Tenet Healthcare Corporation (THC) Earnings Call Transcript & Summary

Greetings, and welcome to Tenet Healthcare Corporation conference call. Today's call is being recorded. It is now my pleasure to introduce your host, Regina Nethery, Vice President, Investor Relations. Please go ahead.

Thank you. We appreciate you joining us on short notice for an update by Tenet's senior management team on the business and financial impact of the COVID-19 pandemic. Our call this morning will be brief with a hard stop at the 45-minute mark. Participating in today's prepared remarks will be Ron Rittenmeyer, Executive Chairman and Chief Executive Officer; and Dan Cancelmi, Executive Vice President and Chief Financial Officer. Saum Sutaria, President and Chief Operating Officer, will also be joining Ron and Dan for the question-and-answer portion of today's call. This morning's press release and the related slide deck have been posted to our website, tenethealth.com. Listeners to this call are advised that certain statements made during our discussion today are forward-looking and represent Tenet management's expectations based on currently available information. Actual results and plans could differ materially. Tenet is under no obligation to update any forward-looking statements based on subsequent information. Investors should take note of the cautionary statement slide included in today's presentation as well as the risk factors discussed in our most recent Form 10-K and other filings with the Securities and Exchange Commission. Now I'll turn the call over to Ron.

Thank you, Regina, and good morning. I appreciate everybody joining us in this new situation we're in. We're all calling from individual places, obviously. So we'll try to do this as effectively as we can. And hopefully, you won't hear too many dogs barking in the background. The agenda today is simply 4 key points. COVID-19, we'll talk briefly about that. Dan is going to obviously talk about the liquidity update and the CARES Act. And we'll touch on a few other points. And then we'll open it up for questions. So let me jump right into it. On the COVID-19 update, I would say from a top line, at least from my position, we are very actively managing the patient needs and adapting to the changes. We're comfortable that we have this in control as much as possible. And we feel good about the performance of our teams. So what I'm going to do now is rather than me go on, I'm going to ask Saum, who's actually engaged in running this on a day-to-day basis across our operations both -- mostly at the hospitals and, of course, USPI, to maybe comment on the key points, and then I'll come back following that. Saum?

All right. Thank you, Ron. Let me make a few key points about how we're running the business. I think from a coronavirus standpoint, as Ron indicated, we are not overwhelmed. We do have hotspots. There are certain places like Detroit and South Florida that are busier. But we have CARE pathways in place, protocols in place, the right infrastructure. We're reasonably well stocked, although reliant upon a fragile supply chain for PPE and are managing. And obviously, the benefit of the network, creating some diversification in the markets is very helpful so that we don't have the entire portfolio under that type of hotspot situation at the same time. From a coronavirus standpoint on the USPI side, obviously, really the shortage of PPE and mostly the state-based orders both to preserve PPE and also many of the shelter-in-place orders have removed the ability to do much of the elective, purely elective type of work that we do there. Medically necessary procedures are, in fact, continuing. And we have developed plans with our ASCs in our markets and other markets with health system partners to appropriately utilize the capacity and available PPE as necessary. On the hospital side, from a performance standpoint, there are 4 or 5 things that we're trying to do. The basic principle is utilize the tools and capabilities that we built over 2019 to deliver the performance we did in order to take that information to do real-time flexing. So we are staffing on a day-to-day basis. Our objective is to flex our variable costs directly and fully to the volume changes that have occurred, both emergent and elective in the hospitals. We've engaged in service consolidation and other important vendor cost management, inventory reduction activities already in order to try to optimize our performance. Obviously, the fixed costs in the hospital environment, given the coronavirus situation, require us to continue to operate the vast majority of departments in order to assist with the care of those patients as they come in and, in fact, planning for surges where they may occur. From an efficiency management and cost management standpoint on the USPI side, really, the centers fall into a couple of different categories. First of all, all of them have been flexed down already. That flexing is full compared to the volume that we're seeing. Many of them are open for a day or 2 a week for medically necessary cases. And some of the centers, with discussion with the health system and physician partners, have chosen to shut down for this period of time. Obviously, in that environment, as that occurs, our ability to manage fixed costs through furloughs and other things will be much more readily available to us. Again, our view on this is that the shortage of PPE, not the safety of our care in the USPI centers, especially the ambulatory surgery environment is really what's restricting access for patients that need care. And as the PPE situation alleviates, we plan on, appropriate and consistent with the various state-based orders, increasing our capacity there. And then finally, back to the hospital side, from the standpoint of our best prediction at this point and how we're doing our planning, as we are thinking about sometime in the middle to latter part of May, we'll open up an opportunity in the late part of May, June, July and later into the summer for patients to receive care, both deferred care and other medically necessary care as well as open up the emergency environment for people to access that again. You simply can't defer that stuff for very long. So we have a separate team focused entirely on ensuring that our providers have telehealth access, so they may continue to book cases for the middle and later part of May. We have transfer center capacity set up in order to ensure that our acute hospitals in urban settings are available to take patients from outlying settings where other services may be stopped. And we have developed emergency tracks for COVID patients to be separated from other patients so that our community may feel safe in coming to these hospitals for emergency care. Obviously, the planning on the elective side is proactive and really designed to ensure that before there may be a second peak of this virus in the fall that we can service the needs of those patients in the summertime selectively. Time will tell whether or not that works out, but we fully intend to plan on that. So let me pause there, Ron, and turn it back to you, having kind of covered COVID, the operations side and the growth side.

