TENET INVESTOR DAY
June 3, 2008
Senior Vice President, Investor Relations
Oh, welcome, everyone. And thanks for quieting down so quickly; this is a great group.
You must all be excited to get started today; we’re very excited as well. This is Tenet’s
2008 Investor Day. My name’s Tom Rice. I run the Investor Relations Program at Tenet.
I have one small duty to do before we get in. Let me just take you through this slide very
quickly. Tenet management will be making forward-looking statements this morning and
this afternoon. These statements are based on management’s current expectation and are
subject to risk and uncertainties that may cause these forward-looking statements to be
materially incorrect. Certain of those risks and uncertainties are discussed in Tenet’s
filings with the Securities and Exchange Commission, including the company’s Form
10-K and its quarterly reports on Form 10-Q.
Management will be referring to certain financial measures, such as EBITDA, which are
not calculated according to GAAP. Management recommends that you focus on the
GAAP numbers as the best indicator of financial performance. These alternative
measures are provided as a supplemental aid in the analysis of the company.
So with that, I’d like to introduce Tenet’s President and Chief Executor Officer, Trevor
President and Chief Executive Officer
Thank you, Tom. Good morning, everyone. Welcome to Dallas. We’re delighted to have
you here; very excited to tell our story this morning and give you a deeper understanding
of our business and our strategy.
Let’s go back for a moment to last year. Last year I told you that we had the right
strategy, the right programs, a highly capable team of leaders, and a strong understanding
of what we needed to accomplish. I think you’ll hear and see throughout the day that we
accomplished the main thing that we intended to do, and that was to put the company
back on a growth track. We passed an inflection point in our turnaround sometime
between 12 and 18 months ago.
Tenet 2008 Investor Day Page 2
And by the way, just to get it out right at the beginning of the day, I’m pleased to tell you
that the only substantive change that we’re going to make today to our outlook is a
positive one. Biggs will describe at the end of the day why we are raising our estimates
for the year-end cash balance.
Okay. So here’s my message for this morning. Tenet’s culture and values are driving
measurable improvements in operations and performance, and driving innovation to
capture industry opportunities and to mitigate the headwinds. Let me break this down into
First, we’ve made powerful changes in Tenet’s culture and values over the past few
years. You’re going to gain an understanding of that and its importance during the course
Second, this has enabled us to make measurable improvements in performance and
operational effectiveness, passing the inflection point that I mentioned a minute ago.
What we’re doing is sustainable, and it’s long-term oriented. I’ll talk about how we’re
innovating in a variety of areas in our business.
And third, I’m going to talk about how all these factors enable us to deal with the current
opportunities and challenges in the industry environment.
I’d like to describe our culture and values because they’re so important to understanding
our business. Our leaders are managing for today and for the long term. We’re running
the business as if we own the business. Everyone that you meet today is evaluated on the
same set of metrics, although the goals are different depending on the different business
units. The metrics are part of our balance scorecard which we developed five years ago.
This team understands that clinical quality is good for our patients and good for our
shareholders. As a company, we are managing through insight and a deep understanding
of the data and facts. We’re now able to collect all of that information. Over the past
several years we’ve invested in systems to report the data to enable our fact-based
And most importantly, as you’ll hear throughout the day, our focus on the customer has
grown tremendously. In fact, Steve Newman and others are going to explain Tenet’s
strategies through the eyes of our customers – in this case, a physician and a patient.
Next are the improvements that we’ve achieved in operational effectiveness and financial
performance. Now, on our quarterly calls, you’ve heard us discuss basic issues of
operational effectiveness, like volume building, managing our pricing, and maintaining
control over costs. We usually discuss these in the context of that particular quarter’s
results. Today we’re going to expand beyond that context. For example, you’ll see how
we’ve developed greater insight and coordination in managed care contracting. We’ve
been very careful about our approach to pricing and very strategic about delivering value
to our customers at the managed care companies.
Tenet 2008 Investor Day Page 3
We now understand the revenue cycle better than ever, and over the past five years we’ve
quietly been reengineering major segments of that part of our business. Our physician
relationships and recruiting efforts are much more aligned with real market issues and
opportunities. This was a weakness of ours as recently as 2005, but we’ve come a long
way and we’ve been very strong in 2007 and 2008. Our management turnover is lower
than at any time in the last five years, providing a much needed sense of consistency
among our hospital leadership teams.
You’ll notice that we’ve made enormous changes to our hospital portfolio in the past five
years, cutting the number of hospitals by more than half. But that was not the point. The
point was to strengthen the company. So we got out of the rural business. We reduced our
exposure to the weakest and most seismically-challenged California hospitals, reducing
our footprint in California by more than half. And California is now much more of a
source of strength for the company than a source of risk that it was several years ago.
Philadelphia is also now a source of strength for the company, and I’ll bet that many of
you who’ve followed us for a long time thought you’d never hear me say that. We’ve got
one-third the beds that we had in Philadelphia as recently as three years ago, but our two
hospitals there are very competitive and performing well. We trimmed our position in
Florida by 20 percent, and we now concentrate on the hospitals that have a bright future
in that state. I hope you’ve noticed that on our recent earnings calls we no longer have to
say, “but for Florida” or “but for Philadelphia” when we explain our trends.
Our efforts on portfolio management haven’t been just about cutting. In the same period
of time we opened three new hospitals, we have another one under construction, and we
acquired a hospital. And speaking of new hospitals, our newest hospital, in El Paso,
Texas, is off to a great start after being open just two weeks as of tomorrow.
So let me give you some specific examples of improvements in performance. This slide
shows our EBITDA and EBITDA margins since the beginning of 2006, adjusted for
items like litigation charges, and it’s also presented on a same-hospital basis.
On the left, in the beginning of 2006, our EBITDA was less burdened by bad debt than it
is today; bad debt was 90 basis points lower. And it was boosted by stronger admissions
than we have today; the admissions were about half a percentage point higher. We also
had a more favorable patient mix.
But since then we’ve reduced our unit cost and we’ve improved pricing, so that we could
achieve a stronger bottom line despite lower volumes and higher bad debt. It’s pretty
tough to grow earnings in an environment like we’ve had for the past two years, but now,
as we’re growing volumes, we’re much better positioned to capture the operating
leverage that we have in our business.
I mentioned that I believe we passed the inflection point leading to sustainable, profitable
growth between 12 and 18 months ago. This slide shows that since the third quarter of
2006, we’ve had a consistent trend of improving EBITDA and improving EBITDA
margins. In Q1 2008, for example, our same-hospital adjusted EBITDA grew by 23
Tenet 2008 Investor Day Page 4
percent, and the margin exceeded 10 percent. Now, we did this in spite of weak volumes,
and the key has been solid pricing growth and excellent cost control. And while this
EBITDA margin is still below our industry peers and our own longer-term outlook,
several of you who followed the company for a while probably thought these levels
would never be possible.
The key to maximizing the economic potential of our business lies in utilizing our
capacity, which is primarily hospital beds, to a greater extent. That’s why you’ve seen
our strategies emphasize growing profitable service lines, and bringing more physicians
on to our medical staff.
So looking at volumes, total same-hospital admissions are shown by the blue line. We
crossed into positive territory in Q4 2007, improved upon that in the first quarter of 2008
to a solid 1 percent growth, which was the second-best number among our peer
companies. And so far into Q2, we are improving upon that number. Through May,
admissions are up 1.4 percent, and in the month of May, admissions were right around
breakeven, which Biggs will explain further.
By excluding charity and uninsured admissions to create a metric of paying admissions,
you get a better view of the strength of our admissions trends. In Q1, growth in paying
admissions was 1.2 percent, and so far in Q2 through May, that 1.2 percent trend is
Wall Street’s attention is understandably focused on commercial volumes, but you’ve got
to remember that we do earn an attractive contribution margin on the noncommercial
pieces of our business, including government programs. Finally, look at the trend in
outpatient growth. While it’s still negative, the trend is up sharply since 2006, and so far
in Q2, we’re just below breakeven, at negative 0.6 percent.
As I mentioned, we’ve been very strategic about pricing. We have better information than
ever before, a better case for quality than ever before, and a smaller but much stronger
portfolio of hospitals than before. And that has driven our strong result in pricing.
We’ve entered into several new large agreements just in the past year which should drive
solid pricing and visibility. Among them: UnitedHealthcare, Aetna, CIGNA, Blue Cross
of California, and then most recently Independence Blue Cross of Pennsylvania. In this
two-year period the results of our managed care contracting efforts have been reflected in
strong pricing growth. The growth rate since 2006 for inpatient pricing has remained
around 4 percent. Growth in outpatient pricing has been 10 percent, but it’s more recently
moderated to closer to 7 percent, but still a very strong number.
Clint Hailey is going to tell you more about our managed care strategies for 2007 and
2008, but they’re basically to get all of our hospitals in the networks, the major payers, to
add to Tenet’s positions to these networks, and to continue to add pay-for-performance
incentives based on clinical quality. We’re delivering superior value to our customers,
and we want to be recognized for that.
