Acadia Healthcare Company, Inc. (ACHC) Earnings Call Transcript & Summary

Again, I appreciate you having them here, Gretchen. The -- so I wanted to give it a quick start, to allow Chris and Heather, maybe to just give us 5 minutes kind of state of the Union post the third quarter, how you're thinking?

But I think just to start another to a very strong quarter, I think, both from a rate and volume perspective, just continued execution on the path that we had laid out, that our first ever Investor Day a year ago, December. I think we are really pleased to have this litigation settlement on our Desert Hills, New Mexico litigation, that we had announced in the 8-K a couple of weeks ago, now behind us. I think all lines of business, we continue to see very strong demand, a lot of our CTC business, which where we continue to see continued strength and record volumes there. Really pleased with the 20% improvement, that we're seeing in patient retention in that business, too, which has really contributed to the strong volume. Overall, also pleased with the base wage inflation that we've seen continue to come down throughout the year. This past quarter, we saw an improvement down to 5.7%, which is 60 basis point improvement. And then I just think that the prep that we've had on the redetermination front has continued to pay off. We're continuing to see minimal impact, that it continues to be consistent and manageable with what our expectations were around redetermination. We continue to feel very good about the bed additions, not only finishing this year strong, but setting ourselves up for 2024. Right now, we have 2 de novos that we're expecting to add about 180 beds later this year, 1 in India, California and 1 in Chicago. And then 3 joint ventures that we have scheduled for next year, including 1 with Henry Ford Health in Michigan and 1 with Intermountain in Denver. And then we have several de novos that we're also planning throughout next year, as well as our continued bed additions that we laid out in our Investor Day. We just continue to feel really confident there. We also did an acquisition company or a facility called Turning Point in the Salt Lake City market, which is a specialty facility. We are really pleased that, that should close by the end of this year. And really feel confident about M&A going forward. And then maybe the final thing that I would say and just ask Heather if she has anything to add is that we did welcome a new Director to our Board, Dr. Patrice Harris, who is a psychiatrist and is also the former President of the American Medical Association. So he is already just adding a lot of expertise and bringing all sorts of clinical insight to the company. So that would be the preamble. Heather, what would you add?

Maybe I'll add in the quarter and then [indiscernible] holding for the quarter was top line perspective that was almost down the middle of the and volume about 2.5% around revenue day growth in the quarter really strong in care for that quarter was when you think about even with our seasonality and [indiscernible] edification level where they can, we still are anticipating full year growth revenue in double digit. So we feel really good about the quarter, feel really good about the [ year ].

I appreciate that intro. So maybe we can just start with the strong 2023 that you're seeing, the volume growth out there, I know is a function of kind of the demand in the market, you taking some share and also kind of putting the capacity in place to drive that growth. How do you see the volume comps shaking out versus -- into 2024, both -- I guess, both on volume and price, and then we'll talk a little bit about price.

Yes. So from a volume perspective, we do see stronger volume and there a couple of reasons that comes to play. First, we have the bed additions that we talked about. And those continue to be a really nice play for us to continue to grow our volume availability and our capacity. But the other piece in that is how we are actively focused on filling [indiscernible] we have or filling capacity that will be core [indiscernible] is really starting to play across the board with our ability [indiscernible] make sure we do it the right way and focusing on the capacity and volume in [indiscernible] especially.

And on the pricing side, how do you feel about that 6% growth in terms of how much of that's just natural rate in an inflationary environment versus maybe mix and the sustainability there into 2024?

I think there's a couple of [indiscernible] perspective. Part of it will always be driven [ financially ]. What I would add are a couple of things. One, you do have mix in there. So if you think about revenue [indiscernible] GC business has revenues [indiscernible] you do see some of that growth. You also see that business growing a little bit out from the rest of the business where revenue landed [indiscernible] double digit [indiscernible] line possibly there. So a relatively small to the business [indiscernible]. Think about how we approach our renewal [indiscernible] at expected we have first that you're serving [indiscernible] have -- we also have demand to where we start to cost there is regionally or other we're having operation details about what the delay [indiscernible] be talking to them about your [indiscernible] possible events they need to have a -- we're also talking about a few [indiscernible] that population. A lot of different pieces done back in your conversations, but perspective [indiscernible] that point of view, it's a very strong put in place really bolstered and that's part of what driving [indiscernible]

Got it. So talk a little bit about the rate environment, both on the Commercial side and the Medicaid side. How is that this year? And how do you kind of see that playing out over the next couple?

