Ardent Health, Inc. (ARDT) September 2026 Conference Transcript

Yeah, so thanks, everyone, for joining us. Pleased to have Ardent Health joining us. As I'm sure many of you know, Ardent's an operator of acute care hospitals. With us from the company, Dave Casper's CEO, Alfred Lumsdain, CFO, and IR, David Stiebelow. So thank you for joining us. Of course, opportunity to make any introductory commentary you'd like, but obviously there's a lot to talk about with some of the leadership transition as well. So just let us know where you'd like to start, and we'll get right to it. Okay, so we'll jump right in. Okay. Well, Dave, I mean, maybe with your transition to the CEO role, I mean, maybe just spend a minute taking us through, like, what are your top priorities? You know, why are these the top priorities and kind of what changes as you move into this role and what your key focuses are?

You bet. Thank you. You know, our strategy or my key focus is really isolate on three particular elements. And you can see them on the slide there. First, of course, is organic growth. And inside of organic growth, we're really focused on what we call capacity IQ. which is really getting the best and smartest use of our assets to really drive margin. Secondarily is operational performance inside of there is strengthening margin. And when I think about strengthening margin and operational performance, we have a program that we call Impact, which is improving margin, performance agility, and care transformation. And the focus there, of course, is despite any headwinds on the top line, is to deliver bottom line EBITDA. And then last is really our disciplined M&A activity. Our team is laser-focused on reviewing all of our portfolio and assets to make the best decision with each of those, as well as to look at every opportunity we can have to make the next best decision to our portfolio in both directions.

Okay. Yeah, well, maybe to start with Capacity IQ, it might not be something that everyone's kind of familiar with in the room. Maybe give us just a minute on what that means and maybe a couple practical examples of what that translates to in the actual operations of the business.

You bet. Capacity IQ really came from this idea and understanding, obviously, that not all service lines are created equal. That you have some service lines that have a particular customer demand that's high that also matches a particular margin that's healthy. And the smarter we are about increasing our access in those particular categories and decreasing, or through atrophy, managing the other service lines so that we have the richest outcome with margin is really critical. That's an example. A second example would be brick-and-mortar bed utilization or imaging utilization. And ensuring that we have the right equipment with the right processes to get the full utilization out of that asset is really critical. There are many parts of the equation to Capacity IQ, but it's us getting laser beam focused on the right financial outcome and the right operational procedures to maximize both.

Yeah, and is there a way to kind of frame, you know, where you are from a staging perspective with Capacity IQ? Is this something that you'd say is like, hey, we're still in like the first inning, maybe the game hasn't started yet, or is this something that, you know, you've probably seen a little bit more impact from in the results at this point already?

Yeah, nope. We're clearly past the first inning in it. You may have heard us in our quarter two earnings describe inside of the operating room the level of volume impact. We did reduce specific categories that were negative margin categories coming into the OR as an example. You'll also see us getting more laser beam focused on cardiovascular and NICU, mom women baby in particular and you'll see us grow those categories and really ensure that we have the right customer access ensure that we have limited leakage and ensure that we have you know the right success in those specific categories okay then when we think you know about the operational excellence side I mean it sounds like some of these initiatives have been in focus for for quite a while I guess when we think about you know parts of the operational excellent strategy that are you know kind of the same and constant versus maybe change under, you know, your leadership?

I guess, how do we think about the components of that and what's going to drive up margins over time?

I think an easy place to talk about the success we've had is really around SWB and looking at the improvements we've made there. Our portfolio has migrated from being viewed as a location by location to a campus-based and national-based organization. And the ability to match the structure to that has been able to drive 15% of our C-suite costs in the markets out of that equation, for example. And that kind of leanness, it speeds up the flow of information. It ensures that we're focused on the same priorities to deliver excellence.

And then on the kind of the impact program broadly, that's a big driver for you.