Good. Thank you, Saum. On slide -- moving ahead on the slide, Slide 5, that we posted, sort of summarizes the next piece of this. Through February, our operating performance, Dan will touch on this, was strong and ahead of expectations. We felt good about that. January and February were very good. We were planning on having a great quarter, which is really a carryover of '19. And I think the message there is realistically the fundamentals we had got in place. The performance that we built throughout '19, we felt very strongly we were going to continue obviously and continue to do even better as we move into '20. And obviously, that was very important. The first hit, of course, as Saum has mentioned, was USPI. Once the government made the decision to cancel elective surgeries and the government made decision to start putting a stay at home or is in place, obviously, that business began to fall accordingly. But we have worked around that as much as possible to ensure that we are doing medically necessary things, as Saum mentioned. And again, as he did say, our outpatient ER volumes obviously have felt the same thing for hospitals. But again, we're not overwhelmed, and the fundamentals that we've put in place are still there. We have pulled the guidance. I think that's been picked up in a couple of reports I've already seen. Because at this time, it's obviously uncertain. And so our hope is that by -- or our plan is to be able to revisit this when we have our report out for the first quarter in early May, which I believe is around the 5th -- 4th and 5th of May. So hopefully, at that time, we'll be able to have a much better fix on the guidance for the year and have a lot of this behind us and a better readout in terms of where we're going. Saum did mention the cost piece. We have taken a lot of various actions to mitigate this, which actually, in some respects, are going to be very helpful when we ramp back up. The amount of discipline we have put in this that really is an output of the work we've done in '18 and '19 to reorganize the company and restructure how we approach problem-solving and the type of creative thinking and the type of discipline thinking that we're doing has allowed us to really get very direct. And the deferral and reduction of a lot of CapEx stuff that we know can wait around IT, marketing, we have pretty much cut back dramatically on marketing and some of the HR stuff that we just don't need right now to address this crisis. We furloughed about 500 people. We are not paying those people. But we did stand up and covered their health care costs. So anybody we furloughed, it's important to note that we have covered their health care cost. And I'm sure you read where we postponed our 401(k) match. But for anybody we furloughed, we did match those, that 401(k) upfront in case -- as another form of trying to help them if they so desire to avail themself for that. But all of these things were done consciously, thoughtfully, vendor discussions, discussions on contract changes, et cetera, to ensure that we were focused on maximizing our cash position and ensuring that we didn't [indiscernible] for the time being. It all comes down to fundamentally that we truly believe the normal demand, and then you add to that the pent-up demand that Saum mentioned that we know exists. And then couple that with the fundamentals that we have put in place and the kind of performance criteria we've built, we believe strongly that we will be ready to gear up as soon as we're released to do that and we will hit the ground running. And if that means additional hours, extended hours, weekends, whatever it takes in our surgery centers, et cetera, we're committed to doing that type of thing to get our doctors back to work and doing the surgeries that -- and the type of care that they believe is really important. My final comment before I give it to Dan to talk about liquidity is I really do think it's important that people realize we are clearly feeling the pressure that the entire health care system delivery system is feeling and facing. And I join the industry and asking for significant focus on grant money to invest in the dual crisis of not only the COVID-19 but delayed medical procedures. The CARES Act certainly has been a help. But I think that it can go further going forward than we have. Clearly, PPE, facilities, equipment, health care professionals, everybody is ready to assume as soon as -- reassume these activities as soon as we get our hands on it. And Saum did mention that we've been -- we've taken the test. We now know the answers and the questions. I think we'll be prepared if there is a second wave in October. There's no way to know if there will be. We don't anticipate there will be, but there could be. And whatever that wave does look like, we believe we'll be further down the curve with treatments and testing so that would make that situation, obviously, much more palatable. But we do plan to be well-prepared in terms of knowing and sharpening our response even from this lesson. So if nothing else, it's given us a very good experience in terms of learning to run the company in even a more disciplined manner than we thought we were doing. So with that, I'm going to turn it over to Dan, and then we can open it up for questions and answers after that. Dan, do you want to jump in on the liquidity then, please?

