Tenet Healthcare's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Tenet Healthcare (THC)

Q1 2012 Earnings Call

May 08, 2012 10:00 am ET

Executives

Thomas R. Rice - Senior Vice President of Investor Relations

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

Daniel J. Cancelmi - Principal Accounting Officer, Senior Vice President and Controller

Britt T. Reynolds - President of Hospital Operations

Clint Hailey - Chief Managed Care Officer and Senior Vice President

Analysts

Ralph Giacobbe - Crédit Suisse AG, Research Division

Kevin M. Fischbeck - BofA Merrill Lynch, Research Division

Thomas Gallucci - Lazard Capital Markets LLC, Research Division

Adam T. Feinstein - Barclays Capital, Research Division

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

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

Gary P. Taylor - Citigroup Inc, Research Division

Gary Lieberman - Wells Fargo Securities, LLC, Research Division

Whit Mayo - Robert W. Baird & Co. Incorporated, Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the First Quarter 2012 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. Tom Rice, Senior Vice President, Investor Relations. And you have the floor, sir.

Thomas R. Rice

Thank you, Jeff. Good morning, everyone. First, I want to apologize for delayed start. There was some confusion around the phone number. I believe we have that properly sorted out at this point, so we'll get started.

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. [Operator Instructions] At this time, I will turn the call over to Trevor Fetter, Tenet's President and CEO.

Trevor Fetter

Great. Thank you, Tom, and good morning, everybody. Our performance in the first quarter got us off to a solid start for 2012. Here are some highlights. Adjusted admissions increased by a strong 2.8% against the tough comp of over 2%. That is stronger growth in all but one company in our peer group and it's also our sixth consecutive quarter of growth.

We achieved a 6.6% increase in surgeries, which is the best performance in our peer group this quarter. This growth came from both inpatient and outpatient surgeries. We grew ER visits by 5.2%, indicating that we're gaining share. We continued to realize commercial pricing increases in our targeted range of 5% to 7%. And as we demonstrated, once again, strong cost controls, including a 2.2% decline in supply cost per adjusted admission. Those are the operational highlights.

In addition, the Medicare rural floor settlement exceeded our expectations and provided us with $77 million of earnings in the quarter for a total EBITDA of $314 million. This result exceeded virtually all analysts' estimates and the consensus. The consensus was distorted by a wide range of estimates, some of which included settlements and some of which did not. The most accurate way to look at our performance in the quarter, however, is that it fell short of our expectations by $15 million.

Here's why. Our expectation for the quarter's EBITDA, excluding settlements and SSI, was $254 million. That would have been our point estimate in February when we said that Q1 would be roughly 1/5 of the full year. We came in x settlements and SSI at $239 million. Now while that was above the low end of the guidance that we gave you in February, it was $15 million short of our expectation at the middle of the range. The $15 million shortfall versus our guidance was created by 4 hospitals, each in a different region. The issues of the 4 hospitals are well defined and fixable, and Britt Reynolds and our regional and local management teams are already addressing the issues.

Turning to volumes. We're very pleased once again to report some of the strongest volume growth statistics in the sector. We grew adjusted admissions by 2.8% due to strong performance on the outpatient side of the business, where about 75% of the growth was organic. That's much stronger organic growth than in recent quarters. Surgeries grew by 6.6%, driven by strength in both inpatient and outpatient. We're very pleased with the organic growth of our existing outpatient surgery business and the strategic decision to augment that growth through acquisitions.

Volumes in our emergency departments remained strong, growing by more than 5%, fairly evenly across all payer classes. This provides compelling evidence that our historical investments in ER facilities, technology, throughput and service are helping us gain market share.

As you've heard on other conference calls, it was a very light flu season. Normalizing even to last year's light flu season would have added 30 basis points to admissions growth. Acuity was slightly softer in the quarter with our Case Mix index declining by less than 1% to 1.33. Commercial CMI had a slightly better trend than our aggregate acuity. It's interesting to note that the largest declines in acuity were among our uninsured and charity patients.

Turning to service lines. We saw a significant strength in orthopedic and spinal surgery, major trauma and G.I. disorders relative to the first quarter of 2011. These service lines were all targeted as part of our targeted growth initiative. We've been working on building these service lines for years, and it's extremely gratifying to see this growth. Steve Newman, who is with us here today, will have retired prior to our second quarter call, so I'd like to recognize him for the targeted growth initiative. It's something that he piloted in California some years ago and it, along with our other strategic initiatives, are major drivers of the improved performance that we've generated. These initiatives drove our 15% compound annual growth rate in EBITDA since 2004.

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