Good day and welcome the Tenet Healthcare Q1 2019 Earnings Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Brendan Strong, Vice President of Investor Relations. Please go ahead sir.

Good morning Emma. Thank you everyone. The slides referred to in today's call are posted on the company's website. Please note the cautionary statement on the forward-looking information included in the slides. In addition, please note that certain statements during our discussion today constitute forward-looking statements. These statements relate to future events including but not limited to statements with respect to our business outlook and forecasts and future earnings and financial position. These forward-looking statements represent management's current expectations based on currently available information as of the outcome and timing of future events, but by their nature, address matters that are uncertain. Actual results and plans could differ materially from those expressed in any forward-looking statement. For more information please refer to the risk factors discussed in Tenet's most recent Form 10-K and subsequent SEC filings. Tenet assumes no obligation to update any forward-looking statements or other information that speak as of their respective dates. You are cautioned not to put undue reliance on any of these forward-looking statements. I'll now turn the call over to Ron Rittenmeyer, Tenet's Executive Chairman and Chief Executive Officer. Ron?

Thank you, Brendan and good morning. As you can see in the materials we posted yesterday, we had a solid start to the year. We've successfully implemented several changes that are and will continue to positively impact our performance. We are continuing to make improvements in our operations that are having a positive impact. We're sharpening our organizational structures to continue to refine, simplify, and effectuate change with our leadership remaining resolute about execution. We're also continuing to maintain acute awareness of issues that may arise so that we can address them more expeditiously and with a finer point. I am very pleased with our progress and the continued improvements in our performance that will set the stage for the balance of the year. Before I turn this over to Dan, I wanted to add some perspective on the quarter. We delivered another strong quarter above consensus in adjusted EBITDA, adjusted EPS, and revenue. We generated adjusted EBITDA of $613 million or $13 million above the midpoint of our outlook. Adjusted EPS of $0.54 was well above consensus and the high-end of our outlook range. Our hospitals delivered results consistent with our expectations. We were pleased that the volume growth meaningfully improved in the first quarter despite a much milder flu season and we are optimistic about delivering even stronger volume growth as the year progresses. Looking out over the hospital portfolio, we are seeing positive momentum in many of our key markets and in specific service lines where we are prioritizing investment. We believe this is due in part to our alignment of marketing and community outreach efforts to meet growing patient demand and our focus on chronic disease patients who have a greater need for our services. We believe we have opportunities for margin improvement in our hospital…

Thanks, Ron and good morning everyone. We generated $613 million of adjusted EBITDA in the quarter, above the mid-point of our outlook range. Adjusted EPS was $0.54, which was above the high end of our range for the quarter. Our Hospital segment generated $337 million of EBITDA, which was consistent with our range of expectations. Ambulatory EBITDA was up 12% to $177 million and EBITDA less facility-level NCI was $112 million, up 9.8% after adjusting for the divestiture of Aspen, our former U.K. business. Conifer's EBITDA was $99 million, with margins up 410 basis points to 28.4%, and adjusted free cash flow was an outflow of $148 million. The first quarter is typically a softer cash flow-generating quarter for us and we anticipate much stronger results as we move through the year. Turning to Hospital volumes. As shown on slide five, our performance meaningfully improved in the first quarter, especially given the difficult flu season comparison. Adjusted admissions grew 0.6% and admissions were essentially flat. Revenue per adjusted admission increased 1.3% and we continue to benefit from a modest increase in acuity compared to strong acuity growth in last year's first quarter. Expenses increased 4% per adjusted admission compared to last year. As anticipated malpractice expense contributed to this growth as we continue to resolve larger cases. Increased malpractice will also remain a source of pressure in the second quarter. Looking forward to the second half of the year, stronger expense management combined with more favorable malpractice comparisons should result in lower level expense growth. If we exclude the $38 million increase in malpractice as well as the $11 million of increased cost on our risk-based contracting business in California, cost per adjusted admissions only increased 2.5% in the first quarter. Moving to our Ambulatory business on slide six and…

Thanks, Dan. I wanted to close this out by just saying that we – as Dan pointed out and as I've said, we had a very good quarter. But we're not sitting back on that and we're going to move forward as strongly as we have in the past. We continue to execute well. I think we're beginning to see the benefits of the plans we've been implementing and talking about. Positive traction on volume in our hospitals and outpatient facilities maintained very tight expense control across the enterprise and that will continue. And on the Conifer's strategic review, we remain in exclusivity regarding a potential transaction and as bullish is that as that was in the past. And we are reconfirming our outlook for 2019. So net I think we had a great quarter. With that, I'll now turn it over to the operator for questions. Emma, I'll turn it over to you and Brendon. So –

Thank you. [Operator Instructions] We'll take our first question today from Ann Hynes from Mizuho Securities.

