Tenet Healthcare (THC)

Q4 2011 Earnings Call

February 28, 2012 10:00 am ET

Executives

Thomas R. Rice - Senior Vice President of Investor Relations

Trevor Fetter - Chief Executive Officer, President, Director and Member of Executive Committee

Biggs C. Porter - Chief Financial Officer

Clint Hailey - Chief Managed Care Officer and Senior Vice President

Stephen L. Newman - Vice Chairman and Chief Operating Officer

Britt T. Reynolds - President of Hospital Operations

Scott Richardson - Senior Vice President of Performance Management and Innovation

Analysts

Thomas Gallucci - Lazard Capital Markets LLC, Research Division

Andrew Valen - UBS Investment Bank, Research Division

Sheryl R. Skolnick - CRT Capital Group LLC, Research Division

Adam T. Feinstein - Barclays Capital, Research Division

John W. Ransom - Raymond James & Associates, Inc., Research Division

Ralph Giacobbe - Crédit Suisse AG, Research Division

Matthew Borsch - Goldman Sachs Group Inc., Research Division

Darren Lehrich - Deutsche Bank AG, Research Division

Presentation

Operator

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Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2011 Tenet Healthcare Earnings Conference Call. My name is Jeff, and I'll be your coordinator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Thomas Rice, Senior Vice President of Investor Relations. You have the floor, sir.

Thomas R. Rice

Thank you, Jeff. Good morning, everyone. Tenet's management will be making forward-looking statements on this call. These statements are qualified by the cautionary note on forward-looking statements contained in our annual report on Form 10-K. We undertake no obligation to publicly release any revision to our forward-looking statements to reflect events or circumstances after the date of this communication. A set of slides, which will be referenced on the call, were posted to the Tenet website earlier this morning. [Operator Instructions] At this time, I will turn the call over to Trevor Fetter, Tenet's President and Chief Executive Officer. Trevor?

Trevor Fetter

Thanks, Tom, and good morning, everyone. 2011 was a year of solid progress and continued organic growth, consider the following points that you'll find on Slide 3 of the presentation that we posted to accompany this call. Tenet generated the highest same-hospital revenues, EBITDA and EBITDA margins since 2003. 2011 was our seventh consecutive year of improvement in each of these metrics. And our compound annual growth in EBITDA over that 7-year period was 15%. We also made great progress on some important internal measures. We reached new highs in our quality metrics and our satisfaction scores from physicians and patients. And our strategic initiatives are all on track. These include growing our outpatient business and our Conifer services business and implementing our Medicare Performance Initiative and our advanced clinical information systems project.

On the key financial measures for the year, we grew adjusted EBITDA by 9% over 2010 and same hospital admissions and outpatient visits were up 0.5% and 3.1%, respectively. We would have achieved our 2011 outlook range had we been able to close some of the favorable payer settlements that we've been working on for a number of months. We expect these settlements to be reached later this year, so we are raising our 2012 outlook for adjusted EBITDA by $25 million to $50 million to a new range of $1,225,000,000 to $1,350,000,000.

Turning to the quarter and starting with volumes on Slide 4. Q4 was our fifth consecutive quarter of adjusted admissions growth with a 1.3% increase. Growth through our emergency departments was particularly strong with visits to our EDs rising 3.1% and admissions through our EDs up and even stronger 3.3%. This growth demonstrates that we have held, and in some cases, increased market share for ED services. Total surgeries increased by 3.2%, driven by very strong growth in outpatient surgeries of 7.6%. That, in turn, was due to our acquisition of ambulatory surgery centers over the past few years. Acuity was up 0.3% relative to the third quarter. We generated year-over-year growth in open heart, Cath/EP, major trauma, spinal surgery and neonatology. Areas of softness included cardiovascular, general surgery and women services, including deliveries.

We increased net operating revenues by $115 million or 5.4% over 2010's fourth quarter. In comparing our revenue numbers to prior quarters and to your models, note that we are early adopters of the new accounting standard of reporting net operating revenues net of bad debt expense. And that HIT incentives are now recorded as a contra expense.

We continued to meet our pricing objectives with a 3.7% increase in net inpatient revenue per admission. This increase included a very solid 6.9% growth in commercial inpatient revenues per admissions. On the outpatient side, net revenue per visit increased by 2.6%, including a very strong 7.1% increase in commercial revenues per outpatient visit. This reflects a positive change in the mix of outpatient services that we're providing, meaning that we're growing surgery faster than imaging.

Selected operating expense was well controlled, increasing by only 4.4% after excluding expenses related to the incremental physician employment and a couple of other items. While physician employment costs are a legitimate expense item on an ongoing basis, these costs distort our performance ratios while we're ramping up, because the physicians aren't yet fully integrated and generating run rate revenues. While I'm on the topic of physicians, we did very well with our overall physician recruitment program in 2011, adding almost 900 physicians, net of attrition, to our active medical staff. Our Medicare Performance Initiative, or MPI, continues to drive incremental cost savings. One area where these savings are particularly visible is in our supplies expense, which declined by 0.2% per adjusted patient day. As we noted on our third quarter call, we now expect that MPI will deliver $80 million of incremental cost savings in 2012, a 60% increase over our initial objective of $50 million.

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