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Executives

Kelly Curry - Chief Financial Officer and Executive Vice President

Robert Farnham - Senior Vice President of Finance

John Merriwether - Vice President of Financial Relations

Gary Newsome - Chief Executive Officer, President and Director

Analysts

Ralph Giacobbe - Crédit Suisse AG

Colleen Lang - Lazard Capital Markets LLC

Gary Lieberman - Wells Fargo Securities, LLC

Justin Lake - UBS Investment Bank

Whit Mayo - Robert W. Baird & Co. Incorporated

John Ransom - Raymond James & Associates, Inc.

Arthur Henderson - Jefferies & Company, Inc.

Albert Rice - Susquehanna Financial Group, LLLP

Darren Lehrich - Deutsche Bank AG

Gary Taylor - Citigroup Inc

Adam Feinstein - Barclays Capital

Sheryl Skolnick - CRT Capital Group LLC

Kevin Fischbeck - BofA Merrill Lynch

Health Management Associates (HMA) Q2 2011 Earnings Call July 28, 2011 11:00 AM ET

Operator

Good morning. My name is Matthew, and I will be your conference operator today. At this time, I would like to welcome everyone to the Health Management Second Quarter 2011 Earnings Call. [Operator Instructions] John Merriwether, you may begin your conference.

John Merriwether

Thank you, Matthew, and good morning, everyone. I'm John Merriwether, Vice President of Financial Relations for Health Management Associates. I'd like to welcome you to Health Management's Second Quarter 2011 Earnings Conference Call.

Before we get started with the call, I'd like to read our disclosure statement. This presentation contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are subject to risks, uncertainties and assumptions and are identified by words such as expects, estimates, projects, anticipates, believes, could, prospects, promising and other similar words. All statements addressing operating performance, events or developments that Health Management expects or anticipates will occur in the future, including, but not limited to, projections of revenue, income or loss, capital expenditures, earnings per share, debt structure, bad debt expense, capital structure, repayment of indebtedness, other financial items, statements regarding the plans and objectives of management for future operations, statements regarding acquisitions, divestitures and other proposed or contemplated transactions, statements of future economic performance, statements of the assumptions underlying or relating to any of the foregoing statements, and other statements which are other than statements of historical fact are considered to be forward-looking statements. Statements made throughout this presentation are based on current estimates of future events, and the company has no obligation to update or correct these estimates. Listeners are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties and that actual results may differ materially as a result of these various factors.

In addition, adjusted EBITDA, as mentioned on this call, is defined as consolidated net income before discontinued operations, net gains/losses on sales of assets, net interest and other income, interest expense, income taxes and depreciation and amortization.

On the call with me this morning are President and Chief Executive Officer, Gary Newsome; Chief Financial Officer, Kelly Curry; and Senior Vice President Finance, Bob Farnham. Thank you for your attention, and I'll now turn the call over to Gary.

Gary Newsome

Thanks, John, and good morning, everyone. Thank you for joining us to discuss our solid results for the second quarter ended June 30, 2011. It was another strong quarter for us. The second quarter from continuing operations and compared to the same quarter a year ago, Health Management reported net revenue growth of 13.4% to $1,395,000,000, adjusted EBITDA growth of 12.3% to $203.8 million; income from continuing operations growth of 23.5% to $56.9 million; and diluted earnings per share or EPS growth of 25% to $0.20 per share.

Contributing to these outstanding continuing operations financial results were an admission increase of 2.2%, adjusted admission increase of 6.2%, the emergency room visit increase of 9.6% and the surgery increase of 5.6%. For continuing operations at hospitals we have owned and operated for 1 year or more, refer to the same hospitals continuing operations compared to the prior year's second quarter, revenues increased 4.2%, adjusted EBITDA increased 5.8% to $225.5 million, resulting in a 30 basis point improvement, and EBITDA margins of 17.6% and surgeries were up slightly.

Recall that our same hospital surgery group in the second quarter last year was among the best in the publicly traded space at 4.4%. This has been an unusual quarter for us in regard to weather-related disruptions due to tornadoes and floods affecting our Alabama, Missouri and Mississippi hospitals. Accordingly, the accounting for this weather activity and declines in uninsured admissions immerse, admissions from same hospital continuing operations declined 4.9%, translating to a 1.3% adjusted admission decline compared to the year ago quarter.

Again, recall that in the year ago quarter, Health Management led the publicly traded hospital group with the same hospital adjusted admission growth of 3.7%. We are exceeding our financial objectives. We believe our strong results reflect our continuing efforts to invest in innovation, recruit new physicians and deliver higher level services. Frankly, the business we are tracking is solid.

We continue to battle the headwinds of a difficult economy. As we previously stated, there is a real reluctance on the part of people to take time from work to address illnesses. They are seeing physicians, but then declining physician recommendations for inpatient care and seeking alternative therapies. We expect these patients to return.

In concert with our service expense and strategies, our Acuity levels are up. Outpatient activity remains strong as we continued to reap the benefits of our market share development and strategically deploy capital. Likewise, our ER and physician recruitment initiatives continue to be the right strategies for our markets as we seek to build market share. We will not take our eye off the ball with these 3 initiatives. We also expect to continue to employ our disciplined cost control approach as we seek to become more efficient. We are very pleased with how our hospitals have responded to these fluctuations in volumes.

We are making the right and correct decisions in terms of cost management and continue to seek ways to become more efficient. We believe our results indicate we are being successful in those endeavors. While these operating initiatives continue to achieve success and contribute to our solid results, our greatest opportunity for growth remains the partnership opportunities we are seeing.

As you recall, effective May 1, a subsidiary of Health Management partnered with the physician owners of 112 bed Tri-Lakes Medical Center located in Batesville, Mississippi to acquire a 95% controlling interest in Tri-Lakes and manage its operations. Most recent 12-month revenues from Tri-Lakes were about $45 million. The hospital integration is moving along and we expect to achieve our first year return objectives. Tri-Lakes represents a strategic opportunity for us to continue leveraging our Mississippi network of hospitals.

Also, on July 1, we executed a definitive agreement to acquire the assets of Mercy Health Partners, which is a subsidiary of Catholic Health Partners. And as a result of the agreement, Health Management will acquire or lease all 7 of Mercy's hospitals, which included a total of 1,323 licensed beds and additional continuum-of-care services that are part of the Knoxville-based East Tennessee Health System. Mercy Health Partners' 7 Tennessee hospitals generated about approximately $600 million of annual net revenue. The purchase price for this transaction is expected to be approximately $525 million plus certain adjustments for working capital and the assumption of certain long-term lease liabilities. The transaction is expected to be completed October 1.

