Tenet Healthcare Corporation (THC) Earnings Call Transcript & Summary

Greetings, and welcome to the Tenet Healthcare Corporation COVID-19 Update Call. Today's call is being recorded. It's now my pleasure to introduce your host, Regina Nethery, Vice President of Investor Relations. Please go ahead.

Thank you. We appreciate you joining the Tenet team this morning for an intra-quarter update on the impact of the COVID-19 pandemic, as promised on our first quarter 2020 earnings conference call. Participating in today's call from Tenet will be Ron Rittenmeyer, Executive Chairman and Chief Executive Officer; Saum Sutaria, President and Chief Operating Officer; and Dan Cancelmi, Executive Vice President and Chief Financial Officer. Our webcast this morning includes an accompanying slide presentation, which has been posted to the Investor Relations section of 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, subsequent Form 10-Q filings and other filings with the Securities and Exchange Commission. Now I'll turn the call over to Ron.

Good morning. Thank you for joining us. This is a brief update as we promised in our earlier conversation. In today's discussion, we're going to talk a little bit about where we are in volumes, liquidity, and then we'll summarize it and open up to a Q&A discussion. I want to reinforce that this is really about statistics in terms of where we see trends. It's not going to be about financial numbers at this point because, again, we don't have audited numbers for the quarter, and the quarter is not complete. So to that, let me go to Slide 4. Let me spend a minute here. As you know, we obviously came out of the year strong, and our response to the COVID thing, as far as we can tell, has been very solid, strong response. We made the tough calls throughout all of this. And we took really some very early actions and at this stage, what I would consider to be a rational, measured and leader-led steps to recovery. So really, Slide 4 just kind of recaps, I think, what we already know. Slide 5 though, let me talk a little bit about where we are. Our approach has been really the COVID safe-type recovery. Key points are outlined. Obviously, the PPE inventory, more than adequate, and we have secured reliable suppliers. We put in COVID-19 testing in all markets. We've coordinated with physicians and patients to very deliberately schedule procedures and to understand what that means in terms of demand and how demand will feed back in and how we will add staff back to match that demand curve. That's been a very important part of our recovery effort so that we did not add staff too early or too late. And it really aligned well with what all of our physicians have done. So we're very comfortable with how that's worked. And then we've done a series of very targeted marketing and communications, making sure that the public in our markets are clearly aware that our facilities are very safe, very clean and that our strict protocols are in place in every facility. And our teams in the field has done a really great job in that area. The volumes, which you'll see on the next slide, Saum will talk about the volumes. They're obviously beginning to recover, but not yet at the pre-COVID-19 levels. That's no surprise. May has been a very strong ramp-up. June is even stronger. We have opened up our surgery centers very safely. We've had no issues there and nothing reported there that concerns us. But again, it's getting the practices open and the clinics open and the flows started. And that's starting to now take shape. And obviously, you're all aware, I think, about the extra liquidity, execution we've done. Dan will talk about liquidity. Clearly, the Medicare Advantage program has been very helpful. [ Concern ]. Obviously, we watch that from a liquidity standpoint because we have to pay that back. The question is how soon, and that is an open topic that we're having with the government, and it continues because we prefer to let that spread out a little bit rather than have a big spike because it does have a big impact on our liquidity. The big question about surge. I mean that has taken the headlines and the oxygen out around some of the recovery. The reality is that we have seen, obviously, in several markets, increased numbers. But it has not put any undue stress on us. Saum will talk a little bit about that in the question-and-answer piece, as I'm sure there'll be other questions. But the goal of the company is to protect our staff, our hospitals and our patients. We ensure that we are properly and very strictly following a set of protocols so that we don't have any infection issues within the hospital structure and we're very proud, even through the height of this, at how low our staff infections occurred, especially compared to the norm. And we have -- obviously, as I said, we're adequately covered on PPE. We isolate patients. We've mentioned that before, to a single facility or area, and we designate access for our potential COVID-19 patients to ensure that they are separated as they come into the facility. And we've been very transparent in our communications and in our discussions and reporting, both in the hospital, externally in the community and everywhere. Whenever we have an incident that we think deserves to be talked about, we raise it. We're upfront about it and we have found that, that has really provided people with a sense of knowledge and then knowledge gives some comfort that we are totally aware and totally transparent. So with that, I'd like to hand it over to Saum to talk about Slide 6 and our stats. Saum?