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Now, while we’ve driven strong growth in pricing, we’ve also held cost increases to
some of the lowest levels in the industry. This chart shows Controllable Expenses per
Adjusted Patient Day on a same-hospital basis. The average rate of cost increases over
the past two years has been 4.7 percent. Excluding an accrual in Q4 that pushed the
reported number to 5.1 percent, we’ve been at or below that two-year average for more
than a year now, and that’s without much growth in volume. Once we generate greater
volume growth, our cost discipline is likely to serve as a solid source of margin
expansion. Cost discipline is now wired into the culture that I spoke about at the outset.
One area we don’t talk about enough is the revenue cycle. Out of necessity, we were
early innovators in this area. Beginning in 2004, we launched a major effort to
consolidate, standardize, and add innovative tools to our revenue cycle. This includes
consolidating all our Medicare business into one national center; consolidating our
regional business offices into four regional insurance centers; consolidating our self-pay
collection activities into one center; being the first in the industry to move away from
pricing based on gross charges for uninsured patients; and launching telephone-based
Patient Access Centers to do preregistration and financial clearance before patients ever
reach the hospitals for scheduled procedures.
You’re going to hear more about these innovations, as well as things like patient-friendly
services such as automated registration kiosks, simplified billing, and online payment,
later this morning. But these initiatives have enabled us to have stable bad-debt expense
as a percent of revenue, including better performance recently than our outlook of 6.5 to
The revenue cycle innovations have also enabled us to improve collection rates across all
payer categories during 2007. This chart compares Q1 2007 to Q1 2008. This is a pretty
remarkable performance, given the horror stories that you’ve heard across our industry
about bad debt expense.
On the Q407 call, Biggs introduced some major efforts in 2008 to increase the efficiency
of our balance sheet; we’ve made a lot of progress already. Just to give you a brief
update, Jones Lange LaSalle sent marketing materials on our medical office buildings,
that portfolio, to several hundred prospective buyers three weeks ago. Prospective buyers
are already conducting due diligence on Broadlane in a process that’s being run by
Citigroup. We announced a letter of intent to sell our two hospitals on the campus of the
University of Southern California. And we announced yesterday the sale of three small
hospitals in California, including one that we had held for sale for more than four years.
I’d like to summarize by saying that we’re doing very well on this initiative so far.
Moving on to the innovations that we’re driving to deal with the industry environment, as
well as to grow value, I’m not going to dwell on these, because throughout the day you’re
going to have an opportunity to hear about these strategies from the people who are
actually leading their implementation. But I’m going to go into a little detail on four key
strategies of ours. First is the Commitment To Quality; next, the Targeted Growth
Initiative; third is our Physician Relationship Program; and finally, there’s our strategy
regarding capital expenditures in our hospitals.
Tenet 2008 Investor Day Page 6
When we started our Commitment To Quality, our quality scores were below the national
average and not improving. In the subsequent four-year period, we achieved a steep
trajectory and steadily improved our clinical quality. We crossed over the national
average for the first time in 2005, and the gap between our scores and the national
average continues to widen. We reached a new high with our scores in the fourth quarter
of 2007, at 90.8. We continue to have five times the national average rate of designations
as Centers of Excellence by UnitedHealthcare. And our quality designations by CIGNA
continue to grow; they’re currently at 199. This has become a real point of differentiation
for our company.
To put it in context, here you can see how we compare against the ten largest hospital
systems in the country. During both the reporting period that is noted here Q206 to Q107,
and more recently, what we have performed at in Q407.
This slide demonstrates how our hospitals are using quality to distinguish themselves
from their local competition, and other examples of this are scattered throughout the
lobby outside of this room. This emphasis on quality is noticed by physicians, patients,
and also even the local media. It’s not an advertisement as much as it is a way of
reminding people what matters to our hospitals and to thank the physicians and
caregivers who make it possible.
Now a word about our Targeted Growth Initiative. The objective of TGI, as you know, is
to grow targeted service lines. Targeted Growth Initiative is not entirely targeted towards
commercially insured patients, but this slide shows that for that patient segment how the
growth in the targeted service lines has been better than what we’ve seen in commercial
admissions. Now, keep in mind, the commercial admissions have been negative
throughout this period. But the widening of this gap indicates to us, at least preliminarily,
that TGI is really working.
Our Physician Relationship Program is designed to add high-quality physicians who
practice in the targeted service lines to our medical staffs. We are succeeding in this
effort with a 10 percent increase in our active medical staff since the beginning of 2007.
We’ve also made very good progress in increasing the satisfaction of physicians and
patients. This slide shows the percentage of physicians or patients who rate our hospitals
in the top two categories on a five-category scale. We believe that physician and patient
satisfaction, along with clinical quality, are leading indicators of volume growth.
Now, a few years ago, several of you commented that we were constraining capital
expenditures, and in 2004 that was a fair observation. We were coming off of a huge
investment program that had taken place in 2001 and 2002, with a lot of carryover into
2003. I felt that we had to conserve cash in order to deal with the mountain of litigation
that we were facing. But in recent years, we caught up. We implemented a capital
stimulus program following our government settlement in 2006, and continued it through
2007. Now, our spending is at a rate that slightly exceeds the trailing average of our peer
companies at about $40,000 per bed. Our outlook, at $600 to $650 million of capital
spending, is in the same range as what we’ve done recently. But it calls for a level of
capital spending that we believe will keep our hospitals fully competitive.
Tenet 2008 Investor Day Page 7
Turning now to the operating environment. Those of you who’ve known me for a while
may recall that I’m an avid sailor and formerly an avid pilot, so occasionally I start
mixing all these nautical metaphors. I’ve also been making a concerted effort to stop
inducing motion sickness among analysts and shareholders, so I’ll try to keep this
Like our industry partners, we continue to face tough headwinds. But we’re managing
these headwinds by being great in quality and service, and offering these services at fair
prices, by constraining costs, and trying to bring more patients in the door in our targeted
Our consumer-oriented strategies are designed to deal with the tough economy, cost
shifting to the consumer, and the rising number of people who are either uninsured or are
basically taking most of the financial risk for their healthcare needs. These
consumer-oriented strategies include what you’ll hear today about the revenue cycle, plus
Commitment To Quality and Targeted Growth.
And for a variety of macro and competitive reasons, volumes have been tough for nearly
five years. Our Physician Relationship Program is helping to attack this program very
directly. Now, fortunately, it’s not all headwinds; we’ve got some wind at our back. The
U.S. population is aging, the prevalence of obesity and other disease states is increasing,
and coverage for the uninsured is among the leading public policy issues, and favored by
a majority of Americans. I think it will be a reality in the next five years, but of course,
the devil will be in the details.
So to briefly summarize, we passed an inflection point within the last year, to year and a
half, on the road to sustainable profitable growth; our volume trends are positive; our
pricing trends are strong; we’re exercising continued discipline around costs; our
strategies to mitigate bad debt expense have proven effective; and we’re driving very
hard on cash; leaning the balance sheet; and making good progress towards achieving
Free Cash Flow. We remain confident in our strategies and their ability to generate
profitable and sustainable growth.
So before I wrap up, a few comments on what you’re going to hear today. Each year we
do our best to bring a new perspective to our story. We’ll try to do that two ways this
year. First, our regional leaders are going to share our story from their perspective.
They’ll give you a deeper sense of the specific issues that we face in each market, and
how we differentiate ourselves from our competitors. And second, because so many of
you have asked us to walk through what happens during physician visits, or how we’re
using TGI in database marketing to attract new patients, we’re going to tell you. And
we’re going to make this story more real by focusing thematically on our most important
customers: the physician and the patient. So throughout the day we’re going to refer to
how they experience Tenet’s strategies.
In the meantime, as you hear about our strategies, our programs, and our initiatives, I
hope you’ll see how we’re using quality, service, and innovation to grow our business.
Tenet 2008 Investor Day Page 8
And by that, we mean, improving margins, cash flow, and return on invested capital, all
in ways that are very consistent with the cultural values that I described at the outset.
So with that, to get this rolling, I’d like to introduce our next speaker, Tenet’s Chief
Operating Officer, Dr. Steve Newman. Though Steve has been in his current role for only
a year and a half now, he continues to impress all of us with his energy and enthusiasm.
He’s a guy with a real sense of urgency. In fact, are you wearing the button?
Dr. Newman: It’s in my briefcase.
Mr. Fetter: He’s making meaningful contributions to improving our operational
effectiveness. I’m pleased to turn it over to him. Steve. (Applause)
Steven Newman, M.D.
Chief Operating Officer
Well, thanks, Trevor. Good morning, everyone. It’s hard to believe it’s only been a year
since our last Investor Day. But I’m here, and happy to report on the progress we’ve
made towards sustainable, profitable growth since last year’s Investor Day. As Trevor
mentioned, we continue to focus on operational excellence, quality, innovation, and cost
controls, to position our company for future success. We’ve also made real movement in
moving toward a retail orientation in this era of consumerism, and those themes should
be carried throughout today’s program.
At last year’s Investor Day, I laid out several strategies aimed at improving our hospital’s
performance. Today’s presentation is focused on providing an update on our progress and
answering the questions that many of you have asked about how we’re working to attract
physicians and patients to our hospitals.
