美國醫院公司 (HCA) 2005 Q1 法說會逐字稿

Good day, everyone.

And welcome to the HCA First Quarter 2005 Earnings Release Conference Call.

Today's call is being recorded.

At this time, for opening remarks and introductions, I would like to turn the call over to the Senior Vice President, Mr. Vic Campbell.

Please go ahead, sir.

Cynthia, thank you.

Good morning to all of you on today's call and also to those of who you are listening on the webcast.

This morning, we released our first quarter results.

Hopefully you've seen them now. $0.95 cents per diluted share, above the previous guidance which we released on March 28th, where the range was $0.88 to $0.93.

With me this morning are Jack Bovender, Richard Braken, Milton Johnson and Mark Kimbro, and most of the senior management team based here in Nashville is also here to assist during the question and answers.

First, let me remind you that today's call will contain forward-looking statements based on management's current expectations and as you know, numerous risks and uncertainties and other factors may cause our actual results to differ materially from those expressed in the statements today.

And those factors, I encourage you to look at.

They're in our press release.

They're also contained in our various SEC filings.

Many of the factors that will determine our future results are beyond the ability of the company to control or predict.

In light of significant uncertainties inherent in the forward-looking statements contained, readers should not place undue reliance on the statements which reflect our views as of today.

We take -- undertake no obligation to revise or update any forward-looking statements or to make any other forward-looking statements whether as a result of new information, future events, or otherwise.

As you heard, the call is being recorded.

A replay of the conference call will be available later today.

I wanted to draw your attention to three items before I turn the call over to Jack.

First, on page 8 of today's press release, there is a new schedule entitled Supplemental Non-GAAP Disclosures.

Milton Johnson will be discussing this during his call, but it does provide a comparison of reported GAAP results to certain operating data adjusted for the impact of our new discount policy for the uninsured which began on January 1st.

We think this schedule should be helpful as you try to compare year to year cost as a percent of net revenues.

Secondly, on March 28, we announced plans to sell 10 HCA hospitals later this year.

Since these hospitals are not material to our financial results, they continue to be included in our consolidated reports which we provided today.

Again, Milton will be happy to share some information there if you have questions regarding those assets.

Lastly, I remind you the press release we issue today does not adjust any of our statistics for 2005's first quarter to reflect one last day this year as a result of Leap Year.

However, during the call, there will be some references to Leap Year adjusted comparisons where we think they're appropriate to understanding the flow from year to year.

With that, I'll turn the call over to Jack Bovender.

Thank you, Vic.

Good morning to everybody.

First, I would just like to say what an absolutely superb quarter this was in all respects of the Company's operations and certainly what a great way to start this new year.

Richard will get into more details in a moment but at a high level, the drivers of our success were improvement in volumes, exceptional expense control, improving trends relative to the uninsured, and improved up-front collections.

First quarter cash flow from operations for the Company was particularly strong.

As I have discussed previously, our first priority for use of cash remains reinvestment in our existing hospitals to insure their competitive position.

However, we also believe that distribution of earnings to shareholders in the form of cash dividends is an important part of total shareholder return.

In the first quarter, we announced our quarterly dividend payable, June 1st to shareholders of record May 1st will now be $0.15 per share, a 15% increase from last year.

This annualizes to a total payout of approximately 20% of the Company's 2004 earnings.

Similar to dividends, share repurchase creates shareholder value.

In the fourth quarter of 2004, we repurchased 62.9 million shares or 13% of the Company's then-outstanding shares at an average price of $39.75 per share.

The Company's debt also increased to $10.5 billion at year end.

Due to the Company's strong cash flow, debt has been reduced to $9.9 billion and our revolving credit, which was $700 million when the Dutch auction closed, was paid off by the end of the first quarter.

Interest expense was therefore reduced from previously projected levels.

Debt to debt plus common and minority equity was 61.7% at the end of the first quarter compared to 66.9% as of December 31, 2004.

We now believe the Company, if these strong cash flow trends continue, should be able to strengthen its balance sheet and bring its debt coverage ratios back to targeted levels by the end of this year, almost a year ahead of our original estimates.

The Company announced asset sales in progressing with significant interest from several potential buyers.

We continue to believe the sale will be finalized by the fourth quarter of this year.

Finally, this morning, as you have no doubt seen, the Company revised its 2005 earnings guidance.

Based upon the better than expected first quarter results and recent favorable trends in certain key operating metrics, we now believe the 2005 earnings to be in a range of $3.05 to $3.20 per diluted share.

This guidance excludes gains, impairments and tax settlements.

And now let me turn the call over to Richard for more specific commentary on the first quarter.

Richard?

Thank you, and good morning to all.

Add as you've just heard from Jack, and as you can see from the data contained in our release this morning, our financial performance for the quarter turned out pretty well.

And although we were most pleased with the final EPS results, the more interesting and important story, of course, is the movement in the underlying metrics which produced these earnings.

And for the most part, trends in these statistics were positive.

Most of these metrics are contained in our release so I won't repeat them now.

Rather, let me share with you several general observations I have about the quarter.

