Community Health Systems, Inc.
Q1 2017 Earnings Call Transcript

Published: 2 May 2017

[Operator:]

Good morning. My name is Mike, and I will be your conference operator today. At this time, I would like to welcome everyone to the Community Health Systems First Quarter 2017 Conference Call. I will now turn the call over to Marianne Denenberg, Manager of Investor Relations. You may begin your conference.

[Marianne Denenberg:]

Thank you, Mike. Good morning, and welcome to Community Health Systems' first quarter conference call. Before we begin the call, I'd like to read the following disclosure statement. 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 be referring to those slides during this earnings call. As a reminder, our discussion of our results excludes Quorum Health Corporation, the joint venture in Las Vegas that was sold to Universal Health Services and the company's home care division from our prior-year results. All calculations we will be discussing also exclude discontinued operations, loss from early extinguishment of debt, impairment of goodwill and other long-lived assets and the gain or loss on sale of businesses, expenses related to government and other legal settlements and related costs, expenses incurred related to the announced hospital divestitures, expense from fair value adjustments on the CVR agreement liability related to the HMA legal proceedings and related legal expenses. With that said, I would like to turn the call over to Mr. Wayne Smith, Chairman and Chief Executive Officer. Mr. Smith?

[Wayne T. Smith:]

Thank you, Marianne. Good morning, and welcome to our first quarter conference call. Larry Cash, our President of Financial Services and Chief Financial Officer is with me on the call today, along with Tim Hingtgen, our President and Chief Operating Officer also with me on the call today is Tom Aaron, Senior Vice President, Finance, and Dr. Lynn Simon, President of Clinical Services and Chief Quality Officer. We're pleased with our performance during the first quarter. Overall, the quarter was in line with our expectations and it was a good start to 2017. We made progress across a number of areas and we expect to see more progress, as we move through the remainder of 2017. I'll provide some comments on the quarter, give an update on our divestiture progress, and talk about our outlook for the year. After that, I'll turn the call over to Tim Hingtgen, our President and Chief Operating Officer, he will provide some additional detail around our operations, and then Larry, our Chief Financial Officer, will provide some more color on our first quarter financial results. Switching back to the first quarter, we saw a good performance in our physician practices. This is a group that's managed centrally by Dr. Lynn Simon over the past couple of quarters. This group has been focused on improving the efficiency of our almost 3,000 employed physicians. Through this work, that team has aligned physician recruitment and our strategic planning process, improved our new physician start-up process, as well as driving a number of other initiatives that would help us to deliver improvement in 2017 and 2018. For example, this team has done a good job on quality and we have discussed the progress that we've been making around serious safety event reductions. Through the fourth quarter of 2016, we've experienced an 81% reduction for our legacy hospitals and 45% reduction for our former HMA hospitals. We started this program in our legacy hospitals in the second quarter of 2013 and, in our HMA hospitals in the first quarter of 2015. We're very pleased with the success of our safety and quality initiatives across the country. In terms of annual Medicare wellness visits, our affiliated clinics completed 17% more visits quarter-over-quarter and through the end of the first quarter, our clinics have received Medicare wellness visits from 23% of eligible and beneficiaries associated with these respective clinics, well above the national average. It's also worth noting that we're seeing good start-up improvement in our physician practices, which bodes well for increased productivity moving forward. So, this group is off to a good start for 2017. I'd now like to provide an update on our divisional structure and alignment. As you recall, and we spun 38 Quorum hospitals last year, we reduced our divisional structure from six divisions to five divisions. A number of executives also moved to Quorum at that time, at the time of the spin. With a number of announced hospital divestitures closing over the coming months, we're now reducing our number of divisions down to four. We believe this change will help to improve the overall efficiency of our operations. Importantly, we do not expect disruption from this change as these markets will be managed by divisional presidents and vice presidents that are already familiar with these markets. Now, I'd like to provide an update on our divestiture plan and on page 8 of our supplemental slides, we've also included some key highlights. Since our last earnings call on February 21, we have announced the close of a number of transactions as well as definitive agreements. In terms of closed divestitures, we have closed transactions for 11 hospitals accounting for approximately $1.1 billion of annual revenue, and low single-digit EBITDA margin. Gross proceeds from these divestitures, including working capital, generated $425 million of proceeds. On April 28, we closed the Stringfellow Memorial Hospital transaction with The Health Care Authority of the City of Anniston, Alabama. As a reminder, Stringfellow is a 125-bed hospital. On May 1, we closed the eight-hospital divestiture transaction with Steward Health System, those hospitals include three in Ohio, two in Pennsylvania and three in Florida. On May 1, we closed the transaction of two of the three hospitals we expect to sell to Curae Health. The two hospitals included 95-bed Merit Health Gilmore Memorial in Amory, Mississippi and a 112-bed Merit Health Batesville in Batesville, Mississippi. We now expect the Clarksdale, Mississippi hospital to close in the second quarter of 2017. In addition to the 11 hospitals that recently closed on May 2 (07

