環球健康 (UHS) 2013 Q4 法說會逐字稿

Good morning. My name is Brent, and I will be your conference operator today. At this time, I would like to welcome everyone to the Universal Health Service's fourth-quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. (Operator Instructions). Thank you. I would now like to turn the call over to your host today, Mr. Steve Filton, Chief Financial Officer. Please go ahead, sir.

Thank you. Good morning. Alan Miller, our CEO, is also joining us this morning. Welcome to this review of Universal Health Service's results for the full year and fourth quarter ended December 31, 2013. During the conference call, Alan I will be using words such as believes, expects, anticipates, estimates, and similar words that represent forecast, projections, and forward-looking statements. I recommend a careful reading of the section on risk factors and forward-looking statements and risk factors in our form 10-K for the year ended December 31, 2013.

We would like to highlight just a couple of developments in business trends before opening the call up to questions. As discussed in our press release last night, the Company recorded net income attributable to UHS per diluted share of $5.14 for the year and $1.24 for the quarter. After adjusting for a reduction in malpractice reserves relating to prior years and the incentive income and expenses associated with the implementation of electronic health records applications at our acute care hospitals, our adjusted net income attributable to UHS per diluted share for the quarter ended December 31, 2013, was $1.03.

On a same-facility basis, revenues in our behavioral health division increased 4% during the fourth quarter of 2013. Adjusted admissions and patient days to our behavioral health facilities owned for more than a year increased to 2.4% and 0.8%, respectively, during the fourth quarter. Revenue per adjusted patient day rose 3.2% during the fourth quarter of 2013 over the comparable prior-year quarter.

We define operating margins as operating income or net revenue less salaries, wages, and benefits; other operating expenses; and supplies expense divided by net revenues. Operating margins for our behavioral health hospitals owned for more than a year increased slightly to 27.9% during the quarter ended December 31, 2013, as compared to 27.8% during the comparable prior-year period.

On a same-facility basis in our acute care division, revenues increased 1.1% during the fourth quarter of 2013. Adjusted admissions were unchanged while revenue per adjusted admission increased 2.1%.

On a same-facility basis, operating margins for our acute care hospitals were 14.1% during the fourth quarter of 2013 and 14.4% during the fourth quarter of 2012. Although not included in our same-facility basis results, our consolidated operating results during the fourth quarter of 2013 included the operating losses related to Temecula Valley Hospital, a newly constructed acute care hospital located in California that opened in October of 2013.

Our acute care hospitals provided charity care and uninsured discounts based on charges at established rates amounting to $234 million and a $206 million during the three-month periods ended December 31, 2013, and 2012, respectively. As a percentage of acute care net revenues, bad debts, charity care expense, and uninsured discount in this year's fourth-quarter were at levels higher than those experienced in the fourth quarter of 2012.

However, due primarily to the increase in behavioral health revenues and very low levels of bad debt and uninsured levels of discounts in that business, our overall percentage of bad debt to charity care and uninsured discounts were lower than those experienced during the fourth quarter of 2012.

Our cash generated from operating activities was approximately $293 million during the fourth quarter of 2013 as compared to $264 million in the fourth quarter of 2012. Our accounts receivable days outstanding remained unchanged at 56 days during each of the 12-month periods of 2013 and 2012. Our accounts receivable as of December 31 of each year include substantial Medicaid receivables due from the state of Illinois, and our accounts receivable as of year-end 2013 also include substantial Medicaid receivables due from the state of Texas.

At December 31, 2013, our ratio of debt to total capitalization was 51%.

During 2013 we opened a total of 327 new behavioral health beds, including 168 beds opened at to de novo hospitals and 159 beds opened at some of our busiest facilities. Our acquisition pipeline is very busy in the behavioral division. In fact, we have entered into an agreement to purchase the 48-bed Palo Verde behavioral health services facility in Tucson, Arizona, and it is our current expectation that this acquisition will close in the very near future.

We have also entered into an agreement to purchase another behavioral health facility that is pending regulatory approval. In addition, our goal is to add approximately 600 new beds including to de novo hospitals and convert approximately 100 beds from residential treatment care to acute behavioral care in 2014.

We spent $79 million on capital expenditures during the fourth quarter of 2013 and $358 million during the full year of 2013. During 2014, we expect to spend approximately $360 million to $385 million on capital expenditures, which includes expenditures for capital equivalent, renovations, new projects at existing hospitals, and construction of new facilities.

