Good day, and welcome to the Community Health Systems Second Quarter 2025 Earnings Conference Call. Please note this event is being recorded. I would now like to turn the conference over to Mr. Anton Hie, Vice President of Investor Relations. Please go ahead, sir.

Thank you, Chuck. Good morning, and welcome to Community Health Systems Second Quarter 2025 Earnings Conference Call. Joining me on today's call are Tim Hingtgen, Chief Executive Officer; and Kevin Hammons, President and Chief Financial Officer. Before we begin, I must remind everyone this conference call may contain certain forward-looking statements, including all statements that do not relate solely to historical or current facts. These forward-looking statements are subject to a number of known and unknown risks, which are described under headings such as Risk Factors in our annual report on Form 10-K and other reports filed with or furnished to the SEC. Actual results may differ significantly from those expressed in any forward-looking statements in today's discussion. We do not intend to update any of these forward-looking statements. Yesterday afternoon, we issued a press release with our financial statements and definitions and calculations of adjusted EBITDA and adjusted EPS. We've also posted a supplemental slide presentation on our website. All calculations we will discuss today exclude gains from early extinguishment of debt, impairment gains or losses on the sale of businesses and expense from business transformation costs. With that said, I'll turn the call over to Tim Hingtgen, Chief Executive Officer.

Thank you, Anton. Good morning, everyone, and thank you for joining our second quarter 2025 conference call. Before we get to the quarter's results, I want to address the announcement made yesterday afternoon that I decided to retire at the end of September. I'm stepping back from my role as CEO for personal reasons, the most important one being that I want to dedicate more time to my family and personal pursuits. And while I have loved the opportunity to serve as the leader of an organization that is devoted to helping people get well and live healthier, the job of CEO requires the highest degree of time, energy and commitment, and my family has very generously supported me in my commitment to giving everything I have to leading this organization. I've been thinking about that a lot this year. I want to be more present for them at this stage of my life and at this stage in theirs. I also have some personal pursuits that I want to explore while I'm still young enough and eager enough to try new things. This is not a decision that was made easily or quickly or without regard to what's best for CHS. I wrestled with whether to retire and when to retire in part out of a sense of loyalty to the organization, but even more than that, out of my sincere desire to continue to be a part of the progress happening in this company and the opportunities and achievements I still see ahead. Those will continue to happen under Kevin's leadership, I am sure. But after thinking about it a lot and consulting with my family, this is the appropriate decision. Let's call it a difficult, honest and for me, a necessary choice. I'll be here through the end of September to support a seamless transition. But truthfully, Kevin could step into the role of CEO today and things would be just fine. He knows CHS as much as anyone, and he cares deeply about our company, our people and the patients who choose and rely on CHS health systems for their medical care. I want to thank the CHS Board for their faith in me and the CHS team for the privilege of being their leader and thank you to our investors for your confidence in CHS. So now with that, let me make just a few brief remarks about the quarter, and then Kevin will add quite a bit more detail and color about our results and what we see ahead, including potential impact from the Big Beautiful Bill. In the second quarter on a same-store basis, net revenue increased 6.5% year-over-year. Inpatient admissions were up 0.3% and adjusted admissions declined 0.7% with a 2.5% decline in surgeries and a 1.9% decline in ER visits. While patient volumes were lower than expected and hampered our overall earnings results, we are confident that our past development in capital investment strategies have positioned CHS health systems very well to capture patient demand once consumer confidence returns, and it always has. Our development strategies include physical capacity and service line expansions with a balanced focus on both inpatient and outpatient care. And we are intentional about broadening the footprint of our health systems through the ongoing recruitment of primary care, specialty physicians and other providers. Specifically, through our year-to-date recruitment activities, we have over 200 providers currently scheduled to commence in the second half of 2025, including backfilling for the departure of certain independent specialists. We have a strong clinic services operations team, and we are committing significant resources towards ensuring the successful and rapid ramp-up of our newest providers. Recent service line and capacity expansions in Knoxville, Naples, Laredo, Birmingham and other key markets continue to ramp up and gain market share, and we have several new outpatient access points set to open in the coming months, including new ambulatory surgery centers in our Birmingham, Boley and Tucson markets. Today, CHS operates more than 40 ASCs, a critical component of our market growth strategy and being well positioned to grow and serve consumer demand. We also continue to make progress on other strategic initiatives. Since our last earnings call in April, we completed the divestiture of Cedar Park Regional Medical Center in Texas and continue to improve our maturity and leverage profile through successful debt refinancing and retirement transactions. Now I'll turn the call over to Kevin. And as I do, I just want to once again express my full confidence in his upcoming leadership of Community Health Systems.