[Tim L. Hingtgen:]

Thank you, Wayne. I think we had a good first quarter, and we are off to a good start for 2017. As I think about the remainder of 2017, I see a number of areas of opportunity to drive improved financial performance across our core same-store hospitals and market. In terms of expenses, I'm highly focused on driving better same-store expense performance across the company. In the first quarter, we did a good job of managing SWB, both on a sequential basis and compared to full year 2016. As I mentioned before, we are continuing to work with local market leaders on matching the cost structure of each respective hospital with their hospital or network's revenue outlook. As part of this work, we are enhancing our labor analytics tool in our core hospitals. This work, coupled with our recent divisional changes that Wayne just talked about, will be helpful in driving incremental improvements moving forward. Finally, I would like to provide a quick update around our high-opportunity hospitals initiative. As I've mentioned in the past, we started this framework in the fourth quarter of last year, where we identified an initial 15 hospitals or three per division that have historically operated at a higher EBITDA margin but have experienced some EBITDA decline in 2016. For each hospital, we conducted an in-depth operational assessment, completed focused, strategic planning and layered on increased oversight to drive improved EBITDA performance. While we believe we are still in the early innings of this initiative for these 15 hospitals, we're seeing good progress with improved net revenue and EBITDA growth across the group. In summary, we are off to a good start for 2017, but I see a number of opportunities for better performance. I look forward to providing an update on our second quarter earnings call. Larry?

[W. Larry Cash:]

Thank you, Tim. As you're aware, we had a difficult consolidated comp in the first quarter due to a few divestitures, which included Quorum, Las Vegas, and sale of our majority interest in Home Health division. We also had one fewer business day from the impact of leap day. That said, adjusted EBITDA of $527 million was in line with our expectations. And now let's go through results for the first quarter. As a reminder, calculations discussed exclude those items noted earlier. On a same-store basis, first quarter of 2017 versus 2016, net revenue grew $32 million or 0.7%, and this was comprised of a 2.1% increase in net revenue per adjusted admission and a 1.4% decrease in volume per adjusted admissions. Our in-patient admissions declined 1.5%. Declines were in the areas of readmission and OB related. Our ER visits were down 0.2% and our surgeries were down 1.8% and we had very little flu impact on our adjusted admissions. As a reminder, leap day was a difficult comp during the first quarter. If we adjust for the impact from leap day on a year-over-year basis, we estimate same-store admissions, adjusted admissions and surgeries, were all approximately flat during the first quarter while ER admissions were up by 1%. In the first quarter, we recognized British Petroleum revenue settlement of approximately $15 million. This settlement offset the volume and EBITDA decline from severe weather in the Northeast of $3 million and an unanticipated drop in EBITDA of $12 million from two divestitures that are not closed as quickly as anticipated. We received a small BP settlement of about $3 million last quarter, and we expect some additional payments in the next three quarters. I'll describe a few same-store trends between our former HMA facilities and the legacy CHS facilities for the first quarter compared to 2016. The former HMA facilities experienced a 1.7% decrease in admissions compares to 1.4% in legacy and 1.7% decrease in adjusted admissions; compares to 1.2% in the legacy, a decrease in surgery cases at 3.7%, while legacy experienced a 0.9% decline. A decrease in net revenue of 0.7%, while legacy is up 1.5%. We're continuing to see some favorable growth for some of our HMA hospitals and a turn for HMA portfolio, HMA first quarter performance compared to the fourth quarter of calendar 2016 was improved for net revenues, admissions, adjusted admissions, even without adjusting for an impact of leap day. It's worth noting that approximately 20% of the HMA hospitals were called out last quarter, so drag on the business improved in the first quarter at least 20%, account for 65% of the admissions and surgery declines in the first quarter, which is down at 90% of decline in admissions for all of 2016. Our net outpatient revenue before provision for bad debts currently represents 56% of our revenue. Our consolidated revenue payer mix for the first quarter of 2017 compared to first quarter 2016, our managed care however increased to 140 basis points, Medicare decreased 130 basis points, Medicaid was flat and self-pay decreased 10 basis points. Consolidated charity, self-pay discounts plus bad debt expense for the three months comparative periods has increased from 25% to 27.1% of adjusted net revenue, a 210-basis-point increase. Same-store increased from 26% to 27.3%, a 130-basis-point increase. We increased our self-pay discount percent earlier in 2017 than we increased it in the first quarter of 2016. For same-store expense items in the first quarter compared to the first quarter of 2016, our salaries and benefits as a percent of net operating revenue for same-store increased approximately 30 basis points. Supplies expense as a percentage of net operating revenue was flat. Increased implant costs will offset our savings in other supply areas. Our other operating expense as a percent of net revenue for the same-store increased 90 basis points. The increases in the first quarter of 2017 versus the first quarter of 2016 were driven by higher medical specialist fees, business taxes and information systems. Looking at our same-store expenses in the first quarter compared to calendar 2016, our salaries and benefits as a percentage of net operating revenue decreased approximately 60 basis points, owing to the better expense management that Tim referred to. Supplies expense as a percentage of net operating revenue for same-store was up 20 basis points primarily from an increased implant expense. Our cash flows from operations were $242 million for the first quarter of 2017. This compares to $294 million in the first quarter of 2016. Cash flows from operations declined year-over-year due to following items