First, the way I think about the quarter and how I would summarize it is that it was one in which we had reasonable increases in patient volume, notably with decreasing rates of growth in uninsured patients and increasing rates of growth in our outpatient activity.

This volume was accompanied by substantial improvements and efficiencies in our overall expense structure, more specifically in the labor and bad debt categories.

The effects of these two trends produced strong earnings and as Jack mentioned, an exceptional amount of cash flow.

Second, relative to growth and patient volumes, the first quarter did produce some positive and encouraging results.

In general, the equivalent admission growth rate for the quarter is greater than that which we have reported in recent quarters.

In fact, equivalent admission growth for the first quarter, considering the Leap Year effect, is the best first quarter growth rate since 1999.

This reflects obviously an improved rate of growth in our outpatient lines of business.

We would like to believe that the focus that we have been putting on improving outpatient services is beginning to get some traction in the market place.

It certainly is consuming a greater amount of our management team's attention and capital strategies.

Please note in our release this morning that we identified 16 additional outpatient center acquisitions since the first of the year and our acquisition and development pipeline remains active.

As you would expect from a volume perspective, we have a range of performance across our markets.

We're seeing strong growth in our Las Vegas, Salt Lake City, Austin, Palm Beach, Nashville and the Florida panhandle markets.

Sam Hazen, President of our Western Group Operations and Charlie Evans, President of our Eastern Group Operations are here with us this morning and would be pleased -- maybe even eager given that it was a good quarter, to answer any questions you might have regarding the dynamics in those or any of their markets.

Finally, concerning volume growth, the concerns that we expressed to you late last year, relative to the impact of the various hurricanes on volume growth have greatly diminished in our minds.

While there certainly remains much devastation in these various communities, it does not seem to have translated, at least in the first quarter, to declines in patient volumes.

I guess the third observation I would have is that when we review the major expense categories in the first quarter, significant improvement was noted in labor, supply and bad debt metrics.

Salaries, wages and benefits expressed as a percent of net revenue, adjusting for a new discount policy was 38.8, one of the best performances we've achieved in recent years.

In short, the major determinants of personnel costs all trended positive: wage rates, productivity and contract labor levels.

Supply costs, adjusting for the new discount policy from 16.7% of revenues and increased 5.4 % for equivalent admission, significantly below the trends we've recently experienced.

And finally, our bad debt metrics improved significantly.

Growth in same facility uninsured admissions for the quarter was up 3.3% compared to 13.7% in prior years first quarter.

The absolute number of uninsured admissions is now down for the third quarter in a row.

Additionally, our concerted efforts to improve point of service cash collections continue to exceed our expectations.

These collections for the quarter were $65 million, up 66% compared to the same period in the prior year.

Obviously we attribute this to the improvements in our business office and admission processes and feel there remains additional opportunity in this area as well.

In general, regarding the expense structure of the Company, my belief is that our facility and corporate-based operation teams have done a good job improving the efficiency of their operations.

And as I have mentioned on previous calls and has certainly held true in the first quarter as well, our infrastructure is now set at such a level that even modest incremental increase in productive patient volumes, efficiently transfer earnings to the bottom line.

Before I turn this over to Milton for a few additional comments, let me conclude by saying that I'm pleased with the progress we're making with our various operational agendas.

The statistics I just shared with you support the positive results we're experiencing in our outpatient supply and cash collection agendas.

Furthermore, we continued to aggressively advance our patient safety and service agendas, electronic administration will soon be in place at virtually every hospital, electronic physician order entry is being piloted at ten hospitals Company-wide.

We're initiating a three-year plan to deploy digital imaging in all of our major markets and the systems we have in place to measure clinical outcomes continue to improve.

Finally, Sam and I spent Monday and Tuesday of this week in Kansas City, and I'm pleased to report that progress in that market is very good.

And for the first time and in the first quarter, this market was one cent accretive to net income.

Well, with that, I'll turn it over to Milton.

Thank you, Richard and good morning.

As we have mentioned over the past few months, in anticipation of our new uninsured discount policy, several financial metrics need to be adjusted to be comparable to prior periods.

In addition, certain metrics this quarter must be adjusted to take into account the 2004 Leap Year effect.

As noted in our earnings release, please refer to our supplemental non-GAAP disclosures that adjust certain measures for the new uninsured discount policy.

Next, let me walk you through a few key financial metrics related to our first quarter results.

First, net revenue growth on the same facility basis.

First quarter of '05 versus '05, net revenue grew 4.7% on a reported basis.

Adjusting this reported number for uninsured discounts, the growth rate would have been 6.5%, again, we did record $109 million of uninsured discounts in the first quarter.

Adjusting this further for charity care increases, the growth rate of net revenue would have been 7.4%.

We saw about a $64 million growth in charity deductions in the first quarter of this year.

This net revenue growth metric also should be adjusted for the Leap Year effect as well.

The 4.7% same facility growth rate leap year adjusted would be 5.4%.

Then adjusting that for the uninsured discounts would have grown to 7.3 and then charity and discounts combined would have been a growth rate of 8.1% in net revenue.

Next, net revenue per adjusted admission.

Net revenue per adjusted admission same facility grew 2.5% in the first quarter.

