Good day, ladies and gentlemen and welcome to the Third Quarter 2011 Tenet Healthcare Corporation Earnings Conference Call. My name is Larry, and I will be your operator for today. [Operator Instructions] I would now like to turn the conference over to your host for today, Mr. Tom Rice, Senior Vice President of Investor Relations. Please proceed.

Thank you, operator. And good morning, everyone. This call is being recorded and will be available on replay. 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. During the Q&A portion of the call, callers are requested to limit themselves to one question and one follow-up question. A set of slides, which will be referenced on the call were posted to the Tenet website earlier this morning. At this time, I will turn the call over to Trevor Fetter, Tenet's President and CEO. Trevor?

Thank you, Tom. And good morning, everyone. Seven weeks ago we provided an early look at the results for July and August. September turned out to be a good month, so I'm very pleased to report a strong finish to the quarter. This enabled us to exceed the third quarter expectations that we laid out in mid-September. I'm also pleased with the turnaround in admissions performance that we've driven all year long. Total admissions third quarter grew by 1.5%, and paying admissions by 1.6%. Rates were near the high end of our peer group. Outpatient visits increased by 3.4% and surgeries grew by a very strong 3.2%. Adjusted admissions grew by 2.3% marking our fourth consecutive quarter of positive growth. Our emergency business is doing well with emergency department visits increasing by a solid 3.8%. Admissions through the ED rose by 3.7%. Growth in commercial ED volumes was also positive. So across multiple metrics, it remains clear that our emergency channel is growing nicely and we believe we're taking market share. One driver of this strong aggregate volume growth is our physician relationship program. In the past year, we've doubled the size of our physician sales force. Many of these new reps joined Tenet from the pharmaceutical industry. We've refined our approach to focusing and rewarding their efforts and it's proving very effective. We've also continued to add physicians to our active medical staff, which now stands at just over 16,000. This is a net increase year-over-year of 665 active physicians or growth of nearly 4.5%. Turning now to pricing. Net revenue for adjusted patient day increased by 1.5%. In isolation, this pricing metric doesn't tell you very much, because it's impacted by a change in payer mix and reductions in Medicaid rates among other factors. The statistic is also…

Thank you, Trevor. And good morning, everyone. Trevor's provided a good review of the third quarter so I will primarily focus my comments on our outlook for the remainder of the year. Achievement at the lower end of the range for 2011, our $1.175 billion for adjusted EBITDA, requires EBITDA of at least $324 million in our fourth quarter. Since EBITDA was $195 million in the third quarter, the required Q4 increment is $129 million. I will describe some of the items that we expect to create this lift sequentially in the fourth quarter over the third. This will be in more detail than just referring to last year's sequential quarter-over-quarter increase. On Slide 3 on our website, you'll find a score sheet summarizing this discussion. Let's start with a couple of items, which are immediately evident, $26 million from the California Provider Fee and $15 million in HIT incentive payments we expect to earn in the fourth quarter. You should remember that the third quarter reflect a reductions in Medicaid fee-for-service reimbursement and higher year-over-year HIT implementation expenses but not all the provider fees and high-tech act incentives which offset these. Next relatively straightforward item is a swing we expect in the fourth quarter versus the third in discount rate assumptions. We don't expect the $16 million hit to recur, conversely we expect there to be a lift in EBITDA of $6 million based on the current forward curve for the 7-year treasury note. This aggregates to a $22 million improvement in the fourth quarter over the third. Incremental cost efficiencies are expected to contribute $20 million to EBITDA in Q4 relative to Q3. These cost savings were referenced in our press release in September. Medicare in-patient pricing increases add $5 million to EBITDA in the fourth quarter relative…

[Operator Instructions] And our first question comes from the line of Justin Lake.

Just wanted to ask a couple of numbers questions here. First on the rate side for Managed Care, you talked about having 72% of the book locked up for 2012. I'm just curious what the average rate is in that, that's been locked up?

We said consistent with our expectations, which we expressed earlier as a range. And we're not going to quote a specific number, sorry about that.

Okay. And then secondly, one of your peers just talked about a little bit higher impact from Texas and Florida Medicaid costs than previously expected, I'm just curious if you can give us your numbers there for the back half of this year and for 2012?

Sure. Biggs, do you want to speak to the cuts that we've been seeing so far in Florida and Texas?