Thank you, Tim, and good morning, everyone. Before I begin with the review of financial and operating results, I want to take a moment to acknowledge Tim's contributions to CHS over the past 17 years. Since joining the company in 2008, Tim has brought an invaluable amount of experience and insight into our organization and has been instrumental in leading the development of regional health care networks across the country. Tim's long track record of success as an operator, his leadership qualities and his natural way with people have been an asset to CHS and all of our teammates from us here at the corporate headquarters and throughout our entire organization. For me personally, Tim, I want to say that it's been my pleasure to have been your partner here at CHS and to serve alongside you as your CFO. I believe I can speak for everyone when I wish you the best in your future endeavors. Turning to the results for the second quarter. CHS executed well on many of the controllable aspects of our business, such as supplies expense, wage rate growth and overhead costs. However, we believe that external factors have affected the demand for health care services across our markets over the past few months. Last quarter, we noted some deterioration in our acuity mix versus expectations with softer demand for elective surgical procedures within our commercial book. While we had expected the mix profile to improve with the typical seasonal factor of commercial patients meeting their deductibles and the flu volumes dropped off, this improvement did not materialize in the second quarter as expected, which led to some loss of operating leverage and slight degradation in EBITDA margin year-over-year and versus our forecast. Despite the adverse volume and mix profile, CHS continued to make good progress on strategic initiatives, as Tim noted in his prepared remarks. On June 30, we completed previously announced divestiture of our 80% ownership in Cedar Park Regional Medical Center to the minority partner, Ascension Health for $436 million. And in May, we successfully refinanced all $700 million of our outstanding 8% Senior Secured Notes due 2027, using proceeds from our offering of a new 10.75% Senior Secured Notes due 2033 and also tendered and redeemed $584 million principal value of our outstanding 2028 unsecured notes using $438 million in cash on hand. Turning back to operating results for the second quarter. Same-store net revenue increased 6.5% year-over-year and was primarily driven by rate growth, including the recognition of revenue under Medicaid state-directed payment programs in New Mexico and Tennessee, a portion of which was related to prior periods. Same-store inpatient admissions increased 0.3% year-over-year, while adjusted admissions declined 0.7%. Same-store surgeries declined 2.5% and ED visits were down 1.9%. Adjusted EBITDA for the second quarter was $380 million compared with $387 million in the prior year period and included approximately $75 million in net contribution from the recently approved state-directed payment programs in New Mexico and Tennessee. Margins for the second quarter were 12.1% versus 12.3% in the prior year. Turning to expense management, we continue to perform well on labor cost with an approximate 4% year-over-year increase in average hourly wage rate, which was consistent with our range of expected growth for the year and again includes the impact from significant growth in the number of employed positions, which was consistent with our expectations. Contract labor expense at $40 million was down to approximately $5 million year-over-year on a consolidated basis and was flat sequentially. We also continue to perform well on supplies expense, which was down year-over-year and when adjusting for the impact from the new SPP programs in New Mexico and Tennessee was essentially flat as a percentage of net revenue with the prior year period. We believe there remain opportunities in this area as we stabilize and mature our new processes with our ERP. Medical specialist fees were $152 million in the second quarter, essentially flat year-over-year on a consolidated basis and representing 4.9% of net revenues, consistent with the prior year period. Cash flows from operations were $87 million for the second quarter and $208 million for the year-to-date. Note that cash flows from operations as reported includes $74 million in outflows for taxes on gain on sale, primarily for the Lake Norman and ShorePoint transactions, which were paid out of divestiture proceeds and were not considered in our annual guidance. When excluding this figure, our cash flows from operations were $282 million for the year-to-date and free cash flows for the second quarter were marginally positive. Note that the funds from the new state-directed payment programs in New Mexico and Tennessee likely beginning to flow in the third quarter, and the company should also see positive free cash flow in the back half of the year. Additionally, we anticipate receiving the previously discussed contingent consideration related to the Tennova-Cleveland divestiture and the proceeds from the sale of our reference lab business to Labcorp by the end of this year. We have received many inquiries from the investment community about the financial impact from the recently signed Budget Reconciliation or One Big Beautiful Bill Act. Based on our analysis, impacts to state-directed payment programs will be phased in beginning in 2027 through 2038. We project the combined impacts from lowering the provider tax threshold and the phase down to Medicare linked rates across CHS states will reduce EBITDA by approximately $300 million to $350 million cumulatively over the next 13 years with no impact in 2025 or 2026, an immaterial impact in 2027 and then building from there. Our estimate reflects the estimated net reduction relative to total Medicaid reimbursements based on current Medicaid reimbursement rates. Our analysis does not take into account any impact from Medicaid work requirements or the various provisions that could affect enrollment in ACA plans such as expiration of the extended tax credits since these are much more difficult to predict. Additionally, this analysis does not assume any benefit from the proposed rule fund due to the uncertainties of how those monies will be distributed nor do we assume any mitigating factors from expanded SDP programs, cost reductions, potential service line changes, strategic investments or other actions that we make in order to offset the financial impact to CHS. In the upcoming months, CHS will support industry efforts to aggressively pursue legislative and administrative fixes to the bill. We assume the opportunities to do so will increase as voters better understand how the cuts affect their households. On the subject of the Budget Reconciliation Act, I think it is also important to note that the interest deduction under Section 163(j) of the IRS code, which we have discussed on several occasions in the past, was restored, which will increase the amount of interest CHS can deduct for tax purposes. And along with the accelerated depreciation provisions will have the benefit to us of lowering our annual cash taxes by approximately $40 million to $60 million beginning next year. Now moving on to our 2025 financial guidance. Based on our operating results through the first half of the year and the lower-than-expected volume growth heading into the third quarter, combined with the impacts in the second half of the year from the recently completed Cedar Park divestiture and the new state-directed payment programs we are tightening our adjusted EBITDA range for the full year 2025 to $1.45 billion to $1.55 billion. While we are pleased to receive the additional funding in New Mexico and Tennessee, which will be helpful to maintain service lines in the markets we serve, we believe it is prudent to take a more conservative approach to the underlying business given the impact from macro factors that we have observed in the second quarter. This concludes our prepared remarks. So at this time, we will turn the call back over to the operator for Q&A.

