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Kevin Hammons

Thank you, Tim. And good morning, everyone. As Tim mentioned, we've made progress across many fronts. So before walking you through operating results for the quarter that were generally in line with expectations, I would like to provide a brief update on the progress we made in continuing to position the company for future success, particularly through opportunistic divestitures and management of our debt.
In early March, we completed the divestiture of Shore Point Health System in Florida and on April 1 closed on the sale of Lake Norman Regional Health System in North Carolina. Total gross proceeds for these two transactions of $544 million was received and recorded in the first quarter.
Last week, we announced an agreement to divest 80% ownership in Cedar Park Regional Medical Center to the minority partner, Ascension Health, for $460 million which we expect to close late in the second quarter or early in the third quarter of 2025. Completion of the Cedar Park transaction will bring the total in-year proceeds to just over $1 billion, consistent with our commentary last quarter. And along with an additional potential divestiture now in advanced discussions, we could exceed this target materially.
Each of these transactions reflects attractive double-digit multiples on trailing EBITDA, leading to meaningful deleveraging and increased shareholder value.
Last night, concurrently with earnings results, we announced the issuance of $700 million in new 10.75% senior secured notes due 2033, with the proceeds to be used to redeem all $700 million of our outstanding 8% senior secured notes due 2027 at par. Additionally, We've commenced a cash tender offer for all of the $626 million outstanding 6.875% senior unsecured notes due 2028 at a price of $75, utilizing cash-on-hand and availability under our revolver to retire these notes.
These transactions will further reduce the company's net leverage, improve our maturity profile, and enhance shareholder value while not meaningfully affecting free cash flow. Furthermore, we're getting all of this done despite the recent dislocation in the capital markets.
At quarter end, net debt to trailing adjusted EBITDA was 7.1 times, improved from 7.4 times at year-end 2024 and 7.9 times at year-end 2023.
Now turning back to operating results. In the first quarter of 2025, we saw continued momentum with strong overall volume trends and cost controls across most categories, leading to financial results that were generally in line with our expectations and representing a solid start to the year. The continued strong demand in our markets led to same-store admissions growth of 4% year-over-year, adjusted admissions up 2.6%, and ED visits up 2.4%, while same-store surgeries were down 3%.
Thanks to our net revenue per adjusted admission was up 0.5% year-over-year as rate growth from commercial plans and the Medicare fee-for-service, annual update were partly offset by unfavorable shifts in payer and acuity mix as well as declining Medicaid rates.
Adjusted EBITDA for the first quarter was $376 million compared with $378 million in the prior-year period. The margin was 11.9% versus 12% in the prior-year period.
The impact of payer downgrades and denials remain stable in the first quarter of 2025 relative to the prior quarter, reflecting our ongoing utilization management efforts and physician advisor program. Our advocacy efforts regarding this troubling trend that is affecting all healthcare providers will continue. But we expect the year-over-year headwind that we called out in the third quarter of 2024 to persist until we anniversary it in the second half of this year.
Turning to expense management, our performance on labor costs remains solid, with average hourly wage rate up approximately 3.5% year-over-year, including an increase in the number of employed physicians, which was consistent with our expectations. Contract labor spend was $40 million in the first quarter, down $8 million year-over-year on a consolidated basis, reflecting our ongoing success with recruitment and retention.
We held the line on supplies expense which was flat year-over-year and flat sequentially at 15.5% of consolidated net revenues in the first quarter. This demonstrates some of the benefit we are achieving as we have effectively offset the impact of inflation over these periods.
Medical specialist fees were $163 million in the first quarter, increasing approximately 9% year-over-year on a consolidated basis, representing 5.1% of net revenues versus 4.8% in the prior-year period. This increase was in line with what we anticipated. While we remain encouraged with the progress through our insourcing initiatives, we continue to anticipate further pressure in med spec fees, with these costs growing in excess of typical inflationary trends in 2025, but still well below the spikes that we saw from 2022 to 2023.
Cash flows from operations were $120 million for the first quarter, up from $96 million in the first quarter of 2024. And free cash flow was still slightly negative yet improved over the prior-year quarter. This improvement relative to our typical first quarter when we often experience a more significant outflow due to the timing of interest and incentive comp payments and patient co-pays and deductible resets, partly reflects the long-awaited receipt of $80 million in income tax refunds. However, that benefit was erased by the delays in payments under certain state supplemental programs. Money is now flowing from these programs, so we believe we are on track to meet our annual cash flow guidance.
With our enterprise modernization initiative, Project and Power, we continue to implement new workflows, generate savings opportunities, and gain new insights into our business as the oracle environment further hardens. I believe our stabilization is on track and I am confident in the value this project will produce for the company.
As it relates to the 2025 financial guidance, we are maintaining the outlook that we provided in February. Consistent with prior practice, we have not considered in our guidance any additional divestitures beyond those that have already been announced. And we've also not included directed payment program reimbursement for New Mexico or Tennessee as those programs have not yet been approved by CMS for 2025. We do not have any update relative to either of those programs, but still expect their eventual approval. Recall, we believe if those programs are approved, they would add an incremental $100 million to $125 million to our annual guided run rate of EBITDA.
This concludes our prepared remarks, so at this time we'll turn the call back over to our operator, Rocco, for Q&A.