[Wayne T. Smith:]

Thanks, Larry. Before we open up for questions, I just want to publicly acknowledge and express my appreciation to Larry. All of you all know Larry is retiring this month. He's been not only a significant contributor to Community Health Systems, but professionally I know he has been very helpful to a number of you all. So we appreciate everything you've done for us, Larry. All of us do, and thank you very much for your contribution to this industry.

[W. Larry Cash:]

Thank you, Wayne.

[Wayne T. Smith:]

At this point, operator, we are ready to open up for questions. We will limit everyone to one question. So several of you can have time on this call, but as always we're available to talk to you and you can reach us at 615-465-7000.

[Operator:]

Your first question is from A.J. Rice from UBS.

[A.J. Rice:]

Hello, everybody. And, Larry, I want to echo those best wishes to you in retirement, and I wish you the best. On the question side, I guess there's two parts to it – to my single question. The commercial business stepped up as a percentage of 140 basis points year-to-year and you also had a pickup at HMA. I wonder, are you attributing either of those to a stronger economy either nationally or in Florida, or are these mostly your initiatives or as you drill down, any thoughts on those two dynamics, improved commercial performance and improved performance at HMA in terms of volumes and all?

[W. Larry Cash:]

First of all, thanks, A.J. The consolidated – I said, consolidated is up 140 basis points, it's less than that, probably 50 basis points, because of the – we had Quorum in last year, and Quorum's gone. But I think we are seeing pretty good employment growth and we are seeing a pretty good result especially on the outpatient side from Managed Care getting for the most part good prices, and I think we do have in our Managed Care, a little bit of Medicare Advantage, so there's a little bit of movement from Medicare to that. But I think we're pretty pleased that we're still seeing some same-store Managed Care growth accept our pricing, 2.1% which is pretty good for us, compared to last year we were under 2%. So that's a good movement, especially the fact that the surgeries didn't go up. We also are starting to see a little bit higher intensity in our surgeries, a little bit higher percentage of our surgeries have implants, which drives a bit better acuity, and our case mix improved on our Managed Care business, which was helpful, so all that together. But I think (27

[A.J. Rice:]

Okay. And anything on HMA specifically?

[W. Larry Cash:]

HMA is a little bit better in Florida. We've done some good contracting in the Managed Care side there, and I think the Florida has improved some, which is probably helpful to the overall Managed Care in Florida, because most of our hospitals in Florida are HMA hospitals.

[A.J. Rice:]

Right. Of course. Okay. Thanks a lot.

[Operator:]

The next question is from Gary Lieberman from Wells Fargo.

[Gary Lieberman:]

Good morning. Thanks for taking the questions. Larry, thanks for all the help over the years, and congratulations on a very well-deserved retirement.

[W. Larry Cash:]

Thanks.

[Gary Lieberman:]

As you guys go forward, you've now had two pretty good quarters after a rough patch. Looks like the acquisitions or rather the divestiture pace may be slowing down a little bit. I guess, can you talk about how you may be refocusing your efforts on working to improve the operation of the remaining hospitals?

