tenet healthcare Q_2007_Q3_Conference_Call_Final
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tenet healthcare Q_2007_Q3_Conference_Call_Final tenet healthcare Q_2007_Q3_Conference_Call_Final Presentation Transcript

  • Q3’07 Earnings Call November 6, 2007
  • Forward-Looking Statements Certain statements contained in this presentation constitute forward-looking statements. Such forward-looking statements are based on management's current expectations and involve known and unknown risks, uncertainties and other factors that may cause the Company’s actual results to be materially different from those expressed or implied by such forward-looking statements. Such factors include, among others, the following: general economic and business conditions, both nationally and regionally; industry capacity; demographic changes; changes in, or the failure to comply with, laws and governmental regulations; the ability to enter into managed care provider arrangements on acceptable terms; changes in Medicare and Medicaid payments or reimbursement, including those resulting from a shift from traditional reimbursement to managed care plans; liability and other claims asserted against the Company; competition, including the Company’s failure to attract patients to its hospitals; the loss of any significant customers; technological and pharmaceutical improvements that increase the cost of providing, or reduce the demand for, health care; a shortage of raw materials, a breakdown in the distribution process or other factors that may increase the Company’s cost of supplies; changes in business strategy or development plans; the ability to attract and retain qualified personnel, including physicians, nurses and other health care professionals, including the impact on the Company’s labor expenses resulting from a shortage of nurses or other health care professionals; the significant indebtedness of the Company; the availability of suitable acquisition opportunities and the length of time it takes to accomplish acquisitions; the Company's ability to integrate new businesses with its existing operations; and the availability and terms of capital to fund the expansion of the Company's business, including the acquisition of additional facilities. Certain additional risks and uncertainties are discussed in the Company’s filings with the Securities and Exchange Commission, including the Company’s annual report on Form 10-K and quarterly reports on Form 10-Q. Do not rely on any forward-looking statement, as we cannot predict or control many of the factors that ultimately may affect our ability to achieve the results estimated. We make no promise to update any forward-looking statement, whether as a result of changes in underlying factors, new information, future events or otherwise. Non-GAAP Information During the earnings call and in this presentation, management will be referring to certain financial measures and statistics, including measures such as adjusted EBITDA, which are not calculated in accordance with Generally Accepted Accounting Principles (GAAP). Management recommends that you focus on the GAAP numbers as the best indicator of financial performance. These alternative measures are provided only as a supplement to aid in analysis of the Company. Reconciliation between non-GAAP measures and related GAAP measures can be found in the press release issued this morning, November 6, 2007, and on the Company’s web site, www.tenethealth.com. 2
  • Trevor Fetter President and CEO
  • Key trends moving in the right direction 0.8% admissions decline (same-hospital) versus 2.2 % decline in Q2’07 (as reported) Volumes 0.1% admissions increase, excluding Florida and USC (same-hospital) 0.6% commercial managed care admissions decline (same-hospital) 0.4% commercial managed care admissions increase (same-hospital), excluding USC and Florida 1.4% outpatient visits decline (same-hospital) 1.0% October 2007 admissions increase despite tough 1.2% Oct’06 comp (as reported) Adjusted $177mm – 55% increase versus Q3’06 (same-hospital increase in 54%) EBITDA 7.9 % increase from Q2’07 despite Q3 seasonal pressures Pricing 6.8 % increase in net revenue per adjusted admission (same-hospital) 7.4 % increase in net revenue per adjusted patient day (same-hospital) Revenue 7.0 % increase in net operating revenue (same-hospital) 4