Hi, good morning. Could you let me know one thing that stood out is that the acute care business over tough comps still posted positive admission trends? I don't think, you've said in your prepared remarks what the one less day had on that. So if you could let me know what admissions adjusted admissions or maybe same-store revenue in acute care was ex if you had to adjust for the one day. And secondly, obviously, the reacceleration of admissions was a big focus for you guys this year. If you can go into a couple of near-term actions you're taking to even improve it further? Thanks.

Good morning and this is Dan. Let me address that. So, yes, we were pleased to see improvement in our hospital volumes in the quarter. Adjusted admissions were up 0.6% and admissions were essentially flat. The flu comparison had an impact on admissions. It was about 80 basis points and adjusted admissions it was about 60 basis points. So the volume trends would be better absent the tough flu comp. To your point about the one less business day in the quarter, as I'd pointed out in my prepared remarks that had about 1.7% impact on USPI and surgical volume. So their growth was 2.8% but it was 4.5% on a same-business day basis. But that also impacts our hospital surgical volumes as well. Our surgeries were down, 2.2% but you would have roughly the same type of impact on the hospital surgical volumes too. So I -- the surgical trends were I would say consistent to slightly improved in the quarter. In terms of the year-over-year impact on net revenue yield the -- and certainly in the first quarter of last year acuity was incredibly strong last year in the first quarter. Our net revenue per adjusted admission growth we were -- was in line with our expectations I think from a peer pricing perspective. Again the first quarter last year was tough comp because the growth in net revenue last year was over 4%. And we're very comfortable with our pricing. We have good visibility into our pricing from a commercial perspective for the rest of the year. And we're over 90% contracted for this year and 60% for next year. We know where Medicare is at about a 2% rate in update, went into effect in the fourth quarter last year. And the most recent proposal from Medicare was in line with our expectations. So we feel good with -- where our pricings are.

Thank you. We'll now go to our next question from Pito Chickering from Deutsche Bank.

Good morning, guys. So two questions here. First one on cash flows. So normally first quarter can yield a lighter than the rest of the year, but this quarter from a -- cash form ops is significantly lighter. Can you go into that in a little more detail and why you have confidence on annual guidance of cash flow from operations?

Hi, Pito this is Dan. Let me address that. Yeah, the first quarter is typically our softest cash flow generating quarter, primarily due to certain annual working capital requirements such as our employee 401(k) match. And we do expect our cash flows to be much stronger as we move through the year and that's why we reconfirmed our cash flow guidance for the full year. In terms of some of the variances year-over-year, we did invest additional resources in capital expenditures about $49 million year-over-year. It's -- some of that's timing. We have not changed our estimate for capital investments this year and what we previously talked about. A couple of other things I'd point out in terms of year-over-year comparison, we did see about $25 million of lower cash from the California Provider Fee program. No concern there whatsoever. It's just a matter of timing in terms of how the payments flow based on the timing of the approval of the programs. Also in the first quarter last year and I called this out in the Conifer section where we had $10 million of revenue in the first quarter last year that was also received in cash related to a contract termination. So that had somewhat of an impact also year-over-year. Additional malpractice settlement payments were about $20 million year-over-year. So that had somewhat of an impact too. And then with -- our days in AR did tick-up a bit in the first quarter. Historically, if you go back through the years based on seasonality there oftentimes we have seen a slight up-tick from say Q4 to Q1. We also -- we're improving our back office or central business office functions at our USPI -- in our USPI Platform to improve efficiencies on a long-term basis and that had somewhat of an impact too. So we'll get all that back. But when you add it all up, we're still comfortable with our cash flow guidance for the year.

Great. And the one follow-up question for you on the risk-based contracting, you know, going back to third quarter, you saw termination losses fourth quarter its $4 million, $11 million in the first quarter. So $35 million, I think, was losses on I think $100 million of revenue. I think you talked about these arising -- coming from higher acuity patients. But you sort of talk about these contracts and when they come up because if these numbers are right these are pretty margin -- nice margin pressures for you guys?