Thanks, Ron. I'll walk through Slide 6 briefly, but we're pleased with our recovery from a volume standpoint. By way of reminder, we talked earlier about the fact that year-to-date February, we were having a good start to the year pre-COVID. Volumes were robust and consistent with the strategies that we had been working through 2019 and the early part of this year. March, both the full month and second half of March and April, obviously, like everybody in the industry, we saw significant volume declines. In particular, April was the nadir from that standpoint, and you can see where we stood at that point. Let me break these down then as we look at the recovery into a couple of different buckets. The admissions across the network, this includes the markets where we have still ongoing hotspots of COVID activity, especially in Massachusetts, Detroit, Miami-Dade and a little bit in the portion of our portfolio that is close to but not in Los Angeles. Nevertheless, the first half of June admissions are back to the 90% level from prior year. And we're pleased with the mix and the acuity that we're seeing. The payer mix, in particular, has tracked very nicely and consistently so that there isn't a bias towards one direction or the other, government versus commercial pay. The second 2 categories I'll put together in outpatient visits and ER visits. As you can see, those have recovered and recovered nicely but still lag where we were prior year. These are areas of oftentimes lower acuity visits that really I would attribute this to patient comfort and continuing concerns about accessing a hospital for care that we are working on through all of the marketing and other physician and staff communications that Ron described. I can cover that more deeply in the Q&A. But nevertheless, we're pleased with the fact that slowly but surely patients are seeing the confidence that they should have in the safety of our hospital environment and outpatient and ER visits. As we mentioned very early on back at the end of March, we created a work track with a group of people that their sole focus was on ensuring that hospital-based surgeries and USPI surgical care and also procedural care that are not necessarily surgeries, cath lab and other things, had a group that was focused with our physician community and patient community on ensuring a smooth ramp-up, both the combination of servicing any backlog that developed through a dedicated call center type approach to ensuring that we rescheduled the cases that were deferred, but also ensuring that the support was necessary for ongoing scheduling if physicians' offices were to ramp up. In the hospital environment, we are very pleased that we're about 95% of prior year in the first half of June. Again, this is inclusive of the entire portfolio, which includes 2 states that -- Massachusetts and Michigan that haven't really fully ramped up yet because of the COVID activity. And on the USPI side, which -- because of the elective surgery moratorium back in the second half of March and April, which saw an 80% decline across the board in volumes. The first half of June, that recovery is quite robust. I would tell you that the surgical care in that environment, especially the higher-acuity work, has come back very nicely. In particular, the remaining gap to prior year really is more of the lower-acuity, preventative type of work that goes on in the ASC environment. And so again, we feel very good about the trajectory from a surgical standpoint at USPI. So with that, I'll pass it to Dan to discuss liquidity.

Sure. Thanks, Saum, and good morning, everyone. Let's turn to Slide 7. I'll go through a brief update on our liquidity position. We do continue to maintain an adequate amount of liquidity. And in fact, we've been actually building some additional liquidity since we last talked. As of yesterday, we had $2.665 billion of excess cash. You may remember that when we were talking at the UBS Virtual Conference on May 19, we disclosed at that point that our excess cash was $2.44 billion. So liquidity has improved about $225 million since that point. The $225 million increase is primarily due to 10 of our hospitals did qualify as safety net facilities. And we received $172 million of safety net grants last Friday, in fact. The increase in cash is also due to the fact that Conifer has really been doing a good job over the past few months, driving improved cash collection performance. So we've been really pleased with Conifer's performance during these pretty tough times. Today, also, as a reminder, we are closing on the $600 million of 4.625% secured notes offering that we announced a few weeks ago. So we're pleased to get that done. I do want to be very clear, though. The cash balance that I just mentioned, the $2.665 billion, that does not include -- it does not include the $600 million of proceeds from this offering that's closing today. So the $600 million will further enhance our liquidity. And as we talked about, we'll likely use the proceeds for general purposes. We'll obviously be looking at retiring some debt, adding cash, obviously, due to these times that we're in as well as working capital, CapEx. More to come on that on the August call. I do want to mention a couple of things about the stimulus grants. So as I mentioned a little bit ago, we did receive about $172 million of additional grant aid related to the safety net distribution last week. So that brings our total grant stimulus funds we've received so far, as we point out on the slide, of about $689 million. I think it's important to remember that recognizing or recognition of all of these grant funds as revenue in the second quarter, it's not a given. Those grant funds that we've received, we'll recognize each quarter, and you evaluate that on a facility-by-facility basis, and it is, at the end of each quarter, limited to the amount of lost revenues that, that facility incurred or incremental COVID costs. So we do believe we'll recognize a substantial portion of those grant revenues in the second quarter. But the timing for the rest of the year is still not fully known as it obviously will be dependent on how the next several months and quarters play out. So again, you shouldn't assume that all of the $689 million would be recognized in the second quarter. But we'll keep you posted on that, obviously. We also, on the slide, mentioned, and as Ron pointed out, we have received $1.5 billion in Medicare advances. They will have to be repaid by early next April, unless the repayment terms are extended and we're hopeful that, that will happen. And just a couple of other things to close that, an update on the sale of our Memphis facilities. We continue to believe that's on track, and that should close here in 2020, and we're also evaluating potential sale-leaseback of various medical office buildings we own. Those proceeds could be sizable. However, we've mentioned this before, this is not a fire sale, and we were only going to execute a sale-leaseback transaction if the economics makes sense. Again, I'll just close it out. We continue to believe we will not have significant cash burn in the second quarter when you exclude the Medicare advances and the grants. And I think you see that we have been continuing to build cash. So we have a couple more weeks to go, but we continue to believe we will not have a material burn in the quarter. So Ron, I'll turn it back to you.