Adjusting that number for uninsured discount, the growth rate would have been 4.3% then adjusting for both charity and uninsured discounts growth rate would have been 5.1%.

During 2004, our annualized growth rate was 6%.

We believe the slowing rate of growth in this quarter is attributable to two factors.

First, a slowing rate of growth of uninsured in the uninsured payer class.

After adjusting for the new discount policy, Medicaid and uninsured was down 10.6%.

This is a good trend for bad debts, but it does put downward pressure on net revenue per adjusted admission.

Second, is net revenue per adjusted admission for managed care.

The reported growth is 4.4% for the first quarter.

Net revenue per adjusted admission from managed care this quarter was primarily affected by flat acuity.

We saw growth in flu-related medical admissions and declines in surgical admissions in managed care.

Medical admissions generally do not generate stop loss or technology reimbursement.

Although there are various financial metrics that reflect the effectiveness of our operating model, management considers the growth in cash revenue per adjusted admission and that's computed by total net revenues less bad debt expense divided by total adjusted admissions versus the growth rate in cash expenses per adjusted admission.

Again, total operating expenses less bad debt divided by total admissions could be a key measure during the period of change in accounting for the uninsured.

During the first quarter of 2005, cash revenue increased 5.1% while cash expenses increase only 2.8% over the first quarter of '04.

Inpatient admissions increased 1% on the same facility basis.

Normalizing for Leap Year, admissions would have been up 1.6%.

Adjusted admissions increased 2.1% for a same facility basis or 2.8% after adjusting for Leap Year.

We're pleased to see improving growth trends in our outpatient services.

Now, transitioning to bad debts, we saw a marked improvement in bad debt expense this quarter.

Reported bad debt as a percent of net revenue were 9.3% and after adjusting for uninsured discounts, 10.9%.

This improved performance is attributable to several factors.

Slowing growth, uninsured admissions, stabilization of the uncollectability percentage based on our hindsight review, and significant improvement in the point of service collections that Richard mentioned all contributed to this improvement.

Uninsured admissions were 4.4% of total admissions versus recent trends of 4.7 to 4.9.

Days in accounts receivable are 47, down one day from the end of the fourth quarter.

Although there is certainly a lot of normalization necessary to understand several key financial measures due to discounts and Leap Year, the Company generated $414 million of after tax net million up 19.7% over the first quarter last year and nearly a record high in recent years.

In conclusion, a few comments regarding or updated earnings guidance.

We'll not be giving detailed assumptions used in our models, but I will provide certain insights into a few assumptions.

We expect our share count to increase throughout the year due to the exercise of stock options.

The weighted average is estimated to be $445 million for the year.

We have assumed that for the year, adjusted admissions will grow in the 1% to 2% range.

We expect uninsured discounts will impact revenue by $180 to $200 million per quarter, the remaining portion of 2005, up from the $109 million this quarter.

We're not providing detailed bad debt guidance, but our models assume the recent trends of moderating uninsured admission growth and stabilization of the uncollectability percentage will continue in 2005.

Vic, at this point, I'll turn it back over to you.

All right, Milton, Richard and Jack, thank you very much.

Cynthia, if you would come back and we'll poll for questions.

And I do want to encourage everyone, since we have so many on the call, to try to hold your questions to one at a time.

Thank you, sir. [OPERATOR INSTRUCTIONS] And we'll take our first question from Darren Lehrich with Piper Jaffray.

Please go ahead.

Thanks.

Good morning, everyone.

With regard to the point of service collections trend, can you just comment a little bit on process and what you're doing there to see those improvements, and maybe could you give us an example of a market that you feel might be further along the curve in that process and just comment on collection rates in some of those markets.

Darren, thank you.

Beverly Wallace, would you like to answer that?

Darren, what we have done on the front end is when we've created a minimum deposit requirement, that requires all of our patients to be asked for some deposit at time of service being rendered.

The other thing we've done is created a technology in house that estimates the amount due from the patient based on insurance verification.

And this gives us the ability to actually hand the patient an estimate so that they can look at it and understand why we're asking for a deposit.

And those two items have proved very effective in our process change.

The best market on point of service collections is Houston.

They've been leading the pack all along and they continue to lead the pack.

They implemented of some the technology first.

They piloted it.

And so I think they've got a leg up.

All of our markets are growing with respect to their point of service collections.

Can you give us just an example of where Houston came from and where they are now maybe to put brackets around this?

They were approximately the worst at around a million dollars per month.

And now they're a little bit over $3 million per month.

And as a percentage of the co-pay and deductible up-front that you would expect to receive, what is that $1 million to $3 million translate to?

I don't have the number specifically for Houston.

For the Company, we're collecting about 33% of the available dollars on the front end.

Great.

Thanks very much.

Darren, thank you.

Thanks, Beverly.

We'll take our next question from Gary Lieberman with Morgan Stanley.

Please go ahead.

Good morning.

Good morning, Gary.

Just a couple of questions.

Looks like salaries and benefits and other operating expenses were probably two of the most important things in driving the upside in the quarter.

