AdaptHealth Corp. (AHCO) Earnings Call Transcript & Summary

Ladies and gentlemen, the program is about to begin. At this time, it is my pleasure to turn the program over to your host, Joanna Gajuk. Please go ahead.

Hi, everyone. Thanks so much for joining our Home Care Conference. So now it's my pleasure to host this session with AdaptHealth. They are one of the largest suppliers of durable medical equipment in the U.S. And today with us, we have Suzanne Foster, the CEO; and also Jason Clemens, the CFO. And I want to make a comment to the audience that please utilize ask question box that you see next to the video feed to ask any questions to the speakers. I'll be more than happy to post them on your behalf. So Suzanne, Jason, thanks very much for joining us today.

So maybe, Suzanne, we could start with a little bit of state of the union where AdaptHealth is now versus when you started? And also what are your key areas of focus for you as you think about 2025?

Sure. Thanks, and thanks, Joanna, for the opportunity to come today. So we have been busy the last 6 months. The first thing we've been focused on is what we're calling One Adapt. Everyone, I think, at this point knows that Adapt story is one of a lot of acquisition, roll-up strategy, now with very good size and scale. A lot of work was underway to integrate the business, but we have been focused on continuing integration efforts, more on the operational side in order -- talking about how we standardize our work across the country, to wring out the inefficiencies or any kind of waste that still exists in our system so that we can capture that. So that's been a big effort. As you've probably seen if you're following the company, we've brought in some leadership, married that up with the wealth of talent that we already have in the organization. We have completed that structure, at least from the top. And the leadership team is now fully in place with the recent addition of a Chief Commercial Officer that started last week, Russ Schuster. So happy about that. The other thing we have been very public about is that we're going to continue to strengthen our balance sheet. We've made great efforts over the last 6 months in yielding free cash, continuing to pay down debt, looking at completed divestiture, looking at our portfolio continuously for other opportunities and stated a new debt target at 2.5x, which we we'll aggressively get after in this upcoming year. We've also been preparing for segmentation. So we recently announced that we're segmenting our business, where we're going from a 1 single segment reporting to 4 segments, that being sleep health, respiratory health, diabetes health and what we're calling wellness at home, which consists of all of our supplies, DME that support 1 of those 3 major chronic conditions. And so, along with that, preparing to come out in Q1 with that segmentation, we've been organizing internally accordingly. The final two, I'd say, is we're continuing to make bets and investments on the tech side, low cost as they may be to experiment with automation and AI, particularly in our intake portals, that's showing promise, but it's very early days. And then finally, and I'm sure you'll ask about this is we have been very, very focused on our diabetes business. As recently, I stated that on the last earnings call that our operational performance is not where it needs to be. So over the last 3 months, we have made great efforts internally in order to perform better. And I'm sure we'll be talking a lot more about that sector. So I'll leave it there.

No, thank you. I appreciate it. That's really great just hitting all the main topics for the conversation. But I guess maybe before we move into the details, maybe just to kind of wrap up that, the commentary on a big picture where your focus is right now. Just thinking about long-term growth outlook for the company, as you mentioned, there's different verticals. So I guess maybe touch on that a little bit kind of how are you thinking about what this organization should be growing at?