Tri-Lakes and Mercy Health Partners, like many hospitals, are seeking a partner with a similar culture of patient-centered care, operational expertise, access to needed capital, and the systems necessary to meet future demands and regulatory requirements. We believe we are uniquely qualified to meet those needs.

With the completion of the Mercy Health Partner transaction, we will have added approximately $650 million of acquisition revenue for the second year in a row. When you consider the growth opportunities related to the successful implementation of our operating initiatives and cost discipline, we believe the revenue and earnings growth opportunities are compelling.

Interestingly, the pipeline for acquisition or partnership opportunities remains very active, and we believe we will continue to see opportunities for several years to come. Our operational expertise, access to capital, transaction flexibility, systems and culture are attractive qualities for hospitals to seek a strategic partner, whether through asset purchase, long-term lease or joint venture. One of the reasons for which we are sought out as a strategic partner is the strength of our systems.

And as most of you are aware, we announced just a few days ago that our Pulse System version 11.1 has been certified by the Certification Commission for Health Information Technology and we are now eligible for funding under the American Recovery and Reinvestment Act. Our IT team did an incredible job of achieving this certification and they are continuing to ensure our systems exceed expectations.

Thank you again for your attention. At this point, I'd like to turn the call over to Kelly for a review of our second quarter in just further detail

Kelly Curry

Thanks, Gary, and good morning to all of you. I'll summarize my comments so we can move onto the Q&A section.

Again, our second quarter net revenue grew 13.4%; adjusted EBITDA grew a strong 12.3%; income from continuing operations followed suit, increasing 23.5%, with diluted EPS rising 25% after a 1.6% increase in the number of fully diluted shares outstanding. These results contain no HIT or meaningful use funds from the federal or state government EHR hospital programs. Same hospital operations displayed continuing momentum in our core operations. Compared to the prior years, second quarter net revenue increased 4.2% and net revenue per adjusted admission growth was very strong, growing a significant 7.3%, reflecting increased acuity.

Unemployment rates in our markets continue to moderate and the number of uninsured patients seeking care at our same hospitals has declined for the last 4 quarters. Continuing same hospital uninsured admissions for the second quarter totaled 7% of total admissions, which is a 40 basis-point decline from the same quarter a year ago. As you know, there are 3 components that comprise our accounts for uninsured and underinsured patients: Bad debt expense, uninsured discounts and charity/indigent write-offs. These figures are consolidated and do include acquisitions. Bad debt expense for the second quarter was $170.8 million or 12.2% of net revenue compared to $147.9 million or 12% of net revenue for the same period a year ago. Acquisition hospitals are contributing to this increase.

Uninsured discounts for the second quarter were $232.5 million compared to $189.4 million a year ago. Health Management's charity/indigent care write-offs for the second quarter were $23.4 million compared to $20.1 million for the prior year. The sum of bad debt expense, uninsured discounts and the charity/indigent write-offs as a percent of the sum of net revenue, uninsured discounts and charity/indigent write-offs, which we referred to as the Uncompensated Patient Care Percentage, was 25.8% for the second quarter compared to 24.8% for the same quarter a year ago, and 25% for the first quarter ended March 31-- 21. This increase reflects both the impact of newly acquired hospitals and the normal effect of ordinary rate increase.

Our adjusted EBITDA from continuing operations for the second quarter was $203.8 million or 14.6% of net revenue, a jump to 12.3% and a $22.3 million increase over the prior year's $181.5 million. On a same hospital basis, adjusted EBITDA from continuing operations for the second quarter was $225.5 million or 17.6% margin compared to $213.2 million or a 17.3% margin for the same period a year ago. This represents a 30 basis point, $12.3 million and a 5.8% increase for the second quarter this year. As Gary mentioned, we are focused on being good stewards of our resources. We continue to believe we have more opportunities in front of us for our disciplined and structured cost control improvements.

Moving over to the balance sheet and cash flow statement. Total assets as of June 30 exceeded $5.1 billion for the first time ever. And cash and available-for-sale securities at June 30 were $230.7 million. The balance in accounts receivable, net as of June 30, was $761.8 million, and the balance in the allowance for doubtful accounts was $534.5 million. Health Management's days sales outstanding or DSOs as of June 30 were 49 days, taking into consideration the timing of the Wuesthoff tie-in notice and the acquisition of Tri-lakes, our DSOs would be about 2 days less.

Our cash collections continue to be strong and we are achieving our internal targets. For the second quarter, cash flow from continuing operating activities was strong at $156.1 million after cash interest and tax payments aggregating $98.1 million. Capital expenditures year-to-date were $133 million. With regard to our debt covenants as of June 30, Health Management's total leverage ratio was 3.93 compared to a requirement of 4.6. Our interest coverage ratio was 3.63 compared to a required minimum of 2.85. Both of these ratios are well within the requirements of Health Management's credit facilities.

So in summary, fully diluted EPS from continuing operations grew to $0.20, which represent a significant 25% increase as compared to $0.16 per diluted share for the same quarter a year ago after a 1.6% increase in the number of fully diluted shares outstanding. Same hospital surgeries were up slightly, which is significant given the peer group leading 4.4% growth for the same quarter a year ago. Same hospital net revenue increased 4.2% and same hospital net revenue per adjusted admission increased 7.3%. And same hospital adjusted EBITDA increased 5.8% to $225.5 million and same hospital adjusted EBITDA margins increased 30 basis points to 17.6%.

Thanks, again, and I'll turn the call back over to you, Gary

Gary Newsome

Thanks, Kelly. We're very pleased with the results in the second quarter ended June 30, 2011. Despite a challenging economic environment, we continued to manage our resources in response to the changing volumes and acuity. We believe we continue to have opportunities to improve our operations and we are raising our 2011 annual diluted EPS objective to be between $0.76 and $0.80 for the year, or roughly a 20% increase in diluted EPS compared to 2010. All of these with no HIT funds included.

While we are encouraged by the fourth consecutive quarter of declining same hospital uninsured admissions as a percentage of total admissions, we continued to believe that this prolonged environment of uncertainty is heavily influencing the level of care Americans are seeking.

As we have said before, it is our continued belief that patients are currently not seeking treatment for illnesses that, in better economic times, would have brought them to our hospitals. As a result, we are updating our 2011 same hospital admission growth objective to range between flat and down 2%. We believe our objectives are achievable, maintaining our focus and discipline on cost containment. And again, as we are focused and it's continued story, we're focusing our 3 operating initiatives, which is our ER operations as we grow our visit volume, physician recruitment to meet the market need in each of our markets, and market service development to expand the scope and level of service offerings in each market.