[Wayne T. Smith:]

Yeah. You're right that we've been working very hard on divestitures, but we also have been making a lot of progress on our operations. But there is a lot of opportunity left. We should see more improvements in the latter part of the year based on the initiatives we have in place now. But as I've said this a number of times on calls, we're a better company today than we were yesterday or last year, and we're continuing to improve our skill level, believe it or not, in terms of our operations. So our focus now going forward will be operations oriented. We're about finished with our divestiture process, this 30 just about lines it up. There may be one or two more, but we're not specifically thinking about doing anything significant for the rest of the year. So I think we're on the right track, and I think we'll continue to make improvements.

[W. Larry Cash:]

Gary, looking back, a year ago in the second quarter, we were down a little over 20%. So like I did that reconciliation of what you own and don't own, and HITECH and things of that nature, we are probably down more like 15% in the third quarter of 2016, and under 10% in the fourth quarter and we're basically flat for the first quarter. So we've made pretty good progress, but I think there is a lot of, as Wayne said, a lot of good progress especially in second half of the year, to follow initiatives that everyone, that Tim talked about and everyone else has got going on.

[Tim L. Hingtgen:]

And as we conclude these divestitures, obviously our margins get better, our cash flow and broadly everything improves. But then is a real opportunity for us to enhance our margins going forward and that's where the big opportunity this year we think for the future.

[Gary Lieberman:]

Great. Thanks a lot.

[Operator:]

The next question is from Brian Tanquilut from Jefferies.

[Brian Gil Tanquilut:]

Hey. Good morning, guys. And Larry, thanks again for all the help over the years and congrats. So two-part question for me. Wayne, just to follow-up on that comment that you just made so, if you guys are thinking that we're pretty much done with the divestitures for this year, how are you thinking about longer-term leverage and then all the debt maturities coming up again in 2019? And then tying that with, I think, there was one slide deck or a slide that you put up earlier this year showing the profile of your hospitals in terms of how competitive the markets are and their market positioning and I think there were four different buckets. So how do you put all that together as you think about kind of like concluding the divestiture strategy at least for the time being?

[Wayne T. Smith:]

Yeah, as you might expect divestitures have been a significant diversion for us in terms of working through all the process, dealing with all the issues related to the divestitures. So that in itself will open a lot of time for us to work on other issues. So, once you kind of get through this, the margin, I think there is a slide somewhere that shows you what the margin goes to, it goes to almost 13%. And that's just with the things – that's basically just the opportunity here in terms of reduction in number of facilities. So our opportunity going forward is and Tim's got all these initiatives which we won't go into all the detail about them, but we have a huge number of initiatives going on that we think will be very helpful. As we said all along, the strategy here now going forward is sustainable markets. As Larry mentioned, we're getting a little growth in our markets now, sustainable hospitals and sustainable markets. There is no question, if we can improve our margins going forward, it helps us in terms of debt reduction as well. So I think we're on the right track, and I don't know, Larry or Tim. Either one of you want to add to that?

[Tim L. Hingtgen:]

Yeah. I might just add. If you go back a year ago around this time we did the spin, that's 38 hospitals, of which we got these 30 hospitals. So I think when you talk about sort of being done, we're done for 2017, there may be something else coming along. But nothing sitting here in May, you're not going to start working on something that's probably going to get done by the end of the year. But if you're interested to look at taxes, there might be some divestitures in the future, but not affecting 2017. If you look at the debt-to-EBITDA probably at the end of the year pro forma for the divestitures in the same way, we'll be somewhere in the mid-6s, maybe a little less on that on debt-to-EBITDA. And probably in 2018, we'll probably hope, we'd expect to be somewhere below 6%, so. And I think that put us in a better position. As far as maturities, we got rid of all of 2018 maturities. We've got some January of 2019 maturities which we'll be thinking about and the next maturities is after that or December of 2019, and I think, we'll be well positioned a year from now or maybe even sooner to address those maturities.

[Wayne T. Smith:]

So, this other thing, I've said this a couple of times at conferences that if the right opportunity were to come along in some of our larger markets, larger facilities and we got 12 times, which we're getting currently with our single digit margin facilities. Just because of the size of our debt, we may take advantage of that opportunity when it's all said and done.

[Brian Gil Tanquilut:]

I appreciate. Thanks again, guys.

