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LifePoint Hospitals, Inc. (NASDAQ:LPNT)

Q1 2014 Earnings Conference Call

April 25, 2014 10:00 a.m. ET

Executives

Bill Carpenter - Chairman and Chief Executive Officer

Leif Murphy - Chief Financial Officer

David Dill - President and Chief Operating Officer

Analysts

A.J. Rice – UBS

Sheryl Skolnick – CRT Capital Group

Justin Lake – JPMorgan.

Joshua R. Raskin - Barclays Capital

Jason Gurda – KeyBanc Capital Markets

Colleen Lang – FBR & Co.

Vikram Malhotra – Morgan Stanley

Ralph Giacobbe – Credit Suisse

Whit Mayo – Robert W. Baird

Kevin Fischbeck – Banc of America Merrill Lynch

Darren Lehrich – Deutsche Bank

Operator

Good day ladies and gentlemen. Thank you for standing by and welcome to the LifePoint Hospitals’ first quarter 2014 earnings conference call. During the presentation all participants will be in a listen-only mode. Afterwards we will conduct a question-and-answer session. (Operator instructions).

On today’s call, LifePoint will be making forward looking statements based upon management’s current expectations. Numerous factors could cause LifePoint’s results to differ from these expectations and LifePoint has outlined these factors in its filings with the SEC. The company encourages you to review these filings. LifePoint also asks that you please review the cautionary language under the caption, Important Legal Information, in the company's press release issued this morning. The company undertakes no obligation to update or make any other forward-looking statements, whether as a result of new information, future events or otherwise. Also, please visit LifePoint's website for links to various information and filings. As a reminder, the conference call today is being recorded on Friday, April 25, 2014.

I would now like to turn the conference over to Bill Carpenter, Chairman and Chief Executive Officer, LifePoint Hospitals. Please go ahead.

Bill Carpenter

Thank you, and welcome, everyone, to LifePoint Hospitals' first quarter 2014 earnings call. We hope you've had a chance to review the press release we issued earlier this morning. I’ll begin as usual by taking you through some of the highlights from the first quarter and then I’ll hand the call over to Leif Murphy, our Chief Financial Officer for a closer look at our financial results. Following our prepared remarks, Leif and I, as well as David Dill, our President and Chief Operating Officer will be available to answer your questions.

For the first quarter of 2014, revenues from continuing operations grew to $1 billion, an increase of 8.2% over last year. Adjusted EBITDA was $145.8 million up by 6.2% from a year ago. And EPS for the first quarter was $0.78, which was up by 13%.

We’re pleased to report a solid quarter that was in line with our expectations. Our results for the first quarter were favorably impacted by the effectiveness of our growth strategy, our continued focus on managing costs and the early benefits of reform. The overall challenging volume environment continued to be a headwind and our volumes in the quarter were impacted by limited flu activity across our hospitals and to a lesser extent, severe weather.

Four months into the implementation of the Affordable Care Act, we’re beginning to see how reform is affecting our business. So far and as expected, the new health care law has been a net positive for LifePoint with respect to Medicaid expansion. In the seven states where we operate that have expanded coverage, we saw increasing Medicaid and decreasing self-pay volumes. Increases in Medicaid membership and health insurance exchange participation contributed measurably to our results in the quarter. While we don’t expect additional states to expand coverage in 2014, we’re optimistic that more conversions will occur over time.

From a development standpoint, our Duke LifePoint partnership has remained very active and we’re making steady progress on the transactions we announced in 2013. During the first quarter, we completed the acquisition of Wilson Medical Centre and in the second quarter we expect to close the acquisitions of Rutherford Regional Health system, Haywood Regional Hospital and two Westcare Health System hospitals. All these hospitals are significant strategic additions to our network in North Carolina.

Additionally, Duke LifePoint has a pending affiliation with Conemaugh Health System, a three-hospital system in west central Pennsylvania. Conemaugh is a regional referral center serving more than half a million patients each year, with high end service lines that include cardiology, cancer care and neonatology. The addition of this system to our network will be meaningful for LifePoint and we believe that the resources provided through our Duke partnership will bring great value to Conemaugh. When these transactions are closed, they will add approximately $800 million of new revenue to the portfolio. We remain confident in our M&A strategy and disciplined in our process.

Once again, our operational efficiency strategies had a positive impact on the quarter. Our team has shown tremendous skill in executing initiatives to manage expenses, particularly in a soft volume environment. We continue to improve a variety of processes that can drive efficiency across the system, including those that will benefit our newly acquired hospitals.

Providing safe and reliable patient care is our number one goal. We’re now in the third year of our partnership with the CMS Innovation Centre on the Hospital Engagement Network, through which we are pursuing ways to enhance the patient experience. Our entire organization has embraced our culture of safety and is focused on continuous improvement. We consistently meet or exceed aggressive quality and safety goals each year.

Finally, consistent with our balanced approach to capital allocation, we substantially completed our 2011 repurchase authorization in the first quarter. Leif will provide more detail, but returning capital to shareholders has been and will continue to be an important part of our strategy.

I’ll now turn the call over to Leif for an in depth review of our quarterly results. Leif?

Leif Murphy

Thank you, Bill and good morning everyone. As Bill said we had a solid quarter in line with our expectations. I will start with an overview of the main drivers of our results for the quarter and finish up with some additional color on reform in our overall results.

