Earnings Call Transcript
Select Medical Holdings Corp (SEM)
Earnings Call Transcript - SEM Q1 2020
Operator, Operator
Good morning and thank you for joining us today for Select Medical Holdings Corporation's Earnings Conference Call to discuss the First Quarter 2020 Results and the company's business outlook. Speaking today are the company's Executive Chairman and Co-Founder, Robert Ortenzio; and the company's Executive Vice President and Chief Financial Officer Martin Jackson. Management will give you an overview of the quarter, and then open the call for questions. Before we get started, we would like to remind you that this conference call may contain forward-looking statements regarding future events or the future financial performance of the company, including without limitation, statements regarding operating results, growth opportunities and other statements that refer to Select Medical's plan, expectations, strategies, intentions and beliefs. These forward-looking statements are based on the information available to management of Select Medical today and the company assumes no obligation to update these statements as circumstances change. At this time, I will turn the conference call over to Mr. Robert Ortenzio.
Robert Ortenzio, Executive Chairman
Thank you, operator. Good morning, everyone. Thanks for joining us for Select Medical's First Quarter Earnings Conference Call for 2020. Before I outline some of our operational metrics, I want to provide you with a summary of comments regarding the effects of the COVID-19 pandemic on our operations. As a company, the past two months have proven to be some of the most challenging times we faced both clinically and operationally. During this unprecedented period, our ability to learn, collaborate, and adapt has been put to the test. I'm proud to say that our team has risen to the occasion, and I could not be more proud of the work they have done in the face of this health crisis. Our teams have shown tremendous leadership, passion, and courage in maintaining the highest quality and safest patient care environment. The level of resourcefulness, hyper-vigilance, and innovation is unmatched. For the past two months, we have had daily virtual huddles led by our Chief Medical and Chief Quality Officer Dr. Buddy Hammerman and attended by operational, clinical, and functional leaders from across our organization. These huddles, which began on March 3rd, cover 15 areas to ensure we are informed and responsive in meeting the quickly changing and critical needs of our patients and employees across all lines of business. Among other indicators, we review COVID incidents by region, clinical review of COVID infections, availability and sourcing of PPE and ventilator equipment, patient management strategies, decisions in preparation for treating COVID-19 patients, communication strategies, and staff contingency planning. In broader terms, this pandemic has also cast new light on the role of our critical illness recovery hospitals in the continuum of care. In addition to uniting with our joint venture partners and host hospitals to combat this virus, newly established coordinated efforts between critical illness recovery hospitals and other short-term acute care hospitals have been occurring daily to maximize the effectiveness of patient care and decompress short-term acute care hospital ICU beds. Select Medical currently has 62 of our specialty hospitals providing care for over 350 COVID-19 patients. On the outpatient front, including both outpatient rehab and occupational medicine, we expanded our telemedicine and telerehab services across our network. This allows patients to continue their care in the safety of their own homes. We now have over 2,000 of our clinicians that are capable of providing telehealth services across the United States. We have seen the volume for these services grow significantly over the past several weeks with the government lockdown, as well as increased acceptance by payers and governmental regulators. Our ability to collectively answer the historic calling is anchored in our culture, operational leadership, clinical excellence, and an incredibly dedicated and selfless frontline of clinicians, who have been exceptional in this pandemic. The effects of the pandemic began to hit Select Medical in mid-March. As COVID-19 has spread in many markets we operate, we have admitted patients with COVID-19 and have faced a challenging task of modifying our standard operating procedures to account for the high transmission rate of the virus, as well as other critical needs of these patients. More specifically, we had to isolate the COVID patients from our general patient population and enhance staffing provisions for this acutely ill patient subset. We developed innovative pathways to treat COVID patients with active disease, while maintaining a safe segregated space for the care of our non-COVID population. The pandemic this caused and will continue to cause disruption in our operations and our critical illness recovery and rehab hospitals, we have in some cases added or reduced the number of beds, created isolated units and spaces, had temporary increases or restrictions on admissions, eliminated visitation of family, incurred additional costs and increases in the use of contract labor. In our outpatient rehabilitation, the Concentra segment, volumes have been negatively impacted by a number of issues. This includes state governments implementing mandatory closures of non-essential or non-life sustaining businesses, restrictions on individual activities outside of the home, restrictions on travel and closure of schools, state-mandated suspension of elective surgeries at hospitals and outpatient surgery facilities, reduction of physician office visits and the unprecedented reduction of the U.S. workforce by 30 million workers, all have had significant effects on our patient visit volumes. In our press release, we provided the typical financial information statistics that we always do, but decided it was very important to provide the reader with a more detailed analysis of the financials by quarter-to-date; our operating results on a pre and post-COVID basis for the first quarter. We believe