As you will remember, last year I laid out my prescription for success. I’m pleased to
report that those priorities have now become “Tenet’s Prescription for Success.” We’ve
communicated these focal points throughout the company, and embedded them in our
Balance Scorecard for incentive compensation. In the next few minutes, I want to share
with you exactly how the elements of the prescription have materially impacted the
operations and financial results of our company. I’ll also show you where we’re going as
we accelerate our progress to attain our overall goals of improving quality, service, and
shareholder value. Along the way, I’ll profile the fundamental expertise, operational
structure, and discipline we’ve established.
So let’s begin with the dramatic successes we’ve achieved in clinical quality. At the top
of our list of priorities was “Improved Clinical Outcomes.” Obviously, we’ve invested in
Tenet 2008 Investor Day Page 9
systems, people, and software to measure and improve our clinical quality. Over the last
year, we’ve accelerated this focus, and it’s paying big dividends for us in several ways.
As Trevor mentioned, our CMS Core Measures, as reported on the Hospital Compare
website, continue to improve, and we’re beginning to see tangible financial returns on
this major investment in quality. You’ll hear more about the payoff from our quality
achievements throughout the day. Our quality scores are the raw material for our
Physician Relationship Program sales teams and the driver for our hospitals to earn
“must have status” when our managed care teams negotiate with our commercial payers,
but we’re also receiving direct payments for our quality scores.
Clint Hailey, our head of managed care, will talk about this in more detail later this
afternoon, but it’s important to note that three of our largest commercial managed care
payers are going to pay our hospital incremental dollars for achieving mutually agreed
upon clinical and other performance-based measures, including patient satisfaction.
Our next step along this path is expanding our quality focus to include a clinical research
arm, which means an additional source of revenue for both Tenet and the physicians on
our medical staff. This is a major factor in attracting new physicians to join our medical
Prescription number two is to grow both inpatient and outpatient volumes consistent with
our TGI priorities. The key to volume growth is to focus on the customers, who, in our
case, include both physicians and patients. Over the past year, we focused on identifying
the right physicians who aligned with our business strategies, and then differentiating
ourselves so they in turn become Tenet enthusiasts. We’ve also focused our efforts on
attracting patients, and assuring they have a quality experience within our hospitals.
As this diagram shows, to win over our customers, we’ve continued to implement
initiatives around quality, people, adding technology, and the managed care strategy,
which our presenters will all touch on in the course of today.
I want to say a word about our outpatient services. As you know, outpatient services is a
highly competitive business. However, we believe we’re uniquely positioned to succeed
in this area due to our quality service and outcomes, operating efficiency, and industry
leading throughput times, which patients and physicians are increasingly demanding in
this era of consumerism. In Q1 2008, our total freestanding Ambulatory Surgery Center
volume grew 8.2 percent, and total diagnostic imaging center volume grew 2 percent.
This was aided by Tenet’s Managed Care Department, which negotiated national
contracts with the inclusion of our freestanding Ambulatory Surgery and Diagnostic
Imaging Centers, with automatic annual escalators. Tenet’s Outpatient Team has been
working with our Patient Financial Services group and Information Technology
Department to streamline the scheduling and patient registration process for the
competitive outpatient service market.
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To fuel our growth in outpatient services, we opened two Diagnostic Imaging Centers in
2007, and are in the process of building three Diagnostic Imaging Centers to be opened in
2008. We’ve also purchased two Ambulatory Surgery Centers, one of which was in
financial distress. This center is located in Orange County, California, and is called the
Reagan Street Ambulatory Surgery Center. It has turned into a success story after being
purchased from 31 physicians last year. As this slide indicates, our management of the
center has improved volumes by 37 percent in Q1 2008 over Q1 2007. First quarter cash
collections also exceeded the prior year by 57 percent, largely due to Tenet’s Patient
Financial Services developing a dedicated billing and collections center for Reagan
As you know, there’s a significant investment being made in outpatient services across
the country, which we believe is creating overcapacity. As centers like Reagan Street
become available in our target markets, we believe we can use our core competencies to
replicate the success we’ve achieved in Orange County throughout the country.
As Trevor mentioned, we received a number of questions from you about how our
strategies fit together. For instance, how does our physician recruitment program work?
How do families living near our hospitals learn of the services we provide? So throughout
the day, we’ve developed presentations outlining our strategies, programs, and initiatives,
from the perspectives of our customers: our physicians and our patients. And to help you
follow our story from these two perspectives, let me introduce you to some individuals
whose archetypal stories will help make the Tenet strategies come alive. These are not
real individuals, but they represent those our hospitals see every day.
First, let me introduce Dr. Cogan, a physician who formerly practiced at a Tenet hospital.
Dr. Cogan only recently came back to Tenet as his hospital of choice. But why did he
come back? Primarily because our Commitment To Quality has helped to improve our
reputation within the communities we serve. And second, because we actively reached
out to engage Dr. Cogan in a conversation through our Physician Relationship Program.
A little later this morning, you will hear from John Landino about how this process
Second, let me introduce the Ramirez family, who live in a community near one of our
hospitals. Although Mrs. Ramirez was experiencing uncomfortable sensations in her legs,
she didn’t have it investigated until she received a mailer from a Tenet hospital. You’ll
hear more about how she became our patient from Trish Brainerd, who will walk you
through Mrs. Ramirez’ patient experience later today.
Let me emphasize that throughout the day, please remember that a fundamental strategy
for enhanced financial returns is growth in inpatient and outpatient volumes, and the
strategies and infrastructures are in place today to do that in a sustainable fashion.
Well, let’s turn to prescription number three. Over the last year, we’ve achieved a
significant improvement in our unacceptably high staff turnover rates. We’ve piloted and
implemented several programs across the company to address this important issue. For
instance, the Versant nurse residency program, to orient, support, and retain first-year,
Tenet 2008 Investor Day Page 11
new-graduate RNs, has been piloted at five hospitals. And we’re preparing to kick off the
Nurse Residency Program at eight additional facilities over the next three months.
The new Nursing Balanced Scorecard that we implemented since last Investor Day is also
an integral part of our efforts at reducing nursing staff turnover. Our core Chief Nursing
Officer metrics for the scorecard are based on our Five Pillars of Quality, Service,
People, Cost and Growth, all which align with Tenet’s overall strategy. I should also
mention that we’re engaged in rolling out frontline leadership training throughout the
company, to make our supervisors better leaders – not just managers – at that all-
important interface at the bedside.
As a result of decreased turnover, we have recently seen significant drops in contract
labor, especially among RNs. The chart on the right shows our progress in reducing nurse
turnover. This creates a healthier work environment for all our clinicians, including lab
technicians, pharmacists, and other medical personnel. This improved retention of
high-quality professional staff meets one of the four objectives of “Tenet’s Prescription
for Success,” and made a meaningful contribution to our strength in EBITDA in Q1
Now, let’s spend some time talking about physicians, physician relations, and physician
recruitment strategies. First, let’s examine just why recruiting and retaining our active
staff physicians is so critically important to our success. As we mentioned earlier,
Dr. Cogan was one of those physicians who was alarmed by the investigations and
allegations against Tenet in 2002 and 2003. He and other physicians began to hedge their
bets by using their admitting privileges at non-Tenet hospitals. While Dr. Cogan actually
severed his relationship with his Tenet hospital, many other physicians, referred to as
splitters, kept their Tenet relationship, but gradually increased their utilization of
competitor hospitals, at Tenet’s expense. This sort of bet hedging continued in an
unabated manner until the Global settlement and subsequent capital infusions occurred in
the summer of 2006; hence the former “Physician Sales and Service Program” was born.
As initially conceived, PSSP’s mission focused on these splitter physicians. Those of you
who have followed the Tenet story for some time will recall that we were quite hopeful
that the announcement of the Department of Justice settlement and the acceleration of our
capital spending would be sufficient to reverse this splitter behavior and the adverse
impact it had on our patient volumes.
While the PSSP program addressed the issues of the splitter physicians, it did not result in
a complete resolution of Tenet’s problems of eroding volume. As 2006 came to a close,
Tenet hospitals, in the aggregate, were still struggling with the problem of declining
volumes; something more needed to be done.
In early 2007, it became clear that we needed to view the volume issue more broadly. For
example, in Florida, the active medical staffs of our hospitals shrunk by 10 to 40 percent
between 2002 and 2006. We then examined in detail the medical staff sizes at all 55
hospitals and found that in all but 10 hospitals, the normal attrition of physicians had not
been effectively offset by ongoing physician recruitment, redirection, and relocation,
Tenet 2008 Investor Day Page 12
which are all critical elements in maintaining healthy and productive medical staff. It was
clear we needed to rejuvenate our approach to the complex issue of physician staff
This slide shows that our hospitals fall into four categories, with only a minority having
made progress in growing their staffs over that important four-year time period. Not
surprisingly, the hospitals with the greatest erosion in active staff also had the greatest
volume declines during this period. What’s surprising is how tight this link between staff
size and volume really is.
