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Community Health Systems Inc (CYH 2.88%)
Q1Â 2020 Earnings Call
Apr 29, 2020, 11:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Ladies and gentlemen, thank you for standing by, and welcome to Community Health Systems' First Quarter 2020 Earnings Conference Call. [Operator Instructions]
I would now like to hand the conference over to your speaker today, Mr. Ross Comeaux, Vice President of Investor Relations. Thank you. Please go ahead.
Ross W. Comeaux -- Vice President of Investor Relations
Thank you, Mike. Good morning, and welcome to Community Health Systems' first quarter conference Call. Before we begin the call, I'd like to read the following disclosure statement. This conference call may contain certain forward-looking statements, including all statements that do not relate solely to historical or current facts. These forward-looking statements are subject to a number of known and unknown risks, which are described in headings such as Risk Factors in our annual report on Form 10-K and other reports filed with or furnished to the Securities and Exchange Commission. As a consequence, actual results may differ significantly from those expressed in any forward-looking statements in today's discussion. We do not intend to update any of those forward-looking statements.
Yesterday afternoon, we issued a press release with our financial statements and definitions and calculations of adjusted EBITDA and adjusted EPS. For those of you listening to the live broadcast of this conference call, a supplemental slide presentation has been posted to our website. We will refer to those slides during this earnings call. All calculations we will discuss also exclude gain or loss from early extinguishment of debt, impairment expense as well as gains or losses on the sale of businesses; expenses from government and other legal settlements and related costs, expenses from settlement and legal expenses related to cases covered by the CVR and change in tax valuation allowance.
With that said, I'd like to turn the call over to Wayne Smith, Chairman and Chief Executive Officer. Mr. Smith?
Wayne T. Smith -- Chairman of the Board and Chief Executive Officer
Thank you, Ross. Good morning, and welcome to our first quarter conference call. Joining me today are Dr. Lynn Simon, President of Clinical Operations and Chief Medical Officer; Tim Hingtgen, our President and Chief Operating Officer; Kevin Stockton, our Regional President for our Western region; and Kevin Hammons, Executive Vice President and Chief Financial Officer. The remarkable events of the past several weeks have deeply affected all of us, significantly altering our lives, jobs, businesses and the economy. We've made necessary sacrifices, and that's especially true for essential workers across many industries.
On the front lines, physicians, nurses, other caretakers and support personnel have further earned our tremendous and appreciation. I am incredibly proud of the entire healthcare community and grateful to everyone across the CHS organization for their professionalism and compassion, and our work to confront the COVID-19 pandemic. Our hospital teams have been organized, resourceful, and most importantly, ready and available for every patient who needs our support, and they still are. Our regional operational leaders, hospital executives and corporate support teams have worked around the clock, leveraging our resources into a comprehensive, coordinated, rapid and agile response. Our goals have been very clear from the beginning, safety first. That's the mantra across our entire company, and there's been there's never been a time when it matters more. We have focused on the safety of every patient, whether positive for COVID-19 or not.
We have worked to protect our medical teams and healthcare workers from exposure by implementing screening and testing capabilities, ensuring adequate personal protective equipment despite sometimes, challenged supply availability. We have worked to flatten the curve in our communities by partnering with local officials and health departments and by doing our part to help educate the public with important information. Next, we have focused on operational readiness at all times. And frankly, this has not always been easy in such a dynamic crisis. The complex challenges also brought forth the best in our problem-solving abilities. And so far, we've been able to manage through every difficult issue.
For CHS, operational readiness requires two tracks. First was the necessary preparedness for the care of the COVID-19 patients and potential surge conditions in the communities we serve. The second track, simultaneously, has teams working to ensure we would be ready to recapture deferred appointments of procedures and surgeries as soon as it's safe to do so. In a few minutes, Lynn and Tim will provide you with more details regarding our planning and our ongoing operational response. Our third goal is to rapidly adapt to new conditions. Some of the changes we've implemented over the past two months will make us stronger. We've learned ways to improve processes, strengthened our supply chain, deepened important relationships in our communities. And in some cases, we've changed the way we interact with our patients, including focused work to accelerate telehealth capabilities across our nearly 3,000 physician- and mid-level providers. Finally, we have worked to protect our business and competitive position.
Incredible efforts have been made to ensure CHS will emerge from the public health crisis with every possible advantage. These activities include: working to preserve as many jobs as possible and supporting our valued employees; ensuring adequate liquidity and cash flow for operations; advocating for legislative actions, including stimulus and relief packages to help America's hospitals; and collaborating with vendors, payers and other partners in ways that support our business going forward.
One more thing before I move on to the quarter's results. Several years back, the CHS Cares Funds was established to help employees suffering hardships, due to unforeseen circumstances, including natural disasters like tornadoes and hurricanes or major medical crisis. Now we expanded our Cares Fund to help those affected by COVID-19 crisis. Our corporate officers, regional presidents, members of our Board, have taken voluntary salary reductions. These efforts, along with other charitable donations from members of our team and even some of our partners, have provided over $3 million of additional funding to our CHS Care Funds. I want to thank everyone who has contributed to this worthy cause. And the fund is serving its intended purpose with a number of employees across our affiliated hospitals already applying for assistance.