separate analysis of the quarter-to-date through February and the month of March provides our investors with greater insight into the financial impact of COVID-19 on our company by business segment. Overall, our net revenue for the first quarter increased 6.8% to $1.4 billion in the quarter. Quarter-to-date through February, net revenue was up 12.3% over the prior year with all four of our business segments showing growth in this period compared to the same period last year. However, in March, overall net revenue was down 3.2% compared to March last year. Net revenue in our critical illness recovery hospital segment in the first quarter increased 9.4% to $501 million compared to $458 million in the same quarter last year. Patient days were up 4.8% compared to the same quarter last year with over 270,000 patient days. Net revenue per patient day increased 4.5% to $1,839 per patient day in the first quarter. Occupancy in our critical illness recovery hospital segment was 70% in the first quarter compared to 71% in the same quarter last year. Net revenue was up 11.2% in the quarter-to-date through February period but only up 6% in the March period when compared to last year. Net revenue in our rehabilitation hospital segment in the first quarter increased 17.8% to $182 million compared to $155 million in last year. Patient days increased 14.2% compared to the same quarter last year with over 94,000 patient days. Net revenue per patient day increased 6.1% to $1,732 per day in the first quarter. Occupancy in our rehab hospitals was 79% in the first quarter compared to 76% in the same quarter last year. Net revenue was up 24% in the quarter-to-date through February period, but only up 6.8% in the March period compared to last year. Net revenue in our outpatient rehab segment in the first quarter increased 3.4% to $255 million compared to $247 million in the same quarter last year. Patient visits were up 3.3%, with over 2.1 million visits in the first quarter. Our net revenue per visit was $104 in the first quarter compared to $103 in the same quarter last year. Net revenue was up 10.8% in the quarter-to-date through February period, but then declined 10.6% in the March period when compared to last year. Volume trended along the same lines as revenue, with patient visits up 11.2% in the quarter-to-date through February period, but then down 11.6% in the March period when compared to last year. Net revenue in our Concentra segment for the first quarter increased 0.6% to $399 million compared to $396 million in the same quarter last year. For the centers, patient visits were down 1.2% at 2.9 million visits in the quarter. Net revenue per visit in the centers was $123 in the first quarter compared to $124 in the same quarter last year. Net revenue was up 5.8% in the quarter-to-date through February period, but then declined 9.4% in the March period when compared to last year. Concentra's volumes trended along with revenue, as patient visits were up 4.9% in the quarter-to-date through February period, but then down 12.6% in the March period when compared to last year. Total company adjusted EBITDA in the first quarter increased 10.1% to $187.3 million compared to $170 million in the same quarter last year. Our consolidated adjusted EBITDA margin was 13.2% for the first quarter compared to 12.8% for the same quarter last year. The quarter-to-date through February's adjusted EBITDA was up 32.5% over the prior year with all four of our business segments showing double-digit growth in the January-February period compared to the same period last year. However, in March, overall adjusted EBITDA was down 22.3% compared to March last year. Our critical illness recovery hospital segment adjusted EBITDA increased 21.3% to $88.6 million compared to $73 million in the same quarter last year. Adjusted EBITDA margin for the segment was 17.7% in the first quarter compared to 16% in the same quarter last year. Adjusted EBITDA was up 28.6% in the quarter-to-date through February period and up 10.2% in the March period when compared to last year. Adjusted EBITDA margins were 17.2% in the combined January-February period this year and 18.6% in the March period. Our rehabilitation hospital segment adjusted EBITDA increased 49.5% to $38.6 million compared to $25.8 million in the same quarter last year. Adjusted EBITDA margin for the rehab hospital segment was 21.2% in the first quarter compared to 16.7% in the same quarter last year. The first quarter last year included adjusted EBITDA startup losses of $2.8 million. The quarter to date through February adjusted EBITDA was up 72.5% and up 12.5% in the March period when compared to last year. Adjusted EBITDA margins were 22.4% in the combined January, February period this year and 18.6% in the March period. Outpatient rehab adjusted EBITDA was $27.1 million compared to $29 million in the same quarter last year. Adjusted EBITDA margin for the outpatient segment was 10.6% in the first quarter compared to 11.7% in the same quarter last year. Adjusted EBITDA was up 33.6% in the quarter to date through February period but declined at 65.4% in the March period when compared to last year. Adjusted EBITDA margins were 12.9% in the combined January, February period this year but only 5.3% in the March period. Our Concentra adjusted EBITDA was $61.5 million compared to $66.3 million in the same quarter last year. Adjusted EBITDA margin was 15.4% in the first quarter compared to 16.7% in the same quarter last year. Adjusted EBITDA was up 11.7% in the quarter-to-date through February period but declined 37.5% in the March period when compared to last year. Adjusted EBITDA margins were 16.6% in the combined January, February period this year and 12.9% in the March period. Earnings per fully diluted share increased over 33% to $0.40 for the first quarter compared to $0.30 for the same quarter last year. Adjusted earnings per fully diluted share was $0.37 per fully diluted share for the first quarter compared to $0.27 in the same quarter last year. Adjusted earnings per fully diluted share excludes the non-operating gains related tax effects in both the first quarter this year and last year. While the broader implications of the COVID-19 