Doug Coltharp: And some of what impacts the ramp up of a new hospital are two important factors to consider. One that Mark just touched upon, which is, if we’re proximate to an existing market, because the payers are known to us, because the referral sources are known to us, because we can leverage the existing staff, the ramp up tends to be faster than when we go into a brand new market. And when we have a JV partner, the ramp-up tends to be a bit faster as well because we can leverage some of the relationships that they have also. And you’ve got a bit of a mixed bag on those as you look at the 2023 class. Looking specifically at the first quarter, Eau Claire, Wisconsin, is going to be a brand new market for us, as is Knoxville, Tennessee. Owasso, Oklahoma, we’re going to be able to leverage. Claremont, we’re going to be able to leverage. So, there’s a little bit of good – a little bit of each of those included in that class.
Andrew Mok: Great. Thanks for the color.
Operator: And we’ll take our next question from Ben Hendrix with RBC Capital Markets. Please go ahead.
Ben Hendrix: Hey, thanks guys. Good morning. Quick question on case mix. Most of my questions have been answered, but you’ve stressed focusing on stroke and neurological volume in the past, and having a higher than industry mix of that higher acuity volume, differentiated capabilities around stroke and neuro. Just wanted to see how that’s progressing, if there’s anything to call out in terms of case mix in general, and how that – how you see that evolving into 2023. Thanks.
Mark Tarr: Yes, I think our – well, our case mix has been relatively flat. If you look at our program mix, with stroke, we continue to be strong, performing there with a little bit over 18%. You add another 20 some percent in neurological. So, what we’ve said over the last couple of years now is we’ve built up our expertise in just neurologically-based conditions, stroke and others, that accounts for almost – over 4% of our discharges. If you look at our ability at the time of discharge to get patients back to home, that’s an area that we continue to excel. Almost 83% of our total discharges this last quarter went back to the community. So, the association with our ability to have better outcomes of the stroke population, I would say the relationship that we have with the American Heart, American Stroke Association, in terms of co-branding this, has helped to continue to put our name out in the forefront in our markets in terms of caring for stroke patients and those patients suffering from neurological conditions.
Doug Coltharp: Both stroke and neurological showed growth on a year-over-year basis in Q4, but as a percentage of patient mix, actually declined slightly, and that was because we had a pretty significant increase in debility, and that is directly attributable to the flu season that was very prevalent in Q4.
Ben Hendrix: Great. Thanks for the color, guys.
Operator: And we’ll go next to Brian Tanquilut with Jefferies. Please go ahead.
Brian Tanquilut: Hey, good morning, guys. Congrats on the quarter. I guess, Doug, just as I think about modeling, anything you would call out from a seasonality perspective, or just how we should be thinking about the cadence of EBITDA over the course of the year?
Doug Coltharp: I would expect this to be kind of a normal year with regard to seasonal trends. The timing of the de novos has some impact, but otherwise, the normal factors with regard to seasonality that go from quarter to quarter, should be prevalent.
Brian Tanquilut: Got it. And then I know in you’re prepared to remarks, you called out the 20 markets where you’re seeing some contract labor tightness – or labor tightness and high use of contract labor. Anything you can share with us on maybe which those markets are, and any improvement or anything – any color on rate trends in those specific markets that we should be thinking about?
Doug Coltharp: Yes. So, the northeast remains the most challenging market, both in terms of the number of contract FTEs and the rates as well. I would say that our team has been really focused, the regional team there has been really focused on that through the course of the year, and they’ve made great sequential progress. But there are a couple of markets in and around the Boston area is one that I would cite that have remained a bit a bit in transient with regard to progress, but the team is really focused on it.
Brian Tanquilut: All right. Got it. Thanks.
Operator: . We’ll go next to Matt Larew with William Blair. Please go ahead.
Matt Larew: Hey, good morning. Just wanted to follow up a bit on the share taking and just get a sense for, if you kind of dial back the last 24 months, how much of a sense you have for that coming from specific payers or payer categories, perhaps from competitive IRFs relative to eligible shift patients and site of care shifts from other post-acute settings? Just anything you can help us out with for – a bit more color on share. Thank you.
Mark Tarr: Yes, I think in gen, you’ve heard us talk about this in the past, but I absolutely think during the pandemic, our ability to take COVID patients and show that we can take a very challenging, high acute patient with medical complexities, and do a really good job in getting them back to community, has continued to pay dividends as we’ve moved forward into a more normalized operating environment. I think that the referral sources have recognized that not all post-acute settings are created equal, particularly between skilled nursing facilities, nursing homes, and IRFs. I think that clearly IRFs and LTACHs stood out in terms of their ability to take challenging patients. And so, I think that we’ve seen – certainly have taken market share in those communities, particularly where there were nursing homes that were trying to pattern themselves and claim to be rehabilitation facilities, and probably overextended a bit in terms of their ability to take rehab-oriented patients.
Doug Coltharp: Matt, the strength has really been very prevalent in the two major payer categories for us, which are fee-for-service and Medicare Advantage. If we look at same-store discharge growth in Q4 of this year, Medicare fee-for-service was up 5.9%, and for the full year of 2022, it was up 3.9%. We’ve had seven consecutive quarters now of fee-for-service discharge growth. We had mentioned relatively early in the pandemic back in 2020 when we were seeing a pretty dramatic increase in Medicare Advantage, that we felt that our ability to demonstrate our value proposition through difficult times like that, was really going to have some staying power with regard to Medicare Advantage. And in fact, that’s proven to be true because our Medicare Advantage discharges increased by 34.3% in 2020.
We consolidated that gain with a 5.8% increase in same-store Medicare Advantage discharges in 2021, and we added another 1.5% in 2022. So, we definitely feel like, A, the market is very substantial for the services that we provide, and the conversion rate remains low, and that we are resonating with our value proposition to payers, to referral sources, and to caregivers.
Matt Larew: Okay. Thank you.
Doug Coltharp: All of that is the strong demographic tailwind.
Matt Larew: Yep, understood. And then, Doug, on the thought process in existing markets about bed expansions relative to adding a new hospital, I know in the past you’ve talked about bed expansions being the highest ROI use of capital that you have. I imagine that your ability to use prefab and that bringing down new build costs and timeline maybe changes some of that math. But I’m curious, once the hospital’s built down the road, or a few minutes away or a few miles away, can you still get any labor from – or excuse me, leverage from an admin or labor perspective where you might be able to deploy employed nurses and therapists to one or both hospitals depending on demand? Just curious, once that new build is in place, how it would compare to adding a 10 or 20 bed addition under an existing hospital?
Doug Coltharp: Yes, that’s absolutely the case. In markets where we have a cluster of hospitals that are reasonably proximate, we’re able to leverage things like the marketing staff, the regional administration staff, and we do share resources between hospitals. But back to your earlier point, Matt, bed expansion on an existing hospital remains the highest return that we get on capital. When we look to add a new hospital, many times it’s because we look at the market, we see that it’s growing in a particular direction that is currently underserved. We do a bed needs analysis there and say, oh, this is not going to be solved by adding 10, 20 beds to the existing hospital. This really needs a – this is really a 50 or 60 bed need over the near-term. Let’s go ahead and construct a new facility and try to take advantage of that demand in advance of other competitors that are entering that particular market.
Matt Larew: All right. Thanks, Doug. Thanks, Mark.