So this year, we have seen strong rate growth across payers and across geographies and across the line. So it really has been a point to one service line that was really driving all of it, that has been on board. For 2024, it's a little early for us to call what it would look like. We just don't have the have visibility into [indiscernible] as contracts renew throughout the year, as we have facility and see some of these that will run into Q1, Q2 next year. We're already in Q1, but we just don't know what the environment will be like [indiscernible] I'll tell you that the conversations we're having [indiscernible] good conversation. I don't think -- I just mentioned that we talk about at the table about how unique our services and the value we're bringing -- does that help?

Maybe go find Matt and see if he can turn up the volume a little bit. Thanks. But I've got a voice and a face for radio. Everybody tells me so. I can project in any room. So maybe we can talk about the -- your long-term growth guidance is you're above that, but not materially, right? You're I think running around 12% and your long-term growth, I think you gave at the Investor Day was 9% to 11%, right? And that's kind of an equal mix of volume and price. As you think about next year, I assume you've talked about you expect to fall within that range again. And the EBITDA growth is 10% to 12%. And some of the questions I get from people is that 9% to 11% is an exceptional growth rate in Health Care Services, right? It's hard to imagine there's only a handful of companies that even kind of play in that ZIP code. But it'd be the -- those that do, at times, see a little bit more operating leverage, right, financial leverage from that. But I know there are some investments you've been making, Chris, as you kind of came in right? You see the future of value-based care and being able to deliver that to providers, right, to kind of sustainably grow price and value. And also, one of the things I'd love to hear about is the capacity growth, the JV growth. You've talked about the -- that, that starts out of the loss and then ramps over time. So maybe you can talk about the impact that, that has on margins and maybe the kind of life cycle of a new facility, in terms of what are you losing in year 1 versus when does it get to maturity?

Yes. I think we've done really nice job working with our JV partners and the visibility with respect to the bed growth. I mean going back to last year, one of the reasons that we did the Investor Day for the first time was to be able to show investors that while we were expecting 570 beds last year, 670 this year, we're seeing a ramp to 1,150 beds next year and into 2025. And a lot of that is driven by the JVs that we've put in place. And obviously, I talked about Henry Ford and also Intermountain, that will allow us to stand those facilities up. But there is a real playbook that we have developed over the years and some strategies that we've put in place to make sure that we can minimize the start-up costs. Some of the things that we're doing with respect to attracting not only a CEO and a CFO and a Chief Nursing Officer in on the front end, but then also making sure that we can quickly get those facilities staffed and be in a position that we can open those facilities on time and ideally even a little bit ahead of schedule. So a number of things that we've done on that front as well. Heather, what would you add?

I would maybe point out 2 more things. One is how quickly we fill those new beds, so you certainly have the preopening costs that you're talking about, while we incur costs before we actually open the hospitals. But then also once they're open, there will be a ramp time. And so to your point of how do you gain leverage off of that top line revenue, that's part of it is, we'll fill the beds. The other piece that we haven't talked about is how we're operating the company across the different facilities across the entire book. I think there is significant opportunity for us, as we look at how to run this as bringing the power of all of these facilities together to gain some operating leverage from that perspective as well. It helps us -- it affords us the ability to make investments where we need to or we would like to, but it also gives us the ability to pull some [ leverage ].

So just getting back into the -- if you're opening a new 100- to 200-bed facility, what are the preopening losses on that from an EBITDA perspective?

If you think about a new facility, the first thing I would say is you have these 3 positions, the 3 key positions that Chris talked about, the CEO, the CFO and the Chief Nursing Officer. Those will be typically the first hires that we make and they can be as far in advance as 6 months or more. That hospital open so that we can start to develop and hire the rest of the team, and that will continue to increase those preopening losses but also building the relationships with referral hospitals within the network. So if it's an acute hospital, making sure we have the build-out of those relationships in place. So those are usually the bigger ones that come into play. And then there's just that period of time between opening, where we slowly ramp up that hospital to make sure that the operating environment is ready to review.