Yes, Pito, this is Dan. Let me hit that. We anticipate those losses are going to come down quite a bit from what we've seen. As we move through the year, the losses in that business we anticipate to be much lower on a quarter-to-quarter basis. We have changed that management in that business entirely. We're on it. We're fixing it and we're not done yet. We also evaluate to your point about the contract -- we're evaluating all contracts to continue to see if they make sense going forward. But we'll get that business on the right footing.

Right. Thanks so much.

Thank you. We'll now move to our next question today from A.J. Rice from Credit Suisse. Please go ahead.

Thanks. Hi, everybody. One of the areas of outperformance and again this quarter rather than the last number of quarters has been the Conifer, particularly the margin strength. And I wondered just to flush out two aspects of it. On the revenue side, as you guys are doing divestitures and have gotten rid of assets and you said others have as well that are Conifer customers, it doesn't seem like much of that business is being retained. Do you have any data on how much you tend to retain? And I'm assuming if it's doing a good job, I would think you'd have a better chance to keep holding on to it. Is there some systemic reason why it tends to move away from you? And then the other aspect of it is I know most of the margin improvement sounds like you're attributing that to management cost savings. But is there something inherent about the Tenet that we're -- CHI legacy business that's more profitable than was being divested? And is that helping your margin in Conifer be so strong?

A.J., this is Dan. Let me try to address some of those points. In terms of the declining revenue because of divestitures, yes, they were divestitures by Tenet as well as well as other customers. Fully anticipated. In terms of your point about when the hospitals are sold do we -- retain the business. Sometimes we do. Sometimes we don't. There are certain customers or buyers when they take the facility over are more comfortable with their own internal revenue cycle process. However, many customers look to us for -- at a maybe just at minimum transition services for a certain period of time until they get their arms around the business and evaluate all aspects of the business and get everything up and running. And then they oftentimes just make a decision to bring it in-house too. So it -- sort of cuts both ways. We've obviously understood that some of this business was going to be lost and so that's why we certainly had day-lighted it previously. The margin improvement has been very, very strong. Cost actions that have been implemented over the past year or so have been successful. They're sticking. They're going to continue to stick. And there's opportunity for more efficiency as we move through this year and next year. We've talked about our most recently announced $200 million -- additional $200 million cost efficiency program and Conifer's part of that. And so, we feel good about continuing to be able to improve performance at Conifer. We -- revenue we're -- as Ron mentioned in his prepared remarks, that's -- it's obviously an area of focus and we're -- that's what we're working toward to grow the top line.

And I would add -- this is Ron. I would add that the -- revenue takes a bit of time. It's not -- there's a lot of relationships, there's a lot of time. It's not as simple as just retail sale. It's -- it takes time to get your target, work with that target and develop a relationship and provide insight where you can actually do a better job and usually at a lower cost. Your comment about, are the Tenet contracts or CHI contracts inherently more profitable. I wouldn't say they are. There is something about scale that helps. And obviously, they are the big players in the mix and that scale does help. So, beyond that, I don't know how much more I can add so --

Okay. Thanks a lot.

And we will now go to our next question from Whit Mayo from UBS. Please go ahead.

Hey. Thanks. Maybe a question for Dan or Jason, if he's around, but looking at USPI, the consolidated revenue in the quarter was down year-over-year, unconsolidated looks like it was up about 15%. So I'm trying to sort of reconcile some of the moving pieces there. It looks like there're three fewer total facilities this quarter. So did you de-consolidate anything? I think you've historically focused more on consolidating. So maybe just help me tease out some of the moving pieces there. Thanks.

Sure. Hi, Whit, it's Jason. How are you?

Good.

Let me start with the last question first. We sold two facilities in the quarter and we merged two locations into one. And that's something that we often talk a lot about. Usually we're adding facilities, but it's a constant and routine process with our portfolio, the size that it is at this point. And after I'm done, I'll let Brett talk a little bit about M&A. To your first question, you've seen, it's in the lot of quarters in the past. We're going to have quarters where the unconsolidated outperformed the consolidated facilities for that quarter and then vice versa, many quarters. This quarter if you look at the equity and earnings line, you see 15% growth compared to the overall growth of 12% that we talked about. So this was just a quarter where the unconsolidated facilities were particularly strong relative to the consolidated.

And Whit, just -- this is Dan, before I turn it to Brett. On a same-store basis system-wide, again, as we've pointed out revenue was up 4.2% year-over-year.

