QHC
#It is based on a calculation.
For example, this particular period was based on the base year of 2013 compared to a previous year of 2010.
So it is just based on that estimate at this point in time and that was the information that we receive from the California Hospital Association.
We are looking into that to make sure that allocation is correct.
And just to clarify it, it would take the allocation from $34 million in 2016 to $21 million in 2017 going forward for the next three years.
One, we don't give any cadence of based on the volume trends is point in time and it is a little early right now; we are still in the process of closing the books.
So at this point in time we would not be giving any information on 2017.
But there was a little bit more of a flu that we saw in the first quarter than we did see in the fourth quarter.
So we would say that.
And just in addition to that, I think our physician recruitment activities have really been very successful associated with it.
We had 75 providers start in the fourth quarter 2016 and first quarter of 2017, that is 75 commencements of providers who are actually seeing patients.
We anticipate that would have an effect going forward.
As we look forward to our future growth ---+ and I think we identified when we first came out that it would take us about 18 months on these first eight hospitals and we are ahead of track on those.
We are looking at additional assets to make sure that our debt structure is aligned and that is why we are looking at a few additional hospitals associated with that.
As we go forward, every day we work on volume growth, we work on expanding services.
One of the key areas I think we identified was we are generally in underserved areas.
And so, we have been focusing on recruiting doctors for these underserved areas because in our hospitals one doctor makes a big difference associated with it.
And we had identified in the specialty areas that we were underserved in regard to orthopedics, general surgery, gastroenterology and cardiology.
We recruited 19 of those providers in 2016, which makes a big impact.
We have focused on our intensity of services ---+ we were able to take our Medicare case mix in the fourth quarter of 2016 and move it above 1.4, which was our goal for the year was to get that case mix up which represents the intensity.
And part of that is opening up four ICUs in our hospitals that were closed down so that we could take care of the sicker patients.
So, we will continue to re-focus our hospitals toward what are the opportunities in the community, what are the growth opportunities, where are the specialty needs and grow the intensity of the patients that we take care of as well as having the providers take care of the patients that are coming to our emergency room.
So we will continue to do that.
And we think there is great opportunity associated with that.
<UNK>, right now, based on what we have under letters of intent, we are probably somewhere in about 20% to 25% of that number.
Some of the additional hospitals that we have included are some larger hospitals that would make up a larger bulk of the number.
Well, when you are in a collection agency a lot of those are time payments, things that will take place.
So it will be over a longer period of time.
But based on everything that we've seen and reviewed we believe we are very comfortable with the net realizable value there.
No, we would really like to wait until we close out the books and records.
Because, as you know, a lot of things like, for example, adjusted admissions is based on your gross inpatient/gross outpatient revenue.
And as we are going through all those cycles now with the closing of the books, all that will be impacted by that.
So we just want to stay away from first quarter at this point in time.
It is the cumulative roll up.
So ---+ and remember that all started I think roughly I want to say around 2010.
So as you were getting like ---+ for example, all of those cuts kept cutting into the wage index, etc.
So yes, that is a cumulative number rollup of all of those cuts that have taken place.
Yes, <UNK>, there were.
Some of the add backs that were included in there, for example, is roughly about ---+ I want to say about $5.1 million to $5.4 million per quarter to get credit for not being able to accrue the California provider program.
So that was part of it.
In addition, another item that was an add back was for the hospitals that are losing money we had put in approximately a number of about nine hospitals that were looking to divest and we estimated those losses, those are also an add back that is taking place.
And then also some savings as we bring in the billing offices, but those numbers are basically minor.
Then we also adjusted for the net senior secured leverage ratio, it steps down ---+ technically it was stepping down to 4.25 ---+ well, at the beginning of Q3 and we moved that up to give us a little bit more room and time to sell these facilities.
That is correct.
And under the new agreement it would give us that add back during the quarters.
However, you would then adjust that back to 103 ---+ section 103 of the credit agreement to make the adjustment for whatever actually occurred for those facilities once we sell those.
Yes, what would take place is ---+ let's just use an example and say that the estimate is $1 million a quarter, so let's just go with that.
And so, we would have that $4 million.
But then let's say what actually happens once the hospital is sold that the number is either $3 million or $5 million.
You (multiple speakers) adjust to that number and reverse out the old number.