2011 continues to be a testament to innovation, commitment, focus and perseverance by all of our hospital associates, divisional leaders, home office associates and our dedicated medical staffs. Our Getting2Great cultural transformation continues. And together, we will focus on our patient-centered approach to delivering healthcare. We believe this approach makes a difference to our patients. I would like to thank all of our associates for their outstanding efforts in everything they do.

Health Management provides the people, processes, capital and expertise necessary for our hospitals and physician partners to fulfill their local missions of delivering superior healthcare services. Our strategy of ensuring the most modern, high-quality care remains close to the citizens of our communities, is gaining an ever increasing importance. Health Management stands ready to enable America's best local healthcare.

Thank you again for your attention this morning and I'll now open the call for Q&A.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Kevin Fischbeck with Bank of America.

Kevin Fischbeck - BofA Merrill Lynch

It sounds like acuity wasn't an issue for you, but I guess you guys have a little bit -- a different story than some others in just how quickly you're adding services and really moving up the acuity stream. Do you have any sense of whether or what the acuity might have looked like in hospitals where you really weren't adding service lines as aggressively? Was that also up noticeably?

Kelly Curry

Our acuity is up across our company. There's no operations that we aren't looking to expand and develop through our market service development and enhanced physician recruiting. It might be that in some markets, we might make as an example, 90%, 82.5% of the community needs and another market, we might be at 95% of their community's healthcare needs. And the reason for the difference there might be some areas that it doesn't make sense at this stage yet to grow them.

Gary Newsome

Kevin, this is Gary. I think it's important to note that every market has a market service development plan. And while some have executed key strategies more rapidly than others, every market has a plan to grow our services. And they've either achieved that goal or in the process of certain levels of achievement of those goals.

Kelly Curry

And probably, too, along the lines is the fact that we continue to -- because of advantages of adding additional services at home, we've grown our robotics, in our da Vinci side, to about 37 units now deployed throughout our system, and we're at about 19 units in deployed MAKO units. And of course, that adds opportunities for us in terms of what those surgeries and procedures are available, more people will come for other reasons to the facility.

Kevin Fischbeck - BofA Merrill Lynch

Okay, great. And then I guess just shifting over to the deal environment. I guess you had some pretty good deal, that it sounds like you have in the pipeline here, and as well it sounds like you have some visibility over the next several years about doing deals. But I guess, I want to get some sense about where you see the multiples, obviously, that the most recent deal in Tennessee has a bit higher multiples than what you've been doing in the past. What's your outlook for multiples going forward when you say you got some visibility in deals over the next several years?

Gary Newsome

Kevin, this is Gary again. As we look at these markets, really, the multiples depend on a lot of issues. Number 1, it depends on the market, a lot of the opportunities there, how successful can they be as far as we look forward. It also depends a lot on the assets that we're purchasing. For example, if the assets are fairly new and don't require a lot of initial capital upfront just to come up to par, then that becomes a more attractive market for us than a market that, for example, we would have to come in and actually consider replacing substantially part of the -- substantially part of the Hospital and all of it, in some cases. So that really affects the multiples as much as anything. Really the quality of the markets in terms of the -- as well as the assets that we're acquiring.

Kelly Curry

In addition, as we've said before on a number of occasions, those multiples could range from 0.4 to 0.9 on revenues. Typically, what we find in most circumstances is, is that if a hospital's been in trouble, it's been in trouble for a while. They haven't maintained the asset and about 30% of your capital expenditures are really decidedly non-exciting types of capital expenditures like maintaining the fire alarm, buying boilers, chillers, that sort of thing. And so we use an all-in calculation. So when we talk about a 4-year, cash-on-cash payback, when we value an asset for its potential we will subtract from that what we're going to have to spend to take care of getting that hospital right in terms of developing our multiple. So the better the assets are, the higher that multiple will be, particularly if they've even seen to the mundane which is taking care of that 30%.

Gary Newsome

And I think, Kevin, as far as Mercy is concerned, 3 of those facilities are new or virtually new, and so requiring little, if any, investment coming out of the chute.

Justin Lake - UBS Investment Bank

So that makes sense. So you're kind of saying kind of regardless of whether it's 0.4 or 0.9, the thing to focus on is the returns and you're getting a similar return cash-on-cash across those multiples?

Kelly Curry

Correct. We are capitalists.

Operator

Your next question comes from the line of Adam Feinstein with Barclays Capital.

Adam Feinstein - Barclays Capital

I guess I just wanted to get some feedback, you guys did an amazing job of cutting costs in the quarter as you came in lower than anticipated on most of the major cost line items. I just wanted to get some more thoughts in terms of what's going on there. I know it's been an ongoing trend, but just wanted to get some additional points of view there.

Gary Newsome

Well, Adam, I can address portion of this. I'll let Kelly tag team on. But you have to realize that from a cost standpoint, we continue to look for opportunities. But also, as our Acuity goes up and we maintain and manage our costs appropriately, that relationship between costs and revenue becomes more favorable because we're really focusing on growing our Acuity. And we have, through market share development. And that's evident in our results.

Kelly Curry

You know, this may sound archaic perhaps, but we operate our businesses on the basis of the amount of revenue that we have. And that means that we are supplying the information to our executives at our C suite level for them to be able to be proactive about managing their costs relative to the volumes that they're seeing, and to do that very, very efficiently. And we continue to refine that but we've got the systems to accomplish that. In addition, I'm going to let Bob talk to you in a minute about supply costs because I think that's a real need area. And I don't know of another company that puts it at the level that we do in our organization by having an NEO who oversees that particular line item.