Is there a number you can put around that? Or is it something that's a little too close and we'll move on?

We don't typically talk about those from a per hospital perspective. But what I would tell you is you can see those preopening costs as they play out quarter-by-quarter in total. And in Q3, we had about $6.5 million. Q4, I would expect that same rate of preopening costs. That's related to all of the facilities. And given where we are from a build perspective of opening new beds, I think that will be the new normalized cost because we're still looking at 2024 to see exactly where it will land, but that will give you a flavor across the book.

Got it. So you're carrying somewhere in the $25 million a year kind of preopening losses. Then year 1, if I give you 12 months afterwards, is it breakeven in the first 12 months on a cumulative basis? Or does it take a little time? Is it still losing but losing less?

It depends on the type of facility or the type of allocation from a capital perspective, we have bed additions, which are purely new wings in existing facilities those are much quicker. Sort of get to your full ramp for obvious reasons. If you think about the other end of the spectrum, there's usually a little bit of a longer ramp with some of the JV partners just because there's a longer duration to get those up and running, but you're not too far off.

And then the time to maturity? Is that like -- so you're losing money year 1, you're preopening, you're breakeven-ish year 1. How long to get to before Chris knocks on your door saying, what's going on here?

So it, again, varies across the different types. But what I would say is when you look at that duration, we wouldn't enter those markets unless we thought there was a pretty quick ramp to get them to where they need to be. And even more specifically, in most of the places where we're building de novos and even de novos JVs, we are building them with the potential capacity to add more beds to those facilities. So -- well, I know I'm not directly answering your question of how long, I'm acknowledging that. I'm telling you that it doesn't take as long as you would think because you can see some pretty direct line of sight because that's why we entered the market in the first place. One of the first criteria is bed need, competition, labor environment, all of those things.

Certainly, inside of 2 years. And I would just say that one of the reasons that a joint venture partner can be advantageous to us when we don't have a presence in that market and why would we do a JV versus a de novo, the market recognition that a high-caliber health system has like a Geisinger or an Intermountain, it can be incredibly helpful in helping us to staff the facilities, doing job fairs, helping us work well in advance of opening the facility to bring the staff in. And so frequently in this environment, it's not a demand issue. The biggest impediment to growth is frequently our ability to staff those facilities and the JV partners have proven a really strong ability to help us with that.

Got it. And from a JV perspective, one of the things I've -- I think I've asked you about over time is you sign these JV deals, and I know you've got a bunch more in the pipeline that you're going to roll out in '24 and '25. Do they have mental health beds in their facilities that they're -- as part of this, they're shutting down their own capacity, flipping it to MedSurg and you're starting out day 1 kind of taking on their business and growing from there?

There's all sorts of ways that, that can happen. Sometimes they are shutting down beds that they have and moving it completely over to the new facility that we're building together. There are other times where they're -- EDs are just so overcrowded that they are funneling, even before the facility is up, those patients to other facilities that we have in a location. We really had some strong cross-referral examples on that front, too. But regardless, I think we do a really good job now of working closely with the partner and figuring out how that handoff is going to work. And it just -- it depends market by market, but for the most part, they are doing everything they possibly can to defer patients to us as quickly as possible. I think that's a new bottle of water there.

Heather, maybe I can ask you a question while Chris catches his breath. I hate when I do that. Awful. The cost side, Heather. Labor has certainly been a pressure point over the last couple of years. Tell us what you're seeing there kind of more recently and compare vis-a-vis. So like talk to us about the pressure you saw in '23, how it's trended in '24 -- or I should say, in '22, how it's trended through '23 and how you expect it to kind of shape up in '24 relative to kind of pricing inflation?

