Good day. And thank you for standing by. Welcome to Community Health Systems Fourth Quarter and Year End 2021 Earnings Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker for today, Mr. Ross Comeaux, Vice President of Investor Relations..

Thank you, Jay. Good morning, and welcome to Community Health Systems fourth quarter and year end 2021 conference call. Joining me on today's call are Tim Hingtgen, Chief Executive Officer, Dr. Lynn Simon, President of Clinical Operations and Chief Medical Officer; and Kevin Hammons, President and Chief Financial Officer.

Before I turn the call over to Tim, I'd like to remind everyone that this conference call may contain certain forward-looking statements, including all statements that do not relate solely to historical or current facts.

These forward-looking statements are subject to a number of known and unknown risks, which are described in headings such as Risk Factors in our annual report, on Form 10-K and other reports filed with or furnished to the Securities and Exchange Commission.

As a consequence, actual results may differ significantly from those expressed in any forward-looking statements in today's discussion. We do not intend to update any of these forward-looking statements. Yesterday afternoon, we issued a press release with our financial statements and definitions and calculations of adjusted EBITDA and adjusted EPS.

For those of you listening to the live broadcast of this conference call, a supplemental slide presentation has been posted to our website. We will refer to those slides during this earnings call.

All calculations we will discuss also exclude loss or gain from early extinguishment of debt, impairment expense as well as gains or losses on the sale of businesses, expenses from government and other legal settlements and related costs, income and expense from the settlement of professional liability claims for which the third-party insurers obligation to ensure the company for the underlying loss has been settled, expenses from settlement and legal expenses related to cases covered by the CVR, expenses related to employee termination benefits and other restructuring charges, change in tax valuation allowance, and gain on sale of equity interest in Macon Healthcare LLC.

With that said, I'd like to turn the call over to Tim Hingtgen, Chief Executive Officer..

Thank you, Ross. Good morning, everyone. And welcome to our fourth quarter and year-end conference call. 2021 was another strong year for CHS. We advanced key clinical and operational initiatives and made strategic investments that position the company for future growth.

Leaders across the organization executed their plans to achieve strong operational and financial performance, and we finished 2021 with a solid fourth quarter. We certainly confronted the same challenges as others in the health care industry, as COVID-19 negatively impacted patient volumes and various expense categories.

But once again, our teams demonstrated their ongoing commitment and resourcefulness, adeptly managing through the evolving and at times, unpredictable environment.

I remain deeply grateful for all of our caregivers, the exceptional work of our healthcare teams, including nurses, physicians, therapists and others, has been essential to the delivery of high quality patient care.

We are proud of the service we provide in our communities and the critical need of our healthcare systems fulfill in cities across the country. COVID remained widespread in the second half of 2021.

First, the Delta variant peaked in the third quarter, and as those cases slowly dissipated during the fourth quarter, the Omicron variant spread across many of our markets, eventually peaking in January.

During the fourth quarter, we provided care for approximately 8,000 inpatient COVID admissions or 8% of our total admissions, which was lower than the 13% of total admissions experienced in the third quarter and similar to our experience in the first quarter of 2021.

Non-COVID health care demand during the fourth quarter was higher than prior quarters despite elevated COVID-19 cases. Looking at the fourth quarter on a same-store and year-over-year basis, net revenue increased 6.7%. Same-store admissions decreased 3.9%, while adjusted admissions were up 1.7%. Surgeries increased 5.7% and ER visits were up 11.8%.

Comparing our fourth quarter volumes to the pre-pandemic fourth quarter of 2019, same-store admissions were at 93%, while surgeries showed strengthening, finishing at 98%.

While non-COVID related volumes continue to trail pre-pandemic baselines for the industry, we expect to meet deferred demand as it returns to the health care setting over the next several quarters. On a consolidated basis, adjusted EBITDA was $540 million in the fourth quarter.

Excluding pandemic relief funds, adjusted EBITDA was $494 million, up 7% year-over-year, and adjusted EBITDA margin of 15.3% was up 50 basis points compared to the prior year. As a reminder, we raised the midpoint of our adjusted EBITDA guidance three times last year, and we ended up slightly above the high end of our updated full year guidance.

