more swaps that will flow off this year, and again some next year. We are pretty comfortable with where we set the guidance out. And we could probably go a little bit lower next year if we decide to do that.

We are watching to see what happens to interest rates. Right now, it's pretty attractive to let the rates float, but we're contemplating doing some swaps later in the year, which could be a little bit more expensive, but right now we are comfortable where we are and also into the second quarter.

We've done a lot. We started off at $6 billion of debt with term loans back in 2007. It's down about $2.2 billion, is what we've done. And I think we'll work on that between now and the next 18 months or so, and we've got some idea as to how to go about that.

The bonds were about $3 billion. We're down to [the lotter] billion, and we have a step-down coming this summer. And if rates are attractive, we would probably consider also doing that. So it's on our mind to do something probably before end of the year. It's not in our guidance. The bonds will probably be at a favorable rate, and we could spend a little money if we did some term loan activity. But I think we're pretty comfortable that we can manage that pretty well going forward.

Okay. And then just the last point of clarification maybe with your comments, Wayne, about the -- and I know there's probably not a lot you can say there, but the Reuille case, and you mentioned if you can get all these cases sort of consolidated in a sense of doing a settlement -- I guess I'm not clear. Are you saying that what you're doing with the government now, you are at the point where all those disparate cases that are sort of looking at the same thing in different ways, they are now together? And what you're doing with the government will pave the way for a settlement? Or is that still in front of you to pull that together?

All of that is still in front of us. But when we start -- someone said we are now cooperating. We have clearly been cooperating all along through this process, and this is a move in the right direction.

We are now getting down to a study or a probe, which we've said all along, this is about physician judgment and had to get the medical records. But you really can't speculate, as you know, when it comes to the government. You can't speculate what might happen here or what the conclusion is. You can't speculate that this is accelerating or decelerating.

All I can tell you is that we still feel the same we did as we started this. We think it's about physician judgment. And as you can see from this, that is a clear direction here.

Right. Okay. Thanks a lot.

Gary Taylor, Citigroup.

Good morning. Larry, I missed one thing you said. You were talking about the 401(k) match in the first quarter of 2011, and then I missed where you said it was.

I think in 2011, this first quarter will be the second quarter of 2012, because -- that helps. And we're at about [1 billion, about 180 million -- 187 million], which we were a year ago, and receivables got better in the first quarter 2011. This year, they got worse. And we ended up with $1.260 billion.

And I think we will have -- we will do fine for cash flow. Some people don't think so, but I think we'll have a fine year for cash flow.

And this is only a cash flow issue; it's not an EPS issue. You're accruing that?

That's correct. It's just when the best time to make payments is, and sometimes the information comes faster than others. It came a little slower this year. Usually, it has been in the second quarter. Last year was the first time we made the 401(k) payment in the first quarter.

Got it. And on your replacement hospital CapEx, am I still right that that $170 million number is going to about $90 million next year? Is that still about right?

We have not put out a number there. Actually, the Siloam Springs, which is one of those, will open in May, and Barstow will open in probably late November, and Valparaiso around September.

So the three we are working on today, we have a pending CON effort down in Alabama. And if that happens, we will have to put out a spending plan for that. But I think these three hospitals will be completed. Now, we will in New York probably start spending money, but it probably will be very little money in 2013.

Okay, so it's likely that number is lower? I guess it depends on this (multiple speakers)?

Yes, yes. It should be much lower than the $170 million. It sort of depends on how the process goes with the Birmingham location.

Okay. And then my last question, I guess, Wayne, I was just trying to follow what you were saying about this. So this audit probe or this probe audit, this is being I guess run -- I guess my understanding was Chicago OIG was kind of taking the lead on this nationally. And is that where this, I guess, this cooperation on putting together his probe audit is coming out of? Or you were saying that's specifically related to the Indiana case?

No. I'm going to start saying it's related to all these cases when it's all said and done. And as you heard me say, this is a relatively small number of hospitals. But this is running out of the OIG and Department of Justice collectively in Washington, not necessarily in any particular state.

Look, it's always a positive if you can arrange to -- if you put all these cases together. And hopefully that's where we're headed with all this in terms of how this all comes together.

I agree; that make sense. And then just, I guess just my last question; I just want to make sure I understand. Is there -- the 180-day extension in Indiana, I guess our view was we've seen so many cases over the years where the government just extends and extends and extends and extends. So our view was the most likely outcome was they were going to ask for an extension.

So are you implying that that was something outside of kind of a routine extension, that it's related to some new movement on cooperation or this probe audit or anything? Or --

No. I think, Gary, you know, simply -- we've said this all along. You have to really -- this is about physician judgment and medical records. Until we get to that, you know, you really can't make a determination here.

So we have now cooperatively worked together to develop this probe audit. So the question is, and this particular one has been extended two or three times now. By the way, the government decided not to intervene in this case before. This started in 2006, before we were even in Indiana.

So here's my short-long of all this. As I said to A.J., I would be very cautious about speculating on any of this right now. You can't conclude very much other than the fact that we are cooperating. We have a probe audit that we are working on in process on a relatively small number of hospitals. And we will move forward from here. And we continue and we have all along cooperated.

And if anything significant happens, we will make --

Yes, we will disclose anything that is of any significance.

Of course. I guess my last follow-up, and if this is speculating, then tell me, but just in terms -- even on timing, is it too -- I guess at one point, we had thought, the way these things play out they often take a few years. And is there anything that gives you a sense that maybe the timing may not be as long to get there? Or is that just -- you have no idea?

I wouldn't speculate on that, as I'd say.

Okay. I just wanted to make sure. Thank you.

No, good question. Thanks.

Gary, I might make just one point. There was a lot of concerns when this all started we wouldn't be able to acquisitions. We have proven to do acquisitions. We now have got volume growth back into a more reasonable level, especially when you consider the real nature of our hospitals. We have done a very good job on refinancing that activity.

So I think the Company is operating very effectively right now during all this timeframe. It's just a few people that are focused on this side of it.

And unlike some of our detractors, we have not missed a quarter.

Okay. Fair enough. Thanks.

This concludes today's Q&A session. I would now like to turn call back over to Mr. smith for any closing remarks.

Community Health Systems has a proven track record with the experience and financial resources to support and keep our hospitals viable in the local community. We remain confident in our ability to execute our strategy in today's dynamic environment and continue to deliver favorable results.

We want to specifically thank our management team and staff, hospital executive officers, Chief Financial Officers, and Chief Nursing Officers and division operators for their continued support and operating efficiencies. Once again, if you have any questions, you can reach us at 615-465-7000. Thank you.

This concludes today's conference call. You may now disconnect.