And the first question will come from A.J. Rice with UBS.

I want to extend my best wishes to Tim going forward and congratulations to Kevin. I have a couple of questions regarding the guidance. First, it appears that volume growth is lagging behind expectations. Could you explain if you adjusted your second half volume expectations and discuss the dynamics you observed within the quarter? Were there any fluctuations during that time? Secondly, regarding the guidance for operating cash flow, your free cash flow year-to-date is around $200 million, and the guidance suggests a range of $600 million to $700 million. I understand there are some unusual factors like the DPP program affecting your payments. Could you clarify how you are transitioning from the first half figures to the second half forecast?

Thanks, A.J. Let me begin. If we look at the volume trends during the first quarter, we noticed a decline in consumer confidence starting in March. This decline continued through April, May, and June, reaching its lowest point since COVID. While there wasn't a drastic month-over-month decrease, the ongoing decline in consumer confidence, which is a leading indicator, is something we are mindful of. However, as we concluded June, we observed some recovery in volume during the last week, approaching levels from the previous year. Moving into July and the third quarter, although the volumes aren't at the levels we initially expected, we are beginning to see stabilization compared to last year. Initially, we had projected a 2% to 3% increase in adjusted admission volume for the year, but we now estimate it will be closer to 0% to 1%. Currently, we are at a 1% year-to-date. This should provide some insight into our volume trends. Regarding cash flow, our guidance remains unchanged. We reported adjusted cash flow from operations at $208 million, which includes a $74 million cash tax payment related to a gain on sale. When we account for that, our cash flow from operations for the first half of the year is $282 million, nearing the lower end of our full-year guidance. Typically, our fourth quarter generates the most cash flow. The DPP programs approved in the second quarter in New Mexico and Tennessee were authorized just at the end of the quarter, and we have not yet received those funds. We expect to see those payments in the latter half of the year. With these payments and historically stronger cash flow in the fourth quarter, we anticipate being able to meet our EBITDA guidance, which remains stable compared to earlier in the year. I believe our year-to-date cash flow will be positive in the second half of the year as well.

