Good morning and welcome to the Acadia Healthcare's Fourth Quarter and Full Year 2021 Earnings Call. All participants will be in listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I'd now like to turn the conference over to Gretchen Hommrich. Please go ahead.

Good morning and welcome to Acadia's fourth quarter and year-end 2021 conference call. I'm Gretchen Hommrich, Vice President of Investor Relations for Acadia. I'll first 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 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 quarterly and annual financial performance for 2022 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 belief, anticipates, plans, expects and similar expressions are intended to identify forward-looking statements. You are hereby cautioned 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 fourth quarter news release. 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, for opening remarks, I would like to turn the conference call over to Chief Executive Officer, Debbie Osteen.

Good morning and thank you for being with us today for our fourth quarter and year-end 2021 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 about our financial and operating results for the fourth quarter of 2021 and our guidance for 2022. Following our comments, we will open the line for your questions. We are pleased with our financial and operating results for the fourth quarter of 2021, completing another year of strong growth for Acadia. These results reflect robust demand for our behavioral health services. While we faced challenges late in the fourth quarter of 2021 and early in the first quarter of 2022 related to the surge of the Omicron variant of COVID-19, we continued to see solid year-over-year volume growth and strong operating trends. During the Omicron variant surge, we saw more cases across our entire portfolio than at any other point in the pandemic. While the timing and the impact has varied from one market to another, we saw the greatest overall impact starting in December; cases accelerated further in January and then quickly dropped at the end of January. Despite these challenges, we continue to be successful in recruiting new employees by evaluating real-time data to identify any needs and utilizing our centralized recruiting function to support our facilities. Additionally, our facilities continue to manage through COVID with support from our operations and clinical teams and using the same strict protocols that we have had in place since 2020 with minimal disruption to patient volumes or operations. For the fourth quarter of 2021, our same-facility revenue increased 10.7% compared with the fourth quarter of 2020, including an increase in revenue per patient day of 7.8% and an increase in patient days of 2.7%. Throughout this year, we have remained focused on providing care with the highest standards of safety for our patients and the communities we serve. We are fortunate to have an experienced and dedicated team of employees and clinicians across our operations who have continued to provide quality patient care for those seeking treatment for mental health and substance use issues. We are extremely proud of our team of employees for their unwavering support of our patients under extraordinary conditions. Our strong results reflect our ability to manage our operations and execute our growth strategy, despite a challenging environment. As we have managed through the global pandemic, we have seen a greater societal acceptance of treatment for mental health and substance use issues and the demand for our services remains very strong across all of our service lines. Acadia is uniquely positioned and our diversified service lines offer treatment options across all areas of behavioral health, including those with acute psychiatric needs, substance use disorders, eating disorders and co-occurring disorders while treating patients of all ages. Our expansive network of treatment facilities and options across the country enable greater access to care, allowing us to serve the diverse needs of patients while maintaining a keen focus on the individual's needs. The fourth quarter of 2021 was very active with respect to key strategic initiatives across our service lines to support sustained long-term growth and address the unmet demand for behavioral health services. In the fourth quarter, we added 13 beds to our existing facilities, bringing our total to 295 bed additions in 2021, extending our strong track record with almost 900 beds added over the past three years. We also acquired the real estate for three non-operational facilities, which are located on the north side of Chicago, Illinois. Prior to reopening, Acadia will make infrastructure investments to improve the behavioral health facilities, which will operate as Montrose Behavioral Health Hospital. The 60-bed children's hospital and outpatient facility are expected to open in the summer of 2022 and the 101-bed adult hospital is slated to begin operations in 2023. This is an exciting opportunity for Acadia to enter the greater Chicago area and address the significant need for behavioral health services for adults and children. We continue to expand our network of comprehensive treatment centers, which are designed to address the growing and critical need for medication-assisted treatment for patients dealing with opioid use disorder. During the fourth quarter, we opened five CTCs, bringing the total number to 10 CTCs opened in 2021. During the fourth quarter, we were pleased to announce three new joint ventures expanding our market reach to 16 partnerships. Each of our partners conducts a thorough and competitive process. We are chosen as their partner because of our strong proven track record, reputation for high-quality care, experience in behavioral health and our knowledge in constructing new behavioral health hospitals. We collaborate with our partners to meet the needs of the system and the communities that they serve. Additionally, it is important to our partners that our mission, values and culture align with theirs. Our latest partners include Fairview Health Services, one of Minnesota's leading health systems to build a new hospital with 144 beds in the Twin Cities area; SCL Health, a premier healthcare system in Colorado, for a new 144-bed facility in the Denver area; and Orlando Health, one of Central Florida's premier health systems, to expand inpatient and outpatient programs and community outreach. We also continue to expand our operations in high-growth markets through select acquisitions that meet the criteria of our disciplined capital allocation framework. On December 31, 2021 we completed the acquisition of CenterPointe Behavioral Health System, the largest dedicated behavioral healthcare provider in the state of Missouri. The acquired assets consist of four inpatient hospitals and 10 outpatient locations. CenterPointe is an attractive acquisition opportunity because of its growth projects and other initiatives in place and its existing footprint in Missouri, which is a state that requires a CON. This transaction is consistent with our growth strategy and we look forward to pursuing additional acquisition opportunities for Acadia in the year ahead. Through our facility expansions, de novos, joint ventures and acquisitions we have added 681 beds to Acadia's network in 2021. We also see significant growth opportunities to expand the continuum of care by adding outpatient services. In 2021, we added 28 comprehensive outpatient services including partial hospital and intensive outpatient at our acute and specialty facilities. Our success in 2021 confirms the strength of our operating model and our ability to execute our growth strategy. We are encouraged by the favorable trends in our business and believe we are well positioned to capitalize on the expected growth in demand for behavioral health services. This pandemic has pushed the need for mental health and substance use treatment to the forefront. In a study published in the Journal of the Lancet Regional Health, the percentage of adults who experienced elevated depressive symptoms was 8.5% before the pandemic, 27.8% in the early months of 2020 and approximately 33% in 2021. The research has noted that the outcomes are notably different than those observed after other national crises. Typically, they would expect depression to peak following the traumatic event and then lower over time. Instead, they found that 12 months into the pandemic, levels of depression remained high. As always, our primary mission is to support the patients and communities we serve. We will continue to focus on providing high-quality patient care while extending our market reach and advancing our position as a leading behavioral healthcare provider. I would also like to provide a brief update on the CEO transition. As you know, I extended my retirement date to March 31. While I look forward to my retirement and continuing my role on the Board, I remain committed to working closely with the management team and Board to ensure a smooth CEO transition. The Board has conducted a thorough and highly selective search process. We hope that we will have an announcement soon and look forward to updating you. We will not make any further comments on the CEO search on today's call. Now, I will turn the call over to David Duckworth to discuss our financial results and 2022 guidance in more detail.

Thanks, Debbie, and good morning. Revenue for the fourth quarter was $593.5 million compared with $541.3 million for the fourth quarter of 2020. The company recorded income of $17.9 million and $32.8 million in the fourth quarter of 2021 and 2020 respectively, related to the provider relief fund established by the CARES Act. Excluding this income from the Provider Relief Fund, Acadia's adjusted EBITDA for the fourth quarter of 2021 was $138.2 million compared with $125.1 million for the same period last year, and adjusted income attributable to Acadia stockholders per diluted share was $0.67. For the current period presented in our earnings release, adjusted income excludes transaction-related expenses. In 2021, we continued to strengthen our financial position and reduce our debt. Our balance sheet remains strong with ample liquidity, flexibility, and capital to support our growth strategy. On December 31, 2021, we completed the CenterPointe acquisition for cash consideration of approximately $139 million, which was funded through a combination of cash on hand and borrowings of $70 million under the company's revolving credit facility. As of December 31, 2021, Acadia had $133.8 million in cash and cash equivalents and $430 million available under our $600 million revolving credit facility, both of which reflect the completion of the CenterPointe acquisition. Our net leverage ratio at the end of 2021 was approximately 2.4. During the fourth quarter, the company continued its repayment of amounts received pursuant to the Medicare Accelerated and Advanced Payment Program under the CARES Act. Of the $45 million of advanced payments received in 2020, the company repaid $25 million in 2021, including payments of $8.2 million in the fourth quarter. We will continue to repay the remaining balance throughout 2022. In September of 2021, we also repaid half of the approximately $39 million of 2020 payroll tax deferrals, and we will repay the remaining portion in the second half of 2022. Now turning to our guidance. As noted in our press release, we are providing guidance for the full year and first quarter of 2022. First for the full year 2022, our guidance includes revenue in a range of $2.550 billion to $2.600 billion; adjusted EBITDA in a range of $575 million to $610 million, adjusted earnings per diluted share in a range of $2.85 to $3.15, interest expense in a range of $65 million to $70 million, a tax rate in a range of 25% to 26%, depreciation and amortization expense in a range of $120 million to $130 million, stock compensation expense of approximately $30 million, operating cash flows in a range of $350 million to $400 million, which includes $39 million in repayments of Medicare advanced payments and payroll tax deferrals; expansion capital expenditures in a range of $290 million to $340 million; and maintenance capital expenditures of approximately $50 million. And for the first quarter of 2022, our guidance includes revenue in a range of $600 million to $610 million, adjusted EBITDA in a range of $130 million to $135 million and adjusted earnings per diluted share in a range of $0.62 to $0.66. As a reminder, this guidance does not include the impact of any future acquisitions, divestitures or transaction-related expenses. Our first quarter guidance considers the normal expected seasonality with volumes ramping up after the end of the year's holidays and the higher level of payroll taxes we incur at the beginning of the year. While our first quarter guidance reflects the impact of the Omicron variant on our patient volumes and staffing costs in January, it also reflects strong volume trends in the month of February. Our full year guidance represents our confidence in the business supported by favorable demand trends and a strong growth trajectory. As it relates to Acadia's growth in 2022 and beyond, we have previously shared Acadia's strategy that is centered around our distinct growth pathways that we believe will provide additional opportunities for Acadia to reach more patients in new and existing markets and support the strong demand across all of our service lines. First, we continue to believe that facility expansions are a key driver of our growth and represent the best return on investment. When we add beds to an existing facility, we can meet the growth and demand in that particular market, but also leverage the existing facility's cost structure, which allows us to improve margins and profitability. We have a goal to add 300 beds through facility expansions this year, and each year through 2024. We continue to identify opportunities to accelerate and add to these projects. An important growth objective for Acadia is to identify underserved markets for behavioral health treatment and develop wholly-owned de novo facilities that help fill this gap. Acadia has a strong record of success with six acute de novos and 21 CTC de novos opened since 2014. We believe there are approximately 100 markets with a significant need for inpatient psychiatric beds. In 2022, we expect to open two de novo inpatient facilities, which include the 60-bed Children's Hospital in Chicago, and an 80-bed facility in Indio, California, along with six to 10 CTC locations. For years after 2022, we expect to open one to two inpatient de novos per year along with six to 10 CTCs. As a leading provider of Behavioral Health Services, we are especially proud to work with leading health systems across the country, who are looking for a strong partner to help expand behavioral health treatment options in their respective communities. For Acadia, these joint ventures provide market access that might not otherwise be available and allow us to leverage our partners' established reputation in the community and relationships with payers. Later this year, we expect to open two new facilities through joint ventures with Covenant Health in Knoxville, Tennessee, and Lutheran Health Network in Fort Wayne, Indiana. We will continue to seek partnerships with premier health systems, who share our commitment to expand access to quality care and behavioral health treatment. In 2023 and 2024, we expect to further accelerate joint venture openings and open between four and five joint ventures per year. To summarize, in 2022, we expect to add over 600 beds through approximately 300 bed additions to existing facilities, opening two inpatient de novos and two facilities with JV partners and also open six to 10 CTC locations. In 2023 and 2024, we expect to accelerate our bed additions by opening between 800 and 1,100 beds per year. We are very proud of the visibility that we have into our growth, for the next several years, which will enable us to meet the robust demand for our diversified services. Through our investment in our business, our focus on cost management initiatives and our disciplined capital allocation strategy, we expect to achieve a 10% EBITDA growth rate over the next several years. This is supported by the strong industry demand, our proven operating model, our financial strength, and our ability to deliver greater value for our patients, the communities we serve and our stakeholders. With that, Grant, we are ready to open the call for questions.

Our first question today comes from Brian Tanquilut with Jefferies. Please go ahead.

Hey, good morning and congratulations to you guys. I guess Debbie, my first question for you. Obviously, a lot of concern about the labor market and what it looks like especially for behavioral providers. So if we could just address that? I mean what are you seeing? How are you thinking about the labor environment going forward? And how should we be thinking about. Obviously, you had good margin performance this past quarter. How should we be thinking about that? Thanks.

Well, I think we are in a tight labor environment. And I think we've been dealing with that for some time, certainly throughout all of 2021. I do think that some markets are impacted more than others. And we have been able to manage through the challenges, I think in 2021 with all of the waves that we saw in the early fall and then into December, the team has done a very good job of demonstrating that we can manage those labor challenges without restricting our growth. I think we've done a few things that I think made a lot of sense and have made the difference. And one of those is having a centralized recruiting team that supports our facilities. So as we see needs then we have real-time data that we know what we need at each facility, we are able to mobilize that team and they have been successful in recruiting, and they were successful in recruiting even though December was a very challenging time with Omicron and absences, but the team continued to recruit. And I think the other part of what we tried to focus on and we've done that consistently is making sure that we are retaining employees. So we've done a lot this past year to onboard and other programs that we've implemented across the company to ensure that when we do recruit an individual that they stay with us. And I think that there are things that are important to our staff. Certainly, monetary and money is important, but also the environment and safety and flexibility and those elements we also have focused on as we think about how to retain our good staff. So it's a tight market, Brian, but I think we've shown that we have the right process and we see that in 2022, we've already seen that through January that we can recruit staff and we plan to retain them and we're very optimistic that we can weather any challenges that might present.

I appreciate that. And then Debbie, the drug distributors just signed their settlement or agreed to the settlement with the states on opioid stuff. And there's a lot of discussion about distributing those dollars for opioid addiction treatment. So just curious, if you're hearing anything from your state yet in terms of what that benefit or how that benefit would trickle down to providers such as you guys?

Yes. I mean, we were pleased to see that the settlement actually did get settled. And we have been involved even prior to this last week with our states. And we've been talking to them about what's important. And as everyone knows, we are in a crisis situation and there have been over 100,000 deaths of individuals. So what we are focused on with the states is expanding coverage and also service expansion, other ways to deliver care, workforce development, tracking outcomes and other things that we can do to demonstrate that we're effective in what we offer to our patients. I do think that it is going to be a process. Each state is allowed freedom. But there are certain few things that are stipulated in the settlement. And that is that these funds have to be used for opioid treatment and preventative and so they can't be used for other things within the state which I think is positive. And so what we're doing is just making sure our voice is heard, our lobbies are engaged. And then also our leaders in the CTC division have been very active in talking with state officials and others that will make decisions about how the money gets distributed.

Awesome. Thank you guys.

Thank you.

Our next question comes from A.J. Rice with Credit Suisse. Please go ahead.

Hi everybody. And best wishes to again, Debbie. We get to say that two calls in a row. There's a lot of development activity that you're doing: new beds addition, JVs. You've got the CTC expansions. Can you just remind us on those different avenues of growth? What is the start-up cost typically? How long does it take to get to a mature margin, or contribution on those? Maybe if you could just walk through. And I'm assuming, but I'll ask you to confirm that you have factored all that development into your guidance for 2022, that that is reflected in the outlook you've offered last night.

A.J., yes, our 2022 guidance does assume some increase in our start-up losses over what we incurred in 2021. We factored in start-up losses in a range of $15 million to $20 million for those new facilities that opened this year, of which there are four, which is some growth over 2021's openings and we expect that to further accelerate going into 2023. Our goal is that our new facilities will be at breakeven by the end of their first year of operations and it will be at company level margins around the third year. Many times as we look at a joint venture project, we do set a faster ramp-up for that joint venture facility, given that we do have somewhat of a head start with relationships in the community through our partner with referral sources and with payers in that location. So we have seen some joint ventures ramp faster than a wholly-owned inpatient de novo. But our goal for all of those facilities is that they would be breakeven by the end of that first year. Losses can vary some from one new facility to another. But in general, in that first year per facility, the loss is between $2.5 million to $4 million. And that, like I said, that $15 million to $20 million that we expect for this year is factored into our guidance.

And A.J., I'd just say, we have a start-up team that is very engaged in making sure we're prepared before we open a facility. They have done, I think, just a very good job in just looking at all the detail that goes in before we get open to try and minimize that period of reaching breakeven. And I think, as David said with the JVs, as we leverage the relationship of our partner, we found that it does help reduce that time. They very often will have beds that they are putting into the joint venture as well as staff and physicians. So that is favorable when you look at just getting a facility open and getting to a point where we are at breakeven.

Okay. And just maybe my follow-up question. You had strong pricing this quarter up 7.8% on revenue per patient day. I know that can be partly patient mix. It could be partly absolute year-to-year pricing. Can you just maybe talk about what you're seeing there?

Well, as we think about our reimbursement, we've been fortunate because we have had some very strong rate increases in 2021. Our payers are supporting us and they're recognizing the services and the need for our services. We also have a component of service mix, which is our acute and larger specialty facilities have a higher revenue per day. And they have represented a greater portion of the volume growth. The demand is strong in both of those areas. We do have, as we look at our payer mix if we, as we've seen specialty it recovered early in 2021. We see more patients traveling to our specialized facilities. Those patients tend to be more commercial and they are covered by commercial payers. So, that has played a role in just the strong net revenue as well as some of our specialty programs we become even more specialized with opening new programs within our specialty hospitals. And again our payers recognize that that requires more intensity and also staff and they've been willing to give higher rates for those services.

Okay, great. Thanks so much.

Thank you, A.J.

Our next question comes from Kevin Fischbeck with Bank of America. Please go ahead.

All right. Great. Maybe just to clarify that last question there. How does the growth in CTC revenue impact kind of the revenue per day? Is that contributing to a higher revenue per day because that revenue comes in without a day attached to it, or is that broken out separately from that metric?

Yes. Kevin, any growth in our CTC revenue, whether it's volume or pricing within that division does impact our revenue per day stat. And what we've seen is that since that division's growth rate is in line with our other service lines, it doesn't really have much of an impact on the metric. Where we could see an impact is if their growth rate is significantly different above or below the other service lines. But since it's pretty much in line with other service lines, it does not have a significant impact on the metric currently.

So, you view that as a good representation of actual rate per day.

Yes, along with the factors that Debbie mentioned around service mix, payer mix, and then of course the payer rate increases.

Okay. And then just another question I have is that you guys announced a lot of construction this year, the CapEx guidance is up this year but you're looking to accelerate that again going forward. Just want to make sure I understand. Do you guys believe that you're going to be able to fully fund that CapEx spending over the next couple of years through free cash flow, or would you have to potentially borrow some money to finance the big growth embedded to ads that you're expecting in the next couple of years?

Yes. Our current outlook suggests that even with an increase in the expansion capital expenditure guidance for 2022, we should be able to fully fund that spending with cash flows as we have in the past. Looking ahead, as opportunities continue to grow, we believe we will be able to finance those projects as well. In the longer term, we expect to have a larger surplus in free cash flow compared to those expansion investments. However, for the next couple of years, where we anticipate an increase in capital expenditures, we do not expect to utilize our existing debt capacity, as these should be covered by free cash flows.

All right, excellent. Thank you.

Thanks, Kevin.

Our next question comes from Whit Mayo with SVB Leerink. Please go ahead.

Hey, thanks. Just a couple here. Maybe just on the development topic for a second. I mean, I don't think that the demand side of the equation has changed or the industry has really changed, but the velocity of the activity and the number of press releases that are coming out from you certainly has changed. I know you've added some resources internally, Debbie. I don't know if that's having an impact or influence. But I don't know if you just had to kind of put your finger on here sort of like one to two key observations that we're making today that we think is driving this level of increased engagement or activity, what would you point us to?

I believe our bed expansions are driven by strong market demand. The team at our facility recognizes this demand, as our occupancy levels are robust. They see the potential to increase bed capacity within our existing operations, which is crucial for our returns. Regarding our joint ventures announced in the fourth quarter and the six partners added in 2021, health systems are actively seeking solutions for mental health and substance abuse issues, particularly as patients remain in emergency rooms for extended periods. This demand has been a significant driver for us. We've assembled a strong team focused on this area, and Acadia has effectively communicated our proven track record. Potential partners visit our existing partnerships, observe our operations, and engage in discussions, further affirming our value. This demand also reflects a broader acceptance of seeking help, leading to bed expansions and collaborations where there's a shortage of facilities for treating patients. Following our transaction in Missouri last December, we anticipate opportunities as some providers may not be performing well in this environment, which has persisted for several years. Our current low leverage positions us well for growth, prompting strategic considerations regarding capital allocation. Opportunities exist across all our services, and we are fortunate to benefit from diversification while being positioned to act on these demands throughout the United States.

That's helpful. Maybe just to follow-up. I don't think I heard you specifically give any numbers around CenterPointe. I mean, I think we have an idea and there are some numbers in the public domain. But really, I'm looking for the expectation that you see around just the EBITDA contribution this year and how that could potentially grow over time, as you implement some of your initiatives and synergy opportunities.

We are excited about the transaction, Whit, as it aligns well with our acquisition goals and presents opportunities to enhance their margins and introduce new beds and other growth projects that will significantly improve the growth profile of those facilities and complement what Acadia is doing in our existing locations. We believe there will be improvements as we integrate these facilities into Acadia, which is reflected in our guidance for the year following the acquisition closure on December 31. This accounts for approximately 4% of our revenue growth. Historically, their margins are below the Acadia average, but with the growth initiatives we plan to implement at these facilities, along with the processes and platforms we can introduce, we expect to see margin improvements in the first year and beyond.

Well, let me just ask one follow-up question there. I mean, you said earlier, David, I think expect $15 million to $20 million of startup losses. Is it possible that CenterPointe can absorb all of that, half of that? Just maybe trying to think through what the overall impact will be this year?

Yes. Yes, Whit. I think as we historically look at the business, kind of looking back at 2021, the acquired EBITDA is more in the range of $10 million. And as we think about where they should be exiting the year, we do think that they could grow to a run rate closer to $15 million by the end of the year, so somewhere in the $10 million to $15 million range would be our expectation in year one of that acquisition.

And I do think, Whit, with CenterPointe, they had very concrete plans and actually had started executing on those plans, which we always like to see. It was not a pro forma of something that might happen, but it was happening. So we think that's going to feed very nicely into our bed expansions and even other opportunities to grow the continuum. They have a very strong outpatient base and a very motivated team that is putting those programs in place. So it's one where it met all of our criteria that we've set, as we think about opportunity for M&A.

Great. Thanks for the time.

Our next question comes from Pito Chickering with Deutsche Bank. Please go ahead.

Hey. Good morning, guys. Thanks for taking my questions. I echo A.J.'s comment to GRANT, and I guess, we'll see you soon, steady. Maybe 1Q, I guess, we'll see what happens. Going back to Brian's question on labor, difference between your results and your peers is pretty substantial. So a couple of, sort of, quick questions. Can you quantify your staff retention in the fourth quarter and how it was in 2021? Can you quantify any acquisitions you hired in the fourth quarter versus third quarter? And can you also refresh us on what percent of that could be in the fourth quarter due to contract labor versus overtime? And how they track versus 3Q, how we should think about that in 2022?

Pito, our retention throughout 2021, including the fourth quarter has been stable. There are markets that are different. It does vary by job category and by market, but we've had a very stable retention as we've gone through the year. And I do not have new hire metrics, but the last time I looked at that, that's also been very stable along with our retention metrics. With respect to just our percentage of labor, we do have premium pay components to our labor that we use in certain markets, sometimes just temporarily, especially if there's a higher level of sick pay because of the pandemic. But that premium pay labor was consistent in the fourth quarter with where we trended earlier in the year. We do still see agency labor at around 2% of our overall labor cost and the premium that's related to that agency labor has been consistent. It's about two times our base wage rates. Over time, another source of premium pay labor has also been very consistent. It's more like 5% of our labor. So we continue to do a great job at a local level, just finding staff to support the volume and the demand that we see across our markets, and the premium component of our labor has been stable.

Okay. And then a follow-up question. During the pandemic, commercial payers generally managed on to stay as aggressively as they did prior to COVID. Just curious what behavior you're seeing from commercial payers managing like a stay, sort of, today versus 2019. And sort of as a follow-up on the pricing question, as you look at commercial revenue per day price increases in 2022, I guess, where does that fit relative to where it was in 2019? Thanks so much.

Pito, we didn't really see a big change in the behavior from our commercial payers. We certainly have to follow a process of showing that there is a need for our services, whatever service that might be. And we did not see that really relaxed. In fact, our length of stay has been fairly stable for our acute service line, it's been around nine days. And so I think that we work in collaboration with our payers. They're interested in high-quality service that's done in the right setting, and we work very diligently to make sure that happens. So we didn't see a big pullback during the pandemic, at least, across our services with our payers, where they relaxed requirements. Medical necessity is still important to them. And our clinicians and our teams at the facility level still have to show that that's in place. And I think they've done a good job of that. And we are, from time to time, will see a little bit more acuity out among our facilities. But, overall, it's been pretty stable.

And then the commercial rate increases per day in 2022 versus 2019. Can you just help quantify that for us? Thanks so much.

We continue, Pito, to work closely with our commercial payers, maintain good relationships. As you know, most of those are an in-network, long-standing relationship that we've had. And of course, the discussion regarding rate increases factors in just the value, the quality of the care that we provide across our markets and services and different programs. And I think our payers realize the importance of the services we provide and the pricing expectations really depend on the market, depending on the payer, the past increases that we may have seen. But on average, it would be consistent with what we've seen historically, which we would say is in the 3% to 5% level. Many payers, it could be more than that. And it depends on a number of factors. But that pricing increase across our commercial payers on average has not really changed as we think about what the average was a couple of years ago.

Great. Thanks, so much guys.

Our next question comes from Andrew Mok with UBS. Please go ahead.

Hi, good morning. Just a couple of follow-up questions. On labor, can you help us understand the different labor pressures between inpatient and specialty settings? And which setting are you seeing labor pressure and what's driving that difference?

Yes, Andrew, we believe that our diversified services and geographic reach have aided us from a labor standpoint. While we have behavioral components, the makeup of our staffing varies between service lines. For our acute service line, we tend to have a higher percentage of nurses, whereas in specialty, we have more therapists and counselors compared to acute. We don't provide distinct metrics or wage inflation for these service lines as it also varies based on the geographic market. However, reflecting on our service lines and our ability to navigate a challenging labor environment, we feel that both our service line diversification and our presence in various geographic markets have been beneficial.

And then just sort of a quick follow on the quarter. Was there any benefit from state supplemental payments that you would call out?

Yes. We finalized and approved a new program in Florida, specifically the directed payments program, and we recorded the full annual benefit of approximately $4 million in our fourth quarter numbers. Alongside the strong pricing and revenue per day trends we've experienced, this program contributed $4 million in the fourth quarter. Our guidance for next year indicates a strong likelihood that this program will continue into 2022. However, for 2022, we expect it will not be recorded in a single quarter as it was this first year when the program was implemented for the first time. Additionally, we participate in various supplemental programs across other states, many of which have been in place for a long time. Florida was the only one in the fourth quarter that provided us with an incremental benefit.

Got it. Thanks for the color.

Thanks, Andrew.

Thank you.

Our next question will come from Matthew Borsch with BMO. Please go ahead.

Yes. I'm just hoping that maybe you could just talk about how you're thinking about your long-term forecast for opioid treatment. I mean do you, based on the sources that you look at, do you see any sign of abatement in the forecast as you look at it?

Well, as we look at the demand and just the prevalence right now of those using opioids, as we think about our states and we're in many of them, we think that there is still a need for additional clinics and services. And I think that what's happened with the pandemic has made a real crisis even worse than it was before. We are seeing individuals that are seeking opioid treatment. And we're also, I think, seeing at the same time some very favorable trends in reimbursement. So Medicaid mandated the states to cover opioid treatment in October of 2020. And then in the first part of 2021, Medicare became effective for opioid treatment. So we're thinking about – we added the 10 clinics in 2021 because we do think there still is a big need for these treatment services. And we also see that continuing. And I think it's gotten even more – the crisis is worse than it was. When you think about the 100,000 overdose deaths and the worsening of the epidemic, there's also fentanyl coming in now that has caused some of this but it's really – it's an increase in deaths of over 30%. As we look across our stage, we believe there are opportunities to add our services. We provide a very robust, I think, service offering, which we have individuals and demand that is growing every year. And so we – as we look ahead we don't see that abating. And we will continue to add clinics there. We do have less capital involved when we do so, and we have a very strong team and they have a lot of experience. We're the largest provider. So we see it as a good opportunity to add in states. We're pretty careful about where we put our clinics; not every state reimburses at the same level. There is some variation. But overall, we think that as this crisis is happening and getting worse that we're in a good position and we'll continue to add to that service line.

And maybe just on a similar note on the long-term planning as you talked about 100 new markets, if I understood your comment, can you generalize at all about what characterizes the new markets and how you screen them?

Well, as we look at de novo builds and yes, there are 100 markets that we believe are underbedded. We have some very clear criteria of what we look for. And we do a lot of front-end work to make sure that it is a market that yes, it's underbedded but also has other factors that are present. We look certainly at reimbursement. We want to make sure that we can enter a market and have staff availability. We look at construction costs. Some states differ in what a bed cost to build. So usually, fortunately, if it costs more to build a bed, the reimbursement is stronger. So all of that is contemplated. We have a very, I think it's a very robust process around that now of just where we're building and what makes the most sense. So we would not suggest that we are going to build in 100 of those markets, but there are a number of markets that we've identified in our process. We meet every couple of weeks just on that on de novos, where we are how – what are the steps and the team on the operations side are very engaged in making sure that we can get ahead because there is a process involved when you build a hospital and steps that have to take place. But we think that's a real opportunity for us to grow based on the strong demand.

All right. Thank you and congratulations.

Thank you.

Our last question today comes from Sarah James with Barclays. Please go ahead.

Hi. Thanks for squeezing me in. Can you talk a little bit about how you're viewing seasonality for this year? Are you assuming any sort of improvement in the labor market or availability of labor in the second half?

Sarah, we of course factored some seasonality into our first quarter which is very typical for what we've seen in the past around the holidays and payroll taxes. And then this year the greater number of cases in January, from the Omicron variant. We mentioned that we've really seen a return to the strong trends in February. So, that is factored into our guidance. Outside of our first quarter seasonality, we do not see a lot of seasonality later in the year. We see some in the fourth quarter just around the end of the year holidays. But we do think that, Q2 and Q3 are very similar. As it relates to labor, we do think that the labor environment that we see now will continue through a lot of the year. Maybe in the second half of the year, we could get some moderation in some of the premium pay and other things that we've seen, which in our minds are very closely correlated to just COVID cases and replacing employees that are out. But other than some moderation, especially around premium pay, we think that the labor environment will be pretty stable throughout the year.

Great. And the cost-saving initiatives that you guys flagged earlier for driving long-term 10% growth. Can you give us a little color on what those are? And if any of that opportunity is reflected in the 2022 numbers?

Well, we identified some cost savings targets, I guess, 2.5 years ago and realized most of that $20 million by early 2020. And our team facility, corporate, a new procurement team that we established has done an outstanding job sustaining those savings and having programs in place to really manage a lot of our purchasing at a facility and a corporate level. So those savings have been sustained. And there's an ongoing focus on what other efficiencies and savings can we identify. None of that is really factored in directly into our 2020 guidance. In other words, we did not set externally a new target, but it's really become embedded in the way we approach operations, the way we manage our cost according to the patient volumes that we see. We do have some margin improvement, that's reflected in our guidance relating to our same facility group, around 50 basis points of margin improvement for that group. And that, of course, does reflect efficiencies from our volume growth, but also just an ongoing focus from the operations team around cost management.

And Sarah, I'll just add to what David said. We put in a real disciplined framework around the facilities and utilizing our scale and the size of the company. We changed purchasing groups a couple of years ago. And the number of facilities taking advantage of that resource and the pricing that comes with it has gone up pretty dramatically. And I think, they can see as we experience some of these inflationary issues with food and other things that we're in a good place and we have a good framework. So we're – that's another area that we meet regularly on which is really to make sure that we're identifying ways to use our scale and in our contracting and other pricing, because we are a big operator and we want to take advantage of that size as we deal with our various contractors and other vendors.

Congratulations again, Debbie.

Thank you.

Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to Debbie Osteen for any closing remarks.

Before we end the call, I would like to say that it has been my great privilege to play a part in the extraordinary efforts of the more than 20,000 mental health clinicians, nurses, physicians and staff, who have helped patients in need gain hope and stay on the path towards recovery and healing. This opportunity has truly been the highest of my career and a highlight for me. I'm proud of our team, and what we've accomplished since I joined Acadia in December of 2018. Over the last three years, I have witnessed the remarkable commitment from all of Acadia's dedicated employees, under the most trying circumstances. I've been rewarded every day knowing that our work is improving and saving lives. Acadia is well positioned to continue implementing and executing our strategy, and our growth pathways, solidifying our position as the largest stand-alone behavioral health care company in the US. I look forward to continuing my role on the Board. Thanks again for being with us today, and for your interest in Acadia Healthcare. If you have additional questions today, please do not hesitate to contact us directly. Have a good day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.