tenet healthcare Q208Slides_FINAL
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Transcript of tenet healthcare Q208Slides_FINAL
Q2’08Earnings Call
August 5, 2008
2
Forward-Looking StatementsCertain statements contained in this presentation constitute forward-looking statements. Such forward-looking statements are based on management's current expectations and involve known and unknown risks, uncertainties and other factors that may cause the Company’s actual results to be materially different from those expressed or implied by such forward-looking statements. Such factors include, among others, the following: general economic and business conditions, both nationally and regionally; industry capacity; demographic changes; changes in, or the failure to comply with, laws and governmental regulations; the ability to enter into managed care provider arrangements on acceptable terms; changes in Medicare and Medicaid payments or reimbursement, including those resulting from a shift from traditional reimbursement to managed care plans; liability and other claims asserted against the Company; competition, including the Company’s failure to attract patients to its hospitals; the loss of any significant customers; technological and pharmaceutical improvements that increase the cost of providing, or reduce the demand for, health care; a shortage of raw materials, a breakdown in the distribution process or other factors that may increase the Company’s cost of supplies; changes in business strategy or development plans; the ability to attract and retain qualified personnel, including physicians, nurses and other health care professionals, including the impact on the Company’s labor expenses resulting from a shortage of nurses or other health care professionals; the significant indebtedness of the Company; the availability of suitable acquisition opportunities and the length of time it takes to accomplish acquisitions; the Company's ability to integrate new businesses with its existing operations; and the availability and terms of capital to fund the expansion of the Company's business, including the acquisition of additional facilities. Certain additional risks and uncertainties are discussed in the Company’s filings with the Securities and Exchange Commission, including the Company’s annual report on Form 10-K and quarterly reports on Form 10-Q. Do not rely on any forward-looking statement, as we cannot predict or control many of the factors that ultimately may affect our ability to achieve the results estimated. We make no promise to update any forward-looking statement, whether as a result of changes in underlying factors, new information, future events or otherwise.
This document includes certain financial measures and statistics, including measures such as adjusted EBITDA, which are not calculated in accordance with Generally Accepted Accounting Principles (GAAP). Management recommends that you focus on the GAAP numbers as the best indicator of financial performance. These alternative measures are provided only as a supplement to aid in analysis of the Company.
Reconciliation between non-GAAP measures and related GAAP measures can be found in our quarterly earnings release issued on August 5, 2008.
Non-GAAP Information
Trevor FetterPresident and
Chief Executive Officer
4
“Same-hospital” (1) vs. “Core same-hospital” (2) stats
(1.5)(1.8)Commercial O/P visit growth (%)
3.22.8Adjusted admissions growth (%)
(1.7)(2.2)Commercial Admit growth (%)
2.21.8Paying admissions growth (%)
171171Adjusted EBITDA ($mm)
8.17.5Commercial revenue growth (%)
1.91.3Commercial admit growth in 8 TGI service lines (%)
3.02.3Surgeries growth (%)
0.60.4Paying O/P visit growth (%)
0(0.3)Outpatient visit growth (%)
2.21.9Admissions growth (%)
CoreSame-HospitalSame-Hospital
Growth rates are Q2’08 over Q2’07
(1) Same-hospital excludes Coastal Carolina Medical Center and Sierra Providence East Medical Center(2) Core same-hospital also excludes Irvine Regional Hospital and Medical Center and Community Hospital of
Los Gatos from same-hospital data
5
Growth strategies and performance improvement initiatives are working
� 2.2% growth in core, same-hospital admissions� Extends recent admissions growth trends� Strongest growth in four years
� 2.2% increase in paying admissions� 0.6% increase in paying outpatient visits
� Commercial admissions declined by 1.7% (core, same-hospital)� Over 90% of commercial decline in OB admissions, which is generally de-
emphasized under TGI
� 1.9% increase in commercial admissions in eight primary TGI service lines (core, same-hospital)
� 3.2% increase in same-hospital controllable operating expense per adjusted patient day� 2.6% increase on a core, same-hospital basis
� 3.0% increase in core, same-hospital surgeries
6
2008 - 2009 Outlook updated only for USC sale
� California concentration reduced� USC plus four other hospital divestitures and/or lease expirations
� Encino and Tarzana sales (already in disc ops) reduces cash drain
� Broadlane investment to be monetized
� $155mm
� MOB sale of 31 buildings continues to move forward
� $750mm to $950mm in cash expected to be raised in next 18 months
� Including $650mm to $850mm in 2008
� Approx $50mm raised through 6/30/08
7
2009 P & L impact of actions to enhance balance sheet efficiencies (1)
� $50 million = approximate full run rate(2) reduction in EBITDA
� $80 million = approximate full year reduction of net interest expense, depreciation, and other items
� Up to $30 million = net positive future impact on pre-tax income and free cash flow
And,� $50mm in seismic requirements eliminated� $40mm annual cash flow consumption at Encino-Tarzana curtailed
(1) Tenet has not yet made a final decision on use of cash proceeds. Analysis is illustrative, for modeling purposes only.