Robert Farnham

Yes, this is Bob. I couldn't be more pleased with the performance of our, not only materials management, but also our pharmacy associates so far this year. Last year, it was very good, but this year it's really outstanding. As you think back to our Investor Day, I talked about some of the things we had done in 2010 that will benefit us in 2011, and that has been the case. We continued to benefit from a number of contracts we renegotiated last year, both on the Orthopedic and in Cardiac side. And so far, in 2011, we continue to seek better pricing. We refreshed our contracts with our 3 largest cardiac vendors since the first of the year. We're also taking advantage of bulk discounts now offered by substantially all the cardiac vendors. And our savings there, year-to-date through June, are up 40% over last year. Last month, we also renegotiated a new contract with our fourth largest orthopedic vendor, that should save us at least $750,000 annually going forward. So very good progress there. Our spine capitation program is going very well. We launched Division 5 at the end of last year and that's going very well. Divisions 1 and 2, we just launched at the end of this second quarter here, and that should be about $1.5 million annual savings that we should begin to realize now. And Divisions 3 and 4 should launch end of the third quarter, beginning of the fourth quarter this year, and that should be another $1.5 million savings, yes. So we have a lot of opportunities, really, that we haven't realized yet there as well. I also mentioned the Trauma at the Investor Day. We're actually diversifying a number of vendors that we use there and realizing savings there as the result of some new contracts through HPG [ph] with a number of vendors on March 1. Global Sourcing, we are now going to begin to realize savings on our custom procedure trays. Those are now being received at the hospitals. That's a $2 million plus opportunity that we should begin to see over the next few months. And Pharmacy is having an outstanding year as well. We're over 99% compliance on our purchasing. Our medication use management with regard to formularies and antibiotics is very good as well. And even though, sub-costs are only less than 20% of our overall supply expense, our pharmacy costs, even on a per day basis or on an adjusted admit basis, are down over 5% to the previous year. So just having a great year this year in supplies and still have more opportunities to come.

Adam Feinstein - Barclays Capital

Maybe just a quick follow-up, I appreciate all of the details. I guess just you talked about the acuity having a benefit in the revenue per adjusted admission being up 7.3%, so I just wanted to get you just to drill down a little bit more there in terms of just the benefit you're getting from acuity, and then how we should think about absolute pricing also within that 7.3%.

Kelly Curry

Well, really, it's a function of our Physician Recruitment and Market Service Outfit programs are working for us. Those initiatives are getting results and that's producing people at our facilities that for these services. And our Outpatient business is very good. In addition, when you have the decline in No Pay [ph] Business like we've seen, that's also very, very helpful. Though, it's a combination of that, combination of the higher acuity for the services that we are offering as we continue to expand them and the results are there as you can see, on the net revenues.

Operator

Your next question comes from the line of Tom Gallucci with Lazard.

Colleen Lang - Lazard Capital Markets LLC

This is actually Colleen Lang on for Tom. Do you have an estimate of how much your market share has increased or changed since you guys implemented your ER management, doc recruiting and service line development initiative a couple of years ago?

Gary Newsome

We haven't shared the specific market share growth by market or [indiscernible] for the company, but we're seeing that, I think the best way to evidence that is to see our surgery growth. And in spite of our admission volumes being down in the quarter, our surgery growth is slightly up, which is a true testament. I said all along, as our markets growth strategies begin to take hold, we're going to see that first on the surgery side. I think in an otherwise normal economic climate, we would be seeing greater inpatient growth as a result of that. What we've done is really positioned ourselves well in our markets because we are gaining market share because of these market strategies, as well as our physician recruitment. And because of that, as we go forward, and as the economy improves, we are going to be well-positioned because we're going to have the services in place, we will have deployed the appropriate capital to get things done and we'll have the physicians necessary to support those services. So we're getting great results on the outpatient side, which truly is a pretty indicator to growth on the inpatient side.

Kelly Curry

Colleen, also, we have seen really good same-store growth in our visits to our clinic facilities and that's consistent for us. As we've said before, I don't think we’ve said to you because I don't remember speaking to you about this. But we have seen and there's published data on this as well, that there is about a -- there's a doubling of people that are not following up on second appointments or are not going on to see specialists when recommended. And so that is still taking place out there and it's a reflection of what Gary was speaking of in his comments earlier regarding the economy, but we know that the businesses is there in the market and that we're just simply going to manage our business in light of the environment that we're in. And when the economy improves, this business will come back to us and we'll see the growth that we expect from that as well.

Gary Newsome

I think, Colleen, just to -- the bottom line is -- I think it's a great question, by the way, because market share growth, if you look at what we've done and we've evidenced the results of that on the outpatient side, truly is we're gaining market share and we're getting a greater share of the amount of business that's coming to hospitals in our markets. We're getting a greater share of that. So it really positions us well as things begin to turn around globally from the economy standpoint.

Colleen Lang - Lazard Capital Markets LLC

Just a quick one on admissions guidance of flat-to-down 2%, does that exclude the weather in OB type issues you saw this quarter?

Kelly Curry

Yes, we are assuming the weather's going to improve there, Colleen.

Colleen Lang - Lazard Capital Markets LLC

No, I meant like, are you using the adjusted number that you?

Kelly Curry

Yes.

Operator

Your next question comes from the line of Sheryl Skolnick with CRT Capital Group.

Sheryl Skolnick - CRT Capital Group LLC

It was a truly heroic effort to offset that kind of a volume decline especially since some of it was quite was unexpected given the weather. But I am a little bit concerned about the trend here that even without the weather, there was a significant decline. To what extent do you think having easier comps in the sense that you had bigger declines in the second half of last year and you had tougher comps in the first half of last year, will help to reverse that trend? Because we do understand that volumes do tend to drive stock price performance, as well as management may be able to mitigate it. At some point, the market begins to go a little bit worried about it. And so how do we think about your perspective going forward vis-à-vis the easier comps in the context of your guidance? And then within that, I have sort of a related question. How do we think about the conversion of -- or is it a conversion of procedures from formerly bigger inpatient cases to now being driven by robotics? Or those purely accretive cases that you wouldn't otherwise have gotten and is that going to be part of your return to positive volume comps? And then I have a follow-up.

Kelly Curry

Well, number 1, just to jump in on the question about the proper numbers to look at, I think, Sheryl is that we had a real significant growth last year in this quarter of 3.7% in adjusted admission, and when we clear away all this, the rubbish that clouded our numbers, we were down 1.3%, which is frankly, well in line with what you're seeing elsewhere in the market. If you take out over a 2-year average, it absolutely what you would expected see, that's why we can be confident about what we expect to see in the future given that we're not going to have the same kind of weather disruptions and that sort of thing. But even and having said that, again, and I want to keep coming back to this point, we're going to manage our business to generate EPS based upon the volume that we got.

Gary Newsome

Sheryl, just a little bit on the market growth, a part of our capital deployment, and part of that is obviously been in very high technology in terms of robotics. What's happening there is, we're really able to move market share. This is business we haven't historically been getting in our markets or in our hospital, and that's really an evidence. And of course, it's been of varying degrees depending on the market. But it's been significant for us. So this is important because once physicians begin to use your facility for robotic procedure, they just by design and by nature, they will also do their other non-robotic procedures at our hospital because of convenience and they become more comfortable with doing procedures and scheduling and everything that goes along with their personal time management in their practices. So what we do is provide an environment where they can do not only their high-end robotic procedures, but their non-robotic procedures as well, which quite frankly ends up being more in terms of total numbers than the robotic procedure. Now we haven't really seen a decline with our existing business as a result of this strategy.