If I could just jump in with one follow-up. There have been some pending DPP programs that were relevant to you, Indiana, Alabama and to a lesser extent, Florida, potentially topping up their program. Is there any update on the status of those in light of the One Big Beautiful Bill?

There is. So Florida has submitted for an update to their rate under their existing program. That submission was in on time, and we would expect that to be approved, and there should be a small tailwind for us at the point in time that gets approved. Indiana, likewise, has submitted their preprint to CMS for a new state-directed payment program, which will replace their provider tax program that currently exists in the state. We would expect that to be a much more material benefit to us. That preprint was submitted before the deadline, and we fully expect that, that one will also be approved. We don't have the ability to really estimate the amounts, and we don't do that until those programs are approved, but the insights we have today and given our footprint in the state of Indiana, we would expect that to be a material benefit to us. In terms of Alabama and Arkansas, they are not that far along yet, but we understand there may still be a path for them. It's a little less clear to us at this point, but I know those states are still working on some opportunities.

Your next question will come from Brian Tanquilut with Jefferies.

Tim, congrats on the retirement and Kevin, good luck. Maybe my first question, as we think about what the right run rate is for earnings, thinking about given the DPP from the quarter, I'm thinking like $305 million. Is that the right way to think about it or maybe slightly higher than that if we back out the prior period contribution from the Tennessee DPP? So can you just walk us through how we should be thinking about the right run rate for EBITDA going forward?

Thank you, Brian. I believe that $305 million is too low because it excludes the entire DPP money that we recognized this quarter. We should include the current quarter's portion of that, which is about $30 million. So starting at $335 million, even then, the volumes in the second quarter were significantly low. We don't think that's the current run rate, especially as we're approaching the end of the quarter and beginning to see some stabilization. In our view, the true run rate is likely in the range of $360 million to $375 million as a starting point. Once we return to positive volume growth, we anticipate that there are phases when volumes may slow down, but they eventually rebound. We think that much of what occurred this quarter was due to care being postponed for financial reasons and patient behavior, but this will return. Therefore, we consider $360 million to $375 million to be a baseline starting point, with additional growth potential from there.

That makes sense. And then maybe, Kevin, just to double-click on your comment on the OBBBA impact. Maybe if you can share with us just how you are thinking about that number, meaning like what assumptions go into that or maybe how we should be thinking about kind of trying to build that ourselves?

Yes. There's likely some complex calculations involved. We conducted a detailed analysis by state to determine which are expansion states and which are not. We adjusted both the Medicaid rates and the average commercial rates for Medicare accordingly, specifically focusing on the expansion states that have taxes exceeding 3.5%. These will be reduced by 50 basis points annually starting in 2028.

The next question will come from Ben Hendrix with RBC.

With the recognition of the DPP revenue from Tennessee and New Mexico and then also the developments on the commercial elective weakness, maybe you could kind of just recap the bridge to the revised 2025 EBITDA guidance for us.

Sure, Ben. We started with a midpoint of $1.525 billion. If you include $140 million of DPP revenues from Tennessee and New Mexico and subtract $20 million to $25 million from the divestiture of Cedar Park, which accounts for roughly $70 million that may have contributed to the shortfall in the second quarter, the remainder includes adjustments to the latter half of the year based on our earlier expectations, leading us to our new guidance of $1.5 billion at the midpoint.

Got you. And then just a follow-up on some of the mix trends you're seeing. I know that payer mix has been a topic of discussion in recent quarters. I was just wondering if you could walk through the components of payer mix trend you're seeing and then Medicare Advantage, in particular, the type of growth you're seeing there.