Now let me talk a minute about the quarter, and Kevin will go into more detail shortly. As you know, CHS made considerable progress in 2019, including strong performance across our net revenue growth initiatives, as well as the company's strategic margin improvement program. And all that was driving very good adjusted EBITDA growth in 2020. If you will recall, despite a number of divestitures, our adjusted EBITDA on a consolidated basis, increased 4% during the third quarter of 2019, and increased 7% during the fourth quarter of 2019.
Looking at the first two months of 2020 through the end of February. Our adjusted EBITDA had increased 12%. The company was certainly off to its strong start in 2020 prior to the impact of COVID-19. As we neared the middle of March, as states began implementing shelter-in-place orders and hospitals were required to suspend elective surgeries and certain other services, our volumes were immediately and negatively impacted. That trend continued throughout April. As a result, the COVID-19 pandemic impacted our financial performance during the first quarter, and we expect the second quarter impact to be even more challenging.
While these near-term pressures continue, and we cannot fully predict that what will happen next or how long recovery will take, we remain organized about recapturing our business and optimistic about the future of the hospital industry, our company and the country. In terms of the Cares Act, we appreciate support for the hospital industry. The initial grant will help offset a portion of lost revenue and increased expenses resulting from COVID-19 pandemic. We are pleased to be working with other business leaders across the country as part of the President Trump's Great American Economic Revival Group, which is tasked with restoring economic opportunity for U.S. citizens and other nation and our nation as we begin to overcome the public health crisis. As it relates to the company's liquidity, we pushed out our debt maturities during the fourth quarter of 2019 and the first quarter of 2020, strengthening our liquidity. The Cares Act also will help improve our cash position. And it's worth noting that with the divestitures that we have communicated today, the closing of these transactions will complete our announced divestiture program, and generate additional cash proceeds.
Looking forward, is about what to expect in the weeks ahead, including the pace at which healthcare utilization returns. Potential changes to the company's payer mix, which could be impacted by unemployment levels, and the loss of employee sponsored health insurance, are difficult to predict. And as shelter-in-place orders are lifted, we will closely monitor to see if the COVID-19 curve continues to flatten in our communities. What we do know is that CHS is a strong and resilient organization that has always managed to solve problems, adapt and change when necessary and to focus our teams on the important purpose of taking care of people, our patients and each other, whatever the circumstances. The weeks ahead will be no different and a number of our markets, who are beginning to reopen services, and our teams are doing that in a careful-phased approach so that we can remain ready for whatever comes next. We will continue to do our best for everyone who counts on us.
So now, I'd like to turn the call over to Dr. Lynn Simon, who has helped organize and lead key aspects of our COVID-19 response. Lynn?
Lynn T. Simon -- President of Clinical Operations and Chief Medical Officer
Thank you, Wayne. Our company has a long and successful history of managing through a variety of natural disasters and other healthcare emergencies. For COVID-19, although quite different than what we have managed in the past due to the duration and the national scope of this pandemic, we're able to utilize our same incident command infrastructure, which enabled us to fully leverage the depth of our company's resources and create a high level of coordination across the organization. Let me start off by stating that each of our markets have actively prepared to provide care for COVID-19 patients and to anticipate the potential for surge conditions. Every hospital developed a comprehensive plan that included various staffing scenarios, facility surge capacity options, processes for COVID testing and implemented enhanced infection control protocols. In order to monitor the impact of COVID-19 in each of our markets, we developed a proprietary COVID-19 tracking dashboard that provides real-time visibility into the number of confirmed or suspected COVID-19 cases within each of our facilities.
This level of visibility allowed our entire organization to understand each hospital's unique circumstances, including available bed capacity to accept additional patients, as well as other important factors such as ventilator utilization, staffing and supply needs. To date, we have tested approximately 25,000 patients for a potential COVID-19 diagnosis, and we have cared for over 2,000 confirmed COVID-19 patients in our hospitals, EDs and outpatient care settings. Utilizing the expertise of cross-functional multidisciplinary teams have CHS subject matter experts, such as infection prevention, quality, nursing services, supply chain and human resources, we are able to quickly assimilate and respond to a variety of different situations, including various regulatory changes, the status of critical supplies, adapting to evolving clinical guidelines and multiple other factors. We have a daily cadence of conference call, among our leadership teams, and provide very prioritized communications to our hospital leaders. This coordinated framework provides our markets with any support that might be needed and allows us to obtain continuous feedback. This structure and process has worked extremely well in supporting our hospitals through their individual experience with this pandemic, which obviously varied by hospital and by region. I'm proud to say that throughout this challenging time, we have upheld our focus on safety and quality for our patients, for our staff, our physicians and our communities.
At this point, we are sensing that we may have reached the peak of COVID-19 cases in many of our markets, and a number of our hospitals are shifting additional attention to reopening for business, as Tim will now describe. Tim?
Tim Hingtgen -- President and Chief Operating Officer
Thank you, Lynn. First, I'd like to provide you with an overall status update on the impact of COVID-19 in our volumes. Obviously, a number of nontime-sensitive medical procedures that were originally scheduled for March and April were canceled or deferred, reducing our run rate on admissions, surgeries and ER visits. Over the past few weeks, this lower run rate of volumes has now stabilized, and we expect that in May, we will see business recovery begin to ramp up.