  • Key trends moving in the right direction (Continued) 4.2% growth in controllable operating expense per adjusted patient day Costs (same-hospital) Bad Debt 7.2% of revenues – flat to Q3’06 36% self-pay collection rate versus 30% in Q3’06 93.7% CMS Hospital Compare metric in Q2’07 highest to date Quality 92.5% for four quarters ended Q2’07 5
  • Focus on Quality has Positioned Us Well CMS Hospital Compare Data* 95% 92.5% 93% 91.7% 90.4% 91% 89.1% 88.3% 89% 86.7% 87.5% 87% 86.7% 85% 83.8% 85.9% 82.6% 84.7% 83% 81.5% 83.3% 80.2% 80.5% 82.3% 81% 80.9% 79% 79.4% Tenet 77% 77.9% National Average 75% Q104-Q404 Q204-Q105 Q304-Q205 Q404-Q305 Q105-Q405 Q205-Q106 Q305-Q206 Q405-Q306 Q106-Q406 Q206-Q107 Q306-Q207 Trailing Four Quarters * Includes AMI/HF/PN measures only. Data is for 55 hospitals. 6
  • Q3 2007 Summary • Q3’07 adjusted EBITDA exceeds Q2’07, despite typical seasonal pressures • Breadth of factors supported this performance – Commercial volume growth outside USC and Florida – Pricing enhancements – Cost control • October 2007 admissions increased 1.0% Note: For reconciliation of net loss to adjusted EBITDA see table #1 in our Q3’07 earnings release. 7
  • Stephen L. Newman, M.D. Chief Operating Officer
  • Selected key elements of turnaround strategy 1. Effective cost management 2. Targeted Growth Initiative producing volumes increases in commercial managed care 3. Growing active physician staff 4. Florida’s fresh initiatives 5. Turnaround success stories 9
  • Cost management accelerated in Q3 Reduced FTEs by 1,275 (year-over-year) 2.7% reduction in FTEs outpaces 0.8% admissions decline 208 FTE decline from corporate and regional support 7.5% of overhead jobs 4.2% growth in controllable operating expenses (same-hospital) 2.6% increase in supply costs per adjusted patient day (same-hospital) Supply costs declined to 17.3 % of net revenues 80 basis point decline 10
  • Commercial managed care volumes grew in service lines targeted by TGI Phase One TGI completed in 52 hospitals Phase Two TGI currently being implemented Targeted service lines evidence commercial volume growth (1) 12.7% increase in commercial neonatal services 5.5% increase in commercial oncological surgery admissions 5.4% increase in commercial open heart surgeries (1) All growth rates are same-hospital Q3’07 versus Q3’06 11
  • Physician Relationships: Recruiting, redirecting, relocating, and hiring more doctors 370 net new physicians added in Q3’07 with active staff privileges (1) 3.4% net increase in just Q3’07 7.7% net increase Y-T-D September 30, 2007 35 newly employed physicians included in Q3’07 270 – target for newly employed physicians by year-end 2010 590 total target for employed physicians, year-end 2010 5,900+ physician visits in Physician Relationship Program (PRP) in Q3’07 60% increase in physician visits as compared to 3,700 visits in Q3’06 930 of the Q3’07 visits were 1st time visits to existing staff physicians 419 of the Q3’07 visits were 1st time visits to new physicians (1) “Active staff” status generally requires at least 10 admissions per year or 10 outpatient surgeries per year. 12
  • Florida implementing fresh initiatives 1. Marsha Powers hired to run Florida 2. Consolidated Palm Beach and Miami markets Coordinate and leverage business development Capture economies of scale 3. Reduced patient out-migration 4. Adding new physicians to our Florida medical staffs 5. Accelerated cost reduction efforts North Ridge Medical Center to be divested 6. New managed care contracts Eliminate out-of-network situations Volume guarantees 13
  • Turnaround Success Stories Philadelphia market 3.3% increase in Q3’07 admissions North Shore Medical Center – Miami 5.8% increase in Q3’07 admissions Atlanta Medical Center 8.5% increase in Q3’07 admissions Houston Northwest Medical Center 8.4% admission growth in Q3’07 14
  • Compelling, tangible evidence of progress Solid cost control TGI producing growth in targeted commercial managed care volumes Adding physicians to active medical staffs Signs of progress in Florida Growing number of hospital success stories 15
  • Biggs C. Porter Chief Financial Officer
  • Volume – Commercial Managed Care Admissions Same Hospital Growth 2% 0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 -2% -4% -6% 2006 2007 17
  • Volume - Admissions Same Hospital Growth 2% 0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 -2% 2006 2007 -4% 18
