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Community Health Systems, Inc. (NYSE:CYH)

February 26, 2013 9:35 am ET

Executives

W. Larry Cash - Chief Financial Officer, Executive Vice President and Director

Analysts

Gary P. Taylor - Citigroup Inc, Research Division

Gary P. Taylor - Citigroup Inc, Research Division

It's a general acute care hospital, own operator, leads 135 hospitals in 29 states with over 20,000 beds, and over half of their market communities is a full community provider. We have Larry Cash, well known to most of you, I think, the Chief Financial Officer. We're going to do primarily fireside chat. Larry's going to run through a few slides at the beginning, and then we'll get into the Q&A.

W. Larry Cash

Thank you very much, Gary. First of all, I just want to read a brief component of this, not the whole thing. This presentation contains forward-looking statements, including all statements that do not relate solely to historical or current facts. These statements are subject to a number of known and unknown uncertainties, which are described in the Risk Factors on our 10-K and other reports to SEC. As a consequence, actual results may differ significantly from those expressed in forward-looking statements in today's presentation. We do not intend to update any of these forward-looking statements. Thank you.

I would consider ourselves a pretty experienced operator. We have revenue of $13 billion last year, up about 9.4%; EBITDA $1.977 billion, up about 7.7%. EPS, we even had a couple of adjustments, both good and bad, $3.33 to $3.52, up about 7% so...

We're ranked 198 in the Fortune 500, 135 hospitals. As Gary said, we've got a pretty consistent management team since 1997.

Last quarter, looking at same store, we were positive admissions, helped by the flu, hurt about women's services, so that was a first time in several quarters we've got positive same-store admissions. Year to date, we're down 90 basis points, and Adjusted admissions were up 2.3%, and the year to date was 1.5%. Our guidance for next year is 0.5% to 2% for the whole year, and then EBITDA -- revenue is up 5.5%, and year to date's 4.6%. So we're pretty pleased having about a revenue for adjusted admissions of about 3%.

Here's just a quick snapshot of our results. You'll see EBITDA -- revenues up 22% from locating [ph] our company and EBITDA up 20% so...

The map here, we got a lot of our business in the top 5 states. It's about 50% of our revenue, and actually, some of the contracting we've been -- we talked about exchange contract in example [ph] in a couple of states, right here at least for the regional players and you'll hear in a few minutes. But you'll see that our largest states, Pennsylvania and Texas, are about -- a little about 13% of our revenue in -- of the top 5 make about 50%. This helps us go against any Medicaid issues when they come up and we shouldn't have any state. Individually, it would cause us to have a miss for the whole year. Having us spread around also helps with some acquisitions. Actually, in our last 2 years of acquisitions, we've all been in 1 of the top 5 states.

We'll talk about what's probably the most important right now that's going on it's changes. I think the current estimate is about 2017, there's some 27 million people of about 50-some-odd million people who don't have insurance today will have it. That will help performance going forward.

Healthcare is growing about lower than 7%. Although recently, it's been about 4%. So it slowed down a little bit, and it's expected to grow probably 6% through 2020. A little operator challenges here.

Talking about quality a second. We'll just flip right down to the last chart. We had 50 hospitals that are recognized as top performers. Last year, it was 41. We also had what's -- improvement in the caterers where our hospitals are smaller than the national average within a recap of about [ph] 35 hospitals that went through joint commission last year.

Our physician equipment had a strong year. It's supervise focused. We recruited over 7,500 physicians in the last 5 years, and last year, it was over 2,100. Probably one of the statistics we're glad to see, that is our mid-level practitioners, nurse practitioners, physician assistants was about 250 a year ago. Now it's 700. And the cost of these is generally about half of what a physician is or less than half and as we grow in volume in '14 and '15 either from healthcare reform or the aging of population will help us take care of the patients. We have about 2,500 employed physicians.

We've done a really good job of improving our emergency room. We got about 55% of our business through that of over 3 million visits last year of 5.4% and 8% last quarter helped by the flu. And we had about 1 million callbacks where we call patients.