Well, I'm going to have to leave the details on the numbers a little bit more, to Jason, to make sure we don't get out ahead of ourselves. But if I can answer your question in this way. As we segment the business, obviously, we're getting very, very clear indications of what we -- how we want to perform in each of them. And so I'm going to make some broad statements about how I feel about each of the 4, and then I'm going to let Jason say what we can say in terms of the numbers, so I don't trip anything up. When you take it from the top, our sleep business is continuing to perform very well, particularly our resupply business. We have a great growth engine down in Nashville, where we service now, I believe, 1.7 million, almost 1.8 million patients a year, and with exceptional service. And so all in all, I like the sleep business. I think that is a growing market, a ton of undiagnosed patients. And the top of the funnel, I am buying into the theory that with awareness is bringing more people in to get diagnosed for that very important disease. So sleep continues to be strong and will be strong for us going forward. Our respiratory business has shown nice growth, particularly with some of our capitated arrangements that we have. And we have a, I think, one-of-a-kind program there, where it's not just about delivering oxygen to the patient, but we have a Breathe A Little Easier program where we go above and beyond to make sure that we have strong adherence and clinical relevance in that part of our business. And so we're continuing to invest in our therapists and in that program to make sure that those patients have what they need. So we're seeing outsized, meaning this past year, we did better than market, I'll say, and we continue to invest in respiratory, a very strong piece of the business for us. Like I said before, diabetes, we have to -- there's been a dynamic market. So I put aside what's going on in the market with payer shifts and pharmacy shifts. But we have -- if we're just looking in the mirror, we have some operational improvements to make, which we do have underway. And so we're looking at 2025 being a bit of a repair year, but we -- but I do believe in the diabetes market and think that we'll be able to deliver growth there. And then finally, our wellness at home or our supplies business is showing nice moderate growth going -- as we go into 2025. We have a good portfolio. We'll continue to invest in that where it makes sense. And like we've said before, we're going to divest those product lines that don't make sense to support the 3 big chronic diseases that we currently support. And then if I may turn it over to Jason to put some numbers around what I just said, I'd ask him to do that.

Yes, happy to, Suzanne. Won't add too much as we're closing out the year and we'll intend to guide '25 when we report near the end of February next year. We do believe that diabetes CGM pump growth market -- market growth is pretty good. I mean, I think you had some panelists on earlier today that have confirmed that statement. I think if you look at the manufacturer growth, whether it's Abbott or Dexcom, probably low double-digit growth is what they're growing at, potentially teens, depending on the quarter. And again, we've been compressing in that business. So we've got some work to do, as Suzanne said. As it relates to respiratory wellness at home, I mean, those categories are typically very steady growers. I mean they're anchored pretty tightly to Medicare eligibility. As patients age and they become eligible for Medicare as well as the utilization trends that come with that. They typically anchor big picture to Medicare growth. So whether that's 2.5%, 3% a year, that's pretty steady. I mean for us, this year, respiratory was quite a bit outsized from that as a result of the full ramp of the Humana contract. So at the end of the day, big picture, kind of 2.5%, 3% is what to expect out of respiratory and the wellness at home. Sleep, we expect to grow faster than that, that 2.5% to 3%. Suzanne said, we continue to see good and strong patient demand. We continue to see very, very limited impact, and the impact is to the upside of patients that have identified as being prescribed to GLP-1s. So overall, the regulatory environment is as stable as I certainly can remember, going into my fifth year at the company. So overall, we feel like the end markets are in very good shape with repaired and proper supply chain and into the new year. So we'll talk a little more in detail at the end of February.

Sure. Looking forward to that. So I guess just going into these different therapy lines or I guess, 2 big called segments finally. But diabetes, right, a lot of interest in that business. So you guided down for the fourth quarter because of the worst diabetes and you talk about lower new starts, right, and then some issues with the resupply. So can you give us an update on the changes you have made in your -- in that particular business and also any progress that you've made since the last comments?