Starting with volume, on a same hospital basis, for the first quarter of 2014 as compared to the same quarter of the prior year, admissions were down 5.3%, equivalent admissions were down 1.9% and total surgical volumes were down 3.4%. Soft same hospital volumes in the quarter were primarily the results of a 3.8% decrease in emergency room visits, driven in part by a milder flu season and to a lesser degree the tough winter as compared to the prior year. We also experienced a 12.1% decline in our one-day stay admissions. As compared to past periods, the decline in our one day stays has clearly moderated. We continue to believe that the reduction in one day stays is generally reflective of industry trends towards outpatient services and not primarily the result of the two-midnight rule.

Turning to pricing, during the quarter, as compared to last year, net revenue per equivalent admission was up 1.6% on a same hospital basis, and up 3.9% on a continuing operations basis. This increase is predominantly the result of higher contracted rates from commercial payers, but also reflects the favorable impact of healthcare reform. During the three months ended March 31, 2014 we saw a decrease in self-pay revenues and an increase in Medicaid revenues. Primarily it’s the result of the expansion of Medicaid coverage in certain of our states.

At the end of last year we estimated that 4% to 5% of our 2014 EBITDA would come from the impact of healthcare reforms. Our experience in the first quarter suggests that we will be at the high end of that estimate. Also, our comparison of the first quarter of 2013 was negatively impacted by approximately $4.5 million reductions from sequestration ration cuts. They were effective on April 1, 2013 and a $4.5 million year-over-year reduction in the New Mexico Sole Community program.

Same hospital revenues in the quarter compared with the first quarter of the prior year were down slightly at $2.5 million or 0.3% reflecting soft volumes partially offset by improvements in commercial rates and a payer mix shift from self-pay to Medicaid for a portion of our patient population.

Our revenues from continuing operations in the quarter were up $76. 1 million or 8.2% to $1 billion compared to $931.1 million in the prior year. As a percentage of revenues, our provision for doubtful accounts on a continuing operations basis was down 80 basis points compared to the prior year and represented 17.4% of revenues during the quarter. Additionally, on a continuing operations basis, our charity care write-offs represented 3.1% of revenues, a decrease of 40 basis points over the same quarter of the prior year.

Same-store self-pay admissions were down 26% and represented 5.4% of total admissions, down from 7% of total admissions in the first quarter of 2013.

Same hospital salary, wage and benefit cost decreased by 0.4% in the first quarter compared to the prior year and reflect our continued focus on managing labor costs in a soft volume environment. Same hospital supply costs were down 1.2% compared to the same period at 2013 as a result of the decline in surgical volumes and our continued focus on supply cost and procurement strategies. Other same hospital operating expenses increased by 3.7% compared to the first quarter of last year, primarily due to professional fees and contract services associated with hospitalists and emergency department physicians and our continued conversions to Parallon.

For the three months ended March 31 2014, we recognized $13.9 million in meaningful use payments and had related operating expenses of $5.4 million. This is in comparison to $5.7 million in meaningful use payments and $4.6 million from related operating expenses recognized during the same quarter of the prior year.

Our first quarter of 2014 adjusted EBITDA increased 6.2% to $145.8 million, an increase of $8.4 million from the same quarter last year. Diluted earnings per share was $0.78 in the quarter compared to $0.69 in the prior year. Our diluted earnings per share was favorably impacted by the repurchase of approximately 2.4 million shares of our common stock under our board approved repurchase program, and a decrease in our effective tax rate to 26.1% for the three months ended March 31st 2014 as compared to 38.6% in the prior year. We’ve been working hard to resolve the previously reported tax issue in the state of Michigan related to certain disallowed federal operating losses generated by our physician practices.

We’re pleased to report that as a direct result of these efforts, we were able to reverse a previously established deferred tax valuation allowance related to this matter. The impact resulted in a noted decrease to our effective tax rate and an increase to net income of $6 million or $0.13 per diluted share. Consistent with our guidance, we expect a normalized effective tax rate to be approximately 38.5% for the remaining three quarters of 2014.

Cash flow and liquidity; cash flow from continuing operations for the quarter was $108.6 million, an increase of $ 16.8 million or 18.3% from the same quarter last year. We invested $22.5 million in capital expenditures in the quarter and completed strategic acquisitions totaling $60.6 million.

Consistence with guidance, depreciation and amortization expense increased $5.3 million or 9.5% compared to the prior year, driven by our recent acquisitions and their related capital commitments, as well as increases in our spending and information systems as a result of the high tech act.

As a result of an increase in our total leverage, interest expense increased by $10 million or 42% to $33.9 million.

As previously reported, effective December 6 2013, we issued $700 million or 5.5% unsecured notes due December 21, 2021. The proceeds of this issuance were partially used to repay $100 million of pre-payable term loans, repurchase common stock and fund acquisitions.

We’re working to secure additional debt capital during the second quarter of 2014 that together with $532.3 million in cash on hand, will be used to repay our $575 million outstanding subordinated convertible notes due in May and for general corporate purposes, including future acquisitions and additional share repurchase.

During the quartet we repurchased $146.4 million of our common stock, of which $17.8 million settled subsequent to March 31. Today we have $18.3 million remaining under our 2011 repurchase program and an additional $150 million authorized under our 2014 repurchase program.

In anticipation of your questions about reform, let me provide more insight into our first quarter experience. In our yearend call we outlined several assumptions that we were making around reform. First, seven of our 20 States had expanded Medicaid. This remains the number of expansion States for LifePoint. We are working hard in each of our States to help foster a better understanding of participation and we believe that other states will ultimately expand coverage.

Second, in our seven States with expanded coverage, we estimated that roughly 80% of current self-pay patients qualify for Medicaid under the new rules and that we would work to get 60% to 80% of these eligible patients successfully enrolled. Approximately 35% of our self-pay volume was generated in these seven States in 2013. In the first quarter, we achieved the high end of our estimates with almost 80% of the eligible population enrolling, representing more than 22% of our self-pay patients.