Sheryl Skolnick - CRT Capital Group LLC

No, I wasn't suggesting a decline per se other than a conversion of, say, if you used to do an orthopedic procedure as a major inpatient and now you're using a MAKOplasty. That might be a shift. But…

Gary Newsome

And it can be and it has in certain cases, yes.

Sheryl Skolnick - CRT Capital Group LLC

Okay. But so remind me of the timing of the rollout of these robots. Not all of them are in place yet, right?

Kelly Curry

Yes. I don't have an exact count right at the moment on the MAKO, but they're probably all pretty much out there right now. But the other thing is that too, true, as Gary was mentioning, as you were talking about the shift from inpatient to outpatient on like the MAKO machine. But at the same time, that's now been approved for us to be able to do a total hips and we're adding hip kit. And so then you're going to pick that up as well. So it's kind of like in the 2 years ago, 2.5 years ago, you bought a da Vinci to do prostrates. Today, we're using them for cardiology, gynecology, general surgery, I mean the list goes on and on. They got a new attachment for everything now. So it creates a lot of opportunity through innovation for us to continue to expand services in a less invasive environment which improves our quality scores in our patient satisfactions.

Gary Newsome

And if you look at our markets, Sheryl, this really becomes a competitive advantage from a surgical standpoint.

Sheryl Skolnick - CRT Capital Group LLC

I can imagine it does and the recruiting advantage as well. And the follow-up is not related, the conversion of ProMed to Med Host [ph], when can we expect that to begin?

Gary Newsome

Sheryl, it's actually, we've started rolling that out. We've had our first go live in the last week and that's just the beginning. And of course, it will flow throughout the system over the next several months.

Sheryl Skolnick - CRT Capital Group LLC

And there should be efficiencies and throughput and data and et cetera, et cetera as resulting from that?

Gary Newsome

Absolutely. I mean the data -- it's very data rich system. And if you look at the reason why we selected the change and to go with Med Host [ph], is really physician-driven. We have a committee of physicians, led by our Chief Medical Officer that really, over the last year or so, has been looking at how do we improve the usability of the electronic system in our emergency room. And quite frankly, they came to the conclusion that we needed to look at, in concert with our new Chief Information Officer, we need to look at alternatives. And many of the alternatives for ER are very new, quite frankly. And so after looking at several systems, these physicians, quite, they chose the Med Host [ph] system and it's very user-friendly and data-rich.

Operator

Your next question comes from the line of A.J. Rice with Susquehanna Financial Group.

Albert Rice - Susquehanna Financial Group, LLLP

A couple of questions, if I could. First of all, Kelly, can we finally get you to tell us what you think you might actually be eligible to receive on the HITECH funding front? And I know there's both Medicare and Medicaid money floating around there. Do you guys technically have to submit paperwork to get that or what's the next step and how quick might you get resolution on that?

Kelly Curry

Well, in terms of next steps, we've done them. The only thing that's lacking is the money. Which in lies my reason for being -- maybe I'm more -- I know that I'm more conservative than in the minority on this. But I just have big concerns about the likelihood of the payment of it, given the environment that we're in. And that doesn't mean that we won't get some. I'm not the saying necessarily that we're not going to get any, but I don't know what that number is going to be because it appears to me that, as we go through this political process, that there's a lot of issues to be discussed. So as a result, I don't want to put any expectations out there. So what we're doing is, A.J., is we're driving our numbers based on what we know and what our business is, not on what the expectations might be. And the day that it happens, I will debit cash and credit income and then I'll call you.

Albert Rice - Susquehanna Financial Group, LLLP

Is that -- How about like this, is it -- are we talking about the potential for it to be meaningful not that it would affect, it would change what's out there as guidance?

Kelly Curry

Well, if we get the more positive, if we get some indications, then we'll be willing to talk about it. But right now, there's just not any -- there's just no reason to talk about it because we just don't know what the situation's going to be. But I can tell you this: As of June 30, we have done everything we need to do to get every single dime that's going to get paid.

Albert Rice - Susquehanna Financial Group, LLLP

Okay. I don't know if you've commented about the financing on Mercy, and how we should think about what you're going to do with that. Obviously, that might have implications for how accretive it would be over time. Can you give us your thoughts on that? And also, in light of the pipeline, capital structure just generally?

Kelly Curry

Sure. What we've done is we've received a commitment from a consortium of banks on very favorable terms to finance all of the acquisition, plus an equity contribution that we will be making towards that as well, which leaves us with all of our dry powder that we had beforehand available. So we're in good shape going forward from an M&A standpoint, being able to finance what we're looking at on the horizon. But having said all that, at the same time, A.J., and I think you've known me long enough to know, that we're going to be -- we're certainly not afraid to do what we need to do to put ourselves in a position to take advantage, should greater opportunities arise. And so we will do that. And we're, of course, watching markets all the time and paying attention. We saw that, and of course, that HCA has increased their offering, so it's something that we are very, very careful to keep an eye on. Bob's managing the supply costs and he's in my office everyday telling me about what's going on in the financial markets. So we're in good shape.

Operator

Your next question comes from the line of Ralph Giacobbe with Credit Suisse.

Ralph Giacobbe - Crédit Suisse AG

Did you guys mention what the uninsured volumes were down year-over-year? I may have just missed that.

Kelly Curry

Well, they're down to 7.0 from 7.4, so they were down.

Ralph Giacobbe - Crédit Suisse AG

As a percentage of total volume?

Kelly Curry

Yes, in-patient admissions.

Ralph Giacobbe - Crédit Suisse AG

And then help us sort of reconcile that with the uninsured discounts that were up 24% in charity. That was up 16%. Is that the acquisitions that came in? What's driving that with the decline in the uninsured volume?

Kelly Curry

Well, there's a lot, yes, there's the acquisition, and of course, the acquisition environment is different from our same-store environment, Ralph, because as we put our programs in place and that sort of thing, that takes time. That's part of our processes for how we implement our systems, et cetera, in an acquisition environment. So yes, you're hitting the nail on the head.

Ralph Giacobbe - Crédit Suisse AG

Did you guys give -- what was CMI in the quarter and maybe year-over-year?