Sure. So at a high level, for anyone listening for the first time, when I first came into the business, I was under the impression, I think a lot of us were that a lot of the dynamics we were seeing in our own diabetes business were primarily marketplace dynamics. But the truth was as we dug in, our competitors were growing, our manufacturers were growing, but we weren't. So we had to dig a little deeper. And when we dug in, we realized that a big portion of our miss was really self-inflicted. And so the first thing we do is we had to make some changes in leadership to put some right experienced people in place. And so we put in a new General Manager, someone with a long-time DME experience, understands the business, maybe not diabetes specifically, but understands how you care for patients in their home. He's made a -- he's dug in and done a nice job. We've added a new Vice President of Sales, who's come in to manage the sales force around how to target where we have people, where we should be selling. The biggest move we made is we shifted our diabetes resupply into our sleep resupply center of excellence. These people down in Nashville on our sleep side of the business are experts in resupply. There was no reason we were running these 2 businesses separately. And so when we got that organized, we had the right people to dig in to understand why operationally, things were not where they needed to be. Some of the big rocks that we uncovered was that in our resupply business, we had -- one big example is we had introduced technology back in Q4 of 2023 that essentially did not do what it should do, meaning it was overcommunicating. It was calling and texting and not allowing patients out of the right level of communication maybe too much, and they were getting frustrated and opting out. And so we had to correct that. And just the basic way we were handling our resupply business was causing -- wasn't creating the best patient experience. On that front, I feel very confident that the team down there has diagnosed the problem and put an end to those things that were frustrating our patients and providing a better experience. Now it will take a little time for that to come back around. But I think we've -- we fully understand what had happened there. On the new patient start, we have a very seasoned sales leader, which I think has got his arms around exactly why we weren't being as effective as we should be on the new starts. And so we will be projecting growth in new starts coming into 2025, but it's going to take some time, as you know, for that new start volume to ramp up to refill the resupply bucket in order to get that overall growth going again. And that's why I say it will be a couple -- it will be several quarters to bring -- turn this ship around. But the good news is we have conviction in the strength of the market on the HME/DME side. We believe that there is growth to be had from where we sit today. We understand our operational issues. We've always understood the market dynamics of what's going on, but now we can better respond to those market dynamics based on the structure and the people and the operational rigor that we've put in place.

So it sounds like it will take a couple of quarters, right, to see the effect of what you're trying to do there. So I guess, in the past, the company had talked about a lot when it comes to diabetes and kind of dealing with the changes what as you described, maybe was viewed as a more marketplace situation, but there was a lot of discussion around growing government volumes. So can you talk about that strategy? Is it still in place? And I guess, what has been the growth, I guess, so far this year for the government volumes in that business?

Yes, Joanna. I may jump in here. As part of the early year communications, we did talk about our straight Medicare kind of book of business and MA and Medicaid is growing pretty well. I mean we continue to add census. And so that is an underlying indicator that we keep a close eye on and that we've been generally pleased with. I mean, we should -- we want to get more. We aspire to get more. But that's where the investment in the new sales force was intended to extract was really that primary care point of sale. I mean, historically, the company and the businesses we acquired had been really focused on the endocrinology point of sale or traditionally those type 1 diabetics, was those penetration rates into the type 1 patients have gotten pretty high. I mean starting to level out in terms of the number of patients using CGMs. The new growth or the big growth that remains is really arguably in the type 2 patient. And some of those certainly are seeing endocrinologists, but many are getting prescribed CGM therapy from their primary care physician. And so that's really where the investment was intended to focus is in primary care and type 2, which happen to be pretty high Medicare, Medicaid kind of government penetrations. As Suzanne said, we're fine-tuning with new leadership, where we hunt, if you will, as well as kind of quotas and territories and things like that, that are getting tweaked by some of the new leadership. And we do expect new start growth, as Suzanne said, but in terms of overall diabetes growth, I mean we'll talk about '25 when we talk about it. But we also said last quarter that until we get back to a growth trajectory, we're not going to be quick to commit to growth. So really kind of a show-me story until we're able to prove it.

Right. No, I get it. I understand. Thanks for clarifying that. So I guess when it comes to -- because you kind of alluded to the idea that the market and others have been growing faster. So is there a way to kind of describe kind of the magnitude of the market share losses that you had experienced so far?

Well, I think it's tough to quantify that. But I'd say that generally, if you look at the third quarter and average together, Dexcom and Abbott U.S. market growth, it's going to be kind of that 12% to 13% range. If you look at some of our competitors with Owens & Minor, I mean, I think that they've discussed their patient segmentation growth and then they've suggested that diabetes is above that, has led the way. If we look at some of our privately held competitors, just through channel checks and information, I think, available, we have a good sense that they're in line or better than OMI at kind of that upper single digit, perhaps more. And look, the fact is that we compressed in the third quarter. And so that's why Suzanne has made the statement of the market is growing. We know that. Based on the information they've provided, we know our competitors are growing. And at the moment, we are not, but we think there's plenty to get as we refocus.