Third, we also estimated that 20% of our current self-pay patients would qualify for enrollment under a health insurance exchange. And we estimated that we would see a low double digit uptake in that figure. Through the first quarter, we have experienced approximately 15% uptake in enrollment into an exchange, representing 3% of the overall pool of self-pay patients, which is also at the high end of our early estimates. We’ve been pleased with our experience relative to our expectations for reform so far and today it is our belief that we will meet or potentially exceed the high end of our reform expectations.

In summary, we finished with revenue and EBITDA in line with our expectations for the first quarter. Soft volumes related to a difficult flu camp and to a lesser degree a tough winter were offset by cost discipline and hard work implementing and realizing the benefits of reform. We continue to focus on patient care through initiatives designed to enhance quality and patient safety. We were pleased with favorable tax resolution in Michigan and solid progress has been made on the integration of our recent acquisitions as we continue to drive margins towards the high single digits. We’ve now completed 45 of 53 revenue cycle conversions and all 53 supply chain conversions. The year is off to a good start. Additional information regarding our first quarter results is available by reviewing our SEC filings, including our 10-Q, which we will file later today.

With that I will turn the call to Bill for his closing remarks.

Bill Carpenter

Thanks, Leif. Before I open up the call for questions, I want to emphasize that we are excited about our start to 2014 and are looking forward to building on our momentum. We’ve taken the right steps to position ourselves to benefit from healthcare reform and capitalize on the changing landscape. One of our priorities for 2014 is to continue our political advocacy on behalf of the industry and our rural hospitals in particular. We successfully coordinated with many national and State hospital associations this quarter to support the passing of the sustainable growth rate package which guarantees the continuation of physician payments and restores key Medicare extenders for our rural facilities until April 2015. We are continuing our efforts to find permanent solutions for both the SER and rural hospitals.

From an operational standpoint we are implementing plans to optimize our operating performance while maintaining cost discipline and are successfully driving initiatives to enhance our quality of care. All these factors enhance our ability to grow and point to a promising outlook for 2014. We look forward to updating you on our progress.

With that operator, we are now ready to take questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question is from the line of A.J. Rice from UBS. Please go ahead.

A.J. Rice – UBS

Thanks and thanks for all the information about reform. I just want to make sure a point of clarification. Michigan, their expansion goes effective April 1 if I have it right. Are you including their numbers in your commentary about the Medicaid expansion or is that still in front of you?

Leif Murphy

A.J., it is a good point that Michigan is expanding effective on April 1. We have included the expected benefits of expansion in our reform guidance, although in the upper peninsula of Michigan we have a surprisingly low level of self-pay patient volume there.

A.J. Rice – UBS

Okay. And then maybe just -- this is around Michigan as my follow up. I’ll just go on and ask you because I think this -- If I’m not mistaken, this is the first quarter that Marquette gets included in the same store results and obviously that’s a huge hospital for you. How did that impact results sort of qualitatively? Some of the same-store matrix by moving it in or did it really move the needle much?

Leif Murphy

It did not move the needle much. It had seen improvement over the course of last year. It is the first quarter that’s in our same-store results. When we look at the class of all of our acquisitions coming in, they are trending in line with our expectations, moving from those single digit margins early on into low double digit margins. And so we look at the class of acquisitions really all the way back to our hospital in Roxboro, North Carolina through the most recent acquisition in Wilson that was and is and our numbers for one month this quarter. Those types of acquisitions are trending in line with all of our expectations. While we’re on that topic …

A.J. Rice – UBS

Just on that to clarify if I could, the admission, the metrics in that, they are seeing similar trends to what you are reporting overall as well?

Leif Murphy

Overall, yes.

Leif Murphy

Just while we are on that topic A.J. since you brought up same-store, you won’t see it reflected in the numbers in the quarter. The reason we adopted it now is because number one, it’s the first quarter of our year, but also it will give people time to anticipate it with the fourth quarter being the first quarter you’ll see a difference because we completed all of our 2013 acquisitions in the fourth quarter. So fourth quarter of 2014 we’ll those roll in to the same-store results whereas on the old practice they would not have.

A.J. Rice – UBS

I see. Okay, thanks a lot.

Operator

Our next question is from the line of Sheryl Skolnick from CRT Capital. Please go ahead with your question.

Sheryl Skolnick – CRT Capital Group

Good morning gentlemen and a very nice job and a nice way to start off an earning season we were all dreading. Congratulations. My question center around that -- now that you’ve had a little bit of experience at seeing formerly no-pay patients or self-pay patients coming in as Medicaid and or potentially exchange, could we talk a little bit about the dynamic of how much you are experiencing or what you are seeing with respect to copays, deductibles, out of pocket collections? And while we are on the topic, what actually happens to the revenue per adjusted admission if you could hold those things equal? Because I suspect we may see some compression if you’re going from your list price gross charge self-pay case not discounted to a Medicaid, that we should expect some compression on revenue per adjusted admission even as we see a substantial increase in cash flow and margin. And then the final point on that question is to the extent that you can determine at this point how much of the increase in cash flow from operations year-over-year was due to the increase in coverage of the formerly self-pay patients. Thanks.

Leif Murphy

Okay. Was that your one question, Shirley?

Sheryl Skolnick – CRT Capital Group

Yes. It was my one question. It’s all the same topic.