Sure. The biggest declines we had were in surgical. And about half of those surgical declines were orthopedics. Most of the declines were primarily commercial Blue Cross business. So that's where we're seeing the biggest headwinds, which certainly impacted our net revenue per adjusted admission, impacted the flow-through to EBITDA and also lends us to believe that the consumer confidence and impact on household incomes and how people are spending their money, making decisions in health care is really the true reason for some of the headwind on surgical and care delivery at this point. It's those patients who have the highest co-pays and deductibles that are being most impacted. And I think even if you look at some other industry across the country where we're seeing consumers not spending money, their discretionary income on things. So again, that's the biggest decline. In terms of the exchange business, overall volume of exchange business was up, but acuity of exchange business was severely down with the biggest component of that being surgeries of exchange patients. So there, again, led us to the same conclusion because most of the exchange contracts have some higher co-pays and deductibles.

Congratulations to Tim on retirement and to Kevin and Jason on the appointments.

Thanks, Ben.

The next question will come from Jason Cassorla with Guggenheim.

Great. Best of luck, Tim, in your retirement and congrats, Kevin. Maybe I just want to start on leverage. You've got some cash coming in, in the second half. You've done some refinancing activity earlier this year, but are there other areas you're hoping to refinance at this point, maybe drive some incremental interest cost savings, whether debt takeout or otherwise? And kind of just a follow-up to that, you're still about a little less than 1.5 turns away from your below 5.5x leverage target, maybe only a turn when factoring the back half of cash generation, incoming proceeds and payments. But perhaps can you just walk us through the remaining building blocks that get you toward that below 5.5 target at this point?

Thank you. I’m happy to explain that. Currently, we have $1.750 billion of debt maturing in 2027, with those becoming due in March 2026. Over the years, we've been disciplined in managing this debt to avoid getting too close to maturity. Managing this debt is a top priority for us. The current coupon on this debt is between 5% and 5.8%, which is likely lower than market rates, so we expect some additional interest expense. However, as we continue to make progress on divestitures and reduce other debts, we’ll have the chance to offset any increases in interest expense and further decrease our leverage. In the near term, we expect to receive around $300 million from the Labcorp sale and contingent payments from the sale of Tennova Cleveland in the next half of the year. We are also exploring more divestiture opportunities and are receiving interest in several transactions. We aim to manage our portfolio to not only focus on the best investment opportunities for growth but also to find ways to use the proceeds for debt repayment or growth investments, both of which will assist in reducing our leverage. We have set a goal of achieving less than 5.5x leverage by 2027. While we have some time, we are mindful of the ticking clock. Over the past two years, we have consistently reduced our leverage, and I am confident we will continue to make progress toward our goal.

Got it. Okay. Helpful. As a follow-up to the Labcorp deal, which has provided us with a nice cash inflow, are there any other opportunities for the enterprise that you are considering for outsourcing or non-core assets that could be sold to generate additional cash or EBITDA benefits at this point?

Great question. We continue to look at our business, seeing where we can make little tweaks similar to what we did. Our outpatient reference lab business is something that was not a core competency. And I actually believe that by completing this deal with Labcorp, we're going to provide a better experience for our physicians and also potentially get some savings to the company. We'll be using Labcorp almost exclusively for our reference lab and outsource business, and we'll be getting better pricing where we had been using them sporadically in the past or other outsource services, we can move that to Labcorp at a better pricing going forward. But we continuously looked at our business, I don't know that we have anything currently in flight that I would call out as being something that we could monetize. There are areas of our business that we consider as we grow and invest and develop that may be sources of revenue for us in the future. And those are something that we're looking at and which could be margin accretive if we were to decide to do that or get to a point where we think it's viable that we could sell some services.

The next question will come from Andrew Mok with Barclays.

I want to follow up on volumes because I'm having a hard time reconciling the lower volumes that you're calling out with some of the call-outs of accelerating cost trends from payers. Was there anything else you saw impacting volume trends beyond consumer confidence that might be more regional specific or anything on the policy front that you suspect is driving a hesitation to use the health care system?

Maybe the only other item I might call out, and it is admittedly difficult when patients don't come to our system to know exactly why they aren't coming and who those patients are when they're not showing up. But the other item that I would call out would be immigration. And certainly, in some of our markets that may have larger concentrations of the immigrant community in states like Arizona and Texas, possibly even Florida. There have been well-documented instances of individuals in the immigrant community not participating in some normal everyday things, not going to church, school, or going to the hospital, not going to concerts, doing things like that. I know the hospitals are no longer considered a sanctuary location, and there is concern even among immigrants with legal status that there's some fear in that community. That's likely caused at least in some of our markets, some softness in the volumes.