Sure. Good morning, everyone, and thanks again for joining us on short notice. We hope you and your families are all well and safe. As Ron and Saum mentioned, we do want to commend and thank our clinicians, the physicians, our caregivers and now our employees across the country who have been working selflessly and tirelessly to help patients and their families over the past few weeks. So let's turn to Slide 6. We'll give an update on liquidity. Since we don't know how long this situation is going to last, we've obviously been contingency planning and stress testing our modeling assumptions, as you would expect, with such a wide range of possible outcomes. We want to ensure we continue to maintain sufficient liquidity as we move through these uncertain times. At quarter end, we had approximately $350 million of excess cash over and above our normal cash balance of $200 million or so so well in excess of $500 million of cash at the end of the quarter. I point out this $350 million of excess cash because normally, we would have used the $350 million of this excess cash to reduce borrowings on our line of credit at the end of a quarter. However, we thought it was prudent to preserve that cash on hand given the environment we're operating in. So we have the $350 million of excess cash in addition to the normal cash balances of $200 million or so. We also had $1 billion of availability under our $1.5 billion revolver facility. While we believe we currently have sufficient liquidity, obviously, the next several months are difficult to predict. As a result, we've been considering alternative services of additional liquidity, including, we start off: firstly, the accessing the capital markets. This morning, as you know, we announced that we are pursuing a $500 million first lien secured notes offering. The proceeds from the offering will be used to reduce outstanding balances on our line of credit or we'll maintain it as cash on hand. Although we currently do not need this additional liquidity, we view this as a prudent investment to bolster our liquidity as we move through and see how the next few months unfold. Next -- or second, we're also working with our bank group seeking an amendment to increase our line of credit borrowing capacity to $2 billion from $1.5 billion currently. Our existing accounts receivable borrowing base of our hospitals that collateralizes our line of credit borrowings is currently a little over $2 billion. So this action will provide us an additional source of liquidity. As we mentioned in the past, we also continued to work on and anticipate closing on a previously announced definitive agreement to sell our Memphis hospitals later this year for about $350 million of cash proceeds. And as we think about near-term liquidity, we've obviously been evaluating and we are pursuing the substantial relief funding available to us and other health care providers under the CARES Act that was enacted into law last Friday as well as other regulatory relief. One more point on current liquidity. I do want to point out that so far, we have not seen a material deterioration in the processing of our claims by the health plans or Medicare or Medicaid processors. So we appreciate their cooperation during this situation. Next, let's turn to Slide 7. The CARES Act. It includes various provisions that should provide substantial near-term liquidity for us and other providers. The various components that we expect will benefit us are summarized on Slide 7 as well as Slide 8. Let me start with going through some of these to make sure it's clear to everyone what's available. So let's start on Slide 7 with the Medicare accelerated advanced payment program. Last Saturday, due to the COVID situation, CMS announced that they are providing Medicare providers an opportunity to request advanced payments based on their historical Medicare Fee-For-Service business. So acute care hospitals, such as ours, may request up to 6 months of advanced payments. In other providers, such as our physician practices and USPI surgery centers, can request an advanced payment for 3 months of their annual Medicare revenues. So based on our historical payments from Medicare, we are pursuing approximately $1.5 billion in advanced payments for Medicare to enhance our near-term liquidity. This is obviously significant regulatory relief that will strengthen our near-term liquidity. So under this advanced payment program, after a 4-month grace period where you do not have to make any payments, hospitals will have up to 1 year to repay these advances. And our surgery centers and physician practices will have up to 7 months to repay the advances on an interest-free basis. And how these advances are going to be repaid, just for everyone's information, is once you get past the initial 4-month period, grace period, Medicare will start reducing payments for your various Medicare claims that you submit routinely on a day-to-day basis. So obviously, $1.5 billion opportunity, significant near-term advance of funding, which will help liquidity for us. Another significant funding component of the CARES Act is direct grants to providers totaling $100 billion to reimburse providers for incremental costs or lost revenues or business due to the current situation. The details as to how this $100 billion of grant funding to providers will be specifically allocated, that's still being finalized. However, we're obviously working to