Tenet Healthcare Corp THC
Q3 2012 Earnings Call Transcript
Transcript Call Date 11/07/2012

Operator: Good day, ladies and gentlemen, and welcome to the Third Quarter 2012 Tenet Healthcare Earnings Conference Call. My name is Jeff, and I will be your coordinator for today. At this time, all participants are in a listen-only mode. Later we will facilitate a question-and-answer session. As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Mr. Tom Rice, Senior Vice President and Head of Investor Relations, and you have the floor, sir.

Thomas Rice - SVP, IR: Thank you, Jeff and good morning, everyone. Tenet's management will be making forward-looking statements on this call. These statements are qualified by the cautionary note on forward-looking statements contained in our annual report on Form 10-K. During the question-and-answer portion of the call, callers are requested to limit themselves to one question and one follow-up question. This time I will turn the call over to Trevor Fetter, Tenet's President and Chief Executive Officer.

Trevor Fetter - President and CEO: Thank you, Tom, and good morning everyone. Last night’s election results are encouraging for the full implementation of the Affordable Care Act. Based on our model of expanded coverage under the Act, all of our hospitals are in markets that will see an increase in covered lives and in virtually all of our markets that growth exceeds the rate for the country as a whole. As you know the Act should be a material positive driver to our earnings over the next few years.

In any event it's nice to have the uncertainty of the election behind us, and I’d like now turn to our third quarter results. I’d like to summarize our discussion of the third quarter by saying I'm very pleased with our performance. We reported $269 million in adjusted EBITDA. This represents growth of more than 40% compared to last year's third quarter. This performance was consistent with our expectations and slightly above the Street’s consensus estimate.

Our solid performance was led by strong top line growth that was driven by increases in pricing and outpatient and surgical volumes. Looking across the investor-owned provider sector, Tenet reported among the strongest set of volume metrics in the third quarter. This volume growth is clear and gratifying evidence that our initiatives around physician alignment and our outpatient strategies are working.

Once again we were very strong on cost control. Our Medicare performance initiative is continuing to deliver great results in controlling costs. In the third quarter supplies costs per adjusted admission declined by 2.2%. The high-level takeaway is that our fundamental business trends in terms of volume growth, pricing, and cost control remains solid. We experienced a small seasonal increase in bad debt expense. This is largely the result of the increase in uninsured volumes and was partially offset by improving self-pay collection rates. Against that backdrop, let me quickly list some of the same hospital highlights for Q3.

Volume growth in all categories compared very favorably with what our peers reported across the sector. Adjusted admissions increased by 1.4%. This marks the eighth consecutive quarter that we've grown adjusted admissions in the 18 out of the last 21 quarters. Surgeries grew by 1.8%. Total ER visits grew by 4.9%. Total outpatient visits also grew by 4.9%, and roughly 80% of that growth was organic.

We're actively acquiring centers about 15 in total this year. We'll also open 14 new outpatient centers this year that we've built from the ground up, that's more than one newly built center opening each month. To give you a sense of how fast we're growing our outpatient portfolio, at year-end 2012, we expect to operate 124 freestanding outpatient centers which is double the number of centers we had four years ago. Diving a little deeper our case mix index in the third quarter declined by 40 basis points year-over-year, but we saw significant strength in targeted service lines like cardiovascular medicine, nephrology, cath, EP and neurological medicine.

Net inpatient revenue per admission increased by 4.4% and net revenue per outpatient visit increased by 2.6%. We continue to have excellent visibility into our future commercial pricing. We've completed contract negotiations for approximately 60% of 2013 and 40% of 2014 expected commercial revenues. We continue to be able to negotiate new contract with average increases within our targeted range of 5% to 7%. While some are higher and some are lower depending on where each health plan’s pricing level starts, the average increase remains consistent with our expectations.

Selected operating expense was well-controlled increasing by only 1.5% per adjusted admission. This was a very solid achievement and better than our expectation. Health IT expenses continue to be a headwind in the quarter. We expect 2012 is the peak year for HIT implementation cost and we expect a favorable swing of $45 million in EBITDA between 2012 and 2013 as a result of both lower implementation costs and greater recognition of incentive payments.

Our HIT initiative is on schedule and on budget with 19 hospitals achieving meaningful use in the third quarter. We have a great team managing this program. Our Head of Clinical IT, Liz Johnson was just recognized for the third year in a row on Modern Healthcare's list of top Clinical Informaticist.

I'd also like to recognize our longtime Chief Information Officer, Steve Brown, who recently retired after 36 years with the company. Steve is an operators’ CIO. He understands hospital operations from the ground up and over his career put great systems in place that we use to drive innovative strategies like Conifer and MPI. His successor Paul Brown has extensive experience in advanced clinical systems and is off to a very strong start with Tenet. Paul led our recent health IT webinar which I hope you thought was valuable.

We continue to be very pleased by the progress that Conifer Health Solutions, our services business Conifer is solidifying its position as the leader in hospital revenue cycle services and is growing and adding some very important capabilities through acquisition. The first of these Conifer acquisitions is InforMed, which will be integrated with Conifer’s capitation management business. InforMed utilizes extensive healthcare data and proprietary technology to assist more than 200 clients, including healthcare providers, employers, and payors to improve patient care and identify cost efficiencies.

As providers move increasingly into risk-based contracts and employers become more interested in population management, they need the capabilities we provide through Conifer. Combining InforMed and Conifer means that we will now support care management for 3 million lives. The business of Conifer Cap Management Systems and InforMed fit very well together. Where Conifer’s customer base is mostly physicians and hospitals, InforMed has built a great business serving employers and payors. Together this is a very powerful service offering.

We announced the InforMed acquisition last month and it closed last week. Earlier this week Conifer announced the completed acquisition of Dell’s hospital and healthcare solution’s revenue cycle management business. This acquisition will expand Conifer’s scale and scope, bringing additional best practices, creating new cost efficiencies, injecting valuable intellectual capital, and driving improved financial performance for both Conifer and its clients.