Kelly Curry

It's 131 in the quarter, up from 129. I'm sorry, 141 versus 138.

Ralph Giacobbe - Crédit Suisse AG

What's the year...

Kelly Curry

About 3 basis points. Year-to-date?

Ralph Giacobbe - Crédit Suisse AG

Yes.

Kelly Curry

We're getting that for you, one second. Same, 141.

Ralph Giacobbe - Crédit Suisse AG

Okay. And then just my last one. Can you give us just the either revenue or volume mix in the quarter between the different pairs?

Kelly Curry

The way I look at it sort of as a percentage of total, the uninsured was down 40 basis points, as we mentioned from 7.4 to 7.0. Our insured business was down, though it's the smallest that trend has been in the last year and a half, 2 years. That was down only about 20 basis points. And so what was up 60 basis points was Medicare and Medicaid.

Ralph Giacobbe - Crédit Suisse AG

And I'm sorry, this is all on volume?

Kelly Curry

Yes, as a percentage of total admissions, that was the shift for the quarter.

Operator

The next question comes from the line of Justin Lake with UBS.

Justin Lake - UBS Investment Bank

Given the issues discussed by HCA, I'm just curious if you've taken a look specifically at your Medicare Acuity at your Florida hospitals, if you see anything interesting there?

Kelly Curry

Our Acuity is the same, I mean, we're seeing increases across our company, and I can't, I don't know how that reflects to the HCA, but I can tell you that in our case, it's a direct result of our market service development and our continued physician recruitment efforts to bring additional services into the community, so that's why we see it occurring ratably across our entire company.

Justin Lake - UBS Investment Bank

Got it. So Florida is no different than anywhere, the Florida footprint?

Kelly Curry

No.

Justin Lake - UBS Investment Bank

Got it. And then any comments on how Medicaid rates turned out for you as you went through the second quarter?

Kelly Curry

Yes, and actually, we -- as I've mentioned before, there's 3 components to that calculation. Besides rates, there's the disproportionate share and then the paying on the state, the additional add-on. But in Florida, based on the rates that have been published, et cetera, we saw -- and what we expect now is about half is what we expect to see from the originally, what we call this, we thought it was going to be $5 million to $7 million. It's probably going to be $3.5 million to $4.5 million this year.

Justin Lake - UBS Investment Bank

Okay. So overall rates seem like they're going in the right direction?

Kelly Curry

Correct.

Justin Lake - UBS Investment Bank

Got it. And just lastly, anything on physician employment, I'm just curious if you can give us an update there on how many physicians you employ now and what you expect that number to be over the next few years?

Kelly Curry

It's still right at about 1,000, it's about 10% of our active medical staff. And it continues to be a greater percentage of our annual recruit. That continues to grow, but that's not enough of a number to affect us overall yet too much.

Operator

Your next question comes from the line of Art Henderson with Jefferies & Co.

Arthur Henderson - Jefferies & Company, Inc.

Kelly, in your prepared remarks, you were talking about how some patients don't do these follow-up visits and there are some opportunity when they kind of come back into the system. But what I was curious from the market service development, things that you're doing in the physician recruitment, is there a way that you can kind of proactively approach those folks that aren't maybe utilizing the system in the way that they have been sort of encouraged to by their physician?

Kelly Curry

In reality, I think, for most of these individuals who are choosing not to pursue a surgery or other types of procedure-type intervention. It's really a personal basis, their fear of their employment, their fear of being out of the workplace for any significant time. In reality, physicians can encourage, hospitals don't. Physicians make that decision when patients need either admission or surgery. And I really believe that the physicians are stating their best case with these patients for the quality of life issues that they meet. But at the end of the day, the patients are making the decisions. I'm not sure that there's anything we could do from a -- to really, to do that. Now we do look analytically in our patients and how we can best address from a marketing standpoint, getting, for example, our new services and things of that nature. Out higher-end services and do target marketing to these patients. And we mentioned a little bit of that in our Investor Day, how we're really -- feeling we hadn't been looking from an analytical standpoint how do we target market patients in certain key surgical or inpatient minds. And we're doing that and continuing to do that. I think that's part of the reason, at our market services elements we're seeing growth as a market share. And the fact is, that the overall pie is smallest. We'll continue to grow our market share. So when that turns, we're going to be in a very, very good position. In addition, there's the fact that when people -- in the past, as physicians explained options, you might say, well, we could offer this alternative which might be a surgery or something, or we can go this route with drugs and use a medical approach, you're probably going to have your best outcome more quickly with the surgical approach. In the past, they will say, "Well, I'd rather get better faster." Now what they're saying is, gosh I don't have to take off from work if I go that route, let me try that first. So if it doesn't work, we're going to get them back.

Arthur Henderson - Jefferies & Company, Inc.

Yes. And presumably I guess, the fact that you have expanded capabilities in your markets which certainly prevent leakage into bigger cities?

Kelly Curry

That's what we're constantly evaluating, constantly reviewing. That's why Gary knows what our market share situation is.

Arthur Henderson - Jefferies & Company, Inc.

One follow-up question for you Gary, I'd love to get your sort of take on what's going on in Washington with respect to obviously the deficit reduction and hospitals maybe being at risk again and how that might impact your M&A pipeline or I'm just curious to get your thoughts around all of that.

Gary Newsome

In reality, if I knew exactly what was going on in Washington, I probably wouldn't be here. The reality is that any significant accounting cuts in the healthcare is really going to take the toll on a lot of hospitals in the industry, which in reality, would fill the pipeline up even further in terms of opportunities for growth. And by the way, ours is so full right now, there's no way we could take advantage of a significant portion of what's in our pipeline. So I think Kelly has explained it very well. From our perspective, we still have opportunity to be efficient and we're going to manage our business based on -- I mean, of course, there's a point of no return, obviously. We don't think we're there. We think we'll continue to grow our earnings based on the business that we're getting. We positioned ourselves well so that when the economy does improve, and it will, people will begin to use healthcare in a more aggressive way. So we're going to be well-positioned towards that. But in reality, the accounting cuts on healthcare is really, it's devastating to the industry for lots of hospitals out there who operate on razor thin margins currently.

Operator

Your next question comes from the line of Gary Taylor with Citigroup.