  • Volume - Outpatient Visits Same Hospital Growth 1% -1% Q1 Q2 Q3 Q4 Q1 Q2 Q3 -3% -5% -7% -9% 2006 2007 19
  • Net Revenue Same Hospital Growth 8% 6% 4% 2% 0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 -2% 2006 2007 -4% 20
  • Solid pricing gains 7.8% increase in net inpatient revenue per admission 9.7% increase in net outpatient revenue per visit Recently signed contracts supported pricing growth $32 million favorable swing in Q3’07 cost report adjustments versus Q3’06 ED scoring and charge increases contributed further support Additional commercial contracts expected in Q4’07 should help extend gains in 2008 Medicaid funding in Florida and Georgia expected to have a $60 million adverse impact in 2008 21
  • Cost Containment Growth in Controllable Expenses(1) per Equivalent Patient Day 8% 6.5% 6.3% 6% 5.1% 4.8% 4.3% 4.2% 4% 3.6% 2% 0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 2006 2007 (1) Total controllable expenses defined as SWB, supplies, and other operating expenses. Same-hospitals excluding Coastal Carolina. 22
  • Non-volume Variables (1) ($ in millions) 2007 Annualized Core/Planned Cost Reductions $50 $65 - $85 Other Upside Initiatives: $30 + $60 + Staffing Reductions DRG Documentation ED Scoring CDM Reviews Denials Management Bad Debt Initiatives Improved Costing of Medical Devices Reduce Consulting & Overhead Spend Reduced Turnover (1) These items disclosed as above on June 5, 2007. Items are updated and expanded to add Q4’07 and increased annualized impact on next page. 23
  • Non-volume Variables ($ in millions) Prior Estimate Actual Current Estimate 2007 Annualized YTD Q3’07 Q4’07 Annualized Core/Planned Cost Reductions $50 $65 - $85 43 19 11 95 Other Upside Initiatives: $30 + $60 + 36 20 37 150 Staffing Reductions DRG Documentation ED Scoring CDM Reviews Denials Management Bad Debt Initiatives Improved Costing of Medical Devices Reduce Consulting & Overhead Spend Reduced Turnover 24
  • Bad Debt Bad Debt Expense / Net Revenues (%) 18% (excluding unusual charges) 16% 14% 12% 10% 8% 6% 4% 2% As reported 0% Compact-adjusted (1) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 (as reported) 2000 2001 2002 2003 2004 2005 2006 2007 (1) Compact adjustment calculations discontinued beginning in Q1’07. 25
  • Tenet’s Collection Rates . . . . Have Strengthened in Recent Quarters 100% 98% - Managed Care (Q2’07’; Q3’07) 97% - Managed Care (Q1’07) 64% - Balance-After (Q2’07; Q3’07) Collection 60% - Balance-After (Q1’07) Rate 36% - Blended “Self Pay” (Q3’07) 35% - Blended “Self Pay” (Q2’07) 33% - Blended “Self Pay” (Q1’07) 12%-Uninsured (current) 8%-Uninsured (pre-Compact) 0% 0%-Charity Care Fully Insured Uninsured Degree of Insurance 26
  • Significantly Reducing “Days to Collection” Across our hospitals, A/R days Managed Care and Medicare aging are all down, releasing significant incremental cash. Managed Care Managed Care Medicare A/R Medicare A/R A/R Days1 A/R Days1 A/R Greater than A/R Greater than Greater than 60 Greater than 60 180 days2 180 days2 days2 days2 Q3 Q3 Q3 2003 2004 2005 2006 2003 2004 2005 2006 2003 2004 2005 2006 2007 2007 2007 73.9 56.3 57.8 55.1 53.4 N/A $482M $357M $324M $289M $63M $40M $28M $13M $20M Overall Reduced Reduced reduction MC A/R MCR A/R of 20.5 by $193M by $43M days or or 40% or 68% 28% 1 Same store hospital only core acute facilities with prior year cost settlement for all years 2 Same store hospital only core acute facilities plus Rio and Pinecrest Rehab excluding Plaza Specialty, Coastal Carolina, Centennial, Bartlett and Norris Cancer Center for all years; 2003 Managed care data not available – no detail at that level in 2003 27
  • Revenue Cycle Initiatives… Have Led to Improved Collections • Accelerate communication of patient’s personal responsibility for payment • Request payment at point of service • Simplify bills to improve patient understanding • Provide financial credit to patients from a 3rd party in a pilot program 28
  • Cash Flow Capex was $179mm Adjusted operating cash flow $82mm YTD $93mm in Q3’07 Q3’07 cash flow impacted by: $14mm insurance premiums (do not recur in Q4’07) $12mm receipt from Philadelphia HMO sale $123mm in interest payments Compared to $82mm in Q4’07 $43mm net favorable impact from above 3 items Q4’07 compared to Q3’07 Additional working capital initiatives expected to impact Q4’07 29