With the Catholic Health Initiatives partnership, InforMed and Dell Revenue Cycle Solutions, Conifer is solidifying its leadership position in a rapidly growing high-margin capital light healthcare business. Just to give you a few facts, Conifer upon the integration of these acquisitions and the CHI partnership will manage $21 billion and 10 million patient account in the revenue cycle, 3 million lives in care management. We'll have 9,000 employees and 500 healthcare entities as customers. I'm very excited about Conifer's prospects.

It's equally important to understand that the other segments of our business have some exciting and innovative developments. In the acute care business, we've previously announced that we are engaged in exclusive acquisition conversations with Emanuel Medical Center in Turlock, California. This is moving forward quickly and we hope to have a definitive transaction to announce in the near future. Transactions of this type will accelerate our growth in existing markets and are incremental to our proven organic growth strategy. I'm pleased with the quality of hospitals that now seem to be exploring the idea of a sale or a joint venture.

Our outpatient group also remains very active. We continue to identify, negotiate and close a steady stream of outpatient acquisitions, consistent with the strategy we've outlined on past calls and in our recent webinar. We're steadily increasing the portion of our business that we generate in outpatient settings and as you know that increases our margins and returns on capital.

Before I leave acquisitions and the topic of capital deployment, I'd like to reiterate our belief that Tenet stock represents an excellent value and remind you of our $500 million stock repurchase authorization that commenced in the fourth quarter.

Let me now turn the floor over to our Chief Financial Officer, Dan Cancelmi to provide some further insight on how this growth strategy is expected to contribute to our financial outlook.

Daniel J. Cancelmi - CFO: Overall, we were pleased with our performance in the third quarter. Despite inpatient volume headwinds, we were able to achieve adjusted EBITDA growth of 40% primarily due to solid outpatient volume trends, favorable commercial Managed Care pricing and excellent cost control. These positive trends led to our strongest third quarter in the last 10 years. This performance provides a solid foundation for future growth and we remain very optimistic about our ability to build on this and create significant growth in shareholder value.

For Q3, we previously provided guidance that our outlook for adjusted EBITDA would be in the range of $250 million to $290 million. We were pleased that our growth initiatives continue to take hold as we were able to generate $269 million of adjusted EBITDA in Q3. Due primarily to the delay in the approval on the managed care portion of the California Provider Fee program, this morning's earnings release provided a revised estimate for 2012 adjusted EBITDA of $1.200 billion.

Let me explain this revision. Our previous full year guidance of at least $1.250 billion of adjusted EBITDA assumed that the managed care portion of the California Provider Fee program would be approved in the second half of 2012. However, state officials in California recently informed the hospital industry that they do not expect approval of the managed care portion of program until 2013. As a result, over $40 million of revenues that we expected to be able to recognize in 2012 will be delayed and recorded in 2013.

Primarily as a result of this temporary delay, we revised our outlook. In addition to the temporary delay in recognition of the California Provider Fee revenue of over $40 million, based on recent trends, we are moderating our volume impairments assumption. Although our recent impairment trends are softer, our adjusted admission growth was again among the highest in the (investor and sector).

Other more granular assumptions we shared with you on second half performance are coming in as expected. These metrics include managed care pricing, (indiscernible) management improvements, cost efficiencies from our Medicare performance initiative, health information technology incentives, and Medicare and patient rate increases.

Specific examples validating these assumptions include the fact that our commercial managed care revenue per admission increased 6.6% compared to Q3 2011. Our supplies expense per adjusted admission decreased 2.2% compared to last year’s third quarter. Our hospitals are achieving Health Information Technology meaningful use criteria, which is enabling us to recognize HIT incentives that will approximate $35 million in the second half of 2012 and beginning in October we received the largest Medicare inpatient rate increase in four years. This is an approximate 3% increase for us, which is about $12 million of additional revenues we will recognize in Q4 or about $48 million on an annual basis.

Also CMS notified hospitals last week of the increase in outpatient rates Medicare will pay hospitals starting in January 2013. We estimate our outpatient rates will increase 2.5%, which is about $11 million of incremental revenues on an annual basis. We are pleased that the actions we are pursuing to grow our business, especially those most directly under our control, continue to take hold, which contributed to our 40% earnings growth this quarter.

We also included an estimate of our 2013 expectations in this morning’s press release citing a range of $1.325 billion to $1.425 billion for 2013 adjusted EBITDA. We are providing this 2013 outlook earlier than in the past as we believe is important to share with investors the likely implications of current business trends on next year's anticipated performance.

Our 2013 outlook represents meaningful earnings growth and is expected to result an adjusted EBITDA midpoint of $1,375 million which is above the street's current consensus estimate for 2013. The following key assumptions were used to develop our 2013 outlook.

Growth in same hospital inpatient admissions of flat to up 0.5%; growth in same hospital adjusted admissions of flat to up 2%; same hospital net revenue growth per adjusted admission of 1.5% to 2.5%; same hospital controllable costs for adjusted admission growth of about 1% to 2%; and a same hospital bad debt ratio in a range of 7.5% to 8%. This should result in total revenue growth of 10% to 12% and an EBITDA margin of 13% to 14%. I also want to point out that our preliminary outlook for 2013 includes the accretive impact from recently closed acquisitions as well as those we expect to negotiate and close in 2013.

Looking beyond 2013 is more difficult. Our outlook for 2013 performance is very close to what we estimated two years ago largely as a result of better than expected performance from MPI even brighter prospects for Conifer and the attractive prospects for value creating acquisitions. However, as a result of the soft economic recovery, the industry has been encountering volume and payor mix headwinds. Also, there are open questions related to healthcare reform, including the structure and pricing within the exchanges and whether state Medicaid programs will be expanded in some of our more important states. As a result, until there is more clarity on these issues, we're not going to comment further beyond our outlook for 2013 financial performance, except to say that we continue to believe that implementation of the Affordable Care Act ultimately will be a material positive source of earnings growth.