Gary Taylor - Citigroup Inc

Just a few questions, but I think they're all pretty quick. The first is, I guess, I just want to maybe have you reconstruct that very strong net revenue per adjusted admission growth for the 7.3. Because your case mix, if I got it down right, 141 versus 138, that was up 2.2% year-over-year. Your commercial business was down and your government business was up, so your payor mix was actually a drag, obviously at commercial rate growth, didn't have government rate growth. So I'm trying to understand how we get from kind of the 2% acuity, maybe 2.5 to 3 points of commercial rate growth in the book, how we get to that 7.3 unless the commercial acuity was, growth was much more sizable than what you saw in the Medicare side?

Kelly Curry

Gary, we did see good growth in our commercial acuity, but also, we're getting a 5% to 7% increase in our commercial business on our existing contracts.

Gary Taylor - Citigroup Inc

Right. So blended across your whole book, maybe that adds 200 or 300 basis points?

Kelly Curry

Yes, you get a double whammy from there, because you're getting both price and acuity.

Gary Taylor - Citigroup Inc

The CMI you gave us was Medicare only, right?

Kelly Curry

Right.

Gary Taylor - Citigroup Inc

Do you do sort do a sort of thing like an HCA does where you kind of crosswalk commercial diagnosis into Medicare to kind of invent your own commercial CMI or you don't have a figure for that?

Kelly Curry

We do some of that. That's just not something that we particularly talk about in the past. And one the reasons why is, is that from the question that you're asking and from the rates that we're talking about that we're getting in our Managed Care, which have been more towards the 7% range than 5%. And frankly, it is the explanation for the difference, including the acuity step up.

Gary Taylor - Citigroup Inc

Okay. So the commercial acuity was better than the Medicare acuity growth?

Kelly Curry

The growth, that's right.

Gary Taylor - Citigroup Inc

And just real quickly, was there any sort of re-class between supplies and other operating...

Kelly Curry

No. Other operating is up because as we do market service development and physician recruiting, that's where that expense shows up and we're continuing to press there. There's costs associated with market service development that are operational, that are not capital. And then if we continue to work on our recruiting and grow our recruits base.

Gary Taylor - Citigroup Inc

Okay, great. And then my last one is, with respect to the Pulse System and the certification, is it not true that each individual hospital has to be certified as being in compliance with the meaningful use standard for a period of 90 days? So to get money from the Feds eventually, doesn't each individual hospital have to be certified? So is that still in front of you to kind of wait on before dollars could come or am I incorrect?

Kelly Curry

No. Nobody's going to get paid anything. Yes, what you're saying is correct. There's actually a 90-day test period, if you will, that everybody's got to go through. But nobody's going to get any money before December 31 anyway. None of that money's going to get paid before January of next year. Now if it appears through the budget process that those monies are going to get paid, then I think you'll see more recognition of it. If it works in the budget process, if they're not, well, then that's another matter. But the position that we're taking on it is, it's not because we're concerned about getting our hospitals through the 90-day test period. Once we got the software running, we'll get through the 90-day test period. The reality is, is that we're just concerned about the likelihood of actually receiving the money.

Gary Taylor - Citigroup Inc

I just wanted to double check. And why do you think it's January. Because we've got some nonprofits who claimed that -- some [indiscernible] sort of user nonprofits that claim they've already pulled money out of this program?

Kelly Curry

They're pulling out some Medicaid dollars and it's probably on the ER side, which we have gotten a little bit of that, but it's minor dollars.

Operator

Your next question comes from the line of John Ransom with Raymond James.

John Ransom - Raymond James & Associates, Inc.

Could you just talk about the M&A market in terms of what's different now than, say, 3 or 4 years ago? And has it actually accelerated? And what do you expect would happen if we get some cuts out of debt ceiling? And what do you think is going to come out of debt ceiling?

Gary Newsome

John, it's Gary. For us, I think we really have a platform that's unique and that we've done some, from an M&A standpoint, we have some partnerships with not-for-profits out there in a significant way that I think is unique. So from that standpoint, that's opened a lot of doors for us, things we can't talk about today. But we have our current partnerships with Sands and Novant, and Orlando Regional [ph], we have other opportunities out there in a significant way to partner and it's really based on a couple of things. One is our operating model is consistent with these partners and what they want to do in some of their hospitals. Secondly, I think it has a lot to do with the results that we've been able to -- in our partnering, in our existing partnerships because they tell the story better than we can. This is a pretty small industry. So there's a lot of opportunities out there and I think they're unique and exciting for us. But there are other standalone facilities and systems, small systems that are there and we're going to see more and more of that. I think the Knoxville opportunity is outstanding for us and I think we will see similar type opportunities. In reality, from a reimbursement standpoint out of Washington, you know as well as I do that, that's just going to create a bigger M&A pipeline if the rates are cut because, from our standpoint, and I think others are too. We're going to be very efficient in how we deliver care. And of course, it never comes -- as I mentioned earlier, I mean, [indiscernible] no one can deliver the care. I don't think we will get there at that time. But any type of cuts in the reimbursement will create opportunity for those who are high quality and efficient providers of healthcare.

John Ransom - Raymond James & Associates, Inc.

Okay. And just a specific question, this is for Kelly or Bob. Your bad debt reserve to self-pay, has it remained fairly stable over the past year, year and a half? Your bad debt ratios are very stable on your income statement, but does your balance sheet reserve also remain equally stable?

Kelly Curry

Yes.

John Ransom - Raymond James & Associates, Inc.

What's that number today approximately?

Kelly Curry

I don't know off the top of my head. We look at it as a percentage basis

John Ransom - Raymond James & Associates, Inc.

As a percent of self pay, is it still in that kind of 85% range?

Kelly Curry

While considering the 62% discounts, probably closer to the 90%, yes.

John Ransom - Raymond James & Associates, Inc.

Okay. And that's been consistent?

Kelly Curry

Yes.

John Ransom - Raymond James & Associates, Inc.

Okay. And then my other question is, what is the, either by covenant or just by culture, how high would you guys go on your debt to EBITDA before you'd have to do something else with your balance sheet?

Kelly Curry

Well, that's a kind of question, John, that kind of got an infinite answer because it's not a matter -- it's got an infinite answer because the numbers are both moving, the denominator and numerator and it would depend on the opportunity and what we're looking at given the environment and that sort of thing. But as you know and in my history with the company, I mean, we've been much more highly leveraged than we are right now. So it's not a function of being -- for me, it's not a function of being concerned about what the ratio is. It's about what the opportunity means given the financial capacity that we have. So I don't know that I can give you a set figure [indiscernible]. Our maximum right now under our existing covenant is 4.6 and we're at 3.93, so we still have capacity. But at this point in time, to go higher than 4.6, we would have to do a sort of global refi.

John Ransom - Raymond James & Associates, Inc.