So where it stands now in diabetes, right, and specifically in CGM when it comes to the shift to the pharmacy channel. So is it that it's already pretty much 100% is going through the pharmacy channel? Because you also, I want to say, on the call, you had mentioned that maybe some payers are actually switching back to the DME channel. So I guess what's driving there? So just curious about these dynamics around the channels and where we stand and what could be happening going forward.

Well, we believe, based on the data that we've digested that about 75% to 80% of the CGMs prescribed in the U.S. right now are getting reimbursed on a pharmacy reimbursement. And so the remainder would be through a medical reimbursement and/or cash pay. And so in terms of like continued shift backwards or forwards, all we can offer is that for this year, for '24, there were a handful of state Medicaid agencies that had shifted to a full pharmacy reimbursement. As we stand here today, about 33 or 34 states have made that decision to distribute on a pharmacy channel. One actually came back, South Carolina, during the year, effective July 1, made the decision to reopen the DME channel. Now some of that, we believe, was a determination made on access. Certainly, in some rural markets, there's not a pharmacy within many miles as well as adherence. I think throughout your conference so far, there's already been discussion on new data suggesting that adherence to CGM therapy is significantly higher if a DME is involved as opposed to a pharmacy, which makes sense. I mean we're -- DMEs are really built for that high-touch patient experience and working along patients for adhering to their therapies.

And may I add, I think, Joanna, the diabetes business to put in context, 17% of our total revenue, we'll get our arms around it this year. Obviously, based on what Jason said, the market overall is growing. There is this influx dynamic going on between pharmacy benefit and med benefit. I think both are here to stay. I think the open question will be how relevant is the evidence that's showing that certain patients have stronger adherence when they are on the HME on the medical benefit. And I do believe that good minds will acknowledge that there are certain categories of patients that need that extra touch in order for them to not end up with higher-cost health care. So that will yet to be determined, but I'm going to be optimistic that common sense prevails.

Yes. That's right. And then I guess on that note, a little bit because there was also some discussion about your strategy around the national accounts, right? So this was also one of the strategies to kind of grow census. So can you kind of elaborate a little bit on that, kind of where you stand and what there's still left to do?

Sure. So Adapt commercial strategy has been one very successful where we have hundreds of salespeople out there, particularly on the HME side, I think somewhere of 700 member sales force, strong sales force that has primarily historically called on individual referring providers. Now that is with the exception, we do have some hospital accounts, obviously, particularly in the Northeast, we're strong, et cetera. But if you look at the shift to home, one thing we heard or I heard from the team here and also just new from being in this market is that hospitals need a handoff partner. And how do you become a better partner to the big hospital health systems as they're discharging patients and taking some of that workload off of them? So we have invested there where we have our existing day-to-day sales force, and we don't want to distract them too much, but we've added now a small SWAT team, if you will, to help and support the existing large sales force to offer more embedded one-stop shop discharge handoffs to our hospital health system customers out there. So we know that having someone on site to help with discharge planning really does help the hospital. It helps the patient because they can leave with the proper equipment or the coordination to have oxygen in the home, for example, by the time the patient gets there is something that a strong liaison program supports. So we have the liaison program. We have a small national account/enterprise sales team that is going out and talking about the value prop in which we can provide with our broad portfolio and the reach of our geography, we can provide a one-stop shop to a lot of these big health systems.

Okay. That's great. And I guess maybe shifting gears to your other businesses because to your point, that is 17%, but there's a lot of questions. That's why I guess we want to talk about that. But clearly, sleep business grew very nicely, and you kind of outlined your views there. And I was just curious because I know in the past, right, you've been talking about doing your own study, right, and tracking patients on GLP-1s. And on the third quarter call, you said that a higher percent of your sleep patients are actually on those drugs right now. So kind of how do you see this impacting your sleep resupply business over time when you have more patients of yours actually on these drugs?

