LPNT
#On the first one, I think that's fair with the exception of certain of those expenses ran into the month of July.
So we do have a full recovery of it in the fourth quarter and a large piece of it in the third quarter.
And on the $10 million, there are still some residual locum tenens costs that continue to flow through.
Those costs associated with the disruption that flow through, that more fully recover as we get into the fourth quarter.
So we've accounted for those in our updated guidance number, but the lion's share of the disruption associated with what actually occurred in leadership changes and the rest of it was done at the end of the second quarter and will be essentially out of the market as we move forward.
A.
J.
, this is <UNK>.
So this is a hospital that we have partnered with several years ago, so it's outside of the last couple of years, I think was referenced in your question.
So we have owned and operated this hospital for a number of years, and I'm really proud of the work that's happened there and the improvement in the operating performance of that hospital through the integration process.
So this is a hospital that we were able to bring into the organization and see margins improve very consistently with how <UNK> and <UNK> layout the margin progression into the mid-double digits.
And so, we run a very good track.
And as we ---+ operating performance is one thing, but as we continue to implement and set higher expectations from a quality standpoint and implement our quality agenda, it created just an unsettling feeling among certain members of the medical community.
So, really two things happened, and they started happening in the first quarter, but it was largely masked because of just the seasonal volume fluctuations that we see in the first quarter.
But this really started to show up in the first quarter.
But we made a decision, as <UNK> laid out, to part ways with the physician leader, and we knew that had short-term implications.
We knew it was going to have one-time significant operating cost, and we understood those implications to better position the hospital into the future.
And that service line today is covered by an expensive locums physician as we search for a replacement.
Well, that uncertainty created an unsettled feeling among other members of the medical staff and other specialties.
And whether ---+ behavioral health is one, urology, GI.
As some physicians left, either completely left the market or relatively new physicians over the last few years that didn't see the compelling long-term vision that needed to be created, they left.
That caused some minor, but some volume disruptions, but mostly backfilling with expensive costs.
So we are in the process of bringing permanent physicians back in.
That created employee turnover as well.
So all those one-time costs that <UNK> laid out were there.
Were there lessons learned.
I think there are some lessons learned just around how we communicate, transparency, and bringing the medical community along through this journey in our quality program.
So we made some changes to our management team as well as a result of it.
I'm really excited about the individual that we have joining us.
He is one of our high-performing CEOs from within the organization.
We have worked with him closely over the last several years and he is getting ready to hit the ground up there, and I know he will bring the energy and the vision to the market that they need.
It's a great market.
Volumes have been (multiple speakers).
Well, A.
J.
, we are absolutely confident in the strategies that we have in place to drive growth and achieve value for our stockholders.
We are uniquely positioned to be able to drive quality improvement in hospitals and to drive growth for our shareholders.
Now, all that said, we always consider it our obligation to look at everything and to achieve a return for our stockholders on their investment.
So, as we look at that, we, I assure you, consider everything.
But this is a company that is performing well across the vast majority of its hospitals, of our hospitals, and it's masked this quarter by the single hospital, really, that we have described.
And I think <UNK> did a very good job of describing our approach to that.
So, we have confidence that these issues are behind us.
We've described the issues.
We've explained their impact and our solution.
And I will tell you, going back to your question a moment ago to <UNK>, lessons learned, here is a lesson I learned.
At a base level, it's about leadership.
It's about leadership in this hospital.
And we made a strategic decision to make the changes that we've made, and that's been done.
And I have every confidence in the fellow that we have asked to come to this hospital.
I am absolutely certain he is going to energize this hospital.
And he is going to build stronger relationships with doctors and enhance patient care and drive stronger financial results for our stockholders, and that this hospital will be back on track by the end of the year.
It's not one group.
We employ a large group of physicians up there, so some of these were in our employee medical group.
They were more specialty related in different specialties, so it wasn't a large group that left.
That's why we were able to quickly recover some of the volumes and just replace those doctors with some ---+ with locums to come into cover while we search for a more permanent replacement.
Yes, some of it is our choice.
It has been in the works for the first half of 2016.
As I said, it really manifested itself as we moved into the second quarter.
It has nothing to do, as <UNK> pointed out, with the cardiology issue.
It has everything to do with expectations that we have through our quality program around collaboration, behaviors, relationships, etc.
So it was a decision that we made that in the best interest of that service line throughout the community, that change was going to be necessary to advance the quality agenda, improve care in the community, and the cohesiveness of the medical staff.