In the 11 hospitals where medical staff losses exceeded 20 percent, the decline in
adjusted admissions was 20 percent. In the 13 hospitals which incurred staff losses of 10
to 20 percent, adjusted admissions declined by 8 percent. In the 13 hospitals that lost zero
to 10 percent of staff, they experienced a 3 percent loss in their adjusted admissions. And
finally, the 10 hospitals that successfully grew their medical staffs during this time period
saw an aggregate 3 percent growth in adjusted admissions.
The data told an unmistakable story: In addition to the need to solve our splitter
challenge, we learned we needed to replenish our pipeline and replace our physician base.
Attrition in our medical staffs became the number one issue we had to address. The
aggregated medical staff losses were the missing link explaining the loss of inpatient
admissions, and to a lesser extent, outpatient visit declines between 2003 and 2007. It
then became obvious that the splitter physicians were an important but minority part of
the story. This significant new insight led us to the dramatic expansion of staff in our
newly refocused PSSP initiative, which was retooled and relaunched as PRP – the
Physician Relationship Program. This retooling included a significant expansion of our
marketing staff, as there was clearly no time to waste if we were to successfully offset the
natural attrition of medical staff by onboarding new physicians.
The factors driving this erosion are many and varied. Many of the underlying drivers
flow directly to the lifestyle issues of our active staff, including retirement, untimely
death, and sometimes frenetic relocation behaviors that unfortunately characterize so
many segments of today’s highly mobile society. Now, you’re naturally asking why we
allowed this to happen. Well, fundamentally, no excuse is really acceptable. But it’s
fairly clear that the criminal trial in San Diego had a chilling effect on the entrepreneurial
spirits of our hospitals’ A-Teams, and unwarranted excessive caution had undermined the
actions required to maintain the healthy expansion of our medical staffs.
Given this powerful insight into the dynamics of the physician pipeline, the path forward
was clear. With the dramatically expanded new PRP program, and the education of our
hospitals’ A-Teams, we took a page out of the playbook of big pharma and the device
manufacturers and built our own homegrown sales and service curriculum. These actions
have delivered immediate success. As Trevor mentioned, we added more than 1,250
active medical staff – net of attrition – since Q1 2007.
While this concept is incredibly simple, it is extremely powerful and effective in
explaining the loss of volume between 2003 and 2007. It also explains precisely why
Tenet 2008 Investor Day Page 13
we’re so excited about the potential of what’s been accomplished in the last five quarters,
much of which has yet to be visible in our aggregate volume numbers. Let’s take a deeper
look at this net addition of physicians last year.
Let me limit the analysis to calendar 2007, as it’s more intuitive to talk about annual
numbers; the extension through our first quarter results should then be fairly obvious. The
net expansion of 1,086 to our staff, which we achieved in calendar year 2007, actually
required the addition of 2,611 physicians. This very strong achievement of our PRP
initiative was then partially offset by the loss of 1,525 physicians during the year, to give
us a net growth of 1,086, an overall 9.3 percent growth rate in our active medical staff.
Now, let’s look at what this means for volumes. What I find fascinating is that the
implications for volume growth are very different in the short term than they are in the
long term. And fortunately, what I just referred to as the long term really isn’t in some
distant future. I’m referring to a time frame no more than 18 to 24 months out; in other
words, a time frame close enough in that it should be highly relevant to today’s investors’
But I’m getting ahead of the story; let’s start with the short term. A short-term issue in
2007 was that the 2,611 physicians we added during the year admitted patients at a far
lower average rate than the 1,525 physicians we lost. This shouldn’t be surprising at all;
there are a variety of reasons why. Let me emphasize, I’m talking about the short term; a
new physician relationship would yield a much lower set of volumes than those that
Here is the familiar productivity S-curve, which shows our expectations for the long-term
volume potential of the physicians we’ve added to our medical staff. This graph helps
demonstrate the potential impact on reported aggregate volumes as our relationship with
these physicians matures. While we are sometimes successful in redirecting the entire
volume of a mature physician’s practice to a Tenet hospital virtually overnight, results
can sometimes go rather slowly for the first six months. It’s much more typical for these
relationships to follow the classically shaped S-curve as the physician steadily gains
confidence that his or her needs will be well served at the new Tenet hospital. Those
relationships that eventually reach full maturity should do so over a 12- to 24-month time
period. Subsequent volume growth will then be the result of PRP introducing incremental
physicians to our hospitals.
All right. Changing gears now, let’s move to the fourth item in our prescription for
success: cost management. Trevor provided you a good window into the improvements
we’ve achieved in operational performance. Our strong cost discipline, operating
leverage, and innovative technologies are designed to deliver good performance in unit
cost metrics. We’ve also made substantial progress in improving the overall cost structure
of our hospitals, outpatient facilities, and support services. Productivity as measured by
both FTEs per adjusted average daily census and same-hospital contract labor expense for
adjusted patient day improved significantly.
Tenet 2008 Investor Day Page 14
As Richard Yonker will discuss later today, we also continue to do well in controlling
supply costs by working on standardization. Throughout the remainder of the year, we
will continue to roll out new and improved tools for our mangers to help them track
productivity and improve throughput and efficiency through process redesign. We expect
continued success in this area, which should contribute to margin expansion.
In summary, we continue to move forward on all four elements of Tenet’s Prescription
for Success, which has helped us to position our company well in our key markets and
contributed to the progress we’ve made toward profitable, sustainable growth.
All right. Thank you for your attention to that presentation. And now it’s my pleasure to
introduce the business development and marketing section of today’s agenda. Last year
we set out to expand our business intelligence systems and integrate all of our activities
to identify, attract, and retain our most important customers: our physicians and our
patients. Seeking a new perspective to accelerate our integration and implementation, we
recruited Lloyd Mencinger, an executive with years of experience at Boston Scientific
Now let me turn over the presentation to Lloyd and his team, to discuss business
development and marketing. He will tell the story of how we translate the Targeted
Growth Initiative in several of our proven strategies and tactics to focus on our customers
– the physicians and patients – generating profitable volume growth for our company.
Vice President, Business Development
All right. What we plan to do here today is to give you a picture of how our activities and
various business developments fit together to grow volumes in a hospital. And we do that
by picking up the two stories that Dr. Newman introduced earlier: that as a patient,
Mrs. Ramirez, and as a physician, Dr. Cogan. And we’ll start with how we identified and
made contact with Mrs. Ramirez, and all the marketing touch points along the way that
resulted in her becoming a patient of ours. And similarly with Dr. Cogan, how we
identified him, and all the activities that attracted him back to our hospital.
And I would encourage you, as you listen to this, to think about what’s going on behind
the scene. I know you hear a lot about our programs – TGI, Quality, Core Measures,
PRP, PSSP, and some of them in general terms. But these scenarios of single patient,
single physician, I think is a powerful way to see the real impact these programs make
and how they all fit together. And after we go through those two scenarios, then we’ll
pull back up and see what that implies in terms of the impact across the whole
Tenet 2008 Investor Day Page 15
Now, to introduce the patient story, I will ask Trish Brainerd to come up. Trish is our
Senior Director of Marketing. She’s been with Tenet for 17 years, and she’s done a
terrific job in creating most of the programs that you’re going to hear about. Okay, Trish.
Senior Director, Operations Marketing
Thank you, Lloyd. Good morning. Please meet Imelda Ramirez. Imelda Ramirez is a
55-year-old corporate attorney living in South Florida. She’s in very good health, and she
regularly plays tennis at a private club. Although she faithfully sees her gynecologist for
annual well-woman checkups, she does not have a primary care physician. On the rare
occasion when she gets a sore throat, she goes to the local urgent care center. Two years
ago, she severely injured her ankle on the tennis court, and she was treated and released
through the emergency department at a local Tenet hospital. She has UnitedHealthcare
insurance through her employer.
About a month ago she received a mailer from the Tenet hospital where she had her ankle
injury. She rarely even reads the multitude of direct mail she receives, but she recognized
the hospital’s logo, and remembered how well they treated her when she was in such pain
for her ankle. The mailer invited her to a free screening for something called peripheral
vascular disease, or PVD. She’d never even heard of this disease, but the mailer talked
about some warning signs that resonated with her.
It talked about how leg cramps after exercise could be a symptom, and also about skin
color changes on the legs and feet. Now that she thought about it, sometimes after
playing tennis, she had experienced cramping. And the skin discoloration she thought
came from living too many years near the beach might also signal a problem she had not
considered. She read that if this went unchecked, it could result in a heart attack or a
stroke, so she decided to check it out.
It was a Saturday, but she called the toll-free number anyway, expecting to get a
recording. Happily, a live person answered the line and told her more about the
screening. When she learned that a physician would interpret the results, she decided it
was worth doing. She was surprised to learn the hospital had appointment dates two
weeks, available on Saturday, so she booked an appointment.
A few days later, she received this letter from the hospital confirming her appointment.
The envelope also contained some administrative and screening exam forms she could
complete at home and bring with her to save time. When she came home from work the
Friday before the screening, she had a message reminding her of the screening time,
giving her directions about where to park, and what door at the hospital to enter. When
she checked her e-mail, she noticed they had also confirmed all the details in an e-mail.
Tenet 2008 Investor Day Page 16
On Saturday morning, she drove to the hospital and had her PVD screening. A vascular
technician performed an ankle-brachial index exam, a blood pressure check on the arms
and legs, and listened to her neck with a stethoscope. He treated her very professionally,
and told her she would receive her results by mail within a few business days. She was in
and out in 15 minutes.