I'll now address our recent M&A activity. In early October, we issued $800 million of new notes at historically low interest rates. The proceeds from these notes will be used to pay down approximately $400 million of borrowings under our line of credit and debt scheduled to mature in February 2013 as well as funding $400 million of anticipated M&A activity.

In October we announced that we are in exclusive negotiations to acquire Emanuel Medical Center in Turlock, California. Although we are not yet in a position to announce the transaction, discussions and due diligence are continuing in a productive manner. Emanuel's estimated annual revenues are anticipated to be in the range of approximately $150 million to $175 million after the initial integration of this facility into our organization. Emanuel will enable us to strengthen and expand our regional network in the Central Valley, including our two existing facilities in this area of California, Doctors Medical Center in Modesto and Doctors Hospital of Manteca.

As Trevor mentioned, we recently announced two exciting and important acquisition by our Conifer Health Solutions business that will enhance its service offerings. These acquisitions coupled with Conifer's groundbreaking partnership with Catholic Health Initiatives, which began in the third quarter, further solidify Conifer’s position as a leader in business process management solutions for healthcare providers.

The estimated annual revenues of the Dell Revenue Cycle Management and InforMed businesses are anticipated to be in a range of approximately $125 million to $150 million in aggregate after their initial integration into the Conifer organization. These transactions are in addition to our ongoing outpatient acquisition activity. We are pleased with the acquisition opportunities that can strengthen and grow our three major business lines. Given the attractive options in these pipelines, we are vigorously pursuing them. It is important to note that we expect meaningful EBITDA creation from purely organic sources in 2013, which we have consistently delivered since 2004 as well as incremental earnings from these acquisitions.

To summarize the quarter, we were able to grow our adjusted EBITDA by 40%, which was attributable to strong top line revenue growth of 5.8%, which was primarily due to favorable commercial pricing trends and adjusted admissions growth that was the second strongest in the sector, diligent cost control, the continued successful roll out of our clinical systems implementation initiative resulting in the realization of HIT incentives, and the development and execution of numerous performance improvement initiatives that we are aggressively monitoring and holding management personnel accountable for achieving the expected performance.

Also in recent week, we successfully completed several important acquisition that will grow our business and we were able to access the credit markets at the appropriate time to obtain financing at historically low interest rates that we expect will create shareholder value.

As we turn to Q&A, we are joined this morning by Britt Reynolds, our President of Hospital Operations; Steve Mooney, the CEO of Conifer; and other colleagues who are ready to answer your questions. Operator, please assemble the queue for questions.

Transcript Call Date 11/07/2012

Operator: Josh Raskin, Barclays.

Joshua Raskin - Barclays: The first one just, I think it is 40% of your commercial revenues were contracted for '14. Do you think of that as exclusive of exchanges or are you in the mindset that commercials, commercials, commercials, and so exchanges would be part of that?

Trevor Fetter - President and CEO: Let me turn that to Clint Hailey, our Head of Managed Care in a second, and let me just make a comment before I do with respect to the future. One of the interesting things as we think about the future and exchanges in different forms of engagement with employers and managed care companies it's kind of a broader topic than specifically what you asked. If you look – we did this a few weeks ago, if you look at the spectrum of engagement of hospitals with a covered population ranging from just traditional managed care contracting all the way to pay-per-performance or gain sharing or risk-oriented contracts like ACOs, all the way up to actually owning and being the payor, various Tenet hospitals in various markets are doing all of it. So it's really interesting, we have become and we have a future investor webinar on this topic, but we become very innovative in the way we're looking at engaging with employers and with payors. We have examples of virtually every form of contracting and that type of engagement that exist today in the industry at work in at least one or more Tenet markets and we're very pleased with some of these pilots and the different types of programs that we have going forward. Now with respect at least to the exchanges how those seem to be developing, my own caveat would be, nobody yet knows what the pricing is going to be like, and that's ultimately serve what you care about most in trying to assess the future performance of the company, but Clint, why don't you just talk little bit about some the preliminary conversations that are taking place out there and how you see that market shaping up.

Clint Hailey - Chief Managed Care Officer: Sure, Trevor. In terms of the exchange contracting activities that we've got going on, it really is still a lot of preliminary discussions. We don't have a contract that's specific to exchange products in place today, we had a lot of discussions around that and I think there is a lot of exciting prospects for 1/1/2014 related to exchange products. The 40% number that you asked about, the way we calculate that as we take our most recent year run rate of revenue and say how much of that is contracted for next year, so it contemplates last year's revenue essentially in terms of the 40% that's contracted for 2014.

Trevor Fetter - President and CEO: So, it's an indication of sort of that forward book. I would also tell you that that could move very quickly from say 40% number to a 60% or greater number with a couple of big contracts – that cover 2014 that are likely to be – where negotiations are likely to commence relatively soon. Specifically on Josh’s question though, Clint, we’re not really aware in any of our markets of providers that have entered into contracts for the state-based exchanges that are likely to start popping up in 2014. It’s still preliminary, very preliminary on that in this industry.

Daniel J. Cancelmi - CFO: Yes, it is preliminary. One other thing I would just point out real quick about exchanges is the 40% of revenue that we have contracted for 2014, we fully expect that there will be some exchange members coming through those contracts. And so it’s not like you have a different set of contracts for exchanges or your existing contract portfolio is available to sell on exchanges in addition to other products.

Joshua Raskin - Barclays: And then just a quick follow up on the M&A comments that you made. I think you said that 2013 included some of the expected acquisitions. Is that Emanuel or is there actually more built into that? And then I also think I heard you say Trevor that the quality of the assets that are for sale has improved. Maybe you could help us understand what that that…?