One of the things we try to do is standardize our operations here. I'll just pick out the one in the purchasing, last year, we were up about 20 basis points; year before that, 30. We've had -- every year since we've been public, we've improved same-store supplies except for one where we were flat. Expect us to continue that and do one of our important elements last year. We've also had very good success in core measures inpatient and outpatient, continuing to have good performance in that indicator.

We know a lot -- bought a lot of hospitals since 2000. We bought 50 hospitals in 2007. We bought Triad. Our debt went up about 6.5x. It's under 5 now, and we improved the margins. We're 11% to 12% to midteens, and generally, we buy non-for-profit hospitals so about a 5% margin. And hopefully, in 4, 5 years, they'll be in the 14% to 15% range. And here recently the acquisitions got off to a little bit slower start. I think we have a good year 2013. We got about $1.4 billion revenue that we'll be focused on trying to improve next year, and a couple of hundred basis points will give us another $30 million EBITDA growth there.

We also replaced 3 hospitals, which will help volume next year with more depreciation interest expense. That'll be a good indicator for us going forward. It's how well those do. It's good to buy hospitals. It's probably better to improve them. You'll see we're up about 18% revenue and about 100% EBITDA since then. In the classes of -- here, you can see almost all of them have improved year-over-year from what we've done, and so we're proud of what we've accomplished here.

Management team and the board has not changed much. We turn our focus to adjusted admissions here. Recently, you can see what's happened in the last 5 years, up about 11%, and last year revenue growth and EBITDA growth was up a good strong 9% and almost 8%. Probably, if you look on the same-store basis, it was probably 4%. The quarter, we had about pretty close to consensus of $0.85. We'll add back a few adjustments. For the year, reported number for us would be $3.77, excluding the legal adjustments. We had a few settlements when we took place [ph] on government. And also the D&A were up $3.55, up about 7%.

Same-store margin was down about 10 basis points, and I think it will continue to be slightly down, which is off our growth of physicians, which has probably challenged our margin. This is just a reconciliation there.

Probably one of the indicators that we focus a lot on is how well managed care and others have been doing. Our volumes have been improving a little bit in this category versus the company average. We're around 51%, and we've got down low -- close to 50% in '10 and right at 50% for '09 I believe. So it's has been a good indicator there. Medicaid has moved back up to closer to 10% and, self-pay has been 12% or 13%.

A lot of statistics are used to admissions, adjusted admissions. In our opinion, the more important statistic's the revenue growth. You will see EBITDA a little bit of flat [ph] , and admissions were flat admissions. We've had a -- around 4% revenue growth in '10 and '11, and 6% in '09, and we're 4.6% here, so that's -- again, revenue for adjusted admissions was up by about 3% last year.

The part of the -- the bottom part of this slide here is probably more important, if you think about it, 75% of our bad debts come from the uninsured. This is a statistic based on adjusted revenue. It would be about 13% of revenue. Charity is probably -- most of your patients go there probably be eligible for either probably Medicaid or maybe just good-to-go exchanges with subsidies and discounts part of all this bad debt methodology there. So that's the category that we hope we'd find some coverage for.

We're about 84% fixed on our debt. We've done a lot of the financing transactions. You'll see back in 2010 where everything was due in '14 and '15, now it's '16, '17, '18, '19 and '20. So we've moved and added a lot of financing here originally done helped somewhat by Citigroup along with other good banks. Debt to EBITDA was about 6x, now down about 5x, and interest coverage has also improved. Cash flow was up little bit, and next year, it'll be something like $1.225 billion to $1.3 billion. We're thinking about $45 million benefit from the budget and probably [ph] adjustment the first part of the year.

CapEx, the guidance for last year was $800 million and $900 million, same as this year. We spent $769 million, and we will spend about 6% of revenue and a similar percentage next year, maybe a little bit more.

And we've sort of this slide before, very consistent results. And just do a quick recap here. It's been a proven formula. You can buy not-for-profit hospitals. We also bought a BIP system, and it worked for us. We got a lot of good diversity in 29 states, attractive markets, a lot of them mid-sized markets, a good experienced management team, so most have a lot of knowledge about managed care, along with hospital's good, consistent financial performance, a lot of acquisition opportunities, a lot of internal opportunities. We've done a very good job of improving our quality. And that's our story, and I'll turn it over to Gary to ask some questions.