ensure we receive our appropriate reimbursement from this grant aid, which will not have to be repaid. Next, another relief available to us and other companies in 2020 relates to the deferral of the payment of the 6.2% payroll tax match. That also will be a significant source of additional liquidity this year. As we point out, we estimate this will benefit our cash flows this year by about $250 million. Half of this payroll tax funding deferral or about $125 million does not have to be repaid until December of 2021. And then the other half will not have to be repaid until December 2022. Let's now flip to Slide 8. Another near-term liquidity enhancement for us is that the 2% Medicare sequestration revenue reduction that many of you will remember went into effect in 2014, the sequestration adjustment will be suspended effective May 1 this year, and it will be suspended through the end of this year. Our annual 2% sequestration revenue reduction is about $100 million. So since this provision goes into effect on May 1, we expect an increase in our revenues this year and cash flows of about $67 million associated with the suspension of the 2% sequestration or it's about 2/3 of our annual amount, 2/3 of the $100 million. Also the Medicaid DSH cuts, we've talked about this quite a bit in the past. The Medicaid DSH cuts that we had previously expected for this year under the Affordable Care Act have been suspended until December 1 this year. This suspension of the cuts will result in additional liquidity and revenue for us this year of about $60 million. Other items on this slide that are anticipated to provide relief to us and others include the interest expense limitation deduction changes are expected to result in a higher NOL carryforward amount for us in the future years because they're changing the calculation and how that deduction limitation is computed. Also Medicare payment rates for COVID-related care, the DRG weights are going to be adjusted. And so the reimbursement for COVID-related type care is going to increase 20% during this time period. Also there's going to be an increase during this period in the federal match for the traditional state Medicaid programs of 6.2%. This is commonly referred to, as many of you know, as the Federal FMAP match. So this increase in funding should also increase payment rates to providers for treating Medicaid patients. Also there will be an opportunity for us to apply for loans under the $450 billion emergency loans program. Although the loans may need to be on a secured basis, which may limit our ability to access this loan program. Turning to Slide 9. As you can see, we obviously have a very broad hospital and ambulatory and revenue cycle portfolio across the country. The strength of this portfolio, it's obviously a strong asset that helps us manage through this time period given our broad base of expertise of our employees, caregivers and physicians. Certainly, the relief under the CARES Act that I just described is critical to our hospitals and surgical centers across the country and their ongoing abilities to continue to serve the communities. So again, the map provides a pretty broad perspective of the breadth of geographies that we serve that are obviously being helped by the CARES Act. Next, let's turn to Slide 10. Just again, this is a summary of the -- our solid results for last year that we reported in late February on our fourth quarter earnings call for 2019. Obviously, the results represented a significant improvement and sustainable changes that we've been making and improving our operating performance and consistent follow-through on our commitments. We do think it's important to revisit this as they do provide a strong basis for us to build upon when we emerge from this time period. And as Ron and Saum mentioned, our performance through February was ahead of our plan, and so we entered this period with our operations performing well. Overall, last year, the enterprise performance is very strong with obviously you can see some of the key financial metrics up here significantly year-over-year. Adjusted EBITDA for our Hospital business was up over 15%. Ambulatory business was up almost 25%. And Conifer's growth was 8%, but there was a 490 basis point improvement in Conifer's margin. We talked the -- what was really satisfying about the performance last year was the growth in our patient volumes in our care delivery settings, particularly our hospitals. When you look across the -- our admissions growth, adjust admissions, ambulatory cases, there was growth between 2.5% to 3.5%. So obviously, we really -- we were really satisfied that -- with that. And that, obviously, we have continued to make progress this year until the most recent weeks. So listen, the growth in our patient volumes, the diligence in managing costs, our pricing yield, which has continued to be strong, all contributed to a very solid performance last year. So that's sort of just a summary of -- again, just want to remind you of the performance metrics last year. Slide 11 summarizes some of the initiatives that we focused on last year and our accomplishments, which we think is important to remind ourselves and every one of -- as we think about how we strongly believe the portfolio. Once we get through this, we'll recover and start growing once again. So that is all I wanted to go through. At this time, Ron, unless you have anything else you want to add?