All right, Dan. Thank you. In summary, I guess I'd say that, again, the strong momentum we had, we believe, is still out there to recover to. Obviously, it's a very fluid environment, in some cases, still is, but I think we did a good job with that. This restart, I believe, is very effective. And it's a result of the planning and the capability of the teams. Balance sheet looks good at this stage. We're not comfortable, though. We're not saying that we don't have anything to do there. We have a lot more to do. The Conifer performance has really been excellent. And that certainly adds to that. We do appreciate the stimulus we've received so far because we did lose a significant amount of revenue in April. And as everyone knows, it was a very, very tough month across for any industry. Our operational turnaround and discipline that we started way back in '18 has really been very helpful. And at this point, I think we're as well prepared as we can be for any spike in demand. And I think we have a very good operational plan at the hospital level down at where it is. And I think that, that type of activity is something that we're prepared for, ready for. We deal with infectious disease every day, and we feel very, very comfortable that we are on top of where we need to be. So with that, I'll turn it over to questions and prepared to answer anything. So operator?

[Operator Instructions] Our first question today is coming from Scott Fidel from Stephens.

I had a question just on -- one of the more difficult areas for modeling from our end is just on the expense side of things. Just interested if you have any visibility you can give us just in terms of what quarter-to-date you're seeing in terms of the expense trends for some of the key cost categories, whether it's sort of trending relative to adjusted admissions or compared to some of the volume trends that you've disclosed for us.

[ You mean ] the whole company?

Scott, it's Dan. Let me start off and then probably turn it over to Saum. So in terms of the overall cost trends so far in the quarter, I would say without, obviously, going into specific numbers, we've done, we think, a pretty good job of managing the costs given the volume levels. We've taken pretty quick actions to ensure that the resources that we are investing in basically match, to the greatest extent possible, our volumes. Now as you know, there's a fair amount of fixed cost, particularly in the hospital business and particularly in the other operating expense line. So you can't necessarily get it all of it immediately. But generally speaking, I think we've been relatively pleased with labor trends, supply trends as well. I would say PPE, because I think it's fair to say, have moderated, we still don't like necessarily the levels they are at, but not quite as, I would call it, egregious as it was there for a few weeks in early April and March time frame. So I would say if you're also -- you may also be asking, has there been any material or noteworthy change in trends in terms from a cost perspective, whether it's temporary labor or whatever. I would say that nothing startling. We continue to be very diligent in how we ramp back up. As we've talked about quite a bit, it's not like we are going to bring back all the resources as if we're back to pre-COVID levels. We are -- obviously, depending on the volume levels, that's how we're looking at the cost structure at this point.