Do you want to answer, Jason, do you want me?

Yes. The data we put out, Joanna, to round out for the audience, we started tracking back in October of 2023, every patient that gets set up on a new CPAP, and we do about 40,000 a month new patients that are coming into our system. And so as part of the technology and that setup, it's required a survey, not all patients respond, obviously, but a large percent do. I mean, over 30% of patients respond. And so we've now got well over 100,000 data points that we have been tracking. The percentage of patients coming in identifying as on a GLP-1 for either diabetes or for just general weight loss, I mean that increases. We think that will continue to increase every quarter. What we're measuring is once a patient is identified as on a GLP-1, is the adherence to the CPAP therapy different than what it is for a patient that's not on a GLP-1. To date, we have, for the first time in the quarter, identified that there's actually improved adherence for a patient that's on a GLP-1 as well as a CPAP, which at the practical level makes sense. I mean you've got a patient that's very focused on their overall health. They're attacking kind of multiple ways and protocols. And that's what we're seeing so far, which is similar to what Dexcom has demonstrated with their real-world study that aggregates claims and essentially says the same thing. In terms of resupply, we have not yet detected any difference between a patient on a GLP-1 or not. whether they're ordering more supplies or more frequently. We are keeping an eye on that as again, the ResMed real-world study indicates that there's quite a bit higher propensity for a patient after a year and then after 2 years to order more resupply than a patient not only GLP-1. So we haven't seen that yet, but we're keeping a close eye. And every quarter, we'll continue to report the data as it comes out.

I guess we'll just keep asking about this data because it's very interesting. And you mentioned your contract with Humana, right, that was, I guess, coming through this year. So can you talk about how, I guess, you're tracking call it, second half of this year versus first half? And also how we should think about this contract going forward when it comes to either inflationary update? Or is there any trigger for how this gets repriced every year? So kind of give us a sense of how -- for, I guess, modeling purposes of how people try to kind of look at this service line.

Well, as you said, for modeling purposes, we expect pretty steady growth. We do get paid a per member per month by Humana in each of these 33 states plus D.C. As we look towards next year, I mean, we'll see. I think we're all aware that Humana has indicated making some changes in some markets. We do not have any reason to believe that membership numbers for MA, HMO for the contracts that we participate in that there will be any major change there. But as the population continues to grow and Humana grows, we get to experience in that upside. In terms of the overarching contract, I mean, we fully transitioned all patients before the end of the first quarter. So in '24, you're effectively seeing a full run rate of Humana within our business and within P&L. Utilization has been spot on. We're very pleased, and we track that closely, as you can expect. And so overall, I mean, we're thrilled with the relationship. I mean, I think the SLAs and the things that we committed to, to being a good partner and a good DME operator and taking good care of these patients, we're doing a good job, and we expect that to continue.

And you mentioned PMPM, the way you're getting paid. Is there any quality-related bonus payments? Or would you anticipate not now? Like would you anticipate this going better route? Or just the way it now, it's probably going to be there forever?

Yes. What we've said historically is that they are not bonus payments nor are there penalties in the contract. I mean, the contract was really built on a spirit of partnership. And so there's daily, weekly, monthly metrics that we report and discuss frequently with Humana. And so that's -- the idea is if we take good care of these patients and manage any complaints or escalations if and when they arise and communicate that openly with the payer that overall, we're going to have a great relationship for all parties.

And I guess you talk about -- when I ask about the growth, you talk about more the membership, but I was also thinking about how to think about the PMPM, whether this -- there are some triggers that the PMPM rate is changing away. Is it linked to the MA rate or to fee-for-service rate? How to think about that?

Yes. Good questions. Unfortunately, we haven't answered any of those and don't intend to answer any of those. I mean you can expect -- I mean, DME is a category. I mean it is somewhat of an inflation-based sector of healthcare. And so we work to strike a good balance for both Humana and for Adapt.