Hey, Whit, this is Brett. How's it going?

Good.

Only thing I would do is reiterate a little bit of what Jason said. I mean, when we think about the portfolio optimization for the company, that is a normal part of our process. We sell facilities from time to time that we don't view as strategic to the company. We also merge facilities where we think we can capture synergies. And that's exactly what happened in this particular situation. As it relates to the M&A for the quarter, as you may recall, we had a really busy 2018. We invested $240 million in this space. We added 27 facilities last year. And notwithstanding that, our pipeline continues to be very strong. So we expect the latter quarters of the year to be very fruitful from an M&A perspective.

Okay. So the $26 million gain through the unconsolidated income statement, that relates to the two facilities that were divested. Is that correct?

No. Whit, there wasn’t a gain on those. What I was talking about was, the growth in equity and earnings over prior year, so $31 million versus $27 million last year.

Okay. So the $26 million gain that is flowing through the unconsolidated affiliates, what does that relate to then?

Whit, I'm not sure. I'll have to get back to you.

That's fine.

There wasn't a gain on those facilities.

Yes. And maybe my other question, I've struck out on this a number of times and I know you don't want to comment on Conifer and the process which I think makes a lot of sense. But in the event that the business was separated, is there any framework that you can provide for us to help think through what the cash flow profile of the remain co would be anything that you could say would be particularly helpful? Thanks.

On your second question about Conifer, I don't -- I'm not prepared to answer that today. Obviously, if we get to that point, we would have to discuss that and show that. So I think at this stage, it'd be a little premature for us to get into that. So Dan any other comment about that?

We're good.

Yes. Okay.

Thank you. We'll now go to our next question from Kevin Fischbeck from Bank of America.

Good morning. Actually this is Joanna Gajuk filling in Kevin today. Thanks for taking the questions. So coming back to your commentary around the Hospital segment and your expectation for margin improvement the rest of the year, can you flush it out, I mean you flagged the California program payments in Q4? So anything else you will flush out in terms of the margin progression because Q1 EBITDA overall decline Q2 implies 2.5% growth or so. Still you talk about 4% to 7% for the full year growth. So that implies there's a steam probably second half, so can you just remind us again the different pieces that drive that? Thank you.

Joanna, this is Dan. Let me hit that. In terms of the Hospital business, as we move through the year, certainly we are focused on continued improvement in volumes which will certainly help. There are certain year-over-year items that we pointed out in Q1 that -- such as the additional malpractice year-over-year as well as the risk-on contracting business in California. Those losses will come down. The malpractice year-over-year comparison as we get into the back half of the year will also -- that growth will be much smaller than what you saw in the first quarter. In terms of the other drivers of how we view margins in the Hospitals business, we continue to be very tight on cost management. That's going to continue. We'll continue to execute on cost efficiencies which will also contributed to margin improvement as we move through the year. As I mentioned from a pricing perspective, we feel very good about our pricing. So a lot of the initiatives that we're focusing on will continue to take hold as we move through the year.

Great. And if I may commentary around leverage target, so any changes there in terms of your five times leverage target? Thank you.

Yes. Sure. This is Dan. Now we remain very focused on improving cash flows and we remain committed to reducing leverage to five times or lower, primarily through EBITDA growth. As I mentioned on our call in late February, one can do the math based on our guidance we have. We still have some work to do to achieve five times and that's what we're focused on. Again, I can assure you that we'll reevaluate any capital allocation decision. We are always thinking about the impact on leverage and what that means.

Thank you.

Thank you. We'll now go to our next question from John Ransom from Raymond James. Please go ahead.

Hi. I guess if I were to pick on a pretty good quarter, the surgery volumes, I know you talked about that in the fourth quarter. But what is the strategy on the Hospital side to try to get a little more flow going on the surgery side of your business?

Hey, this is Saum. So a few different things. First of all, I recognize that the surgical declines are important to us to turn around. So a few things. First of all, we're very, very focused in the near term on improving our care coordination, our operations, our throughput, our access to the operating rooms and ultimately the flow there will help us in the near-term. Now, obviously, more fundamentally long-term we're very focused on building up greater presence as our communities demanded in surgical service lines. That includes the expansion of trauma programs and other higher acuity surgical service lines. And then finally, as you can imagine the benefit that the Tenet markets on the hospital side get from the partnership with our Ambulatory platform through USPI allows us to focus on many of the surgical service lines that overlap between the two. So all of those things both from the near-term operational to the mid-term investments and thought process around surgical service lines, and obviously over a longer period of time rebuilding significant high acuity surgical services in our markets where they're demand including trauma programs represents the pathway that we're on.