A few days later, she received a certified mail letter from the hospital that contained her
results. The letter included the name of the physician who had interpreted the results and
said they were severe, and that she should promptly be seen by a physician for more
follow-up and testing. Later that day, the hospital also called her, to make sure she’d
received the letter.
She was shocked, and a little scared to learn she had strong symptoms of peripheral
vascular disease. She was also really glad she’d received that mailer and taken advantage
of the free screening. Her clinical results had been signed by a doctor named John Cogan.
She looked him up in the phonebook and learned his office was about five miles from her
home. Her husband was en route to the airport for a business trip, so she called her son
Marco, to tell him about the screening and her results.
While she was still on the phone with her son, Marco quickly Googled Dr. Cogan’s
name, to see what he could find out about his credentials. First in the search results was a
link to healthgrades.com. The next screen Marco saw contained an in-depth profile of
Dr. Cogan, and it included a photograph, an overview of his practice, personal facts,
professional affiliation information, and information about the health plans he accepts.
Being very protective of his mom, and understanding the potentially serious nature of the
disease, Marco was particularly relieved to see that there were no disciplinary actions
against Dr. Cogan, and that a third party had verified his board certification. Marco saw
that Dr. Cogan’s profile on HealthGrades was sponsored by the same Tenet hospital that
had performed the PVD screening on his mom, so he knew this was a physician in good
standing with a hospital his mother trusted.
Since they knew from his HealthGrades profile that Dr. Cogan accepted his mom’s
UnitedHealthcare insurance, Marco went ahead and clicked the “make an appointment”
button, and furnished his mom’s e-mail address so the office could schedule their earliest
available time to see her. During the office visit a few days later, Dr. Cogan diagnosed
her with PVD, and he scheduled her for a balloon angioplasty at the Tenet hospital where
she had received the screening. Six weeks after her procedure, Imelda was back on the
tennis court, telling all her friends at the club about how much better she felt now that she
didn’t have pain in her legs anymore.
Ironically, her doubles partner, Melinda Mitchell, had just received a flyer for a similar
screening at the Tenet hospital. This screening offered an EKG, a heart health
assessment, blood test, blood pressure check, and body mass index evaluation, all for
$39. Melinda was 57 and had never even thought about getting a cardiac evaluation. But
when she told Imelda she was probably not going to respond to the offer, her friend
became very animated and told her she simply must take the time to have a screening
Tenet 2008 Investor Day Page 17
because it might just save her life. She also told Melinda about how wonderful Dr. Cogan
Melinda scheduled her EKG screening at the Tenet hospital, and now she too is a patient
of Dr. Cogan. He performed some tests and gave her a clean bill of health, but he’s
helping her make some lifestyle changes that will keep her that way for many years to
come. Both Imelda and Melinda are quick to tell all their friends about the Tenet hospital
that helped them find a physician they love and trust.
Great. Thanks, Trish. So you have the story of the single patient, but behind that story, of
course, is the story of the marketing strategy, the programs, the infrastructure that make
all that work and bring it together.
Now, let’s see what that looks like on the physician side, and we want to introduce
Dr. Cogan. And to tell that story, we have John Landino. Now, John Landino is the Vice
President of the Physician Relationship Program, and he comes with 22 years of medical
device experience, including Medtronic and Huron. He’s been at Tenet for a year and a
half, and during that time, he’s done a tremendous job building this program. So
Vice President, Physician Relationship Program
Thank you, Lloyd. All right. Let’s take a look behind the scenes at the science of what it
takes in the Physician Relationship Program to bring a new Tenet physician around.
Tenet’s South Florida Hospital has an active Physician Relations Program (PRP)
managed by Kathy Myer, who joined the staff one year ago. Kathy’s previous job was as
a physician account manager for a major medical device manufacturer, calling on doctors
in the same service area as her Tenet hospital. She has been calling on many of the same
physicians for many years, so her transition to Tenet’s Physician Relationship Program
was very smooth and included compliance and ethics training, along with Tenet’s Core
Physician Relationship Building module as part of her education.
One of the things she likes best about her role at Tenet is targeting physicians with
current affiliations to the medical staff who are splitters, and working to build additional
referral volume to their facility. Even better, she enjoys targeting the ones who don’t have
privileges but should. She considers it detective work, as she reviews the hospital’s
manpower analysis and determines the specific physicians needed to support and grow
her TGI service line.
Tenet 2008 Investor Day Page 18
She works her network and mines market intelligence on specific physicians and their
practices. State data provides her with information on the specific types of cases
performed by a physician, the hospitals where the physician does the cases, and even the
payer mix of his or her patients. Payer databases, provided to her by Tenet’s Commercial
Managed Care Department, help her identify physicians who have been designated as
high performers by a particular health plan, with either premium designated or specialty
statuses, based on high quality and proper utilization.
Her goal is to identify physicians with a solid portfolio of commercially insured patients
who perform the type of high-margin procedures and the services targeted for growth by
TGI, and then align their practices with her hospital and get them added to her hospital’s
medical staff with active credentials for admitting patients. This in-market recruitment of
physicians and the redirection of their patient practices have been keys to growing her
hospital’s volume, and targeting Dr. Cogan for active privileges is typical of the PRP
The hospital’s cardiac and vascular programs have been identified as key expansion
areas. The demographics of their service area show good growth in the age cohorts who
need cardiac treatment, and their market share has been growing for the past three years.
They’ve recruited highly skilled cardiac nurses and technicians, and have invested nearly
$2 million in cardiac technology, including the construction of a new Cath Lab that will
be equipped with the latest technology: bi-plane, dual, high-resolution detectors with
real-time image processing, including 3-D and cross-sectional views, digital flat-panel
screens, digital-subtracted angiography that is cardiac-capable, and electrophysiology.
She culls the list of potential cardiovascular physicians down to three, and determines
that Dr. John Cogan is at the top of her target list. His practice is less than ten miles from
the hospital, so she knows his travel time won’t be a barrier. He’s Harvard-trained and
board certified. And he’s only been out of school for 15 years, which tells her he’s
experienced, yet savvy to the benefits of the latest technology.
Aetna, one of the hospital’s best commercial payers, has given him their EXCEL
Top-Performing Specialty Physician designation. So he’s well regarded by the plan for
high quality and good utilization. He’s also received a Premium designated status with
UnitedHealthcare, which measures the same metrics. State data indicates he’s taking
most of his Aetna and UnitedHealthcare patients to a competitor, and that competitor
does not have United’s Cardiac Center of Excellence designation, so this gives her an
exclusive benefit to present to Dr. Cogan. She also notes her hospital has just hired the
former Cardiac Cath Lab Director, so Dr. Cogan will already know and trust one of her
After speaking with her Cath Lab Director and learning more about Dr. Cogan,
everything from his preferred time to block scheduling to the fact that his kids go to the
same school as her CEO’s, she books an appointment and takes her Cath Lab Director
with her. She strategically presents the hospitals features and benefits that will resonate
with Dr. Cogan and help him build his practice. Dr. Cogan is pleasant, and he has great
rapport with the Cath Lab Director. However, he’s a very busy physician with a growing
Tenet 2008 Investor Day Page 19
practice, and he doesn’t currently have a compelling reason to change hospitals. He’s
happy enough with the way the competitor treats him, and his patients like it there, so he
won’t commit to learning more about her hospital. He does, however, agree to keep the
door open, and she promises to come back to see him again. Before she leaves, she
schedules a return appointment in two months.
At this appointment, Kathy brings research and clinical papers with her that she knows
would interest him. One was a clinical study on the great outcomes being realized by
hospitals that are using the very same new Cath Lab technologies being installed in her
hospital. Another one discussed groundbreaking new surgical techniques being used in
conjunction with the same new technology going into her hospital. And the paper was
published by one of her key physicians, under whom Dr. Cogan trained. Her plan was to
demonstrate the more favorable results seen with these new techniques and equipment,
which his hospital does not have, and begin building key differentiations favorably
positioning her hospital over the one at which he currently works.
She tested the opportunity to gauge his interest in joining her hospital’s medical staff, and
he said he would think about it. While he was not quite ready to make a commitment, he
was, though, greatly impressed with Kathy and that she had listened to him in their first
meeting, remembered where and with whom he trained, found out what his teaching
professor was currently doing, and returned with a copy of his research work. When she
suggested as a next step, a visit to the hospital that would include a private tour of the
new lab, meeting the CEO and his A-Team, including a lunch, he readily agreed, and she
coordinated his schedule with her CEO’s to get it confirmed.
Two months later, the new Cath Lab is nearing completion, and Dr. Cogan is coming in
for a tour. Kathy and the A-Team carefully plan every aspect of his visit, and the entire
clinical staff in the vascular and cardiac areas were shown his photo and asked to treat
him as a VIP. Knowing they have a very short window of opportunity to maximize his
visit, the A-Team is fully prepared to discuss with him the features and benefits for
having him want to practice at their hospital.