Great. Maybe just as a quick follow-up. I appreciate all the color on the estimated impact of state-directed payments. Is there any way you can share thoughts for how the expiration of enhanced subsidies might impact your business next year?

That was hard to measure in any concrete way. I can say that we are investing in our lobbying efforts in Washington and will continue to address this from a legislative perspective. However, we do not have an estimate to quantify this at this moment.

The next question will come from Stephen Baxter with Wells Fargo.

I wanted to continue the conversation about guidance to ensure we understand how you're moving forward. You're highlighting the $70 million underperformance on a core basis for the quarter and the $25 million for Cedar Hill. Did you provide the total increase for Medicaid supplemental program expectations? It seems like there is more than just $100 million, possibly around $120 million, that you indicated earlier. I'm trying to grasp how this plays into the guidance revisions you've made, especially regarding the $70 million underperformance as we look towards the second half of the year.

Thanks, Stephen. Let me provide more clarity on the state-directed payment programs. I apologize if I was not clear earlier. We had previously mentioned a potential of $100 million to $125 million in state-directed payments, which represents an annual run rate for Tennessee and New Mexico. This was based on a 12-month run rate for each state or for their combined total. In the second quarter, we actually accounted for a retroactive piece back to 2024 for Tennessee and six months from Tennessee and New Mexico. For the full year 2025, we anticipate the combined total for these states to be around $140 million. This figure is included in our guidance as the midpoint for the DPP program. To recap, we started with $1.525 billion at the midpoint, added $140 million—which includes the $100 million to $125 million run rate and the retroactive element—subtracted $20 to $25 million for Cedar Park, factored in the second quarter miss, and made slight adjustments to our expectations for the latter half of the year.

Okay. Got it. It's really helpful to understand the impacts from the bill. Can you provide an absolute number for the current annual run rate of these programs, excluding any out-of-period items? It would be helpful to contextualize this as a percentage decline for clarity.

No, I don't have that number exactly. We really look at those state-directed payment programs, and once they're established, they become part of the normal Medicaid reimbursement strategy and process for that state. These programs often have various iterations within a state, including at the district and county levels. States then decide to increase their rates or programs at different stages once they are in place. Therefore, we don’t highlight those separately because, once established, they tend to work as an aggregate number within the state rather than each individual program being recognized on its own.

Got it. Okay. And maybe just one more, if I can squeeze it in. Could you talk a little bit about how changes in consumer confidence early this year might be affecting volume? Are you seeing any changes in volume in the Medicare part of your business, since it generally seems less sensitive to economic fluctuations? I would be curious to hear your thoughts on specific trends related to Medicare, if possible.

Yes. We haven't seen much change in the Medicare book of business. And interestingly, the Medicare book of business has the lowest deductible component. So that is the group of patients least impacted, I think, by some of this consumer confidence issue. I think that really further supports maybe our belief that what's driving some of the patient behavior is around financial decisions. And so those patients are government-insured patients that don't have high co-pays and deductibles, haven't really changed their behavior in terms of coming to receive health care.

The next question will come from Josh Raskin with Nephron Research.

I'll congratulate Tim as well and Kevin and Jason as well. I want to go back to the difference in trends that you guys are seeing from the volume perspective relative to some of the hospital peers and certainly relative to the commentary from the payers, and I appreciate the commentary you've made. But do you think there's any difference from whether it's geographies or lines of business or outpatient networks that could explain that? Do you think others are embracing more technology or AI on the RCM side? Do you think any of that could be contributing to this?

There could be variations based on location, market types, and whether they are urban or nonurban. It's difficult to pinpoint the exact reasons. When patients don’t show up, understanding the reasons is challenging. However, I believe the differences between urban and nonurban markets might play a role. Regarding our experience compared to what payers are experiencing, a lot of their cost increases might stem from pharmaceuticals or behavioral health, rather than changes in payments to acute care providers. Their challenges likely lie elsewhere, and I can't fully align our situation with theirs. Tim, is there anything you would like to add on this?