And it's worth noting that cash flow from operations was also strong and came in above our previously increased guidance range.

Our strong financial performance was made possible by targeted operational initiatives and strategic investments that also advance patient care, enhance competitive position, and that will drive incremental EBITDA growth and generate additional free cash flow going forward.

And over the past couple of years, we have transformed and strengthened the company. Today, we operate across 48 specific markets in 16 states. Our markets are primarily suburban and medium-sized metropolitan areas, mostly across the Sun Belt and locations with good economic and population growth.

We've expanded our markets well beyond traditional hospital operations and now operate more than 1,000 health care sites across the continuum of care.

In addition to our 83 hospitals, the portfolio consists of 42 ambulatory surgery centers, 17 freestanding emergency departments, 60 urgent care and walk-in clinics, and more than 600 physician practice locations. Scalable initiatives across the enterprise are designed to achieve clinical advancements, operational improvements and growth.

Beginning with growth, we invested $469 million of capital into our markets in 2021, using a balanced investment approach that increases inpatient capacity while also expanding access and outpatient services.

We have recently added new hospital beds in surgical and procedural suites in key markets, including Birmingham and Huntsville, Alabama, Knoxville, Tennessee, and Austin, Texas, among others.

New hospitals have been opened in Fort Wayne and La Porte, Indiana, and in Tucson, Arizona, where another new hospital, our fourth hospital in the Tucson market, is planned to open in the first half of this year. On the outpatient side, we opened three new ambulatory surgery centers and three new freestanding emergency departments in 2021.

And strategic joint venture partnerships are expanding our services in the areas of behavioral health, rehabilitation services, and long-term acute care. A good example of our balanced investment approach can be seen in our Naples, Florida market. Since 2019, we've increased bed capacity by 38% by expanding our two existing hospital campuses.

And in January, we opened a new campus on the north side of the city. At the same time, we've expanded outpatient access with two new medical office buildings totaling over 130,000 square feet, and we've aggressively recruited physicians in this community.

The market's focus on service line development has produced organic growth in nearly every specialty with notable advances in cardiac services, digestive health and urology. We have increased market share and will grow further with an additional 80 licensed beds on track to be added before the end of this year.

Other growth initiatives include our ACOs, provider outreach programs and our transfer center, which is now supporting 55 of our hospitals and continues to function well above original expectations, producing volumes from inbound transfers from both CHS and non-CHS affiliated sites of care.

Primary care growth is an important focus and is supported by a centralized physician recruitment team that was able to recruit 14% more physicians to our markets in 2021 versus 2019, our pre-pandemic comparison.

Our patient access centers, which offer centralized scheduling for primary care providers, help patients receive appointments faster and increase provider productivity. Online scheduling for primary care increased more than 90% in 2021 compared to 2020, as consumers increasingly expect this level of convenience.

And it's worth noting that our fourth quarter same-store primary care business were up 13% versus the prior year, which bodes well for future patient volumes. We have many focused areas for continuous operational improvement, and I will highlight a few today.

The pandemic has meaningfully increased wage rates and demand for nursing contract labor in many markets. We expect contract labor to normalize as COVID cases decline and we are accelerating strategies to help us attract, support and retain our valued employees.

We have expanded our centralized nurse recruitment program, and that effort is yielding very good results. We also are sponsoring a new generation of nurses through our partnership with Jersey College with four hospital-based nursing school programs operational and live so far and three more starting in 2022.

The pandemic requires a higher level of capacity management focus. So we have several programs underway to optimize capacity, by managing throughput and length of stay, which not only helps keep needed beds available, but can also improve patient satisfaction.

And our strategic margin improvement program completed its second full year in 2021, driving meaningful savings through the organization. This work continues to permanently reduce costs across the corporate offices and shared service centers and decrease non-patient-facing hospital expenses.

In 2022, we have planned for further expense reduction in areas, including supply chain, vendor-related costs, rent and other expense categories. Finally, today, I want to mention our investments in innovation and partnerships, artificial intelligence, and other technologies that can improve patient safety and clinical outcomes.

Last week, we announced a strategic partnership with Cadence to deploy remote patient monitoring and virtual care solutions to support patients managing hypertension, heart failure, diabetes and pulmonary disease.

