環球健康 (UHS) 2014 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 Services fourth-quarter 2014 and full-year earnings conference call.

(Operator Instructions)

Thank you. I'd now like to turn the call over to Mr. Steve Filton, CFO. Please go ahead, sir.

Good morning, thank you. Alan Miller, our CEO, is also joining us this morning.

Welcome to this review of Universal Health Services results for the full year and fourth quarter ended December 31, 2014.

During the conference call Alan and I will be using words such as believes, expects, anticipates, estimates and similar words that represent forecast projections and forward-looking statements. For anyone not familiar with the risks and uncertainties inherent in these 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, 2014.

We'd 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 $5.42 for the year and $1.71 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 record applications at our acute care hospitals, our adjusted net income attributable to UHS per diluted share for the quarter ended December 31, 2014 was $1.51.

On a same facility basis revenues in our behavioral health division increased 6.3% during the fourth quarter of 2014. Adjusted admissions and adjusted patient days to our behavioral health facilities owned for more than a year increased 6.8% and 2.8% respectively during the fourth quarter. Revenue per adjusted patient day rose 3.2% during the fourth quarter of 2014 over the comparable prior-year quarter.

We define operating margins as operating income or net revenues 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 28.0% during the quarter ended December 31, 2014 as compared to 27.7% during the comparable prior-year period.

On a same facility basis in our acute care division revenues increased 14.9% during the fourth quarter of 2014. Adjusted admissions increased 5.5% while revenue per adjusted admission increased 8.8%.

On a same facility basis operating margins for our acute care hospitals increased to 18.1% during the fourth quarter of 2014 as compared to 14.1% during the fourth quarter of 2013. Our cash generated from operating activities increased to approximately $346 million during the fourth quarter of 2014 as compared to $308 million during the fourth quarter of 2013. Our cash generated from operating activities increased to approximately $1.04 billion during the full-year 2014 as compared to $884 million during 2013.

Our accounts receivable days outstanding decreased to 56 days during the fourth quarter of 2014 as compared to 57 days during the fourth quarter of 2013. At December 31, 2014 our ratio of debt to total capitalization was 47%.

During 2014 we opened a total of 602 new behavioral health beds including 162 beds opened at two de novo hospitals and 440 beds opened at some of our busiest facilities. In addition we already have approved projects to add approximately 550 new behavioral health beds and convert approximately 50 beds from residential treatment center to acute during 2015. And that number could grow as we continue to pursue opportunities to add and convert additional beds.

We spent $82 million on capital expenditures during the fourth quarter of 2014 and $391 million during the full year of 2014. During 2015 we expect to spend approximately $375 million to $400 million in capital expenditures which includes expenditures for capital equipment, renovations, new projects at existing hospitals and construction of new facilities.

In conjunction with our share repurchase program that commenced during the third quarter of 2014 during the fourth quarter we repurchased 321,500 shares of our stock at an average price of slightly less than $102 per share. Our estimated range of adjusted net income attributable to UHS for the year ended December 31, 2015 is $6.15 to $6.55 per diluted share. The guidance range excludes the unfavorable $0.12 per diluted share of EHR impact expected during 2015 as described in our press release last night.

This guidance range represents an increase of approximately 6% to 13% over the adjusted net income attributable to UHS of $5.78% (sic - see press release, "$5.78") per diluted share for the year ended December 31, 2014 as calculated on the supplemental schedule included in last night's press release.

During 2015 our net revenues are estimated to be approximately $8.7 billion to $8.8 billion representing an increase of approximately 8% to 9% over our 2014 net revenues. Included in our estimated 2015 net revenues are revenues associated with the previously announced acquisition of Cygnet Health Care in the UK and a health insurance company in Nevada. In addition during the fourth quarter we acquired a 46 bed behavioral health hospital located near Taunton in the United Kingdom.

Alan and I are pleased to answer your questions at this time.

(Operator Instructions) Josh Raskin, Barclays.

Yes, hi. Thanks. Steve, just wanted to dig in on the 14.8% growth on the acute care same store and maybe get a little bit better sense on the revenue per adjusted admission up 8.8%, maybe any specific markets or any other commentary that can point to that strength?

Sure. So first of all I think there are a couple of extraordinary things in the quarter. We called out the $11 million of Texas DSRIP in the press release. We also have spoken before about $4 million of California UPL that I know some of our peers have recognized as well in the fourth quarter.

