0
Q4’07
Earnings Call
           February 26, 2008
Forward-Looking Statements
Certain statements contained in this presentation constitute forward-looking statements. Such f...
Trevor Fetter
    President and
Chief Executive Officer
Significant milestones achieved in Q4’07
           0.1% admissions growth (Q4’07 vs Q4’06, same-hospital)
 Volumes
      ...
Improvement in non-financial metrics

           Tenet ranks number 3 among the 10 largest hospital systems and
 Quality  ...
Stephen L. Newman, M.D.
     Chief Operating Officer
Momentum Building in 3 Key Areas:

    Volumes
    Pricing and quality initiatives
    Physician staff expansion




     ...
Volume Growth
Q4’07 admissions grew 0.1%          (vs Q4’06) . . . aggregate   market share is stabilizing
   First positi...
Volume Growth (cont.)
   Surgery growth in Q4’07 (vs Q4’06) :
      0.3% growth in total surgeries
      0.8% growth in ou...
Pricing gains . . . achieving our objectives

  Recently signed commercial contracts achieve critical
  pricing objectives...
Physician Relationships:
 Recruiting more doctors

  241 net new physicians added in Q4’07 with active staff privileges (1...
Summary - Operations

   Admissions up for first time in almost 4 years
     Favorable volume trends continue in 2008

   ...
Biggs C. Porter
 Chief Financial Officer
Adjusted EBITDA(1)

                300

                250
                      218
                                 21...
Adjusted EBITDA(1) $168mm in Q4’07
  includes:

  Expense           $12mm year-end net compensation and benefit accruals
 ...
Volume – Admissions Growth(1)

               2%



                                                                      ...
Net Revenue(1) -
     Growth Trend Strengthening
               8%
                                                       ...
Solid pricing gains
4.0% increase in net inpatient revenue per adjusted
admission (same hospital)
        4.9% normalized ...
Cost Containment
                    Controllable Expenses(1) per Adjusted Patient Day
               8%

                ...
Bad Debt Controlled…
     despite 10% growth(1) in uninsured admissions
                         Bad Debt Expense / Net Re...
Improved Collections Have Reduced Bad Debt
 Expense

     100%        98% - Q4’07
                                  Manage...
$572 million in cash at 12/31/07

 $300 million – capital expenditures in Q4’07
   Capital infusion announced in mid-2006 ...
Capital Expenditures in 2007
           ($mm)

New and Replacement Hospital Construction                                  ...
$127mm – adjusted net cash provided by
operating activities - continuing operations

 Working capital did not generate at ...
2008 Cash Walk Forward
             ($mm)


                                                                   Low        ...
Enhancing balance sheet efficiency
 2007 initiatives:
   $129mm added to cash in 2007
     Includes $97mm added in Q4’07
 ...
2008 Capital Expenditures
  $600 to $650 million
    Includes:
      $82mm for new hospital construction
      $35mm for s...
Illustrative, Sample Walk-Forward Path to
    $1 billion Adjusted EBITDA in 2009
                                         ...
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tenet healthcare Q4_2007Conf_Call_D_13_FINAL_FINAL

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Transcript of "tenet healthcare Q4_2007Conf_Call_D_13_FINAL_FINAL"