The only thing I would add to that is that I think we've talked about, obviously, during this period, both as we ramp down, we're in the nadir of April and ramped up. We instituted different management processes than we normally would have from the standpoint of day-to-day labor management, both for the resources that we needed to flex and obviously, the management of the furloughed staff that were not in the area of the COVID care. And we've been very thoughtful about how we've brought that back up as we ramped up, and all of our markets are also reimagining what it looks like to operate in a more efficient environment going forward in preparation for any further surge that occurs. The other thing I would tell you is just the costs related to the COVID care are substantial. But as Ron pointed out, we've learned a tremendous amount about how to manage that, cohort that care, save PPE, et cetera, so that the cost on a unit basis of managing even in the COVID hotspots has come down over a period of time because we've simply learned how to take care of these patients in a more consolidated manner. And those were pretty large line items in terms of the supply costs, in particular, and the staffing costs related to managing those patients, which is also more efficient now. And then finally, I would say on the USPI side, we've mentioned before that these facilities have opened back up or ramped back up on an operating room by operating room basis not center by center. And that's very important in terms of ensuring that what we bring back comes back with a high level of efficiency and importantly, margin generation associated with every incremental surgical case or demand that we see rather than having a much higher fixed cost environment at USPI. So that's just a little bit of color around how we've handled it.

Yes. And I think -- this is Ron. The thing that I would add to that is that we never -- we deal in infectious disease, but we never really experienced anything quite like this. So we learned as we went. We documented as we went. And I think it's really important that we have really looked at things that we haven't looked at in the past with a deeper eye, deeper look, deeper fact base now. And I actually think, in some respects, it's made us a better company going forward. And I think it's made us much more agile. We already felt we were making progress and we were. But I think this has kind of been an S-curve in terms of forcing us into a whole different mode of thinking and approaching how we do business. So just as a final point.

Our next question today is coming from Pito Chickering from Deutsche Bank.

A few ones here. June volumes has certainly looked really strong at this point. There has been a debate among investors about the sustainability of the volumes you're seeing in June. Can you break out what percentage of your territories are deferred surgeries versus newly scheduled surgeries? And probably actually more importantly, as you look forward to the operating room schedule for the next 30 or 60 days, how does it look versus last year? And are newly scheduled services becoming a bigger piece of the pie?

Yes. Look, it's difficult to know exactly what percent are deferred cases from earlier into now. I think in May, we had a much better sense that a lot of the cases were deferred. But I would tell you that a lot of the cases, the majority of the cases in June that we're seeing are new bookings. They're certainly not, I mean, related to any of the call center activity that we had created earlier to make sure deferred cases were rescheduled. That's not -- that's true for the markets that ramped up in May. For the markets, the 2 markets that are still ramping up, obviously, we are performing some deferred casework in Massachusetts and Detroit in particular. But I would tell you the majority of this looks like it is new cases coming on board based upon recent physician office visits and the work that we've done to essentially streamline the ability to schedule. One of the things that Ron raised was what we've learned with respect to managing the COVID patients in a manner in which we don't impact the rest of the hospital. And that's important because we're seeing, both in our environment and also in the USPI environment, proceduralists, in particular, coming to our hospitals because they may be struggling to get operating room time because of ICU capacity issues or other things in other hospitals. So I think we're probably benefiting a bit from the trial that we're getting from doctors and markets that may not be part of our usual day-to-day operating room cohort. And by eliminating the block times during this period of time, we've been able to create a lot more flexibility in the way that we schedule and accommodate those folks. Now obviously, the block times will come back as we get back into the summer months and things start to stabilize, at least in the markets where they start to stabilize. But that scheduling flexibility has been pretty well received. If there's an air pocket out there with respect to volumes, it's right now hard for me to predict. I mean our surgical schedule looking out the next few weeks looks pretty good.

Okay. Great. Which actually is my segue to talking about regional differences. Can you talk about -- so what you're seeing in Detroit, Massachusetts, Miami and I guess near LA versus the rest of the hospitals, so I'm assuming that the overall surgeries for hospitals are 95%. Does that imply that Texas are running in excess of normal levels?

I mean I won't go into the numbers market by market, but I would tell you that there's a range, plus or minus percentage, a handful of percentage points above what the averages show. There are markets that are doing very, very well from that standpoint. We have adequate capacity, and we've had growth strategies in place where our numbers last year would never have been something we would have been satisfied with this year. I mean our plans for 2020 pre-COVID included increases in our budgeted volumes in our stronger markets where last year's performance was not going to be adequate and at least for our aspirations. And so I'm not surprised that there are some markets, A, that are more stable; and B, where our growth strategies are playing out positively so that we're at or maybe even exceeding, in some cases, what we had prior year. And then you're right, in the markets where there's still a lot of COVID care going on, the ramp-up is a bit slower, both because of patient and physician comfort. But I would tell you, June looks a lot better than May in those markets.

