Community Health Systems, Inc. (CYH) Earnings Call Transcript & Summary

Good afternoon. Thanks for joining us. As our health care conference continues here, my pleasure to introduce Community Health systems. Community is an operator of general acute care hospitals and communities across the country. The company currently owns, leases or operates 93 hospitals with approximately 15,000 beds and a number of ambulatory assets as well. Today, we have presenting CEO, Tim Hingtgen; also the CFO, Kevin Hammons. Ross Comeaux, Investor Relations, is in the back there for a distance. And I'm going to turn it over to these gentlemen for their PowerPoint presentation. I'll come on about halfway through and moderate a Q&A session. So Tim, I think I'll turn it over to you.

Great. Thank you, Gary, and good afternoon, everyone. Gary, thanks for hosting us again this year at the conference. I've enjoyed participating for the past few years as the COO of Community. And this is my first as CEO being 2 weeks in the seat following Wayne Smith's transition to the Executive Chairman role this year. I'm grateful for his confidence and the Board's confidence for me to steward the company going forward. Today, our presentation will largely focus on the company's progress and future strategy. But first, I'd like to acknowledge that 2020 was clearly an unprecedented year for all of us as it relates to COVID-19. As a company, we are deeply thankful for all the providers, our leadership teams, our executives, who continue to manage COVID still within our communities. We'll give some comments about the company's ongoing response to COVID briefly during today's presentation, and we can certainly answer more questions during the Q&A, but I just wanted to make sure I started out with that important notice. Before I begin, I'd like to also mention that some of our comments today will include some forward-looking statements, so we would encourage everyone to read our risk factors in our SEC filings. Turning to Slide 3. I'd like to point out that we filed an 8-K this morning, which details our first look at our fourth quarter performance and provide some initial guidance for 2021. Kevin will walk through that in more detail later in our presentation. But as we shared in that release, 2020 was a pretty good year for us, finished strong in the fourth quarter while we continue to manage COVID throughout our markets, and it really set us up well as we head into this new year. Slide 4 provides a brief overview of the company, and I'll just kind of walk you through. Gary did a nice job of this at the opening, but we're roughly 89 hospitals at this point in time, still a few divestitures that came out in the fourth quarter and early January, but just up 90 hospitals in the portfolio across 16 states. We care for over 0.5 million admissions annually, over 2 million ED visits. And our revenue on a trailing 12 months is approximately $12 billion with EBITDA -- adjusted EBITDA about $1.6 billion. Over the last couple of years, we've been very focused on the portfolio rationalization project. And we believe it's really left us with a strong, solid core of hospitals to build upon for the future, and I'll cover that in some detail here today. Right now, the majority of our hospitals are located in regional networks, pretty close -- in close proximity to more than one other CHS hospital. And with the structured changes to the portfolio, over 90% of our hospitals are now in markets with the CSA population greater than 50,000. At the onset as a company, obviously, the company was more focused on rural markets, which since transitioned to more urban, suburban markets to go forward. And our strategic focus was also on placing more of our energy and our attention and our investments into faster, larger growing markets. From 2017 through present, we really have been focused on really transforming the company and strengthening it for the long run. And on Slide 5, you'll see kind of our outline of that journey. From 2017 through 2019, we're really focused on strengthening our foundation through the divestiture program that I just referenced. We introduced our strategic imperatives, I'll cover those in a few moments. We prioritized our net revenue initiatives and our capital investments throughout that time to really strengthen our volumes and our revenues on a go-forward basis. And we also embarked upon a very structured strategic margin improvement program. We had finished the year, 2019, in really good shape, as you recall, entered 2020 with some solid momentum and then COVID hit, obviously, in the middle of March. But leading up to COVID, we saw our work throughout this transformation period, really taking root. Good EBITDA gains through February until the impact of COVID in March. So it kind of altered our transformation a bit. We really put a lot of energy and attention towards the safe and effective management of the COVID patients that were entrusted to our care. We also had to manage through the disruptions to our elective business early on in the pandemic due to the government-mandated shutdowns. We also, by the end of the year, completed our structured divestiture program and we continued to execute on our growth and margin initiatives throughout the year as well. So