[Operator:]

The next question is from Joshua Raskin from Barclays.

[Joshua Raskin:]

Thanks. I'll echo the comments. Thanks for Larry as well. My question is on payer mix. You guys are improving in payer mix, commercial, I think, is at 140 basis points. And I guess, maybe help us understand how that fits relative to some of the other hospital companies that we're seeing, and what do you think the major differences are, for community, why are you guys seeing that benefit relative to some of the others?

[Wayne T. Smith:]

Yeah. Josh, so 140 basis points is consolidated, it's probably more like 50 basis points same-store, which I don't know everybody else's numbers, but clearly not having Quorum in the first quarter, compared to a year ago, helped that. One of the things we're doing when we have divestitures, we're improving our payer mix, the 30 hospitals we've got going now, when they're going that are pushed to payer mix backup, and help the payer activity. We're seeing a little bit of movement from Medicare to Medicare Managed Care, which we put in Managed Care. I think you do a pretty good analysis about the enrollment (35

[Joshua Raskin:]

Okay. And then, just...

[Tim L. Hingtgen:]

(35

[Joshua Raskin:]

Got it. Got it. That makes sense. And then, just on the 12 multiple, obviously, now that seems as very attractive especially relative to where you guys are trading or any of the public trade companies are trading. Is that more reflective you think of the EBITDA margin opportunity for the buyers or do you think there is a general disconnect between public and private markets in that even for higher margin hospitals you think you could get higher multiples?

[Wayne T. Smith:]

One of the things is that, we've attracted a lot of strategic buyers, who have opportunities in and around their markets. Generally speaking, I think that's one of the reasons that people are interested in. And by and large these are opportunistic properties, I mean, we think they are good properties going forward and so, by us going from 200 to 100 and whatever it is, gives us a lot more focus on this. But probably, we've spread our wings a little too far to start with, but this is a great opportunity I think for them and for us and as evidenced by people paying 12 times for these properties with single-digit margins. They obviously think they can improve the margin.

[Joshua Raskin:]

Right.

[Tim L. Hingtgen:]

I'll just add. We sort of manage this internally. The people who used to do acquisitions, we had one new person join Harry (36

[Joshua Raskin:]

Okay. Thanks, guys.

[Operator:]

The next question is from Chris Rigg from Deutsche Bank.

[Chris Rigg:]

Hi. Good morning to all. Echo all the previous comments, Larry. (37

[Wayne T. Smith:]

I think we will continue to look for M&A – for opportunities to expand our footprint. Most importantly now we believe and look, it doesn't exclude us from buying a hospital. But I think, what we are trying to do now is to look at our footprint and look at some of the markets where we've got significant presence and even in the markets where we are the sole provider, expand our footprint in terms of obviously in outpatient, diagnostics, freestanding EDs, freestanding urgent care centers, all of the above, all those should be accretive as we go forward. I think the objective here is now, is to how we enhance the patient experience and how (38

[Chris Rigg:]

Thanks a lot.

[Operator:]

The next question is from Ralph Giacobbe from Citi.

[Ralph Giacobbe:]

Thanks. Also I want to echo best wishes to you, Larry. Appreciate the help over the years. Just in terms of – you guys mentioned better same-facility sort of expense performance and certainly saw good improvement on the labor side. I guess, the question is what do you expect controllable operating expense per adjusted admissions to grow, sort of, sustainably over time? And then when you brought down the divisions five to four, can you give us a sense at all of magnitude of how much savings that could drive? Thanks.

[W. Larry Cash:]

Well, we could have grown revenue for adjusted admission 2% to 3%, I expect our expenses to be less than that. We had a better first quarter here than we did in the preceding quarters. We still got some opportunities, especially in the labor line. I think the supply line there is lot of efforts there in our strategic sourcing. We're doing a lot of consolidation in and around our payables, and trying to have a common master index for buying a lot of efforts around physician practices, which will help us in the second half of the year a lot. The one category, medical specialist fees, is something we've got to work a little bit more on. That's growing more – it's probably the fastest-growing line we've got. We've got a lot of thoughts on how to do that better from that perspective. So I'd say if the revenue per adjusted admission's is going to grow 2% to 3%, we'd want to be more like 1.5% to 2% on the expenses.

[Wayne T. Smith:]

Larry, you might comment on the shared service approach as well.

