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Community Health Systems Inc (CYH 7.26%)
Q3Â 2020 Earnings Call
Oct 28, 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' Third 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, sir.
Ross Comeaux -- Vice President of Investor Relations
Thank you, Mike. Good morning and welcome to Community Health Systems third 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 these 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 of legal expenses related to cases covered by the CVR, expenses related to employee termination benefits and other restructuring charges, change in valuation allowances recorded for promissory notes, change in estimate for professional liability claims accrual, tax effect related to HMA legal settlement, 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 and Chief Executive Officer
Thank you, Ross. And good morning and welcome to our third quarter conference call. I'm joined today on the call with Tim Hingtgen, our President and Chief Operating Officer; Dr. Lynn Simon, President of Clinical Operations and Chief Medical Officer; and Kevin Hammons, Executive Vice President and Chief Financial Officer.
We're pleased with the strong results reported in the third quarter, especially as we managed through COVID 19 pandemic, while also advancing strategies designed to build on the company's recent progress and ensure the long-term success.
I want to credit our hospital leaders, corporate management and other support teams, and especially the frontline caregivers who continue to meet the challenge of a global pandemic with commitment, professionalism, and a level of human compassion that truly impresses me every single day.
Before we get into the quarter's results, I hope you will indulge me just a minute to comment on the other press release that we issued yesterday, announcing my decision to transition from CEO of the company into the new role of Executive Chairman of the Board of Directors at the beginning of 2021.
Tim will become our new Chief Executive Officer and I'm completely confident that Tim will be strategic, energetic, and an outstanding CEO. You've got to know him over the past few years in his role as President and COO. I trust that you have seen his strong leadership capabilities, his deep knowledge and experience in our industry, and his intense personal commitment to this company. We've certainly seen the results of his labor and good work he has done to advance strategic and operational initiatives that are driving growth in our markets.
I could not be more pleased that Tim will be our next CEO. Let me say again that I and our Board are completely confident in Tim's ability to ensure quality healthcare, to increase the services we provide in our communities, and produce value for our shareholders. Please join me in congratulating Tim on his new job and responsibilities.
It's been my pleasure and privilege and I'm very grateful to have served as CEO of Community Health Systems for more than two decades. CHS is a great company with great people and great opportunities ahead. I'm deeply grateful for the support of our Board, our investors, and all the people who have been part of our organization; and more than that, a part of our effort to always provide safe, quality care for our patients.
Over 20-plus years, a lot has changed in this industry. Certainly, our company has changed a lot as well. But our purpose and our commitment, our resilience and our ability to keep things moving forward remain constant. I'm extremely optimistic about the future of Community Health Systems. I believe we have the right strategies and the right people, and we are executing and we're moving forward as we continue to drive positive results.
As Executive Chairman of the Board, I'll remain involved in setting the strategic course of the company, and I'll continue to fulfill certain executive-level management responsibilities.
Now, let me turn to COVID-19 and then I'll briefly discuss the quarter results and give Tim and Kevin and Lynn an opportunity to share more detail. COVID-19 currently remains manageable in our markets. Our teams are doing an extraordinary job of caring for patients with coronavirus, as well as those who have other healthcare needs.
You can see that COVID-19 cases are climbing in many areas across the country, and we're seeing a rising number of in-patient cases in some of our markets.
I think we have learned a lot over the past several months about how to keep essential services open and safely operating, and we will continue to do all we can to protect frontline caregivers and patients, while also working to ensure all services remain available for the patients that need them.
Of course, we monitor COVID activity constantly, and I think we have proven we're agile and adept at navigating change should that become necessary in our response.
Now, I'd like to provide some brief highlights on the third quarter. It was a strong quarter. Our investments in volume-driving initiatives, the strategic margin improvement program, and targeted capital investments produced very good results.
Our ability to quickly and effectively resume services after some services closures in early phases of the pandemic have turned out to be very productive. Our efforts to secure a stronger go-forward portfolio of hospitals has produced improved results. All these things have continued to drive positive results over time.
It's worth noting that we delivered improved metrics across a number of categories during the third quarter compared to the second quarter. As a reminder, the shelter-in-place recommendations and the government restrictions on elective surgeries negatively impacted our volumes, net revenues, and performance during the second quarter.
In the third quarter, our admission, surgeries, and ER visits improved sequentially. Our same-store volumes and net revenue growth remained below pre-pandemic run rates; and in a number of markets, we did see COVID-19 hotspots during the quarter, which negatively impacted non-COVID healthcare demand, including elective procedures in some areas.
Despite these issues, the third quarter net revenue was approximately $3.1 billion, which was up 2.9% on a same-store year-over-year basis. Adjusted EBITDA was $431 million, which increased 11% versus last year. And I want to point out that no Provider Relief Fund from the CARES Act were recognized in the quarter. Adjusted EBITDA margin was 13.8%, up 180 basis point versus last year.