Now we are intently focused on reopening and restoring our path to sustain market development and growth. While we plan to support our hospitals with resources and best practices through their reopening phase, each market's state and local regulations are unique, which warrants different approaches for reopening business after shelter-in-place orders end. In more than half of the 17 states in which we operate, these orders have already been lifted or modified, which includes four of our five highest revenue-generating states, Indiana, Texas, Alabama and Tennessee. This has enabled us to resume some level of elective procedures this week, especially for patients whose appointments and more critical services were postponed. Affiliated hospitals in other states are in an active planning mode to resume business, with all the two of our states scheduled to resume some elective procedures beginning next week. We do expect that every market will be in a position to restore services throughout the month of May. Of course, this assumes that COVID-19 cases continue to decline in these states.
The COVID response and management team that Lynn described earlier will continue to support all markets into the foreseeable future, so that we remain in a constant state of readiness for fluctuations in COVID cases, including the possibility of more cases after shelter-in-place orders are lifted. But at the same time, our operational teams remain ready to focus on ramping up the business as effectively as possible. Since the onset of the pandemic, we have tracked canceled appointments and procedures so we can implement rebooking plans, as soon as we are clear to reopen. We are working closely with physicians in every market to ensure coordinated, prioritized access to our facilities based on patient needs as well as supply availability. And we are continuing to plan for various scenarios moving forward with the goal of recapturing deferred procedures, and also bring new patients into our healthcare systems.
It is worth noting that our past investments into strategic growth initiatives have served us extremely well over the past several weeks. For a number of quarters, we've talked a lot about our proprietary transfer center, which we built out across much of the portfolio over the past two years. We've enabled to leverage the transfer center during the pandemic in ways that clearly benefit our hospitals and patients during these unique circumstances. And the focus on organizational enhancements across our supply chain provided exceptional advantages during a period when supplies were sometimes difficult to source. The scale of our organization helped us with bulk buying, but more importantly, we were able to strategically channel supply and equipment inventory across the company's affiliated hospitals based on each market's unique needs.
We have previously made investments into telehealth. And like other systems, we saw a slow consumer adoption. Now in a matter of just weeks, the vast majority of affiliated providers are on the telehealth platform, and we are seeing both consumer and provider adoption increase, largely out of necessity. Because of our ability to leverage our prior investments in work and successfully scale it rapidly, we are now hosting more than 20,000 telehealth visits per week, across our affiliated clinics. This compares to less than 100 per month before the pandemic. This exponential growth in telehealth visits has been astounding, and we plan to further develop this important offering as we expect that consumers will continue to want the benefit, convenience and value telehealth with the providers going forward.
Because managing through all of the phases of the COVID-19 pandemic has been such an extraordinary experience, we felt it would be interesting for you to hear directly from one of our regional presidents about our thoughtful phased and coordinated efforts to reopen services. For that, I'd like to turn the call over to Kevin Stockton. Kevin is the President of our Western region, which includes our operations in Arizona, including our Tucson market, Alaska and New Mexico. Kevin?
Kevin Stockton -- Regional President for Western region
Thank you, Tim, and hello, everyone. I'm pleased to be with you today to talk through some of our planning as we reopen our facilities to additional healthcare services. These are strategies we are leveraging in not only the western region, but across other CHS markets since this is a scalable model. We developed this plan to be mindful of our safety imperative and the regulations in place in each specific market.
First is early market preparedness. Our preparation efforts, which started soon after COVID-19 impacted our communities, have been vital in identifying and tracking delayed healthcare opportunities, while also maintaining a focus on current and the potential of our future business through the addition of telehealth and digital care options. These strategies allowed important touch points with our patients who are required to delay care and kept them engaged and readily available for rescheduling. In addition, our adoption of traditional and new care options will allow patients to conveniently access services in our health systems, where they can be thoughtfully navigated for additional healthcare needs. These efforts will facilitate the strongest rebound of elective volumes possible as COVID-19 restrictions are loosen and our markets reopen.
Secondly, we are enhancing safety protocols for both patients and staff. This includes strategies for conservation of personal protective equipment, adherence to lab testing guidelines and careful COVID-19 screening procedures. Our work is very centered on keeping patients safe, communicating about how we are doing that and creating the best possible patient experiences under these new operating conditions. To that end, we have created new processes for elective patient testing, redesigned waiting in care areas to ensure social distancing, adopted universal masking protocols and utilize separate care locations, where available, to provide safety and security. We believe that consumer confidence will build momentum during this reopening phase, and we'll also instill trust in our systems far into the future.
Third is close collaboration with physicians and medical staff leadership. This enables a coordinated return to elective business and maintains compliance with the federal, state and local requirements. We have closely partnered with our providers to redesign traditional block scheduling programs and revised surgical scheduling guidelines with expanded hours to ensure that delayed case volume can be accommodated, all while continuing to manage our ongoing business activities.
Finally, we are optimizing our operations as well as patient flow and department throughput to help us emerge from the COVID-19 pandemic even stronger than before. Activating our staff and facilities for elective services will be a measured approach. We are taking steps to reduce barriers in adopting technology and processes that will ultimately make us stronger in our care delivery. This is a valuable opportunity to identify areas where we can perform even better and make necessary changes for a more efficient and patient-focused healthcare delivery system moving forward. Because of all of our planning and now the execution of our reopening plans, I am confident that we are in the best position possible to successfully reopen for business and operate effectively in a post-COVID healthcare environment. Tim?