Question-and-Answer Session

Gary P. Taylor - Citigroup Inc, Research Division

Great. I think [indiscernible] . One of the questions I'm trying to ask everybody is just a question that we've come up with as a team, and the question is 2 parts: One, do you agree that over the next 5 to 10 years, major challenge for the healthcare industry is just managing or navigating a transition from being paid for volume of services to being paid for the value of the services that you provide? And if you do agree with that thesis, what does Community have to do to position itself to do well in that?

W. Larry Cash

Well, we got -- as we've been focused on core measures, which we don't have a chart here but like -- we've had like 20 -- improved 20 straight quarters improved inpatient core measures. We've done a very good job on value-based purchasing, good job on some physician-employee satisfaction, so the company spent a lot of good quality improvements and a lot of others can get done. So I think when you're looking at what the value you got to bring to the table, I think we're reasonably priced when you compare ourself to other companies from a managed care perspective. Of course, Medicare is a common payer, and we've done a good job of always getting incentives when they've been put in front us, whether it'd be for quality or reporting or that kind of activity. I don't know if it's 5 years. There's clearly going to be some transition here. We'll -- probably some transition away from fee for service, probably a little slower in the non-urban markets where there's not a lot of competition possibly, but we work hard and have a consistent level of service in our hospitals. We have Community Cares program, which is in all 135 hospitals doing nurse rounding. We do the discharge callback of the about 1 million of our 3 million people to make sure that the care they got in emergency room's appropriate. We're always surveying our doctors and trying to react to that and having a central -- a Chief of Staff meeting once a year to interact with our physicians. So we do a lot of things to make sure we're doing what's right for the customers, and also, we work very hard to listen to our managed care companies. It's all managed by a central group of talent executives to try to make sure we hear what their issues are. So as things change, we'll change accordingly. We've made a lot of changes in relation to quality and value-based purchasing already, and if reimbursement moves that way, then I think we'll do fine.

Gary P. Taylor - Citigroup Inc, Research Division

You and Wayne both have insurance experience from Humana back in the day, 15 or more years ago -- sort of 15 to 20 years ago maybe. How has that influenced your willingness to participate in ACOs, some of the bundled demonstration projects, et cetera? What are you guys doing on those? And maybe what do you feel like you've learned or know about this that maybe has you approaching it differently from others?

W. Larry Cash

Yes. Humana was a company that started as a hospital, similar to the insurance business. It stayed in the insurance business [indiscernible] for the efforts that Wayne and I and a few others started back in mid '80s. One of the challenges we've got is we work with physicians, probably got 25% -- 20% or 25% of our business from our employed physicians who got 75% [indiscernible] . We've got to work with those. We're working and waiting [ph] for both want to use you and be a partner with you it's a little challenging sometimes, I think both for a provider and an insurer. In that situation, we've learned that it's part of the -- when we were integrated with hospitals. When it comes to thinking about ACOs, today, the Medicare ACOs touch about -- in our primary care area, was touch care about 65% of our business. They touch about 3% of our population. In our secondary, it's about another 3%, so it's 6%. So we don't have a lot of exposure to Medicare ACOs. We probably got a little bit in the market of Tucson, I believe, and I think we'll do fine there. I think our thought is that there's a lot of -- today, there's a lot of good managed care companies you can work with instead of trying to re-create what they've got. We probably want to work with them in some type of environment. We're not too anxious to be leaders and taking full risk because what we do better is take care of patients inside our services, whether it be hospitals or physician offices or home health or surgery centers or diagnostic centers and try to have a good network with infrastructure so that we are in every network we want to in at a price that works for us. If instead we had to get into the insurance business, we have a third-party administrative function there in one of our markets that helps us with some of our own employees. But I think our first preference is to be more of a partner managed care companies and work with them versus trying to be a replacement for them.

Gary P. Taylor - Citigroup Inc, Research Division

The ACOs that do touch 3% of your population in those markets, generally, who's put those together? Those physician groups that have put those together or insurance or other hospitals or...