Can you give us a little bit more color on both of those items in terms of what gives you confidence that the new range which you established this quarter will continue throughout the year and not go back to where they had been running last year.

Gary, thank you.

Richard, you want to make a comment?

Yeah, I'll start out, and then maybe Charlie and Sam could add to this as well.

But you know, we've always felt that our cost structure and our cost management was pretty good in this Company.

And -- but as we looked at of some the changing dynamics that we would be faced with over the future years, we -- we wanted to tighten it up some.

And we -- on the salary side, we probably had a couple of basic strategies.

First, as we obviously had to deal with any of our hospitals that were outliers in terms of their overall productivity measures and to get them back in -- into our standard targeted productivity.

And the other thing we probably did, I think, as much as anything that really helps is that in markets where we anticipated that volume was going to be stronger and growing, we were pretty diligent about adding labor in those situations.

And so the volume helped us really get the productivity up.

And in those markets where we weren't as sanguine about volume growth, as I said, we would deal with the outliers a little bit more effectively.

We have been obviously focused on wage rates.

On management of premium dollars, contract labor, overtime, the usual kinds of things and it all came together.

Relative to this, you know, is this a whole new level, in these 38s and whatnot?

This was a good quarter for us.

We did not have -- I think as Milton mentioned in his comments, a big portion of our business in surgery.

We had more medicine.

That could affect it a little bit.

But on balance, we feel pretty good about our labor management agendas.

Our teams are totally focused on it day in and day out, shift in, shift out.

And we're -- we're looking for the trends that we have established to continue.

Sam or Charlie, anything to add to that?

No.

You covered the bases.

Other operating expenses, Milton, did you want to touch on it?

I think it was a continuation of what we were saying.

We've been able to leverage the fixed cost nature of a lot of the expenses.

Again, malpractice expense continues to be favorable trends and that.

That certainly was helpful as well in the quarter.

All right.

Thank you, Gary.

Thanks.

We'll take our next question from Gary Taylor with Banc of America.

Please go ahead.

Hi.

Good morning, guys.

Just had a question for you on operating leverage.

Obviously, you get a lot on the labor line and other operating line when you see a sequential growth in volumes and I think sequentially, your total admissions were up 6% and some of that seasonal.

How much of that can we expect on a forward basis if we see sort of the typical seasonal pattern of admissions even if they're up year over year.

Is there additional margin leverage that comes out or should we expect more of a traditional seasonal margins where you're a little weaker in the middle of the year, little stronger in the first and fourth quarter.

Does that make sense?

I think it does.

I think the seasonal effect obviously remains.

As we look at our earnings over the rest of the year, we have adjusted for seasonal influences.

Okay.

And just on the way out, is the allowance on the balance sheet, is that something you have available, Milton?

Balance of [INAUDIBLE] accounts?

Yeah.

Sure.

Let me get it in front of me. 2.965, Mark?

Thank you.

Gary, thank you.

We'll take our next question from Joseph Chiarelli from Oppenheimer.

Please go ahead.

Richard, since you so graciously offered to have someone talk about the different regional differences, could we go through that, please?

Sure.

Sam or Charlie?

One of you guys want to -- ?

I'll start.

Yeah, this is Charlie Evans.

I'll start with a couple of examples in the East.

We have had a really good start this year in our Palm Beach market.

The encouragement that I feel with this market as well as several others that I'll mention is that they reflect positive impact of core strategy activities.

We've had outstanding physician recruitment over time, excellent operating expense management, the teams have done a great job with bad debt, management and focusing of resources in that area, and then operationalizing on capital investments we've made.

Palm Beach market is a great example of that.

At our JFK facility we have invested $60 million.

We're now seeing volume growth rates in the 10% range, outstanding margin improvement.

And it is really the core strategy elements coming together.

I'm particularly proud of our panhandle market in North Florida where we've had tremendous storm effect over the course of the fall in '04 but despite that, the core strategies have continued to stay in focus.

The operators have continued to do their job in an outstanding way, producing 6%, 7% volume growth rates and increasing margin performance.

So, it has really been -- this is an outstanding quarter for us reflecting the good work of our operators at the hospital level.

This is Sam Hazen from the Western Group.

I'm going to sort of give you a global overview then I'll maybe hit a couple of markets.

The group as a whole had solid performance pretty much across all groups.

It really was driven by four things we've already touched on.

To give you some flavor across the group, on the payer mix improvement side which is a big component of our growth, our insured business admission growth was up 1% and our uninsured admission activity was actually down .7%.

We saw real significant progress in our bad debt efforts across our markets.

The second thing that really impacted the activity in the Western Group is what I'll call service mix improvement, where we had significant outpatient volume growth.

Our composite outpatient volume growth was almost 4% across the group and that includes E.R., surgeries, imaging and so forth.

So, on a combined basis with the margins that we produced on the outpatient activity, that yielded a pretty good performance for the group.

Additionally, our subacute activity, which is our least profitable book of business, was actually down by about 9% so you can see that we had a significant amount of improved acute admission activity as well as outpatient activity and when you put it all together, it really produced pretty good performance across the group.

Our cash management of our cost was just incredible.