Tim Hingtgen -- President and Chief Operating Officer
Thank you, Kevin. As Kevin mentioned, we have been focused on both adaptability and execution. And while the timing and pace at which healthcare demand will return is difficult to forecast today, we are encouraged by the early reports coming out of the markets that have already begun their reopening phase. We believe that we are well-positioned to meet the current and future healthcare needs of our communities, due in large part because of our focus on the strategic advancement of key service lines, with capital investments and medical staff recruitment as well as access point development prior to the COVID-19 pandemic.
Now turning to the cost management side. As we have shared on previous earnings calls, our management team formalized and began executing upon a strategic margin improvement program back in the third quarter of 2019. As a reminder, the plan included a detailed analysis of corporate, shared services and hospital synergies. We have continued to deploy our supply chain and vendor spend reduction initiatives as well as thoughtfully reorganize certain nonclinical areas, implement technology-led process improvements and implement other cost reduction efforts systemwide. The progress from these programs was evident in our results through the end of February, and we are continuing to execute the strategic margin improvement plan as we move forward. As we have mentioned on this call, there are a number of variables that could impact the timing and extent to which we regain our growth momentum. We are continuously analyzing and monitoring a number of scenarios, and we are confident in our ability to demonstrate agility as we manage through this unprecedented operating environment.
And now, I will turn the call over to Kevin Hammons.
Kevin Hammons -- Executive Vice President and Chief Financial Officer
Thank you, Tim, and good morning, everyone. Due to the unusual circumstances caused by COVID-19 toward the end of the first quarter, I will not cover all of our typical financial metrics today. Instead, I would point you to the 8-K in our slide deck for additional details. When looking at the first quarter, I believe it is important to highlight the trajectory we were on prior to the impact of COVID-19. On a year-over-year basis through February, our net operating revenues had increased approximately 3%, our adjusted EBITDA had increased 12%, and our adjusted EBITDA margins had expanded 200 basis points. During the first two months of the quarter, we continued to see success from our strategic margin improvement program that had begun in the second half of 2019. As a percent of our consolidated net operating revenues, our salaries and benefits decreased 20 basis points, supplies decreased 150 basis points and other operating expenses decreased 50 basis points. As a result, we were off to a strong start for the quarter. We saw continued momentum building in the beginning of March. And due to a favorable March calendar, we expected to deliver continued improvement and growth year-over-year for the month of March.
Beginning in the middle of March, we experienced rapid declines in volumes due to the COVID-19 pandemic, which we have highlighted throughout today's call. So before moving on to additional details on the first quarter, I wanted to provide an update regarding our volumes during the month of April, which has been impacted in a similar fashion compared to other national healthcare systems and the external hospitals' survey data. Looking at the month of April on a year-over-year and same-store basis. The company's inpatient admissions are down approximately 35%. Adjusted admissions are down approximately 45%, surgery is down approximately 70% and ER visits, down approximately 45%. Obviously, our second quarter will be materially impacted by the COVID-19 pandemic and the uncertainties around the timing of our recovery and other factors as we have discussed. With that, we withdrew our 2020 financial guidance.
And now, I would like to walk through some additional details from the first quarter. During the first quarter, net operating revenue came in at $3.025 billion, down 3.5% from the prior year on a same-store basis, while adjusted EBITDA was $309 million, down 21% on a consolidated basis. Switching to cash flow. Our cash flows provided by operations were $57 million for the first quarter of 2020. This compares to cash flows from operations of $133 million during the first quarter of 2019. In terms of the year-over-year decrease, there are two items worth noting versus the prior quarter. We saw higher interest payments in the first quarter of 2020 of approximately $75 million, in part due to timing of payments, and we paid into escrow $53 million for the settlement of a legal claim that had been accrued for in the fourth quarter of 2020.
Turning to capex. Our capex for the first quarter of 2020 was $99 million or 3.3% of net revenue compared to $120 million $121 million or 3.6% of net revenue in the prior year. It's worth noting that a higher percentage of our planned capex for 2020 was weighted to the middle and back-end of the year. As we manage through these unusual circumstances, we have the ability to reduce certain nonurgent projects. However, we remain committed to investing capital toward high-growth opportunities across our markets to be positioned for growth in the future. As it relates to liquidity, at the end of the first quarter, the company had $246 million of cash on the balance sheet and $239 million of additional borrowing capacity under its ABL. In terms of the Cares Act, in April, we received approximately $245 million from the first $50 billion allocated by the Public Health and Social Services Emergency Fund. And we received approximately $1.2 billion in Medicare accelerated payments that help support our near-term liquidity.