Okay. That makes sense. And when we're thinking about the contract with Humana, right, this is -- so we actually asked the question today of the representatives participating here to say they're satisfied with the contract, and it sounds like it's working well on your end as well. So how should we think about what's coming next? Would you use this experience, I guess, to pursue more? Are you seeing any interest from other payers? Kind of when you would -- because essentially, the question is, when will you be able to say how this contract performed versus your expectations and kind of what's next for that?

Yes. I'd say in terms of contract performance, we're very, very pleased, both top line as well as utilization are right in line with what was originally modeled. I think that all know that the start-up expense that was incurred to get the contract up and running we absorb some cost. But for a contract this big with this much membership and this many patients, it is what it is. I mean that's now well behind us. To the question on interest from other payers, I mean, yes, there's certainly interest, as you can expect in a year of MA pressure that payers are facing. There is interest in what Adapt could do for them. But I mean, I'll remind you, Joanna, and the audience, I mean, these type of contracts are much less about the actual price, the reimbursement. I mean certainly, we're a large company. We're able to potentially offer a little bit of favorability for a payer. But I mean, at the end of the day, this is really about the patients, moving from hundreds and hundreds of DMEs in any one state to just one. I mean it's just Adapt. And with the SLAs that we've committed to, it's just very clear and consistent communication for exceptional delivery and customer service.

Can I just add one point to that? I'm so happy Jason went there as a CFO, the patient experience because that -- I truly do believe that these types of payment models do align interest. And if you think about the bigger opportunity here, which is to deliver more care in the home to patients, I think these type of arrangements going into the future do exactly that. If everyone is pulling in the same direction and providing the right level of care at the right affordable location where the patient wants to be, I think at the end of the day, everybody wins. And so that's why we're very open to more of these arrangements. Now we understand that we have to operationalize our business in certain ways based on how we're paid. But these are very hopeful to -- I find them very hopeful for the future of healthcare.

And I guess, Suzanne, my other question was here, besides MA plans, Medicare Advantage plans, is there any interest right, from other entities, maybe copyright physician groups or health systems that are working on hospital at home. We spoke about this before. So kind of your views there? And then can you share if there's some incoming interest from other entities?

I mean I'll just say that we're in discussions because I think I've been in health care my whole life. And I've said many times for the last 20 years, everyone thinks the big push to home is going to happen, but regulatory and reimbursement matters are really the reason that the true hockey stick hasn't happened. I mean it's happening and it's happening at a nice pace, but I think there is so much more we can do. And with the extension of telehealth, hospital at home, remote patient monitoring, wearables, these aren't new, but I think that the conversation around these topics are happening at higher levels of health care organizations than I've ever seen in my career. And that gives me hope that people are waking up to the idea that HME, DME, home providers piece of the pie should ultimately grow in order to shrink the overall health care cost in this country. And not be so focused on just cutting oxygen rates because we have such an important role that we play in the overall health ecosystem. And with the extension and should it hold on things like remote patient monitoring, telehealth, hospital-at-home programs, to me is an indication that people are understanding finally that the shift to home and that with technology, so many more patients can truly be managed at home with high-quality care. I think that's a promising outlook.

No, for sure. I mean we're discussing this throughout this conference, but also curious because you mentioned, right, the devices and the connectivity between devices and the data. And I want to say that either today or in the past, you kind of alluded to this idea of like you do have access to a lot of data, right? So just curious, what's the level of interest from payers, right, or maybe even providers to kind of essentially pay for this data to access this data through you?

I don't know if I'm ready to answer the actual payment of the data. But what I can say is they pay -- it's paid for today as a way through adherence, right? Because you're seeing now we have access to CGM data to sleep data, wearables in the future. We have a pilot going on now with some vital sign type monitoring in respiratory patients. And so as this information is accessible to us and the manufacturing partner, it does drive a discussion about how we partner to better care for that patient to drive down cost. And it allows us to know where we put our resources and more intelligently reach out to the patient when we know that they're either struggling or off of therapy or whatever it may be. So I think for now, there's not a separate line item that I can speak to, but there's definitely a payment in the form of adherence.