Working directly with our network of primary care physicians, we anticipate this partnership will create benefits that include higher patient engagement and managing chronic health issues, better outcome and a reduction in preventable hospitalization.

At CHS, our shared purpose is to help people get well and live healthier, and initiatives like this one, make that possible. We enter 2022 optimistic about the opportunities ahead and determined to achieve our goals for this year and beyond.

Kevin will now provide some additional thoughts in the quarter, and he will walk you through our 2022 guidance and provide an update to our medium-term targets.

Kevin?.

Thank you, Tim, and good morning, everyone. As Tim highlighted, we finished the year strong with a solid fourth quarter.

During the full year, we delivered strong financial performance, made considerable strategic progress across the organization and strengthened the balance sheet through the extension of debt maturities, the pay down of debt and the reduction of annual cash interest.

As we look forward, we are well positioned to drive incremental growth over the next several years. Switching back to the fourth quarter. Net operating revenues came in at $3.233 billion on a consolidated basis. On a same-store basis, net revenue was up 6.7% compared to the fourth quarter of 2020.

This was a net result of a 1.7% increase in adjusted admissions and a 4.9% increase in net revenue per adjusted admission. Adjusted EBITDA was $540 million. During the fourth quarter, we recorded approximately $46 million of pandemic relief funds with approximately $153 million recognized in the prior year period.

Excluding pandemic relief funds, adjusted EBITDA was $494 million, with an adjusted EBITDA margin of 15.3%. In terms of expenses, we have seen a decrease in salaries and benefits, as both productivity improvements and the shift from employment to contract labor, has offset the inflationary impact on labor.

Accordingly, we have experienced a significant increase in contract labor, which is reflected in our other operating expenses. The net effect of this transition from employment to contract labor was approximately 200 basis points of net revenue during the fourth quarter and 100 basis points of net revenue for the full year.

Helping to offset this headwind on earnings has been the success of our margin improvement program, which helped deliver significant reductions in expenses across both supply and purchase services. Moving forward, we expect the margin improvement program to continue to deliver meaningful savings in 2022 and beyond. Turning to cash flow.

Cash flows used in operations were $131 million for 2021. This compares to cash flows provided by operations of $2.2 billion during 2020. Excluding repaid Medicare accelerated payments, cash flows provided by operations were $950 million for 2021.

Cash flow from operations was strong during the year, coming in above our initial guidance as well as guidance that we had updated following third quarter earnings.

The comparison versus prior year has several moving parts, as the $2.2 billion in cash flow from operations during 2020 included $1.1 billion of accelerated Medicare payments and approximately $700 million of provider relief fund.

That entire $1.1 billion of Medicare accelerated payments was repaid during 2021 with $814 million of that being repaid in the fourth quarter. Moving to CapEx. For the full year of 2021, our CapEx was $469 million compared to $440 million in 2020. Our CapEx was up 7% in 2021 despite operating fewer hospitals than a year ago.

In 2022, we plan to invest a higher dollar amount of capital across our existing markets, as evidenced by the increase in our CapEx guidance, as we see a number of high return opportunities that we expect will deliver incremental EBITDA, EBITDA margin and free cash flow.

In terms of liquidity, we continue to have no outstanding borrowings under the ABL with $897 million of borrowing base capacity. Also, at the end of the fourth quarter, we had $507 million of cash on the balance sheet. As we mentioned in the cash flow discussion, the company repaid $814 million of Medicare accelerated payments in the fourth quarter.

And as a result, all Medicare accelerated payments have been repaid, and we are now receiving 100% of Medicare fee-for-service reimbursement. We continue to improve our balance sheet and capital structure and made significant improvements during the year.

During the most recent quarter, we extended the ABL from 2023 to 2026 and most recently, in January of 2022, we extended $1.5 billion of debt from 2025 to 2030. Since the first quarter of 2020, we've now reduced our annual cash interest by approximately $230 million and lowered our leverage by over two turns.

At the end of 2021, the company's net debt to EBITDA was 5.9 times. Going forward, we are focused on further lowering our leverage into the future. Now I will walk through our full year 2022 guidance. Net operating revenues is anticipated to be $12.6 billion to $13.1 billion, and adjusted EBITDA is expected to be $1.825 billion to $1.975 billion.