You're right. We did have a high watermark last year, as did most people in this environment. We had base wage inflation of just over 8% in Q4 last year. We've seen that come down at a fairly steady clip, as we've done quarter-by-quarter. We were at 7.5% for Q1, 6.3% for Q2 and then 5.7% for Q3. So we've seen that rate down pretty quickly and on a fairly steady pace. We would expect that improvement to continue for Q4. That's certainly our expectations. We are not ready yet to call where it will end for Q4, but we feel good about the pace that we've come down. We feel good about the opportunities. What I would say is as we look forward to 2024, we are seeing the benefit of some of the initiatives that we've taken within the company that are really helping to stabilize the workforce and put some benefits in place that aren't just financial market adjustment related. There are other things that we've done on a broader basis that have really come into play. Those include our training at the facilities. Whenever people come into this environment, it's not your usual med surge sort of entry-level or even LPN are in role, there's a difference here. And so making sure that we, as Acadia, support those employees in the facilities, giving playbooks of certain therapy recommendations or sort of how they go through their day in those facilities. So they have some of the things that they can benefit from other facilities that we have, they can share across the facilities. We've done work with overall employee benefits and engagement, not just again on a financial perspective, the things that we're doing to make sure that we hear what the employees are saying in those facilities and focus on play engagement surveys and feedback and the things that we can do to drive improvement. Chris spent time in facilities actually talking to many of our -- all levels of our providers in those facilities to see what they want and to hear their feedback and we're focused on achieving these things.

I think just some of the pain points that we've frequently heard and just talking to our employees, when I've done bradbag lunches early on. First of all, we didn't do -- we have 23,000 employees, and we've never done employee engagement surveys. So I think having that data has been incredibly helpful. There's been real intentionality in terms of taking some of the best practices that we're seeing in certain facilities, applying those in other geographies over the last year as well. We did a midyear survey, where we just saw really rapid employee engagement improvement. And a number of the things that we've put in place would include training that we do, particularly for our clinicians, as a company that has grown by acquisition and now has over 250 facilities. Even the way that we have trained clinicians historically has been pretty differential to the individual facilities. And our Chief Nursing Officer has led an impressive program to standardize that across the company. We have much higher satisfaction from these programs that we put in place, since -- that we've done over the last several months and expect that to continue both from an RN standpoint but also an LPN standpoint specifically. So there's just a number of continued opportunities that we have on that front, but our employee engagement continues to climb. And I think that a lot of the investments that we're making are paying off.

Got it. And speaking of those investments, value-based care, I know, is kind of an important trend in health care in general. You come from a company, Humana, where it's kind of front and center certainly on the payer side. How do you see this evolving? And what are you doing to kind of get in front of it?

Yes. So I would have expected coming from the payer side to the provider side, that there would be more value-based care, particularly in Behavioral Health. I think one of the many reasons that, that is not the case is because the Behavioral Health industry did not benefit from the High Tech Act of 2009, where the meaningful use dollars that were obviously accrued to the Med-Surg facilities for whatever reason the Behavioral Health facilities were left out. So you don't see a level of data. You don't see EHRs across Behavioral Health. And I think as a payer, first question that I would always have in entering a value-based arrangement is how strong are your clinical health outcomes. I think, increasingly in Behavioral Health, we're not seeing those outcomes, and that's one of the reasons that we decided to do the Investor Day a year ago and committed to make some of these investments that we felt would set the company up to capture the really strong quality initiatives that we have in place. So I think we're beginning to see that. Clearly, I think we'll be in a position where we can have those types of conversations with payers. It's hard when you have so many facilities to immediately bring them all up in the EMR. We're about halfway through on our acute facilities and looking for how we can even -- you a rudimentary EMR or our CTCs as an example and looking to further improve that. But I think what's most important is that we have really strong quality outcomes across the enterprise. And so capturing that data, you see it with CAF on the CTC side, where we've just had very strong outcomes, and we see it really across all of our business lines is being able to capture that, bring it to a payer and then ultimately be held accountable for a value-based construct. I would have expected that there would be more shared savings interest or upside-only contracts at this stage. Haven't seen as much of that. But I think once we have the EMR up and the rest of the industry moves in that direction, you'll begin to see more of it.

So when do you expect to have that EMR fully rolled out?

On the acute side, certainly by the end of next year is our expectation.

And if you -- let's say, you're there by the end of next year or so, at some point in 2024, you start talking to payers. Share with us what you think a construct would look like from an economic perspective.