In terms of expense as a percentage of net revenue, we made progress across SWB and other operating expense lines while supply costs were up. And finally, as it relates to our capital structure during the quarter, we reduced our total debt, lowered our debt-to-EBITDA ratio from a combination of EBITDA growth and repayment of debt.
Finally, I'd like to comment on the portfolio. Our strategy for the past several years has been to intentionally and strategically reshape our portfolio into a stronger group of hospitals and healthcare systems. This enabled us to make targeted investments in markets where we see the most potential to drive long-term growth. We are now finishing that work. With the divestitures completed in third quarter and an expectation that we will complete the rest of our pending divestitures before the end of the year, we will end our formal portfolio optimization strategy.
We're pleased with our remaining markets and confident that we can effectively produce value with this portfolio. Our singular focus is on market development and long-term growth in the markets where we now operate.
With accelerated investments in high-return capex opportunities on both inpatient and outpatient side of the business, many are completed and many more are in the pipeline to strengthen services and increase access points across these markets.
I'm proud of all our company's accomplishments during the first three quarters of the year, and I'm very proud of the people who work across this organization, and I want to again recognize the physicians, the nurses, and other employees that continue to improve their work -- to continue to prove their work is essential and heroic.
Again, I want you to know, I am very optimistic about our future, and how grateful I am for my experience as the CEO of Community Health Systems, and how appreciative I am for all of your support through the years. I look forward to serving as Executive Chairman of the Board of Directors.
And now, I'd like to turn the call over to Dr. Lynn Simon.
Lynn T. Simon -- President of Clinical Operations and Chief Medical Officer
Thank you, Wayne. I'd also like to thank all of our hospital leadership teams, bedside caregivers, support staff, and physicians for their commitment to their patients and communities and for their resilience throughout this extraordinary year.
Through teamwork and collaboration and their dedication, we have cared for thousands of COVID-19 patients, ensuring safety for both COVID and non-COVID patients, as well as our employees and clinicians.
Year-to-date, through the end of the third quarter, we have provided care for approximately 25,000 confirmed COVID-19 patients across our hospitals, emergency departments and outpatient care settings.
As I mentioned on the last quarter's earnings call, we experienced an increase in COVID-19 patients in the summer, particularly across the Sunbelt states.
During the quarter, in our hospitals, EDs, and outpatient care settings, we've cared for approximately 8,000 confirmed COVID-19 patients in July, approximately 6,000 in August, and approximately 4,000 in September. In total, we saw more COVID-19 patients in the third quarter than we did in the first half of the year. The increased COVID patient counts have created challenges for the hospital industry all across the country.
Due to our early stage planning, including our dual-track framework combining clinical and operational expertise, along with the strong support of our supply chain, facilities and logistics, infection prevention, HR, and employee health, communications and other corporate support functions, we've been able to effectively manage surges in COVID-19 prevalence across our markets.
Looking forward, we can see the cases continue to increase in many parts of the country, and the ultimate duration of the pandemic remains an unknown. We continue to monitor cases through our internally developed COVID-19 tracking dashboard for real-time visibility of COVID-19 cases in all our hospitals. We're focused on continuous capacity and contingency planning in case of the so-called twindemic of influenza and COVID or just additional waves of COVID-19, by leveraging the expertise and resourcefulness of our hospital teams and the support of our corporate assets.
We will continue to support our hospitals in a number of ways. On the supply side, our centralized distribution system is engaged in sourcing and logistics as it relates to ventilators, PPE, pharmaceuticals, and other critical supplies that are needed to treat COVID-19 patients.
From a capacity management standpoint, we are monitoring ICU and overall hospital utilization, and proactively planning to expand capacity and ensure necessary staffing where and when needed. We're leveraging our transfer center for patient logistic support and utilizing telehealth to allow for continuous outreach to patients, both those needing preventative care and those vulnerable patients with pre-existing comorbidities, who might be considering delaying care due to fears of contracting COVID-19.
As always, we lead with safety and following CDC infection prevention guidelines and with proactive COVID-19 testing, especially for high-risk patient populations and pre-procedural testing and ensuring facilities -- spaces provide safe workflows and meet social distancing requirements. Going forward, we remain confident in our ability to manage through this pandemic safely, efficiently and effectively. Tim?
Tim Hingtgen -- President and Chief Operating Officer
Thanks, Lynn. First, I want to say how incredibly honored I am about the opportunity to become the next Chief Executive Officer of CHS at the beginning of next year. I'm excited about where our organization is headed and the progress we are making. And like Wayne, I'm optimistic about our future.
Our portfolio is strong, our team is strong, and I'm extremely proud of how we've demonstrated that working closely together over the past few months by navigating the COVID-19 pandemic while also resuming other services and advancing our strategic priorities. As a company, we have a strong culture of caring and accountability.