Net income per share is anticipated to be $1 to $1.50 per share based on weighted average diluted shares outstanding of 133 million to 134 million shares. Cash flow from operations is anticipated to be $950 million to $1.1 billion. CapEx is expected to be $500 million to $600 million and cash interest is expected to be $820 million to $840 million.

In summary, we expect 2022 to be another strong year, as we further leverage our growth initiatives, invest incremental capital in high-return projects and drive additional positive free cash flow. In terms of the quarterly cadence of adjusted EBITDA, we expect 2022 to be directionally similar to 2021, excluding the pandemic relief funds.

Coming into 2022, we've seen the peak of COVID hospitalization to occur in January, and we've also experienced the peak of positive infections among our hospital staff in January, which further constrained capacity and resulted in higher utilization of contract labor.

As such, we expect the first quarter of 2022 to be our lowest adjusted EBITDA quarter of the year, and similar dollar range to the first quarter of 2021.

With declining cases of COVID and the utilization and rate of contract labor moderating, we anticipate improvement in the second quarter and throughout the remaining quarters with the fourth quarter of 2022 being the highest adjusted EBITDA quarter of the year.

Finally, we would like to also provide an update on how we are thinking about the company beyond 2022. At the beginning of 2021, we introduced the medium-term financial goals, which was a 2 to 4 year plan.

This included achieving 15% plus adjusted EBITDA margins, delivering positive free cash flow annually and reducing our financial leverage below 6 times. In the past year, we've made significant progress on each of these goals.

As we move forward, we expect to continue to grow EBITDA and EBITDA margin, grow annual free cash flow generation and continue to lower our financial leverage.

As such, we have pulled those previous goals forward to the near term and have introduced new medium-term targets, which are goals we plan to achieve over the next 2 to 4 years, which include growing net revenue by mid single digits, achieving 16% plus adjusted EBITDA margins, continuing to deliver positive free cash flow annually, and reducing our financial leverage below 5 times.

We look forward to delivering additional progress across all these metrics into the future. Ross, at this point, I'll return the call back to you..

Thank you, Kevin, and thank you, Tim. At this point, Jay, we're ready to open up the call for questions. We will limit everyone to one question this morning, but as always, you can reach us at 615-465-7000..

Thank you. [Operator Instructions] Our first question comes from the line of Brian Tanquilut of Jefferies. Your line is open..

Hey, good morning, guys. Congrats on a good quarter. I guess my question is, as I think, Kevin, about the other operating expense line, obviously, it's up year-over-year as you called out, increased use of temp staffing. But if I back out what we think the temp staff contribution is it looks like that line has gone down quite a bit.

So how should we be thinking about kind of the expense components that go into that? And even also like what you can share with us in terms of how you think your staffing trends would improve.

And then maybe segue that also into the 100 basis point improvement in your medium-term guidance, kind of like what has driven that? And what gives you confidence in driving that kind of margin expansion over the next 2 to 4 years?.

Sure. Thanks, Brian. No, a couple of things have really led to our ability to control some of those other operating expenses and achieve savings. So we've been talking about our margin improvement program now for a number of quarters, something we launched back late 2019, continue to get traction on.

Some of the categories that we're getting savings and it's a number of different areas.

But across software licensing, purchase services, insurance, any number of initiatives that we're targeting, probably not the single one that's individually material, but it's just how we're going about kind of doing our business and tightening up our practices, and able to go out and get some savings.

We also had some benefit as we've completed our divestiture program over time. And even this past quarter, as we think about compared to year-over-year, there was some benefit as we have divested some of the lower performing hospitals. Going forward, in terms of reaching our new EBITDA margin goals, a number of things.

One, we believe there's continued opportunity under our margin improvement program. But also we have a real balanced approach, both organic growth, because of the markets we're in, we believe are growing demographically.

They're growing economically and we believe we're going to not only pick up our share of that growth, but also continue to grow market share in those markets. We're making capital investments that over the past even 2 years throughout the pandemic, we haven't received the full benefit of the capital investments we've been making.