pandemic on our operational results and overall financial performance remain uncertain, we have seen reason for optimism as states begin to reopen the economy, including elective surgeries. On April 16, the proposed inpatient rehab rule for fiscal 2021 was posted by CMS. The proposed rule, if adopted, would see an increase in the standard payment amount of 2.2% as well as a reduction in the high-cost outlier. We expect the rule to be finalized in early August after the required comment periods. In response to the COVID pandemic, both CMS and Congress acted to temporarily suspend certain regulations concerning length of stay requirements in critical illness recovery hospitals and to suspend certain regulations that cover government admissions into rehabilitation hospitals in order to facilitate the transfer of patients from general and acute care hospitals into specialty hospital settings. That concludes my remarks. I'll now turn it over to Marty Jackson for some additional financial details before we open the call up for questions.
Martin Jackson, CFO
Thanks, Bob. Good morning, everyone. Before I share the financial details for the quarter, I want to emphasize some of Bob's comments. The first quarter for Select was really divided into two periods: before the COVID restrictions were imposed, where we experienced solid revenue growth, double-digit adjusted EBITDA growth, and improvements in EBITDA margins across all four of our business segments. However, in March, the mandated stay-at-home orders and the suspension of elective surgeries had a significant adverse effect on our outpatient and occupational medicine segments. Our operators have done an excellent job of adjusting costs, but their primary focus now is on restoring volume, which is essential for returning to pre-COVID levels. Moving on to the financial specifics, our operating expenses for the first quarter, which comprise our cost of services and general administrative expenses, were $1.23 billion, or 87.3% of net operating revenue. In the same quarter last year, operating expenses were $1.16 billion, reflecting 87.7% of net operating revenues. Our cost of services for the first quarter reached $1.2 billion compared to $1.13 billion a year earlier, accounting for 84.9% of net revenue, down from 85.5% in the previous year. General and administrative expenses were $33.8 million this quarter, compared to $28.7 million last year, representing 2.4% of net revenue, slightly up from 2.2% last year. Total adjusted EBITDA was $187.3 million with adjusted EBITDA margins of 13.2% for the first quarter, compared to $170.1 million and a margin of 12.8% in the same quarter last year. Depreciation and amortization expenses totaled $51.8 million, down slightly from $52.1 million a year ago. We reported $2.6 million in equity earnings from unconsolidated subsidiaries during the first quarter, lower than $4.4 million in the same period last year, reflecting a decline in the performance of our minority interest healthcare businesses. We had a non-operating gain of $7.2 million this quarter, compared to $6.5 million last year. Interest expenses were $46.1 million compared to $50.8 million in the same quarter last year due to lower variable interest rates and refinancing efforts from the previous year. We incurred an income tax expense of $21.9 million, translating to an effective tax rate of 23.7%, compared to $18.5 million and a 25.7% rate in the prior year. Net income attributable to non-controlling interests was $17.3 million compared to $12.5 million last year. Select Medical Holdings reported net income of $53.1 million this quarter, and our fully diluted earnings per share was $0.40; after adjusting for the non-operating gain and its tax effects, our adjusted earnings per share was $0.37. At the end of the first quarter, we had $3.57 billion in debt and $73.2 million in cash on hand. Our debt includes $2.1 billion in term loans, $165 million in revolving loans, $1.2 billion in 6.25% senior notes, and $78 million in other debts. Operating activities generated $44.1 million in cash flow for the first quarter, compared to $41.8 million in the same quarter last year. Our days outstanding were 53 days as of March 31, 2020, consistent with 53 days from a year prior but slightly up from 51 days at December 31, 2019. Investing activities consumed $44.7 million in cash during the first quarter, including $39.2 million for property and equipment purchases and $16.7 million for acquisitions and investments, partially offset by $11.2 million from business sales. I should also note that we are currently focused on maintenance capital expenditures until we better understand the timing of the pandemic recovery. Financing activities used $262.1 million in cash this quarter, which included $366.2 million for purchasing shares in Concentra, now 68.8% owned by Select. Cash use also covered $39.8 million for term loan prepayments, $8.7 million for stock repurchases, and $10.8 million in payments to non-controlling interests, offset by $165 million in net borrowings on revolving loans. Due to the operational uncertainties caused by COVID, we withdrew our business outlook for the year on April 3, 2020. Starting the second week of April, we began receiving grant funds under the CARES Act, totaling $93.7 million as of April 10, designated for reimbursing lost revenue and additional healthcare-related expenses due to the pandemic. We also requested and began receiving advanced payments from Medicare, totaling $316.1 million to be repaid within 210 days. Additionally, we deferred the employer portion of social security taxes, expected to range between $90 million to $100 million through 2020, to bolster our liquidity. We have also implemented liquidity enhancement measures, including deferring discretionary capital expenditures, reducing compensation, furloughing employees, and negotiating rent deferrals for temporarily closed facilities. The refinancing actions taken last year have also enhanced our liquidity position, leaving us with nearly $1 billion in available liquidity when combining cash and credit facilities. This concludes our prepared remarks, and I would like to turn it back to the operator for questions.