Yes. The only comment, again, is we are incredible believers, and I think we can do this with fact, not just opinion, that we have got the fundamentals in place. And we proved it again in the first quarter, which, of course, unfortunately, we didn't end the first quarter in time, but we have not changed anything. We've not changed the leadership. We've not changed the measuring techniques. We've not changed the discipline. And if anything, I think when it comes to the areas where we spend cash around CapEx, in those types of areas, we have probably gone significantly deeper and faster that we would have accomplished this year, but we've been forced in some respects by the environment to do it in a much faster pace. So it has allowed us to really revisit the things that we are already on the way to do. It's just a question of it's actually improved our ability to get a better, quicker, faster handle because we had no choice. And we used the time to do it and do it properly. So I guess that's it. I think that wraps up everything. I guess we'll open it up for questions that we'll try to answer as best we can. So...

[Operator Instructions] And our first question today is coming from the line of Ralph Giacobbe with Citi.

So you noted, obviously, the shelter-in-place having an impact. Can you give us a sense at all of volume trends the last couple of weeks of the quarter, both on the acute and ASC segments? And then if you could also just comment on how you view and what percentage of your volume on the hospital side and ASC side would you deem as elective?

Dan, do you want to do the top line, and then Saum can answer the question on the other part?

Sure. Hey, Ralph, it's Dan. In terms of volume trends, as we mentioned, we were satisfied with our volume trends up until several weeks ago for obvious reasons. I would say that it wouldn't surprise anyone, the volumes that are being most impacted by these are on the surgical center side. Because if you think about it, most areas throughout the country are on some form of shelter-at-home or stay-at-home or lockdown type of situation. So it's obviously having an impact on elective or discretionary type of procedures being performed. The hospitals, they're open for business. As Ron and Saum mentioned, they're not being overwhelmed with COVID patients at this point, although there are a couple of our markets with a little bit more concentration, in Detroit, South Florida. But the hospitals are still seeing a large amount of patients. And obviously, it's attributable to a large part by the amount of the ER business that comes through a normal hospital. Our ER volumes typically account for 70% of our admissions. That doesn't mean the electives in the hospital business haven't come off. They have for the same reasons you would see some elective business coming down on the surgical center side. But the -- when we ultimately report all the statistics, you'll see that on the surgical side, that's probably where you're seeing the most impact on USPI.

And those cases are not going away. But Saum, did you want to add anything to that?

No. I mean I think Dan covered it, Ralph. I would say the other thing is that the diversity of the portfolio also helps. I mean the places where the shelter-in-place orders are tighter and are being adhered to more tightly, the volume effects are greater, including on the emergent side. And in other areas, they're not as tight. And we don't see as many COVID cases in hotspots. And the physicians feel that medically necessary work needs to continue, and they are pursuing that work. We're supporting them in pursuing that work as long as we feel that's right. So there is a range, I would say, across the markets that's not consistent everywhere.

Our next question is from the line of [ Ivan Cranswick ] with [indiscernible].

Quick question. I noticed that you have about $250 million on the balance sheet in terms of receivables from Medicare and Medicaid as of 2019. Is there anything in the CARES Act that would maybe accelerate that payment so you can collect that cash sooner rather than later?

This is Dan. The -- so as I put it out in my remarks, Medicare and Medicaid processors as well as the insurance plans have been very cooperative during this process. We are obviously pursuing, where possible, forms of advanced payments. Certainly, the announcement by CMS of advanced funding, 1 point -- potentially for us, $1.5 billion of our annual Medicare revenues is certainly very, very substantial.

The next question is from the line of Phoebe Clarke with Redwood Capital.

Can you just confirm what your first lien debt capacity is pro forma for the $500 million of new bonds issue?

I'm sorry, I didn't quite hear all that.

Can you please confirm what your first lien debt capacity is after the $500 million planned issuance?

Yes. This is Dan. When we report our numbers for the first quarter, obviously, we'll have more visibility specifically into that. In terms of if you look back to year-end, we had roughly $1 billion of secured capacity or so. So you would take out, obviously, there's borrowings on the revolver as well as the issuance of the notes. And they're -- using the December numbers, there would still be some capacity. But I would say that between any outstanding borrowings and the revolver and the note issuance, a large portion of the capacity would be utilized.