Question and Answer Session

Operator

(Operator Instructions)
Brian Tanquilut, Jeffries.

Brian Tanquilut

Good morning, guys, and congrats on the quarter. Maybe, Tim, as I think about just the volume performance here and balancing it obviously with the revenue for adjusted admission, I think that's mostly flu and the margins, I mean, just curious how you're thinking about where the business can go going forward. Both from a volume perspective and your ability to manage or flex through the cost structure. And also any thoughts you can share with us on how you're thinking about tariffs potentially impacting your supplies and other input costs that you have to deal with?

Tim Hingtgen

Sure, Brian, I will kick that off and I'll turn over to Kevin to touch on the tariff question. In terms of the quarter and the flu impact, we did see an outsized impact from the flu as I commented on earlier. It did have, I think, some squeeze effect on some of our lower acuity surgery volumes in the corridor, largely on the outpatient side, due to either provider illness, staff illness, or perhaps patient illness. We also are tracking to see if there's any consumer changes in terms of the reset of copays and deductibles and their willingness to take or receive care with the reset of those deductibles, we're tracking that very closely.
But in general, in terms of how the core bulk of the business performed, excluding the flu impact, we were really pleased to see so many strong signs of success across the portfolio. We had really strong EMS volumes with gains in trauma. So it wasn't all related just to basic influenza-related illness volumes.
We also saw strong physician practice visits in both primary care, but also in our surgical and procedural specialists. Good growth in our cardiac service line as it relates to procedures in our cath labs, particularly higher acuity cardiac service lines as we continue to invest. And we also saw an outsized growth in our robotic surgery caseloads, again, reflecting our investments into some new advanced platforms across various robotics platforms out there.
So again, in terms of the durability and the investability in our markets to attract and grow new lines and higher levels of business, we still see that line of sight straight and narrow through the portfolio.
The other thing I would point out is transfer center continues to perform really, really well and provide, basically, daily insights as to where we can go next to continue to invest, whether that be in service lines or technology or new capacity. We still see growing opportunities throughout the portfolio which let us build into future quarters and future years.
And then the last thing I would point out is just on the ASC space, despite the drop in some of our lower acuity cases, primarily GI, we did have another strong growth quarter in our ASC environment as we continue to incrementally add one to two ASCs per quarter. So we still see durability for the long run as we diversify the mix of surgeries happening in various sites of care across our markets.

Kevin Hammons

Brian, I'll touch on just a couple other points of your question. In terms of expenses, we feel that even with some of the softness resulting from the flu, we still had very strong inpatient admissions and we are able to control our expenses with the added load of inpatients. And we believe that we'll be able to continue to maintain and control expenses throughout the year. We also think that there's some tailwinds for us as we continue to stabilize our new ERP and gain insights into the business and see some tailwinds on being able to take out some additional costs.
Relative to tariffs, just a reminder we are a member of HPG, our group purchasing organization. Approximately or in excess of 70% of our supplies are purchased through the GPO. With that, we have fixed pricing, typically contracts are three years through the GPO. So we have some price protection there. Approximately half of our purchasing, through the GPO, is domestic purchasing which would not be subject to tariffs. And then beyond that, it's a mix of countries. Less than 5% of our purchases are from China which would have the most risk I think in the current environment relative to tariffs, so it's a very small part. And again, the other purchasing is spread out across a number of different countries, and I think it's yet to be determined what the risk is there.