I want to point out that even while we manage COVID, we continued our forward focus on capital investments into our remaining markets to go up service lines, to advance acuity and to strengthen the company for the long run. Again, I'll give you some more details on that in just a few moments. We also greatly improved the capital structure and lowered our leverage through the end of 2020. Looking forward, we continue to focus on strong execution of the initiatives I just mentioned, to further our net revenue growth, increase our profitability and grow our margins. We are focused on continued improvement of our cash flows as well as reducing our leverage. What you have on Slide 6 is a view of our current hospital portfolio at the end of the third quarter of 2020. And what I want to point out is through that structured portfolio rationalization or divestiture program, we really have something on a strong core portfolio, largely centered in the Sun Belt states, larger population-based, higher-growth markets. And through this work, we've also really distributed our revenue base. As you can see in the slide, our top 5 states are listed. We also believe through some future opportunities with Medicaid expansion, we have further potential to grow our base. Four of our top 5 states, for instance, have not expanded Medicaid. I sort of gave you a few updates on COVID. So let me take a moment to do that here on Slide 7, and maybe walk you through our priorities as we manage the pandemic. At the forefront throughout the entire way, we have focused on safety first, safety for our patients, our staff and our providers and providing the necessary care for our communities. We were pleasantly surprised that our previous growth-related investments, like telehealth, transfer center and supply chain, really served us well throughout the COVID pandemic as well. Telehealth, obviously, I'm sure you're reading the same things. Rapid uptake in Telehealth services, which really served as a springboard for us to bounce back volumes when we had the government-mandated shutdowns in the second quarter. We continue to see strong utilization of Telehealth throughout the course of the pandemic, and we expect that trend to continue. Our transfer centers, again, primarily built as a revenue enhancement strategy for the company, really help facilitate inbound care, higher acuity care from a lot of non-CHS hospitals to tertiary sites of care. And then supply chain was obviously invaluable as we managed PPE testing of pharma, all those things really relied on the supply chain infrastructure that we've been investing in over the last couple of years. And then, of course, we've certainly demonstrated our ability to be adaptive and responsible in terms of our expense and our operations. That as COVID volumes surged, we're able to curtail certain elective volumes but bring them back very, very quickly when it was safe and appropriate to do so. That bore out in our third quarter results. As you can see on the slide, we bounced back very quickly without any CARES Act funding, posting strong earnings and margin as a result. And as we flashed earlier today, that trend continued into the fourth quarter. Let me shift now to our growth and operating strategy and start off with Slide 9. I'll walk you through our strategic imperatives, which are the company's areas of focus to drive success. We've rolled these out in early 2018. We believe they've been very impactful in helping us create broad alignment across the company, and that would be at the corporate offices, into our hospitals, across our enterprise, making sure that we're resourcing and prioritizing the right things. Under each of these strategic imperatives, we have key initiatives that we've invested in that really had helped drive the success of the company. And the first one, again, was safety and quality. Prior to 2018, obviously, we had a core focus on improving safety and making all of our hospitals high-reliability organizations led by Dr. Simon, and we continue to see that progress and those benefits serve us well throughout the course of the pandemic. And obviously, safety is a core fundamental value for us. It's the most important thing in the product we offer. Next is operational excellence, really making sure that we're measuring and monitoring our ability to provide care and services in well-run hospitals. Next, we have connected care. That's our embracing of consumerism, making certain that we have consumer-friendly access points or digital or online channels for patients to receive care. We've also invested more heavily into navigation mechanisms to make the health care journey much more simple for patients. The last one is competitive position. And we believe, inherently, if we do the first 3 really well, our competitive position will follow. That's growing market share on both an inpatient and ambulatory basis. Again, our strategic imperatives continue to serve us well. We are really focused on the key initiatives that drive the success. Our balanced approach in terms of building our markets out from an outpatient and an inpatient perspective has been very focused. And what I'll cover here real quickly is our core tenets of how we grow our outpatient footprint. As a company, over half of our