Our next question today is coming from A.J. Rice from Credit Suisse.

Yes. Just want to ask maybe on the surgery volume as that's come back. There has been a lot of discussion about patients potentially not wanting to go back to hospitals and preferring to be in freestanding surgery centers. Have you seen a flow of activity toward the surgery centers? Or I guess if it's going the other way, I would be interested in that. But particularly things that wouldn't traditionally be done in surgery centers are now being done in those locations. Any discussion along those lines?

A.J., it's Saum again. No, not in any marked shift of volume that you would say, systematically, here's procedure A or B that is now being done in an ambulatory setting that was done in a hospital outpatient setting or something like that at this point. I would tell you, again, as I said earlier, I think what has come back more quickly in the ambulatory surgery setting is, in fact, the higher acuity surgical work as opposed to some of the procedure-based screening type of work. You can imagine gastroenterology, ENT, things of that nature, whether it's aerosolizing risk associated with the procedure. That business has come back. It just hasn't come back as robustly as some of the higher-acuity work. But we have not seen, for example, some significant shift of cardiovascular out of the hospital outpatient setting into the ASC setting. Lots of discussion about it, but no real shift.

And our hospital surgeries are strong, are coming back positively.

Right. Maybe just a follow-up. You mentioned a bunch of local markets. Some of the ones that were hotspots before. It seems like the media tends to be focused on Arizona right now. And I know you have -- it's not a big -- a huge market for you, but you have some exposure there. Is there anything unusual about the activity level there and the fact that cases sound like they're rising there, maybe percentage-wise, rapidly? Is that having any impact on your Arizona market? And any kind of discussion with the public health officials about whether they can do anything there to sort of roll back some of the reopening?

Yes. I appreciate -- there are news stories about Arizona and the number of cases in Arizona is rising quickly. But I think for us, Arizona is an example where, by really in a disciplined way -- in fact, our very first case was in Arizona, by in a disciplined way, learning how to manage these patients. We are busy with COVID, but we're not overwhelmed with COVID. We're effectively stepping down patients out of the intensive care unit into cohorted floors, and in fact, have cohorted many of our patients from a COVID standpoint in one hospital. That's not to say there isn't COVID case volume in other hospitals, but we've really tried to cohort that in one hospital with some real expertise. So we're not overwhelmed. And actually, again, without going into specific numbers, we continue to do very well on the elective side in Arizona and managing those 2 tracks in parallel right now. So we're busy. We're not overwhelmed. And we've put a lot of focus on really ensuring COVID care zone is being separated from COVID safe zones and communicating that actively into the community and to the physician community in particular, so they feel comfortable bringing the demand that they're seeing in their offices.

We also have -- I would say in every market, as I've said, we have a very good plan that if we feel that pressure and we need to do something, we can keep moving ahead of it. And so we watch it daily. We still do our COVID calls with our hospitals as we were doing earlier. So we still have a daily round-up, if you will, across all of our facilities and still led by the same group, and we go through those level of details. So we're very aware of pressure points, trends, change. And so as long as we stay on top of that, we feel that we're in good shape, A.J.

Our next question today is coming from John Ransom from Raymond James.

I'm curious of a couple of things. At your June activity level, Dan, is that a free cash flow neutral position? Or is it still a burn? And then on your COVID patients, I'm curious, what's happened? You mentioned you've learned, but what's happened in your journey on things like length of stay and some other metrics? And are you able to -- with that 20% kicker from Medicare is -- typical COVID ICU patient, is that still a money loser for you? Or is it something you've learned to manage in a way that's not a big cash fleet?

John, it's Dan. In terms of the cash flows for the second quarter, we continue to say that we do not anticipate a material cash burn in the quarter. Could it be plus or minus a certain number? Sure. But when we started this quarter off, the main concern was that we would not see a significant drain on our cash resources and liquidity. And so we took, obviously, a number of actions to sturdy that and enhance our liquidity. And like I pointed out in my remarks, Conifer has done a really good job in the past 2 or 3 months, which has really helped maintain and grow our cash. Obviously, and when I talk about not -- we do not expect a material cash burn, that excludes the Medicare advances and the grant. So I'm talking to you about what our cash flows are when you back those numbers out. And you can see, if you go back to -- we've obviously disclosed over the past several months what our excess cash has been and you continue to see it grow, but even if you back out those grants and advances, our cash flow has improved. So we'll see, there's obviously a couple of weeks left, but we're pleased with where we're at, at this point.