Let alone, we're getting even more aggressive. And as we've mentioned, adding more dollars into some opportunistic capital investments going forward. So we believe all of those things really combined will allow us to achieve those margin goals, in doing so and leveraging our fixed cost in those markets as well..

Thank you. Next question comes from the line of Josh Raskin of Nephron Research. Your line is open..

Thanks. Good morning. My question is around the market strategy. Tim you brought this up on the call this morning. So Community seems to have migrated towards slightly larger markets over the last several years.

I guess in light of the labor force shifts and what appears to be less migration to large urban areas, and I don't know if that's work-from-home or other factors, but how are you thinking about the markets that you operate in? Is there any thought on more rural versus more urban?.

Good morning, Josh. This is Tim. I'll start this one off. In terms of the portfolio, you are correct. We've been very methodical in terms of how we were shifting to, I think, more mid-sized metropolitan markets, smaller suburban market, things along those lines. We still have some core assets in some of what would be defined rural markets.

But in general, really focused on building out those health care delivery systems with similar sized access points across all of the portfolio. In terms of how we're looking at this going forward, obviously, we positioned ourselves in a place where we think there will be good growth down the road.

We are seeing population gains projected in these markets, whether it accelerates materially due to migration from larger cities into the suburban markets is still to be seen. We have anecdotal information. We have good growth rates and things along those lines that we're seeing in the near term. But we think that bodes very well for us.

In terms of both just population to be served, but also increasing the core group of health care talent that we need to operationalize our markets.

We also touched upon our balanced growth objective of being focused on developing inpatient capacity, expanding service lines and acuity, while being very mindful of the migration of certain care, lower acuity care to the ambulatory setting. And our growth in those types of markets make that very, very feasible.

Again, getting access points into those new neighborhoods, those growing parts of communities, we believe, really, again, drives a lot of go-forward opportunity for the company..

Thank you. Next question comes from the line of Kevin Fischbeck of Bank of America. Your line is open..

Great, thanks. Maybe a two part question on the guidance. First, it seems just to be a lot of, I guess, confusion or uncertainty around margin sustainability and uncertainty about how much, whether it's the COVID relief fund, public health emergency is adding to earnings this year.

Maybe you can give us a little bit of color or direction as to how you think about the 2022 baseline into 2023? Can you grow margins in 2023 if all these things expire as they are supposed to in log today, how much of a drag is that you have to overcome? And then second, just it isn't clear what you were saying about cash flow in your guidance, because you're going to be doing about $0.5 billion of cash flow, but you're medium, long-term numbers just positive cash flow.

Is there something we should be thinking about a reset there? Are you thinking about the movement towards paying cash taxes or accelerating your CapEx that the free cash flow should be meaningfully different than what you're doing in 2022 over the next 2 to 4 years?.

Sure. So thanks, Kevin. Let me start that off and try to catch all the components of that question. So as we think about kind of 2022 and the baseline of our guidance going forward, yes, we do believe we can continue to grow margin past 2022. I do think we have, coming into 2022, still a little bit of a headwind on margin, because of contract labor.

So as we kind of go forward beyond 2022, certainly in the latter part - mid to latter part of 2022, we expect that contract labor headwind to start to subside, and going forward, we think we'll get past that.

So that should give us some opportunity we're continuing, as we talked about, kind of not only organic growth in our markets, we're focusing much of our capital expenditures in our revenue growth initiatives on higher acuity service lines.

So we believe there is opportunity there as we continue to be in a position to increase our capital spending to chase more of those opportunities. And as I just maybe previously mentioned, much of what we've invested over the past couple of years, because of pandemic, we haven't realized the full benefit of.

So as we get out to 2022 and beyond, we believe we will continue to be able to leverage that. And as we grow within our existing markets, our fixed cost will remain relatively the same. And so the incremental revenue that we're able to generate should flow through to higher margins going forward..

Thank you. Next question comes from the line of Ben Hendrix of RBC Capital Markets. Your line is open..

Could provide a little bit more color about your length of stay and your programs to optimize capacity.

Specifically, how much of your length of stay, elevated length stay's related directly to treatment of COVID patients versus your ability discharge to post-acute amid labor headwinds? And I guess, what leverage do you have to address that?.