Next question is from the line of Josh Raskin with Nephron Research.

The question, I guess, I would have is you mentioned the surgery centers. I think Saum said the surgery centers were a couple -- or some were open 1 to 2 days. Others were shut completely. As we kind of think about that, if you're open kind of 1 day, is it fair to assume sort of 80-ish percent type of volume declines across USPI?

Saum?

Yes. I would say that the range is between 60% or more in that business. One of the things that you can do when you open up for just a day, typically, the ASCs tend to fill their cases across the ORs from, call it, 7 a.m. to 3 p.m. I mean what we've tried to do is consolidate the staff and run the ASCs on the open days for longer than that. Obviously, our approach to this has been a combination of dealing with the demand that our physician and health system partners have from a need standpoint, in combination with a very detailed understanding of our breakeven points from an EBITDA and from a cash perspective center-by-center for all of our centers. And that becomes a discussion, obviously, with the various parties about how best to handle it. But I would tell you that, in many cases, running for a single day but for a longer period of time is one way to manage this in order to flex the cost down more effectively rather than just assuming it's all 80%, 85-plus percent volume reduction.

Yes, that makes sense. And I guess you got -- the EBITDA impact is probably a little less because you're saving more cost than you are revenue at that point. What about on the hospital side? I'm just curious, as you think about maybe California as a proxy, it did sound like there's differences across some of your markets. But if you think about -- I know it's hard to sort of say volumes that are deferred or elective, but maybe even just where your revenue numbers were running for maybe some of the California inpatient hospitals, end of March, second half of March.

Yes. Let me make a couple of points on California. If you look at our portfolio in California relative to where the hotspots are from a COVID standpoint, the hotspots are the immediate San Francisco Bay area and Los Angeles, where Los Angeles itself proper the COVID patients are growing very rapidly from that standpoint. Our hospitals, while in California, are in different places. I mean the major metropolitan areas of San Francisco and Los Angeles, it's almost like being in a different state when you're in Central California through the Central Valley, like we are. We really aren't seeing much impact there. And in fact, we continue to see robust activity in the hospitals. And even selectively because we don't have PPE shortages there, medically necessary surgeries. Similarly, our portfolio in Orange County is less affected. And by virtue of the fact that we're the only trauma center in the desert, although automobile accidents and things like that have gone down, there are other traumas, especially in an elderly population, falls and other things that continues. So our portfolio is not exactly matched up with where the COVID hotspots are in California. So I would say our experience is probably different than what you read about in terms of the major health systems that are purely in the San Francisco Bay area or Los Angeles.

Yes. I was just trying to pick up market that had a more significant shelter-in-place mandate, right, relative to some of your other markets. But that makes sense on your portfolio specifically.

Yes.

And that's true throughout the country in many ways. So...

The next question is from the line of Jane Orringer with AllianceBernstein.

I'm just wondering if you can give us some color on your subsidy arrangements with ER, anesthesia, et cetera, providers and whether -- how you're dealing with the current ER situation in terms of your counterparty discussions?

Saum?

Let me just make sure I understood that. You're talking about our situation in Memphis?

I'm just talking about across the board to the extent that volumes in ERs are not meeting kind of agreed-upon minimums. Do you expect to be paying subsidies? Are you in discussions with those counterparties about a modified agreement, et cetera?

Got it. Okay. So each one of these situations is different. And remember, Tenet as a whole in the Hospital business has both outsourced arrangements, and we have some markets where we have in-sourced and managed our own physician partners and hospital-based staff across the areas. So yes, those conversations are active with all of the major vendors, both in terms of flexing down. I think as we mentioned before, overall ER volume has also come down. The staffing companies have handled it differently, as you know, in terms of compensation reductions and other things. I mean our situation, because we often have multiple service lines in place, have pretty good contracts. And in many cases, we're working on trying to preserve our ER position capacity but also flexing that capacity down to match volumes. I would say the same thing is happening more aggressively in the anesthesia space. So this is going to be a difficult environment for them and us. But the emergency department physicians are absolutely critical. Look, it would be helpful also broadly speaking, if many of the staffing company issues with respect to the insurance side were to be put aside first a little while at a minimum in order to get through this crisis. Because I think that's also putting a fair amount of stress on the system.

Okay. And can you also in a similar vein, compensate -- I mean discuss the variable compensation component of your ASCs and some of the physician, either partners or employees there and what you expect that to look like?