Leif Murphy

No. That’s fine. Let me take a stab at working through several of those. It has been a complicated quarter for us just operationally because as you said and as I think everyone on the call today appreciates, there has been movement from no-pay into the Medicaid buckets. And so that has translated to differences in co-pay and deductible in how we work with our patient base and how we estimate our different revenues. That being said, a couple of teaches here. As we look at the net revenue and as we look at the collections and the practices, we do recognize our Medicaid revenues at a Medicaid rate net down to our expected payment. In our revenue per admission and our revenue per adjusted admission on the Medicaid side, those are netted down. So where you would see that reflected as a difference in our financial statements is number one, when we look at our payer mix gross, that payer mix gross will move because the self-pay number will come down and the Medicaid number will come up and not proportionately because self-pay is reflected in gross, whereas Medicaid is reflected in net. And so that transition will occur.

As we look at the copay deductible and the rest of it, our paid health insurance exchange claims for patient responsibility is running at less than $200. So our experience on the collection side of that has been consistent with what we have seen in the past. So in terms of net revenue and compression from a net revenue perspective, we would expect that we will see net revenue increase because net of the provision, net of contractuals, we will see higher collection rates because we’re now getting paid for claims that previously were self-pay from the ..

Sheryl Skolnick- CRT Capital

Bring it down to cash that cash revenue, sort of the cash collectible revenue, that absolutely goes up on the same diagnosis, same patient basis.

Leif Murphy

That’s right. If we backed it up even to the simplicity of the guidance that we gave and we’ve been tracking too, when we talked about 4% to 5% of our EBITDA coming from the reform expansion, what we’re essentially defining is a range of about $22 million to $29 million. So, we are experiencing the high end of that range. So, if you just took the high end at $29 million for the quarter, we’re seeing approximately a quarter of that that will reflect in our cash flow output from operations. And we would expect to see that annual number over the course of the year. Now there’s a little bit of a lack there because of the collection timeframe associated with new coverage, but remember some of these patients were effective through auto enrollment on the first day of the year. So that is …

Sheryl Skolnick- CRT Capital

Okay and for those who do have copays, you said you have an average balance after our average amount of $200 per patient to collect. Is that what you said? Is that what you meant by the $200?

Leif Murphy

On the health insurance?

Sheryl Skolnick- CRT Capital

Yes.

Leif Murphy

That’s correct. On the health insurance exchange side, patient responsibilities is running less than $200.

Sheryl Skolnick- CRT Capital

Less than $200. Perfect. Thank you so much.

Operator

Our next question is from the line of Justin Lake from JPMorgan. Please go ahead.

Justin Lake – JPMorgan.

Thanks. Good morning, wanted to follow up on the pricing question here. Self-pay is down pretty dramatically as you talked about. I’m just surprised it’s not having a bigger impact on those revenue per adjusted admission. Was there anything else in the quarter we should think about here on the pricing side such as case mix or commercial volume growth that was maybe an offsetting pressure in the other direction?

Leif Murphy

Justin, that’s a great question. If we look at revenues per equivalent admission and we went and rolled it all the way back to the first quarter of ’13, we were about $7,995. If you look at where it is in the first quarter of ’14, we’re up 1.6% or $8,125. To actually work through or walk through that rate difference, you’d have to look at that first quarter and back a few things off that changed year-over-year. So for example sequestration came down. It went effective April 1. It was about $400 million. We had benefit of the extenders -- two quarters of extenders in the first quarter of 2013 because of the way the approvals worked on the extension of low volume and Medicare-dependent hospitals. And that was approximately $5 million. And then we saw year-over-year declines in the Sole community program in New Mexico. It was about $4.5 million. So you take each of those three things, they are almost 50 basis points apiece and you take them off at the base number and you look at it, what does that leave for us. That’s about 3%, 3.1% increase in effective revenue per equivalent admission. So our historical guidance has been somewhere around the 2%. It’s about where we experienced last year.

So I think that reform benefit when you think about it being $7 million in the quarter, we’re 25% of the $28 million or $29 million, maybe a little bit higher than that, that’s representing about 70, 80 basis points of increase on top of our core business. It’s moving it a little more than 2%. So very consistent with what we would have expected when you back out those three things that changed. And hopefully everyone anticipated changing from last year.

Justin Lake – JPMorgan.

Got it. That’s helpful and then just one last quickie. The quarter obviously, you talked about the reform benefits being at the high end of expectations. The quarter was more in line. I know there was some more weather etc., but just thinking about the fact you don’t give quarterly guidance, can you give us an idea of how this quarter looked relative to your internal expectations?

Leif Murphy

I will. So I think the piece that we were most fortunate on was we waited to give insights into reform. So is the rest of the quarter played out? What we saw on the reform side was, number one it was consistent with the way we had decided to evaluate it. So we started out with a swimming pool sized list of considerations and tried to drill it down to the metrics that we thought were going to be most important to track. And I think in hindsight those metrics were good choices. So it has allowed us to really keep our eye on the ball and how we are performing related to exchange, relative to Medicaid expansion and it’s very consistent, albeit on the high end of where we had estimated. From an operations perspective, I’m going to look at David real quick and let him give you his insights.

David Dill

Justin, as we planned out the first quarter of the year, clearly we didn’t anticipate the weak flu season. It’s been well documented and the severe weather. So we are attributing up to 2% of our volume decline this quarter on the admission line and up to 1% on the surgical line, primarily on the outpatient surgeries was attributed to the weather that we didn’t anticipate. So admissions were obviously softer than what we had expected with flu and weather. Surgical volumes were impacted a little bit as well, although not as much as overall admissions, but that was offset by as Bill shared in his opening comments, some great work that our operators around the country did in controlling cost in this tough volume environment, primarily on the labor side. Leif talked about same-store labor cost, same hospital labor cost down 0.4%. That also includes the continued ramp up of physician practices and that’s included in that number. So, when you carve that out, you can see the changes that were made to help offset the difficult volume environment that we went through in the first quarter.