Frank Morgan, Analyst
Good morning. I noticed in the commentary as you talked about since the end of the quarter some optimism as states start to open up specifically more ambulatory surgical centers opening up. Curious can you maybe tell us what percentage of your overall outpatient and Concentra business comes as the result of outpatient surgeries? And just any more color around what you've seen so far or what stage you would expect to see the early recovery?
Martin Jackson, CFO
Yes, Frank this is Marty. Quite candidly we really can't give you what states we expect to open up. I mean that's a crystal ball type of thing. What we can tell you is that about 21% of our outpatient rehab visits come from elective surgeries. And that's basically what we've seen over the past year. So, when these elective surgeries come back we expect to see some nice volume increases.
Robert Ortenzio, Executive Chairman
And Frank, this is Bob. We are beginning to notice approvals for elective surgeries in some states, particularly in the Texas market. We have also observed the reopening of elective surgeries in Pennsylvania and several southern states. This process is underway, but it's not happening instantly. It will require some time for the necessary precautions and the completion of the surgeries, followed by a delay before we see the patients.
Frank Morgan, Analyst
Got you. And then on the Concentra side how do you think about that in terms of just what's happened with unemployment? What are your thoughts around the ramp-up there? And what are you hearing from some of your customers there? And I'll hop. Thank you.
Robert Ortenzio, Executive Chairman
Well, as you know and we've said in the past that Concentra is an employment-driven business. So this hits them pretty hard. But as employment comes back and if we have a V or a U shape, I mean we would expect to see the Concentra business respond correspondingly. If the recovery and employment is slower then I suspect we'll see that in the Concentra volumes as well. So, again hard to tell. But it will improve as employment continues to go back up. And as businesses even not just driven by unemployment statistics, but just as general economic activity returns that Concentra volumes will grow.
Frank Morgan, Analyst
Do you have any early color on the month of April some of the other companies have kind of given us some insights? Anything you could share with us there and I'll be done. Thanks.
Martin Jackson, CFO
April is going to be a very challenging month for our outpatient business, especially in outpatient rehab and Concentra. In early April, we observed a 50% decline in our outpatient services and about a 45% drop at Concentra. However, we have seen those numbers level off, and we started to experience growth again in the last week or two of April.
Robert Ortenzio, Executive Chairman
And on the other hand in our critical illness recovery hospitals I think we see them as being strong because of the position that they have taken in the face of the pandemic. So, I think that part of the business will be stronger.
Justin Bowers, Analyst
Hey, good morning everyone and congrats on the performance, especially during the first two months. And I think putting up double-digit EBITDA growth over the entire quarters is nothing to scoff at given the last few weeks there. And I appreciate all the disclosure in the press release and the 10-Q last night. So, just kind of piggybacking on Frank can you help us kind of understand where volumes are maybe on the critical illness side like relative to March or how they're trending? It sounds like that you've kind of picked up a little more on the LTAC side, just the commentary with 350 COVID patients? And then on inpatient rehab, I was a little surprised that kind of the decline towards the end of March there? And just kind of trying to get a sense of if you feel like you've bottomed there and where things are now in that part of the business?