On the -- John, this is Saum. On the COVID care point that you raised, I would say that one of the primary factors that separates longer length of stay from shorter length of stay really has to do with the origin of the cases. I mean the nursing home cases where you have sicker people that require a higher level of care tend to have a longer length of stay. And then in places like in Miami-Dade, where you have to not only get the patients well, but then have 2 negative tests before you're able to discharge them, 2 sequential negative tests separated by 24 hours, that obviously increases the length of stay as well. So look, we're appreciative of the 20% kicker on these DRGs, but they're not adequate, obviously, for the kind of cost you incur when you have those long lengths of stay. When you have patients that are coming in with more community-oriented spread and they're younger, they're not necessarily from a nursing home, which, by the way, interestingly, if I were to look at the balance of cases in our hospital today versus 4 weeks ago or 6 weeks ago, we're starting to see a bias towards younger community spread, call it, in the mid-30s to mid-60s range, patients that are requiring hospitalization because of their illness but requiring less intensive care. The length of stay on those cases is lower. The resource consumption is lower. And the balance of the economics, obviously, that results from that can be better. And I think it's not surprising that we're seeing more community-based spread as things open up, and obviously, the unfortunate events of the last few weeks might increase that over the next few weeks from a COVID care standpoint. But there is a bit of a shift that we're seeing in the mix of our patients with COVID in the hospitals.

So just as a follow-up on that. So on these younger patients that are covered under commercial plans, what accommodations are the commercial payers making on the payment side? We know the Medicare DRG, but are you getting per diem reimbursements? Or is it still kind of under the classic admission with a respiratory issue and it's a fixed payment? Are you getting per diems on the commercial side with these patients?

John, it depends. It depends on the contract, and it depend on the geographic area. There's certain states where there's a pretty noteworthy concentration of per diem type of contractual terms. But then in many of our areas, it's on a DRG basis. And depending on the contract and in the DRG, obviously, the rates vary. So it's a blend.

Our next question today is coming from Josh Raskin from Nephron Research.

Dan mentioned that the ability to book the CARES funds would be subject to the impact on revenues, sort of the lost revenues on procedures as well as the cost for COVID and so that -- it sounded like there was sort of a gating factor, if that would be enough. Is there an implication there that the payments relative to sort of the 2Q impact are actually larger than the revenue impact? And I understand there's future impact, rest of the year, et cetera. But I just want to make sure I got that right, that you may actually be made more than whole in the second quarter. Is that right?

No, Josh, that's not what I'm saying. What I'm saying is -- and we talked about this a few weeks ago. Under the terms and conditions of those grants, they are to reimburse providers for lost revenues or incremental costs incurred because of the COVID situation. So what you could have is a situation where grants are received, the amount of cash actually received at the end of a given quarter, say June, are in excess of the lost revenues or extra costs at that point. So just a simple example, say you received $100 of grant funds and the lost revenues for that particular facility were -- and costs were only $95. You would have $5 that you couldn't recognize as revenue at that point. Just because, again, the funds are to be used to reimburse providers for lost revenues or extra costs. So think of it as basically as deferred revenue, and as you meet the terms and conditions of those grants, then you recognize the revenue. So my point of bringing that up was we obviously received $689 million of grant funds, which is -- obviously, we're very pleased with that. And we appreciate that. But we may not necessarily be able to recognize all of that as revenue in Q2. And therefore, we would recognize amounts in the back half of the year rather than all of it in the second quarter.

I think we're saying the same thing. I think you were saying that there is a gating factor that you've got $689 million in the door, but your revenue and/or cost impact may not actually have been $689 million or maybe at a per facility basis, it doesn't add up. So some of this sort of overage goes into 3Q. I'm not saying that the CARES Act reimburses you for total losses over the year, but just seems like second quarter, you may actually be reimbursed at that point.

That's correct. By facility, very important, not necessarily in total system-wide basis.

Right. Right. That makes sense. One more quick follow-up just on payments and reimbursement. Are you seeing any states propose cuts to Medicaid fee schedules? Are you seeing any pressure on state budgets that are manifesting in short-term potential impacts to fee schedules on the Medicaid side?

Well, you hear a little bit of it. And it's obviously something we're watching and monitoring. At this point, nothing of significance in terms of any type of reduction in Medicaid rates. We're hopeful that the necessary funding is there by state. To reduce funding to hospitals at this point in time during this pandemic certainly would not be productive or helpful to providers.

Our next question today is coming from Justin Lake from Wolfe Research.

This is Eugene dialing in for Justin. Maybe a quick follow-up to A.J.'s question earlier. Are you guys seeing any early signs of changes in utilization patterns or patient behaviors in the states where you're seeing a spike in COVID cases again?

This is Saum. I think a couple of things. I mean one is the patient behaviors are a combination of both their own comfort with servicing the needs they may have in a hospital-based environment or facility-based environment. In the case of elective surgeries, the physician's comfort, in addition, that matters. And then obviously, there is what leadership, both civic and elected leadership, is saying about that COVID activity. So there's a lot of factors that go into ultimately what the patient behaviors look like. All I can say is that in the markets that have been strongly impacted by COVID over the last 2 months, they are slower to recover for all of the reasons described. Some of that's just prudent in terms of the fear that if you don't have a declining number of cases, you don't want the hospitals to get overwhelmed. And of course, a lot of people are making their decisions based upon what they see on television about New York City or something like that. So the recovery has been slower for all of those reasons in those areas. Now are we seeing significant behavior changes where there is now new activity? For example, we discussed Arizona a bit earlier, we're not seeing that yet. But I can't speak to the whole market. All I can speak to is the fact that in anticipation of the fact that given our diverse markets, we knew we would have places that would spike up in cases for a variety of reasons, which is why we put in place COVID safe zones and COVID care zones into the hospitals, so that if there was a surge, at least the initial surge, we could manage it. If that surge becomes overwhelming in any given state, we'll accommodate that and manage it, hopefully, better than was managed during the very first surge in April, but we haven't hit that point yet.

Got it. Maybe one quick follow-up. I believe you guys said payer mix was fairly consistent. Was that throughout the quarter? Or were you seeing some fluctuation month-to-month?

This is Dan. The payer mix has been relatively consistent with the aggregate volume trends throughout the quarter.

Our next question is coming from Ralph Giacobbe from Citi.

This might be a little bit of a silly question, but why do you cite the declines by month in March and April, but then say the May and first half of June as a percentage of pre-COVID levels? And does it translate to year-over-year? So when you say admissions are 90% of pre-COVID in the first half of June, is that roughly 10% down year-over-year? Or is there some nuance I'm not thinking about in terms of why you're reporting it one way versus the other?

Ralph, it's Dan. No, listen, I think a lot of people have been talking about what percent have you recovered at this point of your pre-COVID type of business activities. And so we -- there's nothing -- there's no hidden message to this. It's just a lot of people have been talking that, hey, it's 75% back, 50% back, 80% back, et cetera. So we looked at April, and May and June was, okay, let's talk about it in terms of percent of where we were at on a pre-COVID. And listen, the pre-COVID, so what's the baseline we're measuring that against? It's generally prior year to the trends that we've been -- had been seeing before we went into this time period. So no...

When you read the reports, everybody was talking about how much have you fallen. So we talked about that in March and April. And then we got questions about where are you compared to pre-COVID. So we tried to address it that way. So I don't know. We're just trying to be transparent, I guess, and there's no hidden agenda, just however you want to read it, I guess.

Okay. Fair enough. And then just -- you mentioned acuity in the prepared remarks. Can you just give a little more detail on acuity and how we should think about that in terms of revenue per adjusted admission and how that translates to sort of revenue versus the volume decline side?

Well, since we don't -- we haven't put out the numbers yet, I think we have to be a little careful here with making statements that we don't -- we haven't audited yet at this stage. Acuity is up. That's what's important.

Yes, absolutely. Yes. Acuity is up. And listen, you're going to see in all likelihood, strong revenue yield on a per unit type of basis.

That's higher acuity.

Compared to normal. Because that's what's coming back. The higher acuity, more complex cases are coming back more quickly than in the lower acuity type of activity.

Our next question today is coming from Whit Mayo from UBS.

My question was around non-COVID admissions. I was curious how those are trending. I think my data has nationally, non-COVID pegged at less than 10% of total admissions. I'm just curious if your data is similar that might imply that non-COVID is maybe 80% of pre-COVID levels. Just was curious, Dan, if you had any data that could frame that.