Excluding the unfavorable $0.05 per diluted share electronic health record impact described in our press release, our estimated range of earnings per diluted share attributable to UHS for the year ended December 31, 2014, is $4.80 to $5.10. This guidance range represents an increase of approximately 6% to 12% over the adjusted net income attributable to UHS of $4.55 per diluted share for the year ended December 31, 2013, as calculated on the attached supplemental schedule.

This range includes an estimated increase of approximately 3% to 7%, approximately $0.15 to $0.30 per diluted share, related to the Patient Protection and Affordable Care Act. The lower end of estimated Affordable Care Act impact range consists of estimated favorable impact to only our acute care hospitals during 2014. The upper end of the ACA impact range provides for slightly increased estimated favorable impact to our acute care hospitals as well as an estimate for the potential favorable impact to our behavioral healthcare facilities.

The guidance range also provides for an aggregate pretax unfavorable impact of approximately $34 million, or about $0.21 per diluted share, resulting from anticipated reductions in 2014 as compared to 2013 in supplemental revenues earned from various state-based programs. Approximately $10 million of that reduction relates to California Medicaid supplemental payment programs, which, although approved by California in October 2013, to continue through to the 2016, are still pending subject to approval by the Centers for Medicare & Medicaid services.

During 2014, our net revenues are expected to be approximately $7.89 billion to $7.94 billion, representing an increase of approximately 8% to 9% over our 2013 net revenues. Included in our estimated 2014 net revenues are revenues associated with the above-mentioned behavioral acquisitions and de novo projects as well as a full year of revenues for the recently opened Temecula Valley Hospital. Alan and I would be pleased to answer your questions at this time.

(Operator Instructions) Justin Lake with J.P. Morgan.

First question -- can you talk a little bit about the core EBITDA growth, Steve, that you see in both businesses and some of the assumptions around that?

Sure. So, I think that from an acute care perspective the basic assumptions are an expectation that acute care same-store revenue grows in the 3% to 4% range with resultant EBITDA that is flat to slightly up, and then we get a bump from the turnaround in Temecula EBITDA or, I will call it, the Temecula market EBITDA. We had a $15 million or $16 million drag this year, and we believe we will get something close to breakeven in 2014.

So that's a significant EBITDA turnaround, although it is largely offset at the pretax line by increased depreciation and interest expense associated with that project. On the behavioral side, I think that we continue to expect that revenues in that business to grow in the 4% to 4.5% range, which should result in EBITDA growth in the mid-single digits, fairly consistent with what we have been running in that division.

And obviously again, in both divisions, as I mentioned in my prepared remarks, on top of or incremental see those assumptions we then have to factor in the drag of the $34 million of reduced UPL, DSH, and provider tax payments, which I think are split relatively evenly between two divisions.

Got it. And specifically on Las Vegas, can you spike at what you saw there in the fourth quarter and what you are assuming for 2014?

So, I think as we have talked about in previous calls, and we started to see some recovery in the Las Vegas economy, both volumes and payer mix have improved in Q2 and Q3. Saw a little bit of a backslide in Q4. And I think as we suggested in earlier quarters, we would guess that the recovery in Vegas, while over the long-term will be an upward trajectory, is likely to be bumpy along the way, much as it was on the way down. I think that's what we are seeing. So my sense, Justin, in 2014 is that the metrics I gave about overall revenue and EBITDA growth in the acute division will be slightly better in the Vegas market but not dramatically better.

Okay, great. And last question -- on your reform assumptions, can you give us an idea of what you are assuming for coverage expansion there? Maybe what you've got on the frequent flyers, any incremental utilization? And lastly, on the psych side any benefit that you've got in even the high-end of that range from psych parity on the benefit side? Thanks.

I'm actually going to defer reform question -- I'm sure there will be other reform questions, just to give other people a chance to ask their questions. So operator, can we take the next question?

Sure. Thanks.

Kevin Fischbeck with Bank of America.

If you can just talk a little bit more about the reform assumptions, when you think about the benefit that you put into your guidance, is it purely just a reduction [and assured in your] market resulting from in a similar reduction in volume, or do you make any assumptions about recovering from the sickest and frequent flyers into your market in your assumption?

Sure, Kevin. So, I think that, as I indicated in my prepared remarks, the low end of our guidance presumes effectively and acute -- an impact on the acute care business from reform but not for the behavioral. And then I think the high end of the guidance reflects impact on the behavioral business, and obviously, the range of the continuum of the guidance shows that progressively.

I think we've always suggested in our own modeling internally is that the ACA impact on the acute care business is an uninsured issue, meaning that we have ignored any increased volume or increased utilization, which I know others have speculated there will be. I don't know that we will argue that there won't, but we just have not included it. So what we have done from a modeling perspective, which I'm sure is not terribly different than our peers, is gone out, looked at the enrollment data that HHS has published state-by-state in the states that we operate, made some judgments about how many of our currently uninsured will get covered.