Wayne, of course, has been an extraordinary Chief Executive and leader for CHS for all of us, and I look forward to working closely with him in his new role as Executive Chairman of the Board of Directors. I'm very grateful for the confidence and trust that has been placed in me by Wayne and our Board.
Shifting to third quarter results. On top of the ongoing management of the pandemic, our hospital teams also successfully managed through two significant hurricanes during the quarter. In August, Hurricane Laura caused minor disruption to facilities in Texas and Arkansas, while in September, Hurricane Sally caused more significant disruption in our Baldwin County, Alabama market, and less significant impacts in other Florida and Mississippi markets. Ahead of these hurricanes, we instituted our hurricane preparation plan, and our hospital leaders and medical staff did fantastic work maintaining operations throughout and after these weather events.
In terms of COVID-19, Dr. Simon, along with the clinical teams and a full breadth of corporate support, has done an excellent job managing our COVID-19 response. And our hospital and regional leadership teams have successfully managed our return to caring for more non-COVID demand, including elective procedures.
Going forward, we are refining our dual-track strategy, which we believe will allow the company to successfully care for incremental COVID-19 and non-COVID-19 patients. And we continue to monitor each market and we're prepared to dial up or dial down elective procedures as warranted.
Now, I would like to provide some comments on our third quarter performance. Overall, we delivered good sequential improvements from the second quarter to the third quarter. And while third quarter volumes did not return to pre COVID run rate, we delivered strong sequential improvements from the lows of April and the second quarter.
Looking at our same-store net revenue and volume on a year-over-year basis, in the third quarter, our net revenue increased 2.9% as higher acuity, improved contract rate, and favorable payor mix offset negative volumes.
Admissions were down 6.2% and adjusted admissions were down 11.5%. Surgeries were down 5.8% with cardiology, orthopedics, and other service lines contributing to the sequential recovery. ER visits were down 18.4%.
Similar to the second quarter, our ED visit declines are primarily due to lower acuity patients not presenting in the ER. Our EMS traffic, representing typically higher acuity patient volume has returned to closer to historical run rates.
On the expense side, we managed variable costs down during the second quarter and volumes were negatively impacted by restrictions on elective procedures and shelter-in-place orders. As volumes and net revenue returned in the third quarter, our hospital leadership teams managed variable costs very well. This, combined with savings from our strategic margin improvement program, drove improved EBITDA and EBITDA margin performance during the third quarter.
Overall, we were pleased with our third quarter performance, and I'm excited about the strategic progress we have made during the year. While the management of COVID-19 has certainly garnered much of our attention and focus, we have also continued to effectively execute our strategic plan.
As Lynn noted, our announced divestiture plan is nearing completion, and we are optimistic about our current portfolio. This portfolio includes hospitals and access points in stronger markets. And while we have been divesting some hospitals, we have been making targeted strategic advancements in our core markets along the way.
In terms of net revenue initiatives, we are seeing the benefits from investments into physician practices, patient connectivity, the transfer center, ACOs and other initiatives. These investments have helped the company recapture medical procedures as markets reopened during the second and third quarter. And as we look forward, we plan to leverage these initiatives to earn incremental market share across our core market.
Our planning and execution related to our strategic margin improvement program remains on-track. This plan was formalized about a year ago, and we continue to implement these plans and add new incremental opportunities. We expect this program to deliver margin expansion opportunity for years to come.
On the capex side, I'm very pleased with our recent investments. Looking back, since 2018 to today, we have added over 200 beds, excluding replacement hospital projects across a number of markets. In addition, we have a number of new projects that were just completed or will be completed in the near-term.
To highlight just a few projects: in La Porte, Indiana, we completed the 84-bed replacement facility, which opened last Saturday. In Tucson, Arizona, we plan to open our 18-bed micro hospital during the fourth quarter. And a larger full-service acute care hospital with a target 2022 opening date is under construction in another quadrant of Tucson. And in Fort Wayne, Indiana, we expect to complete the St. Joseph's replacement hospital to be renamed Lutheran Downtown Hospital by this time next year. And we have an extensive pipeline of service line investments as well as access points to complement existing markets.
As a result, we are very pleased with the strategic progress we have made this year and particularly during a year with so many unexpected and uncontrollable challenges. This progress has been made possible because of strong dedication and incredible effort across the entire company.
And as I look forward, I'm extremely excited about the future of CHF. Today, we have a great collection of assets. Our management team, regional presidents, and hospital leadership teams are all highly energized and focused on strong execution as we finish 2020. Looking beyond this year, we remain highly focused on delivering long-term growth for all stakeholders.
Kevin, I'll turn the call over to you.