Sure. Just in the aggregate, we had expressed throughout the year that we saw $30 million to $60 million at risk in Medicaid cuts and that as the second quarter unfolded and as the states finalized their budgets for this year, we saw that come in at the higher end of that range in terms of the effects for 2011. What we saw in the third quarter in aggregate was in the neighborhood of $15 million of effect from Medicaid fee reductions. We think that annualized, the number for next year is in the territory of 100, which is what I also, I think, had previously reported in another call. So everything is pretty much as we anticipated in terms of the risk profile going into the year and then as we reported in the second quarter on how it unfolded.

Okay. Biggs, does that include the impact of the flow-through to Medicaid managed care as well? Have those contracts all been renegotiated?

Well, to the extent that there is a flow-through, I think there is some effect of that in Texas and it is included in the numbers.

So that's for contracts that are tied specifically to fee-for-service rates, I assume?

There's -- the answer is yes, but there is the ability for them to go and force reopening of others. So we provide for that as well in these estimates.

Our next question comes from the line of Sheryl Skolnick.

I just want to make sure that I understand a couple of points. As you look at your business and the performance that you've had in improving the commercial Managed Care as well as in managing through the weakened acuity in the Medicare, are there any trends that you can point to that would be -- what I'm trying to get at here is, are there any trends that are more supportive of you that the acuity is going to continue -- the acuity decline is going to continue for a while or that you have plans or strategies in place to offset it? Because if I heard you right, you're not seeing that decline in acuity so much in the commercial business. So I'm trying to figure out if there's just something we're going to work through on an anniversary a year from now or if there's something else that you can determine that's going on in your Medicare business that's not going on in your commercial business, i.e. perhaps different physicians or just simply different economic impact.

Okay. So, Sheryl, I'll make a brief comment about commercial and then turn it over to Steve to talk a little bit about acuity. I hesitate to have us talk too much about acuity, because as we've said in the prepared remarks, it's such a limited impact in the quarter even though it did capture quite a lot of attention. The only thing I would say about commercial, you started by talking about trends in commercial. We like what we're hearing coming out of the Managed Care companies about enrollment. That, we track it every quarter, the comments they make about their own enrollment trends and it's a little better than it has been in previous quarters. And then as we mentioned in terms of our own commercial admissions performance while still negative, it's the best we've seen in 3 years, the least negative that we've seen in 3 years. So we see some nice signs of life in commercial, which obviously is very important. And now turning to acuity and Medicare in particular, Steve Newman, why don't you comment on that?

Sure. Sheryl, we've seen some gradual strengthening in some of the service lines in the Medicare fee-for-service and managed Medicare business. One that I would highlight would be gastrointestinal medicine as far as admissions are concerned. For the quarter, it was up 5.7% in Medicare compared to the same quarter prior year. Same is true in general surgery. It was up about 3.4% compared to the same quarter prior year. So we're seeing strengthening in many of the higher intensity Medicare service lines. On the other hand, as some of our peer companies have reported in Medicare open-heart, we saw a significant decline for the quarter. It was down 6.4% compared to the same quarter prior year. So depending on the service line, we're seeing either higher volumes or lower volumes within Medicare. With respect to the overall growth of our business, we're continuing to work each channel by which we get patients, whether it's through the emergency department or whether it's through the elective inpatient admissions through our medical staff development plans and the expansion of our business-to-business initiatives in most of our urban markets.

Okay, fair enough. And just if I can just follow up on a different topic, your cash flow is improving, and as we look at this quarter, Biggs, I just want to make sure I understand what you said about the AR that you are working to address some issues, but that there was another issue that might mitigate against it. In other words, you're going to collect on some of the stuff, but that there are new things cropping up. Is there any situation that we need to be aware of there with any slowdown in payments from states or from fiscal intermediaries or is this sort of the normal issues that sometimes occur? Because I'm hearing fiscal intermediaries becoming more aggressive in home health. I don't know that, that's kind of where I ought to go to and I'm hoping it's not where I need to go to in the hospital sector.

Sure, it's a good question. The issues that we've had during the course of the year, some of them were self-imposed by virtue of us consolidating some offices to create a more efficient process and more effective process over time. So that created a backlog, which was then, which we anticipated working down the course of the year, but that backlog was exacerbated by a circumstance at our federal or government Medicare intermediary, which had to implement some processing changes. And as a result of that, created additional backlog for us. Then what we experienced as we were working through those issues, in the third quarter, we experienced a couple of issues in states where there also were transitions or changes in the intermediaries on Medicaid. It wasn't so much a, I think, pushback issue as it was processing and other delays through changes caused by those intermediaries in their own internal workings or in terms of adopting to any design changes by the states. So don't think there's a severe pattern of increased denial or other sort of pushbacks, which will give you concern about the states, trying to work their own cash flows or budgets through the intermediaries. But certainly we'll have to watch for that as we go forward.