And another, I guess, topic, so you alluded to this a little bit in terms of the portfolio streamlining, right? And you sold some non-core assets, I guess, the last couple of months. So I guess, should we expect more of this? And I guess, is there some sort of end to it? Or I mean, I understand there's continuously assessments of what makes sense for that. But kind of can you help us understand, is there like many more of these that are kind of on the chopping potentially? Or there's just a handful?

What we've said, Joanna, is that specifically within the wellness at-home categories. So historically, we reported this in the HME line as well as the supplies to the home and the other revenue categories. Much like the custom rehab assets that we sold just a couple of months ago, over time, as you've acquired many HME companies, they can come with pieces and parts. We've said in the public forum that one example is home infusion services. A local DME operator can offer some small home infusion service as part of being in that community for a long, long time and there to take care of patients. And it becomes like an offshoot of their DME business that -- because there is some minor overlap. Well, I mean, again, over time, as you acquire companies like that one provider in one state and then one in another state and then a third and fourth, I mean, these things can roll up to potentially a point or 2 of revenue. But that's a business that just -- it doesn't drive ancillary volumes into the 3 core segments in sleep, diabetes and respiratory. And so that is an example of something we're looking at. We've said that of anything to be disposed, it won't add up to more than $100 million of revenue with everything combined. So we're talking about really some portfolio trimming, and we'll be sure to update the market as and if we make progress.

And I guess you alluded to this, but I just want to touch base on the cash flow, right? So you reduced your EBITDA guidance, but you raised your cash flow outlook, right? So I guess what's driving that? And more importantly, I guess, if you can talk about this, whether this is actually sustainable as we think about '25 or later trends for.

Yes, a couple of things going on within working capital. I mean, DSO continues to come down, really spiked to elevated levels at the beginning of the year on account of the Change Healthcare situation. But that is -- the impacts of that is largely behind us at this stage. We've been doing a good job with inventory and CapEx this year. We think we'll continue to do that as there's a whole lot of focus on the inventory and CapEx that is inside each of our locations and new technology that we're in process of rolling out to just stock more efficiently. So we intend to continue that in the coming years. Particularly in '24, there's a little bit of payment term extensions as well. I mean, I wouldn't plan on that in future years necessarily. But as we've tightened up relationships with manufacturers, the product we buy, if we're able to get a little better terms, we're going to take that where it makes sense. So I wouldn't think of this as like building cumulatively necessarily as you think about '25 free cash flow. But overall, I mean, the areas of DSOs as well as inventory and CapEx, I mean, we're on track. I mean we're doing a pretty good job, and we think there's more to get.

And I guess maybe just to end because we run out of time, but another one talking about reimbursement, Medicare rates. So I guess it's -- we should find out probably soon the rates, but I'm also curious your thoughts around the competitive bidding. Obviously, we haven't heard from CMS in a while about that. So is there any traction or any interest? How do you think about that?

Certainly not for next year. If and when competitive bid is reinstalled, I mean, we'll -- I think we'll all have advanced notice of something like that. It just takes time to stand up the program and administer it. But at the same time, I mean, the last round of competitive bid was canceled. And the reason was that the CMS had not obtained the economic benefit that they expected. I mean providers like us, I mean, equipment costs increase, there's inflation, shipping. These things are only going up. And so over time, I mean, the competitive bid has taken out 70% of reimbursement in some categories from the time it started, while inflation continues to grow. So -- your guess is as good as ours. But currently, not hearing really much of anything on the topic.

Okay. I guess we're out of time. But on the very last question that I ask every participant at the conferences in, how do you think, in one word, how would you describe the outlook for your industry?

Optimistic -- stable and optimistic. That's two words.

I'll take that. This is great. Suzanne, Jason, thank you so much for the time, and everyone listening. Please stay tuned for additional sessions later on. And thanks so much for joining us.

Thank you, Joanna.

Thanks, Joanna.