Okay. This is the -- kind of switching to capital allocation. Tenet is starting to finally generate, not this quarter necessarily but on an annual basis a fair amount of free cash flow. I just look at your capital structure with all those bonds and maturity dates and the make-whole provisions. It's pretty inefficient as you start generating cash to actually work your leverage down on an actual basis and particularly if you get a slug of cash from Conifer. So I'm just wondering the legacy management team was in love with fixed-rate debt. Most companies have at least say turn of EBITDA or more and floating rate debt. Has the thinking around that changed especially as the leverage targets -- as you drop toward your 5x leverage target to be a more aggressive user of floating rate debt from banks?

Hey, John, it's Dan. Certainly as we look ahead to some debt refinancing decisions that we'll be making, variable rate debt will -- that tool will be in the toolbox and we will evaluate whether that make sense at that point in time based on where the environment's at. So I wouldn't say that we're definitely going to do it, but I'm also saying that we're open to it if it makes sense for us, so absolutely it's something we will consider as we move forward. I would say also and your point about some of debt and some of the make-whole cost as we move through the year and get closer to next year certainly there are maturities in 2020. The breakage costs come down as you move forward to those maturity dates.

And just last one for me. Tenet alone of all the hospital operators calls out in that probably more -- much more than your peers. Is there something structural in place or developing to try to make this line item less volatile? And is it -- what in your opinion legacy practices have led to a spike in this line item especially relative -- I know you can't speak to your peers, but it does kind of stand out to something that Tenet seems to struggle with a bit more than the other guys. Thanks. That's it for me.

Well, John this is Dan. Well, certainly we were -- we're very transparent about it and we call it out when the numbers move around. We obtain actuarial valuations on a quarterly basis. We also have internal actuaries look at it as well. So the movement from quarter-to-quarter absent the change related to the treasury rate or the discount rate is really a function of where we're at with certain cases and typically larger cases and the decisions we make to resolve a case, a larger case rather than maybe proceed the trail. So, obviously, we've been focused on as we talked about probably continue to have some headwinds as we move through this year. But your other point about structurally -- listen some markets are more challenging from a litigation perspective than others. And that's really all to say. I won't necessarily call out any particular one.

Thank you.

Thank you. We'll now go to our next question today from Ralph Giacobbe from Citi. Please go ahead.

Thanks, good morning. Just on the ASC side, the volume and revenue were better in I think typically what's a seasonally slower quarter and not to mention, obviously the one less day. And if I recall, 4Q was actually a little bit lighter and a seasonally stronger quarter. So just any thoughts about whether there's a change in seasonal pattern and any explanation about what -- or why that maybe occurring? And then I just want to sneak in one more. I was a little surprised I guess on the Medicare rate. The IPPS proposal for 2020 your commentary that it was sort of in line with your expectations I think the rate was sort of 3.5%. So is that just what you thought and then there was or is yours a little bit lower given sort of wage changes and other considerations? Thanks.

Hey, Ralph, good morning. This is Dan. Let me address the Medicare rate update and the proposal and then I'll turn it over to Brett to address your USPI comment. In terms of the proposal for Medicare in patient rates that will go into effect in October 1, it was in line with our expectations. Net-net, it's about a 1.1% increase. And that does include the impact of the change in disproportionate share revenue in next federal fiscal year. I would say globally the market basket was a little bit above maybe what people were taking. But -- and then you also have to take into consideration the impact from any wage index adjustment. So all in it was in line where we thought it was going to be. Brett, do you want to...

You bet. Hey, Ralph, it's Brett. You're right. I mean we had a very strong Q1 related to same-store same-day at 4.5%, which we're very pleased with. And as we alluded to in Q4 of last year what we're seeing is the consumer being a little bit more rational as to how they deal with our high-deductible health plan. So if they haven't met their deductible in November or December, they're just saying, well, why don't I just lay that surgical procedure to the first quarter. So that once that surgical procedure is done they have a full year of their deductible being met. So we saw that as a nice tailwind in Q1. We're not expecting that to continue through the remaining part of the year, but it certainly helped us for this quarter.