Bill Carpenter

And this is Bill. It really is important to recognize these operations teams for the work that they’ve done to manage costs in this difficult soft volume environment. David mentioned labor cost, but supply cost down 1.2% in the quarter is further recognition that we are responding to the soft volume situation and successfully managing in that environment. So an outstanding team doing an outstanding job to execute on delivering the results.

Operator

Our next question is from the line of Joshua Raskin from Barclays. Please go ahead.

Joshua R. Raskin - Barclays Capital

Thank you. Good morning. So my question relates to the increase in Medicaid eligibles’. I think you said in your prepared remarks, Leif that in those seven states, you guys have been targeting a 60% to 80% conversion; you were at the high end of that. So when you say you’ve converted, let’s call it 80% of those who qualified for Medicaid, I assume that’s what you’re booking from a revenue perspective. But from a payment perspective in adjudication with the states and a finalization that, yes indeed these individuals are Medicaid eligible, when do we get better clarity on that? And I ask because accounts receivable was up a little over $50 million in the quarter and was curious if there was a correlation there.

Leif Murphy

There’s no correlation there. As we look at and evaluate patients, a few things are there that are important to consider. When we had Medicaid pending, we are still conservative about how we recognized revenue related to Medicaid pending. We do recognize a conversion rate based on past practice and past experience around the number of those Medicaid pending patients that will convert. Back to your comment or pointing out, we had estimated 60% to 80% of conversion rate at higher than our past experience. So our ability to actually get folks enrolled is trending very high and that’s a real function of what we’re doing operationally to stay focused, follow each application through and the education that’s been done in each one of the local markets.

Now, there’s a small lag effect that’s associated with that, but we’ve had a high success rate in enrollment in having our patients actually present with cards. So what’s reflected in the quarter is a function of those patients that are showing up and where we’re actually recognizing the revenue with some small lag for folks that aren’t. Now, we have had some backlog in a couple of states, New Mexico and Arizona in particular. They are not overwhelming backlogs by any stretch and we’ve had very good experience in each of the other states that we have. As we look at AR, because it’s something that we’re very focused on and invest a great deal of time on, we look at it in a couple of different ways.

One is looking at it from a day’s perspective. We have always the balance sheet pieces we’re looking at. Then we’ve spend particular time because of the transitions that we’re working on from a revenue cycle perspective, to make sure that we don’t have slowdowns in the collections cycle that are going to negatively impact our position on accounts receivable. So as we look at accounts receivable from yearend until the first quarter, part of the walk from yearend which is essentially about a $9 million increase, is that we acquired accounts receivable in the Wilson transaction. We also had some third party changes associated with the quarter. As we walk it from last year, it’s again an acquisition impact.

We also had the reclass of credit balances that was a change in accounting policies associate with our movement to Parallon. But then we have also experienced a slowdown in the collections cycle specifically associated with the transition to Parallon, and that’s been about several days and we’re very focused on working through that. We’re also working with prepayment audits and some of the things around prepayment audits that have become somewhat of a nuance here in the last 12 months that are creating some slowdown in days. If I were to walk days for you, from continuing ops fourth quarter of ’13 was about 59.1. Our days outstanding Q1 ‘14 is about 60.2.

If we normalize for the Wilson acquisition, which had one month’s revenue but had a full balance of accounts receivable, we finished again at59.1 days. So, very flat continuing ops period to period. A little bit of an increase from a same-store perspective and as we dig in and look at what are the drivers of the same store number that’s predominantly the prepayment and RAC audits and there are also some delays in the North Carolina Medicaid program that are attributing approximately a day to the same-store numbers. So we’ve got about a day quarter to quarter in new Parallon transition. We’ve got a day that’s tied up in North Carolina Medicaid prepayment audit.

Joshua R. Raskin - Barclays Capital

Okay, that's really helpful. So just really quick, I just want to make this as simple as possible on the reform side in terms of your expectations in the seven expansion markets. If you had 100 individuals that last year were self-pay, your expectation was that 80 were going to qualify for Medicaid. And what you're saying now is that you've actually converted 64 of -- 80% of the 80. 64 of those individuals have actually been converted to Medicaid from self-pay. And of those 64, I just want to make sure I understand that, the states have recognized and have paid for those 64, or there is some assumption again on a conversion rate in terms of the payments too?

Leif Murphy

So using your temple, that’s correct. So of 100 patients we would assume that 80 of them were Medicaid eligible and 20 were health insurance exchange eligible. And our capture rate on those 80 patients has been running at 80% or even slightly higher. So we have 64 patients then in those expansion states that are essentially now eligible and the lion’s share of them actually carrying a Medicaid card. Now clearly for patients treated in the month to March and even patients treated in the month of February, we haven’t collected all of the dollars associated with services provided to those.

Also some of those patients are going to be non-compliant, but at the end of the day we would expect that each dollar in net revenue that we have booked associated with the expansion is 100% collectible after the reserves that we have applied to it. Now, we also have presumptive eligibility that’s in place in 10 of our 20 States. I think surprising to me it’s not in place at this point in all 20. And I together with David and Bill have invested a lot of time in understanding the reasons which are all State specific. But over time, presumptive eligibility should give us the ability to recognize even more of the revenue at the time of service as we rely more on the new rules for ultimate collection.

Operator

Our next question is from the line of Jason Gurda with KeyBanc. Please go ahead.

Jason Gurda – KeyBanc Capital Markets

Did you guys give an actual number for the percentage decline in uninsured admissions or self-pay admissions that you saw in the quarter?