Trevor Fetter - President and CEO: Yeah, let me make a comment. I’ll give you an overall comment. I’ll ask Dan to fill in on the acquisition assumption. One reason that we talked about that specifically is we did just raise a lot of capital and you’d want to see earnings associated with that capital being deployed to a certain extent. As far as the quality of the assets, let's take Emanuel as an example; it's a high quality facility. It’s well-capitalized. In fact one of the reasons that they've decided to contemplate selling the hospital is that they had incurred substantial expenses in building out a certain facility expansions as well as their HIT program, and so unlike many acquisition opportunities that we have seen and not pursued in recent years that would be characterized as a catching or falling knife or a turnaround of a facility that has lost its market position or has significant deferred capital expenditures. This is actually a facility that's well-capitalized and it's in a very good market position, and like we said in a market that we understand very well because of our position in that, so that is more appealing to us than to purchase something that requires a significant turnaround. As far as the guidance related part of your question let me turn it over to Dan.

Daniel J. Cancelmi - CFO: Yes, our 2013 guidance does include the estimated revenue streams and earnings related to Emanuel. We have moderated our estimates of those earnings due to the fact that the ultimate timing of the closing of the transaction is not necessarily certain at this point, but Emanuel is included in our estimate of our guidance for 2013 as well as the InforMed acquisition we just announced as well as the Dell Revenue Cycle business.

Operator: Tom Gallucci, Lazard Capital Markets.

Thomas Gallucci - Lazard Capital Markets: I guess just one other topic of reform first, obviously a lot of variables there, but what are you expecting at this point, what you are hearing out there in terms of the timing of the implementation of the bulk of what's expected sounds to me like some of the states in particular maybe are little slow on the exchanges and whatnot, so is it a '14 event that you're thinking about or is a little bit further out than that at this stage?

Trevor Fetter - President and CEO: Let me ask Dan Waldmann, who had done a state-by-state analysis for us to give some comments on that. Dan is Head of Public Affairs, which includes government relations.

Daniel R. Waldmann - SVP of Public Affairs: I think specifically on the exchange, the date is coming, the important date is coming up is November 16th when state is supposed to inform the federal government what their plans are, whether they are going to move forward with their own state exchange or do some kind of partnership exchange with the Feds or to defer to the federal exchange. We have not seen any indication that would say that there is going to be a delay of implementation, so we are moving forward on the basis that as of January 2014, the exchanges are going to be up and running. Certainly we'll be watching closely what happens as the new Congress comes in, but certainly the election results I think are very favorable for ongoing and expected implementation. Medicaid side is I think a little bit more up in the air. Certainly what the states are going to do on Medicaid expansion, I think that we just have to see how the states react or the state legislators react to the election outcome. I would note that in Florida, there was an Anti-ObamaCare Ballot initiative that was on the ballot and it lost, and I think the legislator down there has been taking a much more measured position on the prospect of Medicaid expansion than the governor has. So I think we also see some hope that we're going to see some more movement on Medicaid expansion as well.

Thomas Gallucci - Lazard Capital Markets: Maybe just back on the fundamentals, you talked a little bit about payor mix trended in the quarter and if there was any regional variation throughout the portfolio?

Trevor Fetter - President and CEO: Let me ask Britt Reynolds, our President of Hospital Operations to comment on regional trends and some of the volume trends we’ve been seeing.

Britt T. Reynolds - President of Hospital Operations: We did see some regional variation and we saw some really strong growth relative both to the sector as well as to peer regions and particularly in the state of Florida, and especially in our outpatient business in the state of California. So we did see some segmentation there in our hospitals as well as some key markets for us that we track closely, both in size and in scope, and just ones that really are bellwethers for our organization. And what I feel really good about in this quarter is 10 key markets of size and significance to us had volume increases and significantly volume increases and better payors. So we're seeing some movement that is atypical from the trend rate year-to-date and that gives me a lot of promise.

Operator: A.J. Rice, UBS.

A.J. Rice - UBS: I might just drill down a little bit further on Conifer. Obviously the announcement of the acquisition of Dell Revenue Cycle Management, should we look at that and other deals you’re doing, are they sort of tuck-ins of things that Conifer’s already doing or does that enhance your capabilities in anyway that’s worth noting, and I know last time there’s been some discussion about Catholic Health Initiatives deal has led to other discussions. Any update on any of the other discussions with potential customers you’ve had that might be worth noting?

Trevor Fetter - President and CEO: Let me ask Steve Mooney to cover that. I would just start by saying A.J. that the initial acquisitions and there are others we made in prior years that were very small, but those all to-date have been in the existing lines of business that we have and there is one line of business that we didn't talk about in the prepared remarks the Patient Communications business, Steve, that I think you should also at least mention to remind people that we're in that line of business. But why don't you talk about what these acquisitions bring to us and then in terms of philosophy what you see down the road in terms of our acquisition strategy.