(2) Results for 2008 are not fully impacted as $10mm to $15mm still in 2008 results
Stephen L. Newman, M.D.Chief Operating Officer
9
Key strategies are working
�Supporting evidence visible in:
� Admissions growth
� Commercial volume growth in TGI service lines
� Net growth of active medical staff
10
Admissions growth is accelerating
�Admissions increased by 2.2% (core, same-hospital)
� Every region up by 2.5%, or greater, with exception of Southern States Region� Florida admissions increased by 3.0%
� Philadelphia admissions increased by 5.1%
� Philadelphia’s Q3’08 growth will be reduced by pre-admission review diverting incremental patients to observation status
�While Florida and Philadelphia are not large commercial markets, their volume growth is solidly profitable
11
Commercial admissions growth in TGI service lines (1)
exceeds total commercial admissions growth
-8%
-6%
-4%
-2%
0%
2%
4%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2006
2007
Y-o
-Y G
row
th
2008
(1) 8 service lines which are typically emphasized by TGI: general surgery, major trauma, neonatal, neurological medicine, neurosurgery, open heart, orthopedic surgery, and Cath/EP.
TGI Service lines (1)
All service lines
TGI
Core, same-hospital commercial admissions
1.9%
12
Physician Relationship Program driving continued growth in medical staffs
� 3,836 visits to 2,109 new physicians in Q2’08
� 354 net new physicians added in Q2’08 to active medical staff � Includes 119 physicians added to new El Paso hospital
� 14,657 visits to 7,642 current medical staff members
� Admissions from these 7,642 physicians increased by 5.0% in Q2’08 over Q2’07 admissions
PRP
13
� 0.6% increase in paying core O/P visits
� 28% increase in freestanding ASC volumes
OutpatientVisits
14
� 3.0% increase in core surgeries
� 1.4% inpatient growth
� 4.2% outpatient growth
Surgeries
15
Growing evidence that inflection point has been passed
Admissions up 2.2%
Paying outpatient visits up 0.6%
Medical staff up by 354, or 2.8%, in Q2’08
Cost efficiency enhanced
Biggs C. PorterChief Financial Officer
17
“Same-hospital” (1) vs. “Core same-hospital” (2) stats
(1.6)(1.8)(1.5)(1.8)Commercial O/P visit growth (%)
Y-T-D6/30/08
Q2’08ActualGrowth rates: Q2’08 versus Q2’07
392
6.4
0.8
(2.8)
0.8
2.4
0.1
(0.5)
1.6
1.6
CoreSame-
Hospital
398
6.0
0.4
(3.1)
0.3
2.2
0
(0.6)
1.4
1.4
Same-Hospital
3.22.8Adjusted admissions growth (%)
(1.7)(2.2)Commercial Admit growth (%)
2.21.8Paying admissions growth (%)
171171Adjusted EBITDA ($mm)
8.17.5Commercial revenue growth (%)
1.91.3Commercial admit growth in 8 TGI service lines (%)
3.02.3Surgeries growth (%)
0.60.4Paying O/P visit growth (%)
0(0.3)Outpatient visit growth (%)
2.21.9Admissions growth (%)
CoreSame-
HospitalSame-
Hospital
(1) “Same-hospital” excludes Coastal Carolina Medical Center and Sierra Providence East Medical Center(2) “Core same-hospital” also excludes Irvine Regional Hospital and Medical Center and Community Hospital of
Los Gatos from same-hospital data
1818
2008 Outlook Summary
Revised 2008 OutlookPrior 2008 Outlook
no change
no change
no change
no change
no change
no change
8.6 – 8.7
no change
no change
no change
no change
no change
Core Same-Hospital (2)
Investor Day
6/3/08
Same-Hospital
Admissions - growth (1) (%) 1 - 2 no change
Outpatient visits – growth (1) (%) 1 - 2 (0.5) – 0.5
Net inpatient revenue per admit - growth (1) (%) 3.5 – 4.25 3.0 – 4.0
Net outpatient revenue per visit – growth (1) (%) 4.5 - 5.25 7.0 – 8.0
Pricing – managed care increment (1) ($mm) 47 no change
Net revenue ($ bil) 9.3 – 9.4 8.8 – 8.9
Bad debt ratio (%) 6.5 - 7.0 no change
Controllable operating expenses PAPD – Growth (1) (%) 3.0 – 3.5 1.5 – 2.5
