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Acadia Healthcare Co Inc (ACHC -0.17%)
Q1Â 2020 Earnings Call
May 5, 2020, 9:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
[Operator Instructions]
Please proceed.
Gretchen Hommrich -- Director, Investor Relations
Good morning and welcome to Acadia's First Quarter 2020 Conference Call. I'm Gretchen Hommrich Director of Investor Relations for Acadia. I'll provide you with our safe harbor before turning the call over to our Chief Executive Officer Debbie Osteen. To the extent any non-GAAP financial measure is discussed in today's call you'll also find a reconciliation of that measure to the most directly comparable financial measure calculated according to GAAP on our website by viewing yesterday's news release under the Investors link.
This conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including statements among others regarding Acadia's expected operational and financial performance for 2020 and beyond. For this purpose any statements made during this call that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing the words believes anticipates plans expects and similar expressions are intended to identify forward-looking statements.
We caution that these statements may be affected by the important factors among others set forth in Acadia's filings with the Securities and Exchange Commission and in the company's first quarter news release. And consequently actual operations and results may differ materially from the results discussed in the forward-looking statements. The company undertakes no obligation to update publicly any forward-looking statements whether as a result of new information future events or otherwise.
At this time I would like to turn the call over to Debbie Osteen for opening remarks.
Debra K. Osteen -- Chief Executive Officer
Good morning and thank you for being with us today for our first quarter 2020 conference call. I'm here today with Chief Financial Officer David Duckworth; and other members of our executive management team. David and I will provide some remarks on our response to the COVID-19 pandemic and on our financial and operating results for the first quarter. We'll also discuss what we are seeing so far in the second quarter. We will then open the call for your questions. Before I discuss our results I believe it is important to reinforce in times like these that our top priorities now and always are the health and safety of our patients employees and visitors. We have put into action the following initiatives to protect them while continuing to provide quality care to our patients.
First in February we implemented the recommended precautionary measures in response to COVID-19 including recommendations and requirements issued by the CDC and state and local health authorities. Second we instituted social distancing practices and protective measures throughout our facilities which includes restricting and in many cases suspending visitor access; closing common areas; limiting group therapy; and screening patients and staff who enter our facilities based on criteria established by the CDC. Third we enhanced our supply chain management to ensure we have key PPE and supplies for the continued safety of our employees.
This included conducting and updating a weekly inventory across the company for PPE and establishing a web-based process to request PPE for better visibility of our needs and distribution. I want to thank our procurement team who has been an integral part of this process. Fourth over the course of the last two months we have significantly increased communications with physicians facility staff division leadership and our corporate employees including daily updates costs and webinars with resources and guidance for the facilities. And we established a task force of key leaders that meets daily to address concerns develop action plans and monitor responses throughout our facilities.
Moving to our results for the first quarter. They were in line with our expectations. During the quarter we achieved revenue growth of 2.9% compared to the same period of 2019 reflecting our continued focus on growth initiatives both through service expansion at our existing facilities and opening new facilities. Through the first two months of the quarter we were very pleased with our same facility patient day trends for both the U.S. and U.K. operations. For our U.S. operations same facility patient days increased more than 4% to the first two months of the year compared to the prior year.
The COVID-19 pandemic affected our business starting in late March and caused same facility patient day volumes to decline 3% in the last two weeks to the month relative to the same period last year. In the U.K. same facility patient days were flat through the first two months of 2020 and then declined 3% in the last two weeks of March as compared to the same period last year. The impact of COVID-19 vary by geography and business line with facilities in hotspot areas across our network more affected than others.
The diversity of our service model breadth of our network and actions taken to shift our marketing efforts has offset some of the impact of the pandemic and continues to serve us well during this crisis. Some of the factors that impacted our business lines starting in late March were first a slowdown in referrals from traditional sources such as emergency rooms and medical professionals. In many of our markets our acute facilities receive referrals from emergency rooms. As ER visits declined there was a corresponding effect on our admissions.
Second the stay-at-home orders implemented by many cities and states. We saw a very direct correlation to our admissions as states encouraged individuals to remain home. While not intended we believe our potential patients did not seek the care they needed. As states begin to modify these orders we anticipate that our potential patients will again seek needed mental health assistance. Third the various effects of travel restrictions on our facilities who draw patients nationally for treatment particularly in our specialty service line. We have some facilities that admit patients from a wide geographic area and a portion of these patients travel to reach our services.
We believe these factors are temporary and the demand for our services remained strong across the portfolio. And we expect to see continued improvement as restrictions are lifted. However we do not have visibility on when volumes from our referral sources will return to prior levels. In the month of April our volumes declined 7% compared to last year reflecting some deterioration in the first two weeks with signs of stabilization and improvement during the last two weeks. Shifting to the U.K. operations. Beginning in late March our U.K. operations also faced temporary disruptions from the impact of the stay-at-home orders on the referral and commissioning process.
While the volume impact in the U.K. has been limited due to the longer length of stay for many of our service lines certain services with a shorter length of stay have been impacted. In April we have seen stability in our census ending the month at a 5% decline compared to the prior year. From our discussions with the NHS we believe there may be a surge in individuals requiring mental health and addiction treatment and we have developed a comprehensive plan to meet this need across our service lines. Due to the pandemic there has only been a slight delay in the construction of our retooled beds and we are still on target to reopen those beds by the end of the year. As we move forward these beds will be important to help address the demand and following the pandemic.
With the help of our experienced senior leadership team strong local leadership and staff in our facilities we have implemented the following actions to help mitigate some of the impact from the COVID-19 pandemic. These include increased utilization of technologies to support stay-at-home orders and better serve market demand including telehealth options for patients and virtual visitations for families and guardians. I would like to thank the administration and state agencies for relaxing and modifying regulations for telehealth. They worked rapidly to allow practitioners to work across state lines as we strive to accommodate our patients.
We shifted the approach for our sales and marketing platform to better reach patients who need our help during this pandemic and with our referral sources many of whom have been working from home through telehealth for care continuity. We launched a national behavioral health crisis hotline designed to offer urgent assistance to any individuals in need of mental health or addiction treatment. The centralized 24/7 crisis line offers immediate no charge clinically approved assessments to support underserved communities and connect patients with the treatment they need. And we collaborated with other large public healthcare providers across the country in an effort to absorb patients coming from medical hospitals as they converted their resources to fight COVID-19.
In addition as volumes started to decline in the latter part of March and throughout April our operations team was very proactive in implementing necessary changes to mitigate the financial impact including aligning corporate and facility-level staffing costs with patient volumes; and implementing a hiring freeze for nonclinical staff; canceling all nonessential business travel; reducing discretionary expenditures; and temporarily reducing marketing spending; negotiating with our vendors and lessors for discounts and/or revised payment terms; and closely managing our working capital as our facilities continue to bill and collect for services rendered.
We continue to make prudent investments to serve our patients' needs ensure the safety and well-being of everyone in our facilities and prepare for the mental and emotional impacts that this pandemic could produce in the months ahead. During the quarter we added 78 beds to existing facilities in the U.S. Moving forward in 2020 we plan to reduce our capital expenditures and have modified the number of beds that we will add during the year. We also remain committed to our partnership strategy. In recent discussions with our partners and prospects during this crisis they acknowledged that while COVID-19 requires considerable resources and executive attention from their health system their leaders also believe this crisis will end and it is critical that they keep working on future plans.
We expect to open three de novo facilities later in 2020 including two facilities with joint venture partners positioning us for the growth that we see across the portfolio. I would like to update you on our sales process for our U.K. business. As we announced in March the Board decided to temporarily suspend the sale process of our U.K. business until market conditions recover. We believe interest from potential buyers remains strong and our objective will be to restart the process at the appropriate time to maximize value for our stockholders.
Lastly before I turn the call over to David I'd like to recognize and thank every one of our employees across our network. Their strength and dedication to providing care to our patients during these challenging times has been nothing short of amazing. We continue to draw strength from each other and our patients as they continue on their path to recovery. This pandemic has undoubtedly created mental and emotional issues that will need to be treated in the months and potentially years ahead and Acadia is ready to answer that call.
Now I will turn the call over to David Duckworth to discuss our financial results and guidance in more detail.
David Duckworth -- Chief Financial Officer
Thanks Debbie and good morning. Revenue for the first quarter was $782.8 million an increase of 2.9% compared with $760.6 million for the first quarter of 2019. The company's consolidated adjusted EBITDA for the first quarter of 2020 was $132.8 million compared to $136 million in the first quarter last year. Net income attributable to Acadia stockholders for the first quarter of 2020 was $33.5 million or $0.38 per diluted share compared with a net income of $29.5 million or $0.34 per diluted share for the first quarter of 2019. Adjusted income attributable to Acadia stockholders per diluted share was $0.42 for the first quarter of 2020 which excludes transaction-related expenses of $3.5 million and the income tax effect of adjustments to income of $0.3 million.
Turning to our financial guidance. The impact of COVID-19 on our operations and financial results during 2020 will depend on among other things the length of time and severity of the pandemic the lifting of stay-at-home orders and state restrictions the timing and phasing of the economic reopening and the willingness of patients to travel. As we announced in our press release due to these factors and the general uncertainty related to the COVID-19 pandemic we are withdrawing the 2020 financial guidance that we previously issued with our fourth quarter announcement in February.
We continue to be confident in the company's long-term growth opportunities based on the increasing need for mental health and addiction treatment services. We have ample liquidity and capital to invest in and grow our business. As of March 31 2020 we had $81 million in cash and cash equivalents plus availability on our $500 million revolving credit facility. Subsequent to the end of the quarter Acadia borrowed $100 million under its revolving line of credit in early April to enhance its overall cash position. Acadia's balance sheet remains strong and the company remains well positioned to meet the long-term demand.
As part of our ongoing review of the business and efforts to enhance our financial flexibility we conducted a thorough evaluation of all capital expenditure projects planned for 2020. To further enhance our cash position we decided to decrease our expansion capital expenditures by $35 million from the previous range of $240 million to $260 million to a revised range of $205 million to $225 million. We are completing the projects that are close to completion many of which have beds coming online in the near term at new and existing facilities. The $35 million reduction represents termination or delays in certain early stage projects based on project returns and other considerations. We have a high level of discretion to make further adjustments to our 2020 plan.
Also to provide for greater near-term financial flexibility in light of the impact from the ongoing pandemic we have amended our credit agreement to increase the maximum consolidated leverage ratio from 5.75x to 6.5x for June 30 and September 30 2020 and from 5.5x to 6.25x for December 31 2020. Additionally the company is closely monitoring the impact of legislative actions including the passing into law of the CARES Act in late March. Several of the notable benefits of the recent legislation include: first reimbursement to hospitals and other healthcare providers; a public health and social services emergency fund of $100 billion has been established to prevent prepare for and respond to COVID-19 by reimbursing eligible healthcare providers for expenses or lost revenues.
An additional $75 billion was approved in April 2020. Acadia received approximately $20 million in April relating to the initial allocation of these funds. We are currently reviewing the terms and conditions associated with these payments and completing the attestation process. Second the Medicare Advance Payments program. Medicare has offered advance payments equal to our Medicare revenue for a three month period. We applied for and received approximately $45 million of advance payments in April 2020 which we expect to repay over a three month period from August to November of this year. Third a temporary suspension of Medicare sequestration. The lifting of the 2% reduction from May one to December 31 results in an expected earnings and cash benefit of approximately $3 million in 2020.
Fourth a delay in the payment of employer payroll taxes. The employer portion of social security payroll taxes for the period from March 27 to December 31 can now be deferred and paid in two equal installments at the end of 2021 and 2022 resulting in a cash benefit of approximately $39 million for 2020. And finally the increase in the interest deductibility limitation applicable to our U.S. income taxes. As part of the Tax Cuts and Jobs Act of 2017 our interest deduction was limited to 30% of adjusted taxable income. Within the CARES Act this interest expense deduction threshold was increased to 50% of adjusted taxable income for the 2019 and 2020 tax years making our interest expense fully deductible for these years.
This change provides a cash flow benefit in the forms of refunds or lower tax payments of $16 million for the 2019 portion and between $15 million and $20 million for the 2020 portion. In total we expect to receive approximately $100 million of incremental cash during the second quarter of 2020. We will continue to monitor further developments and allocation of funds.
That concludes my prepared remarks this morning. I'll turn it back over to Debbie for some final comments.
Debra K. Osteen -- Chief Executive Officer
Thanks David. We believe the demand for mental health and substance use treatment is not discretionary or elective. We believe this crisis will have wide-ranging consequences for many individuals. Behavioral healthcare providers will be a necessity to support our societies on the road to recovery. We believe the global conversation has focused correctly on the importance of physical isolation to stop the spread of COVID-19.
But across the world this may be a negative experience for those with mental health issues prior to the pandemic or as a result of the isolation and inability to seek treatment. With our experienced management team diversification of services and scale across 40 states Puerto Rico and the U.K. we believe Acadia will play a vital and leading role in the industry.
This concludes our prepared remarks this morning. I will now ask Jennifer to open the floor for your questions.
Questions and Answers:
Operator
[Operator Instructions] And we'll go first to Kevin Fischbeck with Bank of America.
Kevin Fischbeck -- Bank of America -- Analyst
Great. I was wondering if you could talk a little bit about how you think about growth during a recession. Maybe if you can just walk us through payer mix shift. Maybe give us a sense of kind of the commercial rates versus Medicare versus Medicaid. How do you think about volumes during recession? And then any kind of cost offsets you might have on labor or other areas?
David Duckworth -- Chief Financial Officer
Yes. Kevin I'll start with that. We do think that the business is resilient and performs well during a recession. And the demand we expect will continue and as we've mentioned could potentially increase as we go through the next several months and years. On your question about the payer mix I think we have a very strong and stable payer mix that's diversified across the different payers. And even within the different service lines that we have is a very strong and diversified payer mix. We do have 50% of our revenue in the U.S. is Medicaid and a very balanced mix of Medicare and commercial making up the other two main categories that we have with a very low mix around 7% of self-pay revenue.
So we do treat patients that have insurance coverage through a government or a commercial plan. In terms of how we think about the differences between the different rates across those different payer categories it does depend on the service line and depend on the market. But for the most part we do not see a significant difference across those different payer categories. We do think about commercial as being about 10% on average above our Medicare rates. And Medicaid rates while it depends on the market maybe about 10% below Medicare rate. So a pretty tight range from commercial to Medicaid rates.
Debra K. Osteen -- Chief Executive Officer
I'll just add Kevin that I think many people so far have been able to keep their health insurance benefits if they've been furloughed. We're going to watch that very carefully. But I do know that in past economic downturns the mental health business in particular has been resilient as David mentioned. And we think we're well positioned to take care of the patients with our services and the diversification of those services. We will watch this carefully but we do believe there's going to be a real demand surge in both the U.S. and the U.K. and we feel like we're very well prepared to handle that.
Kevin Fischbeck -- Bank of America -- Analyst
Okay. Great. Let me just last question. As far as the slowdown in the bed openings that you're doing right now how do you think that's going to impact growth into next year? Do you think that that will have a meaningful headwind to your long-term growth target?
David Duckworth -- Chief Financial Officer
Kevin we really don't. We entered the year with a very strong number of bed additions in the U.S. and talked about approximately 600 new beds. And the revisions that we've made in our capex plan I think allow us to continue to bring on a strong number of beds this year. The revised range is between 500 and 600. So we do not see a material change in the bed additions that we're bringing online which supports the growth rate that we expect next year and the following years.
Debra K. Osteen -- Chief Executive Officer
I'll also mention Kevin that in the U.K. with the retool beds that we have been in process with those beds have had just a slight delay but we are definitely on track to bring them back by the end of the year. So the growth that we project in the U.K. is certainly still on track and we feel good about where we'll end up at year's end.
Kevin Fischbeck -- Bank of America -- Analyst
Thank you.
Operator
Moving next to A.J. Rice with Credit Suisse.
A.J. Rice -- Credit Suisse -- Analyst
Hello everybody. Good to hear everyone's safe. I know this maybe isn't a fair question but it's somewhat striking. We don't have a lot of comparables but you're number one peer talked about in their psychiatric or behavioral health business they were down 25% in the last two weeks of March in admissions. And you're calling out about a 3% decline. I don't know if you have any sense of is that mix driven you think geographically driven? I guess that level of disparity we're used to some level of disparity but that level seems to stand out. Any thoughts about that?
Debra K. Osteen -- Chief Executive Officer
I mean A.J. I think that we're a little unclear on the comparison with the other company and their metrics. But we really feel like we have differences between our two companies. We have a lot of diversification of our service line and really our markets as well. We have a very diverse and broad referral base and I think that has served us well during this crisis. But I also think that we acted very quickly to address the decline in volumes with selecting staffing. We immediately shifted our sales and marketing approach.
I can't speak for how others have done that but I do know that we did work with a sense of urgency. We expanded the telehealth very quickly. We shifted our focus with consumers and also our referral sources. So I think that as we look across our service lines we certainly have had impact but I think that we took action to try and minimize that impact during all of this crisis.
A.J. Rice -- Credit Suisse -- Analyst
I mean across those service lines was there any meaningful service lines that were down in that order of magnitude? Or were they all similarly off as the aggregate number suggests?
David Duckworth -- Chief Financial Officer
The four main service lines for our U.S. business of course include acute being the largest our specialty business and then our CTC and residential businesses. The CTC and residential volumes have been very stable throughout. We've of course the residential those patients are with us for a longer period of time. In CTC we have kept those patients in treatment and just really been focused on continuing the treatment and the medication that they need.
And then as you compare our acute and specialty I think it's been a similar decline between the two as we think about how the different service lines make up the 7% decline that we mentioned for April. So we've not seen a significant difference from that level either within the acute or the specialty businesses.
A.J. Rice -- Credit Suisse -- Analyst
Okay. Maybe my other question would be you had two items that were in progress before we hit this COVID situation one being the changeover of your sourcing your GPO in February; and the other being the five facilities that were under pressure in the second half of last year. Can you provide us an update on have those played out as you expected? Is there any challenges or positive surprises on any of that?
Debra K. Osteen -- Chief Executive Officer
Well I think we were very pleased A.J. with the progress that we were making in the first quarter with the facilities that we discussed last year. And I think that certainly the action steps that we put in place we were seeing results. Several of the facilities in the group are specialty and they do draw from a national referral network. So they have been impacted by the stay-at-home orders. But we do believe that we have implemented the right actions. And I think that we were pleased with where we were before the COVID-19 started impacting volumes at the end of March.
I'll say about the initiatives that we put in place around procurement we're very thankful that we did that in the fall and built our team. And we our initiatives are on track. We have made a transition to a new GPO. Certainly the focus during end of March and into April has been on making sure that we have proper PPE. But they have not taken their eyes off of the other initiatives and those are moving forward and we feel like we're on track to end up where we expected to be at the end of the year.
A.J. Rice -- Credit Suisse -- Analyst
Okay, thanks.
Debra K. Osteen -- Chief Executive Officer
Thank you.
Operator
Moving next to Ralph Giacobbe with Citi.
Ralph Giacobbe -- Citi -- Analyst
Thanks, good morning. I wanted to I want to ask a little about you had noted the demand surge you expect. I guess just a little bit more on the visibility on that. Is that just your expectation that it's going to come? Or is there some sort of your backlog that's just not allowing you to sort of see that demand? And then related to that how are you finding the labor backdrop at this point? Obviously a different skill set but perhaps for the first time in a long time hospitals sort of furloughing staff. Do you see that as sort of a viable opportunity to add staff for you?
Debra K. Osteen -- Chief Executive Officer
Well I'll answer the first part of the question. And I think that we know that there has been a surge in the hotline. SAMHSA reported a 900% increase. And in past recessions and prices it really has been linked to suicide and really stress and anxiety. So while we can't predict how that might happen over the next course of the this year and into next year it's I think as Gallup polled which was done in late March they found that 60% of the adults that they polled were reported experiencing daily feelings of stress. And so I think even the polling company said that was unprecedented.
We expect that there has been there have been patients that have stayed at home because of the stay-at-home orders. I think unlike other situations there has been a factor of fear. And I think other specialties have seen it as well where patients were afraid to seek care because they didn't want exposure to COVID-19. So I think our instincts are and our belief is that there will be demand and it could be greater than what we normally see.
David Duckworth -- Chief Financial Officer
And on the labor question the business in the U.S. and the U.K. I think have performed very well through a strong employment market. And we've been able to staff our facilities with all the resources that we need to support the volumes as we enter potentially a lower unemployment market. It's probably too early to say what impact that could have but it could be an additional positive for us as we think about recruiting and having all the resources we need to support the business.
Ralph Giacobbe -- Citi -- Analyst
Okay. That's helpful. And if I could just one more. I know obviously you pulled guidance but any broad commentary around the consideration between pricing and volume maybe in the second quarter? As patient days come down would you expect revenue per patient day to increase just based on the argument of higher acuity? Or would that not be the case? And maybe if you can just give us a sense of what was revenue in April in the U.S. compared to the volume down 7%?
David Duckworth -- Chief Financial Officer
It's too early to provide any specific numbers there. I do think of course we provided the volume decline that we have seen for the full month of April. As we think about revenue per day it will be impacted by service mix. And there are certain parts of the business where the way we're paid and this is within our CTC business we're working with our payers because in some states and with some payers we get paid when the patient is physically at our facility and is able to receive counseling and some other services. So our payers have been very supportive but we do need to work through just finalizing how our payment will work with the CTC business. So we are dealing with some revenue per day initiatives like that. But it's too early to provide any specific ranges there for the quarter.
Ralph Giacobbe -- Citi -- Analyst
Okay, thank you.
Operator
We'll go next to Brian Tanquilut with Jefferies.
Brian Tanquilut -- Jefferies -- Analyst
Guys I hope everyone is safe from COVID and from the start the other day around here. I guess my first question for Debbie as I think about the marketing pullback that you talked about how are you thinking about how that would impact demand or volumes once we get past COVID? Or are you reramping the marketing efforts at this point? Or what are the plans in terms of just taking out restrategy?
Debra K. Osteen -- Chief Executive Officer
Well I think we're really monitoring it on a daily and weekly basis. And as we see a need to change our current strategy which has been to reduce some of the expenditure we are prepared to do that. We have some very good metrics here and we're able to track that very very closely with data. And so as we see the demand start to return we will change our strategy to really meet that. I think that certainly we focus more locally and regionally with the spend at this point. But as we see travel start to come back we will make adjustments to our spend and our strategy as we need to.
Brian Tanquilut -- Jefferies -- Analyst
I appreciate that. And then I guess my follow-up Debbie as I think about the U.K. suspension of the sale process what are the discussions with the with your advisors on that one? I mean is that obviously this is a temporary decision right? But how are you thinking about what factors would drive you to get back to market? Or is there anything operationally that you need to see with the asset before you say we're ready to restart the process?
Debra K. Osteen -- Chief Executive Officer
Well our advisors in the U.K. have maintained regular dialogue with the potential buyers. And they've had discussions with them. Their interest levels in Priory remains strong. I think that what we're looking for is more visibility on their progression and the recovery from COVID-19. It certainly has had a big impact in the U.K. much like the U.S.
But I think primarily we want to see normalization of the debt market conditions in the U.K. We want to see that financing a transaction of the size of Priory can happen. I do think that buyers are interested in meeting with our management team. They've had some interactions but they want to go to the facilities. And so we're waiting for the opportunity to allow that to happen. And right now as I know you can understand our management team is really focused on getting through this. But at some point as we move through the crisis buyers want to be visiting facilities and we'll provide that opportunity. But I do believe their interest level is very strong in the asset.
Brian Tanquilut -- Jefferies -- Analyst
I appreciate it. Thank you.
Operator
We'll go next to Pito Chickering with Deutsche Bank.
Pito Chickering -- Deutsche Bank -- Analyst
Good morning, guys, thanks for taking my questions. Drilling into the U.K. market for a minute. Can you talk about what disruptions you saw within the U.K. how it was different than in the U.S.? And what the NHS is telling you about how they view discharges over the next say 30 60 90 days?
David Duckworth -- Chief Financial Officer
Yes. Pito I think one of the key differences other than just the volume impact being more limited in the U.K. market is on the labor side. We have been managing with a higher level of staff absences in the U.K. There was just a slightly different approach in that market to encourage even healthcare workers to self-isolate if they met certain criteria. And we saw that accelerate some in early April but have really already seen that peak. And a lot of the workers that self-isolated in early April have returned to the business. But that will have an impact on our labor costs for April. There's a continuing pay for those employees as well as just backfilling those positions. But the team there has done a great job managing that have also had a lot of flexibility around how we staff the facilities. So really pleased to work through that we think fairly quickly and be able to run the facilities that we have there with the right level of staffing.
Debra K. Osteen -- Chief Executive Officer
We've also been told our team there that there may be reimbursement for some of those salary costs that are a direct result of COVID-19. They have not given detail around that but we do believe that some of those expenses will be offset. We just don't know what that number will look like at this point.
Pito Chickering -- Deutsche Bank -- Analyst
Great. And then states like Georgia that have already begun easing the restrictions look I realize it's very early in the process but what have you seen specifically in Georgia? What bounce-backs have you seen relative to other states? And sort of what lines of business are coming back faster?
Debra K. Osteen -- Chief Executive Officer
Well it's very early on and many states are in partial phases of return. We have seen an increase in our admissions at our facilities in Georgia and we have specifically seen increases in the ER visits. Again I don't know what that will mean long term but we have seen a relationship between the state opening and then calls and admissions. We don't know that that will hold true for all our states but it certainly has in the early states that have come on.
Operator
We'll go next to Matthew Gillmor with Baird. Your line is open.
Matthew Gillmor -- Baird -- Anayst
Hey, good morning. I wanted to ask about the shift in referral sources. It sounds like you all were able to shift your resources as ER volumes declined at acute hospitals. Can you give us a sense for how those patients are now sort of getting treatment at your facilities? And do you think that's a durable shift or something that will revert back once COVID normalizes?
David Duckworth -- Chief Financial Officer
I think Matthew what we've seen is that those higher-acuity patients have continued to go to the ER and it's not so much that there's been a complete shift. But there have been markets that have been more impacted. And but those higher-acuity patients I think are still going to the emergency room or finding another way to get to our facility. And we mentioned the broad referral base that we have. There's many other ways that those patients can get to our facilities. And it's really it's been isolated to markets that are more impacted. But I think the volume there has continued. But overall for the company given especially some of the markets that have seen a greater impact it has just been at a lower rate.
Matthew Gillmor -- Baird -- Anayst
Got it. Fair enough. And can you could you provide some commentary on the FMAP rate increases that some states are getting? And do you have any visibility as to how or if that will trickle down into provider rates?
David Duckworth -- Chief Financial Officer
No. Indirectly I think it's a benefit for providers. We don't have any visibility into that as of right now.
Matthew Gillmor -- Baird -- Anayst
Thanks very much.
David Duckworth -- Chief Financial Officer
Thank you.
Operator
We'll go next to Whit Mayo with UBS.
Whit Mayo -- UBS -- Analyst
Hey, thanks, good morning. I know this is a hard question but as you guys revisit your two or three year plan what do you think has changed in the last month that might influence that number up or down as you think about 2021? I mean you're going to presumably have a little bit more volume mix as a consideration. There's just a lot of cross-currents as I play this out in my head. So just any thoughts as you think about kind of the out-year would be helpful at this point.
Debra K. Osteen -- Chief Executive Officer
I think we don't really see any major changes to certainly our industry. But to our strategies I think there may be future opportunities that we might look at. I think telehealth and the reimbursement changes that have been made and some of the other rule changes may give us opportunity to actually grow that area. We've already put in place a pretty robust platform for that. So that may continue. It was part of our strategy before but I think we might see that accelerate now that reimbursement is matching some of that.
I think we feel like our long-term growth opportunities based on demand really will not change. I think we're confident in what we have in our service lines and some of the plans we have around it. Our partnership strategy we've actually seen an increase in some of the discussions which was a little surprising to be honest to me that they were continuing to remain engaged. And but I do think that we think there might be opportunities there that certainly would need to meet our capital criteria. But we think that it makes sense to keep investing in our CTCs the JVs and de novos as appropriate. And we'll watch carefully for any opportunities that might present is just a result of what's happened here in the first part of the year.
Whit Mayo -- UBS -- Analyst
No. That's helpful. And maybe just to follow on to that your comment on the CTC business. I mean we've heard patients are getting longer supplies of drugs given social distancing requirements etc. Just curious how you've responded. And you mentioned that some of the payers have adjusted to the new realities of this. Can you elaborate a little bit more on those conversations? Is this a concern for you? Or do you feel pretty comfortable that they're all being fairly responsible about this?
Debra K. Osteen -- Chief Executive Officer
I think with that the states have been very cognizant of the fact that we had to change our model. I do think that the way we have done this treatment in the past which is with medication and therapy that we'll see a return after some of the stay-at-home orders are lifted to our previous model. But I think that so far our the CTC staff have just done an outstanding job of really handing out appropriate care in a new context which is the medications that are being done on 15 and 30 days but also still trying to maintain contact with those patients either through phone. They've some of them have been able to use telehealth to really connect and make sure that our patients in that area are still safe and receiving the right and appropriate treatment.
We have had many states that have recognized that we've had to make these changes. They've been very cooperative. We have a few states that were still as David mentioned earlier talking with about how to ensure that we are reimbursed for this change. And I think we're optimistic that they will find a way to make this happen. But at this point the CTC group management facility level they acted very very quickly to put these changes in place really almost overnight. And I think that we have we've seen that I think our patients have actually increased slightly in that area. And I think that we'll see and continue to see our volumes remain in that business area.
Whit Mayo -- UBS -- Analyst
Okay, thanks a lot.
Operator
We'll go next to Gary Taylor with JPMorgan.
Gary Taylor -- JPMorgan -- Analyst
Hey, good morning. Most of my questions answered. Just had a few. We heard a few anecdotal comments from med/surg hospitals with behavioral units over the course of the quarter about deferring some of those patients to trying to create some additional on-campus capacity in case they had a to house COVID-19 patients. Were you seeing any of that? Was any of that measurable as part of this pretty solid and defensive top line you had this quarter?
Debra K. Osteen -- Chief Executive Officer
I think we did see in some markets there were instances where the med/surg system needed to free up beds. I think we actually had an agreement with a large med/surg company here in Nashville to accommodate if they needed their beds freed. That didn't end up happening but we were prepared for it and they were prepared for it. We I think saw this really being more market-specific. And we actually probably saw this more in markets where the COVID-19 was more impactful but I wouldn't call it material in our business or our volumes. But we certainly set up the structure if there was a need for our services and our beds.
Gary Taylor -- JPMorgan -- Analyst
And then my last question would just be any comments about NHS? Anything that they've said? I guess we think about how they do their budgeting their global budgeting the regional budgeting and I'm just wondering if because of pandemic it's possible any budget dollars could get shifted toward medical versus behavioral. Is there any insight into that at all?
David Duckworth -- Chief Financial Officer
No. I think Gary the NHS has been very focused on mental health services and having the capacity to meet what they view as continuing and an increasing demand. And they have shown their support to providers through block contracts and other arrangements to make sure that those beds would be available. There was also as you guys know every April is our rate increase for the NHS. And we did receive word that we are in the middle of our 2% to 3% range. And NHS took the initiative to provide that clarity for providers for support. And it's usually a process that we go through throughout the second quarter with our many other payers and local commissioning groups there in the U.K. But I think the NHS is focused on having the mental health beds available and providing the right reimbursement to providers.
Gary Taylor -- JPMorgan -- Analyst
Okay, thank you.
Operator
Our next to John Ransom with Raymond James.
John Ransom -- Raymond James -- Analyst
Hey, good morning, David just doing the math on your new covenant this would imply something like $500 million of EBITDA. Is there something that we're missing in that math?
David Duckworth -- Chief Financial Officer
No. I think we view our goal was to set the right covenants to give us the maximum amount of flexibility as we go through these uncertain times. So yes we do view ourselves as having some room as we don't yet know the potential impact. But your math is right.
John Ransom -- Raymond James -- Analyst
Okay. The second question is if we think about let's just assume for a minute seven points of revenue decline to go along with seven points of volume decline. Is that a dollar-for-dollar reduction of EBITDA? Or should there be some offsets?
David Duckworth -- Chief Financial Officer
John there's a lot of moving pieces of course as we think about the volume decline and how it impacts our cost structure. We do have a highly flexible and variable cost structure. So we the team is doing a great job and already had a lot of tools in place that have been implemented over the last several months just to really allow us to adjust the cost structure quickly as we saw the volume declines. But it depends on so many factors including just where we see the volume declines how significant it is at any one facility. But we do think we have a variable cost structure that allows us to make adjustments but it's too early to do the math on just how we see that playing out over the next several months.
John Ransom -- Raymond James -- Analyst
And look I'm sorry if I missed this. I was having problems with your call this morning for some reason. But if I think of this business on a continuum of sensitivity to recession I would assume the opioid business and the residential business being probably up in a downtick the adult acute business just mix shift to government. And then what would be sensitive would be I would assume the residential addiction business just fewer corporate cases coming out of that line of business. Is that the right way to think about your business?
David Duckworth -- Chief Financial Officer
I think we agree that the business is resilient in those other service lines. I think even the substance abuse with the demand there we think will continue. And we do not view that as a discretionary service. We think after the temporary factors abate that we will pick back up on the volumes there and think that's also another resilient service line for us.
Operator
Okay. We'll go next to Ryan Daniels with William Blair.
Nick Spiekhout -- William Blair -- Analyst
Hey guys, This is Nick Spiekhout in for Ryan. Similarly most of my questions have been answered at this point. But I guess with the beginning of April or toward the end of April have you been seeing kind of like an uptick in referrals again? And if so which I guess referral channels have been the quickest to come back? And kind of which ones have been the most resilient over the past couple of weeks?
David Duckworth -- Chief Financial Officer
Yes. We have seen improvement at the end of April and that includes seeing an uptick in our referral volumes. I would say we do have that broad base of referrals. Most of those referrals have been very resilient and it depends on the market. We look at the data for each of our facilities every day. But ERs are the ones that in certain markets did decline the most and have come back the most in late April.
There are some other referral sources. The adolescent business with a lot of schools around the country being closed there's been less adolescent referrals. And the team has done a nice job there just shifting certain services in some facilities to be more adult-focused. And so there have been referrals like that that have gone down and may stay down for a while. But it's a very diversified referral base and has come back nicely here at the end of April.
Nick Spiekhout -- William Blair -- Analyst
And then I guess kind of going on that. So there's a word that some school districts may not even come back in discussion in the fall. I was wondering if you had any sort of plans of potentially dealing with that lack of referrals from that area or I guess anything on that front?
David Duckworth -- Chief Financial Officer
Yes. I think obviously we think the demand there for that population will continue. And our marketing strategy is focused on all the different ways we can access those patients.
Debra K. Osteen -- Chief Executive Officer
I do think also that if the schools remain closed I don't think that eliminates the need for the services. It's certainly been an important referral source for us. But if that should change I think there'll be other ways that parents and others will find their way to services and to our services in particular. So I think that we're prepared to shift if we need to. But I think at this point we've had the stay-at-home orders which I think has been a factor in adolescent seeking care. They aren't going to school but I think that there still will be some of the behaviors will not be eliminated just because they're not in school. So we'll watch that carefully and make sure we're staying in contact with where they may seek health and that would be professionals and pediatricians and others where parents might access if they have a need with an adolescent or a child.
Nick Spiekhout -- William Blair -- Analyst
Great, thanks guys.
Debra K. Osteen -- Chief Executive Officer
Thank you.
Operator
Thank you. We'll go next to Scott Fidel with Stephens.
Gerard -- Stephens -- Analyst
Great, thanks, This is Gerard [Phonetic] on for Scott. I thought maybe I'd just dig in a little bit to you guys talked about kind of three major items impacting the volumes in the U.S. beyond the slowdown in the referrals stay-at-home orders and the various travel restrictions. Just wanted to see if you guys can put maybe an order of magnitude kind of on those three items and how those have impacted the volumes through April so far?
David Duckworth -- Chief Financial Officer
No. I think we there's not a way to directly manage that. I think our goal is to give an idea and some color as to the different factors that we think have had this temporary impact on our referrals. But it's hard to quantify each one of those factors. The stay-at-home orders are very widespread and have affected the referral sources. And so that's probably the biggest factor that we're dealing with because it does have an indirect impact into the referral volumes. But there's not a way to quantify each one.
Gerard -- Stephens -- Analyst
Great. And then I guess just maybe a quick just a quick additional question just on the de novo pipeline. Do you think you could coming out of this pandemic potentially see any sort of acceleration in acute hospitals wanting to partner on behavioral facilities?
Debra K. Osteen -- Chief Executive Officer
I think there certainly could be that dynamic. I think that as I mentioned a little earlier we have seen them stay engaged. And we plan to make some announcements very soon about agreements that we've reached with large systems. So I think there could be opportunity there. It's hard to know how their strategies might change. But it kind of makes sense that they might look to work together in the future which would be a positive out of this. But we'll be open to that and we certainly believe that there still are underserved markets that make sense for de novo builds. And we'll watch that.
We're watching our construction costs very closely as well as what we're paying for land and other things. So there may be opportunity to actually see some cost savings. I'm not going to predict that but we clearly are watching it and trying to build as efficiently as we can. But also at the same time I think there could be opportunity in the future.
Gerard -- Stephens -- Analyst
Great, thanks.
Debra K. Osteen -- Chief Executive Officer
Thank you.
Operator
And at this time there are no further questions.
Debra K. Osteen -- Chief Executive Officer
Thanks again for being with us today and for your interest in Acadia Healthcare. I'm so grateful and proud of the continued commitment and professionalism of all of our employees as they come to work every day to care for our patients. If you have additional questions today please do not hesitate to contact us directly and have a good day.
Operator
[Operator Closing Remarks]
Duration: 66 minutes
Call participants:
Gretchen Hommrich -- Director, Investor Relations
Debra K. Osteen -- Chief Executive Officer
David Duckworth -- Chief Financial Officer
Kevin Fischbeck -- Bank of America -- Analyst
A.J. Rice -- Credit Suisse -- Analyst
Ralph Giacobbe -- Citi -- Analyst
Brian Tanquilut -- Jefferies -- Analyst
Pito Chickering -- Deutsche Bank -- Analyst
Matthew Gillmor -- Baird -- Anayst
Whit Mayo -- UBS -- Analyst
Gary Taylor -- JPMorgan -- Analyst
John Ransom -- Raymond James -- Analyst
Nick Spiekhout -- William Blair -- Analyst
Gerard -- Stephens -- Analyst