Our expected 2020 divestiture proceeds will also augment our liquidity. We expect currently announced divestitures to provide approximately $400 million of additional cash. While we continue to receive inbound interest and discuss potential transactions, the divestitures announced to date will complete our formalized divestiture plan, which we started back in 2017. We are very pleased to complete this divestiture program, and we look forward to driving growth from this strengthened portfolio as our markets begin to reopen. In terms of our capital structure. We executed transactions late in 2019 and early 2020, which strengthened our liquidity, improve the company's maturity profile and removed our first lien financial covenant. Most recently, in January, we extended $1 billion of our 2021 notes and $425 million of our 2023 notes to 2025. At the end of the first quarter, we had approximately $13.5 billion of long-term debt, and the company has no material near-term maturities with its next maturity of $231 million, not due until February of 2022. In summary, we are confident that with our current cash on hand, proceeds from the signed definitive agreements, availability under our ABL and the possibility of additional provider relief grants under the past Cares Act and Cares Act 3.5, we have ample liquidity to manage through this crisis, return to normal operations and be well-positioned for growth moving forward.
Wayne, I'll return the call back to you.
Wayne T. Smith -- Chairman of the Board and Chief Executive Officer
Thank you, Kevin. And at this point, operator, we're ready to open up for questions. [Operator Instructions] But as always, we're available to talk to you any time you can reach us at area code (615) 465-7000.
Questions and Answers:
Operator
[Operator Instructions] Your first question comes from Josh Raskin from Nephron Research.
Josh Raskin -- Nephron Research -- Analyst
Hi, thanks, Good morning. And I'll sort of share my thanks for all the work that the folks at Community and other hospitals are doing, especially the clinical staff. My question talks a little bit more about is, sort of emerging. I feel like every week, it's different. Just this process of the markets reopening, and you talked about some of the markets that are opening first. How do you sort of think about capacity and what that looks like? Are you able to bring sort of full capacity online or is the safety protocols, sort of inhibit a little bit of that? What percentage of the electives that you guys have seen deferred or rescheduled? And then, how do you prioritize the actual procedures? What goes first? And what types of patients are you seeing early?
Wayne T. Smith -- Chairman of the Board and Chief Executive Officer
So Josh, this is Wayne. I think you heard Kevin, give a little bit of a report in terms of how our process is working. So I think we're very well organized in terms of how we stage our capacity issues, just as we did in terms of being able to stage our capacity issue of the COVID-19 patients. So I feel pretty comfortable where we are. And I also feel pretty comfortable that we have a pretty good read on this because of the work we've done around our telehealth program, which we're having a huge number of calls every week on that. But let me turn it to Lynn to kind of talk about the clinical issues.
Lynn T. Simon -- President of Clinical Operations and Chief Medical Officer
Thanks, Wayne. So I think it depends really market by market and their service line focus areas. But many are focusing on a lot of high throughput, outpatient procedures. So again, patients that can quickly have their procedure and be transitioned home, without necessarily taking up a hospital bed or ICU bed. And then, some of the limited by capacity, by state regulations, etc.
Wayne T. Smith -- Chairman of the Board and Chief Executive Officer
So the only other thing I would add, Josh, is that we are encouraged by what we see in the first week in terms of recovery.
Operator
Your next question comes from Frank Morgan from RBC Capital Markets.
Frank Morgan -- RBC Capital Markets -- Analyst
Good morning. I appreciate the color there in that, Lynn, on that subject. I'm sure you've talked to a lot of physicians about this, but are you getting any feedback from that they're giving you about client or patients' receptiveness to actually coming back in from procedures, for an inpatient basis? I understand outpatients should come back fairly quickly but just any color around that? And then maybe for Kevin, just how do you want to do the accounting treatment for the Cares Act payment?
Lynn T. Simon -- President of Clinical Operations and Chief Medical Officer
Yes. Obviously, the docs are anxious to get back to work. And what we're seeing is as long as we can reassure that we have the protocols in place, that the patients can be seen, they're screened, and they're taken care of safely. And then also, setting up zones within the hospital. So they know that if they're coming in for a non-COVID procedure, that they're in an area taken care of by staff that are dedicated to those areas as well. So again, trying to set up separate areas within the facility for COVID care patients and non-COVID care patients.
Tim Hingtgen -- President and Chief Operating Officer
And I'll add a few things to that, Frank. This is Tim. In terms of the by- market approach that the framework that Kevin Stockton referenced in the call today certainly, as Lynn said, we want to manage through some state-by-state guidelines and requirements. But the one thing we've been very focused on is understanding the consumer behavior or concern element of this. First of all, wanting to do the right thing to provide care very safely, but also understanding that there are certain visible things we could do to reassure patients that we are all about their safety, if the country continues to work through the pandemic.
We're maintaining a lot of the same visitor restrictions. But as patients do enter our healthcare systems, instead of just screeners, we also are going to have a certain level of, I'll call it, concierge support to help guide them through anything they do within our hospitals. And then, the other thing that we've focused on is where we have outpatient access points that could serve in purposes or in ways that our inpatient care facilities have served in the past, maybe directing patients more in that way so that they're not exposed to the full hospital environment and get increased utilization in our outpatient access points as we reopen.
Kevin Hammons -- Executive Vice President and Chief Financial Officer
And then, Frank, on the accounting question. The accelerated Medicare payments will just be a balance sheet item. There's no income statement impact of that, but it is cash flow benefit. In terms of the $245 million grant, our expectation right now is that, that is the second quarter benefit to revenue, which will flow through to EBITDA. I know the accounting industry is weighing in with the SEC on that and final word hasn't come out, but that is everyone's current thinking. Then the sequestration relief is kind of a prospective P&L benefit, just an increase in reimbursement on the Medicare claims. And the payroll tax deferral is also just a balance sheet cash flow item.