Sure. One of the -- I'm sorry, go ahead, Ron.

No. Go ahead. Go ahead. I just -- We don't give that too much of a detail out. We just need to be thoughtful about that.

Yes. I mean I think the macro point I would make is that USPI and the ASCs and surgical hospitals is probably unique in the sense that we don't really employ many of the physicians in that environment. We're partnered with independent physicians. We don't have the employment exposure that you described from that standpoint. So that's a really, really important point for us in that environment. Obviously, we're concerned about our physician partners and their business and their office-based practices. And we certainly have been helping our physician partners think about telemedicine solutions so that they can continue to see patients as much as possible. And we also are using that as a mechanism to allow them to stay active so that when they are booking cases out into May, assuming that it will be safe at that time to continue, that those telemedicine solutions help them at least have a practice, surgical practice to be able to start to ramp up on. But yes, we don't face those exposures on the employment side. On the staff side, it's easy, right? You flex down and the hours flex down and the people flex down with it. It's obviously painful for us because we really value our staff there. But if there's -- if the centers are running a day a week, then we're staffing a day a week.

The next question is from the line of Randy Raisman with Marathon Asset Management.

Just a question for you guys from an operating perspective. If the -- we keep saying it here and with some of your competitors closing down the surgical centers, which doesn't seem logical to us if you're going to get so much increased volume from COVID-19 in the ERs and in the hospitals, why couldn't you use those centers to treat that overflow of patients? It's just something that doesn't makes sense.

Yes. Well, a couple of things. I mean first of all, we don't see that kind of -- I mean as I pointed out earlier and Ron did too, we don't see that type of overwhelming volume in our environment today. As noted in the document, I mean across the portfolio of 65 hospitals and 17,000-some available beds, we have maybe in 1,200 to 1,400 cases that are in-house at any given time, and many of those are PUIs. So it's not overwhelming the system from that standpoint. The second thing is the ASC environment is not necessarily set up for long medical stays. And so obviously, we're being thoughtful with the waivers that have been put into place about work that may occur in a hospital-based outpatient department, surgical work that may have short stays associated with it, how to appropriately use the ASCs as flex capacity. Those waivers were just introduced in the last couple of days, and so we're still in the process of seeing how to appropriately do that. But...

Where the demand will be.

Maybe we're just more sensitive to sitting here in New York where we've seen images of, like, people lined up outside of hospitals. Maybe that's why...

I get it. They're totally different than...

But then -- and then how about -- how should we think about on the grant money, right? What's an allocation mechanism that you would guide investors to use to figure out how that $100 billion gets allocated out across the space?

Yes. This is Dan. So as I mentioned in my remarks, the specific allocation method has not been finalized yet. Obviously, we and our other care providers throughout the country and so hospital associations have been obviously providing input. There's been a number of proposals out there, including on a per-bed basis, a certain amount per bed, like as an example, maybe 25,000 per bed in certain markets versus 30,000 per bed in markets with more of a concentration of COVID. So we're very optimistic that the ultimate allocation of the grant aid will be fair and appropriate and be provided to the health care organizations that need it most.

Would it go to the staffing companies as well or just to the hospitals?

Yes. I think the aid will -- we believe the aid will be available to health care providers. So obviously, they will -- those type of aid -- I can't speak for them. But they would -- I assume it would certainly request and report information to support any funding for them. But you'd have to ask them.

We're not in a place to really determine whether they'll get it or not get it. I mean all of these has to sort itself out. We are only concerned about us. And we know we're eligible, and we're going to be going after it aggressively. So...

The next question is from the line of Rishi Parekh with Barclays.

Sorry, all my questions -- my questions have been asked. I'll hold off till later.

Your next question is from the line of Christian Hoffmann with Thornburg Asset Management.

There's obviously some challenges on EBITDA, and there's obviously some favorable government action. But I kind of think of the favorable government action going into 3 buckets. Some of it is working capital favorable where you don't have to pay for things on a timely basis. Some of that is -- seems to be directly a positive contribution to cash flow and EBITDA, and some of it is liquidity in terms of low interest loans. So could you try to quantify maybe those buckets, especially the things that actually just go to free cash flow and EBITDA? Like what...