  1. 1. Q4’07 Earnings Call February 26, 2008
  2. 2. 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 Company’s quarterly earnings calls and in this presentation, management refers 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 on February 26, 2008, and on the Company’s web site, www.tenethealth.com. 2
  3. 3. Trevor Fetter President and Chief Executive Officer
  4. 4. Significant milestones achieved in Q4’07 0.1% admissions growth (Q4’07 vs Q4’06, same-hospital) Volumes Florida volumes stabilizing with 0.3% admissions decline 2.3% admission growth through January 31, 2008 (same-hospital) 2.1% admissions growth in Florida through 1/31/08 (same-hospital) 8.9% growth in commercial managed care revenue versus Q4’06 Revenue (same-hospital) . . . despite 1.8% decline in commercial managed care admissions 3.5% increase in net revenue per adjusted admission (same-hospital) Pricing Signed new contracts representing almost 1/3 of commercial payer revenue 5.1% growth in controllable operating expense per adjusted Costs patient day Collection rates increasing for all categories (versus Q4’06) Bad Debt 4
  5. 5. Improvement in non-financial metrics Tenet ranks number 3 among the 10 largest hospital systems and Quality the highest among investor-owned hospital companies 2.5% increase in physician satisfaction scores – to 76.7% Service 0.8% increase in patient satisfaction scores – to 71.8% 19.7% total employee turnover, improved from 22.5% in 2006 68.0% employee satisfaction up from 65.6% in 2006 People 3.9% hospital CEO turnover versus 20% in 2006 5
  6. 6. Stephen L. Newman, M.D. Chief Operating Officer
  7. 7. Momentum Building in 3 Key Areas: Volumes Pricing and quality initiatives Physician staff expansion 7
  8. 8. Volume Growth Q4’07 admissions grew 0.1% (vs Q4’06) . . . aggregate market share is stabilizing First positive quarter since Q1’04 January growth of 2.3% Florida: 0.3% admissions decline in Q4’07 (vs Q4’06). . . smallest decline since Q4’04 Up 2.1% in January 2008 (vs Jan’07) 0.8% Palm Beach admissions growth in Q4’07 (vs Q4’06) 4 of 5 Palm Beach hospitals had positive admissions growth in Q4’07 (vs Q4’06) Philadelphia: 20% admissions growth at St. Christopher’s Hospital for Children (vs Q4’06) 0.9% admissions growth at Hahnemann University Hospital (vs Q4’06) California: 3.2% admissions growth in Q4’07 (vs Q4’06) . . . 2.4% excluding Stanislaus Softer admissions in Texas and Southern States Markets 8
  9. 9. Volume Growth (cont.) Surgery growth in Q4’07 (vs Q4’06) : 0.3% growth in total surgeries 0.8% growth in outpatient surgeries 0.4% decline in inpatient surgeries Commercial managed care admissions: 1.8% decline in Q4’07 (vs Q4’06) TGI service lines continue to accelerate commercial growth 8.2% growth - commercial urological surgery (vs Q4’06) 19.0% growth – commercial ENT surgery 0.3% growth – commercial orthopedic surgery 3.7% growth – commercial neurosurgery 16.0% growth – commercial vascular surgery Declines in: 2.7% - commercial obstetrics (vs Q4’06) 13.9% - commercial open heart surgeries 9
  10. 10. Pricing gains . . . achieving our objectives Recently signed commercial contracts achieve critical pricing objectives: United, Aetna, CIGNA, Blue Cross of California Securing full network participation of all facilities in key markets Managed care pricing (including government programs) 9.4% increase in net revenue per admission (vs Q4’06) 9.0% increase in revenue per outpatient visit (vs Q4’06) Increasing COE designations from managed care payers 10
  11. 11. Physician Relationships: Recruiting more doctors 241 net new physicians added in Q4’07 with active staff privileges (1) 1,086 net new physicians added in 2007 . . . . approximately a 9% increase to our active physician staff Physician Recruitment Program (“PRP”): Visited 4,720 physicians in Q4’07 2.5% admissions growth from these physicians (vs Q4’06) Included visits to 437 physicians unaffiliated with Tenet New executive to lead business development, marketing, advertising, physician recruitment, and Physician Relationship Program (1) “Active staff” status generally requires at least 10 admissions per year or 10 outpatient surgeries per year. 11
  12. 12. Summary - Operations Admissions up for first time in almost 4 years Favorable volume trends continue in 2008 Continuing progress in: Pricing Quality Physician recruitment 12
  13. 13. Biggs C. Porter Chief Financial Officer
  14. 14. Adjusted EBITDA(1) 300 250 218 211 194 200 177 168 $ in millions 164 153 150 114 100 50 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2006 2007 (1) Same hospital. 14
  15. 15. Adjusted EBITDA(1) $168mm in Q4’07 includes: Expense $12mm year-end net compensation and benefit accruals Accruals Bad Debt $19mm favorable adjustment from “look-back” on collection Adjustment experience Cost Report Net zero Adjustments (1) Same hospital. 15
  16. 16. Volume – Admissions Growth(1) 2% Up 0.1% Y-o-Y Growth 0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 -2% -4% 2007 2006 (1) Same hospital. 16
  17. 17. Net Revenue(1) - Growth Trend Strengthening 8% Up 6.0% 6% Y-o-Y Growth 4% 2% 0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 -2% -4% 2007 2006 (1) Same hospital. 17
  18. 18. Solid pricing gains 4.0% increase in net inpatient revenue per adjusted admission (same hospital) 4.9% normalized for Q4’06 cost report adjustments .... 10.6% increase in net outpatient revenue per visit (same hospital) Recently signed commercial contracts support growth trend CIGNA and Blue Cross California effective 1/1/08 ’08 and ’09 escalators in substantially all contracts Signed contracts cover approximately: 80% of commercial rates for 2008 Over 60% for 2009 18