Leif Murphy

We did and it deserves I think special emphasis. Self-pay admits were down 26.1%. And as we look at it as a percentage of total, they are down to 5.4% from 7%. So very consistent with the numbers I walked through on overall healthcare reform which on 80% capture rate on Medicaid and 15% on HIX is kind of 25% overall.

Jason Gurda – KeyBanc Capital Markets

Wow, that's quite a big number. Okay. And just separately, you talked about $800 million in revenue from pending acquisitions. Did that include Wilson, or was that just deals that you haven't closed yet?

Bill Carpenter

It’s just deals that have not closed yet.

Jason Gurda – KeyBanc Capital Markets

And do you have an associated EBITDA figure with those hospitals?

Leif Murphy

We have not historically reported those as we are working through our diligence process. There are a lot of adjustments that are getting made to the numbers that are historically reported by those hospitals that you are looking at in AHD and other places, whether for taxes or loss of 340B programs or differences in accounting protocol. So as we sit here today there is not a number that we are comfortable putting out there.

Operator

Our next question is from the line of Colleen Lang from FBR. Please go ahead.

Colleen Lang – FBR & Co.

Obviously, we are in a soft volume environment, but do you have an expectation on when you think volumes within your portfolio should improve? And do you have any expectation for incremental volume from reform within your 4% to 5% EBITDA guidance? Thanks.

Bill Carpenter

I’ll start on the volumes within the portfolio. Clearly the acquisition strategy will play into this over time. So affiliating and partnering with hospitals in bigger communities I think will tilt the overall volume portfolio up. We have our guidance that’s out there for the year. Clearly we started off a little bit slower, but given the weather and the flu in the first quarter of this year, we think that will normalize a little bit in the second, third and fourth quarter. And then the investments that we’re making as well in different service lines, not just in our new hospitals that we’re acquiring, but in our existing hospitals, will draw volume into our hospitals, we believe. And then finally the other point I’ll make is around unemployment rates, stable to improving across the country that should help not just on the volume side but on the rate side as well.

Colleen Lang – FBR & Co.

Okay, great. And just given the reform benefit you saw this quarter and I think the general expectation in the market that the benefits of reform should ramp throughout the course of 2014, is there any reason that the benefit of reform shouldn't be better or higher than the 5% target, given I think you said that this quarter you recognized 25% or higher of your annual reform benefit of $29 million?

Leif Murphy

Colleen, it’s a difficult analysis. We believe that the first quarter will be indicative of the results through the balance of the year and there are a number of reasons for that. One is that with the exception of Michigan, which has a very small self-pay percentage, that sounds funny but in the upper peninsula of Michigan, self-pay is very limited. All of our states had expanded. And so those seven states remain the self- pay populations where there’s reimbursement available. The reimbursement has been available since January 1st and the self-pay population’s always been one which we have taken care of and provided for from January through December. We don’t expect to see a different trend of volume or a different trend of utilization.

I think the latter is important in that self-pay universe. We would expect to see the same level of coverage across the self-pay universe for the Medicaid population through the end of the year. Now, we may see increases in utilization, which we have not forecasted as folks now are eligible for insurance coverage. On the HIX side, very similarly, HIX’s enrollment is complete and although there was some uptake that occurred very late in the program, it still only represents 3% of our overall self-pay population. That’s very consistent with where we had expected in that kind of 2%, 3% range early on. I would expect that we would see the same type of trend in each of the remaining three quarters of the year.

Operator

Thank you. Our next question is from the line of Andrew Schenker of Morgan Stanley. Please go ahead.

Vikram Malhotra – Morgan Stanley

Hi. This is Vikram in for Andrew. Can you provide us with how much of your overall 2013 self-pay volumes versus total volumes? And then of the newly insured, can you provide some color on the health status of this population and if any of these people are frequent utilizers? Thanks.

Leif Murphy

Okay. I hope I hit this question correctly, but I think what I heard there was the self-pay volumes as a percentage in total, and I’ll give you a couple here. One was the self-pay admits was 7% last year in the quarter and 5.4% this year. One that I haven’t shared that I think is relevant and significant also is self-pay ER business were down by 13.4% overall. And they represented 18.5% of the total ER visits and that is down from 20.5% in the first quarter of last year. I think another interesting way of looking at this too is sequentially because you look back over time when our self-pay was growing sequentially quarter after quarter and in the fourth quarter our self-pay admits were, I’d say as a percent a total of about 7.92% and our self-pay ER was about 22.2%. So major declines as a percentage of total one day -- as a total of self-pay admits and as percentage of self-pay ER

Vikram Malhotra – Morgan Stanley

And then can you maybe go over like the overall health status of the newly insured that you're seeing relative to the Medicaid populations you were kind of serving in 2013?

David Dill

I’ll take that one. It’s David. I think it’s too early this quarter as this has begun to roll out and we are just beginning to see these volumes. Give us another quarter or two to be able to comment on that. It’s just too early in these conversions and breaking out and better understanding who’s Medicaid, whose HIX and their health status specifically. But we’ll be in a better position to comment on that in the coming quarters.

Bill Carpenter

But I do think it’s relevant to remember that in communities where we are the only hospital in town, we likely were seeing these patients previously. So I agree with David; it’s too early to tell and we’ll continue to monitor it very closely, but our communities are a bit unique.

Operator

Our next question is from the line of Ralph Giacobbe with Credit Suisse. Please go ahead.

Ralph Giacobbe – Credit Suisse

Thanks. Good morning. You talked earlier about I think a lag effect on the Medicaid side. I just want to make sure. That's just on the cash flow side or is there anything sort of Medicaid pending or any revenue that you've held back in the first quarter?