Can you talk a little bit more about like what the impact program is made up of, like what the key initiatives are within impact, you know, kind of key milestones that you've achieved and kind of what's still in front of you related to impact specifically you bet impact is really three different parts the first is improving margin which you heard me mention a little bit around capacity IQ that is embedded in there the second is around performance agility and that represents our ability to move with speed and the third is care transformation let's talk about a specific element of care transformation as an example we have deployed hello care AI which is a necessary tool and element that allows us to care for our patients differently. It also allows us to enhance the outcome to our patients and improve the efficiency. An example of which the tool allows us to take care of patients who would normally require a sitter. The previous productivity level would be one for one. The productivity level using Care AI allows us to be 10 to one or greater, which if you think about the ability to enhance productivity through that or through changing in the way in which we discharge patients our ability to be in the patient's room immediately leveraging virtual care technology to better educate them with give them the full and ample time that they need and to expedite their discharge has improved our length of stay which is part of full utilization of capacity as we started the program in 2025 we turned in the first five million. As we turn the page on 2026, we've moved the number twice and are at 70 million and counting. We have a conveyor belt full of balance of activities for this quarter and for 2027. We've stood up a team that we call Optimization and Performance Improvement, or OPI. That team's job is to constantly evaluate where engineering can take place and sharpen and reduce expenses, sharpen margin and reduce expenses. So you'll see this carry forward well into 2027 and beyond.

Okay, great. And then, you know, another, you know, newer strategic initiative appears to be, you know, what you're doing around, you know, payer recontracting. You know, at a high level, you know, maybe just take us through, you know, how this opportunity has become, you know, more clear in recent periods and how you're thinking about identifying and what the potential is here over time across the company.

Yeah, I'm going to start off with kind of three pieces of this equation. Then I'm going to turn it over to Alfred to speak in the details and specifics of how we're performing. But as we looked at payer strategies, or I call them payer hydraulics, our ability to get lift off of those elements, we first needed to get on offense with our legal team, ensuring we got paid for the work we did. And the second piece of that is really our partnership with Ensemble. The partnership with Ensemble helps us to organize our data, understand the situation with speed and leverage their technology and our partnership to both move forward with legal equations and also to translate to the payer strategy team clear data of where we are today, where negotiations should be, and how we deserve to have the appropriate contract in the right communities for the business that we do provide care for. And we've pivoted from location-based payer strategies and negotiations to a national payer strategy in negotiations, and we've shifted those negotiations to be more in alignment so we can move at a regular basis in years to come. And I'll ask Elford to speak to the success that he's been driving through this and we've been seeing through this.

No, thanks, Dave. And I think that last point is really important, moving from a local team and a local strategy to more of a national team, national strategy. You know, they're just our local dynamics when you're negotiating a contract, and unfortunately we are in a world that having to push really hard moving the negotiation to the last minute seems to be just part of the playbook. It's unfortunate, but it's the reality that we deal with. Having the data now really gives us, through the transparency data, gives us, we'll call it leverage in the negotiation. Look, we We just want to be paid fairly for the work we're doing in the market, be paid rates that are on par for the quality outcomes that we're delivering in those markets. So we've had, as we've implemented this strategy in the last year, we've brought in a new team, integrated it with our revenue cycle team to really have a revenue integrity team. We've negotiated four contracts since this new strategy and new team was put into place. We're seeing mid-single digits, which is above our historical recent history from a rate perspective. Equally important, we're also yielding improvements in contract terms. One of these contracts, as an example, we were seeing initial denial rates of 70%, which is just not a sustainable, not a tolerable place to be. And so we implemented rules to governance around the application of denials that will bring that denial rate down significantly. So, again, an equally important part of it. So inside of our current year, we saw out of a single contract that went live on June 1st, a $5 to $10 million lift above our budgeted expectations for this year. And, of course, we'll see a tailwind from that going into next year. But we do see as we go through the renewal cycle over the next two to three years that we are seeing early benefits from the strategy that we think are sustainable for the next renewal cycle.

Yeah, and I guess when you think about kind of the timeline on this, I mean, I think most people's mental model is like, hey, it's going to take three years to kind of cycle through all your contracts. Like, is that how you think about the realization of the opportunity or you're going to go through this, you know, three year cycle and then, you know, you'll get some of what you think you're owed, but there's still going to be more opportunity in front of the company. Because I'm sure that managed care is not going to just do everything you want, probably quite overnight in all cases.

