Operator: Thank you. Our next question comes from the line of Pito Chickering of Deutsche Bank. Your line is now open.
Pito Chickering: Yes, good morning. Can you talk about the acute OpEx changes that you saw in this quarter? How much did physician expenses increased year-over-year? And is this the right level going forward and any other pressure points at the OpEx we should be thinking about?
Steve Filton: Yes. So, I think, Pito, especially on the Acute side, the increase in other operating costs are primarily driven by physician expense, which we said for the year would increase by about 5% or 6%, and we believe that will still be the case. But because physician expense continue to increase every quarter last year, and we believe will be relatively flat this year, meaning flat quarter-to-quarter, the increase over last year will diminish as we get to the end of the year. And again, I think we’re on target to get that sort of 5% or 6% growth over the prior year. But in Q1, that growth was more like 12% or 13%. And then the other, I think, driver of OpEx increase, particularly in the Acute division was increased claims having to do with our insurance subsidiary and that’s mostly having to do with increased premiums, the insurance subsidiary, was that sort of a breakeven level for the quarter, which is where we had it budgeted.
So, nothing unexpected there for our point of view.
Pito Chickering: Okay. And then on — a follow-up to Justin’s question on supplemental payments. I guess for $10 million to $15 million from prior two periods. But looking out into 2024 or 2025, what states do you think could be expanding or adding sort of new payments that could impact your Behavioral throughout the year? Thanks.
Steve Filton: Yes. So, what I would say is we’ve often pointed out, and I think there are a couple of analysts on this call who will routinely point out that over the last several years, especially our original forecast of supplemental payments have tended to only increase as the year has gone on as states either implement new programs or refine their existing programs and calculations and I think that’s our expectation for this year as well. One of the tricky parts about this is I think we tend not to disclose what states they are or what expectations might be until the state really goes public or get to the approvals they required or public with their calculations. So, we do believe, I think as we said on the last call, and I’ll reiterate today, I think we do expect a number of states to implement either new programs or expand existing programs by the end of the year, but we’ll give that detail as it becomes more certain in our public filings.
Pito Chickering: Great. Thanks so much.
Operator: Thank you. Our next question comes from the line of A.J. Rice of UBS. Your line is now open.
A.J. Rice: Thanks. Hi everybody. Obviously, with the strong revenue number, that gives you leverage down the income statement. But I wondered if you look at labor, both permanent and your premium labor. Can you give us a little sense of what the underlying trends are year-to-year wage increases, how it’s working out with your premium labor outlay? And then similarly, I’ll ask on the first second question. Pricing was strong in the quarter. Obviously, that was helped on the Acute side by supplemental payments, any updated thoughts on where commercial rate increases are coming out and the extent to which you think exchange-related coverage as people maybe pick up exchange coverage versus Medicaid is impacting, what you’re seeing there?
Steve Filton: Yes. So, again, a few different issues here. I’ll try and address them discretely. Yes, I mean I think clearly, what the income statement reflects as you alluded to, A.J., is more operating leverage and efficiency on the labor line, I think it’s a result of a few different things. Premium pay, as I said in my opening comments, is down roughly $20 million from the same quarter last year. I think we’re seeing wage rate inflation decelerate from the peak levels that it was running at the height of the pandemic. I think that’s helping. I also think we’ve made a number of productivity adjustments in both business segments over the course of the last six months. As we came out of the pandemic, I think we reevaluated our productivity in both segments, particularly in our non-clinical areas, some of which I think maybe grew ahead of the actual need for those resources during the pandemic.
As far as pricing goes, we continue to get, I think, reasonable price increases in our contractual rates. I think the bigger issue, quite frankly, on the Acute side, especially, is more this issue of as the managed care companies see their margins under pressure. We have tended in the past to see greater levels of denial activity, patient status changes, et cetera. We saw a lot of that in 2023. I think that activity has stabilized some in the fourth quarter and in the first quarter of this year, but it’s something that we’re watching very carefully. We are seeing, I think, as a result of Medicaid disenrollments, more patients moving to exchange coverage. I think that tends to be a net positive on the Acute side because I think exchange coverage reimbursement tends to be slightly better than Medicaid or in some cases, measurably better.
On the behavioral side, I think it’s a bit of a toss-up because a lot of these exchange coverages have pretty significant co-pays and deductibles. And given the fact that behavioral care on an absolute basis tends to have a much smaller bill. I think we find that patients who have exchange coverage often will not be able to cover their — or the bill will not cover their co-pays and deductibles. So, sometimes, that switch from Medicaid to an exchange coverage is not a favorable development on the Behavioral side and may, I think, contribute a little bit to the slower growth in patient pay volumes on the Behavioral side.
A.J. Rice: Interesting. Okay. Thanks so much.
Operator: Thank you. Our next question comes from the line of Ben Hendrix of RBC Capital Markets. Your line is now open.
Ben Hendrix: Great. Thank you very much. Just a quick follow-up on the Illinois litigation. I appreciate that this is unprecedented and different, in fact, and jurisdiction from Acadia settlement but that was also kind of equally unprecedented. I was just wondering if this is changing at all your approach to the RTC business, your strategy, capital allocation and how you expect to kind of grow in your approach to Behavioral Health over the long-term? Thanks.