Leif Murphy

So I would say cash flow for sure that you do have accounts receivable associated now with this new Medicaid population that used to be reserved to zero. There’s collection cycle associated with those new revenues. As it relates to the Medicaid pending, there is a lag effect associated with some of that Medicaid pending, which makes me comfortable that we’ll at the high end of our expectation for reform. And that’s because when we recognize a new Medicaid patient that has a new application but Medicaid is still pending, we record them in self-pay, albeit with some level of revenue recognition based on past practice. Now our conversion rate is much higher that it has been in past practice here in the last quarter. So there may be a very small amount of lag that’s also associated with higher conversion rates in Medicaid pending.

Ralph Giacobbe – Credit Suisse

Okay, so there is some level that could come in sort of more in 2Q? The reason I'm asking is, obviously, the numbers are pretty strong. And when you're saying your self-pay is down 25%, going back to a question earlier, I just would sort of suggest that there should have been more sort of pull through. So I'm just wondering if that's an issue that we are sort of mixing apples and oranges as it relates to just numbers of uninsured coming down relative to the revenue recognition, or if it's just that the organic trends are basically offsetting the benefit of what would have been greater sort of pull through.

Leif Murphy

I think there are a couple of things going on there Ralph. I think one is unfortunately Medicaid is a low payer. So despite seeing some of the admit in the ED volume declines, if Medicaid doesn’t step up with a big check, it’s reimbursement at the end of the day. But it’s a lot better …

Ralph Giacobbe – Credit Suisse

Can you give us maybe -- I'm sorry, go ahead.

Leif Murphy

But there’s lots …

Ralph Giacobbe – Credit Suisse

No, I was going to say can you give us the incremental capture rate between uninsured and Medicaid on an average admit. Because I understand it's a smaller amount relative to Medicare or commercial, but I would think that the incremental capture rate relative to an uninsured would actually be relatively high.

Leif Murphy

In terms of dollars, Ralph?

Ralph Giacobbe – Credit Suisse

Yes.

Leif Murphy

So on the incremental -- so we have historically been able to collect some dollars on self-pay. From an incremental perspective, we are probably talking about something around $4,000 to $4,500 per admit.

Ralph Giacobbe – Credit Suisse

Okay, that's helpful. And just my last one, can you give us what same facility EBITDA growth was in the quarter? Or maybe it didn't grow. Just wondering what the same facility EBITDA trends were in the quarter. Thanks.

Leif Murphy

So if we look at from a same-store perspective on the EBITDA side, we’re probably up somewhere in the 1ish% range. But then you’ve got to adjust backwards for all of the things we talked about on sequestration and Sole community and the other impacts I’ve mentioned related to the reimbursement side.

Operator

Our next question is from the line of Whit Mayo from Robert Baird. Please go ahead.

Whit Mayo – Robert W. Baird

I guess just to follow up on Ralphs’ question, Leif did you say that you classify Medicaid pending as self-pay?

Leif Murphy

We do. We have Medicaid pending that’s in self-pay, but then we do recognize a certain conversion rate on that. In the dollars in revenue we recognize, they are recorded in our Medicaid revenues.

Whit Mayo – Robert W. Baird

Yes, no, I think I get the revenue recognition and cash flow impact. I'm just curious that if you reclassified that Medicaid pending actually to Medicaid and away from self-pay, do you have an idea of how much your same-store admissions would be down? I guess presumably they would be down even further than the 26%.

Leif Murphy

It’s actually very small and that’s the point that I was making about there really being a small lag effect. But we’ve got a high success rate in enrollment and having patients actually present with a card. So of the Medicaid patients that we were treating through reform, a high percentage of them were either auto enrolled. They were enrolled through the outreach process that we did in the fall of last year or have been enrolling through the months of January and February. There are some that are backlogged, New Mexico and Arizona, but for us it hasn’t been a material backlog. So I don’t see a significant statistical variance associated with that nor do I see a significant lag effect associated with that on the income side.

Whit Mayo – Robert W. Baird

No, that's really helpful. And maybe just focusing on Kentucky for a second, the enrollment numbers at this point are quite stunning, particularly for the Medicaid enrollment. One could argue that even now 50% to 60% of the previous uninsured are covered and were only in April. Maybe for Bill or David, maybe just can you reflect on what you think is unique about Kentucky and why or why not or why can't we see a similar experience replicated in other states over time beyond the fact that many have not expanded their Medicaid programs.

Bill Carpenter

Quite honestly I think we can see a similar experience over time. I really think there was great leadership in Kentucky on being early to step up and expand and to take on the healthcare exchanges. So I think quite honestly with over time I think we can see similar results in many other states.

Whit Mayo – Robert W. Baird & Co. Inc.

Okay and maybe just one last one here. But I know it's early again, we are sitting here in April. But has there been any market at this point that has surprised you more versus maybe your internal expectations entering the year? And I'll hop off, thanks.

David Dill

I will interpret that question to mean, on the expansion of healthcare reform itself, West Virginia, I think the auto enrollment in West Virginia that Leif talked about earlier clearly had a quicker impact in that state more than the numbers of enrollees are a little bit smaller than we have in some of the other states. Our two hospitals there saw pretty significant impact more quickly and then in Kentucky it’s been well documented. They’ve done a nice job of rolling out their programs and we’ve got a lot of exposure in the state. So that market is performing well in the first quarter of the year primarily driven from the expansion.

Operator

Our next question is from the line of Kevin Fischbeck with Banc of America Merrill Lynch

Kevin Fischbeck – Banc of America Merrill Lynch

Great, thanks. Just I didn't think I’d get tired of talking about reform, but maybe just get a little bit on the volume number for you guys. Obviously down, but if you kind of strip out some the things that you were talking about, it seems like the volume numbers were actually better than they've been in a little while. I just wanted to -- I think last quarter you talked about a number of initiatives to try and grow volume. I just wanted to see how you're seeing these things take hold and if there are any other dynamics and whether you think that reform actually did improve volumes at all during the quarter. Or is this just a function of those dynamics and how we should think about the volume for the rest of the year.