Our next question comes from the line of Adam Feinstein.

I guess, Trevor, just to follow-up, I think one of the things that everyone seems to be very caught up on is a mix shift, whether that's less surgical cases, whether that's more Medicaid cases, or there's fewer cardio cases. And it just seems to be creating some confusion in terms of how people think about, not just the volume growth, but the components of the volume growth. So I guess just with some of that uncertainty out there, as you guys think about your business plan, how do you plan on managing through that? And clearly a lot of the investments and initiatives you guys have put in place will get you through that. But certainly just helpful to hear how much of this do you think is near-term noise and how much of this do you think is going to be out there for longer term? And just -- so I guess it's a long question, but how are you guys managing through and how much of this do you think is real and how much of this do you think is just near-term noise?

So I think it's actually -- it's a very good question. And if you look at the sort of the summer period, you had quite a lot of noise. Now step back for a second. We wouldn't have been commenting on July and August results at all, but for the fact that we had 2 soft months in a row, which put in jeopardy our ability to achieve the initial expectations that we've had. With a stronger September, now looking back, it looks like a lot of what we saw and were concerned about in July and August was noise. I mentioned in the prepared remarks, softness in July in outpatient, for example, that rebounded in August and remained strong through September. And we talked, Steve mentioned service lines we had identified as being down sharply in July and August, but in the end in the quarter were down but not so sharply. So at any time that you start to look at shorter periods of time, you introduce quite a lot of volatility that may not be a trend. And as we met with investors in September, we kept addressing the question, is what you saw in July and August a blip or a trend? And on a 2-month period of time it's impossible to know. On a 3-month period of time, you can start to be more confident that there isn't some significant adverse trend. And of course with various companies, the time periods in question are a little bit different. But I think over time, it's certainly -- we've said, not to be flip, but it's not as though there is some epidemic of wellness sweeping the nation. These longer-term trends have fairly stable to slight declines in acuity among the Medicare population, increases in acuity among…

Our next question comes from the line of Tom Gallucci.

A couple of quick ones. Just first on the surgery side, you mentioned some areas of strength. Obviously you've added a bunch of doctors, I think you mentioned in the comments. What other factors can you attribute some of the strength to? And is there any way to discern, maybe, your market share generally speaking, given that you're seeing some of these surgery areas up versus, maybe, some other industry trends that we see where there's more pressure?

Yes, good. Steve Newman, why don't you comment on that.

Sure. With respect to the surgery, I previously mentioned a significant increase in general surgery in the quarter of 3.4%. We also had strength in ENT surgery, urological surgery and major trauma, which usually results in several different types of surgery. We did have orthopedic surgery down 1.3% for the quarter. And once again the orthopedic surgery is the one that is most likely to be delayed based on lack of consumer confidence. So we would expect that to come back as consumer confidence improves, as the economy improves, as unemployment goes down, as coverage and commercial Managed Care in our markets continues to expand. Your other question had to do with market share and each December, we do a review of our market share year-to-date, especially in the commercial Managed Care areas in our 18 major markets. We'll be doing that again in December. But based on our indications here to date, our market share in commercial is either stable or slightly increasing in those urban markets.

Okay and then what about on the outpatient side, sort of the opposite, I guess, issue? You mentioned that maybe there is some weakness. Some of that was because of fewer acquisitions that you did but was it also a little less on the organic side, not just in July, but generally speaking? And if so, how are you thinking about that topic?

I would say, once again, our total outpatient visits were up 3.4% compared to the same quarter last year. There were 3 meaningful purposeful changes that really impacted that and that actually prevented it from being higher. We had 2 large hospital-based clinics that we closed that were responsible for 6,000 fewer visits in the quarter. And the third issue was the termination of a Managed Care ancillary agreement that was responsible for another 3,000 visit decline. If you add those 3 things together, in the absence of those closures, our outpatient visits would have been up 4.5% for the quarter in comparison to the same quarter prior year. Trevor mentioned that we had lagged our expectations in closing on some of the ambulatory surgery acquisitions. But those are performing very well and our hospital-based outpatient surgeries were actually up for the quarter. So while we didn't hit our own expectations, a part of the reason we didn't is because we adjusted those down related to those service closures.