Kevin Hammons -- Executive Vice President and Chief Financial Officer
Thank you, Tim. And good morning, everyone. Similar to last quarter, I will not cover all of our typical financial metrics today, but instead, I would refer you to the 8-K and our slide deck for additional details. As a reminder, we previously withdrew our 2020 financial guidance, and we are not providing 2020 guidance today due to a number of factors which we have recently discussed.
During the third quarter, on a consolidated basis, net operating revenues came in at $3,126 million, down 3.7% from the prior year, while adjusted EBITDA was $431 million, up 11%. Keep in mind, we did not recognize any CARES Act funding into income during the quarter.
On a same-store basis, net revenues increased 2.9%. This was comprised of an 11.5% decrease in adjusted admissions and a 16.2% increase in net revenue per adjusted admission.
During the quarter, our hospital leadership teams executed well, managing variable costs as net revenue improved sequentially. And as Tim mentioned, our strategic margin improvement program continues to deliver expense reductions and improve our margin profile.
On a same-store basis, our salaries, wages, and benefits expense decreased 0.8%, down 160 basis points as a percent of net revenue. Supplies expense increased 5.1%, up 40 basis points as a percent of net revenue, and other operating expense increased 1.9%, down 30 basis points as a percent of net revenue.
Switching to cash flow. Cash flows provided by operations were $393 million for the third quarter of 2020. This compares to cash flow from operations of a negative $74 million during the third quarter of 2019. Looking at the quarter-over-quarter increase, cash interest payments were approximately $213 million lower, due in part to timing of payments. The company received approximately $155 million in Provider Relief Grants under the CARES Act and higher EBITDA continue -- and continued management of our working capital also contributed to the increase.
For the first nine months of 2020, our cash flows provided by operations were $2.1 billion. This compares to cash flows from operations of only $191 million during the first nine months of 2019. Looking at the year-over-year increase, the company received $1.1 billion of net Medicare accelerated payments. The company also received approximately $719 million in Provider Relief Grants under the CARES Act. Other increases and decreases, including increased cash from A/R collections and lower malpractice claim payments were offsets.
Turning to capex. Our capex for the first nine months of 2020 was $317 million or 3.7% of net revenue compared to $322 million or 3.2% of net revenue in the prior year. We've continued to invest capital into our core portfolio to strengthen our markets.
As it relates to liquidity, at the end of the third quarter, the company had $1.8 billion of cash on the balance sheet. As of September 30th, the company had no outstanding borrowings and approximately $654 million of borrowing base capacity under the ABL with the ability to increase that up to $1 billion.
Switching to the CARES Act and Pandemic Relief Funds, we did not recognize into income any relief funds from the CARES Act during the quarter. So far, in 2020, we have received approximately $719 million through the Public Health and Social Services Emergency Fund in both general and targeted distributions, including approximately $155 million received during the quarter. We recognized approximately $448 million in the second quarter into income as a reduction in operating costs and expenses, with no funds recognized in the third quarter. The remaining $271 million is currently on our balance sheet as a deferred liability.
In terms of the relief funds, the government issued multiple changes to the qualification criteria since June 30th. We are evaluating the most recent HHS disclosures that were issued on October 22nd and expect to recognize a portion of these deferred grants in future periods.
As we previously discussed, we received approximately $1.2 billion in Medicare accelerated payments to support near-term liquidity in April. In the third quarter, we returned approximately $22 million of that, that was related to divested facilities. Currently, the recoupment of Medicare accelerated payments is scheduled to begin one year after the payment was issued, which will be next April; April of 2021.
In terms of our divestiture program, we are nearing the completion of our formal plan. From the six transactions completed through the end of the third quarter, including Bayfront Health, St. Petersburg; and St. Petersburg, Florida, we have received proceeds of approximately $340 million this year. Subsequent to the end of the third quarter, we closed two additional transactions from which we generated approximately $265 million of incremental proceeds.
At this point, we're substantially complete with our divestiture program. We do have definitive agreements for the sale of four additional hospitals that we expect to close prior to the end of the year, and those will generate a relatively low amount of proceeds.
Moving to the balance sheet and capital structure. At the end of the third quarter, we had approximately $12.9 billion of long-term debt and no near-term maturities. The company's next maturity of $197 million is not due until February of 2022.
During the third quarter, the company used approximately $143 million of cash to repurchase approximately $261 million of principal amount of debt maturities in open market transactions, resulting in a $115 million gain on the extinguishment of debt and reducing our annual cash interest by $18 million. When combined with the pay down of our ABL, which we did earlier this year, we have reduced on an annualized basis our cash interest by approximately $33 million.
Through these efforts and our improved adjusted EBITDA, we have lowered our leverage ratio and reduced our cash interest.
In summary, we are confident that following our strong results and our recent capital structure work, along with current cash on hand, divesture proceeds, and our ability to borrow under our ABL, we have ample liquidity to manage through the continued current crisis, return to normal operation, and position the company for growth moving forward.