And so, <UNK>'s choice of words there, collaboration and relationships, are really important.
That means also communication and transparency.
With the medical staff, with the employees in the hospital, with the community itself, in order to build those relationships, in order to allow this hospital to become, again, everything that it can be.
And that is why I said it boils down to leadership and setting the tone there.
And I have every confidence that that has been addressed and it will ---+ this will be old news before too long.
Without a doubt, that's still the trajectory.
As we look at the quarter and break it down into its components ---+ and we've had this headwind associated with meaningful use, which is 50 basis points.
We came into the year knowing that our acquisitions would be dilutive to margin; it's 160 basis points.
The core same-store, as I mentioned in the notes, was soft about 10 basis points.
And then we've got the 60 basis point issue on same-store that's associated with this one market.
So as we have evaluated, as we've communicated for the back half, we think all of our theses and assumptions are still intact.
As you probably culled out from my prepared remarks, the balance of our acquisitions are tracking very well and perfectly in accordance with what our expectations are.
So as we look ahead toward the integration of the transactions, as we look ahead to the margin expansion there, our expectation is that, consistent with our path acquisitions, we will meet our targets.
As <UNK> mentioned, this one disrupted market is an acquisition from several years ago, so it's not a part of the integration piece.
It's a part of trying to work through collaboration and relationship issues that have an expensive impact on the medical staff.
I think I used the word cautious when I talked about the back half and being flat.
As we look at what drove the adjusted admissions here in the first half, deliveries down 130 basis points; we did not see that one coming.
It's hard to predict.
We had better visibility on it coming in the first quarter, with deliveries also being down.
But as it relates to 2016, just something that there is nothing systemic.
There's nothing that's happening inside of the markets that would cause it.
Just something that is difficult to get our arms around.
When we look at this behavioral health piece and 80 basis points of the decline being in the admissions on behavioral health, that has become a difficult physician specialty for us to recruit to.
Where we have seen the disruption, we have commitments and we have physicians that are scheduled to start.
So as we look at the back half, we believe that we will be well-positioned to start seeing those volume disruptions subside and be able to predict a little bit better what we see in that service line.
But what we are seeing in our peers, what we are hearing in the market, and what we are challenged with on the recruiting side has caused us to be a bit cautious, particularly in that service line, around the impacts.
And then as we look at all the other factors in our markets being up 0.9%, that was not that far off of our expectation.
So I do think it's a cautious assumption in the back half, especially if we see a more normal flu season as compared to what we saw in 2015 for the comparison.
Keep in mind that we saw very little volume impact, so the coverage that we have across the service lines, while it did impact volumes a little bit, wasn't a big job for the entire organization.
So I would say less than 10 that we are talking about, spread out through multiple specialties that we have covered as we search for permanent replacements.
Of that amount that we talked about, half of it at least is just one-time in nature, and the other half will be with us as we go through Q3 and Q4, so that begins to minimize the number even more.
So clearly some of that has a revenue and an earnings impact from their volume, but some of it is the ongoing elevated cost as we fill those spots.
Well, one of the things that we have the opportunity to do, oftentimes as we move into a new market, is to conduct a deep, strategic plan of that hospital and to determine what opportunities exist.
And oftentimes, you're right: there are opportunities to make investments on the outpatient side of the business.
We are seeing that across our portfolio of hospitals, the legacy hospitals.
So, many times that has been an area that may have been where the resources haven't been there in order to allow those hospitals to take advantage of the opportunities.
We do see that routinely.
As you look at the portfolio of our business, in the second quarter, about 63% of our revenue was outpatient revenue.
So we are doing the lion's share of our work in the outpatient environment.
Now, from an asset base perspective, that doesn't mean we are duplicating infrastructure.
So we are performing the same outpatient procedures leveraging the infrastructure that we use for surgeries that are done for an inpatient admission.
So it just means that we may be doing an outpatient diagnostic procedure or an outpatient surgical encounter, etc.
Or even the emergency department, which is an outpatient experience where people go home as supposed to being admitted into one of our facilities.
But as <UNK> said, in these acquisitions that we are making, a lot of the service line opportunity is in these outpatient services, it's in growing the services that can be provided on an outpatient basis and keeping more patients close to home.
<UNK>, as you look at the first half, our adjusted admission volumes were down 0.9%.
So, moving from 0.9% to flat in the back half is essentially a thesis around how do deliveries look, how does ---+ how do things look as it relates to the psychiatric business and the things around behavioral health.