Brian Tanquilut

I appreciate that. And maybe my follow-up, Kevin, as I think about the balance sheet and obviously, you have a refi that was announced yesterday, just curious how we should be thinking about, number one, you called out a potential upcoming divestiture; and then maybe curious about free cash flow guidance and what's embedded and what's not in the guide. And also just proceeds from the recent divestiture announcements, Lake Norman I know came out on April 1. So just anything you can share with us as we try to think about modeling the balance sheet and cash flows for the next one to two years? Thanks.

Kevin Hammons

Sure. So the proceeds from Lake Norman that closed on April 1, those proceeds were actually received on 03/31. So they were on our balance sheet, sitting in the cash balance. As was the proceeds from Shore Point which were received earlier in March. A portion of that was still sitting in cash. A portion of it had been used to pay down some on the ABL. Those proceeds will largely be used to do the tender of the unsecured notes that we released yesterday or announced yesterday.
In terms of the remainder of the year, I think we're on track in terms of our cash flow guidance even with the additional divestiture of Cedar Park Regional Medical Center that we announced in that taking place or anticipating closing kind of late in the second quarter, early third quarter. I don't think it's going to have a material impact on the cash flow equation for the remainder of the year, so that's part of why we've not made any adjustments to that.
And with the refinancing, although we are paying a higher interest rate on the $700 million that we are refinancing, net of the impact of the tender offer for the unsecured, we'll have a slight benefit in reducing interest expense for the year, but still within our guidance range.

Operator

AJ Rice, UBS.

AJ Rice

Thanks. Hi everybody. I understand the comment on the Tennessee and New Mexico DPP programs. Are you hearing anything about whether this is business as usual or those been put on hold for any particular reason? And I know in your case, you had three states, Alabama, Arkansas, and Indiana, that had some level of discussion about potentially expanding or adding a program. Any updates on what's happening with those?

Kevin Hammons

Thanks, AJ. So it's really been kind of quiet. We haven't heard anything specific about Tennessee or New Mexico nor have we expected to hear anything. Best we can tell, things are moving forward. We do know that in the recent past couple weeks under this current administration, there have been a couple DPP programs approved in other states. I believe New Hampshire and Arizona were the states that programs have been approved. So it does appear that things are moving and that there's not a complete moratorium on these plans that I would tend to believe as a positive, absent hearing anything else. But we're just still on a wait-and-see. But as we sit here today, we know of no reason that they will not be approved going forward.
In terms of the other states, Indiana has been discussing a program. It has passed the State House. I believe a bill has also passed the State Senate, maybe with some revisions. The State Legislature is still in session for another week or two, so nothing final has come out, but it is looking positive that they may pass a program in Indiana.
Alabama is still early on in their discussions, and I don't expect to hear anything at this point. It's just too early to know.

AJ Rice

Okay. And maybe my follow-up question, I'll just ask you a little bit about the public exchanges, do you have an update as to how much of your volume and what kind of year-to-year growth you're seeing on the public exchanges this year? And any updated thoughts on or advocacy that you (technical difficulty).

Kevin Hammons

I'm sorry, you broke up a little bit. But I believe our net revenue from the exchanges is less than 6% of our total net revenue. We are seeing growth in that business. But it's still a relatively small portion of our total net revenue.

Tim Hingtgen

And then in terms of advocacy for the extension of the enhanced premium tax credits for the exchange volume, I think, reading the current headlines, we're very active in the advocacy efforts there. I think it's too soon to tell as to whether those will be extended beyond their current cycle (technical difficulty)

AJ Rice

Okay. Thanks so much. Thanks again.

Operator

Josh Raskin, Nephron Research.

Josh Raskin

Thanks. Good morning, guys.
(technical difficulty)
Oh, it sounds like you guys are breaking up. Hopefully you hear this. So first question in response to an answer you gave before, can you speak more to the strong primary care and surgical specialist visits? Do you have a good sense of how much of that is sort of overall market versus your specific initiatives? And are you seeing follow-through care after and procedures after those visits?