No, I think that's right. But I think you're thinking about it in the right framework, that it is a multi-year strategy, multi-year cycle. and, candidly, just the resource intensity to actually go through this and the potential disruption in the market. In one of these four renewals, we actually had to go out of market for 30 days just because, again, to get the outcome that we think and need, it took actually going out of market. In the other three cases, it went right to the very, we'll say, days or day before the expiration of the contract. And unfortunately, in those cases, there is, you know, those end up hitting the media. Letters have to go to members. But we are just in a world where that does seem to be a part of the playbook.

Got it. And maybe another one now that you're warmed up a little bit, just with Dave's transition to the CEO role, you know, what's kind of changing for you or how you spend your time, what your priorities are? Like, how does that look a little bit different over the next, you know, like, couple of years?

No, I appreciate the question. And I think, and Dave's really hit on it already, just Dave was, you know, Dave's been with the organization, first as COO and now as CEO, so for, you know, close to a year and a half now. And Dave's introduction to the company, he architected the impact program, which he's already oriented you to in this conversation. And I think just that, focusing on the controllables, capacity, IQ, how do we invest in the areas that will create the highest margin? How do we reduce focus on those areas that are not contributing to the overall margin profile and our long-term growth? What are the things we can control and focusing on those? Because we all know the headwinds in the business are well-documented. You know, we believe we're well positioned from being in the right markets and with a footprint that we can yield further optimization. And that, to Dave's earlier point, that's not a one-year strategy. That's a multi-year plan that we're well into. So I think that's a huge, huge focus for the entire organization.

Maybe one more high-level question before we kind of get into some of the trends. You know, the team seems to have started talking more about your clinical engine. Can you tell us more about the collection of assets there and how you're leveraging that to help run the business better? You bet.

There's multiple aspects for the clinical engine to be such a critical component to us, one of which, of course, is getting AI right and selecting the right vendors and partners who are ahead of the game. And in that selection, Epic, Ensemble, Hello Care, Ambience, Juventus, Workday, very essential for us, very essential. We have our first trade show where those vendors come to us to walk us through their next 12 months of architected improvement so that our enhancements on our own work and their enhancements form a confluence that drives value. And our long-term play, of course, is to create as much value as we can. And to do that, we're going to have to engineer like we've never engineered to create that value. in order to do both things, margin up and expenses down. And dedicating and committing to a core set of partners who can help us do that is essential in our roadmap.

And then another area of focus more recently across both your business and kind of the broader sector has just been surgical trends. They were volatile in the second quarter. Inpatient was down a good deal more than outpatient. I think some of the decline, as you spoke to earlier, was the result of deliberate targeted actions for less profitable service lines. I guess could you just update us on the variance versus what your internal expectations might have been for both inpatient and outpatient on the surgical side?

You bet. Before we get into those details, one of the things that encourages me about the situation is there is pent-up demand. Our urgent cares, our clinics, our referral centers, our transfer centers, and our emergency room accepts are all trending very positive. Our ability to translate those and to move through specialty clinical services is really critical. Our ability to translate that and move forward is what gives us strong positive possibilities for the fourth quarter. But asking in the specifics of the performance, I'll turn that over to Alfred for what we're seeing.

We've already touched on some of the dynamic with the capacity IQ and the focus on the more profitable service lines. And that effort yielded essentially half of the surgical decline was directly attributable to those intentional decisions where we were walking back from certain service lines. But to your point, it has been volatile. You know, we had a relatively stable, our surgical volume was actually up just a little bit in Q1. And then we saw a pretty significant, when we announced Dave's promotion to CE, we also announced a fairly soft Q2 surgical backdrop where April and May were quite soft, 5% to 6% down. We certainly saw a better June, July. And that kind of, again, that's a real focus on kind of very short periods of time. But that level of volatility is a little bit new this year and we think somewhat attributable to the overall macro environment as well as the exchange dynamics with a certain number of folks coming off the exchange during that time period. So we did see that, again, stabilization in that June-July time frame. you know we're certainly not forecasting for any improvement over the back half of the year from a year-over-year perspective that we we took that Q2 volume and really forecast that out for the rest of the year from an overall year-over-year perspective and we also you know announced that that for us that was about a 25 million dollar expected impact for the year and the good news with the impact program we accelerated and increased a number of initiatives as well as the pair contract that I mentioned that renewed June 1 the aggregate of those efforts offset fully offset the dynamic of the softer surgical volume having said all that you know we are in a little bit of a challenge sir overall surgical environment Dave's point the top of the funnel looks pretty good. We see high demand at our clinics, high demand at our urgent cares in ER. So if to the extent that we see better conversion than we saw in Q2, that would be upside to the rest of the year.

When I think of, if you don't mind me, I need a few things. One of the things I like about the impact program is the performance agility. And when I think about the middle of the P&L, our ability to respond, to manage the number of ORs we have open, our pro fees associated to those ORs is really critical to protecting the bottom line. And I think kind of going back to, you know, what Alfred might be experiencing that's different now is that we move with great speed to demonstrate that. We know those headwinds are going to exist, but our ability to maneuver to protect the bottom line is really, really critical. I think secondarily, you know, now is a really important time for healthcare to deliver and not allow any leakage. You know, there are patients in need that are flowing through our system, and our ability to tighten up that leakage to ensure the flow through is really, really critical, as is meeting the customer where they are. You know, the customer has pressures, and our ability to help them with payment plans and all necessary elements to ensure they get the care they need is important, because that cannot be postponed for very long. Sure.

Yeah, it's an interesting topical point. There was just an article, I think, in the Wall Street Journal over the weekend about, you know, more adoption from health systems and other providers about sort of pre-screening for ability to, you know, ability to pay co-pays and deductibles, in some cases requiring some kind of form of payment to be established prior to making procedures. And I think a natural area of, you know, concern or maybe speculation might be a better way to frame it. It's just that that could be leading to some of the deferral that you're talking about, I guess, one, do you think, you know, that that is potentially something that we could be seeing here? And maybe people are waiting until there's more copay and deductible coverage before doing things. And I guess specifically to your system, like, have you started to make any changes that require more kind of upfront, you know, payment before establishing procedure schedules and getting people into the OR?

We've always had a very good discipline at upfront payments. So good that we need to walk it back and soften our approach to ensure that it meets the customer where they are. Secondarily, are we seeing signals? Yes. One of the signals I look at is cancellation rates. Cancellation rates on imaging and cancellation rates on near-term surgery. And so as we manage that, we've had to respond by leveraging some of Cuventus' tools that farm forward potential cases that are in the waiting so we are not underutilizing those resources because case volume is there.

Dave, we talked a little bit, you talked a little bit about the Cuventus backbone, but I don't think folks are as familiar with Cuventus. You want to give the investors a little bit more color about how we use that and how that fits into our portfolio.

Sure. I'm glad you asked. Cuventus does a good job helping us to manage the number of rooms to be open, times and schedules, and are we efficient to the estimated times and schedules for those procedures, as well as a connector point between us and non-employed clinicians, specialty clinicians. that connection between us and non-employed allow for easier case loading and case management understanding so that block time is fully utilized. That efficiency where we're bringing together our internal system with our non-employed partner's system is really essential for productivity. And much of it is driven through AI tools that predicts, analyzes, and anticipates what to pull forward.

Great. And if we kind of step back a little bit from just the pure focus on surgical, like the overall volume picture for you is pretty strong in the first half of the year, like adjusted emissions up over 2%, which is, you know, encouraging to see. I guess as you think about, you know, kind of growth in, you know, again, like we'll talk about the exchanges in a moment, so maybe setting that a little bit aside, how do you think about the kind of growth you're seeing across different payer classes, whether it's like commercial versus Medicare versus Medicaid?