Our next question comes from the line of John Rex. John F. Rex - JP Morgan Chase & Co, Research Division: Nice job of putting a picture of stabilization, which is important in this backdrop and I'm wondering though if you can kind of take that and roll us a little bit forward. And so if one were to assume kind of a similar macroeconomic backdrop and somewhat consumer confidence as you look out over the next year, so what would be kind of the tailwinds that you would expect that could assist on EBITDA growth? What are the headwinds maybe you haven't referred to, or you talked to Medicaid? And if you can address these, and obviously preferably quantitatively, but understand if it needs to be qualitatively at this point.

Okay. I'll hand that one to Biggs in order to make comments that.

Pretty broad questions... John F. Rex - JP Morgan Chase & Co, Research Division: Obviously, I'm targeting -- I'm thinking about the headwinds, tailwinds on '12...

I'll try and help best to my ability. And we certainly haven't given 2012 outlook yet. We did give it -- traversely, we looked out for 5 years, and looked at 2013 and '15. And I think that the challenges going into that, which I already talked about are that Medicaid hits were at the high end of our range of risks. But conversely provider fees have come in very strong and we expect to be very strong next year with up to $146 million or in that territory next year, reflecting a California Provider Fee approval of a multiyear program, which would create a 1.5 year worth of income on net program recognized next year, and then a full year of the Pennsylvania fee. So that is more than enough to offset the Medicaid fee reductions that we expect. Cost performance is running -- we expect to run better, we already said next year. We expect to have $80 million of savings from our MPI-related activities as opposed to initial target of $50 million. So that's a positive. Certainly, commercial pricing we said was on track. And from a volume standpoint going into next year, what we said in the 5-year outlook was that we expected next year to be around a negative 1.5 on commercial. Now, we haven't really updated that through today for an expectation, which again not giving full 2012 guidance, but certainly think that as we move from the improving trends we've seen this year and into the future, we're in a good position to get the benefit of an economic lift and increase in commercial enrollments as we go forward, consistent -- at least consistent with our expectation of getting to breakeven on commercial volume change year-over-year by the time we get to 2013.…

I don't think we've given a revenue number. We had given it on the January '11 presentation, a multiyear view of what we expected. And as we've already said, we're not at our level of expectation for 2011, but we do expect to close that over the next couple of years so that we'll end up by that 2013 target where we expect to be. John F. Rex - JP Morgan Chase & Co, Research Division: Can you give a revenue contribution for what you've done so far, annualized?

I honestly, I don't think I have it at my fingertips, so I can't...

We may update that, John, as we get into 2012 guidance or update our multiyear guidance, but not at the moment.

Our next question comes from the line of Gary Lieberman.

I'm not sure if you gave it, but do you know what your Medicare case mix index was in the quarter and how that compares year-over-year?

Gary, I'll ask Steve to comment on that. We have traditionally given the trends and not the number itself because it's not necessarily directly comparable, but Steve you want to comment on that?

Sure. While we don't/won't necessarily update this every quarter, but the Medicare fee-for-service case mix index for Q3 was 1.502. And as we said, that's a slight decrease from our run rate. But we see those variations from quarter-to-quarter and we're certainly through our targeted growth initiative pushing the more acute services in Medicare as well as commercial Managed Care.

Great. By slight decreases, that less than 5%, less than 1%?

Definitely less than 5%. It's around 1.4% from the run rate.

Okay. And then can you just give us an update on Managed Care contracts as you head into next year?

I did in my prepared remarks, maybe you missed that, but I quoted the numbers of 72% and 22% of our expected revenues for '12 and '13 are already contracted and the rates are consistent with the expectations that we've given in the past.

Our next question comes from the line of Kevin Fischbeck.

A question on the cash breaks that you have there, I don't know, maybe I'm missing it, but I didn't see share repurchase in the cash roll forward. Is that somewhere in there and if not, how do you think about that? Do you think you've already done about $100 million of share repo in Q4?

We don't put any future cash purchases into lock forward. We have not done that consistently, so that's a discretionary decision at the time and rather than forecast it, we don't put it in, so we put in what we've accomplished to date as a part of the cash walk in the financing activities line.

And if I heard you correctly, Kevin, I think you said $500 million. The actual number...

I said $100 million.

Well, we did $300 million to date on the program. I just want to make sure that people listening don't get the wrong number.