Stephen M. Mooney - President, Conifer Revenue Cycle Solutions: It's all kind of all of the above when you talked about the acquisitions of Dell, the Revenue Cycle operations and InforMed about who we bring it on more scale organization, but also it is bringing on additional capabilities, so I'll just give you a couple examples. So on the Dell one we just announced this week, there are some things that we're currently doing in the revenue cycle operation that we don't do. One of those areas for instance is case management services which they'll bring on to us for capability services that we can then obviously move into our existing client base. They also have and I'll call it's kind of a casual term, they have SWAT teams. So, they have got about 60 plus employees across their organization that go out and do targeted projects for cleanup of AR and go in and do integration projects when they have a new client coming onboard and it's going create great capability for us as we continue to expand our portfolio. For instance, (regarding to) to CHI, but also other clients are in the pipeline as we're bringing them onboard have that additional talent available to us. The other thing they have, they have a proprietary system, a solution that allows them to quickly and cost effectively integrate smaller hospital clients and do what was otherwise cost prohibitive for Conifer to pursue. We've got a rather robust workflow engine, but that workflow engine provides a lot of scale and capabilities for us when we get a new client, but it's also expensive to get in. So most of our clients you know are rather large. Dell's clients typically have been smaller than the ones that Conifer have had, but they are able to do this with this cost efficient process they have. So, this really opens up a much a broader market than us for Conifer. We were targeting a larger client base of net revenue which expands that multifold for entire new population for us to go after from a client perspective, so a lot of capabilities. We're really excited about that acquisition. InforMed, Trevor kind of mentioned a little bit, but we really were complimentary to our business right now which is cap management services and we mentioned we brand that company since it doesn’t really tell exactly what they do, but we're really focused on primarily a cap on the provider space as Trevor mentioned on both hospitals and physician groups and IPAs where the InforMed organization was primarily really focused on employer groups, really around their population health offering have been very robust process in that area, much more robust than we had at Conifer. So you think about the ACOs being developed around on a value-based processing out there, really gives us a much stronger level of capabilities in that particular area and also expands once again what our market is. We were at primarily looking at provider space; we actually now can move into the both the plan and also the employers space. So it's both the capabilities as well as expansion of markets from that standing. To touch on CHI, which you mentioned briefly, that is going in really well. Everything is on track. Some areas of the project are actually ahead of schedule. We have a monthly steering committee meeting with the leadership of CHI including their CFO. I am incredibly pleased the way that is going and everything is going as according to plan. Pipeline, (indiscernible) looking strong, an area that continues to grow as a result of continued market acceptance of our solutions overall and since the CHI partnership announcement, we have had several regional health systems that are committed to evaluating our service offering, including ones we've had been short listed for full revenue cycle engagements. We've seen significant pickup of interest around our clinical integration and population health offering with several clinical integration service discussion in process and one large (renal) system committing to entering into new agreement with us. We're also seeing increased interest and then combined to add of service offerings from both our existing clients and our new prospects. I mean, with obviously additional services we have and Trevor mentioned what we're doing around cap, we're doing around revenue cycle, also patient communications, we are doing admissions reviews in that area, HCAP services, we're doing marketing campaigns, scheduling services. We have a lot more topics to talk to our clients about around the areas that they are having difficulties with. So it really is a great conversation we can have from that area. One area of particular enlightenment though, which is interesting, by both our current clients and our prospects is really the level of actual operational experience that Conifer has in the areas of population health and risk-based payment models as well as they’re having actual clinically integrated network up and running. Apparently there’s lot of posers in the space at the moment out there, so it’s been very interesting to us. So overall it’s been an incredible year so far as you know, with both the CHI and the acquisitions we had, things are looking strong on the pipeline front and we continue to build capabilities for the needs of our clients.

A.J. Rice - UBS: Can I just ask you quickly on modeling, high-tech in the fourth quarter and next year, what’s in the range of assumptions there?

Daniel J. Cancelmi - CFO: This is Dan. The HIT incentives in Q4 should be in the neighborhood of $20 million and for next year the HIT incentives are approximately going to be $75 million.

Operator: Sheryl Skolnick, CRT Capital.

Sheryl Skolnick - CRT Capital: Congratulations on the 10th anniversary belatedly of events that put the Company on the path to being where it is today. It’s been a remarkable period of time, a remarkable transition and I know there’s many people who are still there and have done – who were there, who have been there through all of this, they have gone through a lot, and I think they’re seeing the other side of it and all should be congratulated on surviving what was a very, very challenging situation for the company.

Trevor Fetter - President and CEO: Thank you for remembering about a third of our employees have been here for 10 years or longer and I think it's safe to say that all of us, whether we were here 10 years ago or not, have learned important lessons and we continue making sure that those lessons are reflected in our core values in way that we operate our business.

Sheryl Skolnick - CRT Capital: I think it's pretty obvious in what's been done, but I am going to be a little critical because I really don’t understand why the Company feels that's important and perhaps you can help me to understand why the Company feels that's important to include acquisitions that are not yet closed in your guidance. It's risky. I don’t care how close you are until the deal was signed, it's not signed. If can confirm also as part of that that you did say that you expect there to be as a result of that a total of 10% to 12% revenue growth in 2013 which quick math on a cash revenue basis which is just $900 million, so clearly there is that plus Catholic Health Initiatives revenue plus the Emanuel. Why take that step to include it? I mean especially given the proviso that you've just given us that the timing is uncertain, why take that risk?

Trevor Fetter - President and CEO: Just real simple with source of quite lot of discussion that we had, the reason is that, only a month ago, five weeks ago, we raised a significant amount of capital in the capital markets. We tried to be very explicit about what the use of that capital would be and we have visibility into a pipeline of near-term acquisitions. I think the choice, the alternative that we had was to exclude that from our outlook and expectations and then you would have to ask the question of -- wait a second, you just borrowed a bunch of money you're paying interest on it, you're planning not to do anything with it. So, we're just trying to be transparent, Sheryl, in giving you and others visibility into what we actually expect as opposed to creating too many moving pieces or noise so to speak.

Sheryl Skolnick - CRT Capital: We can then parse that revenue increase just so that we understand the sources of it are a little better. If I could do the math correctly, you're talking about at the midpoint of ranges that you gave. On and adjusted admission basis, you’re talking about midpoint of up 1% and then same-store net revenue for adjusted somewhere in the neighborhood of up 1.5. so that gives you 2.5%ish internal same store growth without the acquisitions and then on top of that to get to roughly even a 10% percent, we would need to have something on the order of another – I did the math correctly, that would give about – you need to have something on the order of the 150 from Emanuel, 85 from Dell, 50 million the other acquisition InforMed and then CHI adding additional revenue and then you would have get to the bottom end of your range with potential upside from additional acquisitions. Is that the right way to think about the guidance you've giving.