revenues are derived from our outpatient services, and we expect to be able to continue to grow that in the years to come. The primary focus has been on access point expansion like urgent care centers, walk-in care centers, ambulatory surgery centers, and I'll give you some more details on how we're building out that pipeline in a few moments. We've also been very focused on our primary care development, really embracing the concept, certainly, that primary care is at the top of the funnel, follow the higher acuity services further down in our acute care spectrum. Our Accountable Care Organizations have served us really well. We're finishing our third year of the Accountable Care Organizations. We've had really good success at both improving our delivery of value-based care, but also in our alignment with our providers. And then last is our consumer-friendly scheduling, whether it be centralized scheduling, online scheduling, and I've even put some Telehealth advances on this slide as well. But in the end, we believe we're very well positioned for ongoing shifts of site of care into our care settings. In terms of our outpatient investments, our current ambulatory locations are listed here. Even throughout the pandemic, we added new freestanding EDs to the company. We're at 13 in total. We have over 80 urgent care and walk-in care clinics across the company. We have over 600 physician practice locations with more than 2,000 providers. As I mentioned, we have a good portfolio of ambulatory surgery centers, and that is growing. As a matter of fact, we just closed on an acquisition on January 1 to add to this count. Our telehealth visits on an annualized basis are running at about 650,000. Again, that's over the last couple of quarters, showing that patients and providers continue to utilize our investments and that important access point. I mentioned our Accountable Care Organizations as well and our ACOs have been very successful. We have 15 of them across the company. There's over 4,000 participating providers. That includes over 300,000 attributed Medicare lives. And that is so key as we look at the inventory migration of patients that we have a relationship through the ACO and these providers to utilize our full networks of care as a company. I think importantly to note, 8 of our 15 ACOs achieved shared savings in the second year. And also impressive, every one of our providers have got full qualification for MIPS as a result of their participation. So again, a great alignment and quality advancement for the company. In terms of our growth pipeline, our comprehensive market analytics are underway. We've done a good portion of the portfolio with some deep dives into each market's unique opportunities, leveraging some big data to make sure that we have well-positioned access point. So we continue to focus on additional expansion of ambulatory access points. Our acquisitions and joint venture pipeline to drive our access point growth is also robust as well as further investments in on-demand and digital channels. In terms of inpatient investments and growth, at the front of this is medical staff development and recruitment based upon really well-thought-out strategic plans. We continue to focus our capital and our technology investments into our stronger markets, which is really, again, more possible through the streamlined and stronger core portfolio of hospitals. We also leverage our CHS transfer center throughout our markets. We have about 75% of our hospitals active on the transfer center. It gives us unique insights into where we can go next to expand service lines further, if there is some -- for some reason an inbound request that we can't facilitate a number of times. And then on provider and clinical outreach services, that's about, again, further building that relationship with the physicians in our markets, making sure that they're aware of the services that our markets can offer. Related to inpatient investments and growth, really, again, throughout the course of the pandemic, we continued to invest our capital into our stronger group of markets. This year alone, we've opened a micro hospital in Tucson in the fourth quarter. You can see that pictured on the left. And we've also completed a replacement hospital in La Porte, Indiana that also opened in the fourth quarter. We have spent considerable time, energy and attention on investing our capital dollars and to adding incremental inpatient beds in various markets including Knoxville, Birmingham, Naples. Just our core group of hospitals have really been growing along with those communities and our ability to grab market share with the strategic investments we've made. We've also added more than 50 new surgical and procedure suites over the last 3 years. Our pipeline is also strong. On the inpatient side, we see great opportunity. We have the Fort Wayne Downtown hospital coming online in the latter part of this year. We have a fourth hospital being built in Tucson as we speak. And we continue to invest in other expansion projects across the portfolio to drive service line and acuity expansion. Again, all made possible because of the hard work related to the divestiture program and the portfolio improvements. Right now, I'd like to turn it over to Kevin Hammons.