  19. 19. Cost Containment Controllable Expenses(1) per Adjusted Patient Day 8% 6.5 6.3 6% Y-o-Y Growth 5.1 5.1 4.8 4.3 4.2 3.5 % 4% 3.6 Normalized (2) 2% 0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2006 2007 (1) Same-hospital controllable expenses defined as SWB, supplies, and other operating expenses. (2) Excludes $12mm of year-end compensation and benefit expense and $17mm increase in implant expense vs Q4’06 Growth rate is 4.4 percent if only the $12mm year-end compensation and benefit expense is excluded. 19
  20. 20. Bad Debt Controlled… despite 10% growth(1) in uninsured admissions Bad Debt Expense / Net Revenues (excluding unusual charges) 18% 16% 14% 12% 10% 8% 6% 4% As reported 2% Compact-adjusted (2) 0% (as reported) 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 Q4 2005 2006 2007 2004 2000 2001 2002 2003 (1) Same-hospital (2) Compact adjustment calculations discontinued beginning in Q1’07. 20
  21. 21. Improved Collections Have Reduced Bad Debt Expense 100% 98% - Q4’07 Managed Care 97% - Q4’06 64% - Q4’07 Balance-After 60% - Q4’06 Collection Rate 36% - Q4’07 Blended “Self Pay” 32% - Q4’06 13% - Q4’07 Uninsured 8% Pre-Compact 0% 0% - Charity Care Fully Insured Uninsured Degree of Insurance 21
  22. 22. $572 million in cash at 12/31/07 $300 million – capital expenditures in Q4’07 Capital infusion announced in mid-2006 completed $22 million capex in Sierra Providence East Medical Center, El Paso Completed capital spending catch-up 22
  23. 23. Capital Expenditures in 2007 ($mm) New and Replacement Hospital Construction 67 Other Construction and Expansion Projects 138 ▪ 2 New Patient Towers ▪ 1 MOB & Parking Garage ▪ 1 Cancer Center ▪ Other Expansion Projects Major Equipment 88 ▪ 6 Cath Labs ▪ 2 Surgical Robots ▪ 21 CT Scanners ▪ 2 Linear Accelerators ▪ 6 MRIs ▪ Other (C-Arms, Mammography, Nuclear Med, etc) Basic Clinical Equipment Replacement, including beds 56 Clinical Information Systems and Technology 107 Renovations, Facility Maintenance and Routine Equipment 267 Seismic and ADA Requirements 6 Total 2007 Capital Expenditures – continuing operations 729 23
  24. 24. $127mm – adjusted net cash provided by operating activities - continuing operations Working capital did not generate at level of prior outlook Book overdrafts declined $63mm from prior year $32mm build-up in accounts receivable on higher revenues and higher collectability 2008 outlook anticipates $60mm improvement from A/R turns Restoration of more normal overdraft 24
  25. 25. 2008 Cash Walk Forward ($mm) Low High December 31, 2007 Beginning Cash 572 Adjusted Net Cash Provided by Operating Activities 400 500 Income Tax (payments) refunds, net (17) (17) Payments against reserves for restructuring charges, litigation (103) (103) costs and settlements Net cash provided by (used in) operating activities from (80) (55) discontinued operations Capital Expenditures (600) (650) Other Investing Activities 33 58 Net Financing Activities (5) (5) Cash Outlook December 31, 2008 200 300 25
  26. 26. Enhancing balance sheet efficiency 2007 initiatives: $129mm added to cash in 2007 Includes $97mm added in Q4’07 Corporate level initiatives : Monetized insurance sub investments Liquidated cash surrender value of insurance policies $400mm - 600mm incremental cash anticipated over next 24 months MOB sale Broadlane recapitalization Sale or monetization of excess land, buildings, and underutilized assets 26
  27. 27. 2008 Capital Expenditures $600 to $650 million Includes: $82mm for new hospital construction $35mm for seismic and ADA $25mm for Outpatient growth Maintenance capital expenditures $500mm for 2007 depreciation + amortization + lease expense Approx $400mm annual capex on core 53 hospitals 2003 to 2005 . . . excluding physical expansion and new hospital construction 27
  28. 28. Illustrative, Sample Walk-Forward Path to $1 billion Adjusted EBITDA in 2009 2008 2009 ($ millions) Revenue Cost EBITDA Revenue Cost EBITDA Prior year 8,852 (8,151) 9,400 (8,550) 701 850 Cost Report Adjustments (40) - (40) - - - Georgia/ Florida Medicaid (60) - (60) - - - Volume (1) 193 (116) 77 151 (91) 60 Pricing – Base Line Increase (2) 280 (18) 262 312 (20) 292 Managed Care (3) 36 - 36 34 - 34 Other Initiatives (4) 51 (18) 33 - - - Costs – Base Line Inflation (5) - (261) (261) - (286) (286) Cost Reduction Initiatives (6) - 100 100 - 29 29 Other (7) 88 (86) 2 88 (67) 21 9,400 (8,550) 9,985 (8,985) Total (8) 850 1,000 (1) Annual admissions growth of 1.5 percent, outpatient visit growth of 2.5 percent using 2007’s average pricing with 40 percent margin assumption on incremental revenues. (2) Base line pricing increases of 3.2 percent for 2008, and 3.3 percent for 2009. These assumptions are before discrete initiatives valued in this analysis, and include certain assumptions on adverse mix change (3) Price increases in existing contracts and anticipated future increases. (4) Full-year impact of 2007’s ED acuity capture effort and incremental adjustments to chargemaster. (5) Inflation rate of 3.5 percent reflects normal merit increases, union contract adjustments and other items before discrete initiatives valued in this analysis. (6) Full year impact of cost initiatives initiated in 2007. (7) Includes impact of Sierra Providence East Medical Center (El Paso), Coastal Carolina Hospital, physician practices and other non-acute operations. (8) Various risks including volume growth, volume mix, and bad debt create at least $75 million in uncertainties for 2008 performance, hence the adjusted EBITDA outlook range from $775 mm to $850mm. 2009 uncertainties exceed those identified for 2008. This schedule is not intended to provide a series of spot estimates or line item guidance. Other combinations of line item performance could produce the same or higher, or lower results. 28
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