[W. Larry Cash:]

Yeah. And Wayne just said that we've now got six service centers. We've moved over 90% of our hospitals into the shared service centers. We've started to see a little bit of benefit of that. I think our receivables performance was a bit better here, a lot of it last year. So we've been doing a lot of conversions, which have affected it. We've also got a consolidated effort around Health Information Management. They're operating at a lower cost today than they were before. We're doing consolidated payroll we did a few years ago, getting a lot more analytical information, which Tim talked about. And then the one that's still underway, which is investment of the monies in centralized payable, and tied with that is some purchasing information. So all those are embedded into the plan to do better, and they're all pretty much on target. We did also work on our health benefits. We've made some changes in our claims administrator and also made some changes in our drugs, which will help us for the year. But you're right about the comment. We've got to recognize that the revenue per unit may be 2% to 3%. We got to operate more effectively trying to keep the costs under that, which we didn't do the mid part of 2016 and we did better in the fourth quarter and better in the first quarter.

[Ralph Giacobbe:]

Helpful. Thank you.

[Operator:]

The next question is from Ana Gupte from Leerink Partners.

[Ana A. Gupte:]

Yeah. Thanks for taking the questions. So congrats, Larry, as well and thank you so much for all your support. Wanted to go back to guidance, again. This is second quarter you've reiterated guidance and I don't think I saw a waterfall as you normally have. So as you're thinking about the puts and takes and the upside and downside risk, can you talk about the line items, and are they more volume related and physician productivity related to the upside relative to on the expense line, either docs or other supply and group purchasing, session fees, and the like?

[W. Larry Cash:]

Yeah. If you go back to what we did, we did a midpoint reconciliation of 2016 to the midpoint of 2017. There's not much change there. The divestiture is $110 million. We're probably going to have another $100 million come out on divestitures, maybe a little bit less than that based on timing. We got a little bit of acquisition pickup from the La Porte, Fayette (42

[Ana A. Gupte:]

Got it. Okay. Thank you. One follow-up. You and one of your peers earlier today also seemed very bullish on Medicare volumes, particularly also on the managed Medicare side. Is this more just the baseline was low or is something else changing in terms of their prior auth or practices?

[W. Larry Cash:]

Well, I think the companies you're talking about work pretty hard and have pretty good managed care relationships, and I think our managed care area's done a pretty good job getting us most of our contracts. So I do think we do participate in a lot of the managed care contracts with the major managed care companies, which makes us a little bullish competing against maybe some of our competitors.

[Ana A. Gupte:]

Got it. Okay. Thanks, Larry.

[Operator:]

The last question is from Kevin Fischbeck from Bank of America Merrill Lynch.

[Kevin Mark Fischbeck:]

Great. Thanks, and thank you, Larry, for all your help over the years. I guess I just wanted to maybe follow up on that last point that you made about the volume number, and I can appreciate that without leap year you're talking about basically flattish volumes for Q1. But to get to the midpoint of that guidance for the year, is there anything that you would point to that kind of says the back half of the year should be closer to 1% than to flat?

[W. Larry Cash:]

Yeah. I'd say our psych business is doing better. We've internalized that. We've done a much better job in getting some of our psych business. Our orthopedic business, which is one of the specialists we're recruiting for, Dr. Simons, (45

[Kevin Mark Fischbeck:]

And then when you look at the portfolio of core community versus HMA, do you expect a disproportionate amount of that volume improvement to come from either one of those buckets?

[W. Larry Cash:]

We're starting to see the narrowing of the gap. We've not narrowed the gap enough on surgery, so there is a lot of work Tim's got underway to get the surgery business up. And I'd say other than surgeries, I'd say they'd be pretty comparable both for admissions and adjusted admissions. We have not quite got the surgeries for the HMA hospital, some of which are in the divestiture category that we've announced, but I'd say other than surgeries, it'd be pretty much throughout the company.

[Kevin Mark Fischbeck:]

Okay. All right. Thanks.

[Operator:]

I will now turn the call over to Mr. Smith for closing comments.

[Wayne T. Smith:]

Thank you again for spending time with us this morning. We're very focused on our strategies we have outlined over the past several quarters. We want to specifically thank our management team and staff, hospital chief executive officers, hospital chief financial officers and chief nursing officers, division operators for their continued focus on operating performance. And again, a special thanks to Larry and a wish for a happy retirement. This concludes our call today. We look forward to updating you on all of our progress through the year. Once again, if you have any questions, you can always reach us at area code 615-465-7000.

[Operator:]

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