EBITDA ($mm) 775 - 850 750 – 825
Adjusted cash flow from operations ($mm) 400 - 500 375 – 475
Capital expenditures ($mm) 600 - 650 no change
Cash balance at 12/31/08 ($mm) 850 –1,150 no change
(1) Growth 2007 to 2008(2) Excludes Irvine and Los Gatos
19
Volume trends are building momentum(core, same-hospital growth)
-2.7%
-2.2%
-2.9%
-0.6%
-1.1%
-1.8%
-0.7%
0.1%
0.9%
2.2%
-4%
-3%
-2%
-1%
0%
1%
2%
3%
Q1 Q2 Q3 Q4 Q1 Q2 Q3
-7.6%
-6.4%
-3.9%
-2.7%
-1.9%
-2.8%
-1.0%-1.2%-1.0%
-9%
-7%
-5%
-3%
-1%
1%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
-4.4%
-5.8%-5.7%
-3.0%-2.7%
-1.0%
-0.4%
-1.8%
-3.8%
-1.7%
-6%
-4%
-2%
0%
2%
Q1 Q2 Q3 Q4 Q1 Q2 Q4 Q1 Q2
Admissions
Commercial Managed Care Admissions
Outpatient Visits
Q4
2006
2006
2006
2007
2007
2007
2008
2008
2008
Q1 Q2
Q2
Q3
0.0%
20
-8.0%
-6.5%
-5.0%
-3.5%
-2.0%
-0.5%
1.0%
2.5%
4.0%
Q206 Q306 Q406 Q107 Q207 Q307 Q407 Q108 Q208
Volume Trends are Favorable(core, same-hospital)
Total Admits
O/P Visits
Ann
ual G
row
th
Paying Admits (1)
(1) Paying volumes are defined as total volumes less charity and uninsured volumes.
Paying O/P Visits (1)
21
-3.0%
-1.5%
0.0%
1.5%
3.0%
4.5%
6.0%
7.5%
9.0%
10.5%
12.0%
13.5%
Q206 Q306 Q406 Q107 Q207 Q307 Q407 Q108 Q208
Improving trend in non-paying patients(core, same-hospital)
Uninsured + CharityAdmissions
Ann
ual G
row
th
22
$10,003$10,072
$9,883
$10,286 $10,261
$10,513
$10,680 $10,667$10,792 $10,740
$9,000
$9,500
$10,000
$10,500
$11,000
$11,500
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
Pricing has Strengthened(Core, same-hospital)
$542
$575$581 $582
$601
$628
$642$647
$653
$687
$500
$600
$700
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
Net Inpatient Revenue per Admission Net Outpatient R evenue per Visit
2006 2007 2006 20072008 2008
3.2% CAGR 11.1% CAGR
23
Revenue, Costs and Adjusted EBITDA also showing favorable trends (core, same-hospital)
0.9%
1.9%
3.8%4.2%
3.0%
7.7%
6.2% 6.1%
-0.7%
-4%
-2%
0%
2%
4%
6%
8%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
Net Revenue
4.8%
3.9%3.5%
6.3%6.6%
5.1%
3.9% 4.0%
1.8%
2.6%
0%
2%
4%
6%
8%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
Growth in Controllable Expense
Per Adjusted Patient Day
$200
$181
$104
$136
$181
$156$164 $158
$221
$0
$50
$100
$150
$200
$250
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
Adjusted EBITDA$ in millions
Growth
Growth
2006 2007
2006
2006 2007
2007
2008
2008
2008
$187 without CMS adjustment
$171
6.8% without CMS adjustment
6.1%
24
Core, Same-Hospital Adjusted EBITDA and EBITDA Margins Have Been Expanding($ in millions)
200820072006
$0
$50
$100
$150
$200
$250
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
Adjusted EBITDA
Adjusted EBITDA Margin
Without CMS Adjustment
2525
Revised 2008-2009 Outlook(Continuing operations excluding Irvine and Los Gatos)
11
10
9
8
7
6
5
4
3
2
1
Line
#
($mm) Revenue Cost AdjustedEBITDA
Revenue Cost AdjustedEBITDA
Prior year (excluding Irvine & Los Gatos) 8,167 (7,510) 657 8,715 (7,890) 825
2007 Cost Report Adjustments (40) - (40) - - -
Georgia/ Florida Medicaid (56) - (56) - - -
Volume(1) 114 (68) 46 154 (93) 61
Pricing – Base Line Increase (2) 358 (21) 337 286 (22) 264
Managed Care (3) 47 - 47 34 - 34
Other Initiatives (4) 47 (16) 31 - - -
Costs – Base Line Inflation(5) - (274) (274) - (253) (253)
Cost Reduction Initiatives (6) - 92 92 - 29 29
Other(7) 78 (93) (15) 86 (46) 40
Total (8) 8,715 (7,890) 825 9,275 (8,275) 1,000
2008 2009
(1) 2008: assumes admissions growth of 1.5%; flat outpatient visit volumes; using 2007’s average pricing. 2009: admissions growth of 2.0%; outpatient visit growth of 1.5%; using 2008’s average pricing. Margin assumption on incremental revenues is 40%.