Tim Hingtgen

Sure, Josh. Can you hear me okay? I just want to do a mic check here.

Josh Raskin

Yeah, a little in and out, but I think you're okay now.

Tim Hingtgen

Okay, sorry about that. In terms of our clinic visits and again I'll speak to our employed provider base, although we have some anecdotal information from independent providers across our health systems as well, but in terms of our employed affiliated provider base, we saw strong growth in both primary care which, you could argue, is related to the spike in influenza. So again, not using that as our canary in the coal mine, we focused more intently in terms of how our specialist volumes were pulling through the quarter.
We did see good gains in the same-store and in non-same-store specialists throughout the first quarter. Again, we've sequentially been adding on to those volumes for the last several quarters, so we see it as a good read-through for long-term prospects in our markets.
In terms of the procedural pull-through, in some specialties like cardiology, the growth in new patient visits, we do believe, did improve our cath lab pulled through within the quarter. I also mentioned some strengthening of higher acuity cardiac services. So we believe there's some attribution to the growth of those employed cardiology practices, for instance.
We did see some slowdown in GI. Even though we had good practice visits, we saw a slowdown in GI procedures throughout the quarter. Again, that's the one that we somewhat attribute to perhaps timing with co-pays and deductibles resetting and some apprehension by patients to take that elective care so early in the year. And so their co-pays and deductibles have been met. So we'll track that one throughout the year. That was the one area of softness that we did not expect in the quarter.

Josh Raskin

All right. Perfect. And then my big question is just in terms of payer behavior. I heard you talk about sort of stability there. But just specifically around denials and pre-authorizations. Are there variations on a geographic basis, on a line of business basis, on a specific plan basis that you're seeing?

Operator

We have reconnected the speaker location please proceed.

Tim Hingtgen

All right. Can you hear us better now?

Josh Raskin

I do hear you. We didn't hear much of the answer though, so I don't know, if you don't mind starting over.

Tim Hingtgen

Apologies. Which one, Josh? Was it for both the clinic visits and the denials and downgrades?

Josh Raskin

We heard all the procedural pull-through commentary. You sort of cut out after the plan behavior and segment plans, specific geography.

Kevin Hammons

Sure. So to your question for denials and downgrades, we're really seeing it across all regions and across all service lines, so it's nothing that I would call out as being very specific to a payer or a service line or a region. But more general in nature.

Josh Raskin

All right. Perfect. Thank you.

Operator

Andrew Mok, Barclays.

Andrew Mok

Good morning. You reiterated the guidance despite absorbing additional headwinds around divestitures, the claims denials, and medical specialist fees. I guess based on that, should we be thinking about the lower half of guidance or is there anything coming in stronger to offset those incremental headwinds?

Kevin Hammons

So the headwinds related to downgrades and denials were baked into our original guidance we had indicated. We started to see those increase in the third quarter of last year. They really stabilized in the fourth quarter and remained consistent. We will anniversary that or anticipate anniversarying that the back half of this year. And so we did build that in to our original guidance. So I don't think that that would be an incremental headwind as we think about where we're at relative to our full-year guidance.
We are absorbing the additional divestiture, as you indicated, for the back half of the year. But it's still early, it's only after one quarter. And I think that we're within the guidance range. And we do obviously reserve the right as we think about any future divestitures if we get anything else across the finish line. And with potentially DPPs being approved, those could all further change how we think about guidance and we would think about updating at that point.
But as we sit here right now, I don't think the one divestiture was material enough to make a change to our guidance.

Andrew Mok

Got it. And maybe just a follow-up. It sounds like you guided for elevated medical specialist fees, but it still sounds like it's maybe outpacing those early expectations. Can you comment on the categories where you're seeing incremental specialist fee pressure? Thanks.

Kevin Hammons

Yeah. So we guided to an 8% to 12% increase in medical specialist fees, and that's when we baked in our guidance for the full year. We were at 9%. So call that within the range of where we were expecting. It is a pain point and continues to be a pain point. The majority of that is in anesthesiology. Probably over 50% of the increase is in anesthesiology or 50% of our medical specialist fees. We are seeing a little bit in radiology starting to pick up. But the primary pain point at this point is still anesthesiology.