With that, Wayne, I'll turn the call back over to you.
Wayne T. Smith -- Chairman and Chief Executive Officer
Thank you, Kevin. At this point, operator, we're ready to open it up for questions. We will limit everyone to one question, so several of you have time on this call. But as always, we're available to talk to you at any time. You can reach us at area code 615-465-7000.
Questions and Answers:
Operator
[Operator Instructions] Your first question comes from Brian Tanquilut from Jefferies. Please go ahead.
Brian Tanquilut -- Jefferies -- Analyst
Hey, good morning. And Wayne, thanks for all your work and your support over the years. And Tim, congratulations.
So, I guess my question would just be on the margins and the pace of recovery that you're seeing. Obviously, a lot of moving parts with acuity going up and volumes still pressured. So, just want to hear how you're thinking about that, the pace of recovery through Q4 and into next year and what of the margin lift that you've delivered do you think is sustainable once we see more normalized acuity and revenue per admission trends? Thank you.
Kevin Hammons -- Executive Vice President and Chief Financial Officer
Sure, Brian. This is Kevin. I will take that. So, as we have managed through with lower volume, we have certainly done, I think, an exceptional job of managing our labor costs. So, we've been able to flex labor consistent and according to the lower volume.
The margin improvement program work that we really started late in 2019, a lot of those initiatives are focused on non-patient facing expenses. They deal with how we contract purchase services, how we're contracting for supplies. And we believe those to be very sticky, so to speak. So, we believe those expense reductions will continue going forward as volumes come back, so that margin lift will be more permanent.
Wayne T. Smith -- Chairman and Chief Executive Officer
Don't forget that our portfolio rationalization program is also designed to improve our margin, kind of, going forward, and we're beginning to see that come through.
Operator
Your next question comes from Josh Raskin from Nephron Research. Please go ahead. Josh Raskin, your line is open.
Your next question comes from Frank Morgan from RBC Capital Markets. Please go ahead.
Frank Morgan -- RBC Capital Markets. -- Analyst
Good morning and congratulations, Wayne and Tim, on these new roles as you'll make this transition. I was hoping to get a little more color around the -- you made some commentary, I think Lynn did, about the number of COVID patients over the months of the quarter. Any additional color you can provide around kind of how underlying utilization was in terms of surgeries and admits? And I'm curious, how did that transition into the fourth quarter? Are the trends that you saw maybe in the, say, in the last month of the quarter, did -- has that carried over into the current quarter? And then have you had any needs or requirements to do voluntary suspension of services so far in the fourth quarter? Thank you.
Tim Hingtgen -- President and Chief Operating Officer
Hey, Frank. This is Tim. I'll start it off, and then obviously, Lynn, if you have anything to add, feel free. We obviously started the third quarter with a higher surges of COVID cases in our Sunbelt states. We commented on that during our second quarter earnings call. We also, I think, shared that some of the impact it was having on our volumes from the June recovery.
June recovery, by the way, certainly benefited from a great deal of pent-up demand. We were very focused on getting that business in the door. We did see some shifting or deferrals in July into August, but as the COVID surge subsided, as we expected, we saw more elective cases come back into the hospital.
And from our vantage point, most of the deferred care or the delayed care was consumer-driven, not so much related to resources on our end. We felt we were very well staffed and equipped to work through that. We only had two states that had, I think, what I would call, I guess, required orders for curtailing elective cases, those being some counties in Texas and Mississippi. But for the rest of our markets, again, just normal throttling up and down and being responsive to consumer concerns or request to defer care was at the forefront.
I think we've cleared a great deal of our backlog in the third quarter. We're still very focused on building a new pipeline of business, as we've talked about on the call so far today, with all of our investments -- I mean, our strategies.
In terms of heading into October, September was a good month. Heading into October, we were pleased with the further progression of our volume recoveries. We are, as we pointed out today, seeing some resurgence of COVID. Haven't necessarily seen any requirement for shutdowns or curtailing elective services. So, we're monitoring on a day-by-day basis; and where we think it's prudent to do so, we will.
Lynn has instituted a very rigorous pre-procedure testing program. So, we believe we have a good pulse every day on the pre-surgical -- pre-procedure patients on monitoring for upticks in COVID. So, if we would see that happening, we'd obviously make operational adjustments as warranted.
Operator
Your next question comes from Ralph Giacobbe from Citi. Please go ahead.
Ralph Giacobbe -- Citi -- Analyst
Thanks. Good morning. I guess as you think about the longer-term effects of the pandemic, any thoughts around just population factors within your market and maybe stemming out migration to larger cities, any just thoughts there? And then, the ER obviously remains challenged still. I know it is lower acuity that you stated. But maybe remind us again to your strategy and sort of your transfer centers and access point plan, and if you're accelerating any of those initiatives to kind of capture the volume that's not presenting at the hospital? Thanks.