Yeah, I'll touch on just from overall payer distribution. And the biggest challenge, of course, has been this year has been, not surprisingly, on the commercial side, you know, the exchange dynamics are well documented. Although for us, you know, we've actually seen, I'd say, a little better exchange volume than some of our, or maybe substantially better than some of our peer set. I think that's certainly partially attributable to the markets we're in. And some of those, like New Mexico, had a substantial replacement of the exchange subsidies. and we've actually seen growth in the exchange volumes in that state. So it isn't kind of one-size-fits-all. And we actually have seen where we have seen people leave the exchange. We've actually seen a pretty substantial number moving into other forms of coverage, whether that's commercial or government coverage as well. So overall, I would say it's been a little bit muted. But, yeah, strictly from a payer mix perspective, commercial has seen the most challenges this year, which we do attribute largely to those ability to pay dynamics with higher deductibles and co-pays. And that goes back to exactly what Dave said of being positioned to work with our patients and consumers so that we're meeting them where they are. Got it.

Okay. And then for, you know, the exchange volumes that remain in the system, maybe this was a bit less pronounced in some of your markets, but we have seen a decent amount of shift from products that have, you know, less cost sharing to products that have more as people try to stay in the market and have lower premiums. I guess how has the company been thinking about this aspect of, you know, the exchange headwind? And I guess when you think about the timeline to actually, you know, collect on some of these cost-sharing items, I guess at this point, do you feel like you have enough visibility to be kind of fully comfortable on that front? Or at what point, you know, would you feel like that's a little bit more, like, well-defined if not?

Yeah, I do think, you know, we're certainly not immune even with the lower exchange exposure than some of our peers, to the underlying dynamics that you've heard others talk about with somewhat increasing bad debt exposure just given the higher amounts of deductibles and related co-pay items. And you're right, there has been a pretty pronounced shift out in the metal levels inside of the exchange volumes. We've seen 12% move. Gold stayed pretty well where it was in 2025, but we've seen a substantial move out of silver into bronze levels. You know, if there's good news attached to that, it's probably that the underlying utilization is lower in those levels anyway. And again, for us, I think the impact has been less pronounced than maybe we've seen some of our peer set. But, you know, it's certainly one of those headwinds that we have as we think about impact program and how do we respond to the overall macro environment and how do we do it in a very fast way, you know, where we have been able to fully offset that lower volume, lower payer, you know, less high commercial payer mix and being able to fully offset that inside of the year.

The good news on that too, Steve, is right at the beginning of the year, our guidance embedded a $35 million headwind related to exchange and those unfavorable payer dynamics that come associated with that. And so, as Alfred was talking about earlier, some of the pressures weren't as pronounced at least in the first half. We continue to keep a prudent outlook for the year, but so far it's been well contained within our guidance range. Consistent with our expectations.

And then, you know, just shift a little bit to the cost side. you know the labor performance you know year to date has been you know very strong i think like swp's up maybe like less than like a percent on an a basis contract labor's down a good deal and maybe update us you know on the labor picture you know i think obviously some of the initiatives on length of stay are clearly having a positive effect but how do you think about the durability of this cost performance and kind of like it's stepping back a little bit like it feels like we have started to see a slowdown in broader wage inflation in the acute care market and things like openings and turnovers starting to ease a little bit as well. I guess how are you thinking about how labor might look over the next couple of years?

Well, first of all, I'm very proud of what the team has done. We've been very organized through our optimization team and impact to be thoughtful about every structure and every productivity level, whether it is in nursing or in imaging or in the ICU or provider productivity. We have standards and protocols to those standards that ensure a great clinical outcome and deliver the productivity that we're looking for. Tools, as we mentioned before, like HelloCare AI, where we go from patients who need a safe sitter with them of a one-to-one ratio to a 10-to-one ratio changes the game. And so we've deployed HelloCare in a third of our markets and will be fully deployed by Q1 of 2027. That changes the game in improving efficiency. That care transformation, which is the tail end of impact, which, by the way, to me, impact is not a defense strategy. It's an offense strategy, really important to call out. This allows us to push forward and continue to redesign, which is instrumental because our ability to deliver the bottom line is really determined by how we engineer the midsection of the P&L. We can do that.

And then just professional fee growth is moderated. So I'm still running at a fairly high level relative to the rest of the P&L. I guess as you're starting to probably work on contracting for 2027, I guess how are you thinking about the trajectory of pro-fee growth going forward?