Well, thank you, Tim, and good afternoon, everyone. Tim just highlighted the company and walked through a number of the strategies we've executed on as well as some of our strategic focus priorities moving forward. I'll continue by covering a number of financial topics. First, on Slide 15, I would like to cover our preliminary look at operating results and our initial outlook into 2021 as we provided in the Form 8-K we filed this morning. For the full year of 2020, we anticipate net operating revenues to be between $11.775 billion to $11.8 billion, and we anticipate adjusted EBITDA to be slightly above the $1.8 billion, which was the high end of our previously issued and withdrawn guidance. Included in our full year 2020 adjusted EBITDA, we anticipate the recognition of approximately $600 million of provider relief funds, of which approximately $150 million will be recognized in the fourth quarter. In terms of our outlook, our full year 2021 guidance anticipates net operating revenues of $11.7 billion to $12.5 billion and adjusted EBITDA of $1.6 billion to $1.8 billion. In summary, we finished 2020 strong with good momentum and excitement as we enter into 2021. Moving to Slide 16. 2020 was really a transformational year for the company, and we achieved a number of meaningful accomplishments during the year. First, during the second half of 2020, we completed our previously announced divestiture program, which we initially announced back in 2017. In the aggregate, under this program, we generated $1.6 billion of divestiture proceeds, exceeding our initial goal by approximately $300 million. These proceeds have been used for debt reduction as well as strategic and capital investments in our transfer centers, access points, number of service line enhancements and other growth initiatives. On the operational side, we implemented key improvements during the year, which delivered significant cost savings in 2020. And in terms of the balance sheet, we made meaningful progress and lowered our leverage. Since our notes offering in January of 2020, and as a result of a couple of capital markets transactions, we paid off over $1.1 billion of debt, lowered our leverage by approximately 1 full turn and reduced annual interest expense by approximately $100 million. On a pro forma basis, giving effect to our fourth quarter transactions, our total long-term debt is approximately $12.2 billion. We accomplished these items all while managing through a global pandemic. By improving our foundation of core hospitals and improving our balance sheet, we are much better positioned for growth going forward. Turning to Slide 17. This is our current debt maturity profile. And as I mentioned, in 2020, we significantly reduced our debt and annual interest through a number of capital market transactions. Just to recap these transactions, early in the first quarter, we extended $1.5 billion of first lien notes out to 2025. We paid down our ABL in the first half of the year, and that ABL remains undrawn since that time. In the third quarter, we executed an open market debt repurchase program, during which we purchased $261 million of debt with approximately $143 million of cash. During the fourth quarter, we launched a cash tender, reducing our debt by $87 million. And then we executed an exchange, utilizing both cash and company stock to retire $700 million of debt. And then finally, in December, we extended our 2023 first-lien bonds out to 2027 and 2029. Adding all this together, we extended our debt maturities and meaningfully reduced both total debt and annual cash interest. On Slide 18, we've included here some of our recent financial performance. Our third quarter results were strong compared to the prior year despite the impact of COVID. Overall, on a consolidated basis, net revenue was lower compared to 2019 due primarily to our divestitures that we execute during the year as well as the lower volumes related to the impact of COVID-19. However, our adjusted EBITDA in the third quarter increased 11.1% from $388 million to $431 million driven by an increase in acuity, payer mix and improvements across a number of expense categories. We also delivered very strong cash flow from operations in the third quarter. And as a reminder, there was no government provider relief funds recognized in the third quarter of 2020. Moving on to Slide 19. Earlier, Tim walked through a number of strategic initiatives related to net revenue growth. And this slide highlights our expense management initiatives. We have been focused on opportunities to utilize our scale and technology as well as utilizing data to drive expense savings, and this will remain a priority of the company as we move forward. As we've mentioned in the past, our management team initiated a strategic margin improvement program during the third quarter of 2019. The program included detailed analysis of our corporate expenses, shared services and hospital administrative costs, and our management team continues to refine and execute on this plan, which now also includes revenue cycle enhancements, outpatient operating efficiencies and a host of other new initiatives that we're continuing to introduce. As Tim mentioned, we've been managing the COVID-19 pandemic. And despite COVID, we've continued to execute the strategic margin improvement program throughout this year, and we'll continue to execute the plan as we move into 2021 and beyond. Looking at the third quarter, we delivered strong savings in the salaries, wages and benefits and other operating expense lines as a percent of net revenue. During 2020, our supply expense line has been negatively impacted, owing primarily to higher drug, lab, PPE and other supply costs, mostly related to the treatment of COVID. Now that said, we expect to drive supply expense savings into the future. Moving to Slide 20. We're also seeing improved EBITDA margin performance. This slide displays our consolidated adjusted EBITDA margin on a rolling 12-month basis. Since the end of 2017, our rolling 12-month adjusted EBITDA margin has improved from 10.7% to 13.7%. This improvement has been driven by both the divestiture of lower-performing hospitals as well as the execution of our growth and margin improvement initiatives as we've discussed today. We expect this trend to continue going forward as we execute across all of the initiatives that we've outlined. And in summary, on Slide 21, we have been pleased with our recent performance and execution, which we've highlighted throughout this presentation. As we think about medium-term financial goals, as we move forward into 2021 and beyond, we'll continue to execute on our net revenue growth initiatives and our strategic margin improvement program. We're continuing to target a 15% plus adjusted EBITDA margins in the future. And we certainly plan to deliver positive free cash flow on an annual basis. And in the medium term, we plan to reduce the company's leverage below 6x. And beyond that, we will remain focused on further lowering our leverage. Finally, the company is extremely excited about our opportunities in 2021 and beyond. We believe that our focus will deliver increased shareholder value and benefit all of our stakeholders. Now thank you for your time today. And with that, it concludes my remarks, and Gary, I'll turn the presentation over -- back to you.

I've got 3 questions of my own. I've got more than 3 questions, but I'll start with 3 and then I'll go through the investor questions I have online. The first is, this is Wall Street semantics. So we start parsing definitions of word. But medium term, in my mind, when you say medium term, my brain automatically says 3 to 5 years. So is that sort of ballpark-ish fit with how you guys think about medium term, just when we contemplate that?

Yes. Sure, Gary. I think it's about right. Medium term to us is certainly longer than 1 year. So we have our 1-year guidance out. I think about long-term being 5 years. So I think of medium-term kind of being in that 2- to 4-year time frame.

Okay. Great. And when I look at your margin versus some of your peers, that other operating expense bucket probably sticks out more than other lines in terms of being higher as a percent of revenue. So as you make margin progress towards 15%, is that where you envision the bulk of it? Or is it more ratable across your expense categories? Or how do we -- how are you thinking about that?

Sure. So we've made some really significant progress, I think, in our labor costs and how we're managing labor, using technology, using data. And because of that, I think that's sustainable as we go forward and as we drive revenue growth. I think that, that actually becomes a little bit of an opportunity for us, still. Supply expense, I think we still have opportunity there as we move forward to improve our margins with some of the work we're doing in our supply chain organization, how we're purchasing products, how we're negotiating and contracting for supplies. And then you're right, the other operating expense line item. I think you'll see some of that -- there's improvement in that line item as these divestitures come out of our portfolio. And certainly, we benefited kind of thinking about the slide where we have our margin improvement over the last couple of years. Some of that benefit has come from our divestiture program as we've divested some of the low-margin hospitals. And I think those certainly had a higher concentration of other operating expenses compared to kind of the core portfolio going forward. Now that being said, we are focusing, and have spent a fair amount of technology dollars in doing some cloud computing, which does put a little bit of pressure on other operating expenses because that's where we have that expense recognized. But overall, I still think there's improvement opportunities. There's also some purchase services similar to supplies and how we contract for purchase services, how we use our scale and doing things centrally provides us some opportunity there.

And you guys are -- must be the bravest guys in the room. You're the first hospital company that's been willing to give some guidance for 2021. So I appreciate it. When we think about some of the components of that, obviously, one of the most dramatic trends, at least, statistically that we've seen in 2020 has been the growth of acuity. Third quarter revenue per adjusted admission up 16%, and in the hospital industry, we more typically think about that in sort of the 2% to 3% range. So when you've contemplated your guidance for 2021, is it a range of outcomes where maybe COVID stays and acuity stays high and -- or scenarios where acuity begins to normalize, but costs come down as well associated with that. Is there sort of a specific trajectory you're thinking about? Or does the EBITDA guidance incorporate a pretty wide range of outcomes, just in terms of how the mix, the acuity mix, the payer mix develop next year -- or this year?

Sure. Great question. And I think you're right. The range contemplates a number of different outcomes. When we looked at this, we built our guidance, a budget process that we build bottom-up from the hospitals. We take a look at it top-down. Coming out of really the fourth quarter, we have 2 quarters with good trends and how we've been able to operate with -- and in the midst of the pandemic and with a fairly high number of COVID cases. We certainly see that continuing into the first quarter. As we know, the surge has continued on into January here. So certainly, starting off the year, I think the -- we know the environment and where we're starting. And then really, as we look out kind of middle portion of the year, we certainly expect the vaccinations at some point to start having an impact, although there's no crystal ball. And although I think the vaccination is being accelerated, we don't know exactly when the impact of that will be. But we kind of contemplated a number of scenarios, to your point, with higher COVID but higher acuity. And then at the other end of that, higher volumes. If COVID starts to wane and there's a return to normalcy, we'll have higher volumes. And throughout the time period, though, our investment in our kind of growth opportunities, growth initiatives and the continued work on margin improvement, we still believe will continue to help us drive margin benefit going forward.