And this is Jason. If I could just add on we had a fewer still on. I finally caught up to you. What you were looking at on page 16 is our unconsolidated facilities presented as a whole. The number at the bottom of that page, the equity and earnings that's our total portion of that which is the 31. The 26 was an unconsolidated real estate entity that sold, but USPI's portion of that was only $1 million, which is in the equity and earnings at the bottom. Sorry about that Whit.

Ralph did you have any other questions?

No. I'm all set. Thank you.

Thanks, Ralph.

Apologies, thank you. We will now go to our next question today from Ana Gupta from SVB Leerink. Please go ahead.

Hey, thanks. Good morning. So following up on the Conifer, Ron, you said that you remained as bullish as ever on the transaction and just trying to get a sense if you can give us any color on what the drivers of the -- this longer timeline are? Are you exploring both a tax-efficient merger spin or a sale or both? And is it due to the mechanics of over spin? Is it something to do on the negotiations on pricing? Or is it around your current contract that Tenet has? And I think if you've been to spun it out what happens to that contract trend putting some guarantees around that one?

Well thanks for the question Ana. I -- unfortunately I'm not going to comment beyond that. That's what I said last quarter, it's going to stay the same. I just pointed that out, because I don't want someone to read my tone as saying that it's continuing that and there's some message in there. There's no messages. We're pursuing this as we were in the past and we will continue to pursue it. And that was my point of saying that we're as engaged as we've been and we haven't -- that we haven't stopped that. But as to getting in the specifics that you just asked for I'm sorry I just can't do that given the agreement that we signed and that's what I said last quarter and I just have to stick with it. So we will get to it. Like I said, it's only been eight to 10 weeks here. If we were already that far in the conclusion I would say, we'd probably been through the job well enough. So this requires -- when you do these things it requires the appropriate the amount of effort. So I just can't give you the kind of color you're asking for, because that may as well not even be in exclusivity, if I start doing that. So anyway, I'm sorry, but that's the best I can give you.

I am glad to hear you're still bullish. Thanks for the color.

Thanks, Ana.

Thank you. Our next question now comes from Matthew Gillmor from Robert Baird.

I wanted to ask about the admission trend through the ER. You mentioned overall admits were flat. But I think ER admits were up about 4%. So, can you talk about that trend? And what you'd attribute that to? Was that some of the marketing efforts or were there other factors?

Yeah. This is Saum. Thanks for the question. I think a few different things. One is, obviously we have been focused as I mentioned on access and operational improvements and throughput in all of the parts of our facility that includes from my earlier comments the emergency department. And look the second thing is, we've been focused on better care coordination, and again, that applies to the emergency department, so that we can get patients into the appropriate level of care for what we are seeing them present with. So both of those things I think have been important to that improvement in emergency department admissions that you note.

Got it, thanks very much.

Thank you. Frank Morgan from RBC Capital Markets has our next question.

Good morning. I wanted to touch on the inside of USPI specifically just the ASC portion of that. It seems like the pricing in that segment has been sort of in a slow, deceleration over the last couple of years. And now you're -- in your guidance you have 2% to 3% assumed pricing growth for ASCs. And I'm just curious what's been causing that deceleration? Is it more a case mix or payer mixes some other kind of shift in business? And then, what gives you confidence in that pricing number for the guidance? Thanks.

Hi, Frank. This is Brett. So you're right. I mean it's primarily a mix issue. Our GR business was up 16% in the quarter. And as you know the GR business is primarily governmental. And as a result of that our governmental mix was basically outpacing, our commercial mix for the quarter. That said, we expect that payer mix to improve in subsequent quarters.

Thank you.

Frank, did you have another question? Or …

No. I'm good. Thank you.

Operator, next question? Thanks, Frank.

Thank you. Patrick Philippe from Barclays has our next question. Please go ahead.

Hi. Good morning. Thanks. So I was just wondering if you can provide any update on the cost saving initiative. Any color today on how that saving's going to break down by segment? Any change in the time frame for realizing the savings? And maybe just how the process has compared so far to your own expectations? Thanks.