Okay, yes. I think you did $100 million in October, I guess, was what I was saying and the next line I take [ph] was minus 70 to 85, so I wasn't sure if that was in there. But you're saying you would expect to end with cash of $85 million to $160 million including the share repurchase you've done so far in October?

Yes, and as I said we just don't put anything further in there because it's a discretionary decision.

Okay, that makes sense. And then just to understand all the numbers that you've talked about during the cost side of things, I just -- it wasn't clear to me about how we think about annualizing. So if you did $5 million of cost savings in Q3 and $20 million in Q4, does that annualize into $100 million? So that you'd net be getting something like an extra $70 million from what you've done this year into next year or is it that distinct?

What we expect next year is an incremental $80 million over this year's baseline.

So, but if you did run rate $25 million in Q3 and Q4, you really wouldn't have to do much more to get an annualized benefit of $80 million next year, is that right?

No, much of the next-year number comes from what we implemented in the fourth quarter. But let's parse it into pieces. In the fourth quarter, we have a productivity initiative, which was put into place back in -- after seeing our July results, which isn't fully evident until the fourth quarter. And that grows to its full run rate next year. And the run rate savings on that around $60 million. The other savings in the fourth quarter are reductions in discretionary spending, which don't necessarily have some run rate benefit as opposed to thought of as more as one time. So it's maybe 50-50 in terms of what's made up of productivity versus what's made up of discretionary savings. If you look at the fourth quarter, $20 million incremental savings. So the productivity certainly grows into next year and becomes the run rate, the other savings don't, all that's factored into the $80 million incremental year-over-year.

Okay, so a bit under $80 million has already been put in place, I guess, at this point?

Yes. Well, if $80 million is substantially put in place, but it includes -- it does include additional DRG and supply-related efforts for next year, just the same as we've had this year.

Okay. And then one last question, you mentioned that you've gotten 85% of your quality bonuses on your commercial contracts. How much of your commercial revenue is at risk right now or tied to quality?

It's tiny. I mean, it's less than -- what I was talking about is less than $25 million. But it's very significant where we can negotiate rates we're happy with and then a bonus on top of that. Think of it that way, it'll be achieving 85% of the potential bonus, I think, speaks very well to our ability to generate quality numbers that the Managed Care payers are willing to pay for.

And our last question comes from the line of Ralph Giacobbe. Ralph Giacobbe - Crédit Suisse AG, Research Division: I may have missed this, did you give what the uninsured volume was in the quarter?

No we didn't. Do you guys have it?

We give the combined stat uninsured and charity. I think it's in the release. It's a modest growth this quarter of 0.5%. Ralph Giacobbe - Crédit Suisse AG, Research Division: Okay. And then just reconcile the lower bad debt expense. I don't know if you went through that.

Well, from a rate standpoint, it's slightly lower. From a gross dollar standpoint, it's slightly higher. I think that from a overall dollar -- you're comparing just a very small level of revenues when you talk about the uninsured. Our collection rates in the aggregate have been pretty stable over the last couple of quarters, only very slight decline, so we're not seeing any degradation there. We have -- the only place where we have positive really improved assumptions is on the very long-term receivables, those things that are collected over -- end up in a collection agency, our ultimate yield on those is better than what we had previously assumed in our bad debt assumptions. So there's really no big changes in there. The rate's pretty stable. The collection rate's pretty stable. No big changes in uninsured volumes and a little better performance over the very long term in collection rates. Ralph Giacobbe - Crédit Suisse AG, Research Division: Okay. And then I think you mentioned Medicaid volume still come in as a positive margin. Can you give us all a sense of that margin or just in terms of how much sort of it dilutes overall margin just given the volume strength?

On the -- you're talking about the payer mix shift? Ralph Giacobbe - Crédit Suisse AG, Research Division: Yes.

In terms of pricing on adjusted patient basis, it's probably around 50 basis points effect on our pricing. Ralph Giacobbe - Crédit Suisse AG, Research Division: On the Medicaid side?

Yes, the effect of the shift towards Medicaid.

Okay, thanks. And sorry, we got to cut it off. We got another company reporting here in a few minutes.

With no other questions, I would like to turn the call over to Mr. Trevor Fetter.

So as I was just preempting you there, operator, to say that out of respect for another company that's holding its call, we're going to cut it off. If there were more questions we were unable to answer, feel free to call us during the day. Thanks, operator.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may disconnect at this time. Have a great day.