W. Larry Cash

It's generally our markets not being other hospitals. Tucson, I think, is another hospital, and they want to contract with us to be in their network, and we'll work to do what's the right thing there. We work with one or all or none. They're probably -- and also, keep in mind that Medicare ACO, if a doctor or patient want to go somewhere else, they can, and you'll get the Medicare payment just like in any place else. And of course, 55% of our Medicare admissions probably come from emergency rooms. So I'm not, for sure, too concerned about that type of growth. We'll have to watch it. We may try to market to where we want to be an ACO but probably more in conjunction with an existing managed care company have been going to risk than us doing it all ourself.

Gary P. Taylor - Citigroup Inc, Research Division

Well, those are the preliminary questions. I know every analyst wants to ask about healthcare reforms. I just wanted to pretend to put the questions before I ask about healthcare reform. So let's go to healthcare reform. I mean, some of the key inputs into the matrix, which are really pretty complicated or potential enrollment in Medicaid; enrollment in exchanges; reimbursement rates in exchanges; what new volume might be engendered by giving these populations coverage; what new margin you would see on that new volume coming through exchanges and Medicaid expansion; and then obviously, what reimbursement cuts have to be offset against that and Medicaid experience as you expand eligibility of the income scale, what kind of crowd out of commercial coverage you get. So it ends up being a pretty complicated matrix trying to derive what new incremental revenue and EBITDA might be generated. Of all of those inputs, which of the input do you think is the most uncertain at this point in time? And which input do you think we will get visibility on first?

W. Larry Cash

Well, I think one of the inputs you got to pay attention to is the Medicaid expansion because a lot of your Southern Republican states, and others are just -- said they weren't going participate. Fortunately, it seems to be -- landscape seems to be changing. Ohio, which has got a good Republican governor, is participating. We've got a few hospitals there, which benefit from. Florida, we got a couple of hospitals, and it's also important to the industry. They said they were going to participate. You hear Virginia may participate going forward not yet certain. And then we got other states we got to work through. New Jersey looks like it may go that way and some other states, New Mexico, which was a Republican state. Arizona, a pretty vocal Republican state, is participating. So there's certainly a little movement. That will be an uncertainty because it will become more known over time and probably the next 90 days to 180 days, you'll know more about that. And clearly, states can come in and out and will, and they can decide to join it. It would seemed to us, on our analysis, that [indiscernible] being paid for 100% by the government for '14, '15, '16 and then 94%, 93%, 95% for next 3 years then 90%. Most states will probably participate because it's good for economic and development. But we'll wait and see how that plays out, but that's part of the -- an estimate you got to make. And that's probably one of the things you'll get some visibility on pretty soon, and hopefully, we believe most states will probably participate because of the economics of both being good for the economy in that state and also good for the uninsured population.

Gary P. Taylor - Citigroup Inc, Research Division

And then in terms of factors where there's a lot of uncertainty, I mean, I hear of investors most frequently are wondering are the economic incentives sufficient that people that are heretofore uninsured, are actually going to sign up. And two, what reimbursement rates come out of these exchange products? Do you think those are the 2 factors where the most uncertainty exists today? Or do you feel like people maybe are too concerned and you think there's decent visibility there?

W. Larry Cash

Well, there's clearly some uncertainty. The penalties to not join are low and they come up over time, but I think you'll probably see -- if you take the exchanges, let's take the Medicaid expansion for a second and [ph] it doesn’t happen in the state, the 100%, 138% of the people of the poverty level will have the chance to join exchanges, pretty have subsidies. So that's somewhat of a benefit from that if a state doesn't do it and also, means that uninsured people, even above that, will get some type of subsidy [indiscernible] something. And I think there'll probably be a lot of efforts on the part of the administration to make sure that the exchanges are understood. In our company, about 79% of our states have been part of the federal exchange, so they'll be -- should be up and running from that perspective going forward. But it relates to managed care contracting. Clearly, existing contracts can be used for any exchanges that we have for managed care companies, the existing commercial contracts. And we hope some of those and we think some of those will -- are going to be used for it. We've had about a little 20% -- a little under 20% of our states, a couple of the larger states for us that we've gotten some of the regional players to agree in the contracts, so we think worked for us. We probably got about another 30% where contracts are being exchanged back and forth, again predominantly more to regional players in that activity. And I think we got other discussions. So I think there'll be plenty of contracts there, networks and then prices that work well for us and exchanges when they get started. The -- if you go back to look at the drug benefit plan, it took about 6 months to get it up and running. And we got 6 -- we got about 5 or 6 months to go here to do a similar type thing. We've been working on it a lot longer, and the drug activity had to do. And it was pretty successful the first year, getting that activity, in for the seniors who didn't have a drug option bought a drug option. So I think there'll be a lot of similar areas that work -- that I'm sure the administration's worked very hard to try to make October 1 a good launch for the exchanges. And clearly, there'll be some issues around people understanding their benefits and their networks, but it's probably no different than any other type of plan benefit change. It takes place usually January 1.

Gary P. Taylor - Citigroup Inc, Research Division

Your largest state is Texas, right?

W. Larry Cash

Correct. It's maybe not revenue, but I think our largest of the hospitals is in Texas.

Gary P. Taylor - Citigroup Inc, Research Division

So obviously, Governor Perry has continued to say he's not going to take the federal dollars. We've seen a few other Republican governors say that and changed their mind. But when you -- you alluded to this a little bit, but at least when we kind of look at the math on Medicaid expansion, obviously, you get new dollars in for people that are uninsured, you're already taking care of them. You have expense. Those dollars go straight to pretax. That's perfect P&L leverage. But the offset is you bring in some new Medicaid volume that's at fully loaded losses if that comes in. You get discounts allocated to that state producing it's uninsured. You potentially create some crowd out of commercial coverage. So my long-winded point is I don't see the Medicaid expansion piece as being heck of a lot better than a wash and most of the economics we see from reform are really driven by the exchange enrollment assumptions. And you alluded to the thought that somewhere between 100% and 133% FPL, you may actually end up having people in subsidized plans instead of Medicaid if a state doesn't expand. So when you look at this Texas decision to expand or not expand, how much does that really move the needle for you in terms of how you think ACA economically impacts CYH?

W. Larry Cash

Well, you're actually right. On the commercial side of the business in exchanges, you get a much higher payment rate. It would be also, for the most part, you'd have the uninsured that you were probably taking care of and maybe some new volume. The higher payment rate is a much better situation than the Medicaid rate, which should be lower than that. The Medicaid rate is clearly replacement activity but probably also has some extra -- could have some extra utilization. Also, the Medicaid will probably come in a little bit higher intensity. Right now, most of Medicaid businesses sort of a little bit shorter [ph] and relocation [ph] eventually [ph] will come up. I don't think any one individual state will keep -- we have 29 states, even the ones we got, most who are hospitals -- would, overall, change the equation that much. It is important, over time, though probably to get most states to participate because you have to slow down the growth of the uninsured would be a positive in getting so much about it. The one thing about Medicaid expansion is that there'll be no choice to make once a state does it. Then, the people can get enrolled, and what we're going to is try to use our eligibility screening or financial counselors or other companies to do the services to get as many enrollment as possible, and I think probably the early enrollment benefit will probably come a little faster for Medicaid than it may be from the market and exchanges -- exchanges in the market from the 1st of October to the spring of 2014. The Medicaid is a constant open-enrollment period, so from that perspective, it will be a little bit more visible. I think the belief is you have a little bit more Medicaid enrollment than you will in commercial exchange enrollment in the first year. And we'd like to get most all of our states there, but your original premise is probably driving earnings to earnings, driving will probably be from the growth of commercial exchanges as result of the payment rate. Being at commercial or close to commercial will be better than the Medicaid on an equal number of population 3 or 4 years down the road.

Gary P. Taylor - Citigroup Inc, Research Division

My last question, then we'll take some questions from the audience. So we know -- I guess, we sort of know because we're weighing on a couple of definitional things. But at least, we know the magnitude of the cuts from PPACA. We know the magnitude of the modest cut we took on New Year's Eve for the industry. When you look at -- and then we know that sequestration was 2%. That's -- in fact, that goes into effect on Friday. So when we look at kind of the next series, which is speculation that maybe sequestration gets altered as part of the continuing resolution on March 27, maybe sequestration gets altered as part of debt ceiling debate, which I think comes around again in May, how much uncertainty do you have about what happens to reimbursement on top of sequestration? Is there -- is your sense that there's major catalysts in D.C., that hospitals to get hit with something materially worse than the 2%? Or would you argue that if sequestration goes into effect on Friday, pretty good chance that's the number you're dealing with?

W. Larry Cash

Well, I think if you go back to the way the sequester was done, the Democrats, who control the Senate in the White House pretty much put no Medicaid cuts. And I think nobody would want to be cutting Medicaid in the administration, right, trying to get all these programs up and running and all the states that we operate in others. So I wouldn't think there'd be much Medicaid change that was carved out of the adjustment there. And if we look at the Medicare cut, let's put a lid on it, 2%, which is less than maybe the overall cuts in other areas. So it sort of gives you a method, so I wouldn't limit it to that perspective. I think when you look at 2013, to think about it, we put a range of 30 to 80 basis points of cuts in there. There's a sequester start in April. It could down slate the whole period, and then we also put the -- we know about the DISH cuts and the coding cuts that were put on -- passed on January 1. So we put a range there, and I think that range should pretty well protect us for 2013. And if you look at the state of the hospital industry or entire hospital industry, clearly, there's pretty low margins. There's a lot of underperforming hospitals in the country, have gone through a lot of cuts. There's not much of increases there. And I think it would be, hopefully, unlikely that the cuts will be any larger than had already been sequestered especially for 2013.

Gary P. Taylor - Citigroup Inc, Research Division

Okay, we've got about 10 minutes. Any questions from the audience in here?

Unknown Analyst

I was hoping you could comment on the different payment types that the industry has, charge masters versus, say, Medicare, which is priced, my understanding, based on an average cost and how those 2 things are likely to evolve post ACA.

W. Larry Cash

Yes. The question -- let's talk managed care. Most managed care right now, there's a little bit of charge master payment, very small for our company. Most for the industry, it's -- usually will be on an outpatient basis, but it's mostly some type of payment industry. They're DRG payments over to the Medicare or could be a per diem. Our preference would be a DRG payment, which we're trying to accomplish. Our Medicare is just standard. It is a DRG payment, with several hundred DRGs, driving it based on the case mix with a patient. So it's weighted for the type services, so the more complex services are paid more, similar to what the managed care companies is. There's probably some different degrees of what the base rate is, but it's more in line closer to than you would think because there is nothing much use of the charge master and the activity. Medicaid is different in some states. It's a fee for service in some states. It's a DRG payment in some states. It's per diem in a few states they're using costs [indiscernible] . Medicaid is a little bit more of a mixture of ways. Medicare is fairly consistent. And managed care varies among payers, but all pretty much laying these [ph] and some type of DRG or per diem for most inpatient business. And I think you'll probably continue to see that movement away from charge master over time into some type of payment methodology, but we have a little bit of charge master payment.

Gary P. Taylor - Citigroup Inc, Research Division

Up in the front.

Unknown Analyst

You showed a slide saying that the number of people in Medicare is going up from 43 million to 52 million in the next, like, 6 years. Do you think that'll benefit your revenue line? I mean, thinking about maybe how many people don't have insurance now that'll go to Medicare.

W. Larry Cash

Yes. If you look at utilization, a person who is 55 years old, is about 155 admissions per 1,000. A person who's 65 years old is about 230. A person who's 75 years old is about 300-plus admissions per 1,000. So over the next 5 years, I think, is what you quoted there. As more and more people get Medicare, the natural indication is not just Medicare. It's the fact that aging, the population uses healthcare more, maybe a little bit more on outpatient today than it was a few years ago. But I think you would see based on statistics, 10,000 people turning 65 every day. So as that happens, it's a national inclination that utilization would probably go up, and it's been expected to happen probably -- it probably haven't happened as much the last few years when the baby boomers took place because of some other economic issues and changes. But I think over the next few years, you could see the utilization pick up for that population. We have about -- I think nationally, it's about 13% or 14% of people over 65, and we got 14% to 15% over 65. We've got a little bit -- we also got older population in the market, so over 55 still would probably benefit a little more from that phenomenon as result of having an older population. That's what the statistic's trying to say.

Unknown Analyst

And then I would have thought the past few years -- I mean the economy hasn't recovered that much. I mean, it's recovered kind of gradually. But I would have thought you're bad debt sort of come down a little bit more aggressively than they have. Can you describe why that hasn't happened?

W. Larry Cash

Yes. Bad debt is a phenomena of -- the uninsured admissions should probably slow down a little bit but the growth of it has. Bad debt has got 2 phenomena. One is the volume in the statistics within the rates, and we do -- back to the charge master question, if we raise our rates 6% to 10% a year, that rate probably finds its way to bad debts because we only give a few discounts. It shows up in bad debts, and it's a higher rate increase you might see on the -- on Medicare or Medicaid. So from an income statement perspective, probably bad debts would always go up 20 or 30 basis points a year just because you've raised the rates on it. But our overall volume has not moved as much. We're probably about 7% -- low 7% of our admissions, a little over 8% of our adjusted admissions, and that's been fairly consistent, maybe up little bit over a year as the uninsured. This is -- well, it's more of a nominal way. It's that bad debt's sort of best related to charges.

Unknown Analyst

And the final question, can you talk about the cliff of your -- the HITECH revenues over the next couple of years?

W. Larry Cash

Good question. I think Gary's got estimate and some other people do. It's about $700 million. It's a big opportunity for us for HITECH. And I've seen the ballpark. It's a math equation. We got a little bit of it since last quarter from some of our cost reports showing what Medicare days, so again, a carryforward going forward as the aging of the population goes on. We have about $60 million or so in 2011, $127 million in 2012 and I think a number similar to $150 million to $160 million in 2014. So we'll be somewhere like 3 [ph] about halfway through to 2013, so we got -- still got big years, 2014 and '15. And one of the issues sort of on the other side of that is we have to spend a fair amount of money on CapEx for IT and also capitalize software from what you put in other investments for IT. But we spent more money than we've gotten back, but over time, eventually, I think we'll get more money in than we spend. And then back to one of Gary's other questions about the future. Ultimately, when all this IT spending is done, one of our objectives is to try to get productivity from it. You spend a lot of money on communications and order sets and things of that nature trying to help you manage your business better. So I think it's not only spend the money and put it in and get incentives but also try to find some productivity, either in lab tests or drugs or overall tests so that our costs to provide to care or value and the terms Gary used is better.

Gary P. Taylor - Citigroup Inc, Research Division

And please, take the mic over there. what do you think are the peak year is for HITECH incentive income will be '13, '14?

W. Larry Cash

'13, '14. I think in '14, it could be a little bit lower. We don't have long-term guidance out, Gary, but I'd say we've quite about halfway through it in '13.

Gary P. Taylor - Citigroup Inc, Research Division

You mentioned that you have signed some contracts with some retail players for the exchanges. Where are those rates coming in?

W. Larry Cash

They're coming in close to where commercial rates are.

Gary P. Taylor - Citigroup Inc, Research Division

A little bit lower but close?

W. Larry Cash

Just close. Most of them are close to merchant [ph]. One of the things we don't want to do is get into too much because it is confidential negotiations. We know there's quite a bit of concern about people thinking Medicaid could be the rate of Medicare, and we're pretty satisfied that they're pretty close to the commercial rates.

Gary P. Taylor - Citigroup Inc, Research Division

A lot closer to commercial than the Medicare or Medicaid?

W. Larry Cash

We're pretty satisfied with what they are.

Gary P. Taylor - Citigroup Inc, Research Division

Okay, and then one other question -- the unconsolidated affiliates. That income was down a bit.

W. Larry Cash

Yes.