I would say it is probably getting to be a little bit more current.
There was some of it that was old but some of it is the denials.
We started seeing a growth in commercial or I should say managed-care.
And as we were digging into it we were noticing some higher denial factors that are taking place.
We haven't technically given up on all of that, we are still working on old denials and trying to improve that whole entire process.
But again, part of that was basically what we were seeing some of the stuff currently.
No, we are assuming the higher denial rate.
So going forward we will be adjusting to that, but at the same time we are extremely ---+ we brought in a separate group of people that are helping with the denials so that we can try to keep those at bay.
But at the same time we are using a higher denial factor until we see debt improve.
Several of them lost money in the ---+ one definitely lost throughout the entire 2016.
A couple of them lost in the fourth quarter but were low margin for the full year.
Does that make sense.
I think one of the things to really take a look at is when you take a look there is a pattern there when you go through it.
Don't forget in the third quarter ---+ and if I am going off the reservation here bring me back in.
But if you look in the third quarter, don't forget, one of the unusual items, don't forget, is we sold the tax credits in Illinois for about $8 million, we had the New Mexico gross receipts tax of $2.3 million.
So that lowered the taxes and licenses line item for that particular quarter.
Now going forward we will continue to get that $8 million from Illinois.
So that will still come in in the third quarter.
In addition, what we did is point out that we will not be able to record the California, so all of that will accrue ---+ if it all comes in, which we believe it will with CMS, it will come in in the fourth quarter.
I do want to state something very interesting here though, even though that number is $21 million, remember California is usually running about 15 to 18 months behind in their payment.
So technically that amount doesn't impact our cash flow, it actually is really bizarre.
We expect in the third or fourth quarter to get $33 million in cash from California that related to prior year programs.
So even though the number is $21 million the cash coming in for 2017 is actually higher if that makes any sense.
So, and then again don't forget in your volumes ---+ and again I don't want to talk about the first quarter.
But let's remember February 29 ---+ you had a leap year last year.
So you did have that one year, and I'm talking off the top of my head.
I thought that accounted for about 3% but I could be wrong.
But again, as <UNK> has mentioned, we brought on quite a lot of physicians, we are seeing some good things in that area.
And I will probably just leave it at that if that makes any sense.
Did I answer your question.
<UNK>, <UNK>, are you still there.
Nobody else is in the queue, so if you have another question or two.
Yes, <UNK>, I would tell you that, perhaps as we had the opportunity to announce what the first quarter was, you will see ---+ you could possibly see the impact of recruitment associated with that.
But I think that what we have always felt like is we are seeing patients in our emergency room and we are transferring them out to other facilities.
One of our hospitals was transferring 60 patients a month out to another facility.
And we had nothing close by to keep them and we had no specialists that we could hold them in our communities.
We believe that is where our great opportunity is.
I think as you look at our primary service area ---+ and again, 80% some of our hospitals are sole community hospitals in their individual primary area.
Our market share is only around 33% in our primary service area.
What a great opportunity for us to bring an orthopedist into the community, introduce them to every doctor, introduce them in the community to have an impact.
In many of our hospitals one doctor makes tremendous impact associated with it.
And we have 75 doctors who have commenced practices in the fourth quarter and in the first quarter of 2017.
We do believe that the startup associated with these patients, since they don't have competitors, they are not competing against a group of 20 orthopedists in a community, they are the orthopedist.
And it is a different situation than you would see in many of our markets.
It is not.
It is just ---+ we have committed about $98 million I think in 2016, although cash flow we show about $80 million-$88 million.
We are lowering that number down in the $70 million range associated with that and that is just a belief of us being fiscally responsible.
I mean, we have to be fiscally responsible for the cash flow that we bring in.
Our goal, <UNK>, I think we told you, we were positive cash flow at the end of 2016.
Our goal is to continue to have a positive cash flow for our Company.
We think that is vital.
And our spend on capital needs to reflect what the cash flow is for our Company.
Basically what we did is on the lower end, the $150 million to $170 million, actually includes the facilities to be divested for the period of time from January 1 to the point in time that we believe they will be sold, our estimate based on what they will be sold.
The $170 million to $200 million is the add back for the period of time for those losses.
So, when we went and looked at it looking at the run rate, similar to what you did, depending on how you look at it you would have to ---+ because Q3 would have had the $8 million in it, we have the add back relating to the $8 million.