Daniel J. Cancelmi - CFO: Generally speaking, I'd say yes, let me just address the Emanuel situation for a second. As I mentioned, we have included some estimates in there for that. I would tell you they are modest and given the timing, we certainly didn't assume that it would occur January 1. The InforMed and Dell business as I assumed obviously for the full 12 months and there are several other transactions that we feel pretty comfortable with that we believe that make sense to put an estimate in there. Getting back to your broader point about the growth in the revenue, certainly with the CHI business coming online and starting January 1st, there was going to be significant ramp up in the revenues there that will drive probably close to $350 million to $400 million. So that’s certainly a big component. We’re obviously anticipating continued strong outpatient volume growth and from an inpatient perspective, although our volume assumptions are fairly modest from an inpatient perspective, we continue to believe we will be able to realize favorable commercial rate increases throughout 2013 consistent with what we have been achieving.

Sheryl Skolnick - CRT Capital: And just to quantify what you meant by the initial volume and mix trends, was it near-term? I don’t want to be confused about what that means. Does that mean that they’re weaker or stronger than they were in the third quarter?

Trevor Fetter - President and CEO: The trends in 2013 were…

Sheryl Skolnick - CRT Capital: Well, I thought you meant ’12 or were you talking about ’13 when you gave that because I thought you meant that you were reflecting in the fourth quarter ’12 implied guidance that things were softer, but maybe I’m glad I asked if you meant it was ’13 and that fourth quarter ’12 was fine.

Trevor Fetter - President and CEO: No, I was referring to Q4. And the volume trends they’re just not quite as robust as what we had in our preliminary outlook when we were talking about this in the second quarter. We still had favorable adjusted admissions growth. The outpatient volume trends continue to be strong. The inpatient volume trends relatively consistent with what we've seen in the first three quarters of the year. We want to be prudent and moderate our Q4 outlook based on the level of our inpatient volume trends that we have seen, as well as the mix in terms of the mix of Medicaid and uninsured, so we just feel it's appropriate at this point in time to just moderate those assumptions that were fairly robust for Q4.

Operator: Kevin Fischbeck, Bank of America Merrill Lynch.

Joanna Gajuk - Bank of America Merrill Lynch: This is actually Joanna Gajuk today for Kevin. I just want to go back to the disclosure, which is really helpful on the 2013 assumptions in your guidance and then can you just maybe talk a little more about your payor mix assumption there?

Daniel J. Cancelmi - CFO: Let me address a number of our assumptions for 2013. We're assuming from an inpatient volume perspective, growth of a flat to up to a modest 0.5%. We're anticipating continued strong outpatient volume trends which obviously would drive the adjusted admissions growth up as well. Cost control has been excellent, when we continue to capture the efficiencies and the expectations from our MPI initiatives, that is going to continue. So, we are real pleased with the performance from a cost control perspective. We have a number of initiatives at each hospital to drive additional volume. Literally we just went through our detailed business plan reviews for 2013 for all our hospitals. We're very optimistic of the strategies they have in place to drive additional volume growth and very detailed by market, by hospital, by service line, so we're confident, we can drive incremental volume growth and in particular on the outpatient side. Inpatient, we're being moderate or conservative at this point in terms of you looking out given the trends that industry is facing from a volume and mix perspective.

Joanna Gajuk - Bank of America Merrill Lynch: I was trying to get to like your view on payor mix specifically for 2013 versus this year?

Trevor Fetter - President and CEO: The payor mix, when we look out into 2013, we're optimistic, we'll see home improvement, but we and others in the industry are facing some headwinds, especially on the inpatient side in terms of – from a mix perspective, so we obviously took that into consideration as we model 2013.

Joanna Gajuk - Bank of America Merrill Lynch: On the last quarter call, we were talking about contract you signed with Humana. Are there any similar contracts that you're working on with other Managed Care payors?

Trevor Fetter - President and CEO: We're always working on contract as state payors is nothing unusual.

Operator: Jay Kindilong, Imperial Capital

Jay Kindilong - Imperial Capital: I want to continue to focus here on 2013 EBITDA versus 2012, and just my first question is the low end of your range is that considering the 2% sequester as you’ve considered in your year-over-year guidance in the past?

Daniel J. Cancelmi - CFO: Absolutely. We’ve modeled that sequestration to occur beginning in February and it’s roughly $55 million next year. Now on the bright side as mentioned in the script, we just got our largest Medicare inpatient rate increase of 3% starting in Q4 and that’s approximately $50 million on annual basis. The industry was notified last week of the updates in the Medicare outpatient rates. That’s going to be about 2.5% for us, and so when you add up the increases from an inpatient and outpatient perspective, they essentially offset the impact of sequestration if it does occur starting in February. But the sequestration impact is in our model for next year.

Jay Kindilong - Imperial Capital: And then on the acquisition, can you comment on what you expect the 2013 margin would be on that revenue on average for all three acquisitions discussed?

Daniel J. Cancelmi - CFO: What we have built into our model for next year, as I mentioned, we’ve been fairly conservative on it, but you could look at that in terms of we’ve added about $25 million of earnings left next year for the acquisitions. Again it all depends on the timing of when the transactions close. The integration cost associated with some of the acquisitions, those type of factors. But for modeling purposes just assume approximately $25 million.

Jay Kindilong - Imperial Capital: And then just lastly, looking at the different initiatives and how you’ve outlined the year-over-year increases in the past, MPI, Conifer and outpatient. Has anything changed significantly on the year-over-year on any of those lines as you think about modeling forward and I am sure you all at some point probably put out a similar slide to talk about 2013?

Trevor Fetter - President and CEO: No, those assumptions are pretty much tracking as I mentioned in my prepared remarks.

Operator: Darren Lehrich, Deutsche Bank.