(2) Base line pricing increases of 4.4% for 2008. These assumptions are before discrete initiatives valued in this analysis, and include certain assumptions on adverse mix change
(3) Rate parity price increases in existing contracts and anticipated future increases.(4) Full-year impact of 2007’s ED acuity capture effort and incremental adjustments to chargemaster.(5) Inflation rate reflecting normal merit increases, union contract adjustments, supplies cost increases and other items before discrete initiatives valued in
this analysis.(6) Full year impact of cost initiatives initiated in 2007.(7) Includes impact of Sierra Providence East Medical Center (El Paso), Coastal Carolina Hospital, physician practices and other non-acute operations.(8) Various risks including volume growth, volume mix, and bad debt create at least $75 million in uncertainties for 2008 performance, hence the adjusted
EBITDA outlook range from $750 mm to $825mm. 2009 uncertainties exceed those identified for 2008. This schedule is not intended to provide a series o f spot estimates or line item guidance. Other combi nations of line item
performance could produce the same or higher, or lo wer results.
26
Free Cash Flow Objective – 2009($mm)
(60) - 40Net Free Cash Flow
(90)Global settlement payment
30 – 130Free Cash Flow
(550 – 600)Capital expenditures
(0 - 50)Working capital
(360)Interest expense (net)
40Stock compensation expense
1,000EBITDA
Beyond 2009 Free Cash Flow is expected to improve from:� Global settlement obligation is retired in 2010� 40% estimated margin rate on volume growth
2727
2008 Cash Walk Forward
December 31, 2007 Beginning Cash 572
2008 EBITDA 750 825
Add Back: Stock Compensation Charges 38 38
Changes in Cash from Operating Assets and Liabilities (17) 8
Interest Payments (396) (396)
Adjusted Net Cash Provided by Operating Activities 375 475
Income Tax (payments) refunds, net (45) (45)
Payments against reserves for restructuring charges, litigation costs and settlements
(100) (100)
Net cash used in operating activities from discontinued operations/leased facilities
(55) (30)
Capital Expenditures (600) (650)
Other Investing Activities 58 83
Net Financing Activities (5) (5)
Potential cash from initiatives and divestitures 650 850
Cash Outlook December 31, 2008 850 1,150
HighLow($mm)
2828
2008 Cash Walk Forward
June 30, 2008 Cash Balance 352
EBITDA Outlook, remainder of 2008 365 440
Add back: Stock compensation charges 19 19
Working capital timing and improvements 144 169
Interest Payments (200) (200)
Adjusted Net Cash Provided by Operating Activities 328 428
Income Tax (payments) refunds, net (42) (42)
Payments against reserves for restructuring charges, litigation costs and settlements
(44) (44)
Net cash used in operating activities from discontinued operations/leased facilities
(57) (32)
Capital Expenditures (301) (351)
Other Investing Activities 20 45
Net Financing Activities (6) (6)
Potential cash initiatives and divestitures 600 800
Cash Outlook December 31, 2008 850 1,150
($mm) HighLow
29
Reconciliation of 2008 Outlook net loss to adjusted EBITDA ($mm)
(400)(400)Depreciation and amortization
(50)(50)Litigation and investigation costs
375300Operating income
(400)(400)Interest expense, net
(25)(100)Income (loss) from continuing operations, before income taxes
55Income tax benefit
825750Adjusted EBITDA
(20)(95)Income (loss) from continuing operations
-(25)Less: Loss from discontinued ops, net of tax
(20)(120)Net loss
Low High
29