I have a question online that's really precise, but then I want to add my addendum and ask Tim about this. The question is, how many docs recruited in 2020? What are recruitment plans for 2021? When type of docs -- what type of docs? My addendum is, do we kind of need to think about this differently when community was more of a sole community provider rural player. That chart we got every year on the doc recruitment goals was really bringing new clinicians into a market. It strikes me now with the divestiture program really having sort of transformed your average market that it's less about bringing new clinicians into the market. It's more about those splitter physicians getting a larger piece of their share, et cetera. So how would you answer that question just in terms of recruiting? And am I right sort of thinking about that maybe we should be thinking about that differently going forward?

You answered my question. That was good. No, you're spot-on correct. To kind of frame it out just in general macro environment terms, physician recruitment, even though we have goals and targets, we don't always base them upon beating a prior year, which used to be a way to do in this industry. We are very focused on recruiting into specialties recruiting into primary care that fit the strategic plan and the opportunities for that market. So in 1 year, we may have a strong recruitment year like we did in 2018, 2019. Our plan for 2020 was, frankly, to have a little bit of a lighter recruitment year because we wanted to mature and build those practices and then expand and invest the capital, kind of get that growth cycle going with the crop or the group of doctors that we brought in that class. So we're very focused on our ramp-up into our employee physicians as well as into private practices where we may do some sort of salary subsidy. So you are correct. We don't really set out year-over-year growth targets because we want to recruit smart. Just like we spend capital smart, we want to use our physician development dollars in a very smart way. The other nuance that's a little bit different to COVID. Certainly, again, was recruitment channels were shunted earlier on in the pandemic. We had a strong fourth quarter. So we never stopped focusing on digital connections with the recruits. Frankly, newer doctors are more inclined to use the digital channels. So it was actually, I think, an advantage for them not to have to do a bunch of site visits before they made a selection. But we had a good strong fourth quarter to close the gap, if you will, from a year-over-year perspective, but just shy of our actual recruitment goals. The other nuance that I'll put on this is telehealth. As we look at our expansion of telehealth services and being able to perhaps not have as many primary care physicians and as many sites of care for primary care access, we have the opportunity to really help our existing primary cares become more successful with some of the efficiencies of the telehealth platforms as well. So we're going to try to balance that out a little bit more wisely in 2021.

Another question online will be for Kevin related to Slide 17, the debt maturity profile, which obviously has gotten really, really clean for the next 2 years. But a fair amount of second-lien notes out in '23. So the question is, what's the game plan to refinance second lien maturities in '23, '24? What additional first-lien capacity do you have to address these? Would you potentially issue more equity to address these like you did earlier this year? I guess some of this probably borders on nonpublic [indiscernible]. So unless there's another 8-K we're going to file right away, I guess to the extent you can, how can we talk about '23 and '24 second liens?

Sure. So one thing I'll say is we do not have any additional first-lien capacity above the $1 billion basket. That's primarily where our ABL sits. But as it relates to 2023, 2024, and maybe I'll just step back and talk a little bit about the general market. We've certainly made a lot of progress over this past year in 2020 and have been able to, I think, take advantage of some very favorable market trends. And certainly, I think the work that the company has done to restart post-COVID and the operational improvements we've made has certainly benefited us and helped us make that happen. We'll continue to watch the markets, continue to monitor things and look for opportunities. And one of the things, I think, that we have certainly prepared ourselves for is to be able to move quickly and react to the market. So I think the most I would say is we're certainly keeping an eye on it. We believe there's opportunity out there. No one has a crystal ball on the markets. But we believe there's opportunity out there to continue to push out some of our debt, maybe capture some more favorable interest rates for the company. But right now, we do have certainly some time to do that with no maturities in the near term.