Martin Jackson, CFO
Yes, Justin, this is Marty. Let me update you on the status of LTACs and IRFs in terms of volume. The LTACs have had a strong performance in April, and we anticipate that trend will continue. Our ADC is improving significantly, and we expect that to carry on through June. On the inpatient rehab front, we faced significant challenges in the North Jersey area with Kessler. To address this, we decided to convert many of the semi-private rooms in Kessler hospitals to private rooms. This adjustment has limited the number of patients we can accommodate per room to reduce the risk of virus transmission. Once we observe a decline in cases, we plan to return to using semi-private rooms.
Justin Bowers, Analyst
It seems that the North Jersey area was impacted more significantly, while other markets experienced a lighter effect. Regarding the cost structure, it appears that you feel confident about the current situation, particularly with your focus shifting towards volumes instead of costs. Could you provide insight into some of the additional actions you've taken at the end of Q1? Additionally, how do you view the balance between variable and fixed costs on the services line?
Martin Jackson, CFO
Sure, Justin. On the inpatient side, our team has done an excellent job, and the volumes, particularly in the critical illness recovery hospitals, are either maintaining or exceeding our expectations. There haven't been many changes in that area. For inpatient rehab, we have seen a slight reduction in staffing. In terms of outpatient and rehab, particularly at Concentra, we have significantly adjusted our staffing levels. Salaries, wages, and benefits are a major part of our cost structure. Interestingly, in outpatient rehab, Select's model is to establish a strong presence in our geographic locations. If we experience a 50% reduction in volume in a market with 20 clinics, we may temporarily close 10 of those clinics and furlough the employees from those locations, shifting the volume to the other 10 clinics. We have implemented similar strategies at Concentra. When volumes return, we expect to quickly reactivate those clinics and bring back the employees.
Justin Bowers, Analyst
Got it. All right. So we should see some improvement. I mean, you guys just didn't have any chance to respond like in March things just happened so quickly. I will hop back in queue and congrats again.
Martin Jackson, CFO
Thank you, Justin.
Peter Costa, Analyst
Good morning. And thanks for stepping up with the COVID patients here this past quarter and a great job in January and February before all this started. My question is what's going to happen when we get to the other side of this having seen the changes that you've seen? What do you think will happen in particular in the critical illness recovery business with your relationships with providers and what they've seen in their dealings with you in terms of your referral sources? And then also on the outpatient side, do you think that's going to go and stay more mobile going forward? And what does that mean to you in terms of your flexible cost in that area?
Robert Ortenzio, Executive Chairman
Thank you, Peter. I am confident that we will emerge from the pandemic stronger for several reasons. Many hospitals in hotspot areas like Northern Jersey, New York City, Detroit, and New Orleans are currently treating COVID patients, and we have over 60 hospitals providing critical support. We have become vital partners for many major hospital ICUs, receiving referrals we hadn't seen before, which highlights the value of our services. We are one of the largest providers of ventilator services in the U.S., with more than 2,000 ventilators across our facilities. Additionally, while there has been much discussion about ventilator shortages, it's become clear that having ventilators is just part of the equation. The complexity and acuity of patients necessitate skilled staffing and protocols, including pulmonologists, infectious disease specialists, and respiratory therapists who can effectively manage these machines and help wean patients off them. It’s remarkable that nearly everyone in the U.S. now understands what a ventilator is, which was not the case a few months ago. Our hospitals have stepped up to support the COVID population, despite the challenges of increased isolation and PPE requirements. This aligns perfectly with our mission. As respiratory infectious diseases are likely to persist, some hospitals have initiated discussions with us about potentially partnering to establish more critical illness recovery facilities in various markets, which is encouraging for our future. On the outpatient side of the business, I believe that this segment will return. There's no way that it's gone forever. Just like elective surgeries are not disappearing, there will be a pent-up demand. I can't predict what the recovery will look like, whether it will be a sharp rebound or a gradual one, but it’s really not a question of whether it will return strong, rather when it will happen, which could be a month in either direction. The same applies to Concentra. With the largest market share in occupational medicine across the United States, as employment rebounds, they will benefit significantly. All of our divisions are focused not just on the short term but also on the long term, strengthening our existing relationships. I hope that we can emerge from this situation stronger than we were before.
Martin Jackson, CFO
One significant change we've observed in outpatient rehabilitation and Concentra's occupational medicine services is the rise of telerehab and telemedicine. Before COVID, we were averaging about 50 visits a day, but in April, that number increased to over 1,600 daily. As Bob pointed out, we have trained more than 2,000 clinicians to deliver these services, which we believe is a great achievement. Many payers have recognized the advantages of telerehab and telemedicine and are now covering these services. We anticipate that with Medicare's interest in coverage, the Medicare population will likely continue to make use of these services, while we expect that commercial patients will gradually return to clinics and centers.