Darren Lehrich - Deutsche Bank: I want to just some questions around the outpatient business. Trevor, I think you said, there is 124 freestanding sites. Could you just maybe update us on how that breaks down between different settings of care imaging, surgery, et cetera. I'd be curious to know thinking of this third quarter, what the adjusted admission growth rate would have been excluding some of the additions you've made in your outpatient business?

Trevor Fetter - President and CEO: I'll ask Britt to comment on the outpatient portfolio, but I did in my prepared remarks as I've done quarter-after-quarter, say that, 80% of the growth in the outpatient side was organic growth. So, we've got a strong organic same hospital completely apples-to-apples outpatient business being driven heavily in the emergency departments and outpatient surgeries and things like that. That's a very strong robust business. In fact the outpatient business in total is a very strong business. We're basically augmenting our organic growth with acquisitions, but Britt, you want to talk a little bit about the (pace of) centers, what we're building, what we're acquiring, et cetera.

Britt T. Reynolds - President of Hospital Operations: Absolutely. On the acquisition side, the vast majority of the numbers that Trevor gave you there. On the ambulatory surgery side that's where we've seen acquisitions and acquisition opportunities materialize rather significantly and our pipeline continues to be strong in that arena, so as we're thinking about our outpatient services, ambulatory surgery is a real key driver for us. We've also had a smattering of acquisitions market-by-market, very specific from an integration standpoint on the imaging perspective and on the radiation oncology side, so we’ve purchased for example facility, a few facilities that were either a (indiscernible) center in a specific market where it's already accreted to a service line we have there. We already have partnerships, relationships with those physicians, just made sense to integrate that into our system, so from a pure acquisitions and pipeline standpoint we're really pleased with ambulatory surgery side. We occasionally get some from the imaging side and we're more so active there because we want to that to be complimentary to the services. As Trevor mentioned from a development standpoint, we're excited about our development and freestanding emergency departments again in markets where they are accretive to our markets and also give us geographic outreach portals of entry into our market and those are the de novo developments that are rapidly materializing and we are also seeing keen to that the urgent care center opportunities both prospectively and in the numbers that we talked about. So, really it was not the one particular area that's untouched, however I would tell you and I would be excited to tell you that we've been most successful in ambulatory surgical side. We like that from a managed care standpoint, that's been good to us, as we like it from a predictability standpoint, we like that from the integration with physicians in a marketplace both incremental to us as well as existing physicians and I'll hope that will give you some color on what our acquisitions have been and what they look like as well as the fact that the organic means that, but we're feeling really good about how they are implemented.

Darren Lehrich - Deutsche Bank: Then just so I could just little – understand a little bit more about how you are thinking about the outpatient piece for 2013. In terms of the mix of percentage of outpatient obviously that's been growing. Do you have a view or a range that you think the outpatient piece will contribute overall as will get sort of how you built up your 2013 model?

Daniel J. Cancelmi - CFO: Our outpatient mix has been growing for the most recent quarter. It's approximately 34%. You should expect that a percentage to continue to grow steadily.

Darren Lehrich - Deutsche Bank: Last thing from me is just as it relates to the outpatient strategy and how you're treating them from a licensor perspective in a large part are most of these free standing or are they – some of them also being attached to the hospital and becoming departments of the outpatient hospital?

Britt T. Reynolds - President of Hospital Operations: The vast majority of them are freestanding. That's our opportunity when we acquired them and we maintained that in our marketplace, that gives us again a good pricing leverage in the marketplace, but from a retail standpoint we want to be competitive and we think that gives us both the inpatient ability and with these acquisitions the retail advantage on when they're freestanding. In certain circumstances and again each ones analyzed on a unique basis they become departments of a hospital where just the very mechanics, and I wouldn't want to go into great detail because they are very situational, that makes sense, but by and large our strategy is for them to become in most cases remain and/or become freestanding entities from a strategic positioning standpoint.

Operator: Erin Blum, Goldman Sachs.

Erin Blum - Goldman Sachs: Just a quick on the California provider fees. Can you just help us with the math of what you now expect for the fourth quarter? I think originally it was supposed to be $66 million in the second half?

Daniel J. Cancelmi - CFO: We estimate the fourth quarter California provider fee revenue will be approximately $12 million.

Operator: Ralph Giacobbe, Credit Suisse.

Ralph Giacobbe - Credit Suisse: I know EBITDA was up or adjusted EBITDA was up 40%, obviously a robust number, and I may have missed this, but I guess I'm just trying to think about a same facility number kind of ex-HITECH, provider tax, the new deals. Is there a way to just estimate an EBITDA growth number off of kind of same facility revenue number?

Daniel J. Cancelmi - CFO: The HIT incentives were approximately $13 million in Q3. In terms of when you’re looking quarter-over-quarter, that's the most noteworthy item in terms of looking at in terms of the revenue streams or the costs moving around slightly depending on the timing of the approval of a program or achieving meaningful use.

Ralph Giacobbe - Credit Suisse: So, I guess you think it's fair for me to just take out $13 million from the EBITDA number from this quarter, put it over last year's EBITDA number, take that growth and that should be what we think in organic growth is for the underlying assets?

Trevor Fetter - President and CEO: Hang on a second, the HITECH revenues are offsetting HITECH expenses, so you want to start excluding HITECH revenues, you should exclude HITECH expenses as well.

Daniel J. Cancelmi - CFO: Right. Our HITECH expenses were over $20 million in quarter.

Ralph Giacobbe - Credit Suisse: In terms of the commentary, just beyond 2013, obviously you put guidance out there and what you expect the benefit reform to be. I am just trying to understand, should we not rely on what's out there beyond 2013 as it relates to that because of the assumptions around your underlying business or just the assumption that you made in terms of what reform would mean for you?

