Steve Filton: Yes. So, I mean we were encouraged with the fact that in this rule, Medicaid did not place a cap on these supplemental programs. Instead, they focused — as they have in the past, I don’t think this was a new folks there, but they focused on these hold farmless agreements, which they have historically objected to. I’m certainly not an expert — a legal expert in this regard. But I do know that we’ve certainly used legal experts and consultants and are aware of consultants who will adamantly argue that CMS just is wrong on this particular issue and on the legality of these whole harmless arrangements. But regardless of — so I think there’s a chance that CMS’ objection to these hold harmless agreements might be successfully challenged legally over the course of next several years.
In any event, I think it was encouraging that CMS said that they were not going to essentially go after or enforce any actions against these hold harmless agreements until 2028, which I think means that if states are convinced that these arrangements are not going to withstand sort of legal scrutiny, they have time to change them. So, I would make the point, we did a quick analysis and think that maybe about a third of the supplemental payments we currently receive are under these hold harmless agreements that CMS has objected to, but two-thirds are not. And we think, again, that CMS has left the stage plenty of time to restructure their arrangements if they’re convinced of these hold harmless agreements will not hold up under legal scrutiny.
So, I think generally, we found that all to be pretty encouraging in terms of the flexibility the states will have and the time they’ll have to respond to this new rule.
Whit Mayo: That’s helpful. And just one other quick one. Just thinking about the opening of West Henderson later this year. Is that still a good timetable and maybe on the P&L consideration start-up losses? And I’m kind of curious how you think about how the volume may get redistributed in the market once that hospital opens? Thanks.
Steve Filton: So, West Henderson is scheduled to open late in the year, maybe in late November, December. So, it shouldn’t have much of an impact, there will be some level of preopening costs and then a month or two of probably operating losses as it opens. I think we didn’t really highlight that in our call a couple of months ago, in part because I think we have a view that continued improvement of our hospital and the renal market will largely offset that. And as a consequence, neither was likely to have a material impact on this year’s results. There’s some amount of cannibalization that will take place, meaning we’ll take some patients probably from our existing Henderson Hospital. But the real play for West Henderson is significant population growth in that area that we think will allow the hospital to have a very successful opening.
Quite frankly, the opening of Henderson at this point, I think, five years ago was very successful for the same reasons. And I think we’re looking for West Henderson to have a very similar experience when it opens late this year.
Whit Mayo: Okay. Thanks.
Operator: Thank you. Our next question comes from the line of Sarah James of Cantor Fitzgerald. Your line is now open.
Sarah James: Thank you. Can you clarify the $5 million sequential uptick in premium pay, was that related to the acute volume strength? Then does your $50 million a quarter of premium pay goal assume a version normal acute volumes? And how do you think about strategy and time line to get to that $50 million?
Steve Filton: Yes. So, I actually think, Sarah, that the $68 million in premium pay in Q1 is pretty similar to what we’ve been running the last few quarters. You’re right, we have talked kind of about a goal of getting into sort the mid-50s. But I think what’s prevented us from doing that is these really robust acute care volumes. And I’ll make the point that the 4.5% adjusted admission increase in Q1 of this year is compared to, I think, in excess of a 10% increase in adjusted admissions last year’s first quarter. So, you’re really talking about, I think, some pretty historically high Acute Care volume numbers. And yes, I think we acknowledge that it will be difficult to get much below the premium pay levels we’re currently running at unless Acute Care volumes moderate.
And quite frankly, we’d be perfectly happy if they don’t. I think at these levels of Acute Care — at this level of Acute Care volumes, we’re relatively satisfied with having to run this level of premium pay.
Sarah James: Great. Thank you.
Operator: Thank you. Our next question comes from the line of Joshua Raskin of Nephron Research. Your line is now open.
Joshua Raskin: Hi, thanks. Good morning. I was wondering if you could give a broader update on CapEx spending and maybe capacity increases in specific areas of focus and then just a quick follow-up on Las Vegas and West Henderson opening. I’m curious if Las Vegas on the acute care side, volumes or demand there running above company average? And maybe just a little bit more color on sort of shorter-term trends there.
Steve Filton: Sure. So, I think from a CapEx perspective, Josh, I think we continue to invest on the Acute side in those areas where I think acute invasion hospitals really differentiate themselves, meaning emergency room services, emergency room capacity, surgical services, both in and outpatient, and again, for the higher acuity higher-end services that we don’t have as much competition in. But we also continue to invest in outpatient. We have a very successful freestanding emergency department initiative that has been underway for a number of years. I think we’ll finish this year with probably freestanding EDs around the country, whereas five years ago, I think we didn’t have any. And we can also continue to invest in some freestanding surgical services facilities, freestanding imaging centers, et cetera.
On the Behavioral side, it’s mostly building more inpatient capacity now that we are at least in many, many markets and facilities more fully staffed, but also in that business, investing in freestanding outpatient developments, telemedicine, addiction treatment et cetera. So, I think, again, in both business segments, the CapEx really runs the gamut of the sort of full service continuum at our facilities and our integrated providers tend to provide in their markets. As far as the specific questions about Las Vegas, look, I think one of the comments that we’ve made over the last several years is that one of the reasons why I think we’ve been slower to recover those margins that we talked about in the previous question than some of our peers is that some of the geographies around country that have recovered more quickly from the pandemic, Texas and Florida, most specifically, while we have a presence in those geographies, we tend to have a bigger footprint in places like Nevada, California, the addition of Columbia that have tended to recover more slowly from the pandemic just from a broader economic perspective.
But I think in the last couple of quarters, the recovery trajectory in Nevada has definitely accelerated and separate and apart from the Medicaid supplemental program, which obviously is quite helpful in that market or that state. We’ve seen, I think, fundamental business metrics improve pretty dramatically in the last couple of quarters.