Tim Hingtgen -- President and Chief Operating Officer
Ralph, I'll start it off. And again, anyone, feel free to jump in here, but in terms of longer impacts, population shift, I think we've mentioned it for the last couple of quarters and we continue to read certain articles that say there does seem to be some desires for urban dwellers to look at some suburban or non-urban location. Have we seen any uptick in any of our markets? I think it's too soon to tell, but it's a trend that we'll certainly watch.
In terms of the movement of the acuity from one sector to the other, I would say we've been planning for the structural shift, if you will, for lower acuity care to go to the outpatient setting. For the last several years with access point strategies, freestanding EDs, ASCs, we've given I think pretty regular updates on our progress and our investments into those access point.
I think they serve us very well. And then with COVID, I think you see some acceleration into urgent care settings, for instance, versus the lower acuity business. So, we're pleased that we have been really thoughtful and strategic in how we build out those. Well, at one point where consumer-focused strategies get to where the customer is, now they're really serving some of those structural shift.
The transfer center really is a conduit for us to connect our affiliated hospitals in our networks or maybe lower acuity to our higher acuity assets, as well as non-CHF hospitals in the surrounding areas. I mean, as we've invested our capital in service line advancement, cardiac, neurosurgery, trauma, that transfer center enables us to move those patients from the lower acuity setting into our sites of care that we've invested in. We're really pleased with the results.
In the third quarter, despite decline in admissions, we did see an increase in transfer center activity, which just shows how impactful it's been and help us build out the complexity and the performance of our markets.
Wayne T. Smith -- Chairman and Chief Executive Officer
So, Ralph, we haven't seen any dramatic change or any increases in terms of population shift or any of those kinds of things this quarter. And this year is built on same-store hospitals that we've had for a number of years and the markets has been relatively stable for a number of years. And the opportunity we have going forward is to increase our market share in these markets.
One of the reasons we did this huge divestiture program was to get down to a sustainable group of hospitals that we can grow, and that's where we find ourselves today and we're excited about the opportunities for our continued growth in those markets with or without additional population shift.
Tim Hingtgen -- President and Chief Operating Officer
And I think we are well positioned on both the outpatient and the inpatient side. And just to point out, I made the comment earlier, we've added over 200 beds in market where we have opportunity to grow our presence and our market share. Key markets like Birmingham, Knoxville, Naples, and Tucson, I can down the list.
But point is stronger portfolio, we've been investing in it. We maybe didn't acquire any new hospitals, but we certainly, I think, have built out to what would be akin to a normal acquisition or a couple acquisitions over the last couple of years.
Operator
Your next question comes from Kevin Fischbeck from Bank of America. Please go ahead.
Kevin Fischbeck -- Bank of America -- Analyst
Great. Thanks. I appreciate the fact that you guys were able to pay down some debt in the quarter. I guess you had $1.8 billion of cash on the balance sheet plus another couple $100 million from asset proceeds. How much cash do you think that was kind of actually being available for deployment and how should we think about the ability to actually reduce leverage through free cash flow going forward?
Kevin Hammons -- Executive Vice President and Chief Financial Officer
Sure. This is Kevin. There's still a lot of uncertainties around COVID and when the next surge will be. And certainly, the accelerated Medicare money that was provided by the government was meant to give us assistance kind of throughout the pandemic period, which no one knows yet how long that's going to last and is likely to be around until we have a vaccine.
That being said, with the new rules around when that repayment starts, which is not until April of next year and then extends out over a period of time, there'll be approximately, roughly $450 million of the accelerated payment will be paid back in 2021. And so, that still leaves us with fair amount of cash on hand to navigate through the pandemic and just through some of the unknowns. But going forward, we expect with our improved EBITDA results and management of our working capital, that we will be kind of positive free cash flow, which we are currently and expect to be going forward, so that gives us some additional flexibility.
Operator
Your next question comes from Andrew Mok from Barclays. Please go ahead.
Andrew Mok -- Barclays -- Analyst
Hi, good morning, and congratulations, again, to both Wayne and Tim. Wanted to follow-up on COVID patients. I think you quoted 18,000 cases in the quarter across the hospital system. Can you share how many of those cases were inpatient admissions? And relatedly, can you provide some of the characteristic of the typical COVID inpatient that's treated in your hospital for items like length of stay, insurance coverage, and ventilator usage? Thanks.
Tim Hingtgen -- President and Chief Operating Officer
Great. Andrew, this is Tim. I'll kick it off and then hand it over to Dr Simon on some of the clinical aspects. In terms of the numbers we provided, about 45% of that was on the inpatient side of the business. In terms of payer mix, similar to what we've heard or read recently. Most of those patients are older age, 55 and above; higher penetration of Medicare or Medicare Advantage patient. But obviously it's something we keep track of.