I know one of our peers cited an estimate of their 2014 model including 7% to 9% of uninsured's becoming insured. And we think that's a reasonable number and something close to what our model yielded. And then we think that such a result, if you get there, yields for us of 4% to 5%, 3% to 4% or 5%, increase in acute care EBITDA.

On the behavioral side the impact is almost exclusively on volumes. If in fact there is significant commercial enrollment in newly insured's, we believe there is an opportunity to see increased volume, maybe some on the expanded Medicaid side as well. Again, the high-end of our guidance, I think, presumes is something like maybe a 1% increase in our overall volumes as a result of the surge of newly insured's.

Okay, that's helpful. And then just to clarify a couple of points in your guidance, so you are saying that your guidance as far as supplemental payments of $34 million, that $10 million from California could be reversed. If it gets approved by the Fed, that could be a $10 million incremental positive versus your guidance? And then just to confirm, the deals, the two behavioral deals, are those in your guidance? Or if they close, would they be upside?

So the answer is your first statement is correct. If the $10 million gets approved by CMS for California, then we will obviously update our guidance and include that in our results. And secondly, the acquisitions that we referenced are included in our guidance, in both our revenue and our EBITDA guidance.

Is there a reason why you didn't include the California? I think some of your peers are including the California because it is approved by the state. Do you have undue -- or not undue, but you have high concern that it may not be approved?

No, I think it's just the sense that because CMS has not approved it, it is not an approved program yet.

Great, thanks.

Joshua Raskin with Barclays.

First question, just on volumes -- it sounds like Vegas is in line with the overall -- my guess is Riverside was a little bit of a drag. But I'm just curious if Riverside was a drag overall or if it was just existing hospitals changing same-store number. And then maybe any color on procedures or anything that you are seeing that could help get a little bit more color on the volumes.

Sure. So the question about Riverside, which just for everybody's benefit, is Southern California Riverside County market including the new Temecula hospital. So I think, to your point, when you look at our same-store volumes in Q4, Josh, that market is a bit of a drag because the Temecula admissions and the Temecula volumes are not included in our same-store numbers. But we've seen some cannibalization, as we would have expected, at our existing facility, and those continue to be included in our same-store admission metrics. So a little bit of the Q4 acute weakness can be attributable to that cannibalization.

I don't have the exact numbers in front of me in terms of the absolute overall impact. But my sense is that if you had the Temecula numbers in there it's probably 40 or 50 basis points worth of admissions. From a procedures perspective, I will just mention, I think, surgical procedures. I think surgical procedures were relatively flat in total in the quarter, although they were skewed more towards some growth in outpatient procedures and somewhat of a decline in inpatient procedures, which puts a little bit of a pressure from a revenue perspective, a lot of attention by our operating folks on -- focused on driving those inpatient numbers higher.

Okay. That's helpful. And you guys are two months in, as of today, in terms of 2014. I'm just curious, you guys get admission data obviously very quickly. So is there any color on the level of uninsured that you are seeing in the first two months of 2014 versus the first two months of 2013, any sort of quantitative analysis that you've been able to do to see where we are in terms of reform, with the obvious understanding that this is a full-year process, or multiyear process, I should say?

I think the challenge, Josh, when trying to look at any relatively short period, and I certainly would think that this first couple of months is a short period, is that there are so many variables at play that it's difficult to isolate one, in this case the impact of reform, and really draw any terribly meaningful conclusions. Just to your point, we really only have one month worth of payer and insurance data. January was a pretty good month in terms of payer mix, but to be fair, January is usually a pretty good month in terms of payer mix. So I would really be loath to draw any great conclusions from that.

On the volumes side, again, difficult to do, particularly on the behavioral side and particularly this year, when there just have been a lot of other exogenous factors. Clearly, January volumes in our behavioral business were affected by the weather in a number of places. So difficult to parse that dynamic out from any of the reform impact, et cetera. So I think it's a little too early, honestly. We may well get to the end of the first quarter and have reported results where it's still going to be difficult to tease out with great precision the impact of the Affordable Care Act. Obviously, the longer we go on and the more periods we have to look at and the more data we have to look at, I think the better and the more sound the conclusions will be.

I guess we will try again after the first quarter.

We will be here.

Thank you.

Brian Zimmerman with Goldman Sachs.

I was wondering if you could give us a bit of an update on any initiatives you might have towards identifying and targeting patients in your markets to increase the take-up rates for the exchanges.