On the tour, the CEO pointed out the quality posters, highlighting the core measure
scores against those of their competitors. Kathy could tell it made a strong impact when
Dr. Cogan saw that her hospital outscored the hospital where he did most of his work by
nearly 10 percent. They also showed him their superior HCAP scores, demonstrating
their focus on patient satisfaction. The CEO tied both indicators back to their
UnitedHealthcare Center of Excellence designation, and Dr. Cogan was starting to see the
very clear competitive advantage in quality. These very important quality factors directly
impact Dr. Cogan and his payer status by helping him to continue receiving the Premium
Quality designations from United and EXCEL Top-Performing Specialty Physician
ranking from Aetna.
He toured the Cath Lab, and Kathy was really proud of the way the staff went out of their
way to genuinely welcome him to their home. The new equipment was truly impressive,
and she could tell he was glad he came. He even mentioned calling his training professor
to further discuss the new surgical techniques he was pioneering. Over lunch, the CEO
Tenet 2008 Investor Day Page 20
discussed the hospital’s strategic business initiatives and how well they aligned with
Dr. Cogan’s. This was the first time a CEO had actually engaged him in a strategy
discussion, and he had many questions, all of which were answered. This was a place that
would help give his patients the very best care. This was a place that made him feel
respected and important, where he could expand his skills in an environment that invested
in state-of-the-future technology. And this was a place that understood physicians, and
recognized them as their most important constituents.
When asked by the CEO for a commitment, Dr. Cogan made up his mind then and there.
He decided to give them a test drive and to apply for privileges at the hospital and to
begin admitting some patients. He was subsequently credentialed and onboard. He was
also impressed by how the other cardiac and vascular physicians welcomed him. The
chief-of-staff even called him. And Kathy was there every step of the way, making sure
that everything worked and happened on time. She even brought his office manager to
the hospital for a full orientation and tour. This manager now regularly attends quarterly
office manager luncheons, to learn about hospital services and key people who make their
jobs easier. And Kathy uses these opportunities to network her among her peers at the
primary care physician offices.
The hospital Marketing Department signed him up for a community lecture, and placed
ads in the paper with his photo, promoting the event. Forty-five people attended, and two
of them became new patients. The hospital sponsored his profile on the HealthGrade site,
where commercially insured patients research information about physicians. He’s been
very impressed by the number of new patients in his practice who say they found him on
the HealthGrade site, just like Mrs. Ramirez.
He was also impressed by the hospital’s wellness outreach and their focus on building a
healthy community. He’s since participated in two health screenings, one for PVD and
one for a cardiac risk assessment, and he is always surprised by how many patients above
the age of 50 do not yet have a physician.
He senses a definite focus on physicians at the Tenet hospital. He feels a true partnership
there, and they have an understanding of what it is like to be a physician in today’s
complex healthcare environment. Their focus on patient satisfaction keeps his patients
happy, and that makes his job a lot easier. He is seeing a lot more commercially insured
patients, and his practice is growing. More importantly for Kathy’s hospital, Dr. Cogan
has now shifted most of his volume to Tenet. When considering where he and his practice
is today, he’s sure glad he came on that tour with Kathy. Thank you.
All right. Thanks, John. That’s great. I think you’ll agree that these scenarios are
powerful, and they make very tangible how these different processes fit and work
together and reinforce each other. So what I’d like to do now is give you a little picture of
Tenet 2008 Investor Day Page 21
behind the curtain – we’ll give some numbers as well – and look at a few processes inside
the business development that are making those stories happen.
Okay. These are the elements of business development: Physician Relationship Program,
which is John and what he just went through; Physician Recruiting; marketing; and the
call center. I’ll start with John’s, the PRP program.
You are all very familiar with these numbers, so these are our admissions growth. What
I’d like to do is overlay onto this our buildup of our Physician Relationship Program rep
team. That’s what that looks like. Now, that represents, as Dr. Newman mentioned
earlier, a strategic commitment to this Physician Relationship strategy. These are the
Kathy Myers and the Dr. Cogan story. Now let’s layer in the volume growth attributable
only to those physicians called on by that team; and there you have it.
Now, essentially, John and I have a combined 50 years’ experience in medical device,
and especially sales and marketing, serving the exact same customers that we serve now
at Tenet. When we first plotted this chart, we just looked at each other; it was instant
pattern recognition. We said, “Look, we have seen this movie before many times.” And
in medical device, as many of you know very well, if you have a competitive product
offering and a strong field organization made up of people like the Kathy Myers –
dedicated, skilled, understands the physician customer deeply, knows how to match up
what we offer to his needs, and helps him be successful in his practice – if you have a
team like that in medical device, you win; you drive growth, and you beat the
competition. We always used to say, “Whoever has the best army wins,” and we believe
that that’s exactly what we’re seeing here.
Now, another factor that’s working in our favor on this is that back in 2006, besides
having a smaller field team, we were dealing with more issues, so more of the customer
contact was about issues. Now that’s dramatically changed, and the center of gravity
today of our efforts of that team is really focused on growth.
Now, this is interesting, because to help validate that what we talked about before isn’t
just happenstance or a correlation but is true causation, we essentially had a controlled
experiment. And some hospitals have TGI lines that line up with the diseases of the
geriatric population – cardiac and neuro, etcetera – and they have targeted on building
relationships with nursing home medical directors and administrators, and they have also
followed the formula of dedicated, well-trained experienced reps, and you can see the
results. Now, the beauty of this, at least as we talk inside here, is that for pharma and
medical device, this has been 25, 30 years; but for hospitals, it’s relatively new. So we
can leverage both a relatively early mover advantage, and also leverage best practices to
accelerate execution. And I think that’s just what has happened here, and John deserves a
huge amount of credit for helping make this happen.
Now, if you take one more step of cause and effect – and we’re talking strong teams drive
volume – one step upstream from that, what drives capable teams? It’s training. The
success of these programs are directly related to the skill levels of the people on the team.
Tenet 2008 Investor Day Page 22
And again, taking a page from device and pharma, they do an unparalleled amount of this
training; it never ends. So we have a strong commitment to a robust training strategy.
Now, phase one really started in 2007, and the focus was on the Physician Relationship
reps. And what’s fascinating, John would tell me stories about these early classes, and
people would come to these classes and then they would go back to the hospital, then all
of a sudden you’d see an uptick in volume from those hospitals. So the good news is
there is opportunity, and as people learned new skills, they were applying them.
Now, phase two of the training came with the realization that there are so many touch
points between us, in the hospital, and our physician customers that we need to expand
the training through all the departments. So you can see here, the CNO training,
operations managers, nurse managers, outpatient, ASCs, etcetera.
Now, the one on the bottom, the Gen 2.0 Core Training, that really reflects our desire to
raise the bar for the PRP team. The best demonstrated practice for training is that the top
people, the top performers in the field deliver the training; it’s not just like a training
group. So that’s kind of where we want to go; that’s our aspiration, moving in that
Okay, let’s talk about Physician Recruiting. Now, just to remind you, the PRP program
focuses on physicians that are already in our service area, for the most part. Physician
Recruiting is talking about bringing physicians in from outside of our market.
Okay. Following Dr. Newman’s comments earlier on the need to build our physician
pipeline, the takeaway for this slide is that there’s a dramatically increased focus across
the organization on building our internal recruiting capabilities. The message is similar to
the PRP slide. The ten people back there, the ten people there in Q107, they are mostly
people spending some part of their time on recruiting, not full-time. And recruiting is
different. I mean, you have to work on the weekends, you work at night, it’s 60 percent of
the time recruiting their spouse. So the whole notion of experienced, dedicated,
well-trained people make the difference here, and it’s no surprise.
Now, there has been a heavy investment already, at every level – hospital, region,
corporate. The region SVPs have been making a lot of progress on this, on the recruiters
and also the physician pipeline.
At corporate, we’ve hired a Director of Physician Recruiting. Bob Smith, the SVP of
Central, has led an approach to recruit at physician conferences, and it looks very
promising. They’ve done five so far, so we want to learn from him and continue this
thing going, and we’re going to get 30 targeted for the rest of the year.
We’re building a program to recruit medical residents and fellows. We’re looking at a
physician database so we can be more efficient in our placements. And we’ll be
launching training for our recruiters in Q3, so as the graph moves to the right, you can see
it becomes more fully dedicated.
Tenet 2008 Investor Day Page 23
Okay. Now let’s move into Trish’s area, marketing and the call center. As you saw with
Mrs. Ramirez’ peripheral vascular disease screening, there are just many marketing
issues and many ways that we touch the customer. But the most effective ones, what they
have in common, is a call to action, and that’s that red circle. So some way they can call
in, or through the Web connect into us. Now, what’s great about this is once they call in,
we put them into our database. So every month we match it to discharge data at the
hospital, so we’re able to track, ultimately, how that much net revenue is driven by each
of these programs and track the ROI.
So let me show you what the economics look like here. Okay. The top line is those
contacts coming into the call center. So look at, in Q108, you can see the 57,000. Now,
the yellow line there is the net revenue associated with that. And if you look at that
vertical climb there, in Q4 to Q1, what’s happening is that every time we do a marketing
campaign, Trish’s team does a debrief: they analyze the targeting, they look at different
data cohorts, they say, could it have been aligned better with TGI? So they’re in a kind of
continuous improvement loop on better segmentation, better targeting, and more effective
marketing. And you can see how then, in 2007 the net revenue total was $408 million,
but if you look at that run rate, $122 million for Q1, we’re running quite hot for next
year, so I’m sure it’ll be something above that.