Depending on how you do the run rate you would also have the adjustment relating to the California provider program.
And so, that is how we came up with that range of numbers just making sure from that regard.
And then adding back any positive that we had, any changes we are doing with cost-saving measures and then also for the positive on the revenue side.
<UNK>, I would say that is a combination.
We still get ---+ we will get individuals out of the military who are more seasoned, we'll get new graduates who want to start up their own practice associated with it.
So I wouldn't tell you there is any one consistency between those two; I think it is variable.
I can only speak to our results.
We are up 23% in physician commencements from 2015 to 2016.
We have hit new records in regard to fourth quarter and first quarter 2017 in regard to what we have recruited.
And so, I think from our standpoint anything could change (multiple speakers).
<UNK>, those are gross numbers; it is very difficult for us to get to the net numbers.
Mike, I don't know if you have any specific numbers associated with that.
We are not seeing ---+ we've worked very diligently with our doctors to try to reengage them in our facilities.
We still have doctors who leave for whatever reasons, whether it is health or retirement associated with that.
But we are seeing positive growth associated in these categories.
It is, yes.
Absolutely.
I think, <UNK>, the big thing to look at there is we would probably be normal within our peer group.
But remember, with the number of divestitures we have, it just doesn't make a whole lot of sense to be investing in potentially facilities that we are getting very close to selling from that regard.
Now we are not going to shortchange quality by any stretch of the imagination, but we have to be frugal also in what we are doing.
That would be right.
<UNK>, we had announced that we had a letter of intent to purchase that.
We are still working with that hospital to look at our relationship and how it might change.
The hospital has changed a little bit over its time and so we are still looking at how we can have a positive relationship with it even if it is not a full acquisition.
Let me throw something out there.
We talked about these facilities, these facilities that we are talking about that we have sold and will be selling range anywhere from about $33 million to $38 million in negative EBITDA.
And then when you tack on the CapEx associated with it, throw in another $15 million, you are throwing out a whole lot of negative cash flow just in those facilities.
And so, I hear what you are saying from the standpoint ---+ and I will let <UNK> follow up with that.
But the first and foremost thing we have got to do is get and really concentrate on the hospitals that are doing very, very well, that are very profitable, have a lot of potential to grow.
And take those that are draining us of the cash and getting those off.
So, I think with that (multiple speakers).
Yes and I will just add, <UNK>, our priority ---+ and we have not been shy in saying this and we are absolutely committed to this ---+ is to right size our assets, right size our portfolio to be able to build upon.
And we have to do that first, that is our number one priority and we are still focused on that.
We are just completing ---+ coming close to completing our first year of operation.
And our goal was to get our assets in line and we are still focused on that.
And, Mike is right, we are showing about $15 million, maybe $20 million less than last year, but a lot of that has to do with not spending money on hospitals that are for sale.
And we are still investing where we need to invest to make sure they are a safe facility.
But you don't do the growth opportunities.
My goal is never to miss an opportunity for growth.
<UNK> let me just ---+ yes, I think it is fair.
Let me remind you first of all we are part of HealthTrust Purchasing Group's [pharma] supply expenses, we get the value.
And that tends to be 17% to 18% of our overall cost associated with it.
So we get the value of companies like ACA with the same purchasing price.
So it is a great value that we have.
Wages, wages are unique to every market.
There is no national I am going to save money because I am larger or smaller; it is unique to every single market.
And we believe we are competitive but we are also fiscally responsible.
And we are going to stay fiscally responsible associated with that.
And I believe that, yes, by having the right assets that allow us a strong base we will be able to grow both at our current hospitals and as we go forward in the future.
Thanks, <UNK>.
Yes, I think part of that is ---+ and I thought that meant the three, but maybe it was the two, but I thought it was the three.
The other part of that related to as the receivables are being collected, and again that takes a longer period of time.
So at that point in time we had included also the amount that we would get potentially from the receivables, that is the difference and that process is still ongoing.
Kelly, thank you again.
I want to thank all of you for being on the call and your interest in Quorum Health.
We do believe we have a great story to tell, we believe we have great associates working for us.
We believe we have engaged our doctors going forward.
And we believe as we execute our strategy that we will be a successful Company going forward.
So we thank you for your time.
Thank you, Kelly.