Yes. Absolutely. This is Dan. Let me go through them again. And when you get a chance, we did outline that on the slides. So let's start with the Medicare advance payment program funding. That will be in advance. We are applying for 1 point -- roughly $1.5 billion of accelerated payments, which will be an enhancement to our liquidity. It does have to be repaid over 12 months for hospitals and 7 months for surgery centers or physician practices. That's not necessarily an EBITDA lift, but it's certainly an incredibly material liquidity enhancement in the near term. The grant aid, the $100 billion of grant aid that is, as I said, is a grant program, and that will not have to be repaid. It's relief that's being provided to health providers for the incremental costs they're incurring and the business are losing during this unfortunate time period. So that is in addition to a cash flow benefit, it's also an earnings -- an EBITDA benefit as well. The deferral of the sort of security payroll tax match for us, that's about $250 million. That is a liquidity enhancement here this year. That will be repaid 50% at the end of 2021 and the other 50% at the end of 2022. So we get $250 million, let's call it, in this year. And the $125 million or half of it would be repaid in December '21 and the other $125 million in December '22. That's a cash flow benefit, very substantial, but not necessarily an EBITDA lift, but certainly a significant cash flow enhancement. The next large item relates to the reduction in the Medicare sequestration, the 2% sequestration cuts that have been in effect since 2014. Those reductions are being suspended through the end of the year starting this May. That will be about $67 million of additional liquidity as well as additional EBITDA this year because that will not have to be repaid. The Medicaid DSH reductions under the ACA that are being suspended until December, that will be both a liquidity enhancement this year of about $60 million as well as an EBITDA benefit this year as that does not have to be repaid. The 20% lift in the Medicare payment rates for COVID-related type of care that health care providers provide to patients, that will be a cash flow lift as well as an EBITDA benefit as well. Same thing with the 6% increase in the state Medicaid programs, the funding from the federal government that we referred to as the FMAP match. That's 6.2% lift. And that will obviously result in additional Medicaid reimbursement to providers such as us. And that would be a cash flow benefit this year as well as an EBITDA lift. The last thing we talked about on the slides was the $450 billion of emergency loans. It is what -- as it's described, it's a loan. So if we do access the loan program, it would be -- obviously, have to be repaid.

Yes, it does help a lot. The loans, where would those sit in terms of priority? And then the $100 billion of grant aid, what might your participation in that look like?

The first priority, absolutely, is the $100 billion grant aid, which is near-term relief for the incremental costs and business impact to us and all health care providers across the country.

But how much of that will you receive?

We don't know specifically yet. But obviously, you can do -- I mean we have a very large footprint across the country from a hospital basis as well as our surgical centers. So...

So we would suspect it to be substantial. Yes.

I mean is there a market share calculation? I just have no idea how to quantify what that might look like.

They're working on it.

Yes. As I mentioned, they have not come out with a -- they haven't come out with a specific formula. Yes. They're evaluating various options on how to disseminate the funding appropriately. Okay.

Emergency loans, are those priorities to the first lien?

Well, those loans, if we decide to pursue them, they would be -- they would be loans. They would be -- our understanding would be on a secured basis, maybe. Although the language in the bill suggests that there is discretion for the secretary to maybe distribute the loans on an unsecured basis. We'll see. They haven't come -- again, all the details have not been issued yet.

They're still working on the grants. And once that's done, they'll probably work on, I think, squarely loans.

Your next question is from Steve Valiquette with Barclays.

This is Andrew Mok on for Steve. Appreciate the business update. Just wanted to follow up on the rescheduled elective procedures. Whenever we do return to normal operating conditions, can you give us an idea for your ability to absorb that pent-up demand and accommodate those rescheduled surgeries operationally?

Steve, this is Saum. I think, again, because of the way that situation is playing out geographically with respect to COVID and not facing a situation which I understand is quite vivid in Boston or New York or whatnot that's overwhelming the hospitals, we just don't have that situation today. So could that happen in places where we are in the middle of hot spots like Detroit, where it's difficult to reabsorb that type of work? Yes. But in general, our capacity planning and the way we're pursuing access to PPE and also our situation with infrastructure, in other words, ventilators and other things, at this point, with the projections that are out there would support our ability to service that demand. And as I said, in either case, whatever happens with the trajectory of the virus, that's hard to predict, we are making those plans now in order to do that.

Okay. This is Dan. We really appreciate everyone's time this morning. Unfortunately, we do need to end the call at this point. Obviously, feel free -- anyone feel free to follow up with us with any questions. I'd be happy to address them. So again, thanks again for everyone's time.

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

Thank you, operator.