I think it was the best I've seen in my experiences with the company.

And that was pretty much across the board primarily driven by our labor management as Richard mentioned.

When you look at of some the markets across the group, we had pretty consistent performance across all of our hospitals from an operational standpoint.

Some of the markets that had better performance as it relates to admission activity were Las Vegas, Salt Lake City and Austin, Texas.

In Las Vegas, our admission activity was up actually in double digits.

We were up approximately 11 -- actually 13% in admissions in Las Vegas.

Part of that is driven by the new hospital that we have.

We continue to suffer from a profitability standpoint in Las Vegas, however, because of what I'll consider to be inadequate reimbursement levels that we hope to remedy over the near term.

In Salt Lake City, we had strong activity as well.

Our admissions were up about 4.5% in that markets.

That market is a very high margin market for us.

Obviously new activity produces pretty good results there.

Finally in Kansas City, since Richard highlighted it, I'll give you color on what's going on in Kansas City.

We -- as I've said before on of some the calls, have gone through a pretty basic, what I'll call HCH strategy in trying to right size this market.

And our management team out there has done an incredibly good job in producing what we consider to be a platform for future growth in this market.

But just to size it, our operating margin in the quarter was a little over 13%.

We've made tremendous progress there.

That's primarily been driven by strong acute care admission growth.

We have eliminated a lot of unprofitable subacute businesses in Kansas City.

And our acute admission growth was up almost 2% in the quarter on a year-over-year basis.

As you recall, this market was trending down significantly over the years.

We had strong outpatient activity, almost 5% in the market.

That was primarily driven by a lot of investment in technology which was fairly easy to get on the ground there.

Our managed care pricing strategies are working well.

We have fully implemented our systems and transitioned all of the facilities to our shared service platforms.

I think that's driven the results as well.

The positive thing that we see in Kansas City is none of our big capital expenditures has hit the market place yet.

We just started our replacement project in independence.

We've got an expansion project in acute care, in intensive care activities, there's another facility.

So, there is a lot of capital that's yet to hit the marketplace.

So we're bullish on our positioning in Kansas City.

Alright, Charlie and Sam, thank you.

I appreciate the question, Joe.

We'll take our next question from Jason Beardo with Bear Stearns.

Good morning.

Good morning.

I think it was last quarter, you broke out what admissions would have been excluding flu admissions in both periods.

Do you have that number for this quarter?

Milton, you had some stats on un-- or on the flu?

Yes.

Basically, the pulmonary flu volume increased 13.5% represented by 11% of our total admissions this quarter versus about 9.7% last year.

The -- we had about 5,630 increase in admissions from flu-related admissions during the quarter.

Thanks, Milton.

Thank you.

Just a real quick -- could you talk about maybe some of the regional differences that you're seeing in uninsured growth trends?

Anybody want to volunteer to talk about that?

Sam Hazen again.

I think part of the reason that you see a little bit of difference between the Eastern Group and the Western Group is really a result of what we had to deal with in Texas, which is primarily the largest uninsured state in the Company.

And as Beverly mentioned earlier, we have been engaged in Houston in particular, in that particular division, with a lot of efforts early on and those efforts have a little bit more traction because of the time that we've had to implement those.

I think because of a couple of markets in Texas, you're seeing a little bit of a difference between the Eastern Group and the Western Group.

Thank you.

Charlie, anything in particular in the uninsured trends in your markets?

No.

As I mentioned earlier, there's a lot of activity at the operations level with bad debt management plans and so there's some variability in terms of that performance.

But we have -- south Florida is a particular challenge for us.

We've seen some great results where the operators there have, by strategy, have taken on the uninsured recognizing we're the insurer in the case of the uninsured.

And are probably providing of some the best case management to ensure the patient is getting the service they need in the place that they need it as efficiently as possible, and they've just done a great job of that.

Thanks, Jason.

Thank you.

We'll take our next question from Ellen Wilson with Sanford Bernstein.

Please go ahead.

Yes, I was wondering if you could talk a little bit more about your managed care acuity being flat and particularly surgeries being down.

Kind of why was that?

What are the managed care companies doing or what's changing to cause that?

Anyone want to -- look at that one?

This is Richard.

Let me start just as a general comment.

We're not aware of anything that happened that necessarily skewed the service mix.

I mean this was a medical quarter for us predominantly but there's no underlying strategic move that we've been able to discern.

Relative to the numbers, Milton or Bev?

Well, I think one thing we had a tough time -- last year, first quarter last year was our strongest admission quarter, up 2.5% in the first quarter of last year if my memory is correct.

I think also part of the factor is just a pretty tough comp this quarter.

Okay.

Could you kind of line that up against the past couple of quarters because I think the third quarter had a flat managed care acuity.

Did that rebound in the third quarter, can you kind of give me a sense of that?

Ellen, this is Milton.

You're right, the third quarter last year, of course, we had the hurricanes.

It was a tough quarter for us due to a lot of issues.

But it did rebound in the fourth quarter.

Okay.

We were up in acuity in the managed care book in the fourth quarter last year.

Last year.

Okay.

Thanks.

Of course our surgical volumes were very strong in the fourth quarter as well.

Thank you, Ellen.

And we'll take our next question is from Ken Weakley with UBS.

Thank you.

Good morning, everyone.

Did you give us the percentage increase in same store admissions ex flu?

I must have missed it.

There are about three or four moving parts in you -- if you start trying to break admissions down.

We tried to look at it -- I guess if you look at the reported admissions, then you've got the adjustments for Leap Year.

You've got the adjustments for [SNF] beds we close and you've got flu.

If you look at all of the factors together, you're going to come out with roughly somewhere around a 1% increase in admissions and around a 2% increase in adjusted admissions.

That's the way if you look at all components that affect admissions in the quarter.

Have you disclosed previously or will you disclose for this quarter what's happening in terms of open heart given the growth of drug eluding stents and the impact it might be having on that?

Given the surgical volume, I'm wondering if open hearts is falling dramatically.

Anybody have any stats there they want to share?

Sam?

For our group, open hearts are are down at about 5%.

On the same store basis.

But you know, our cardiac cath activity is generally up.

And so are you seeing a little bit of a shift between the cath lab and the surgery suites for cardiology activity.

That's common across our markets.

So, it is -- a consistent behavior.

We don't think it's any particular market having any one particular issue.

It is more the technology across the marketplace.

To answer your question, open hearts for the company were down about 4%.

But that's not inconsistent with what we've been seeing over the last two or three years.

Where our cath volumes are increasing 4% to 5%.

All right.

That's good.

Thanks, Ken.

Thank you.

We'll take our next question from A.J.

Wright with Merrill Lynch.

Please go ahead.

Hello, everybody.

Just have ask about Jack's comment that you'll be at your target leverage ratios by the end of the year.

First of all, what are those target leverage ratios again and second, does that include the deployment of the proceeds from the asset sales and is it too early to think about once you hit the target ratios, what your priorities for the cash will be?

A.J., this is Jack.

Let me let David Anderson, our Treasurer talk about the numbers on that.

Then I'll come back and answer a question about what are we going to do when we get back to those targeted.

Hi, A.J.

This is David.

You can probably back into a lot of numbers if I give you the exact projection.

But we expect without the asset sales that we'll be very close to our targets.

Those targets are 55% debt to total capitalization and two times debt to EBITDA.

Okay.

And A.J., this is Jack again.

As we approach those targets, you know, we have been very disciplined, particularly during our September strategic planning cycle to really focus on where we are relative to our balance sheet and our cash positions and what the highest and best use of cash is.

So, come September, as we look at what our position is then and what we expect our position to be as we go into 2006, we'll make some basic decisions about cash deployment and what we need to do.

We have been -- I think very consistent with saying that we will do what we think is in the best interest of the shareholder from the standpoint of deploying cash.

Obviously as I said earlier, we're going to make sure that we continue to invest capital into our existing markets.

We'll look at appropriate acquisitions if it makes sense.

We've always said we would be opportunistic.

A.J., I think what's behind your question is there a possibility of another share repurchase next year sometime, early next year or late this year or whatever the time frame when we get our credit statistics back where we want them.

And the answer to that is if it makes sense, we believe, given the price of the stock at that particular point in time, to do so relative to the other possible uses of cash, we, I think have proven that we're quite willing to pull the trigger on that again if it makes sense.

We also obviously are a company that, beginning the first of every year, look at the issue of dividends based upon our earnings stream for the last year.

We'll continue to do that.

So, that's a long way around answering your question but I want to make sure that everybody understands we're going to be again very disciplined and very strategically oriented as we get into the fall about what is the best use for this incredible cash flow that we're generating.

And, too, getting back to share repurchase for one last comment, we're very conscious of managing our share count.

And the interest of the shareholder, too.

So, all of that gets taken into account when we make these decisions about the use of cash flow.

Okay.

Thanks, A.J.

Thanks.

We'll take our next question from David Dempsey with Avondale Partners.

Good morning, everyone.

Hey David.

Question for you on the supply side.

It has picked up yet again a little bit this quarter.

Even on the adjusted side it did.

What are the efforts in terms of the gain sharing efforts and when might you expect to hear something from the government in terms of their reaction to your proposals?

All right, David, thanks.

Jim Fitzgerald, you want to address that?

Hey, David.

Hey, Jim.

Well, a couple of things.

First of all, we had pretty good results in terms of the growth rate per unit on supplies this quarter over the prior year.

Just over 5%.

And that has been due to a lot of efforts that we've taken throughout our supply chain operations, including a very focused effort to standardize the formulary of what we're buying in terms of medical surgical supplies as well as pharmaceuticals.

That program was launched late last year and will continue throughout this year but we saw some very good results in the first quarter with that.

We completed a large number of contracts with our GPO health trust purchasing group late in the fourth quarter of last year as well as in the first quarter that are having a positive impact.

And so when you ask the question about gain sharing, I guess I would frame that there is a large number of supply reduction initiatives taking place in the Company.

That just being one of those.

In the orthopedic area to address your question, we've completed our contract negotiations in a -- and are very satisfied with that result.

We'll be moving forward with the contract with Zoomer, DePue and Stryker.

I think not only are we happy with that negotiation, I believe these three companies are also very pleased with that result.

We plan to begin that initiative effective June 1 and at that time we'll have submitted the request to the OIG for our gain sharing proposal that's part of the project.

That is really the second project that we've -- that we'll be tackling in the medical device area.

The first one being our contracts before we standardize vendors for pacemakers and defibrillators last year.

So, a number of good efforts there that have produced a moderation of the growth per unit in supplies.

Thanks, David.

Thanks a lot, guys.

We'll take our next question from Sheryl Skolnick with Fulcrum Global Partners.

Very nice job managing through what's been a very difficult couple of years.

My question relates to --

Thank you.

You're welcome.

My question relates to the trends you're seeing in the uninsured which is interesting as well as important.

Do you have any sense of why it is you're seeing beginnings of some moderation in the growth of the uninsured, because it sounds like it is more than just a larger number on an even larger denominator, but rather that you're beginning to see some real material change there.

I'm wondering if you're seeing any change or shift in the mix of patients coming in perhaps that might be purchasing of some the more affordable or catastrophic health plans that are out there.

Any insight you can give would be helpful.

I'm look around the room.

Anybody want to take a shot at that?

Beverly?

Hi, Sheryl, this is Beverly Wallace.

Hi.

What we're seeing -- some of it is economic in the markets that we're serving but we've also implemented our self-pay action plan.

We implemented it last year.

I think Charlie alluded to this.

But we have rolled out a pretty aggressive case management plan in both our E.R.s and our inpatient and so for all of our patients, not just the uninsured but a focus on the uninsured, we're managing those patients in the E.R. making sure they get the right service at the right time.

And when they get admitted to our hospitals, we assure -- we are sure that they're not getting the services that they don't need.

That they're getting treated very timely.

What was happening to us is they would stay in the hospitals because consultants, et cetera, could not get to see them in a timely fashion and it would just roll up the cost.

So, we're managing those patients better than we have in the past and I think that's having an impact.

So, does that mean some people might otherwise have been admitted through inattention or lack of focus or now not being admitted but rather getting treatment in a more appropriate setting?

I think that's the good statement.

Okay.

Thanks, Sheryl.

Thanks, Beverly.

We'll take our next question from Kemp Dolliver with S.G. Cowen.

Thanks.

You gave some statistics with regard to uninsured admissions.

Could you talk a little bit about the trend on the E.R. visit side because it looks like the growth rate in E.R. visits actually picked up sequentially and granted fourth quarter had some flu.

What are you seeing there in terms of mixed change of uninsured?

Milton?

Mark?

Who has those?

I believe in the change, we saw about 15% increase in the uninsured E.R. visits which is down slightly from what we had been seeing in the high teens.

So, actually, again, some improvement there in the E.R. visits for the uninsured this quarter.

Do you know what the uninsured admits are as a percent of your total -- I'm sorry, E.R. visits as opposed to --

The total same facility E.R. visits across all [pair] we saw -- I'm sorry.

That's not the -- 7.9% I believe E.R. visit throughout this quarter over last quarter.

One of the questions you had asked is on the what ultimately results in an admit.

I think it was 19.7%.

Is that true?

E.R. visits by [pair] class. 19.7 on the uninsured.

Is the number of -- I guess uninsured as a percentage of total of E.R. visits. 19.7.

That's super.

Long way to get there.

Sorry about that.

Thank you.

Thank you.

We will take our next question from Christopher McFadden with Goldman Sachs.

Please go ahead.

Thank you and good morning.

Two related questions.

First, you mentioned a ten site EPOM pilot study.

Wondering how you're going to measure the effectiveness of implementation of those sites and what hurdles you'll need to get to think about broader implementation throughout the network.

And then EMS recently published some interesting quality data on its web site concerning the ten metrics that they've been tracking and at a high level, any reaction to that data relative to your facilities and you know, what type of interplay do you anticipate with the managed care community on this front, thinking about the next 12 to 24 months.

Thank you.

Chris, thank you.

Richard?

Let me take a shot at that.

Relative to the EPOM deployment, we went through an exhaustive process to determine what facilities really made sense to take on the new technology.

It is not enough as all of you know that we might want to deploy electronic physician ordering in a facility.

It has to be embraced by the medical community as well.

The medical staff.

So, we actually went through a process where all of our facilities actually bid to be the test sites and to be successfully considered, they had to -- have the backing of the medical staff leadership.

They had to be -- had to have the right size, the right level of interest and that kind of thing.

So, we have picked really some very motivated organizations to test this out.

We've tested the software out in very limited applications before this to see if it would really work the way we want it to work.

If it was efficient.

If it was time saving.

If it met our objectives.

We were pretty comfortable with that.

Now the issue is sort of the behavioral change in the medical staff and we think we have some good sites to test that out.

We'll be watching this closely over the course of the year.

There is a lot of interest by a lot of facilities to get this done.

This will not be able to be deployed as quickly as our electronic order administration program was.

But we think we're going to have a good base from which to go forward.

On your second point about the CMS quality measures and how do we feel about that, quite frankly, we weren't as pleased with our results there as I think we should have been.