Gary P. Taylor - Citigroup Inc, Research Division

How should we think about -- this year and then sort of that line going forward?

W. Larry Cash

I think that line will improve, and we got a range of guidance out there. It's pretty much where it is now. There's 2 big ventures in there. One would be the -- one in Vegas and the one in Georgia. You would never want to use our income statement because there's a little differences from quarter to quarter, but I would hope that the results in 2013 are just a little bit better they were in 2012 as the Vegas economy gets a little bit better and then operation does better. And I think [indiscernible] likewise have a little bit better year in '13 than it did in '12.

Unknown Analyst

[indiscernible]

W. Larry Cash

We really don't have them doing that -- I don't see any change materially from what our original guidance range there is now for that.

Gary P. Taylor - Citigroup Inc, Research Division

Grow with the company, right, sort of thing?

W. Larry Cash

Yes, yes.

Gary P. Taylor - Citigroup Inc, Research Division

As long as those markets are...

W. Larry Cash

It stayed at the same range. I think in '10, '11, it was at the low end of the range, and back in '09, or '08 it was sort of at the high end of the range, and it's probably going to stay in that same range. But Vegas is really a good market and its economy comes back at probably a little bit better.

Unknown Analyst

How do you view M&A opportunities for yourself, the market -- the high-yield markets, everything is pretty announced. They're still sitting on a lot of liquidity, so it might -- does it help you? Or does it actually hurt you a little bit?

W. Larry Cash

We've got about $700 million of revolver [indiscernible] plus we should have some cash flow with these from our company to do acquisitions. I don't know the high yield really makes that much difference to the not for profits we're buying. I mean, they have a little -- individual systems have a little rough time getting negotiations done and getting capital done that they want. And one of the reasons that we're attractive to them is we buy things to make some commitments for our CapEx, including IT improvements and other stuff. And I think by us doing that is having access to -- we can -- they can turn over to financing or capital employment challenge and we'll make some difference improve the ROR or whatever the AC is that makes sense for them and us both. I think we'll have a good year if we got guidance after 3 to 4 and we did 4 last year. I don't see any reason we wouldn't do to find those there. I don't think -- we don't have any planned announcement next week -- next few months, but I think we'll do well in acquisitions. And I'm not sure if a high yield being attractive will make that much difference there because there's -- there are reasons such ability on compliance issues and IT issue and recruitment of doctors issues that people decide to sell.

Gary P. Taylor - Citigroup Inc, Research Division

Your multiple's the same this year or...

W. Larry Cash

Last year we paid about the same price for most of our transactions. I would expect us to pay close to the same price this year [indiscernible] . We paid a little less for maybe one in Blue Island. [indiscernible] we bought it from a small for-profit operator paying less for one in New York [ph] because we agreed to build a hospital and we paid about 75% of the one in Moses Taylor. Similar to what we paid for in [indiscernible] and paid just a little bit more than that for the one in Tomball. So we've been paying sometimes a little less but generally around 75% of revenue. So we sort of consider a reasonable price, and we got to go through the diligence [ph] and our activity, we'd look at it, but that's where a good range of price would be.

Gary P. Taylor - Citigroup Inc, Research Division

It sounds like pretty consistently pipeline -- people are saying that the number of opportunities in dealing with HITECH and ACA and everything else makes the pipeline as big as it's ever been. In our last couple of seconds here. What about the quality of that pipeline though? Does this uncertainty in the environment just shake out every marginal player? Or do you actually see some better quality assets in that pipeline and maybe you have a chance with that?

W. Larry Cash

Gary, we'll have some that may have low-double-digit margins, some a low margin. So it's a little bit of both. I think we are seeing probably a little bit more larger opportunities come forth. And we'll see if we're able to do some of those, but we're sealing [ph] in some of those will have -- by nature, they may have a little bit better margin because it's a little bit better-run facility. But they ultimately have some corporate overhead, which may not be needed by us going forward, but we are seeing a little bit some opportunities of bigger-sized transactions.

Gary P. Taylor - Citigroup Inc, Research Division

Okay, great. Thank you very much.

W. Larry Cash

Okay. Thank you all very much.

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