I wanted to ask about growth algorithm. Let's pretend we're in 2022. God willing, COVID is behind us for everybody. Do we think about community as adjusted admissions 1 to 2, net revenue per adjusted admission 2 to 3, same-store revenue 3 to 5 plus the margin opportunity that you outlined? Is that kind of that traditional, of late, at least sort of hospital algorithm? Or would you say, no, there's a couple elements of that we might push that range a little higher?

I'll start and Tim, feel free to jump in. When things get to normal? Obviously, it's hard to know. And I think the comparables will be very difficult between now and then. But in the further outlook, I think that there's really opportunity for us to push some of that. I mean we're making significant investments in areas that we believe are higher growth areas, are new portfolio. I won't say new, but refined portfolio of hospitals. Our core portfolio of hospitals are in markets that we believe have a lot of growth potential. There are markets where we believe we can pick up market share. We're spread largely across some states that are probably in areas where demographically are looking to benefit from population shift. So I think that there's probably opportunities that some of those metrics would look higher or better than they have historically.

And I'll echo what Kevin says. Our de novo investments into new acute care assets and into ambulatory environments should yield us the desired benefit. We don't know what the structural changes are related to COVID in terms of sites of care shift or what care may or may not come back. But at the end of the day, we continue to invest throughout the course of the pandemic because we believe that we've got these great core markets that have so much pent-up potential, putting our cash into those markets in a prioritized basis, recruiting the right doctors, overlaying all of our strategic initiatives like the transfer centers. And all those things come together to help us. What we would say, grow the company's adjusted admissions and surgery stats in a stronger way. We were on actually a good run rate, if you recall, heading out of 2019 and frankly, January through February before COVID to demonstrate that. So we are baking in our assumptions that all the previous investments in the new beds, the new surgical and cath lab suites, all those things we're working, those things will continue to fire up and advance the growth going forward.

And then my last question, just thinking about investments and thinking about CapEx, I think, for 2020, your CapEx will be roughly 3.5% of revenue. And certainly, that seems like plenty in the current environment we're in, given where most of your competition is nonprofit, they're not nearly has -- having managed the finances of the pandemic as well as the for-profit operators have. But that said, we're used to sort of looking at for-profit hospitals spending 5% to 6% of revenue on capital pretty routinely for a couple of decades. So do you feel like the investment you've made positions you to sort of stay at this run rate for a while? Or when do you see that number moving higher, if it does?

So a couple of things I'd point to, Gary. You're right in terms of percentage this year. But thinking about our net revenue this year still contains a fair amount of revenue from hospitals that are divested. And in those divested hospitals, it takes a sometimes fairly lengthy period that you go through kind of while you're divesting while we still keep that revenue, but we're working on the transaction, and we'll continue to invest in both maintenance and safety capital during that kind of divesture period or while we're holding them for sale. But as those clear out what we're not doing is investing in a lot of growth capital in those hospitals. And if we think about the portfolio going forward, we'll have roughly 10% fewer hospitals going forward than we did this year. If we look at 2020 compared to 2019, in absolute dollars, our capital spending will be about the same, yet, we had about 10% fewer hospitals in 2020 than we did in 2019. So I think there's just some normalization of that percentage if you think about it that way going forward. We continue to invest in our core portfolio of hospitals and what we believe is trying to spend capital smart, as Tim said. The other thing I'd point to is we've made some pretty significant technology investments. It probably runs close to 1% of revenue. And that spending is in our other investing line on the cash flow statement, not in the capital line. So when you add those together and then kind of normalize from the divestitures, I think you'd really come pretty close to what is a normal run rate across the industry.

And Gary, I know we're -- if I could just add on to that. We've been very deliberate in investing the right capital in the right markets. It goes back to that factor, the number of new beds we've added, the de novo hospitals, rounding out our portfolio in the markets we serve with stronger access points. And the access points themselves, the investments into de novo or acquisitions into ASCs or urgent cares or freestanding EDs, all those things do have a lighter capital footprint, but they are driving the intended benefit. So I think we've been, frankly, really cautious but also smart in where we put the cash to generate the expected returns.

Great, thoughtful. With that, we'll conclude Community Health. Thanks, everybody, for joining us, and we'll see you along the way. Thanks very much, gentlemen.

Thanks.

Thank you. Take care.