  • 2007 Cash Walk Forward ($ in millions) Beginning Cash (September 30, 2007) 655 Income Tax Payments (8) Sale of Facilities and Property 13 Acquisition Activity (11) Remaining Interest, net (72) DOJ Principal Payment (24) Working Capital Including 120 - 150 – AP build-up and terms – Normal accruals – A/R days reduction EBITDA (Q4’07) 140 - 190 Stock Compensation Expense & Other 2 -12 CapEx (Q4’07) (285) – (235) Ending Cash (December 31, 2007) 530 - 670 30
  • Capital Expenditures Per Bed $54,249 $48,055 $46,515 $45,876 $45,423 $44,217 $42,695 $42,298 $42,966 $41,627 $41,528 Tenet’s 3-year Tenet’s 3-year $38,652 ’05-’07 average is $37,993 $36,722 ’05-’07 average is $35,373 $36,026 $34,279 $41,528 per bed $41,528 per bed Tenet HCA Triad Tenet’s t. 02 03 04 05 06 3-year Avg. es 20 20 20 20 20 ’05-’07 07 20 * 55 core hospitals from 2002 – 2007. * 2007 capex estimate of $700mm (middle of range of $675 - $725mm) includes approximately $150 million carried over from prior 2006 commitment of $800 million. 31
  • 2007 Outlook (1) Actual Outlook ($ millions) YTD Q3’07 Q4’07 2007 9/30/07 Revenue (Growth %) (2) 4.0 7.0 3.0 – 4.0 3.5 – 4.5 Admissions (Growth %) (2) (1.4) (0.8) (0.5) – 0.5 (1.2) – (0.9) Outpatient visits (Growth %) (2) (2.1) (1.4) 0 – 1.0 (1.6) – (1.4) Adjusted EBITDA (3) 535 177 140 – 190 675 – 725 Pretax Income (Loss) (3) (16) (9) (58) – (8) (75) – (25) Net Loss (4) (14) (14) (52) – (2) (66) – (16) EPS (4) (0.02) (0.03) (0.08) – (0.01) (0.10) – (0.03) Cash from Ops (3) 82 93 198 – 278 280 – 360 Capital Spending 440 179 235 – 285 675 – 725 Cash (Period End) 655 655 530 – 670 530 – 670 (1) In $ millions, except per share amounts. (2) Same hospital. (3) Adjusted EBITDA excludes charges/payments for impairment, restructuring and litigation. (4) Excludes the change in the federal income tax valuation allowance and first quarter 2007 FIN 48 tax gain and assumes a normalized tax rate of 37.5%. Note: For reconciliation of net loss to adjusted EBITDA see table #3 in our third quarter earnings release. 32
  • Summary Results could be bumpy but positive trends developing Progress on volumes, pricing and costs Focused on cash and return on invested capital Bad debt expense increase mitigated by aggressive offsetting actions 33
  • Appendix: Reconciliation of 2007 Outlook net loss to adjusted EBITDA ($ in millions) Low High Net loss $(76) $(26) Less: Loss from discontinued operations, net of tax (1) (51) (51) Income (Loss) from continuing operations (25) 25 Income tax benefit (2) 75 75 Loss from continuing operations, before income taxes (100) (50) Interest expense, net (380) (380) Operating income 280 330 Litigation benefit (1) (1) (1) Impairment of long-lived assets and goodwill and restructuring (24) (24) charges (1) Depreciation and amortization (370) (370) Adjusted EBITDA $675 $725 (1) Represents the loss from discontinued operations for the nine months ended September 30, 2007, litigation and related costs and impairment and restructuring charges. Management is not providing a forecast of these items for the remainder of 2007. (2) Includes a favorable income tax adjustment of $93 million in Q1 2007, required under the new FASB pronouncement FIN 48. 34
  • 2009 EBITDA Walk-Forward - - Assumptions (1) ($mm) Walk-forward starting point 700 Price and cost inflation/market adjustment 140 -145 Length of stay reduction 15 – 30 Hospital/function-specific productivity 100 Other upside initiatives (2) 30+ 1.5% annual volume growth from 2007 base (3) 105 Provision for risk (0 –100) Implied EBITDA range in 2009 (rounded) 1,000 – 1,100 Risks and opportunities currently projected to be realized: Georgia and Florida Medicaid (4) (60) (1) Walk-forward to $1.0 to $1.1 billion is as discussed on second quarter conference call (8/6/07). Planning cycle for 2008 is currently in progress and Outlook is expected to be provided during the year end conference call in late February 2008. (2) Reflects the continuation of 2007 upside initiatives. (3) Assumes variable margin of 40% on increased volume in adjusted admissions (4) Represents significant identified changes absorbing the zero to $100 million provision for risk allowed for in the walk-forward above. There are other risks and opportunities which will be considered in 2008 planning, and which are expected to be net favorable. 35 NOTE: Refer to Tenet’s 2006 Form 10-K for other risk factors