Yes, Josh, thanks for the question. I'll add on to the payer answer. I think the other area where I'm not going to say it's an outsized impact, but we've been speaking for several quarters on our investment in physician adviser services and really honing in on what we believe we should be getting appropriate reimbursement for care and services delivered. We have not seen an increase in our downgrades and denials as a percentage of net because of those efforts. And I hope it means we're keeping more of the rightfully earned dollars coming into our pockets versus into the payers' pockets. So that's one element I would throw in there. I don't think it's material, but we have not allowed that slippage to continue, which we said we'd be fixated on as a strategy for the company. In terms of your other question regarding strategy and/or technology and AI, that has also been a core strategy for CHS. I believe I mentioned last quarter, our investment in growth in robotic surgery platforms, we continue to see really strong growth in our robotic-assisted surgeries in the company. So I don't think it's due to any underinvestment into emerging technologies or services in our communities. In terms of the AI component, one of the things I'm really proud of is our investments into the development of a strong data science group here at CHS. We have some of the leading industry experts on supporting our efforts. We have deeper insights into the business as a result of that. And I'd also layer on the investment into the ERP, the enterprise resource planning tools. Again, we're, I think, in the early innings of that investment, but the insights that's gleaning into our business and our operations and our opportunities, I think it will be a really strong benefit and tailwind to the company for many quarters and years to come. So I don't think there's really anything in terms of where we maybe missed it strategically. I think it really is a lull in consumer confidence as we've called out. And as I said in my prepared remarks, I can't remember a time in this industry where the consumer hasn't come back. We still believe we provide absolutely essential services to the communities we serve.

Great. That all makes sense. Just a quick follow-up on Labcorp. Were your reference labs EBITDA positive for you in the past? And is it possible that having Labcorp manage those assets could actually contribute to EBITDA?

We don't have a precise measurement since it wasn't a distinct business unit, but we conducted significant analysis before deciding to sell that segment. As I mentioned, it wasn't an area of expertise for us. There might have been some minimal EBITDA generation from it, but overall, receiving cash upfront and enhancing the experience for our physicians will be far more advantageous for our practices and ultimately for our EBITDA going forward. It's also important to note that even our employed physicians did not rely solely on our in-house outreach lab services. We still outsourced parts of our business to Labcorp, Quest, and other third-party laboratories. Now, we have the chance to collaborate with Labcorp to offer a better solution using their technology, which aligns with their expertise, and they can provide those services at a lower cost than we could manage on our own.

The next question is a follow-up from Ben Hendrix with RBC.

Thank you for allowing me to ask one more question. We've received several inquiries about the rural health transformation program and the $50 billion allocated under the OBBB Act. Can you clarify your involvement in this program and how it influences your outlook? Additionally, how do we assess the potential benefits and determine how much of your program might be eligible for funding from that initiative?

Great question, Ben, and one we've received a couple of times already and one we're thinking about quite a bit. Again, we're investing in lobbying efforts around that. There is no clear answer at this point as to how that money is going to be spent or divvied up amongst the rural health providers. So that's all yet to be determined. I believe my understanding is 50% of that will be at the discretion of CMS and the other 50% given to the states to determine and even they may determine differently in each state, how they distribute the money. So a lot more to come. I also understand that there's been a proposed bill in the Senate to increase the amount from $50 billion to $100 billion. So that is still yet to come. As we look at our portfolio of hospitals, I would say roughly 40% of our beds, we believe would qualify in terms of a definition of rule. But even that isn't entirely clear because throughout the medical regulations in CMS, there's multiple definitions of what is rule. And I'm not sure which is the exact one that will apply here. We're giving our best estimate that is about 40% of our beds.

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Tim Hingtgen, Chief Executive Officer, for any closing remarks. Please go ahead, sir.

Great. Thanks, Chuck, and thank you, everyone, for joining the call today. I want to close by thanking the amazing people who work across the CHS organization for the opportunity to serve as their CEO and to support their commitment to provide quality compassionate care for all of their patients. And I want to say once again that I'm grateful to be passing the torch to Kevin Hammons because he's a capable and committed leader for CHS. I look forward to all of the good things ahead for Community Health Systems. If you have any additional questions, you can always reach us at (615) 465-7000. Have a great day, everyone.

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