Great. Ben, this is Tim. I'll go ahead and kick us off, and Kevin, of course, feel free to chime in. In terms of our capacity optimization or length of stay focus, it has several facets to the program. I think we've done a good job historically at managing length of stay.

COVID has, I think, has shown us a few more headwinds than we're used to, particularly as it relates to the ability to place COVID or non-COVID cases when ready for discharge into post-acute care settings or home health.

So on that one is a little bit more structural, not it's easy for us to address in the near term until COVID cases more definitively subside and we stabilize some of the workforce in the post-acute care setting.

But in terms of the hospital environment itself, we really are focusing on discharge to home as our primary lever, putting out more refined reporting in terms of how we manage the discharge to home patients, patients who are ready, being more efficient, making sure that we, again, deliver optimal quality care and then get them into their home setting as quickly as possible.

And we've seen some great success in that regard. So a lot of it is about prioritizing kind of what type of patients we put our focus on. We've also introduced new analytics and reports to support a centralized UR function, utilization review function.

And that is, again, pretty new in terms of the data and the way we're sharing that with our hospital and regional operators. We're really digging into opportunities by market in terms of observation, patient management, making sure that we have authorizations in place in the front end, coordinating all that work with the payors.

And again, think them early success in that initiative. In terms of where the real length of stay challenges are, I'd say, again, COVID has certainly driven up the length of stay in total. But in general, those macro elements of the discharge out of the hospital setting has probably been the bigger, more structural headwind that we have to overcome.

Lynn, anything to add?.

No, those are all the sort of things I think most people are dealing with, and we've seen some acuity increase, which will feed into some of that length of stay, but again, lots of opportunities, as Tim mentioned..

Yes, and maybe the only other thing I would add, Tim, is we have made some capital investments in some joint ventures with some partners in post-acute care space with rehab, with long-term acute care. And all of those kind of combined, I think, will help us really treat patients across the continuum of care and help at that length of stay..

Ben, I think for us, again, capacity optimization is a high priority because we ran really full throughout the fourth quarter, and we missed, I think, some admission opportunities and the ability to fulfill our purpose in general. So again, this is very important to us as is human capital investments and advancements to stabilize our workforce.

And again, that's where we see some really great opportunities for the organization in 2022 and beyond..

Thank you. Next question comes from the line of Jason Cassorla of Citi. Your line is open..

Great, good morning. Thanks for taking my question. So just from a volume perspective, the surgery number was certainly impressive in the quarter. But if I back out the COVID admits in the quarter, it looks like COVID admits were running at maybe 85% of pre-pandemic baseline.

So just at a higher level, can you help frame how you're thinking about underlying demand in your markets? I know you said that you believe there's some pent-up volume that you expect to come back.

But maybe at this point, do you believe that there is some level of volume that just won't return back to the hospital? And then maybe how does that - any dynamic around that help you inform yourselves in terms of how you're thinking about the future capital deployment priorities of the company? Thanks..

Sure. Compared to 2019, our admissions - adjusted admissions, we believe are probably down in the mid single digit range, and surgeries are probably low single digit range compared to pre-pandemic levels. So we have certainly made some more progress on surgeries.

Going forward, do we expect some of the volume not to return? And how do we think about it. As we sit here today, we believe there's still a significant amount of deferred demand out there that we will be getting back and will be coming back kind of throughout '22 and as COVID subsides that deferred demand will come back.

Will there be some demand that ultimately structurally doesn't come back? Potentially, but we think that's low acuity. And we may be capturing that in some of our other access points like our freestanding EDs, urgent care centers, walk-in clinics. So some of the low acuity emergency room business probably ultimately doesn't come back.

But we will capture that in a lower cost of care setting, which will ultimately be accretive to EBITDA.

Tim, anything you want to add?.

Yes, just a few things. Thanks for the question, Jason. And in terms of our admissions, it's certainly an indicator we track very closely, but we have to put it into perspective with some of the changes in healthcare delivery, particularly on the short space surgery cases.

So in addition to the lower case comps of COVID in Q4 '21 versus Q4 '20, which kind of - I guess it raises the admission deficit for the organization. We also had a rather sizable shift of short-stay orthopedic cases that were on the inpatient only list historically that have migrated to outpatient surgery classification.