Operator
Your next question comes from A.J. Rice from Credit Suisse.
A.J. Rice -- Credit Suisse -- Analyst
Hi, everybody I'm glad to hear everyone's doing well. Just maybe to focus in on the labor side a little bit. To what extent in those last couple of weeks of March, were you able to flex labor? And was there more has there been more of an opportunity early in the second quarter to do it? And then when you think about the procedures coming back, sometimes when you have excess procedures, you end up having to pay a lot of overtime or other stuff. Or do you have enough flex in your workforce so that you can absorb these procedures, and they'll come on to you and come back to you at a normalized margin? Or should we think about some need to pay overtime to get those procedures work through?
Kevin Hammons -- Executive Vice President and Chief Financial Officer
Sure. Let me start off here, A.J. So at the end of March, certainly, the pandemic hit very late in the quarter, as you're all aware, which gave us less opportunity to deal with expenses from a timely basis. We did have some reduction in premium labor costs, callback, overtime rates and that sort of thing as volumes started to fall off. Going forward into April, we have not had any large-scale layoffs or furloughs. It's been more of a market-by-market decision. And we've managed through those costs, primarily using reduced work schedules, job sharing, and those sort of levers that we've pulled so that we could manage through kind of the labor costs as volumes continue to decline through April.
Tim Hingtgen -- President and Chief Operating Officer
And A.J., this is Tim. I will just add to Kevin's comments. We were protective of our on staff throughout the crisis for the reasons Kevin denoted. We wanted to be ready on the other side of this to reactivate our reopening plans and having an engaged workforce is such, obviously, a key to that. We kind of look at this in terms of how do you do this. In some markets, there may be a need to go to extended hours, but we've cautioned all of our operators to really be nimble, be flexible. Depending on what the physicians, the surgeons and the patients' desire, we'll be ready to take the business and open up on extended hours and on weekends. But we kind of deployed the dial versus the switch approach here. Dialing back and forth, depending on what's happening in each market from demand, but also from a resurgence of COVID-19 cases, should that happen, if we don't reopen up these communities safely. But at the end of the day, probably getting back to some of the regular schedules we saw where we've always had a certain amount of overtime, weekend scheduling, during peak demand seasons like the fourth quarter, we've always been able to manage that influx of incremental business and drive really sufficient margin on it.
Operator
Your next question comes from Andrew Mok from Barclays.
Andrew Mok -- Barclays -- Analyst
Hi, good morning, and Thanks to everyone in the organization for your collective effort during the crisis. On to my question. Now that the formal divestiture program is completed, how should we think about ongoing portfolio rationalization? You mentioned in your prepared remarks that you're still generating inbound interest. Will divestiture still be an area of focus, just not in a formalized plan? Any comments there would be helpful.
Kevin Hammons -- Executive Vice President and Chief Financial Officer
I would answer that by saying we will continue to take inbound interest and consider opportunities, if they are strategic in nature or the multiple that's being offered is just something that would be in our best interest to consider, but divestitures will not be a primary focus as we go forward. I think our portfolio, as we currently have, is one that we believe is very strong, and that we can grow and has a good trajectory going forward.
Wayne T. Smith -- Chairman of the Board and Chief Executive Officer
Absolutely, Kevin. Let me just add to that a little bit. I just want to acknowledge all the people that have worked really hard on divestitures, while we're trying to grow the business and trying to deal with the COVID-19. Unbelievable work. And particularly, if you look at the rate that we've gotten 10 times or 11 times in terms of multiples, and we've been able to get through this unbelievably quick, even though it's taken a couple of years, but it's unbelievably quick in terms of all this. So I just want to thank everyone for that. But it is a-it was a formidable job, but the execution was excellent. So we're on the right track now. And as Kevin said, we've got a great portfolio with opportunity for substantial growth going forward.
Operator
Your next question comes from Brian Tanquilit from Jefferies.
Brian Tanquilit -- Jefferies -- Analyst
Hey, morning, guys, and thanks for taking the question. I guess, the question I have, Wayne, as we think about your comment about how you guys are trying to maintain your competitive position. The smaller guys or smaller operators in your markets are obviously struggling or were already struggling before COVID. And with the government stepping in, how do you view that balance of government relief coming in? Is that sufficient? And on the other side of that, the competitive dynamic where you are gaining share potentially as your smaller or inferior competitors struggle.
Wayne T. Smith -- Chairman of the Board and Chief Executive Officer
Yes. Let me just start with the government. How can you not be happy if you get $245 million from the government, $1.2 billion in terms of accelerated payments? I would say, though, that all of us in the industry have I don't want to call it absolute concern, but some issues around the calculations on how this is being distributed, and we're working hard to try to correct those issues. We think maybe the first $30 billion, that it could have been distributed a little different, but that's part of the first $50 billion. We still have $50 billion to go in that group, and then we've got the $75 billion coming. So we're very optimistic about what we will what will happen in the next distributions out of all these kind of going forward.
So I'm real comfortable with that. Look, the competitive advantage that we think we have in the markets now are not only just are we well-positioned, but as we've talked about for the last 2, three years, we've been building and enhancing our markets and trying to figure out ways that we can really gain market share. A good example of this, I think, is our telemedicine experience that we just had here, where we're now having 20,000 calls a month a week a month.
Kevin Hammons -- Executive Vice President and Chief Financial Officer
A week.
Wayne T. Smith -- Chairman of the Board and Chief Executive Officer
A week. I'm sorry. I get excited that it's hard to imagine, it's a week. I mean, 20,000 calls a week. And look, what that does is that's a we talk about digital marketing, all those kinds of thing. That's a real connection to patient. It's an opportunity for our doctors to say, somebody asked a question earlier about apprehension in terms of returning to hospital inpatient. It's a real for our doctors to say, "Look, we've got this. We're going to take care of you. Hospital is safe. Employees are working hard. They're safe, and we're going to do a good job for you." I think that those components as well as all the work we've done in terms of number of physicians, locations, freestanding EDs, all of the above that we've done in our markets, I think, really positions us well competitively.
Operator
Your next question comes from the line of Ralph Giacobbe from Citi.
Ralph Giacobbe -- Citi -- Analyst
Thanks. Good morning, I was hoping you could provide or give some idea of differences in underlying volume trends across your markets. Is there a significant variance around that 35%? And anything you can determine around sort of the behaviors or characteristics between the markets? And then separately, if you just give us an idea of how exchange rates compare to commercial rates? And any commentary just around the economic implications in your markets would be helpful as well.
Wayne T. Smith -- Chairman of the Board and Chief Executive Officer
So normally, we don't comment on specific markets when it's all said and done. But in this instance, what you see is that the number of states are opening up at different times. So you are having different rates of recovery because of the fact that you've got I think we have nine markets that are open or will be opened by the end of the week. And so you're going to see a different ratio in terms of how this is working. I don't know, Kevin or Tim, you want to add?
Kevin Hammons -- Executive Vice President and Chief Financial Officer
I might add a little bit to that. In terms of across the portfolio, have we seen differences? Not broad differences, let me answer it that way. But what it did do is it certainly highlighted where we're really, really strong on partnering with doctors, on who's choosing us for elective care. Some of those stronger markets did perhaps have a little bit more of a volume degradation because of the high elective business that we pulled through those markets. But for the most part, if you look at it by a region or a market, a network perspective, it all balanced out pretty consistently. And I think that plays out with what you're hearing in public hospital surveys in terms of volume hits, and from what's been reported publicly, so far, by our peers, really, really consistent bands.
Wayne T. Smith -- Chairman of the Board and Chief Executive Officer
Yes. The only other thing I would add to it, that the medical staffs and the communities, this is across the country, not just our hospitals, are all eager to get started and are ready to go back to work. And they're going to make sure that they do that we do everything appropriately and they do everything appropriately in terms of those patients. So that's a very positive thing in terms of restart.
Kevin, you've got something?
Kevin Hammons -- Executive Vice President and Chief Financial Officer
I think the one thing in terms of the question regarding the margin or the payer mix and those types of things. Obviously, we're going to be watchful of any changes in employment trends in our markets. So we certainly have a keen eye on that as well.
Wayne T. Smith -- Chairman of the Board and Chief Executive Officer
So managed care companies have so much money. We're hopeful for rate increase here every now and then.
Operator
Your next question comes from Gary [Phonetic] Taylor from JPMorgan.
Gary Taylor -- JPMorgan -- Analyst
Good morning. I'll be Kerry today. Two quick questions, if I could, actually. The first is on the seven definitive agreements. It sounds like none of those have closed yet. And given the pandemic, I guess, if there was ever an opportunity for someone to call a mac in a contract, this might represent it. So just confidence level that those will actually close?
And then the second one, I mean, you guys sound a little more bullish about sort of the rate of reopening and recovery than some peers. And probably, every day that goes by is helpful, in terms of gaining that confidence. But J&J, I think, it kind of set sort of market expectations for even the third quarter still being down 20% to 50%, and the fourth quarter being up 0% to 15%. So just wondering, does that sound too bearish to you? Too bullish? If you just kind of comment on sort of what's out there in terms of some people's expectations.
Kevin Hammons -- Executive Vice President and Chief Financial Officer
So let me start, Gary, with the question on the divestitures. So as you've seen, a number of these deals, we had one signed last week, two signed this week. We've been working closely with the buyers. Much of these negotiations have gone on during this pandemic period. Everyone is well aware of kind of the current situations with those markets, and we are very comfortable that those are going to be completed. And I think we did really exceptional work kind of getting through those deals, maintaining those multiples of in that 10 times to 11 times EBITDA. And we're again, we're confident that just all that's really left is some final regulatory approvals to get those across the finish line, but the deals are signed.
Wayne T. Smith -- Chairman of the Board and Chief Executive Officer
So Gary, in terms of trying to predict how rapid or how quickly all this will recover, it's almost impossible because every state, every market is different. And you have some certainly some I mean, when you use these kind of global predictions. I would assume, they include markets like New York, California, some of the other big markets that have substantial issues that are going to be very light in terms of returning. So I'd say that it would be very difficult. But if we were to go market-by-market, we're beginning to see good indications in our markets in terms of recovery, but it's way too early for us to make any predictions.
Tim, do you want to add to that?