Peter Costa, Analyst
All right. Just as a follow-up. Thanks for all that color on the critical illness recovery hospitals. But on the outpatient question, can you talk a little bit about the financial impact to you in terms of how you get paid and what your cost is for a mobile visit versus a regular visit?
Martin Jackson, CFO
Yes. It's a great question. For the most part, the rates are basically fixed for telerehab and telemedicine. So there is really not any difference between a visit, a physical visit versus a telerehab or telemedicine visit.
Peter Costa, Analyst
And your cost, is it similar?
Martin Jackson, CFO
It is very similar. Yes. Because remember, it really is the amount of time that you're spending with the patient. It's an essence of one-on-one time that you spend with the patient so the costs are the same.
Peter Costa, Analyst
Okay. And then just as a last follow-up on that. What do you think is going to happen on the outpatient side? Do you think you'll see a migration towards more of these televisits, or do you think providers are going to come to you more often to work with you going forward? What do you think will change in the outpatient side of the world going forward?
Martin Jackson, CFO
Well, I think, as I had mentioned, I think that we'll see the telehealth and telerehab volume probably decline as more and more people are no longer staying at home. But we think a certain portion of the population, specifically the older population will probably continue to do telerehab.
Robert Ortenzio, Executive Chairman
No, I don't think that the outpatient business, the color is that you look for a systemic change. I mean, I understand that there are certain businesses that, whether it be concerts or sporting events, where you collect tens of thousands of people in close quarters, these outpatient rehab locations are pretty much made for social distancing. I mean, you don't have a lot of patients in the clinic at the same time. You have therapists. It's really a relatively easy environment to have the kind of safeguards that people are talking about. So it's hard for me to project any kind of systemic change in that industry.
Peter Costa, Analyst
I was trying to understand how your competitors might be affected by the current pressures in the mobile market. Will some of them potentially go out of business due to these challenges, or will the complexities of managing the business lead to some providers exiting the market? If that happens, could it result in those providers seeking employment with your company?
Robert Ortenzio, Executive Chairman
I think the trends we observed before the pandemic may speed up a bit. Our belief has always been that the future of this business will involve fewer, larger providers who can achieve efficiencies and dominate the markets they serve. It will likely remain challenging for individual providers in the outpatient rehab sector due to compliance requirements, costs, and payer expectations in the market. You could argue that these challenges might intensify as a result of recent events, but I am uncertain about that. It may alter the timing of changes, but I see it more as a continuation of the trends we have been discussing for some time.
A.J. Rice, Analyst
Hi everybody. I'm glad to hear everyone is well. It seems that by the end of the first quarter, you were able to make some progress. I noticed that you fully closed 131 of your outpatient rehab clinics and about 19 of the Concentra centers. Have there been any additional closures since the end of the quarter, and what is your current status on those numbers?
Martin Jackson, CFO
Yes, A.J. good question. Out of the 131 clinics that were temporarily closed, 114 were in Kentucky where the Governor decided that outpatient rehab was not essential. We had anticipated this, but those clinics are now reopened. We have observed an increase in the number of clinics reopening. The closure of those 114 clinics was mandated by the government's requirements, as we did not want to close them.
A.J. Rice, Analyst
Okay. So there's not a material increase in either Concentra or it sounds like it's less in the outpatient rehab that are closed today versus at the end of the quarter?
Martin Jackson, CFO
That's correct.
A.J. Rice, Analyst
I understand we've been discussing the cost reduction strategies and the significant margin decline experienced in the outpatient and Concentra business during the last weeks of March. Can you provide an estimate of the potential cost savings from the items you mentioned, or some insight into the margin impact we might see in the early part of the second quarter compared to March?
Martin Jackson, CFO
There really isn't. As a matter of fact, if you take a look at when this really impacted us, it was March 16. It was right after the World Health Organization declared the pandemic that we started to see the volume decline in the third week, and in the fourth week, we began making changes. However, there is very little, if any, savings from the changes we made during the first quarter in that March period.
A.J. Rice, Analyst
Yes. No, I understand that. I'm just trying to see is there any way to talk about an order of magnitude of what you have since implemented and how that may mitigate some of the revenue pressure? It sounds like it's a moving target. Is that the way to think about it?
Martin Jackson, CFO
Yes.
Robert Ortenzio, Executive Chairman
Yes.
A.J. Rice, Analyst
Okay. Just the last question, some of the other post-acute providers have expressed some caution about the accelerated Medicare payments and the grant money. They are concerned about whether they can justify it and whether they feel comfortable with all the attestations. Where do you guys stand on that?