And those patients are still occupying the bed for their 1- to 2-day stay. So as I said in my previous comment, we ran very high capacity in occupancy in our hospitals in the fourth quarter. And again, all by design, we kind of know the status of those patients, working very methodically to case manage them appropriately.

But when we look at those two big shifts right there, again, we had some increases in observation cases year-over-year, some lower acuity business came back in, and we're really satisfied with the progress of our growth initiatives working to our advantage.

Again, we have great insights into where our business is at and what our opportunities are by our internal measures, but also through our transfer center data. We had strong transfer center performance in the fourth quarter.

But we know there was still more care that we could have brought in as we focus on length of stay management, as we focus on optimizing our staffing and as we focus on expanding capacity of our inpatient beds..

Thank you. And our last question will be from Andrew Mok of UBS. Your line is open..

Hi, good morning. Hoping you could give us a sense for how contract labor is trending so far into Q1. You mentioned in your prepared remarks that you expect contract labor to normalize.

Can you elaborate on that with regards to contract labor usage and rates? It seems like some of the labor mix shift towards temporary labor may be semi-permanent in nature. So just wondering if you've seen any improvement in contract labor materialize at this point? Thanks..

So as I mentioned, we have seen kind of the peak of COVID into January, before we've started to see any moderation both in terms of COVID patient admissions as well as COVID, the impact on our employee, staff.

And so certainly, there's been more backfill of staff in January with contract labor for people being out sick and unable to work because of being COVID positive. But we do expect that we're on the downside of that now, and we'll continue to moderate kind of throughout the remainder of the quarter.

In terms of rate, we're seeing a contract labor rates at about 300% to 400% of what employee rates are. And so that's pretty similar to what we saw kind of coming out of the third quarter..

Andrew, this is Tim. I'll tack on to that just real quickly. I don't think we're experiencing anything different or materially different than our peers or what we're reading in the industry in terms of some of the phenomena of contract labor growth.

We are more optimistic that it is not a permanent structural change, on that as the COVID cases decline, we go back to more of a normal operating environment. What we're doing as an organization is really focusing on human capital advancement, building a strong record workforce. We have near term, mid-term and long-term solutions.

I believe we talked about them in previous calls, a little bit today. But in the near term, our centralized nurse recruitment function has been very successful. We'll have that fully rolled out across all of our hospitals in the next couple of months. We have about 61 of our hospitals on the service right now and again, seeing really positive results.

So really hiring has not been our biggest challenge. We just have to certainly work hard on retention. And again, not having people feel that contract labor going to a travel agency is the best career choice for them.

There's other intrinsic value to being part of the core health care team besides just the rate of pay and those things that we're focusing on our retention and bonus programs, advancing our educational opportunities for our - for all of our employees, not just nursing.

And then really putting more energy into caring for the caregiver and some of the emotional support that is still critical as we've weathered the last several waves of COVID.

We've also piloted some care model redesign to make it, again, I guess, I'll say, easier to be a nurse, not that it's ever an easy job, but to get more supportive resources to the nursing team, so that they can focus on the higher-value services to their patients, driving the best outcomes possible.

And the last thing I'll say to try to maybe mitigate this in the mid to near term would be an increase in international nurse recruitment.

I think everyone in the industry is looking at this, but we've got a really good line on expanding our international nurse employment options with some of the [indiscernible] opening up over the last several weeks.

So as those are the things that we're doing to really address this and make sure we manage, again, our workforce in the best way possible..

Thank you. We'll now turn the call over to Mr. Hingtgen for closing comments..

Thanks, Jay. And thanks, everyone, for spending the time with us today. In closing, I would like to mention again just how grateful we are to all of our employees across the organization.

Physicians, providers, regional presidents and hospital leadership team continue to demonstrate our true purpose of helping people get well and live healthier by providing safe, high-quality care for their communities.

I also want to thank our company's leadership team for their important role in supporting our markets and for their continued focus on successful execution. We were pleased with our performance in 2021, and we look forward to updating you on our progress as we move through 2022.

Once again, if you have any questions, you can always reach us at 615-465-7000. Have a great day..

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect. Have a great day..