All right. As an example here, the top is the total number of screened patients, and that
continues to go up, even as the line down in the blue, the hospital participation, even as
that varies. So what’s happening is we’re getting this alignment, a better, more effective
marketing and targeting, so that only those hospitals that will really benefit will focus on
any program. Some of the things we’re looking at in targeting: disease states with large,
undiagnosed populations – of course, the pie charts on the top; prior patients’ medical
criteria lines up with undiagnosed disease; commercially insured aligned with hospital
TGI; Premium designated physicians. So we’re going down the list and moving toward
deeper segmentation, more profitable segmentation, higher ROI in these programs.
Okay. This is HealthGrades that you’ve heard about; Mrs. Ramirez found and looked up
Dr. Cogan, and you see how traffic continues to grow. HealthGrades is the number one
site to find information about a physician. And our arrangement provides detailed reports
for Tenet physicians to a consumer for free, and pretty much for the other physicians they
cost around $30, so we have a differential advantage there, and there is a lot of interest.
We get about – I think the key number for contacts would be about 20 million connects,
but that yellow line is really the physician profiles opened. So there is an interest; there’s
4.3 million cumulatives since we started. And click into a “make an appointment” button,
and we have about 125,000 people make an appointment with a Tenet physician each
month. And the demographic is exactly what we want: well-educated, high-income, 63
percent female and 30 to 65 age cohort.
Now, this next one is – we talked about the call center, but this is quite interesting,
because it illustrates that our call center is so effective that it has an external business
that’s growing 27 percent. And we service 22 healthcare companies, and this is
Tenet 2008 Investor Day Page 24
something actually we’re going to valuate as we go forward. But we have a strong
capability there that’s built up over time.
Okay. This is just to illustrate that we are now looking across all our channels, and we
want to make sure that we have an appropriate strategy for each of these channels. Now,
we talked about two: there’s Dr. Cogan would be the specialty physician, and
Ms. Ramirez is the patient. And of course, consumer can be segmented – there are
infinite segmentations possible, and there will be a lot of talk about segmentation later.
But this is the focus of our next phase in marketing, deeper segmentation, more profitable
segmentation. And this is just to illustrate that for our core channels; you know, our core
customers, as Dr. Newman mentioned – the PCP, the specialist, and the consumer – we
have robust suites of marketing initiatives either currently active or in the works.
So to close on this, this is a snapshot of where we were and where we’re going. I’m not
sure if that is exactly the perfect terminology, but we are focused on things that will
impact the business right now. So where we’re going isn’t some three years out, it’s far
less than that, actually. So we’re things that are in the works today; we’re not talking
things beyond yet.
So if you look at where we were to where we’re going on the PRP, so it’s from a
relatively new team to experienced, highly skilled, and bigger team; from first-round
sales training to now expanding that out; Gen 2, and expanding out to the entire
organization; physician recruiting, part-time recruiters to a more increased, dedicated
head count at the hospital region and HQ level; and in terms of residents and fellow
recruiting program, launching that Q4, I believe; and recruiting at 30-plus physician
conferences. That’s just this year.
Marketing. From the core marketing we talked about to, again, deeper segmentation; and
on the call center, we want to get the call center involved further into recruiting as well,
physician recruiting, and we’ll take a look at the MEDContact.
So to close it out, as you’ve seen, I think, the programs that we’ve shown you, they have
momentum. We know they’re delivering on both the volume and the cost side. And
they’re delivering for the Dr. Cogans and the Mrs. Ramirezes as well. And the focus now
for us is making sure that we execute on these fully to drive the growth.
Steven Newman, M.D.
I want to thank the team for giving our visitors and investors today a deeper insight into
how the pieces and parts of our strategies and tactics fit together to generate a positive
impact with respect to our most important customers: our physicians and our doctors. I
think it’s quite exciting that about 75 percent of what you saw presented has been
accomplished and expanded since the last Investor Day in June of last year. And that
gives me great confidence in terms of our growth of the business in the coming quarters
Tenet 2008 Investor Day Page 25
So with that, I’d like to ask you to engage with us in a question and answer session. Any
of the items that we talked about in my presentation as well as the Business Development
and Marketing presentation are open for discussion, and there are microphones that Val
and Tamara will pass out. So please wait for the microphone so that we can all hear you
question and we won’t have to repeat those. So, Adam, wait one second; Val will bring
you the microphone.
Q. Okay. Adam Feinstein with Lehman Brothers. If you could just elaborate
– in the opening, you talked about the volume growth through May.
Maybe if you could just provide more commentary, because obviously we
knew the April numbers when you guys came out with earnings. So just
curious, just any additional commentary you can provide about the
volumes. And then my second question is on the recruiting side. Maybe if
you could just provide a little bit more commentary about the mix between
specialties, as you think about the ramp-up there. Thank you.
A. (Dr. Newman) Sure. With respect to our admission volumes and outpatient
volumes, we’ve always said that the results from week to week and month
to month will be lumpy and bumpy and open to many variables, including
how many weekdays there are in the month, how many weekend days
there are in the month. And those, in terms of the impact on plus or minus
around that breakeven point are very substantive. So if one accounts for
the fact that in the month of May there was one less weekday than there
was in the same month in 2007, one clearly normalizes to a slightly
positive month for us. And we saw those variations in the April numbers,
the March numbers, the first quarter numbers.
And I think from your perspective, we should be looking at longer-term trends.
Whether it’s a quarter or a year. I think our trend in terms of admission volumes is
undeniable. If you go back six quarters, as Trevor showed in his presentation, the
trend is up, the curve is up. The only question is the rate of gain, and the results
will speak for themselves over time. In the meantime, we grow the pipeline.
And hopefully, through the presentations this morning, you saw our deeper
understanding of what really drives that business in terms of the targeted growth
admissions and outpatient visits we want, and what we’re doing specifically to
create that channel. That will provide the sort of growth we need to take
advantage of our operating leverage and to improve our margin over time. With
respect to physician recruitment, the second part of your question, that’s really a
mix across the company; it’s very different.
For example, if you look at the central region, Bob Smith has created – what he’ll
talk about – his 501(a) system, it is mainly primary care physicians. That is driven
by the fact that in those particular markets, many of the competitors have actually
purchased or employed primary care base. We need to make sure that we have a
Tenet 2008 Investor Day Page 26
stable and growing primary care base to feed work to our specialists that tend to
congregate around our campus. If you go to Florida and look, there would be a
higher proportion of specialists than you would see in Texas, and the reason why
is we have critical issues regarding emergency room coverage by specialists in
For example, in Palm Beach County, we found it very difficult to provide
urologic coverage, our gastroenterology coverage at our emergency rooms there,
and we’ve gone to hiring some of those specialists. If you aggregate across the
company, it’s about a 50-50 mix between primary care and specialists today. One
of the factors that affects it, remember, is about 60 percent of our total employed
physician bases in Philadelphia, in support of our two academic medical centers –
hospitals, St. Christopher and Hahnemann University Hospital, where we have
slightly more specialists than we have primary care physicians.
Q. Good morning. Thank you. Sheryl Skolnick from CRT. Thanks for all the
details; they were good. My first question is on a key issue that I don’t
know if the Street’s made of it or the company’s made of the volume
numbers has been the performance of the commercial managed care. And
obviously, we’re all curious about that because it’s high margin, even
though paying heads and the beds are clearly up, and that drives the
bottom line. So the strategy of dealing with that, I understand, is to go
after, through targeted growth initiative, those services that yield you the
best outcome in terms of profitability, cash flow, performance of facility,
etcetera. Right? And you show us the statistics on those physicians that
you’ve targeted being up significantly more than those physicians you
have not. So the question that I’m curious about is how much longer will it
be, or what will it take for the overwhelmingly positive trend that you’re
seeing in the targeted physician commercial managed care admissions to
overwhelm the nontargeted that are clearly dragging you down?
A. (Dr. Newman) Oh, that’s a great question. Let me just expand upon the
point that you made about TGI and add one element to it. Remembering,
you know, we’re targeting the best payers, we’re targeting the best margin.
But we’re also targeting the services that will be demanded by the
population over the next five- and ten-year horizons. So in some
geographies we have a young population that will still be young in ten
years. In others, they’re my age, and so they might be old in ten years.
And so therefore, we might be targeting service lines that would have a
disproportionate Medicare Advantage members.
The other thing that we’re seeing is quite interesting. As commercial managed
care has become more prevalent in the country, and as we hit the age wave where
between now and 2010 the number of patients that become eligible for Medicare
is increasing from 1.4 percent annually to 2.9 percent annually, we’re seeing
commercial managed care patients age into that Medicare age group. They
Tenet 2008 Investor Day Page 27
preferentially desire to be in a Medicare Advantage plan as opposed to fee for
service. So when we’re looking at paying heads and beds from our perspective,
the fastest growing population is the Medicare Advantage plan. That also supports
our targeted growth initiatives, especially in neurosciences, because some of those
issues have to do with aneurisms and strokes, other sorts of cardio,
cerebrovascular accidents, TIAs, things like that.