Martin Jackson, CFO
A.J., we are currently gathering all that information. At this point, we can't provide a definitive answer on that.
Robert Ortenzio, Executive Chairman
It is indeed a complicated situation that appears to be evolving. We will continue to address it. Fortunately, we have complete access to our costs and data. If we are unable to retain some of the grant money, it won't be due to our inability to allocate it effectively; we can manage that aspect. We are currently working through these issues.
Kevin Fischbeck, Analyst
Maybe just a follow-up on that stimulus money number. You said the $10.1 million in entities where you're minority partnered. Is that the amount attributable to you, or is that the amount that your partners got and you would get a minority share of that?
Martin Jackson, CFO
Yeah, Kevin that's the total amount.
Kevin Fischbeck, Analyst
Total amount that they received, okay. And then just wanted to get a little more color on the first two months of the year. Obviously you had leap year in there, which probably helped the numbers a little bit but the growth there was incredibly strong and much stronger than what we would have been looking for, for the quarter. Trying to understand maybe a little bit, how that performance matched up against what you guys were really expecting as you try and think about what Select might look like on a new normal? Were those the trajectories you would have expected for the year more broadly, or is there anything unusual going on in those first two months of the year?
Martin Jackson, CFO
No, they were certainly a little better than we anticipated. Across all four business segments, the operators have done a great job capturing market share and increasing volume. It's really driven by the volume.
Robert Ortenzio, Executive Chairman
Yeah. I think it was just a continuation of the momentum you saw from third quarter, fourth quarter of last year. I mean, I just think a lot of the changes and a lot of things that we did were really beginning to show. And we would have been exceedingly pleased with the results of the first quarter had we not had the disruption in March, but I think we believe we can get back to that.
Kevin Fischbeck, Analyst
Okay. And then the comment about 21% of outpatient visits coming from elective procedures, I guess what we've seen broadly speaking is that you've seen declines in utilization across almost every provider group bigger than what we would have thought. I just wanted to understand exactly how you were thinking about elective procedures. Is that saying what you would have determined as an elective procedure three months ago, or are you tying it back into procedures that have had some visibility into and have been deferred specifically as it relates to this?
Martin Jackson, CFO
I'm not sure we understand the question, Kevin. Can you say that again?
Kevin Fischbeck, Analyst
I think you said earlier that 21% of outpatient rehab visits come from elective procedures. And so you were optimistic that elective surgeries come back then outpatient visits will come back. But I guess we've seen surgeries down 70%, outpatient surgeries down 70% in April. So you've seen a much bigger drop in surgery than we ever would have thought you could have seen before. And so I wasn't really sure if what we're seeing as kind of deferred procedures in April is really the typical definition of what we would think of as elective procedures. So when you say 21% visits come from elective surgeries, I just wasn't sure if you were kind of using the 70% down this month or whether you're saying, well on average historically we thought this is what it was, but we're obviously seeing a much bigger impact right now?
Martin Jackson, CFO
Yeah. In essence what we do is we took a look at those visits that we had coming from elective surgery being done so post-op. We took a look at those over the last 12 months and basically divided that by the total number of visits that we had. That's how we arrived at the 21%.
Kevin Fischbeck, Analyst
Okay. So that's not necessarily real-time. The impact is obviously bigger right now but it sounds like…
Martin Jackson, CFO
Yea, exactly.
Robert Ortenzio, Executive Chairman
It's not real-time but rather historical data. We believe that all the surgeries that eventually transition to our outpatient services will still be needed. There will definitely be pent-up demand. We are confident that there will be an acceleration at some point because, although we refer to these surgeries as elective, they will need to be performed eventually.
Kevin Fischbeck, Analyst
Yeah. And then I guess my last question. On the rehabs, I think the rehab side, I guess we did see the patient days being up even though the admissions were down a lot. Can you maybe talk about what was going on there? Was there some issue about being discharged from the hospital? Is that a dynamic that we would expect to continue the length of stay would keep increasing, or would we ultimately expect rehab volume patient days to be similar to the admission trends? Thanks.
Martin Jackson, CFO
Yeah. I think as far as length of stay, I would expect in the future you're going to see it go back to historical levels that this was a pandemic is just a very unique situation with regards to admissions and discharges.
Kevin Fischbeck, Analyst
Okay, great. Thanks.
Martin Jackson, CFO
Thanks.
Operator, Operator
Thank you. Our next question is from David Common with JPMorgan.