Pro-fee growth, you know, when we think about capacity IQ, keeping the right number of doors, locations, imaging, ERs, ORs open appropriately is the most important controllable we have in controlling pro fees, at least my opinion. Alfred, I don't know if you want to speak to what we're seeing in the numbers or what we're forecasting.

Yeah, at a tactical level, what we've seen in 2026 is 100% consistent with what we expected. We saw a significant spike in our pro fee growth, particularly radiology, middle of last year into Q3. And as we lap that, we are expecting to see a decline in the year-over-year rate of growth. In the first half, we've been low double digits. In the second half, we would expect that to moderate to high single digits. And I would say working with our providers as well to how can we create more of a, I'll call it a cost-plus relationship where we're proactively working to manage. So I do think that we'll see, you know, our expectations for 2027. I don't want to speak too detailed to 2027, but I do think we would expect to see a continuation of that moderation. You know, we're not in a world where that's going to go to any kind of overall inflation rate, but I do think that we'll see a continued abatement of the year-over-year pressure.

Okay, and then maybe another one for the offer. Just when we think about, you know, the guidance for this year, I guess, How should we think about, you know, the assumptions you've made in the back half? I mean, obviously it seems like you're, you know, assuming that there'll be a greater impact than maybe previously expected in terms of the ramping of that. So that's one thing to consider. I guess how would you describe, you know, the assumptions that you're making around, you know, any kind of change in either the demand environment or the cost environment? I guess what has to happen for you to deliver on your guidance?

Yeah, I think our commentary post-Q2 remains fully intact that the softer overall largely surgical volume environment would be completely offset by the acceleration and growth in our impact initiatives as well as improved payer contracting. And yeah, that thesis remains intact. And as I already mentioned, to the extent that we see a stronger overall surgical environment, that would be upside to our expectations given our forecast embedded continuation of Q2 volumes at a surgical level from a year-over-year perspective. There is a thesis that one could have that because the softness in surgical volumes has been most pronounced in those payer sources that carry higher deductibles and co-pays, perhaps we're in an environment where there's even a more substantial seasonality dynamic with folks trying to get care at the end of the year than we've even seen in past years. we'll say that's that you know we're not there yet and that's certainly not embedded in our expectations okay and when we think about some of the the transactions the companies that I think you've added around 25 plus urgent care and ASC sites through a mix of acquisitions and I guess also some de

novos in those numbers too just maybe update us on how those performing you know against underwriting I guess what are the the biggest areas of focus and I guess you just announced a smaller ASC acquisition in the Amarillo low market, I guess, how does that fit within the overall ambulatory ASC strategy you have?

Yeah, we're gaining, you know, on the urgent care front, we had some learning curves. Okay. Now we are gaining very good stride in the care and the volumes of patients that we're able to meet, which is really important today for the consumer. You know, many consumers need that front door to be very reliable. We're seeing the strategy work. And the way we can see that is with our new patient growth. we're seeing over 5% new patient growth which is really important which is why you heard me mention earlier our ability to seal off the leakage to make sure that those consumers are well taken care of in their patient journey all the way through their needs because our access points are working.

That's great and then it seems like obviously you know some of the pressure from denials you know has stabilized a little bit you know could you walk us through a little bit you know why you think that's occurred I guess how much of it is coming kind of directly out of some of the recontracting work that you're doing versus seeing stabilization outside of recontracting drivers, how to think about that going forward?

Sure, I'm happy to hit that. Yeah, I think it's potentially not a surprise that in a world where the payers are having a better year, better underwriter, better economics, that the underlying denial environment has stabilized. And clearly, that has been our experience this year. At the same time, working with our revenue cycle partner ensemble, we've been very targeted at doing everything we can to control denials, to reduce denials, and to both from a payer contracting is one element of that, but also applying the best technology, the best AI to ensure that we're submitting clean claims and then responding in a timely fashion so that those administrative things that happen that yield denials are reduced. And we've seen good traction on that. And again, I attribute that to some of the dynamic where we have not seen any appreciable increase in denial activity this year.

I think that might be all we have time for today. Thank you so much for being here with us. Really appreciate the insights. Thank you. Thank you.