Tim Hingtgen

Yeah, I agree. And if I could just add on to that. In terms of our mitigation tactics for that, as you know, we've built out a platform to insource hospital-based provider services, successfully managing the transition of APP and the ED and hospice side over the last, I'll say, almost two years. We've since added anesthesia insourcing to the mix. We called out last quarter on one of our major markets moving that to an in-source platform.
When the cost increase or the (inaudible) from the outsourced provider we believe is unreasonable and we can insource at a lower cost and drive better quality and a value, we are doing so. We have a couple more programs that are being insourced already on the docket for this year. But we're trying to leave some cap space, if you will, for us to be able to pivot really quickly in other markets should we get further demands that we don't believe are reasonable for outside services.
We also have just begun the insourcing process in our first radiology program, leveraging again our internal expertise and skills to try to mitigate any future cost pressures or extraordinary cost pressures across that hospital-based specialty as well.

Andrew Mok

Great. Thank you.

Operator

(Operator Instructions)
Stephen Baxter, Wells Fargo.

Stephen Baxter

Hi. Thanks. I just wanted to follow up on AJ's question about TPC programs. I know that there's nothing in your guidance for the 2025 components of the Tennessee or New Mexico program. But I believe there were retroactive portions of that related to 2024. They were approved, I think, towards the end of the year. Could you remind us, do you recognize those in the first quarter or if not, when would you expect recognition to occur?

Kevin Hammons

I'm sorry, could you speak up just a little bit? We're having a little hard time hearing you, just a little (inaudible).

Stephen Baxter

Yeah. Sorry about that. Hopefully this is better. Just asking about the Tennessee and New Mexico supplemental payment programs. I know that the 2025 components are not in your guidance yet. But to the extent that, yeah, I believe there was retroactivity related to 2024 that was approved. Just wondering if that was recognized in the first quarter or that would be recognized later in the year. Just looking for an update on that factor first.

Kevin Hammons

Sure. You're correct. There was a a a retro piece of Tennessee back to July 1, 2024. That actually has not received full approval yet, so we have not recognized that component either. So that is still out there, and that would be in addition to the $100 million to $125 million run rate that we've talked about on an annual basis. So we're still waiting on the final approval of that.

Stephen Baxter

Okay. And then just to expand a little bit on the payer mix dynamics that you discussed, I think I understand some of the discussion around acuity. But I guess specifically on the lower year-over-year commercial mix, I mean, is that lap in the denials and downgrade impact? Or is there something else to kind of consider there? And then just hoping you could expand a little bit on, you mentioned Medicaid rate decreases, I was hoping you could potentially flush that out a little bit.

Kevin Hammons

Sure. Let me start off and Tim, feel free to jump in. So the flu certainly we believe had an impact on care in the first quarter, not only on acuity, but also some disruption. We also have seen a reduction in elective procedures. And we're seeing more of that reduction in commercial business. And I think it's a combination of potentially the flu, but also some of the disruption in the economy, some of the discussion of recession, and fear of tariffs or potential impacts of tariffs and what that may have. And when you think about your patient population, those with higher deductible co-pays and high deductible plans are probably the most at financial risk in the first quarter before their co-pays and deductibles have been met. And that's where we saw the biggest declines in elective procedures, particularly outpatient, and in the elective surgeries was that commercial space.

Tim Hingtgen

I agree. And the other item that's impacting the net revenue per adjusted admission, we did, because of the outsized impact of flu, I think have some of the highest levels of medical volumes relative to surgical volumes that we've had in some time. Roughly, again, 75% of our case volumes in the quarter were medical and typically we'd be running two-thirds. So I think there was just some dilution impact there. We did see our case mix index increase for both medical and surgical in the quarter. But overall, it kind of came at a little bit lower than prior quarter because of that dilution impact of the higher medical which typically runs a lower acuity index.

Operator

Thank you. Ladies and gentlemen, this concludes our question-and-answer session. I'd like to turn the conference back over to management for the closing remarks.

Anton Hie

Great. Thank you, Rocco. And thanks to all of you for joining our call today. As always, if you have additional questions, you can reach us at 615-465-7000. Thanks again and have a great day.

Operator

Thank you, sir. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.