Operator: Our next question comes from A.J. Rice of UBS.
A.J. Rice: Maybe two things. Just to put a finer point on your revenue per adjusted admission trend in acute you’re talking about MCO behavior. I think you also commented on volumes coming back tend to be a little lower acuity. Is there any way to parse that out? Do you think the underlying apples-to-apples pricing in acute care is still in that sort of 2% to 3% range. and how much are each of those being a drag. And then the flip side on the behavioral side, it looks like it’s more of a volume question. And you mentioned Medicaid redeterminations, but there’s been times when it’s been constrained somewhat by staffing challenges. And just maybe comment on the underlying demand. This is still there to the same degree has been historically on the behavioral side.
Steve Filton: Okay. Quite a bit in your question, A.J., I’ll try and cover it all. again, I think on the acute side, as you suggest, in our prepared comments, and I think we’ve talked about this in previous quarters, I think the volumes are particularly high in 2023 because we are experiencing, not just us, but the industry in general, some level of recapture of procedures that were postponed or deferred during the pandemic. And I think by their nature, those procedures tend to be the lower acuity, less intense procedures. Obviously, the emerging sorts of procedures that occurred during the pandemic, the heart attacks, the strokes, the accidents, trauma, those were attended to immediately but more elective, low-intensity stuff with the things that were deferred, including as — even as simply as visits to primary care physicians, et cetera.
And so as those began to occur kind of in their more normal trajectory, they sort of create a cascade of demand as well. So somebody who hasn’t seen their primary care doctor for a couple of years, now goes and now had his visit to the cardiologist or had routine colonoscopy or whatever it may be. And I think you’re seeing that. So as our volumes, I think, are elevated, our revenue per admission is somewhat more muted. I think over time, we would expect our volumes to moderate a little bit, but also our revenue per adjusted admission to come up. And again, I think we have a view that the long-term model in this business has not changed dramatically. I think we imagine that revenue growth in the acute business over time for a historically long time has been in that kind of mid-single-digit range, 5%, 6%, 7% and split pretty evenly between price and volume.
And I think as time passes, we’ll get closer and closer back to those historical norms. I think on the behavioral side, as you suggest, the sort of dynamic has been — kind of the flip side of that where pricing has been particularly strong. And again, that’s a little bit of a mix issue. We’ve talked about some weakness in the residential business. In a couple — a handful of facilities that are challenged with some very specific issues, but also with Medicaid redeterminations I mentioned earlier. But again, I think over time, those at least will see an increase in residential business. That will naturally bring down pricing, but will also increase volumes. And the staffing issue just is a continuing issue we remain constrained in some markets, in some facilities by a lack of staff that could be nurses.
It could be therapists. It could be mental health technicians who are nonprofessionals. Generally, I think we continue to improve our recruitment and our retention metrics. And I think those metrics as they continue to get better, will drive greater volumes.
Operator: Our next question comes from Jamie Perse of Goldman Sachs.
Jamie Perse: First on physician subsidies, can you just give us — first, can you confirm whether that was in line with the expectations this quarter? And then secondly, just what are you seeing in terms of the market dynamics? Are you seeing the market start to settle? Or do you see more disruption out there? And any comments on your prior comments from 2Q about that kind of flattening out into next year?
Steve Filton: Yes. So Jamie, the comment that we made in Q2 was that we had originally anticipated and what we included in our 2023 original guidance was that physician expense would be $55 million to $60 million higher in 2023 than it was in 2022. As it turned out, I think this has been a bigger issue than we anticipated, and I think virtually all of our peers anticipated around the country. And what we said is that we anticipated that the second half of the year would also reflect like another $55 million or $60 million increase over the second half of 2022. And we are tracking very closely to those numbers in the third quarter. So in other words, I don’t think we’ve had a material sequential increase in our pro fees or in our physician expenses.
Our expectation, what we said at the time was we thought — not necessarily that physician expenses would absolutely flatten out in 2024. But certainly, that the rate of increase, which is running in the 35%, 40% range this year would moderate significantly. And while I think we were not prepared to suggest exactly what it would be right now, I think, something in the 10% to 15% range of increase would be sort of more of what we would expect. And it’s really a function of — the industry, I think, has largely sort of had to reset itself since the No Surprise Billing Act passed and the impact of that on the profitability of these physician billing businesses or physician services, the impact of the lower billings paves its way through the system.
So what we’re finding is we’re replacing those contracts that are most expensive. We’re putting them out to bid. We’re in some cases, in-sourcing the service. We believe that we’ll be able to — through those activities drive greater efficiencies, and that’s why we have this general view that 2024 will not be as volatile and will not have as many material increases as we saw in 2023. But certainly, as we get closer to our 2024 guidance, we’ll have a better sense of that, and we’ll give more detail. But again, at the moment, we’re tracking for the back half of the year, sort of exactly where we said we’d be last quarter.
Jamie Perse: Okay. Perfect. That’s helpful. And then secondly, just on 2024. Can you update us on progress with the three de novo hospitals, in Nevada, Florida and D.C. Specifically, how should we think about the EBITDA drag as some of those preopening expenses ramp up next year?