And so it should give you a little bit of the sense for our view on being able to replace the psychiatrist in one of our markets where we had the greatest degree of disruption.
So, pretty high visibility on that side of things.
And then we've also got things that are starting to move into our core business on the acquisition front that we believe will be solid contributors as more of this becomes part of same-store, and as more of this becomes ---+ is has time to show traction in terms of what's happening on the volume side.
So I do think that flat is cautious relative to the investments we have made, the success we have seen in physician recruiting so far this year, and the ability to backfill on some of these disruptions that we had not anticipated.
Well, if we assume that through the back half of the year here we are going to be operating the same hospitals, and so we think about margins sequentially, the disruption that we saw in this one market in and of itself will provide margin expansion as we get into the back half.
The movement in some of the costs that we incurred in the new store side is going to affect our consolidated margin as we look back through the back half, but not the same-store margin.
And then as I referenced the refresh on a lot of the pharma, the ortho, and the device costs, those dollars are going to translate to sequential improvements in our same-store margin across our whole book of business.
So if you look at the midpoint of the guidance from a margin perspective, sequentially, we are expecting to perform well as we get into the back half.
Yes, they have left the market.
That is very important for everybody to understand, that this is the only hospital in the primary service area, and for a long reach path the primary service area.
So they have left the market.
They will not create competitive threat.
That's why we haven't felt that much of a volume decline as a result of these departures, and what gives us a lot of confidence in our ability, even though it may be a little expensive in the short-term, to backfill those services.
It differs by specialty.
Some we have already filled and some in some very difficult recruits, like behavioral that <UNK> was talking about, may take more time, just given the supply/demand imbalance that we all know is out there.
So it could range from already done to into the first part of next year.
But by and large, the costs are winding down as we get through the end of 2016.
<UNK>, things like severance costs, though, are one and done.
<UNK>, this is <UNK>.
Things actually did improve as we looked through the three months into the month of June.
So I think that's a good indication.
It's one that we've looked closely at as we've evaluated what the back half of the year looks like.
As we look at the rest of the business, we've continued to remain disciplined around our hospital support center costs.
We've continued to remain disciplined around all of our operating, salary, wage and benefit costs.
When we look, as <UNK> said earlier, the vast majority of our hospitals are performing and outperforming on the expectation side; all very good indicators that have made us very disappointed that we had to deal with this one situation that really came up from an overall perspective, somewhat unanticipated.
The acquisitions are on track.
And when I think about the same-store business outside of the one market that we have spent time here talking about, the distribution of performance is very consistent, as we've seen in prior years, and in line with our expectations through the first half of the year.
Which gives us confidence as we move into the second half.
And let me throw out something that has been on my mind as we've discussed behavioral health a couple of times here today.
One of the things that we are looking at as well across many of our markets is the ability to utilize telemedicine in a differentiated way that will give us a chance.
And behavioral health issues are one of the places where we have seen a really positive impact that can be had.
So, while psychiatry remains a difficult recruit, as we have seen in a couple of markets and particularly this quarter, this is an area where technology may be able to help us in the future and I think allow patients to stay closer to home for care, and to do it in a cost-effective manner.
That's a very fair conclusion, and you will see that reflected as we look at the 10-Q, where the commercial next did improve on both the same-hospital and a consolidated basis.
And we saw the Medicaid percentage come down.
So, very much reflective of both the behavioral and the delivery side of our business in the period.
Actually, I don't think the election is having any impact on the considerations of Boards of Directors, Boards of Trustees across the country that are considering their options and considering partnering with LifePoint.
The thing that has impacted those considerations consistently has been the regulatory environment that is faced by community-based hospitals that are trying to get it right on their own.
So, the issues that we all face are really multiplied when you think about trying to do it on your own in a small community.
So we are having very meaningful and very good conversations in hospitals around the country, hospitals like Good Shepherd that we discussed this morning.
They're representative of the type and size of acquisitions that we have done recently, and ones that we expect to do in the future.
Great.
Thank you very much, and thanks to all of you for joining us for this call today.
As we wrap up, I want to reiterate that we are focused on delivering long-term shareholder value.
We are confident that we will continue to do this by remaining disciplined to our strategic priorities, which are delivering high-quality care and service to patients, growing both organically and through acquisitions, operating efficiently, and developing high-performing talent.
Our disciplined attention to these priorities has led us to success and will lead us to continued success in the future.
Thanks again to all of you for participating in our call and thank you for your interest in LifePoint Health.