Right. And you have to pay off your swap?

Kelly Curry

Yes.

Operator

Your next question comes from the line of Darren Lehrich with Deutsche Bank.

Darren Lehrich - Deutsche Bank AG

I wanted to just asked on specifically on the Mercy transaction, inside of Q4, because I think you're guiding for Q4, it will be part of your operation, what should our expectation be just in terms of impact? Is it going to be slightly dilutive just given that it's the first quarter out of the gates? And I know you're not providing 2012 outlook here, but just help me think about how that comes on in the context of the first year, and when we see any major impact one way or the other from Mercy?

Kelly Curry

Well, percentage-wise, it's going to affect us in terms of, because they'll have the additional revenue and additional expenses. But it is not cash flow negative right now. So it will be taking on in a cash flow-positive position. And as usual, we have our plan. It's not fully completed yet because we're still in a due diligence process and developing it. But we have our plan underway right now as to what our actions will be and that's why we can say that we know that we'll be in the mid single digits by the end of the first 12 months of ownership and we feel the same way about Knoxville.

Gary Newsome

I think what's great about this transaction, Catholic Health Partners have been outstanding and actually let us to get involved from a due diligence standpoint much sooner than we historically have experienced. So quite frankly, I think we're going to be well organized and ready to go at the end of the day when we do close this deal.

Darren Lehrich - Deutsche Bank AG

Okay. And if I could, just one last question here with regard to guidance and really in the context of what you're laying out as lower volume guidance. I get it, your cost controls have been good. It sounds like some things have gone in your favor with regard to Florida Medicaid versus the original expectation. I guess, Gary, if we continue to be in a punky volume environment and that the steep ramp that you're implicitly guiding to in volume growth doesn't materialize, but the same kind of mix that you've seen in the first half continues to stay with you, are you still comfortable with the guidance? I just want to try to get at that question around the mix and the volume that we've seen so far this year?

Gary Newsome

Actually, we're very comfortable with our guidance going forward in the remainder the year and as I said before, a lot of the things we put in place in terms of market development, many of those are still early, early in the process. So we're going to reap benefits from the market strategy standpoint going forward. And we I feel very comfortable with the type of business, the mix of business and the volume of business going forward for the rest of the year.

Darren Lehrich - Deutsche Bank AG

Okay and then just last thing, it's a numbers question, Medicare bad debt, just given that, that's one of the items on the table with the debt ceiling debate, can you just provide us with an annual number in terms of your Medicare bad debt funding?

Kelly Curry

When that takes place, we'll do that.

Operator

Your next question comes from the line of Gary Lieberman with Wells Fargo.

Gary Lieberman - Wells Fargo Securities, LLC

Given the mix shift and the decrease in uninsured, the increase in Medicare, Medicaid, was there anything you were able to do in the quarter or did in the quarter that was able you to improve the credentialing of individuals for Medicaid?

Kelly Curry

We are always doing that. It's almost like a shell game, to be frank. The state's changed the criteria, hoping to slow you down, we stay on top of it. And in our facilities that have a heavier exposure, we have people on-site full-time qualifying people. So it's a constantly evolving, constant focus area of our business. In the last 3 years, 4 years that I've been here, Gary, we've definitely improved dramatically in that area. Our business office operations have way, way improved. And we've got some very, very good people now working with us throughout our divisional organizations that are getting things done in that area that it's continuing to move the ball forward and I think we've got some other things that we're doing that are just going add an even further improvement, which has been reflected in our cash flows.

Gary Lieberman - Wells Fargo Securities, LLC

Okay. I mean I guess is it possible for you to tell us if those efforts benefited you more in this quarter than they did the last quarter or the year ago quarter?

Kelly Curry

No, they haven't. It's a constant thing that we're always doing. It's possible. And I don't know off the top of my head, Gary, so I can't answer for sure for you. Did we have more that we converted this quarter than last year the same quarter because we had more people that were Medicaid-eligible because of unemployment? I don't know that off the top of my head. I'd say it's possible, but it wouldn't be significant.

Operator

We have time for one more question and that question comes from the line of Whit Mayo with Robert Baird.

Whit Mayo - Robert W. Baird & Co. Incorporated

I really just have one quick question. Gary, can you tell us what the top 3 opportunities are that you see with Mercy? I mean, I understand that a lot of providers look at this deal in a lot of different ways, with a lot the different structures but I just like to get your perspective on what the appeal was in your mind? And don't tell me that you’re a closet Vol fan.

Gary Newsome

I won’t go there. Mercy has, quite frankly, with a lot of the strategies in our core strategies that we've been focused on in the company are really going to benefit in the hospital market. I think if you had to -- I'm talking about our market service development, our physician recruitment, developing the right types and getting the right types of physicians at the right campuses there, as well as the emergency room. There's opportunities in all those areas to be more efficient in terms of re-equipping our emergency rooms and driving the times down so that we get greater volume coming through our doors. But beyond that, here is the real opportunity, is you've got a system of hospitals that needs to work as a system. And there are so many opportunities around that. There's not enough time here on the call to go through all of that. But really to look at this as a system of hospitals there's synergies that haven't been taken advantage of because it didn't have the resources to get it done. Catholic Health Partners, when they acquired the Baptist System [ph] there a few years ago, really put themselves in a box because they really couldn't invest and do some of the things they need to do. So we really -- you look at that a system, it's a great group of hospitals. What's -- here's really the exciting part, where the physicians are very supportive of the Mercy system and are very helpful in our due diligence process, defining the strategies going forward.

Whit Mayo - Robert W. Baird & Co. Incorporated

Okay. So it sounds like ER just simple efficiency gains is one key opportunity, collaboration among the hospitals together? And I mean are there any capital projects that you're looking at over the horizon that you think may help take share in the markets? I guess that's what I'm kind of getting at as well.

Gary Newsome

Well, there's truly -- certainly, there are capital opportunities at certain facilities to really move the needle and that's part of all of our due diligence process and developing our strategic plan globally there. I think one of the things you should realize, I mean you're from Tennessee, it's Knoxville and the surrounding areas are great communities. Very, very exceptional communities, great places to be and we really feel like, from a positioning standpoint, being there with the university, whether you're a Vols fan or not, it's a great town to be in because of certain type of investment in growth, that'll be in that community from an economic standpoint that you won't necessarily see in other communities. So we're excited about that.

John Merriwether

.

All right everybody. Thank you very much, for your attention and have a great day.

Kelly Curry

Goodbye. Thank you .

Operator

And that concludes today's conference call. You may now disconnect.

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