David Common, Analyst
Great, thank you, good morning. And thanks for fielding all our outlook questions, recognizing that there are so many uncertainties. I was hoping to follow-up a little on A.J.'s questions particularly with regard to Concentra. And maybe you could give us just a bit more qualitative commentary on the cost structure and the ability to avoid operating losses for any length of time. I was thinking that maybe comments about performance during the global financial crisis might be helpful. If you could remind us of that, and then sort of similarities and differences in the business since then. You mentioned rent deferrals, which actually, I wasn't expecting and it just jogged my memory to ask about the significance of rent burden in both the outpatient businesses and whether permanent closures would be part of the mix as you go forward? And then finally just thoughts on whether this makes the valuation on the put call a little tricky looking at a little bit? Thank you.
Martin Jackson, CFO
Sure. David, let me address your last question first is that – remember that the put that our minority partners have in Q1 of 2021 is 11.3 times the LTM EBITDA. And given the expected drop in EBITDA in these last two months, we would anticipate and we've actually had discussions with our partners and we do not anticipate that they would exercise that put come Q1 of 2021 and they will basically postpone that and exercise that put come Q1 of 2022. As it pertains to the cost structure, I had mentioned before that the outpatient businesses, a significant amount of their costs are really the salaries, wages, and benefits. So the way that we take a look at that is it's variable expense. And to the extent that the volume isn't there, the clinicians are basically flexed. And in essence that's what has occurred over the past month. Those clinicians have been flexed. So costs are down considerably.
David Common, Analyst
Okay. And then rent deferrals reductions closures?
Martin Jackson, CFO
Yes, rent deferral, I wouldn't think about that being a large amount. As a matter of fact, I believe, what we've seen is probably less than $1 million of cost savings on an annualized basis.
David Common, Analyst
Okay. And then global financial crisis, any just reminders of performance and again difference in not just cost structure but similarities or differences that make up the business? Thank you.
Martin Jackson, CFO
Yes. David, we don't think that there's a comparative – there's no comparison between what happened in 2008, 2009 to what we have today. You're looking at 30 million people being unemployed over the last month. And to the extent the states begin to open up, we think a lot of those people will basically be reemployed. So unlike what you saw in 2008, where it was over a period of time, we don't anticipate that's going to occur here.
David Common, Analyst
All right. Well, again thanks for filling the question.
Martin Jackson, CFO
Sure. Thanks, David.
Bill Sutherland, Analyst
Thanks and hello, everybody. Just one or two at this point. I've been thinking about the very strong utilization number you had in patient rehab, 79% for the quarter, despite all the complications in March. And wondering if there's a cadence to the quarter to utilization. And where do you think particularly given the mix of patients going forward utilization can run for that business?
Martin Jackson, CFO
Yes. Bill, as far as the way we took – we take a look at utilization is really on an occupancy rate basis. And as you remember, we had opened up two new hospitals in the first quarter of 2019. And so what you've seen is a good portion of that volume that you're seeing is really a function of those hospitals opening up. And then some of the hospitals that we've had from the prior year maturing. So for us, we think that ultimately you can probably get on a mature basis in that occupancy rate of 85%, 86% on the rehab side.
Bill Sutherland, Analyst
Okay. And even with the complications of housing the COVID patients?
Martin Jackson, CFO
Yes.
Bill Sutherland, Analyst
I wanted to ask you about the recent waivers from CMS that apply to both your rehab and long-term hospitals, which allow for reimbursement for any Medicare admit, regardless of patient criteria or referral source. Since you've committed to handling COVID patients, does this mean you could take on more patients or increase occupancy in those facilities as a result?
Martin Jackson, CFO
Yes. My understanding of the rules was intended to assist short-term acute care hospitals in managing their capacity and finding discharge destinations for patients. As far as we are concerned, we will continue to care for the highly acute patient population we have always managed.
Robert Ortenzio, Executive Chairman
Yes. We did not take advantage of the waivers that were historically available for the LTAC, which allowed for full billing for site-neutral patients and the 50-50 rule. I believe that across our network of 100 critical illness hospitals, we are focusing on high-acuity ventilator-dependent patients. These patients will be our primary focus moving forward for Select Medical. So, we have not utilized any of those waivers.
Bill Sutherland, Analyst
That makes total sense. My last question is about the timeline for your new rehab hospital development. Can you provide an update or share if there have been any changes?
Robert Ortenzio, Executive Chairman
I think the construction has gone on unabated in our Arizona hospitals with Banner and we expect the two that are under construction to open on time in Q4. Yes. Thank you everybody for joining us. And we will certainly look forward to updating you next quarter.
Operator, Operator
And thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating.