Kevin Hammons: Sure. So, the volume increases are still being led by Medicare Advantage and substantially all of our Medicare business increases are all Medicare Advantage. What we did experience this quarter was a little more balanced growth between Medicare Advantage and commercial. I think we had indicated in the fourth quarter that early part of 2023, MA was growing at about a 3-for-1 ratio to commercial, in the fourth quarter, it improved to only a 2-for-1 ratio, and we continued on in the first quarter at approximately that 2-to-1 ratio growth. So, some slowing in that Medicare Advantage growth business. In terms of contracting, it’s still early in the year, but we are seeing early signs that would probably point to similar rate increases for ‘25 that we are experiencing and looking to or already have locked in for ‘24.
A.J. Rice: Okay. Thanks a lot.
Operator: The next question will come from Stephen Baxter with Wells Fargo. Please go ahead.
Unidentified Analyst: Hi. Great. Thanks. This is Nick on for Steve. So, I wanted to follow-up a little bit on the payer mix question to start. So, it looked like Medicaid mix was actually up a little bit year-over-year. So, I wanted to see if that was more driven by an increase in Medicaid supplemental payments or actually a patient mix shift? And then maybe just an update on what you are seeing from Medicaid redeterminations. Thank you.
Kevin Hammons: Sure. The increase in Medicaid net revenue is primarily due to the Medicaid supplemental programs. So, kind of in terms of dollars, the Mississippi was the big change year-over-year. That program, which we have recognized $40 million in Q4 for six months’ worth as that program just got approved and was retroactive to July 1st, one quarter’s worth of that full program that was approved is about roughly $80 million on an annual basis. So, we have recognized the first quarter’s portion of that in Q1. There was zero of that in last year’s numbers. So, that was the primary driver of Medicaid increase, although we did have an increase in a small increase in Medicaid volume too during the quarter. In terms of redetermination, we are not really seeing any substantial impact.
I mean there are certainly patients who are losing Medicaid insurance we are seeing a slight uptick in self-pay volume, but we are also seeing the uptick of commercial volume. So, a portion of those patients who are losing Medicaid are picking up exchange business insurance or commercial insurance that’s far offsetting any of the negative impacts.
Unidentified Analyst: Great. Thank you.
Operator: The next question will come from Andrew Mok with Barclays. Please go ahead.
Andrew Mok: Hi. There has been a lot of discussion around the two midnight rule for MA plans and the impact that might have on acute hospitals. Would love to hear your take on the role and if and when you would expect to see any impact from that?
Kevin Hammons: Yes. We are continuing to evaluate. I know there has been some additional guidance put out there by CMS. At this point, I think it’s still early, and I am not sure that we can really quantify the impact. There is a number of kind of moving parts around that, that include work that we are doing ourselves internally with a physician advisor program that we have stood up that allows us to ensure that we are getting better document or the appropriate documentation. It also – we have kind of brought in-house the peer review process with the payers, both of those things should be beneficial to us. Then this quarter, we also had the situation with changes breach and change. It indicated that they were going to no longer require pre-authorization for certain services.
So, that weighs into the calculation in Q1 as well as then some of the regulation from CMS to the payers about two-midnight. Throw all those in, I am not sure it’s very difficult to differentiate the impact of each individual one. But I would say at least on the margins, we saw a little bit of improvement in Q1. Overall, though, denials still continue to increase. So, I think there is a little bit of continued pressure. We may see some benefit in one area, but there is continued pressure in other areas and even on the commercial side from denials. And so I would just again say it’s kind of difficult at this point to measure, but we are keeping a close eye on it and hope we see some more clarity later in the year.
Andrew Mok: Great. Thank you.
Operator: The next question will come from Josh Raskin with Nephron Research. Please go ahead.
Josh Raskin: Hi. Thanks. Good morning. Looking at occupancy rates overall, they are up nicely from pre-pandemic. I am curious how much of that is due to change in portfolio over the last couple of years versus an organic or same-store improvement. And where does occupancy need to get to in your mind to get to that sort of 15% intermediate target on margins?
Tim Hingtgen: Sure Josh. This is Tim. I will kick it off. In terms of the occupancy rate growth, we think that’s driven through the items we mentioned previously, the growth of the transfer center, higher acuity services. There is some adjustment to the portfolio when we divest smaller, more rural hospitals with a higher bed count and a low occupancy rate. Obviously, that helps our stronger markets where we run higher occupancy rates to shine through. We don’t necessarily have an internal target, if you will, because of the changes in the portfolio. The other part of the equation that makes it difficult for us to really track occupancy rates in an absolute basis is we also have outpatients in those beds, which are not factored into the occupancy rate calculation that you are seeing there.
And we have seen the growth of our outpatient observation business over the last several quarters, as you know, across this industry. But in general, we are very, very focused on understanding the physical footprint of every one of our campuses to make sure that we are optimizing that footprint, decommissioning any spaces, which may not be necessary so that we are not running any additional fixed costs that are necessary for whatever volumes we can bring into that healthcare system.