Yes. I think it would start with looking at readmission. I think there are always questions about how you ascribe value to various services. But I think one of the things that I always remember from being on the payer side is that if you take a member that has a chronic condition, you layer in on Behavioral Health diagnosis. The physical health spend goes up 3 to 4x at least. And so, there is a lot of opportunity. And I think it's capturing that and coming to an agreement as to how we might work together to provide better patient care while also providing upside to the payers is the trick. And so we just need some payer partners that are willing to work with us to that end.

Got it. The CTC growth that you mentioned that was pretty significant. I know that part of that has been increased in retention. So maybe you can kind of give us an idea of what's driving that increased retention? And when do you kind of annualize that? Does it continue to improve? Like what -- where is it versus your target on those initiatives? And when do you kind of annualize that, how much has it contributed to that 20%?

Sure. Our CTC business continues to outperform our expectations for the year. We brought in a new leadership team that I just think has done a tremendous job. There is so much need in this country right now to serve patients that are suffering from opioid use disorder. I mean we saw 110,000 overdosed deaths, primarily from fentanyl last year alone. And so right now, we have about 67,000 patients, which is a record from a census standpoint. And I think we've done a very good job of understanding what some of the pain points are from our CTC patients. One of the things we've heard consistently is that we're dosing, they want to come in and out of our facilities under 5 minutes. We've seen some wide variation in our facilities. We've been able to take that down under a 5-minute weight. Some of the things that we've -- the variability around dosing. Some of the work that we've done around retaining our patients because of the quick wait times, the work that we've done with redetermination, has really helped us retain -- that 90-day retention rate has improved by 20%, as I said at the outset. So I just think that there are a number of strategies the team has put in place. It continued to help us. And I think the way that they have navigated through redetermination helping our members that lose coverage, retain that coverage, get a retro payment where it makes sense, but have that continuity of care has really been differentiated. And we just continue to feel really strongly about the upside of that method.

You mentioned that the retention rate is up 20%. What is the retention rate?

Well, we haven't disclosed that historically.

Do you feel like it's at a target that you're comfortable with? Or do you feel like there's more upside to it?

There's more upside, clearly. I think that we have been a company that has grown by acquisition, and we have 150-plus CTC facilities right now. And as much as we've worked on this variation in the first year, we continue to believe that there is more operational efficiency. And it starts with better understanding the needs of our patients, which I think we have done a very good job on here in this first year, but there's clearly a continued opportunity.

And you mentioned getting people covered and keeping them covered with redeterminations. How has that kind of played through your business? What -- I think -- [ HA ] was here before and they were saying that about 2/3 of people that they find of loss coverage, they're able to get redetermined back on to coverage. How has that kind of worked for you?

I think it's pretty consistent, I would say, probably just a little bit higher in terms of our success rate. For those that have lost coverage, probably a little bit higher than that in terms of our ability within a 30-day window to ensure that continuity of care. And there's a number of strategies we put in place. I mean, with our 4 lines of business, the acute a shorter length of stay. We continue to see record census in that business, really hasn't been as much challenge on the redetermination front there. Our Specialty business is primarily our Medicaid exposure is concentrated in 1 state, where there's a safety net in place in the state of Pennsylvania. So that has not been as much of a challenge for us across the Specialty line. And then our RTC line of business, we have 9 facilities there, 80% of the time those adolescents are wards of the state that are not going to lose coverage. So it really comes down to, for us, our CTC business and 6,700 patients there. We started working on this proactively a year ago, where we put an 800 number, a dedicated hotline in place to be able to help any of our patients that were at risk of losing coverage. We put kiosks in place to help members apply for coverage, and we certainly have staff that's available to work with them on site or through the hot line. And I just think we've been very intentional when people have lost that coverage, primarily for administrative reasons, in terms of just ensuring that they don't lose coverage and they continue their treatment path. And overall, obviously, we said on our call that with Oregon now being the final state to launch redetermination, all the states are underway. We expect to end this year with 50% of our patients having at least begun -- the Union States that have begun the redetermination process and having come through it. But there clearly is more to come through 2025, we would expect by halfway through 2025, most of our patients, they've kind of worked their way through the system. And I think we've got a really good infrastructure in place to continue to come by their side and just help them through it.