So if you adjust those things out it probably brings the revenue growth down by a couple hundred basis points, still by any measure a very strong and robust revenue growth quarter. Our admission growth seemed to be fairly consistent with our peers who have reported similar strong volumes. What seemed to distinguish the UHS performance in the quarter was that really robust revenue intensity in revenue per unit per admission or per day.

I think a lot of that, Josh, was driven by strong surgical volumes. We had both in and outpatient surgical volume growth of approximately 5% and for the first time I can remember in a long time the inpatient growth actually was outpacing the outpatient. So I think that's what really drove some of that revenue intensity.

And no specific markets, Steve, that jump out?

No, I think honestly Josh when you get a performance that strong it's got to be pretty pervasive throughout the portfolio and I think ours was.

Yes, that make sense. Then just last one on 2015, any sense of the impact of reform that you've baked into the guidance or I know there's no new sort of Medicaid expansion states but just curious there's got to be some anniversarying, etc. Is there a way to quantify the positive benefit in 2015?

I'm going to preface my answer with first saying that as time elapses and each quarter goes by we find it a little more challenging to be able to discreetly identify the reform impact from other payer mix improvements and especially from the general economic improvement that we've been enjoying in our markets. I will say, however, that I think our best guesstimate is that we've got and I think again this is fairly consistent with what I understand some of our peers have said but I think in the acute care division we assume that the ACA impact in 2015 will be about 6% to 7% of our overall earnings and that's I think a little bit of an increase over 2014.

Okay. And behavioral is still sticking with same impact as you saw this year?

Yes, I think in behavioral we've mentioned before that we find it difficult to discretely identify the ACA and I'll also include in that the Mental Health Parity impact in the behavioral division so that we have not really discretely budgeted or guided for that to the degree that we enjoyed a little bit of that in 2014 which I think is possible. We've certainly included that in the base and the growth off our base but have not really included as we have in the acute care division a specific impact for either ACA or Parity.

Okay, thanks.

Chris Rigg, Susquehanna.

Good morning. I was just the leverage at this point is down to about 2 times. You've got some internal stuff going on with regard to development but I guess just more generally how are you thinking about capital deployment at this point, share repurchases, more M&A, etc.?

Just trying to get a sense and where are you comfortable at 2 times or do you want -- you actually want to see that go a little higher at this point? Thanks.

Chris, I'm going to largely reiterate the comments that we made at the end of the second quarter when we talked about the fact that our leverage had declined to a level that we were very comfortable with and that's when we announced our $400 million share repurchase authorization and I think we're in largely the same place we were there. Now obviously since then we announced the Cygnet acquisition and dedicated about $335 million to that.

But we continue to look for growth opportunities both externally and internally in both of our business segments. We announced just in the call a small acquisition in the UK. We continue to look for other opportunities in the UK as well as other M&A opportunities in both behavioral and acute here in the US and also continue to expand organically.

I mentioned that the new behavioral beds that we've got online for next year, we've talked about our new acute care hospital that we're building in Las Vegas. So we've got a number of things going on but I think we have also said that if we don't find sufficient opportunities for external growth we're also more than happy to continue to repurchase shares under the previously announced authorization. So I think from our perspective we're likely to pursue all those avenues in 2015.

Okay and then just one follow-up. I know we've talked about the IMD exclusion and legislation around that in the past. Can you give us an update for where that stands and just some general parameters in terms of likelihood for this happening sometime in the near future? Thanks.

I think that we certainly have done nothing to presume that the IMD exclusion will be lifted in the near term. Certainly at least in the context of this conversation the near term being 2015.

But I think the industry in general is becoming more and more positive about the idea that from a public policy perspective that either legislatively or administratively there will be progress on this issue. As you know there is a demonstration project that's part of the Affordable Care Act that lists the IMD exclusion in about a dozen states and we're participating in some of those states in that project.

We believe that the outcome and the data from that demo project will support the idea that a broader lifting of the exclusion makes sense from a public policy perspective in terms of access and cost. And again as an industry we continue to lobby hard for that and that remains one of our main priorities again from a legislative/regulatory perspective.

So we'll continue to work for it. We continue to feel that there's positive movement there but I think it's difficult to predict with any level of precision when there might be a substantive change.

Thank you.

Jason Gurda, KeyBanc.

Good morning, thanks. Steve, just taking a look at the guidance you're expecting growth of about 6% to 13% and I think you did high 20%s this year and you're putting up almost double-digit revenue growth or particularly double-digit in the acute care side. Is the guidance conservative at this point?