Yes. Whit, this is Saum. I think that you're right. I mean the number of COVID cases in aggregate as a percentage of the total varies greatly by market for us anyway, for the reasons I just described. So obviously, it's a non-issue at USPI, including in the surgical hospitals. In the acute care hospitals, the markets that are performing strongest have very few COVID cases. In fact, you can assume in some of our markets, you're talking about a small handful number from a COVID standpoint, and therefore, 90-plus percent, 95-plus percent are non-COVID or non-COVID cases. Even in the markets that are very busy, the cohort hospital where we may be cohorting COVID cases would see a much higher number. But in the other hospitals, again, the vast, vast majority are non-COVID cases.

Yes. That's helpful. And I had a question on Conifer. I was curious how the RFP pipeline is trending, and I've been surprised by the number of hospitals that we speak to that are actually moving forward with RFPs and revenue cycle conversions in this environment. I just was curious if anything has changed that's notable, and that's it for me.

This is Saum again, Whit. Obviously, the cost pressures put on the industry are causing people to think about efficiencies that they can take out of many administrative processes, including the revenue cycle. So certainly, we are seeing some increase in interest from a variety of systems, sometimes on a full outsourced basis, more commonly looking for point solutions that would generate efficiencies and/or better performance in their revenue cycle. And we remain very much in tune to that.

Our final question today is coming from Kevin Fischbeck from Bank of America.

Great. I guess in the past, you guys have talked about close to 70% of your volumes coming through the ER, but the ER volumes are still down a decent amount. Is that kind of the way to think about it? Is that still where the shortfall in your volumes are that your scheduled procedures are back to where they normally would be? Or is there anything about -- it's low-acuity ER volumes that aren't showing up so you're getting your normal volume through the ER right now?

Yes. Kevin, this is Saum. It's a combination of both. Certainly, lower-acuity emergency department visits are down more than otherwise. I mean if you look at the admissions and where they are today, obviously, admissions through the emergency department are an important part of that. And so proportionately speaking, when you look at what the ER business is today, not surprisingly, the percentage of patients that get admitted to the hospital is higher than it used to be because of the low-acuity areas that haven't come back as quickly from that standpoint. But you're right about your second point as well, which is that ultimately, there are low acuity or moderate acuity type of ER visits where you have a finding upon diagnostic that ends up converting a patient who might need a procedure, a catheterization, some type of minor surgery. And those patients deferring care is a concern because it propagates their condition probably longer than it should be and that is contributing to some of the gap that you see in both admissions and surgeries at this point because they're...

And it's the higher acuity that we ultimately end up having with that patient when they finally do turn back.

Okay. That's helpful. I -- go ahead.

No. I think you're right on both points there in terms of what's going on from an underlying standpoint. It's a little bit less of the low-acuity visits, but also there are people with those conditions that would be diagnosed earlier if they were to come through the ER, and obviously, that would generate some other hospital-based activity.

Kevin, the admissions coming through the ED, so if you look at the change year-over-year, it's very similar to aggregate inpatient admission. So we put out there that we're back to about 75% of our pre-COVID ER volumes. But the -- it's the outpatient side of the ED business, it's coming back a little bit slower than the inpatient...

Which is the lower-acuity piece.

Which is the lower acuity...

The higher-acuity piece is what's already coming through now.

Okay. That's helpful. And I guess maybe just absent a second wave, is there anything structural in how you're doing things that would make it unlikely to get back to pre-COVID levels by year-end as long as COVID -- are you doing anything differently? Or do you see at least a potential pathway to getting back to normal growth by year-end?

Well, we protect -- I mean we've protected the access to the ER by isolating COVID patients to another part of the facility. So the ER should stay open. I think we've been very careful about making sure that we protect our ER access from the standpoint of safe, COVID safe kind of access. So Saum?

Yes. I think from my standpoint, the barriers that I see, if you look at overall volumes, #1 in my mind is the physicians' offices in their environments getting back to running at full throughput, and we don't see that yet in the environment, including our own physician practices. Second barriers, of course, if hotspots emerge, that would slow things down in different places. And then the third is the ongoing fluctuation in patient comfort, which we just have to work on collectively, both community leaders and us and others from a messaging standpoint, not to defer care. And I would say also the insurers working on messaging to their patients that deferring care is something that they shouldn't do because the environment is safe at this point on the health care delivery side.

Okay. All right. Okay. Well, thank you, everyone, for joining us today. Talk to you soon.

We appreciate it.

Thank you. Bye.

Thank you. That does conclude today's teleconference. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.