And, what about the exchanges? Do you have any kind of system in place to say those whatever third or less that are getting -- that are losing Medicaid coverage? Are you seeing them pick up exchange coverage?

We do. We see them pick up exchange coverage sometimes. Sometimes they're eligible for commercial insurance. During the public health emergency, Medicaid patients frequently got out of the habit of reenrolling every year, and some of them have employment, and they just for whatever logistical reason, didn't apply for the commercial coverage. And we're also seeing occasionally, someone will decide to self-pay or at least for a period, and we help them with that as well. But I think the exchanges in commercial would be more common than self-pay.

So if you're thinking that for every person that loses Medicaid coverage, you're picking up 2/3 to 3/4, let's say, back in Medicaid, how much of the rest do you pick up through commercial coverage or self-pay versus just kind of lose that volume?

Yes. It's really hard to say because I just think the experience has varied state-by-state and we just have so many facilities. So I just -- I couldn't give you a precise number on that yet.

And how do your rates vary from Medicaid to Commercial, across your 3 or 4 different businesses?

Yes. I would say that overall, Commercial is a little bit higher than Medicare and Medicaid historically is just a little bit below what we see on the Medicare front. But you don't see a wide variety where there's significantly higher rates in Commercial, as you do in other parts of healthcare.

Like 10% either way, like if Medicare is $1, it's $1.10 versus $0.90 something like that? I'm not putting it exactly. I'm just saying it's like 10 versus 30. Okay. So a bunch of hospitals have been getting some -- states have been trying to help them on the rate side via some of these direct to payment programs, other waiver programs. Are you seeing anything like that or any benefit from it on the Behavioral side of the acute care hospitals yet?

Not to the same degree. I mean anything you would add on that?

No, it's not to the same degree. We do have some of those programs that have been in place and continue to be in place, but they're not significant, and they're typically something that is very steady from year to year but nothing like what you're hearing about over there.

Given the focus on mental health, why do you think that is? Do you think it's an opportunity to go to the states and say, look what's going on in these businesses and look at the lack of -- the lack of beds, the lack of capabilities there?

Yes, I think so. And I think there's clearly a policy opportunity for us to work with individual states, particularly as we're the largest stand-alone company. I mean, I think NABH, the association, the National Association for Behavioral Health, does a really nice job on that front. There's probably a way for us to partner even more closely with them. But I think with all of the focus that we've seen on mental health coming out of COVID, and then this administration, they're focused on the linkage between physical health and mental health, that there's more exposure to the issues at hand than there ever has been. And I think that's a real positive from the policies.

And then, Heather, I believe you've been running at about 2x leverage.

That's right.

And the -- remind me the dollar settlement, I think, was north of $400 million.

$400 million, exactly, was the dollar settlement.

So where do you -- are you going to settle that this year? Or is the cash going to go out the door?

The cash expectation of flow should be right around the end of the year, maybe the first of the year. There is a stipulation that the judge has to approve the settlement agreements first. We're just waiting for that to be docketed from the date that he approves those, we have 30 days to make the payment. So that's why it's a little bit variable, but should be somewhere right around the end of the year. With that, we will make the payment of $400 million at the time that, that 30 days expires, and then we'll have a piece that will come back through reinsurance. And then we'll have the tax deductibility on the balance of that improve and reduced tax payments throughout the rest of the year, but we will make that initial payment of $400 million. And at that time, everything else status quo, not thinking about EBITDA growth, I would expect our leverage would still be right around $2.5 million.

Okay. So the leverage goes up to $2.5 million. Are you -- I apologize if I should know this off the top of my head, but do you have the cash sitting on the balance sheet for that? Or do you have to -- do you need to borrow for it?

We have between cash on the balance sheet and revolver capacity. We have around $600 million of availability, so we would have the ability.

Yes, I'm just thinking about incremental interest expense. How much of that do you kind of have because I believe your funding needs are about your cash flow, give or take. So -- in terms of funding the new growth. So do you have to add some debt?

Actual cash usually runs around $100 million availability from period to period, somewhere plus or minus a little bit in there, and the rest of that would be availability on the revolver.