David Hill

Yeah, I didn’t see any significant uptake in volumes as it related to expansion in the quarter. Now some of that may just be in the first quarter. You clearly saw the payer behind the volumes change that impacted revenue, but not really volume. So they will closely monitor that as the year progresses. Acquisition strategy will play into that as those roll on the same store results. We feel like we’re moving in to bigger markets, stronger markets, more diversified employment bases than what we currently have, so that will help. And then just ongoing investment that we talk about on a previous question around physician employment, physician recruiting and capital investments and expanding service lines, I am cautiously optimistic, but it is a tough environment. There are a lot of things hitting the industry now, although we’re not seeing much of an impact on the 2-midnight rule, I mean those regulatory changes make it very difficult to analyze volumes and the investments that we’re making to grow volumes. But outside of that, Kevin I am cautiously optimistic for the balance for the year.

Kevin Fischbeck – Banc of America Merrill Lynch

Is it pretty broad-based, the volume, I guess how I would call it I guess sequential improvement, or seeing some markets significantly different than others and, again, expansion versus non-expansion. It’s like you’ve seen any changes for differential and volume growth?

David Hill

Yeah. I think just broadly speaking some of our smaller markets have been more vulnerable than our bigger market and I think that ties into the acquisition comment that I made earlier. So we have seen more pressure on volumes in the smaller geo markets within the organization versus our bigger tier hospitals and markets.

Operator

Our last question is from the line of Darren Lehrich from Deutsche Bank. Please go ahead.

Darren Lehrich – Deutsche Bank

Thanks. Good morning everybody, and thanks for all the information on what you’re seeing relative to ACA. Very helpful. Two quick things, I guess first, you’ve been consistent in your message about the decline in the one day stays and your assessment that you’re not seeing any direct impact from the 2-midnight rule. I guess I’d be curious just get your thoughts on why you’re so sure about that and whether you think it possible that any kind of clarification the 2-midnight rule might help things go the other way.

David Hill

We look at the 2-midnight rule, Darren a lot of different ways. And while they’re -- some specific hospitals you can see an impact those hospitals. But what we’ve said across the company, not a meaningful impact. And the two statistics that I look at and although there’s a lot of other things going on in some of these numbers around flu activity, weather related activity. But when we’ve trended this now over the last several quarters, Medicare one day stays are changing. They’re coming down, but it’s not very much and out Medicare observation visits greater than 48 hours based on physician certifications that are now eligible to be billed as an inpatient admission, are coming down as well which helps offset that.

So when we net those two together across the company, we get to a very small number. Now a lot of training and education continues to happen, working closely with our compliance teams here, traveling out to our hospitals to make sure that our physicians and our nurses and case managers are preparing all the certifications, they’re in the file. We’re auditing those certifications into this continuous loop of training and education. But then being able to look at the data on the back end, it continues to suggest pretty consistent results in each of the periods since the 2-midnight rule has been implemented o get us back to an answer of if it’s an impact, it’s not very much.

Leif Murphy

And I think it’s important to realize as David talks about the training and education that’s going on today, this is training and education that’s been going on for years. And so we have been very focused. When I think back on the questions that we used to ask -- deal with regarding observation status and CMS guidance that came out a few years ago. We have been training on this and trying to get it right and trying to make sure the patients are in a right setting for care for a long time. And so Darren part of your question was what about further changes to come? You know what? We will train on those as they come and we have continued to update that training. And David described it an educational loop. That’s exactly right. We just keep after it and we won’t get it right all the time, but we’re going to do our best.

Darren Lehrich – Deutsche Bank

That's helpful. And then just last thing here, just as it relates to Utah, you commented about self-pay for Peninsula not necessarily being a big factor, but it looks like we're getting really close on Utah in terms of their Medicaid expansion decision. And I'm curious just to know what your self-pay mix, just roughly speaking, looks like in Utah to the extent that that does come in 2015. Thanks.

Leif Murphy

Darren, we will give some more commentary on that as we get a little bit better perspective on each of the stage and the timing for them. But right now id’ rather keep it a little higher level as it relates to the future. I think the one piece or the one metric that’s I think very valid is looking at our overall capture rate relative to the benefit it has so far. And if you extrapolate that out to 100% capture rate across the HIX and across the Medicaid populations, that’s very meaningful for us. So we will keep working hard in each one of those states.

David Hill

And Darren, as you know we have two hospitals there. They’re relatively small hospitals.

Darren Lehrich – Deutsche Bank

Yes, I know. I just asked the question, but I think Utah has a pretty nice Medicaid program, so just might be incremental. But thanks very much.

Operator

Thank you, gentlemen. I’m showing that there are no questions at this time. I’d like to turn the call back to you.

Bill Carpenter

Thank you, Operator. I’ll conclude by saying our year is off to a good start. I really want to thank this team and all of our 32,000 and physicians across the country who work hard every day to make our success possible. Our results are not always going to be linear and we know that, but our strategies for growth, for quality and service, for operational excellence and talent development are working. Our plan is to continue to execute on the strategies with excellence. We’re confident that this, as well as the effective deployment of capital will continue to deliver long term value for shareholders.

So thank you all for joining us on the call today and we very much appreciate your interest in LifePoint Hospitals.

Operator

Ladies and gentlemen, that does conclude the conference call for today. We thank you all for your participation and we ask that you please disconnect your lines. Thank you everyone and have a good day.

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