Sure, Brian. My sense is that we are doing all the same things that both our for-profit and not-for-profit peers are doing; that is, we have always as the hospital industry had a very focused and directed effort to qualify any uninsured individuals who come to our hospitals for potential insurance that they might get. Historically, that has been mostly directed to a Medicaid effort and getting people qualified for Medicaid if they can be, and that effort continues in the same way. Obviously now with the commercial exchanges, there's another alternative potentially for people who don't have insurance and come to our hospitals.

So, we have certified application counselors at all of our hospitals. We go through the exercise of helping anyone who doesn't have insurance familiarize themselves with their options, et cetera. We have done a significant amount of outreach, that is, letters and phone calls to patients who have a history of coming to our hospital frequently. And we've reached out to them proactively.

And the challenge, I think, with all these activities is it's difficult, again, in the broadest sense to draw real meaningful conclusions from that activity. So we have signed and we know that certain people have signed up, but a lot of enrollment takes place, if you will, outside of our purview. So, I think we are really relying on outside sources, either the government -- mostly the government, or to some degree, the insurance companies, to really tell us how that overall and overarching enrollment process is going.

Okay, that's helpful. And then on the behavioral side, it looks like your length of stay was -- still felt some pressure but did improve from third quarter to fourth quarter. Can you give us an update on your thoughts and how you are viewing length of stay at the behavioral business?

I think that your observations are right on. I think we saw a little bit of easing of that pressure in Q4. The challenge to say whether that's really the beginning of a turn or the beginning of an absolute leveling out is tough to do. And I'm especially reluctant to do it because I have predicted that turn prematurely a couple of times over the last few years. So I think we are going to wait and see. I think when I laid out the behavioral expectations or metrics for 2014, they include, quite frankly, a continued at least incremental decline in length of stay. So, we are prepared for that, although hope that we don't necessarily experience it.

Okay, thanks a lot.

Tom Gallucci with FBR.

Two quick ones, Steve. First, just on the acquisition side I think you mentioned some of activity on the behavioral side. Just curious your thoughts on the landscape on the acute care side.

We have talked a lot over the course of the last few quarters and even the last year or two about the idea that we think that there's a significant realignment occurring in the acute care space. We are aware of -- it seems to us that almost every not-for-profit system of any size, and quite frankly, those that are even smaller are having conversations and going through processes about thinking of how they're going to position themselves in the post-reform landscape. It doesn't mean that they are all going to be sellers, by any means, but it certainly means that they are going through those conversations.

And I will tell you that on both sides of our business, that is on acute and behavioral, we are trying to participate as much as we can in those conversations to see what opportunities we might have to do any number of things -- to buy facilities, to joint venture, to manage behavioral services, really to span the gamut of what can be done. So in terms of being able to say with great precision, Tom, what's going to happen and what we are really expecting, I think it's difficult to do. But obviously we've got a balance sheet that is attractive from a leverage perspective so that if there are really attractive and compelling opportunities, we can act. But we will continue to be, as we always have been, judicious in how we do that.

Right. And then just as a follow-on to that, thoughts on the use of cash to the extent more material acquisitions don't come to fruition? Because we have been talking about this for a while, to your point, that there's a lot of activity out there, but it doesn't seem like there has been anything get, at least at this point, that you want to pull the trigger on.

Yes, I think that just to be fair, most of activity, particularly on the acute side in the last few years, has been on the more rural end of the spectrum, which I think is why the more rural companies have been the most active. That has never really been our sweet spot, and so I think that -- again, it's a fair comment but I think that the reason that we have been patiently waiting is the notion that at some point that activity is going to move along the spectrum and start to encompass more of the suburban and urban players that we probably have a greater interest in.

So from a purely mechanical guidance perspective, the way that we think about cash generation is we just assume that we use our cash to repay debt. But from a more practical perspective, I think we are always looking at whatever external uses we have for our cash as well as whether at some point it comes more prudent for us to become a more aggressive returner of capital to shareholders.

Okay, helpful perspective. Thanks, Steve.

A.J. Rice with UBS.

Hi, everybody. Two questions, I guess, really. First, coming back to the behavioral comments about seeing more deals out there, traditionally, at least in the last few years, maybe go back further, it has been different. But last few years your deals in psych have been bigger deals. Now, it sounds like you are seeing opportunities on a one-off basis to be more active. Can you give us a little more flavor as to is that just the change in your posture, or is the market giving you more opportunities on a one-off basis? And beyond the two you have announced, do you think you will see more in the next year or so?