Patrick this is Dan. Let me address that. So just -- let me just sort of recap the entire program. And then where we're at with it. So, we initially started off at the end of 2017, we talked about $150 million cost efficiency program. We increased that to $250 million. And as we move through last year we were ahead of pace, and we ended up realizing more in 2018, than we had originally thought when we began last year. So we had very strong performance there. We executed on a few items, faster and the savings were greater in many cases. So, we entered this year ahead of -- well ahead of where we thought we would be. We had -- as we talked about on our fourth quarter call we have -- we had about $55 million of additional efficiency savings that would be realized this year. And we're on pace to realize those. Absolutely, then we also talked about a new $200 million cost-efficiency initiative and performance improvement. And we indicated that we would exit 2019 end of this year, on a run rate to be able to achieve that. And we would capture roughly $50 million of those savings this year. So we are on track. We have line item visibility into many, many actions that we're focused on and executing on, and feel very good about where we're at.

Great. Thanks. And my other question was just it looks like uncompensated care trends continue to tick-up a bit over time here. And I'm just curious, if there's any color there what you're seeing around that. Thanks.

This is Dan. Let me hit that. Actually the uninsured trends are somewhat consistent with what we saw in the back half of last year. I'd say some growth on the inpatient side and outpatient roughly flat. It was down -- outpatient was down about 50 bps in the quarter year-over-year. Inpatient was up 4.2%. I would say that the numbers -- we're dealing with smaller numbers here. But if there was a growth, then it's in a couple states that did not expand their Medicaid program. So that's partly the reason for the driver. But I wouldn't say -- and nothing unusual compared to what we've been experiencing.

Okay. Thank you.

Thank you. We will now go to our next question from Matt Larew from William Blair. Please go ahead.

Hi. Good morning. Thanks for taking the question. You've been discussing deliberate pivot towards patients with chronic illnesses, multiple chronic diseases, and if this does kind of inpatient and outpatient investment to support that focus. Could you just talk a little bit more about how you anticipate capital allocation, perhaps changing or being more focused to support your own focus on patients of chronic illnesses?

Yeah. Hey, it's Saum again. I think good question. And obviously at the highest level, the continued focus on expanding our presence and care for those with multiple chronic illnesses is important in addition to all of the work we're doing with respect to their rest of the patient base that we tend to see through either the emergency department or for elected surgery. So, I wouldn't say that we're focused on chronic illness at the exclusion of building those other service lines, but it's in addition to with greater emphasis and focus. And then, to your question about how we think about that, well, there's really three or four different components. The first is we think about realigning our emphasis and focus in our primary care and specialty areas including our employed physicians to be much more focused on aggregating patients with chronic illness that you think about diabetes, heart failure and other things where we're best provided to manage and offer that care. The second thing is from a capital perspective obviously we're going through at this point a refreshed understanding of our technology footprint, and also our procedure room footprint that would support many of those service lines that are required by those patients that have multiple chronic illness. And that of course will play right into the service line focus that I described earlier, which will move us towards better and more deep focus on higher acuity service lines that we can deliver in our Hospital setting, and very much in conjunction with the business that we coordinate within our markets on the Ambulatory side with USPI.

Okay. Thanks, Saum.

Thanks, Matt. Emma, let's take one last question. We're going to try to end in the next couple of minutes. I know people are trying to get on another call starting at the top of the hour here.

Thank you. We'll take our last question now today from Steve Tanal from Goldman Sachs. Please go ahead.

Good morning, guys. Thank you for that. I just wanted to follow-up on the cash flow outcome in the quarter, and specifically just on the accounts receivable. Kind of maybe a little bit more color would be helpful on what drove the jump in accounts receivable days, and similar question for inventories and other assets. And then finally, just tying the whole thing together, if 1Q was in fact sort of a little lower than normal, which quarter do you expect to make that up and which quarter should be above average? Thank you very much.

Hi, Steve. It's Dan. Let me address that. As I mentioned on an answer to another question, there was an up-tick in days in AR a couple days from year end to the end of the quarter. As I mentioned, a good portion of that can be attributable to historically from Q4 to Q1. There can be an up-tick in days in AR based on the seasonality of the revenue flows in the Hospital segment as you note roughly 60 days in AR. So depending on the timing and the level of revenue streams, the days in AR can move around from quarter-to-quarter. I also mentioned that there was roughly a 0.5-day impact on the USPI side. We made specific decision to consolidate several business offices to improve performance on a longer-term basis. So that had a partial impact as well.

All right. Great. Well, Emma I think we're going to conclude the call there. We'd like to thank everybody for joining us today. We're going to be at the Bank of America conference on May 14. We look forward to seeing you there. If we don't see you there, we look forward to seeing you at UBS on May 21. If you have any questions, please call me at 469-893-6992. Thanks very much.

Thank you. That would conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.