Pito Chickering: Yeah. Good morning, guys. On behavioral, like I think for 2024 guidance, I think half of the revenue guidance is coming from pricing. Pricing for behavioral has been very robust the last few years. Can you talk about the sustainability of that strong pricing you’ve seen looking at the exit rate in fourth quarter? How we should think about a step down in 2024? And then any color on sort of what you’re seeing between the different payer mixes, Medicare rate increases versus Medicaid and Medicare, that’d be great?
Steve Filton: Sure, Pito. So again, I think, as we’ve commented, the strong behavioral pricing I think has really been driven in 2023 by two things. One is actual sort of softness in our residential and that’s where a lot of the child and adolescent businesses is. And so a higher weighting of acute patient days to residential patient days and that by definition sort of increases what we would describe as pricing the revenue per adjusted day. As we emerge from the disenrollment challenge, as we emerge from the handful of residential facilities that had particular regulatory challenges in 2023, I think, we’ll see residential growth starting to outpace acute growth and that will have a kind of muting effect on pricing. The other issue that we have talked about pretty consistently, I think, for the last 12 months or 18 months is, a pretty aggressive effort on our part to go back to payers, particularly in markets and in facilities where we are already capacity constrained and negotiate higher rates and that’s, I think, particularly managed Medicaid payers who have been giving us, I think, historically, less than adequate increases.
We’ve had a lot of success doing that, but to some degree, we’re starting to anniversary that impact. So, again, while we are certainly going to continue to strive for the maximum increases we can get from our payers, our general sense of our 2024 budget is that, pricing and acuity will decline a little bit on the behavioral side, but be offset by increased volumes.
Pito Chickering: Okay. Great. And then on acute margin guidance for 2024, it sounds like physician reimbursement is now just slightly over inflation, full-time labor is normal, contract labor is a $30 million, $40 million savings guiding to flat margins, despite revenues growing 5% to 6%. Are there any known headwinds for 2024 to offset all these tailwinds or is this simply just pure conservatism at this point?
Steve Filton: Yeah. Again, as I think I tried to frame it before, Pito, I think it is kind of a broad caution and conservatism that we’ve taken, but informed by the pressures of the last couple of years. And when we were sitting here in, a good example is the physician expense. When we were on this exact call a year ago, we were projecting a pretty big increase in physician expense, a $50 million, $60 million increase. It turned out to be twice that. So even when we’re aware of issues, et cetera, the last couple of years have created a little bit more volatility than we’re accustomed to. So I think we’re — we were trying to account for some of that in what I view as a fairly cautious approach to guidance.
Pito Chickering: So let me ask that differently, ignoring the $30 million, $40 million contract savings and assuming nothing normal labor, et cetera, et cetera. On a 5% to 6% revenue growth, what would be the normal margin expansion coming from that?
Steve Filton: Yeah. I think that’s a hard question to answer, Pito, because it’s sort of, how do you define normal? We’re in a high inflationary environment, et cetera. I’ll just repeat what I said before. I believe that our view is if we can achieve the revenue targets that are embedded in our guidance, we’d be hopeful to bring out more efficiencies and therefore higher margins from the business than are currently reflected in the guidance.
Pito Chickering: Great. Thanks so much.
Operator: Thank you. One moment for our next question. Our next question comes from Whit Mayo with Leerink Partners. Please go ahead.
Whit Mayo: Hey. Thanks. First, Steve, I just wanted to point out that you have also considerably exceeded those initial Medicaid supplemental payment disclosures in your 10-K every year, I can recall. So I just wanted to mention that for the record. But my question really on Medicaid is there’s been a theme for years now where many states have gotten workaround solutions to the IMD where Medicaid is now covering adults that actually have substance use disorders through 1115 waivers. I’m just wondering if there’s any evidence that you see that those policy actions are now manifesting into any volume growth for you?
Steve Filton: Yeah. I mean, there are a couple of individual facilities and markets that I think have been affected by IMD waivers. I would say that, broadly it has had probably not a material effect on this segment, but there are specific examples I could point to. But, yeah, no, I wouldn’t say it’s broadly a material impact.
Whit Mayo: Okay. And back to your comments on outpatient now elevating itself as a higher priority now that Medicare is reimbursing for IOP and Partial Hospitalization Programs. Just wondering if that opens up opportunities for you, if that’s what you’re referencing when you talk about outpatient for behavioral?
Steve Filton: Yeah. I mean, it really, I think, is the full continuum. We have always had what we call intensive outpatient programs in our behavioral facilities or Partial Hospitalization Programs, which are sort of a means of step down from the inpatient facility. But I think what we’re focusing now on, besides those programs, which we continue to maintain, is more sort of pure outpatient. In many cases, not necessarily even affiliated with an existing facility, et cetera, but standalone outpatient. And to your point, it’s the Medicare advantage, it’s the Medicare opportunity. But it’s also, again, we’re finding the need for behavioral care to be growing across all segments of the population and across all diagnoses, including addiction and others.
Whit Mayo: Yeah. Thanks.
Operator: Thank you. One moment for our next question. Our next question comes from Sarah James with Cantor Fitzgerald. Please go ahead.
Sarah James: Thank you. So earlier, your comments on pricing about being a little bit below the halfway point of the 5% to 6%, I’m assuming that was blended products. Could you speak to what you’re seeing on the commercial rate increase side, because some of your peers are talking about mid-single digits on that and seeing a little bit of traction of being able to work in the physician fees. So I’m wondering what that’s looking like for you guys on the acute side?