Well, stating the obvious, A.J., you are right. We have done the two biggest deals in the space in the last three years when we bought PSI back in 2010 and then we bought Ascend back at the end of 2012. So, I think from a practical perspective there's certainly nothing left on the size or scope of the PSI deal. And even from a comparative perspective, there is only a handful of companies the size of Ascend. So, I think a lot of the remaining opportunities are smaller one-offs.

We have done our share of those deals over the last few years as well. I just don't think they have gotten the attention or the highlight, given the much larger deals that we have done.

So I think there remains a tremendous amount of opportunity for consolidation in the behavioral space, but it's a more fragmented space with some of those bigger deals having now been done. I think the other piece of it, as I was alluding to a little bit before, is that there's a lot of activity on the acute care side of the business, meaning acute care hospitals that have behavioral components to them, either behavioral units or freestanding behavioral facilities or are looking to get into that business or out of it. And we are having a number of, I think, very promising conversations with some fairly large acute care providers that we view as, again, very promising. And we believe this will constitute a significant component of our growth in the behavioral business over the next few years.

Okay, and my other question would relate to -- I know you don't give guidance around the quarterly progressions. But a couple of the other companies have gone out of their way to signal that we should take into account the moving parts in the first quarter. Now, you signaled something on the weather in the psych business, maybe the layout on your acute care side doesn't get as impacted by weather as some others. But do you think this is a normal seasonal layout for you guys this year, or would you caution us about the first quarter in any way?

My comments, I think, about the progression for the year is that obviously -- or maybe not obviously, but I think so -- the ACA impact is a progressive impact that, in theory, that should become bigger as the year goes on and the enrollments process continues, et cetera. From the weather perspective we may see, I think, a few million dollar impact in our behavioral business in the first quarter. But I don't know that in the grand scheme of the year that is a huge issue.

My sense is that a lot of other companies who have cautioned about the first quarter are companies that are engaged in very significant integration processes with acquisitions, et cetera that -- that's a different dynamic then we will be experiencing. So from my perspective I don't know that the quarterly progression in 2014, other than with the ACA caveat, should be terribly different than what we have historically seen.

Okay, great, thanks a lot.

Ralph Giacobbe with Credit Suisse.

Can you give us the impact you think the two-midnight rule may have had on volumes in the fourth quarter? And do you have any impact built into guidance for this and maybe what percentage of your Medicare admissions are one-day stays?

Sure, Ralph. So I know that it's a difficult number to, I think, again, parse out with great precision. But based on the change in our number of observation days, et cetera, I know one of our peers suggested that their impact was maybe 50 basis points, particularly on their Medicare admissions in the quarter. And that's pretty consistent, I think, with what we would guess as well. And I think our sense is that, while the two-midnight rule is the latest step in this continued shift from in to outpatient, it is part of a larger shift that has been underway for a long time. And I think that we have just taken that -- tried to budget our admissions for next year in the context of that larger shift. And so, I think when I talked about an acute care revenue growth in 2014 of like 3%, 4%, I think that is mostly priced with just modest volume growth.

Do you have the percentage of your Medicare admissions that are one-day stay?

I don't have that in front of me, Ralph.

Do you know what percentage of your self-pay volume is in Medicaid expansion states? And what is your historical success rate been in signing people up for Medicaid that were previously eligible?

So answering the second question first, I think that although it varies by market, historically we have had about a two-thirds success rate, that is, people who we actually feel we can try and qualify for Medicaid; we have historically converted or qualified about two thirds of those. I don't have the extent percentages that you've asked for. Obviously, I think, and a number of analysts have pointed this out, in terms -- and these are really acute care comments -- in terms of number of beds, we have the most exposure, I believe, of all the companies to states that are Medicaid-expanding states. And that's mainly because of our huge footprint in Nevada, which is expanding. But we are obviously also in California and in the District of Columbia, which also localities that are expanding.

The challenge is is that in those states and localities, in the case of the district, they are not necessarily the states in which we have our greatest number of uninsured. Clearly, from an acute care perspective the greatest number of uninsured and the biggest uninsured markets we have are in Texas. And so in the long run, whether or not Texas participates in Medicaid expansion is probably the biggest swing factor from Medicaid expansion perspective.

Okay, that's helpful. Thank you.

Whit Mayo with Robert W. Baird.

Steve, I think I've said this every December for three years. But worth pointing out again that you had a material reduction in your malpractice accruals for years now. And many your peers would have claimed that as earnings. So once again, your conservatism is appreciated. And I guess my question is, looking at the 600 beds you are adding this year to the behavioral business, are all those just expansions to existing facilities, or does that include the de novo's?

Yes, so two things, Whit. One is you have consistently pointed that out. And two is I'm consistently appreciative that you do so. So, thanks for that. As far as the bed expansions next year, they do include at least one de novo project.

Okay, and anything new that's driving the decision to allocate capital to some of these bed expansion projects? Is it still just local market demand? Any regional payers, just any new dynamic driving the expansion decisions?

I don't think so. As you know, we have been expanding our behavioral footprint organically for now what amounts to probably a good seven- or eight-year period. I think we are ramping the pace of next year a little bit, but honestly I think that has as much to do with some local market specifics, being able to get a CON or zoning in a particular location. I've made the point historically that if we could we would be building behavioral beds even faster than we have, and we have been slowed by a lot of these regulatory hurdles. I just think that in 2014 and 2015 we have overcome some of those, and so, the pace will pick up a little bit. And also, to state the obvious, we are investing money in that process because it has been a process that has earned us a pretty high return over the last seven or eight years. And so, even though we continue to be judicious about it and don't necessarily subscribe to the notion that if you just build it's always going to work out, the fact of the matter is that in most of our endeavors it has worked out very well.

And along the same lines, just maybe on the acute business, I think you acquired some real estate in Las Vegas for a potential expansion project. Maybe can you talk about the potential for that project and the decision process around building a new hospital?

Yes. Obviously, Whit, you know that Las Vegas is by far our single biggest acute care market as well as, obviously, our largest market altogether. We have expanded our footprint in Las Vegas any number of times over the last decade, three or four times in significant ways, mostly to gain a greater geographic diversity and to make sure that we can cover as much of the market as possible. And we've talked about for a long time is that the one part of the market in which we have no coverage is the southeastern or what is called the Henderson market in Las Vegas. And we did acquire a piece of land in that market that we plan to develop a new hospital in over the next few years. And that has frankly been always a part of our long-term strategy in what is obviously our single most important market.

And just one last housekeeping one -- can we get a D&A number for the year? And also can you talk about progression of losses with Temecula, just to make sure we get our model lined up? Thanks.

Yes. So from a D&A perspective, and I struggle with us a little bit because I never know exactly how everybody else does their models, but I think our -- what I would call our GAAP D&A number for next year is somewhere in the $370 million to $380 million range and somewhere between $35 million and $40 million of that is attributable to our EHR activity. We obviously tossed that $35 million to $40 million out in the $0.05 EPS number that we exclude. But depending how others do their models, those are the two relevant numbers.

As far as the Temecula progression goes, and actually I probably should have said that as part of A.J.'s question, as you might expect, I think we expect Temecula to continue to improve as the year goes on. So I think, while we are expecting a breakeven result in that Temecula market for the full year of 2014, it probably is dilutive in the first half of the year and accretive in the second half of the year for a full-year result that's ultimately neutral.

Thanks.

Frank Morgan with RBC Capital Markets.

You called out the AR buildup from Illinois and Texas during the quarter. I'm curious if that has settled up since the end of the quarter? And then secondarily, any thoughts surrounding your cash flow guidance for 2014?

Sure, Frank. So on the AR piece, the Illinois issue, which is an issue with just our regular Medicaid receivables, and quite frankly, it relates not just to us but to all providers in Illinois and is more about the state's own fiscal issues. Honestly, that AR balance tends to fluctuate. So it rose a little bit at the end of the year, and then it has come down some in January. But we just call it out because it has been a fluctuating number.

The piece in Texas is not our regular patient receivables, but a UPL/DSH receivable. And again, only call it out because it has become a relatively large number, although we have every expectation that it's going to be paid at some point in 2014. Probably in the spring, although not yet paid. And I'm sorry; you had a second question, Frank, that I'm completely forgetting. If Frank is not on the line, maybe somebody else will remember it.

Chris Rigg with Susquehanna.

Just a couple maintenance ones here -- on the CapEx both for 2014 and for 2013, can you give us a sense for how much of that is routine versus construction cost?

So Chris, I think that generally we would say that our maintenance capital, which I think is what you have framed or characterized as routine, is somewhere in the $80 million to $100 million range, mostly related to the acute care business, so somewhere around 25% to 30% of our overall spend is maintenance capital.

And then can you give us a sense for where your Medicare Advantage admissions stand as a percentage of total admissions and how that may have changed in the last few years?

I don't have that information in front of me, Chris. My recollection is that about 25% of our overall Medicare admissions are Medicare Advantage admissions. But I definitely caution you taking the number as gospel. But we can certainly get that number.

Okay, that's all I got, thanks.

Josh Kalendarian with Deutsche Bank.

It's Darren Lehrich from Deutsche Bank. Just a couple of follow-ups here, Steve. I appreciate the D&A commentary for 2014, but I just wanted to go back to what you said, $370 million to $380 million. If the math is right, like $355 million or so annualized in Q4, you are saying $35 million to $40 million from the healthcare IT. So with all the bed expansion you have coming on, is there something big that comes off? And I guess the question is, to put a finer point on the modeling, why wouldn't that number be even higher?

To be fair, Darren, that level of detail question that I can answer. But happy to take a look at it.

Okay, we will pick up off-line. So my primary question was really just around the expense side, Steve. Same-store margins were just a little bit lower year-over-year in acute, and we have been seeing that progressively improve throughout 2013. I think one of the components was physician employment cost tapering, and I just wanted to confirm that that was indeed a factor in Q4, if there's any other expense trends that you'd highlight and any initiatives that we ought to be thinking about.

I can't really think about anything on the acute side that is extraordinary from an expense perspective. I will mention, while not an expense side, there was one nonrecurring item from a margin perspective in acute division. And that is we had at a few of our facilities maybe $7 million or $8 million unfavorable cost reports last reimbursement, adjustment having to do with some of our sub acute reimbursement at a few hospitals. And we didn't really have a comparable item last year. So that was a $7 million or $8 million drag on the margins in the quarter that was certainly a bit out of the ordinary. But on the expense side I can't really think of any.

Okay, that's helpful. And just around physician employment cost, is it safe to stay that those have been tapering in the second half in terms of year-over-year expense growth there?

I think they are tapering although I would describe it is a fairly incremental process. So the improvements quarter to quarter is not terribly dramatic one quarter over another, although we believe the trajectory is a good one.

And last thing here, just around the uninsured volumes, I know a few people tried to get insights on the ACA assumptions. Just be curious to get any kind of sizing you could provide. Uninsured admissions and the uninsured EU visits in 2013 in acute, either a percentage of your acute admissions or any kind of hard numbers you can put to that? Thanks.

Yes, so I think that we have historically said that something around 8% to 10% of our total acute care admissions have historically been uninsured admissions. And what I was saying earlier is I think our 2014 ACA modeling presumes that something like 7% to 9% of those admissions or those volumes get covered in some form or fashion.

Great. And then the ED visits -- do you have a total number of ED visits in 2013 just to help us think about that one?

I do not have that in front of me, Darren.

Okay. All right, thanks so much.

John Ransom with Raymond James.

Problem with getting stuck at the back of a call is all you have are dumb questions. All the good ones have been asked. And I was going to ask you, Alan, since you have been so quiet, the ACA continues to bump along but it continues to be unpopular. Do you think that matters? Do you see any political changes coming to it after the midterms, or do you think that will just be able to grind through even if it remains unpopular?

Want me to answer, Steve?

Please.

I think it's going to continue to get better. And I think the unpopularity is in different areas, different markets. So it's not going to go away. And I think it's going to get better as we go along. Now, I also take that there are going to be changes, but I don't see that as bad. I think that there have been so many delays and exemptions that those will have to be addressed. And I don't see that as necessarily bad. I would have hoped that they would have done this on the front end, which is the way a business people would do it. But they pushed the thing through, and now they are going back to fix the building that doesn't exactly stand straight and some other problems with it. But I don't necessarily -- over time I think it will be okay.

My other question is we are hearing increasing talk that they may extend the enrollment period past the end of March. Are you hearing that as well?

I think we have heard that as well, John. I don't know that we have any terribly profound insight into how likely that is. But I agree with Alan's commentary. I think you have seen it already, and the administration is obviously committed to making the ACA work as best as possible. And I think everything they can do within their power to make that happen they seem to be trying. So, our expectation is I don't know that they will do that specific issue but I think they are going to continue to do everything they can to make this work.

And just a couple others -- when you look at your -- I guess most of the people are picking several plans and low-cost silver plans. Have your chance to compare that pricing, both considering the price you get plus the difference you in deductibles? Do you have just the basic sense of how those plans compare to your average commercial plan?

I think it's probably too early to do that. Again, my sense, John, is that high-deductible plans in general, and obviously this has become more prevalent with the ACA, but it's not like we've never thought about high deductible plans before. Obviously, I think, high deductible plans have less of an impact the more acute, the more catastrophic you are talking about, the illness, or the trauma, or the event. And I think we as, particularly, acute care hospitals are less impacted by high-deductible plans than some other providers along the continuum, although there's certainly an impact on us.

I think, for instance, the high-deductible plan is something, however, that as we think about the behavioral business has more of an impact, and I think it has more of an impact particularly earlier in the year when deductibles tend to be intact and are not exhausted. But when you are talking about a $7000 or $8000 charge for an entire stay in the behavioral business, then obviously a $5000 deductible is much more relevant and much more impactful. So again, I think it's one of those dynamics that we are going to have to see play out a little bit more before we have a real feel for what the ultimate impact is to us.

And what percent of your deductibles are you currently collecting?

I think historically we have conducted or collected, rather, somewhere in the neighborhood of 50% to 55% of our balance after insurance, which would be both deductibles and co-pays.

Okay. And finally, we think about you as roughly 70% of your EBITDA from behavioral and about 10% from Vegas. As you look at 2014, do those percentages -- are those percentages still in the ballpark?

Again, if you think about the guidance, if you think about our same-store guidance, certainly we don't expect any significant changes in the same-store mix of the business. Obviously, if we are at the low end of our guidance, meaning that we get an acute care ACA impact and no behavioral impact, that would skew the business a little more towards acute. And if we get to higher end with a behavioral impact or that -- so the ACA variable, I think, could affect that mix a little bit. But in terms of the core business, I don't we see it changing dramatically.

Right. And Ascend had very high margins when you bought it, something like 30%. Have those margins held in there? And has that asset performed like you hoped it would?

We have had a few challenges with Ascend that I think are challenges that we faced in the rest of the portfolio as well. Ascend has done a great job of targeting the military business, which is a relatively small but fairly profitable component of the behavioral business. We certainly have had military business at some of our facilities. And that business has clearly come under pressure in 2013. And the Ascend facility has probably felt that a little disproportionally. Other than that, that's the one item out think noteworthy enough to call out.

And in hindsight, was three times revenue the right price for that asset, in hindsight?

Yes. I think that we have a view that what we were buying in that acquisition was nine high-quality facilities that, over the long-term, would outperform. And also, I think would likely be expandable. And I think that remains our long-term view.

Okay, thanks so much.

Gary Taylor with Citi.

A couple of quick ones. Steve, on the acute care business you had said general assumptions for 2014 were same-store revenues up 3% to 4%, EBITDA flat to slightly up. Outside -- I assume some of them DSH/UPL reductions you called out our part of why the EBITDA not grow as fast as revenue, why you would still see margin degradation. Otherwise, is there still just an assumption about payer mix in the EBITDA forecast?

So I think it -- both comments are true, Gary, in the sense that the UPL -- the California UPL is a drag on the acute margins. The other piece is that 3% to 4% is sort of the magic line, if you will. I think if those acute care growth is closer to 3%, then I think it's tough to have margin expansion. As you start to grow beyond that it becomes a little bit easier. So it's a very delicate balance right there. We would obviously hope to see that revenue growth pushed to the high end a little bit where we could get more margin expansion, but that is not what the guidance implies.

Is that 3% to 4% -- is that fairly evenly split between adjusted admissions and rate?

I think, as I mentioned to somebody else before almost in passing, that is more heavily weighted towards price than to volume.

Okay, sorry I missed that. And on the D&A, I heard the overall D&A guidance. How much -- do you have right handy there Temecula itself, how much the D&A jumps year-over-year?

So I think that the Temecula D&A, because we did have a quarter of it in 2013, I think the incremental Temecula D&A is somewhere $11 million, $12 million, $13 million.

Okay. And I think you've given us enough information to back into this now. I just haven't had a chance to do it. But would you be willing to give an EBITDA range for 2014, or would you rather leave that to us?

Historically, we have not. And honestly, I don't have it in front of me so I couldn't do it if I wanted to.

Okay, last question. On the state programs where you cited the negative $34 million, you said $10 million California. Is the bulk of the rest primarily Texas?

It's a little bit in Texas, which I think is the rest of the acutes. And then across the behavioral division there is, I think, just a bunch of states. I know Illinois and Arkansas are in there, but there's probably six to eight states on the behavioral side that contribute to the decline.

Okay, thank you.

Frank Morgan with RBC Capital Markets.

My follow-up question was related to that -- the AR was. What is your implied cash flow from (inaudible) guidance for 2014?

Thanks, Frank. So you will see in our 10-K our free cash flow after CapEx this year was a little over $500 million. I don't think there's anything terribly unusual in that number. So depending on how you are modeling next year, I think we ought to have an increased to that free cash flow, given the fact that our CapEx is relatively flat next year, an increase in free cash flow next year that's commensurate with whatever EBITDA increase you are using for next year.

We have no further questions in the queue at this time.

Okay. Well, we thank everybody for their participation and look forward to talking to everyone after the first quarter.

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