Daniel J. Cancelmi - CFO: As I mentioned in my prepared remarks, we've outlined our expectations for 2013 which includes our most recent assessment of our underlying business trends. We're continuing to drive on our initiatives, cost control continued to be very strong, outpatient trends continued to be strong, inpatient trends admittedly are softer than we'd like and we're not alone in that regard and so we've built that into consideration as we look out 2013. As we've mentioned earlier, we've layered on a little bit of incremental earnings related to some either closed acquisitions or ones we think we're pretty close to closing on as well, so you should look at what we just talked about in terms of our expectation for 2013. Those are where we think our business trends are heading.

Ralph Giacobbe - Credit Suisse: Then just last one, if I could. There has been a focus and pressure on volume for the industry just stemming from kind of lower one day stay and greater observation. Your volumes stats were obviously better. So maybe could you talk about either the magnitude of that dynamic within your own organization? Is it just not a non-issue or just any details around that trend?

Trevor Fetter - President and CEO: Sure. We were pretty well ahead of that trend in terms of our implementation of systems to make sure that we were properly categorizing patients as inpatients or outpatients. What you're asking is sort of an indirect way, there are a lot of questions asked on other calls about Company's experience in RAC audits, ours has been very good. Audrey Andrews, our Chief Compliance Officer is here. Remind us Audrey, I think we've had net recoveries from the RACs, is that right?

Audrey Andrews - SVP & Chief Compliance Officer: That's right. We remained net positive on RACs at Tenet and as one of the other analyst pointed out, we really started investing in our compliance program 10 years ago, and I think some of those investments are paying off as our payments are being more closely scrutinized. We also made a decision five years ago to consolidate all of our RAC response efforts at Conifer and that helps us make sure that we don't lose a payment just because we didn't submit a medical record on time. So, our goal is and has always been to get it exactly right, not to be overpaid and not to be underpaid and we've been working towards that goal for 10 years, and I think that is starting to really reflect positively for Tenet in the results we're getting from RAC.

Trevor Fetter - President and CEO: Basically bottom line is, what you see is what you get in terms of the volume stats.

Operator: Whit Mayo, Robert Baird.

Whit Mayo - Robert Baird: I had a quick question, I guess, back to Darren's question on the outpatient strategy. Just curious if all these deals that you're looking at or in markets where you actually have existing assets or you're actually looking at entering new markets where potentially you don't have any hospital assets currently.

Trevor Fetter - President and CEO: We've eventually done both, actually the vast majority has been in our hospital markets, but there are – this is an attractive business, so outpatient as you know, we're underrepresented in terms of our percent of our business that comes from outpatient relative to the peer companies. It's an attractive business, an attractive business in our markets and it's an attractive business in other market. We haven't so far gone outside of a state in which we operate, except in the case of El Paso where we went into the adjacent state of New Mexico, but we have been making some acquisitions outside of our local markets, but still within states and we have synergies within a – on a statewide basis that have made that compelling for is.

Whit Mayo - Robert Baird: I guess another question I had was just maybe talk about your IT strategy for a second, I know you are pretty far along with HITECH and implemented CPOE in a number of hospitals and certainly have embraced that more than maybe some others. As you look at where you are now, can you put your finger on any tangible benefits yet or surprises that to you help reinforce the longer-term benefit from some of these investments.

Trevor Fetter - President and CEO: Yeah, I have got Paul Browne, our Chief Information Officer here I think, Paul, let the audience know some of this early findings that we've had and while we don’t have a full ROI, I don’t think anybody in the industry really does yet on these investments, we're very pleased with what we're seeing in terms of cost-saving, improvements to clinical quality and patient safety, and I think these are going to be excellent tools for us to even improve our performance further into the future. Paul, just could of highlights.

Paul T. Browne - CIO: Sure, I think the best way to think about this is, we envision benefit in or broad categories moving from perhaps the most concrete to those that we cannot yet quantify quite as strongly. Certainly we'll receive incentive payments and avoid penalties in future periods, we can clearly quantify that. We're seeing also secondly a number of transactional benefits and what I mean by that is our ability to remove variable cost from the organization by identifying potentially duplicative test procedures, et cetera, et cetera and eliminate those before the labor costs and spikes (indiscernible) are actually incurred. We will be starting very shortly a rather aggressive program around redesigning a number of clinical processes where we believe there is opportunity to use HIT to move the organization to evidence-based practices and see substantial improvement. And then forth we really believe we can turn those into favorable positioning with payor organizations and we can really advance the organization as the industry moves to paying for quality outcomes as opposed to just procedures.

Trevor Fetter - President and CEO: There's a theme here that we will expand upon in investor presentations and communications in 2013. Going back to comments we made earlier about managed care and then tying this and then we didn't have an opportunity today to talk about clinical quality, but the themes are integration with physicians, integration in the provision of care, standardization of the provision of care, adoption of best practices all of which leads to reduced costs, improved outcomes, better safety and lower cost and that is all what our strategy is about. So, this is an essential part of it focusing on just the HIT incentive payments or whatever it's kind of missing the point. The point really is what we're seeing in terms of our ability to communicate more effectively with physicians and payors about the provision of care to patients.

Whit Mayo - Robert Baird: I guess maybe aside from some of the anecdotal benefits, have you been able to get your arms around any numbers around what percent of duplicative tests are out there and/or what dollar number for some of these cost-saving opportunities are?

Trevor Fetter - President and CEO: You can give him a couple stats on some of the early results we've got.

Daniel J. Cancelmi - CFO: So in the hospitals that are live already on our systems we’re seeing a 2.8% reduction in lab test due to the removal of duplicates, 2.4% reduction in radiology tests, and 0.8% reduction in medication administration events. We think ultimately that can translate into somewhere in the neighborhood of $30 million to $40 million a year in savings.

Operator: Ladies and gentlemen, since there are no further questions in queue, I'd now like to turn the call over to Mr. Fetter for closing remarks.

Trevor Fetter - President and CEO: Thank you all for participating in our call today, and we look forward to having follow-up conversations and communicating with you further in 2013. Thanks.

Operator: Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a wonderful day.