In terms of advancing the clinical care alternative, Dr Simon.
Lynn T. Simon -- President of Clinical Operations and Chief Medical Officer
Just from a demographic standpoint, certainly, we're seeing a little lower age hit early on in the pandemic. And then we're seeing a little more Med/Surge level of patient that are in ICU, but still strong on the ICU side as well. So, a little bit of shift in that, say, the patients that we're seeing.
From a clinical standpoint, we're seeing these patients require a little longer hospital stays. So, the length of stay is extended a little bit both on the ICU side and the inpatient side. But overall, like we're seeing elsewhere, improved mortality, better therapeutics between remdesivir and steroids [Indecipherable], less use of ventilation early on, proning, etc., all the things that you hear about. I think the conditions are getting much more comfortable in their treatment and I think patient outcomes improved as well related to that. Encouraged for therapeutics and others coming down the line.
Operator
Your next question comes from A.J. Rice from Credit Suisse. Please go ahead.
A.J. Rice -- Credit Suisse -- Analyst
Hi, everybody. Best wishes to Wayne. It's been quite the ride. And congratulations to Tim on the new role.
Let me just go back to asking about labor, generally. What are you seeing, as we sort of been through the six, seven months of this pandemic, in terms of your nurse turnover, use of temporary staff, wages? And then I guess also on the labor front, if I could ask you, with ER volumes being down as much as they are across the industry, I know you use ER staffing firms and typically have to subsidize them when there's weakness in the volumes. Are you renegotiating those deals? Is there a way to do that and has that been a headwind this year that may be turns around as the ER volumes come back next year?
Tim Hingtgen -- President and Chief Operating Officer
Hi, A.J. I'll kick that one off. In terms of contract labor trends, I think we did a good job of limiting contract labor, obviously in the latter part of the first quarter and in the second quarter, when our inpatient volumes were suppressed.
So, we actually had a pretty significant decrease in contract labor utilization. We have seen the needs for contract labor to go back up over the last several weeks, in particular as we had COVID cases surge. That turnover rates, I think they are up a little bit for nursing for various reasons that we've all read about, sometimes staff concerns and wanted to take other types of nursing position. Some of them have left for state staffing agency pools or contract labor sales. Although, they get nothing that we, I guess, didn't anticipate or we can't manage.
And in terms of the rate, we have seen some increase in rates in the contract labor space. I'm working very hard with all the other margin improvement initiatives to offset those, of course. But it is somewhat of an emerging headwind that we'll be mindful of.
In terms of the ER volumes and the subsidies, that's also something we repacked early on in the pandemic by partnering with our vendors out there to adjust staffing once we saw ED volumes dropped. So, we were able to work with them, reduce their expense and their staffing costs, which I think -- I guess, avoided a lot of what could have been some headwinds in terms of request for subsidy increases. Obviously, there is an uptick in our subsidy spend, because you have to have some sort of fixed or core staffing in those contracts.
The other thing which we asked all the vendors to be mindful of is their ability to attract or go for CARES Act funding as well. And I believe in the last package that came through, there's a new application process for those groups who didn't qualify for some of the criteria based upon year ending 2018 practices to make special appeal. So, we're working with those groups if there is any shortfall to see if we can help them access those CARES Act funds, but I'll turn it over to Kevin for any other commentary.
Kevin Hammons -- Executive Vice President and Chief Financial Officer
Yes, the only thing I would add is, some of the pressure on contract labor and overall staffing and kind of rate, some of that is regional as well and subject to the location. But I don't think we're experiencing anything even regionally outside of the norm or what other people see [Technical Issues]
Wayne T. Smith -- Chairman and Chief Executive Officer
Some of this outpatient ED business, of course, moved to telemedicine and other delivery format, which we are well positioned to take advantage of.
Kevin Hammons -- Executive Vice President and Chief Financial Officer
Yes, we had another good quarter of telemedicine volumes. As more care goes into the traditional practice side, we had to come down from our second quarter highs. But we're still pleased with the ability to drive patients in that direction and grow our practice visits with few patients as well.
Operator
And our last question will be from Josh Raskin from Nephron Research. Please go ahead.
Josh Raskin -- Nephron Research LLC. -- Analyst
Thanks. Can you guys hear me better now?
Wayne T. Smith -- Chairman and Chief Executive Officer
We can. Yes, better.
Josh Raskin -- Nephron Research LLC. -- Analyst
Perfect. Sorry about that. And I'll echo the congratulations to Wayne for the last couple of decades, and certainly to Tim as well.
My question just on the prioritization of procedures that are coming back and sort of help me with the process. Do you help the physicians with that decision making and rescheduling? And how is, sort of, Community as the hospital operator part of that?
And do you think there'll be an ebbing of the Acuity as we get back to sort of a more normalized level of procedures and sort of the procedures that weren't prioritized or coming back as well?