This was the first time out with the data.

I am confident that we're going to do a whole lot better next time around.

A lot of the -- a lot of the quality parameters that were established are very reasonable.

They're done in all of our hospitals.

The documentation may not have been there to support a better level of performance.

We'll fix that and we're looking forward to compete on a quality basis going forward.

Thank you.

One short follow-up would be in the context of the new 2005 guidance, can you comment in terms of the assumption you've made relative to the timing of the ten facility asset sale?

Milton, you want to address that?

We've excluded the effect of any asset sale with respect to any gain, of course.

And we expect that transaction to close late in the year so it shouldn't have any material impact on financing cost based on the timing that we expect.

Very good.

Thank you.

Chris, thanks.

We'll take our next question from Adam Feinstein with Lehman Brothers.

Good morning.

Good way to start off the earnings season here.

Thank you.

Just question here is you spoke about bad debt getting better from a decrease in the growth rate in the uninsured volumes and better job with point of service.

But one area you did not talk about and I wanted to get some color is the reserves on the balance sheet.

You guys haven't seen any big increase in the reserves for the past two years.

I wanted to see about the opportunity to see those reserves move back to a more normalized level in terms of a timing for that in what your current methodology is.

And then just if you could give us a outlier payment number for the quarter, also.

Adam, thank you.

Milton, you want to talk about reserves?

Sure.

The announcement about account reserves is $2,965,000 and I think, Adam, what you're referring to is, on a quarterly base, we have concluded our hindsight study over the last 18 months.

We've had some evaluation adjustments to the balance sheet from which we've had to increase our allowance without accounts reserve.

In this period, in the first quarter, this hindsight result was very good.

We had about a 20 basis point deterioration in the uncollectability percentage.

In prior quarters, we've been seeing anywhere from 150 and in some certain quarters, to 200% deterioration.

So, we're seeing a stabilization, that variable has been steadily falling, the variation.

So, we're pleased and believe the rest of '05 that that uncollectability percentage should stabilize.

And Adam, on the outlier, first quarter this year, $36 million first quarter prior year was $33 million.

Okay.

And just -- back to the balance sheet real quick, Milton, one follow-up question.

Historically if we look at the allowance has historically been between 42% to 45% of the receivable balance.

Right now it is about 48%.

So, I guess just my question is do you think we'll see that number move lower throughout 2005?

Well, Adam, our days in accounts receivable at 47, which is an outstanding number.

That's down three days from a year ago.

It is down one day sequentially from the fourth quarter.

I would be hard-pressed to think that we could improve that at this point.

Hopefully we will but certainly we're not modeling improvement in our days in the A.R. when we're at 47.

Okay.

Thank you.

Thank you, Adam.

Couple more questions if we still have time.

We'll take our next question from Robert Flaglique from RBC Dane Rausher.

Good morning and congratulations on a productive quarter.

Thank you.

Wondering where you are with rating agencies, if you have any focus on maybe getting back up to investment grade.

With your debt.

David Anderson?

Yes.

Milton and I visited with the rating agencies about two weeks ago.

Brought them up to date on our budget and plans for this year and the next two years.

We're actually going to have to present new projections to them since adding actual for the first quarter.

As we've stated in previous calls, our goal has always been to be in investment grade credit and believe that our targeted for debt should get us there at some point in the future.

Okay.

Thank you.

Thank you.

One last question.

We'll take our last question from Charles Lynch with CIBC World Markets.

Thanks.

Just squeaked in.

One question and then one quick administrative one.

On your cardiac volumes and especially looking at cath lab procedures, is it still too early to have enough data to make any kind of guess on the effect of lower recent [INAUDIBLE] rates from drug eluding stents?

Anybody have -- We don't have our medical director here today.

But I think school is still out from everything that we have read plus everything we've seen in our own data right now.

Okay.

Just one administrative question, on your Cap Ex at least for the quarter it was a little bit lower than I was expecting.

Is that a good run rate for the rest of the year or are there any project delays, anything like that?

No.

We expect -- we probably expect it to pick up a little bit.

$1.6 billion for the year is where our target is.

Ok.

Great.

Thanks a lot.

Charlie, thank you.

There was one question someone who couldn't be on the call had asked and that was to get a little more color on what's happening in the outpatient area.

Marilyn Tavenner is smiling at me from the other end of the room.

Sorry, Marilyn.

Had been asked to raise that question and hadn't come up yet .

We've been pleased so far with our outpatient. [INDISCERNIBLE - no sound]

All right.

Good results clearly.

Also one last number that we [INAUDIBLE - interference] that didn't come was our cash collections as a percent of net revenue.

Milton, did you have the number?

Yes.

We look at that number routinely.

It is 101% this quarter.

Cash collected as a percent of adjusted net revenue again.

That's 60 days trailing net revenue less bad debt.

We watch this very closely as a quality indicator of the revenue we're recording and we continue to collect over 100% of our adjusted net revenue.

All right.

I want to thank everyone that was on the call.

Mark and I will be here throughout the rest of the week to answer any additional questions.

We thank you very much.

Have a great day.