Tim Hingtgen -- President and Chief Operating Officer
Yes. I think I would say we're guarded, but optimistic, as you pointed out, Gary. Every day, we get a little bit more confident with reports that are coming in from markets that are in the early phases of reopening. In terms of the types of care, however, I'd like to refer back to Lynn's comment that we aren't seeing a lot of inpatient, heavy-duty surgeries taking place yet. This is largely ambulatory surgery, which is a very good book of business for us, don't get me wrong. But at this point, a lot of states aren't necessarily ready to release those types of services to take place in our hospitals. We're also mindful of our inventories of the PPE, of our lab testing capability. So we kind of have to balance that out with each state's regulations. But for the most part, again, no one has a crystal ball here. But very, very confident that we can get that outpatient business back up and running a little bit quicker than perhaps, we initially thought even a week ago.
Operator
Your next question comes from Kevin Fischbeck from Bank of America.
Kevin Fischbeck -- Bank of America -- Analyst
Great, thanks. I guess, one of the questions that we kind of wrestle with is kind of what the hospital industry should look like post-COVID. It sounds like we're going to be in a recession for some time period. Obviously, the 2020 baseline is going to be somewhat disrupted. But if you had to normalize 2020, how do you think about community's ability to grow during the recession? Should we expect you to be able to grow EBITDA during recessions? Or is that going to be difficult? And if it's if you can grow, what are kind of the offsets to volume pressure and payer mix?
Kevin Hammons -- Executive Vice President and Chief Financial Officer
One thing I'd just point to is I think maybe a little bit different than where the company was positioned, say, back in 2008 coming out of that recession is with the divestiture program, our portfolio is much stronger. We're in markets with much better demographics. And so I think we're positioned quite well to continue to grow. There's also the thought that maybe after this pandemic, there's a population move out of the more urban areas toward the more suburban and rural areas, which we would be positioned to benefit from, if that occurs over the next few years.
Wayne T. Smith -- Chairman of the Board and Chief Executive Officer
Yes. The other sort of unpredictable issue here is unemployment, and a number of people will be uninsured kind of going forward. And once we get a better handle on that in the next few months, it'll be a little easier to determine that. But I would think that, as Kevin said, we're probably about as well positioned as we ever have been in terms of opportunities to grow going forward. You want to add to that?
Tim Hingtgen -- President and Chief Operating Officer
Yes. I'll tag on to that. I think going back to 2008 and contrasting it to today and all the work that we've put in over the last several years of transitioning the portfolio. We've also really grown our ambulatory access point footprint as more care migrates to the outpatient side of things. I believe we're very well-positioned in that space. We talked a lot today about our intent focus in partnering with doctors and working to be preferred in our communities because we do have the right focus, consistent application of all of our resources with those doctors to accelerate care and enhance care in each one of our markets. I think that's very important for us coming out of this, but also well into the future.
Operator
And due to time, our last question is from Whit Mayo from UBS.
Whit Mayo -- UBS -- Analyst
Thanks. Just had a quick one here. Can we get the actual dollar amount from the sequester, the payroll tax and how much your capital spending plans have changed for the balance of the year?
Kevin Hammons -- Executive Vice President and Chief Financial Officer
Sure. And I think those dollar amounts are on slide 14 in our deck. So on the sequester, although that is kind of perspective, the amount we actually will get will be prospective based on Medicare volume. If you base it on last year's run rate, it would have been about $40 million. On the employer payroll tax deferral, that should benefit us from a cash flow standpoint, about $160 million over the remainder of this year. Then half of that will be paid back in December 2021 and half of it in December of '22.
Operator
And I will now turn the call back over to Mr. Smith for closing comments.
Wayne T. Smith -- Chairman of the Board and Chief Executive Officer
Thank you again for spending time with us today. I want to express again how deeply grateful we are to all of our employees, physicians, medical staff, regional presidents, hospital leadership teams, hospital support teams, our corporate support teams who have been at the forefront of combating this global pandemic. We're encouraged and strengthened by the dedication and tireless efforts of all these true healthcare heroes who remain diligent in fighting this pandemic, and we continue to support their efforts as we look forward to recovery.
This concludes our call for today. We look forward to updating you on all of our progress later in the year. And once again, if you have any questions, you can always reach us at area code (615) 465-7000.
Operator
[Operator Closing Remarks]
Duration: 54 minutes
Call participants:
Ross W. Comeaux -- Vice President of Investor Relations
Wayne T. Smith -- Chairman of the Board and Chief Executive Officer
Lynn T. Simon -- President of Clinical Operations and Chief Medical Officer
Tim Hingtgen -- President and Chief Operating Officer
Kevin Stockton -- Regional President for Western region
Kevin Hammons -- Executive Vice President and Chief Financial Officer
Josh Raskin -- Nephron Research -- Analyst
Frank Morgan -- RBC Capital Markets -- Analyst
A.J. Rice -- Credit Suisse -- Analyst
Andrew Mok -- Barclays -- Analyst
Brian Tanquilit -- Jefferies -- Analyst
Ralph Giacobbe -- Citi -- Analyst
Gary Taylor -- JPMorgan -- Analyst
Kevin Fischbeck -- Bank of America -- Analyst
Whit Mayo -- UBS -- Analyst