So I think that it’s clear that commercial managed care is not the be-all and end-
all for the growth of our business and the growth of our margin over time,
although it is the number one sought-after prize – you might call it the holy grail –
with respect to the payers we’re going after. Your question about how long will it
take is really very difficult to speculate upon because so many other factors are
affecting this. In some of the micro markets that we operate, we’ve seen economic
downturn result in decrease in commercial managed care lives in that area.
In other areas, like for example, El Paso or some of the southern states regions,
we’re seeing business continue to grow; it seems to be resistant to the economic
downturn. So commercial managed care is staying the same or stable. The other
issue has to do with how effective commercial managed care is in controlling
utilization, and shifting work from inpatient to outpatient.
It’s a long way around to saying I don’t have the answer to your question, but you
should feel comfortable that we have all the data points that we’re continuing to
monitor on a regular basis, and we build that into our strategies to find even
newer, more innovative ways to target the business that we need that serves the
community, grows margin and shareholder value.
Q. (Sheryl Skolnick) Okay. So the easy thing is that over the next five to ten
years, the number of commercial managed care heads is just going to
decline, period, end of sentence; so you’re fighting an onslaught of the
aging baby booms that we maybe haven’t thought about. Is that a simple
way of saying it?
A. (Dr. Newman) I think it’s true. Now remember there’s one other factor –
Q. (Sheryl Skolnick) Yes.
A. (Dr. Newman) And that is the issue of market share. And so we have
evidence in some of our markets, as we have worked aggressively to
expand our medical staff – anecdotal, not aggregated yet – that we’re
growing market share by ZIP code, so that even in a falling tide, if we are
able to expand market share, we keep up or grow our commercial
managed care business. And the same is true in the Medicare Advantage
plan. We’ve seen dramatic growth of our market share in that area in
South Florida. It’s quite evident, as we look at the payer mix by region,
those numbers which we don’t share with you, we can see where those
shifts are taking place over time.
Tenet 2008 Investor Day Page 28
Q. Thanks. It’s Darren Lehrich from Deutsche Bank. Two questions for you.
The first relates to a chart you put up, Dr. Newman, about the length of
time, about 18 months in terms of the productivity of the physicians. And
there wasn’t a scale on that chart, so I wanted to revisit that a little bit. If
you could just give us a sense for the productivity of the doctors you’ve
lost and the ones you’ve gained and give us a sense for how quickly we
should see that result. I think you referenced more of a shorter-term
negative impact; maybe if we can go back to that chart and you can talk
about the scale and the numbers on there and answer that question.
And then the second one is for Lloyd’s team, and I’m curious just to get your
thoughts on the physician detailing in the context of the fact that there are lots and
lots of detailers in the market – Home Health, you’ve got Hospice, you’ve got
MedTech and pharma – and how effective you are in getting in the door and what
you do to really get in the door. So if you could just give us a sense for that,
A. (Dr. Newman) Let me deal with the scale first, on the S-curve, and turn it
over to Lloyd and the team to answer your second question based on their
recent experience. We purposely left the scale off of that S-curve graph,
and we did it for a very good reason. One is that we have very early
numbers for that scale, and we have some numbers for Q407, we have
some numbers for Q108 in terms of the productivity of that virtual 1,086
doctors that are the net of what was added versus that which was
subtracted. I think it would be irresponsible for us to show you those
numbers, because that would suggest to you that you should put those in
your models and then estimate what our volumes are going to do over
time. It is very early, and we’ve not validated those numbers yet. But I can
tell you that the trend between the fourth quarter of ’07 and the first
quarter of ’08 is significantly in the upward direction, just as we would
intuitively expect, of doctors that have come on staff and begun to meet
their referral sources and get more comfortable using the inpatient and
Over time, as we get more quarters under our belt, and we feel comfortable with
the validation of what that scale should be on the S-curve, we’d be happy to share
that with you. But right now I don’t think it would be responsible on our part to
do that. But you should feel good that today the hypothesis is proving accurate,
and those people are increasing their business. Let me turn it over to Lloyd to
answer the question of detailing. All right. I think John wanted to say something.
A. (Mr. Landino) Yeah, let me answer that for you. We’re very cognizant of
the fact that physicians are very busy, there’s a lot of clutter in their office,
and that clutter is detail people – we like to call them vendors. We make a
very distinct differentiation that we are not a vendor; we are there as an
extension of the hospital, often marketing ourselves as an outreach arm of
Tenet 2008 Investor Day Page 29
the CEO, directly to make contact with that physician around three
significant reasons: servicing their business, supporting their business, and
helping to build and grow their business. It’s not what’s in it for our
hospital but what’s in it for that physician, and how we can help and
So in that regard, we don’t compete with those detail people that come in with
lunches and trips and coffee cups and all kind of gadgets that they hand out. We
come out with the very simple, basic facts; that we have service lines that they
feed into, that we can help them grow, we have core measures at our hospitals that
are significantly better than our competitors. And so we do that right away and
create that separation as a detail person and a vendor, and more as a collaborator
and partner with them in growing their businesses.
A. (Dr. Newman) Next question.
Q. Hi. Rob Hawkins from Stifel Nicolaus. I want to understand the reach and
the efficiency of the marketing program and its maturity a little bit better.
I’m kind of using your Ms. Ramirez and Dr. Cogan examples, and a
couple things kind of struck me as a little bit strange. You know, the call
center directed her to a hospital 90 miles away from where she lived, even
though you’ve got five hospitals nearby. The direct marketing campaign is
targeting three counties away. You’re targeting a doctor that’s 70 miles
away; you’ve got nearer hospitals. Is this only happening at a few
hospitals, or have you started rolling this out? You’ve got like – it shows
you have 50 marketing people you’ve hired. It looks like you’ve got about
a person per hospital. I’m just trying to understand kind of where you are
within the marketing rollout right now.
A. (Ms. Brainerd) I’ll be glad to answer that. First of all, note that it was an
archetypal hospital-physician setting. So in our story, if you’ll bear with
us, that patient lived in the primary service area of that hospital, and so did
the doctor. Although you saw some logos from a hospital in Palm Beach
County, and a Miami phonebook, please know that was just for the
purposes of illustrating a story.
Every hospital in Tenet, all 55, works with the Tenet Call Center, and they do it in
two ways. Sometimes it’s the local hospital’s marketing initiative. That hospital in
our example that put a physician guest lecture, community lecture in the paper,
that would have been a piece of work generated from that hospital to the call
center, which is based in St. Petersburg, Florida, but it’s answered as the
hospital’s name, and to that patient, they don’t know where it is; it’s very local in
Other marketing efforts that we’re doing from headquarters are things like those
screenings, and all 55 hospitals have also participated in those screenings of one
varying sort of another. And in that case, we manage the program from
Tenet 2008 Investor Day Page 30
headquarters for them and assist them with everything from the physician
contracting so they can reimburse the physician. In the case of the EKG
screening, we had to actually contract with physicians to participate in that. We
hold administrative calls so they’re up to speed on everything from how to place
the signage to how many phlebotomists you need to have available so you can
move those patients through correctly. But the call center touch is really all of our
patients and all of our marketing efforts in many different ways in a rather
Q. (Indiscernible – no microphone).
A. It’s based on the particular screening. EKG, the $39 heart health
assessment was our first one, and that did roll out about 12 months ago.
And I believe about 50 of the 55 hospitals have participated in that one.
And they go through in waves. It takes six to nine months to start seeing
that patient in the hospital for work, so some of them choose to go 12
months ago, and then six months later, they want to go back in again with
that screening. So some have actually participated in three screenings –
two cardiacs and one PVD; others went in for one cardiac screening.
Based on the capacity of their physicians, some hospitals have a smaller
medical staff of cardiologists, and once every nine months might suit their
needs versus one who wants to be more active.
Q. Hi. Kemp Dolliver with Cowen. Two questions; first on the attrition
statistics you showed in the slide, how does that compare to say a year
ago, or other periods? Is that the steady rate of attrition, or is that an
A. (Dr. Newman) We think it may have slightly improved in 2007, post-
Global settlement. We talked earlier about hedging the bets and whether
they would drop privileges or not; so we think attrition is down. I should
add a little note about attrition here and there. Those physicians, that pool
has significant fluxes in it. For example, we changed out six of our
emergency medicine staff groups in our Florida hospitals in 2007, all over
a period of about 90 days. So you had a number of physicians coming in,
and a number of physicians coming out, which is a net to zero, in terms of
the 1,086. But clearly, as we change hospital base groups, as we change a
hospitalist group, which has now become prevalent in about 35 of our
hospitals across the country, these are a large number of physicians that
might come and go over a relatively short period of time.
Q. (Kemp Dolliver) Okay. And the second question relates to the business
development activities overall. A lot of these things, I see elsewhere; you
know, advertisements, notices to patients, or reminders of appointments.
To what extent are the activities you’re engaged in now actually unique
for the industry, and how much of what you’re doing is just, quote,