Obviously I'm going to tell you that I think the guidance is realistic. I will say this, our performance in 2014 was really extraordinary and we certainly view it that way and I couldn't be any more pleased with it but certainly feel that it will be difficult to replicate as you suggest the growth that we saw in 2014.

I think a good portion or a good reason for that is while we were all meaning the Company as well as our peers were focused on the potential ACA impact in 2014 and I think we largely anticipated that correctly we didn't really anticipate the benefit we were going to get from the improving economies in a number of our other markets, particularly in Texas but also in Florida and California, etc. And I think as we look toward next year we are cautious about again our ability to replicate that same level of growth. I think we feel like we'll continue to see improving economies in those markets for the most part.

Now I will also add that I think in the last month or two we've gotten a little bit more cautious about the Texas economy, specifically given the pressures from oil and gas prices. So I think we've stepped back our projections in those markets particularly. But other than that again I just think we are forecasting strong performance in 2015, just not quite as robust as we saw in 2014.

Thanks, that's helpful. Then I may have this wrong but it looks to me that the range of your guidance is a little bit wider than it has been in the past. If that's the case is there a reason for that?

No, honestly, we felt like the range was fairly consistent. Maybe a little bit wider than what we had last year but fairly consistent with the ranges that our peers were putting up and there was nothing necessarily to be read into it. I think we actually think it's a reasonable range.

Okay, thank you.

Kevin Fischbeck, Bank of America.

Hi, this is Steve Baxter on for Kevin. Many of your peers have talked about how their exchange contracting strategy has evolved for 2015 relative to the 2014. I guess could you give us a sense of the flavor of what you learned from your 2014 approach and what you've done differently for 2015? Thanks.

Yes, I think in our case, Steve, we have said and largely reflective of our experience that we were participants in almost all of the exchange products in our markets in 2014 with a couple of maybe minor exceptions. And honestly I think for the most part that's our experience in 2015 again. I think that we're pleased with that.

We continue to work with some payers in our markets in the context of potentially more narrow networks in which we would be a preferred provider. And again I think we have a couple of minor examples of that in 2015 but not as much as maybe we anticipated we would have last year. So I think again the broad description of it is that we are in virtually every product in every network, every exchange product in every exchange network in all of our markets with just a couple of very minor exceptions.

Okay, thank you. Then just switching to the behavioral side, length of stay was down less than it has been for a long time. Do you think you're getting closer to stabilization or a turning point here and I guess how are you thinking about that for 2015? Thanks.

I will answer the first part first or the last part first and that is in thinking about it for 2015 I think we've assumed another decline in length of stay at about the same rate that it has been going down. And I think the reason for that is it's been difficult to project this quarter to quarter.

Some quarters looks like the decline is slowing a little bit. Other quarters not so much. So we continue to project those length of stay pressures will continue into 2015.

That's what our guidance reflects. I will say that I certainly noticed in the fourth quarter that some of the decline in length of stay that we experienced was self-imposed or self executed if you will in the sense that I mentioned to some degree the conversion of residential beds to acute. And we have been doing that for a while and to the degree we continue to do that we will drive the length of stay down ourselves because the length of stay in our acute facilities is clearly lower than it is in our residential facilities.

But I do think that's reflected in that stronger revenue per day that you saw in the fourth quarter because obviously as we shift beds and therefore days and admissions from residential to acute we'll see a drop in length of stay but we ought to see a rise in revenue per day. And I think you will see some of that in Q4.

Paula Torch, Avondale Partners.

Great, thank you. Steve, I was wondering if you could give us a little bit of color on your expectations for 2015 on maybe the same facility revenue and volume expectations by segment. Can you help us or parse that out for us?

Sure, Paula. So I think on the acute side our expectation of revenue growth is probably in that 6% to 7% range which I think in turn yields EBITDA growth in probably the 8% to 10% range. On the behavioral side I think that's a little bit lower, probably more in the range of 5.5% -- 5%, 5.5% on the revenue side which translates to 7.5%, 8% on the EBITDA side.

Okay, great. Thank you very much for that color. Then just going back to the acute metrics, how sustainable do you think these trends are in the first quarter in 2015 given the guidance that you just gave us? Is there anything about the surgical volumes that were so good in the fourth quarter that would indicate those would continue to be strong?

You know, I think the way that we went about budgeting for 2015 was really not to assume that any one quarter of the year was particularly representative and particularly I think not necessarily taking the approach that the fourth-quarter exit rate was the rate to use for the full year of 2015. We had a couple of very strong surgical volume quarters in 2014. The second quarter was really strong, the fourth quarter was really strong.

I think even in retrospect it's a little bit difficult for us to identify exactly why that was. So I will say that I think be 2015 guidance presumes a more modest surgical experience than we experienced certainly in Q4 and something that's more reflective of our full-year experience. And to be fair, I think the year has started off at least in January with a more muted surgical volume.

There was a lot of at least speculation in the back half of 2014 that hospitals to some degree would experience a surge in volume at the end of the year given the increasing prevalence of high deductible plans and that that really might influence patient behavior as people exhausted their copays and deductibles late in the year and would take advantage of that. I don't know if that's what really drove the dynamic that we experience but we certainly had a real strong surgical quarter in Q4 and a little bit weaker as 2015 started.

So it would at least be not inconsistent with that theory. So again I think we've just been more rational or muted about what our 2015 volume should look like and I think that's what's reflected in the guidance.

Okay, great, thank you, Steve, for that color. I just have one quick last one on Medicaid expansion. I was just wondering if you could share some of your thoughts with us on the potential for more states to expand, in particular Florida, just given Tennessee and Utah reaching dead ends or so it seems for now.

What does that mean for Florida if anything and maybe some of your thoughts there? Thanks.

Well, again I'll give the short answer is we certainly have not assumed that any new states, new for us, would expand Medicaid in 2015 which again for UHS I think really means that we've assumed that neither Texas nor Florida would expand in 2015. I think we have had a view really from the beginning of ACA implementation that in the long run all states would ultimately participate in Medicaid expansion because it just made economic sense for them to do so.

Obviously I think in a lot of cases economic sense is being overwhelmed or pressured by political considerations and I think we find those very hard to measure and calculate. So we continue again in our state hospital associations and in other forms to work for expansion in those states in which we operate that have not expanded yet.

Again don't expect anything necessarily to happen in 2015. As you suggest there's been a struggle in a couple of the states that have tried it. So we just continue to press the issue, again as an industry especially with both our for-profit and especially our not-for-profit peers.

Ralph Giacobbe, Credit Suisse.

Thanks, good morning. The quarterly progression was pretty lumpy in 2014. I know you don't give quarterly guidance but any general direction on how you'd expect or see it playing out in 2015?

Ralph, frankly part of -- one of the reasons why we don't give quarterly guidance is we think it's difficult to do and I appreciate the fact that folks in your position are forced to do so. Look, I suggested before and you've alluded to the fact that we had as you described some lumpiness in 2014. Honestly we were unable to predict that.

I guess the best advice that I would give to people is to budget 2015 or think about 2015 a bit more ratably and not necessarily try and mimic the seasonal or quarterly trends that we experienced in 2014. Because I think in our own minds it's not obvious that those trends would be repeated in that same fashion in 2015.

Okay, that's fair. And then you've obviously talked about acuity in surgical mix. Can you talk a little bit about payer mix and what you saw there between the various buckets?

I think we've basically felt like our payer mix strength, which of course I think at the end of the day was really what drove the outsized performance of particularly of the acute division in 2014, really was relatively stable throughout the year. Now the character of it changed some in the sense that in the beginning of the year the payer mix improvement was clearly more weighted to Medicaid, more Medicaid patients and managed Medicaid patients and I think was a function of Medicaid expansion in some of our large states like Nevada, like California and the District of Columbia.

And then in the back half of the year, we saw a bit more of a shift from the Medicaid impact to the commercial exchange impact. But just generally I think the payer mix improvement was really a constant for us in 2014 and as I said generally the biggest and primary driver of the really strong performance. Again I think as we answered in answer to a question before about the guidance I think we expect that that payer mix improvement continues into 2015 and our guidance reflects that but that it does not necessarily continue at the same rate.

And certainly one of the muting dynamics that we have is that we don't have any new states as we just talked about that will participate in Medicaid expansion next year. So to some degree the Medicaid improvement certainly levels off pretty considerably in 2015.

Okay. And then one more if I could, I think charity and discounts were up in the fourth quarter. Just trying to understand a little bit the dynamics around that, why that would maybe be the case, and what if anything you're doing as patients present to get them signed up?

I think that I'll answer the question in a couple of different ways. I think that in terms of signing patients up like many or I would probably speculate most of our peers we've developed a pretty rigorous process to make sure that we have certified counselors in all of our facilities and that we're both proactively and reactively responding to patients who come to our facilities uninsured and trying to find the most effective and efficient way to get them ensured whether that's enrollment in Medicaid or through the commercial exchange opportunity.

We're doing all those things. Now at the end of the day I think as I said most hospitals are probably doing something similar.

As far as the swings in charity and bad debt I know I'm going to sound like a broken record when I say this but we find it difficult even internally to explain some of the specific movements between those buckets. And I always make the point that as a company we analyze uncompensated care as a single unified bucket and we include bad debt and charity care and uninsured discount.

And again I think if you look at those numbers on a combined basis it reinforces the comment that I made before which is there's been a significant decline in those numbers in 2014 throughout the year. And it's reflective of the ACA and improving economic dynamics that we've already talked about.

That's fair, Steve. I guess from my perspective I'm just trying to understand the dynamic of when you offer the charity care there's no pressure on the individual to have to pay for it. So I guess my thought process was why wouldn't there be more of a push to bad debt even if you have to write it off the pressure on the individual would ultimately then perhaps force them to consider getting on the roles via either exchanges and/or Medicaid versus just writing it off right up front.

Am I not thinking about that right? Or would there be an initiative by -- because I think in the past you've talked about letting each of the individual hospitals determine that. Would that make sense in terms of trying to even push that number lower?

Right. So I think the balance that we and all hospitals walk is trying to be reasonable about what is a reasonable level of income and assets for a patient to qualify for charity care. So somebody comes in the hospital with no health insurance and a very low income level and no assets and the general decision is made based on those criteria that there really is no point in making an effort to collect from those patients.

I think your question is why don't you try and collect from as many patients as you possibly can and I would answer in two ways. I think that one from sort of a public policy perspective we recognize that for people at a very low income level with little assets it really is just too much of a burden for them to pay some of these bills. Then secondly I think from a business perspective it's an effort that we have found can consume a fair amount of time and money and will yield very little. So again we try and have a charity policy that I think is fairly consistent with the industry that tries to walk that line and collects from people who really can afford to pay but really doesn't try and collect from that portion of the population that really can't.

Okay, fair enough. Thank you.

Ana Gupte, Leerink Partners.

Yes, thanks, good morning. Steve I just wanted to follow-up on some of the comments I thought I've heard from you recently on the state Medicaid budgets and pressures in 2015. Just kind of giving us color on why you might be concerned and are you baking in anything in guidance that might not have happened or are these already events underway?

So Ana I think the comments that you're alluding to are comments that I made consistent with what I said earlier in the call that over the last couple of months we have backed off our projections and guidance for our Texas markets. And to be fair I don't think we've seen currently a lot of softness in those markets but are just anticipating the possibility of such given the fact that the Texas economy seems to be slowing. And again I think we could see that softness in a number of ways through a slightly deteriorating payer mix or slightly lower volumes or through some pressure from the state either in traditional Medicaid rates or some of the special reimbursement programs that we benefit from and so I think those are the comments that you're thinking about.

So in general we didn't make any specific cuts or assume specific cuts in Texas reimbursement but just stepped back our Texas earnings projections for next year a little bit and on a broad basis in an expectation that we might feel some pressures in that economy in 2015 that we clearly did not feel in 2014.

Okay. So it sounds like it's more a second order aspect that could happen at the state level rather than just currently insured consumers?

I think that's right. And also I think it's correct because the fact of the matter is that our Texas markets really tend not to be markets that are directly tied to the oil and gas industry, markets like Dallas or West Texas. We tend to be in markets that are more indirectly impacted by the overall Texas economy.

Then just switching gears to the March 4 hearings in SCOTUS as per your recent discussions with the lobby groups and with Congress and the state officials, what are you expecting or hearing in terms of if this thing gets subsidies get caught off what might happen and who might take the lead in addressing this?

Yes, so first of all obviously I mean while we follow this closely as do all of you, we certainly don't feel like we have any particularly valuable insight into how this might turn out and so we'll just continue to follow it very closely. If the Supreme Court were to rule against the subsidies we would certainly work very hard in the various states that we operate in that don't have state exchanges at the moment to get them established.

But again I think that at least in the short run we acknowledge that would be a difficult hurdle to overcome. So obviously we've done nothing in our guidance and I don't think any of our peers have to reflect the Supreme Court decision if it were to be unfavorable our guidance presumes status quo. But if the decision is a negative one from our perspective we'll just work very aggressively with our state associations to try and accomplish the sorts of workarounds that people have identified and written about.

And I'll make the obvious comment here that I think as a company we are less exposed to this issue than our peers since two-thirds of our earnings come from the behavioral business where I think we don't feel like we've gotten much of an ACA benefit and therefore really not exposed if this were to be a bit of a headwind in 2015 or maybe beyond.

And this 1% you think is an appropriate estimate for exposure, 1%-ish or less?

Yes, I think a number of the sell side estimates have been that the amount of our overall earnings that are subject to states that have just federal exchanges are maybe 1% to 2%. And I think that number tends to be lower for us than for our peers again because it's really just specific to the acute care business. But I think that's a pretty accurate guesstimate of what that impact would be.

Thanks, Steve.

Darren Lehrich, Deutsche Bank.

Good morning, thanks for taking the question, this is actually Josh Kalenderian in for Darren. Can you just first talk about your UK pipeline and if you're seeing much over there come to market?

I think that the UK acquisition landscape is in some respects similar to what it's like here in the US. It's fairly fragmented. We obviously as I said just in my prepared remarks announced a small deal of kind of a one-off acquisition.

We are pursuing a de novo development project right now in the UK and I think pursuing a whole array of other potential possibilities. I think we described when we announced the Cygnet deal that we thought this was a landscape that was right for continued expansion and it was one of the motivations for getting into that market.

So our view of that has not really changed. We've been enthusiastic about the early results from the existing facilities that we bought in the UK and remain enthusiastic about the growth opportunities as well which I think will be both again organic, inorganic, some small, over time maybe some large.

All right, great, that's helpful. Then just in terms of your guidance, can you maybe talk about some of the bigger swing factors that either get you to the high-end, low-end of that and maybe the level of capital deployment you guys are assuming?

So from a capital deployment perspective we've assumed as we said in our press release as I said in my remarks somewhere between $375 million and $400 million of CapEx and that's fairly similar to this year's experience. We have historically never included share repurchase assumptions in our guidance and we have not done so this year as well.

As far as other pushes and pulls if you will I think we've already talked about a couple. From a special reimbursements perspective, and we include in that broad category disproportionate share, there is DSRIP funding in Texas, provider tax and UPL arrangements I think overall that reimbursement declines a little bit in 2015, maybe $5 million or $10 million.

I think that we have some dilution in, I shouldn't say dilution, dilution is probably not the right word, but we had a big improvement in our Temecula market in 2014. That facility opened late in 2013. We had a fair amount of startup cost and startup losses and now this year we've been profitable and so as a consequence that was a big swing.

We'll continue to improve in that Temecula market but the improvement in 2015 just is not going to be as great as it was in 2014. So depending on how you think about it that's a little bit of a headwind.

I think those are the only couple of things that I think we have not mentioned yet that I would call out. Otherwise I think it's largely steady as she goes other than what we are ready talked about where I think we've just been a little bit more muted in how much payer mix improvement we can expect in 2015 versus what we were able to achieve in 2014.

All right, great, thanks a lot. Then just lastly it just looks like from the 10-K there was some additional developments in terms of your ongoing investigation. So maybe can you just provide us with an update on what's going on there and if there's anything new?

I think that the only real change in our disclosure in the 10-K was the added disclosure that we had received a request from the government for information for a one incremental facility in Salt Lake City. Other than that I would just broadly say that the investigation continues. We have had some preliminary conversations with the government.

But I think it's fair to say for anyone who's hospital and I think most hospitals have encountered some version of this process that it takes a long time. And I think we would say we're in the early stages and it would be difficult for us to either project with any precision the ultimate resolution and outcome or even the timing of such.

Okay, great. Thanks a lot.

Gary Lieberman, Wells Fargo.

Good morning, thanks for taking the question. One of your peers noted some uncertainty regarding Texas uncompensated care payments. Can you maybe discuss if you've got any uncertainty or range of variability around those payments?

Yes, so I think, Gary, I hope that what you're referencing is HCA has some of these waiver programs and they had originally reserved for some of those payments when CMS had targeted them earlier in the year and then when CMS lifted their deferral of payments HCA I think recognized those payments, etc. We really had not of that back-and-forth because we were not -- we do not have programs in any of the same counties that HCA did that had been targeted by CMS.

So I would just say that for the most part we have assumed that our again Texas special reimbursement, which includes those programs and DSH and DSRIP, will continue next year pretty consistently again with the one caveat that in total, and that includes all the states we operate, that special reimbursement declines by $5 million or $10 million next year.

Okay, great. And then maybe be interested to get Alan's thoughts on the potential for a congressional fix maybe even ahead of a Supreme Court decision or if the government loses the SCOTUS case.

Yes, I think that it would be very simple to have it fixed legislatively, but I don't think it's going to happen. If you're following what's happening with the Republican Party at the moment in all the meetings, that's not going to happen. But that would be very simple. But the government said that they have not developed a Plan B, which I can't believe. So there will be a number of workarounds.

I think the thing to focus on is that 5 million people will lose insurance immediately. And I think the public policy on both -- of Democrats, Republicans, etc., is that those people should be covered. So I think there will be at some point a fix for this should it come out negatively from the Supreme Court.

Okay, great. Thanks very much.

Frank Morgan, RBC Capital Markets.

Good morning. Most of my questions have been answered, but just a couple of random ones here. On your ED -- I'm just curious about ED volume growth, maybe with and without the flu impact in the quarter.

So, Frank, I'm not exactly sure about the flu impact on ED volumes. I think flu tends to impact ED volumes disproportionately more than admissions. I will say that I think our general sense of the flu impact on admissions was probably no more than 30 or 40 basis points.

Okay. And what about just ED volumes in general? Do you have a number there?

Yes, ED volumes were very strong. We definitely saw a heightened ED activity as a result of the flu but I think also we saw heightened ED activity just in general. And again as I think our admission numbers reflect it was a very strong volume quarter and generally admission growth tends to move in proportion to ED volumes and I think that was the experience in Q4.

Okay. And then secondly on surgical volumes, were there any particular areas where surgery was more strong, particularly on the inpatient side any particular type of procedure that you saw more volume?

No, I think it was really across the various service lines so that it was not necessarily isolated to cardiology or orthopedics or even general surgery. It was really again as I think I had mentioned or in response to a question before when you see this kind of strength I think it tends to be pretty broad-based only because I think it's hard to get to these kind of numbers unless you have real broad-based strength.

Then finally are there any other developments that will be carrying a drag, a startup drag in 2015 that's built into your guidance? Thanks.

No, I think as I was trying to in response to Josh's question before identify the couple of large pushes and pulls that I can think of but other than that I don't think there are other big headwinds and tailwinds that we have not yet identified.

Okay, thanks.

A.J. Rice, UBS.

Hi everybody. Just a couple of questions if I could.

I know you talked about -- you've talked around health reform on a couple of answers already but do you have a Q4 run rate of ACA benefit? I know it's maybe not precise but just in general can you break that out between what you think is the Medicaid benefit versus the exchange benefit?

So A.J. I think that we've tried and again I caveat this by saying that I think even more so than our peers I think we've always described the process of discretely identifying the ACA benefit as less or more imprecise than maybe some people think it might be. But I would generally say I think our best efforts quantify the ACA impact for 2014 at about $40 million or so, something like that.

I think that the quarterly progression of that there's been a somewhat of an increase as the year has gone on and as more and more enrollment has taken place in both Medicaid and commercial exchanges but it hasn't been terribly dramatic. So I would say if you think about that $40 million distributed throughout the year, maybe we had $8 million in the first quarter and $12 million in the fourth quarter, something like that just in terms of order of magnitude.

Okay. Then the split between exchange versus Medicaid?

I think as we mentioned earlier again I think for the year I think we think it's probably about two-thirds Medicaid related and one-third commercial. And I think that shifted, I mean that was even more pronounced early in the year and then it got a little bit weighted more to commercial as the year went on. But I think ultimately it was about a two-thirds/one-third split for the year.

Okay. And you mentioned California provider and the Texas, specifically on California provider I know there's two pieces to it, the managed care piece and the fee-for-service. Are your booking both of those now and do you have both those assumed in your guidance or how much are you showing versus how much are you keeping potentially on contingency?

Right. So prior to this I think we identified our potential benefit from California UPL to be in the $8 million or $9 million range for 2014. We recorded and recognized a $4 million benefit in Q4 and that's because as you describe it A.J. that's the piece of the program that was approved.

And so we only recorded the income associated with the piece that the government has approved. We have guided or included in our guidance for 2015 a comparable number and so if there is an approval of the second piece of that program that would be an upside when it gets approved.

In the similar order of magnitude they are about the same?

Yes, it would be another $4 million or $5 million for 2014 and a similar number for 2015.

And then just maybe my last one, I know sometimes at the end of the year you have some AR backup in a couple of states. I know Illinois and Texas are notorious for some of theirs. Did you have any of that and how much did that impact cash flow and when do you think you might see that money come through if it is there?

Yes, so I don't have that in front of me, A.J., but we actually disclosed those numbers pretty specifically in the 10-K. So you can find them there, but I would generally say that in both cases we actually are in pretty decent shape in both those states. Still have outstanding receivables but not anywhere near the balances when they were at their highest levels.

Okay, all right. Thanks a lot.

(Operator Instructions) Gary Taylor, Citi.

Hi, good morning. Just a few quick ones. Steve, is there a specific EBITDA range that ties to the earnings guidance that you'd be willing to provide?

You know, Gary, we have historically not provided EBITDA guidance and honestly I don't have the numbers in front of me. But I think generally people can back into it but I don't have them.

Yes, you gave us some same store stuff to get pretty close. Is there a case mix number that would support all of this surgical growth or is it more on the commercial side and not really reflected in case mix?

I think it's actually both. I don't have our actual case mix data in front of me. But I do recall that case mix as you would expect with surgical volume was up, both Medicare case mix and our overall case mix because again I think I would make the point that the surgical strength that we saw in the quarter tended to be across all payers.

Last question, I don't think I heard you comment unless I missed it just on uninsured volumes overall. On the acute side is there a percentage decline or a percent of admissions versus last year that you could share?

You're right, Gary, I didn't specifically speak to that metric other than to say that I think we've seen a pretty steady decline. And I think that decline we've seen a decline of probably between 8% and 10% in our uninsured volumes pretty steadily throughout the year. Now there is a little bit of quarterly variation but I think for the year it comes to that level.

Okay, thank you.

Whit Mayo, Robert W. Baird.

Hey, thanks. Good morning. Just, Steve I know you guys exclude the IT incentive payments and costs from your numbers but can you share what you're spending in terms of CapEx in 2014 from those IT conversions and is there a thought about 2015 and do you have an idea what you think that the normalized recurring expenses are to just simply maintain those systems?

Sure. We began the implementation of EHR in 2010 and I think have disclosed previously that originally projected we'd spend a couple hundred million dollars and I think that's what we've spent. I think most of that spending was over the probably four-year period from 2010 to 2013. So actually I don't think there's a lot of IT spending particularly related to the EHR implementation in either our 2014 numbers and certainly I don't think we envision a lot of it in 2015.

I think we are largely through that process. There are small components of it that are being enhanced around physician order entry and things like that but again the amount of incremental capital expenditure is pretty small.

A couple hundred million, is that $200 million, $300 million?

No, I'm sorry. I should be more precise, when I said a couple hundred I meant $200 million is the number that we talked about as being our investment. Obviously a substantial amount of that was recouped through the EHR reimbursement.

Got it, okay. So spread evenly across four years would imply maybe $50 million of Capex a year ballpark?

Yes, and I think and again even though these are completely unrelated, if you look at our overall capital spend it's remained pretty constant from 2013 to 2014 to 2015. And I think what has happened, although as I say unrelated is that say $50 million a year in EHR spending has been replaced by additional behavioral bed spend.

Yes, and I guess the question that I'm going to get to is that as we think about CapEx over the 2016 and 2017 time frame, the IT spend has gone away, you will continue to add beds although probably not at the same rate and you've got the Las Vegas hospital coming online. So I guess I'm just -- do you think that this CapEx number is one that you can hold for the next few years or will we see it go up?

So 2015 I think will be the third year in a row that we've run at this sort of $375 million, $400 million range now. And I would say that has included a few years of some EHR spending. It's included an increased behavioral bed component.

All those years have included some new acute hospital. For several years it was the Temecula facility and then for the next couple of years it will be the Las Vegas facility. So yes, I think I'll tell you in our own models we continue to use a CapEx placeholder at about that same level.

Okay, perfect. Thanks a lot.

Sir, we have no further questions in the queue at this time.

Okay, we want to thank everybody for their time and look forward to speaking with everybody again at the end of the first quarter.

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