Tim Hingtgen -- President and Chief Operating Officer
Josh, this is Tim. I'll start it off. In terms of the prioritization of procedures that we -- we work closely with our medical staff through all phases of the pandemic. We stay close with our employee practices and their patients through our own means of connected care, and that's through some virtual mechanism. All this through some, I guess, outbound calling from our practices, particularly for vulnerable patient who perhaps haven't had a visit. We tap into the analytics in our Ambulatory Medical Record Systems to make sure we did proactive outreach for their safety.
And then for wellness and gaps in care, doing the same thing, making sure we're more proactive in our approach with these patients as volumes have been suppressed due to the pandemic.
We are pleased -- again, the higher acuity procedures came back relatively quickly. We had a good quarter in orthopedic volume. For joints, even though there's a large migration of hip to the ambulatory setting or outpatient surgery setting with the Medicare new ruling on the two-midnight rule for that, we still managed to have pretty flattish volumes on hip.
So again, we look at that as all good indicators that we can partner effectively with employed and independent providers in our markets to bring that care back in the door.
Where we saw the shortfall was in the lower acuity and I'll say somewhat elective, very elective care. GI was a high proportion of our decline in the total surgery cases for the quarter. ENT was number two. And with that, if you look at the age bracket, a lot of the GI care obviously for adults, particularly seniors. And then for the ENT, we saw a pretty large decline in our pediatric age volumes for surgery. So, we have a pretty good grasp as to where those cases are.
Now, in terms of when we think we can get them back in the door? We'll keep on connecting with those surgeons. Those surgeons want to get those patients the care they need. But at some point, I think for GI, for screening colonoscopies, that's just turns into a new cycle where if it's an annual or a five-year colonoscopy screening, I don't know how much pent-up demand as it just moves into the next care cycle for that patient.
That's why we've been really focused on generating our own future, being proactive and doing our outreach in our service line development strategy.
Lynn T. Simon -- President of Clinical Operations and Chief Medical Officer
And early on, there were some guidelines by CMS and other states about what surgeries you should prioritize, so certainly following those guard rails. But in the medical staff, the individual communities decide how they wanted to bring their patients back, because they really are closer to knowing who needs the care, and there's a lot of discussion around, certainly if it's higher acuity, you need to get them back in. But at the same time, those patients that may have more of a quote -- "elective or preventative procedure", they need to come in as well to prevent future decline and health outcomes. So, really very focused on making sure we get those patients in to get the care that they need.
Kevin Hammons -- Executive Vice President and Chief Financial Officer
In terms of your question related to the acuity and how sustainable is the higher levels of acuity, I think with our intentional side of care shift to ambulatory, our focus on building out surgery centers -- we have about 50 surgery centers, we have another 10 or so that are minority partnership. So, most of our markets have a good ambulatory strategy as that care.
[Indecipherable] still in some cases moves to the lower acuity setting. So, I think from a hospital standpoint, balancing that with our investments in capital, recruiting the right doctors, expanding service lines to the transfer center, I do think there is a lot of sustainability in our ability to continue to drive activity and case mix improvements across the portfolio.
Operator
I will now turn the call back over to Mr. Smith, for closing comments.
Wayne T. Smith -- Chairman and Chief Executive Officer
Thanks again for spending time with us today. I want to once again express how deeply grateful we are to all of our employees, physicians, medical staffs, regional presidents, hospital leadership teams, hospital support teams, corporate support teams, who've been at the forefront of combating this global pandemic and providing exceptional care for those affected.
We continue to move ahead now with our strategies, so -- to provide outstanding care for our patients, to maintain the trust and partnership with our physicians and employees, to demonstrate our value to the communities we serve and to reward the company shareholders and debt holders for their confidence and investments in our organization.
And once again, thank you. I'm am extremely grateful and appreciative for all your support over the last 20 years.
This concludes our call today and we look forward to updating you on our progress. Once again, if you have any questions, you can always reach us at area code 615-465-7000. Thank you.
Operator
[Operator Closing Remarks]
Duration: 51 minutes
Call participants:
Ross Comeaux -- Vice President of Investor Relations
Wayne T. Smith -- Chairman and Chief Executive Officer
Lynn T. Simon -- President of Clinical Operations and Chief Medical Officer
Tim Hingtgen -- President and Chief Operating Officer
Kevin Hammons -- Executive Vice President and Chief Financial Officer
Brian Tanquilut -- Jefferies -- Analyst
Frank Morgan -- RBC Capital Markets. -- Analyst
Ralph Giacobbe -- Citi -- Analyst
Kevin Fischbeck -- Bank of America -- Analyst
Andrew Mok -- Barclays -- Analyst
A.J. Rice -- Credit Suisse -- Analyst
Josh Raskin -- Nephron Research LLC. -- Analyst