And you'll take it off the revolver, but I assume you'll kind of raise some more fixed debt or longer-term debt?

Certainly, that's something that we're thinking about is what's the best way to look a little bit longer term past the end of this year.

And when you think about the reinsurance benefit, the tax benefit, how much of that $400 million is kind of true economic impact that you might have to borrow if looking out a year?

If you look out a year, it just round numbers, if you assume the $400 million, we have previously disclosed that the coverage level for reinsurance for that year, the plan year was $75 million. We haven't disclosed how much of that was previously utilized. But if you assume -- just for a portion of that for sake of argument is not yet utilized. That would be the reimbursement amount. That net $400 million minus the unused portion of reinsurance, is what we would have the tax benefit coming back over the following year. Our expected -- our effective tax rate is around 25% usually. So you think about that coming back.

Or maybe it goes to $300 million or something a little bit below, you borrow that to the extent you need to because you need cash to run the business. And your leverage is somewhere probably in that $2.25 million, $2.5 million range. And how do you think about that? That's still kind of on the lower end of what I've seen historically on the facility side, right? I'd say probably $2.5 million to $3 million, probably closer to $3 million, frankly, is the low end of where providers typically run. Do you see any opportunity there? How do you think about cost of capital and the opportunity to borrow and maybe buy back stock, what have you?

Yes, I would say you're right. You're absolutely right. We are definitely at the low end even after the end of this year, we would still be at the low end from a comp perspective. We've stated before and we continue to believe that going all the way up to 3x would be a comfortable position for us for the right reason. We have certainly opportunities that come our way. We are able to fund our capital allocation for our continuing growth, as it has been without really tapping into that. But if there were opportunities that we saw that could be accretive and could be strategically the right moves for our business, then for sure, we would think about taking that leverage up.

Got it. So -- and just again, the -- I was actually flipping through the Investor Day deck before I came down here. The -- it looked like your capital needs relative to your cash flow that you're generating enough to fund the growth that -- the significant bed count additions that you're putting out there. But there's not a lot -- a significant amount left over for corporate uses, M&A, share buybacks. So you think about that optionality as if a deal did present itself or a number of deals presented itself, that's what it's there for. We can go from $ 2.5 million to $3 million, really easily to do if there's interesting acquisitions or even more capital to deploy at the right return.

Yes. And I would just add that, I mean, we increasingly see this as an attractive M&A market. I mean really still a very fragmented industry. There's wide knowledge that we have a very strong balance sheet and we have been certainly approached by a lot of smaller facilities and are also looking at other transactions as well, really across all the lines of business, but I think with an emphasis on just in the Specialty acquisition, there are occasional acute opportunities. But then on the CTC side, we're seeing a lot of opportunity there as well. So we continue to believe the valuation expectations are coming in. We have a high bar with respect to ROIC in the many different ways that we can attractively deploy capital. But I think this coming year, we would expect that the M&A market will be -- continue to be attractive and that we would do more M&A.

And just lastly, what do those deals -- you said the valuation are coming in, right, behavioral deals historically have traded at a pretty good valuation. So when you say coming in, tell me where I'm a tuck-in acquisition, onesie-twosie kind of comes in at on an EBITDA basis, what are you buying it at? And then once you put it on your platform, what does that multiple look like a year or 2 down the road?

Yes. I mean we haven't disclosed that yet, and we're obviously very cognizant not just of the multiple that we're paying. But what the synergistic value is and what the adjusted multiple would be out into the future. But I think what we saw across the industry was increasingly EBITDA multiples in the mid- to high teens for a period there, 1.5 years, 2 years ago. And I think those multiples are clearly going to come down. I think we're already seeing that down into the lower teens and even into the double and sometimes single digits, depending on the geography, depending on the specific market, the line business, et cetera. So -- and then the scale of the assets as well. So there's a lot of factors that drive that. But overall, the trend is for more refined valuation expectations than what we've seen.

And that 9% to 11% to 10% to 12%, that's organic, right? So any M&A is accretive to that.

Right.

Great. I think we'll leave it there. Chris, Heather, thank you so much for being with us today. I really appreciate it. Thanks, everybody.