Greetings, and welcome to the Tenet Healthcare Corporation Third Quarter 2019 Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Brendan Strong, Vice President, Investor Relations. Please go ahead, sir.

All right. Thanks, Kevin and good morning, everyone. The slides referred to in today’s call are posted on the company’s website. Please note the cautionary statement on forward-looking information included in the slides. In addition, please note that certain statements made 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, our future earnings and financial position and future corporate actions. These forward-looking statements represent management’s current expectations based on currently available information as to 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 cost or information that speak as of their respective dates. You are cautioned not to put undue reliance on 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 to everyone. As stated in our earnings release last evening, we had a very solid quarter across all of our business segments. And importantly, against the numerous specific areas we have targeted for 2019, including physician recruitment, quality metrics, ambulatory acquisitions, marketing, board refreshment and cost improvements. Overall, I am very pleased with our results this quarter and the solid progress we’re making on core initiatives to drive performance improvement. It’s now approaching two years since we started the transformation of the company. During this period, there have been some significant and notable changes starting with the team we have built during this period. Regardless of the process and ideas we bring forward, that sets up the context for change, without a team that has both the capacity and the capability to embrace, refine and execute these changes. Transformation becomes nothing more than an academic exercise. This team fits the profile of changed leadership, embracing accountability, ownership, inquisitiveness and the touch needed to drive sustainable changes to the core business. Tenet is in a much different place than it was two years ago. And while we’re not done, the facts clearly support that we’ve begun to shape the future of the company with a new foundation built on results. We are establishing consistency in execution and delivery of the commitments we make relative to all aspects of the business. We have addressed the variations by building a strong depth in analytical skills, centralizing the team and providing this resource across the enterprise, which in the past was missing. Decisions are now built on an analytical framework and while experience and history do matter, requiring the depth and accuracy of strong analytical support in decision making has made a notable improvement in how we do…

Thanks, Ron, and good morning everyone. Let’s begin with volumes. Growth in our admissions and adjusted admissions were strong again in the quarter. Adjusted EBITDA was up 9.4%. The $631 million that we delivered this quarter was above the midpoint of our outlook range. I think it is important to highlight that we achieved this even though we face more than $25 million of unexpected headwinds. The hurricane, a reduction in the discount rate, slightly lower California Provider Fee revenues and the nursing strike, none of which was anticipated when we provided our outlook in August. EBITDA in our hospital segment was up a little over 7%. USPI’s EBITDA was up 13.7% and EBITDA less facility-level NCI was up 17.5%. Conifer’s EBITDA was up a little over 11%, driven by 500 basis points of margin improvement. Adjusted EPS was $0.58, which was above the high end of our range. And adjusted free cash flow was $318 million this quarter. Turning to Slide 5, volume growth in our hospitals has continued to accelerate for three consecutive quarters. Admissions increased 3.6% and adjusted admissions are up 2.8%. Surgical volumes in our hospitals improve this quarter too, up 0.8%. And if you combine our USPI surgical volume growth in our hospital markets, surgeries grew 3.2%. Once again, our volume strength was broad based with growth in a majority of our markets. Commercial inpatient volumes were also strong and grew at a similar rate to our overall growth. Revenue per adjusted admission was also solid, up 2.9%. Our costs per adjusted admission continued to be well managed, up just 2.3%. We continued to successfully execute on our incremental $200 million cost reduction program we announced earlier this year, which increased our total costs reduction target to $450 million over the past two years. The…

Thanks, Dan. As Dan said, it was really solid quarter with improvements in each business. We are seeing more consistency and execution and growth patterns and we’ve really do have clear momentum. We continue to embrace change in all areas including people, but we are delivering on our plans despite of that and we’re focused on the areas that need to be addressed. So we’re looking forward to continuing to update the progress as we move forward. So with that, I guess, Brendan, we’re ready for questions.

Yes. Kevin, we are now ready to take questions.

Certainly, we’ll now be conducting a question-and-answer session. [Operator Instructions] Our first question today is coming from Josh Raskin of Nephron Research. Your line is now live.

Hi, thanks. Good morning, everyone. Congrats again Brendan and Regina as well. A question is really around the USPI pipeline, it sounds like you had three new partners, it sounds like a couple more opportunities in the fourth quarter. And correct me, if I’m wrong. But it feels like there’s a little bit more momentum there from a partnership perspective with some of the big systems. So curious if you’re seeing that, what’s driving system awareness to the outpatient surgery model? What’s sort of causing that change? And then maybe on a related topic, are the payers helping with that transition? Is there something going on in the market, where it makes more sense the payers are kind of encouraging that? Or changing things in a way that make it more advantageous for hospital systems?

Hey Josh, this is Brett. No, good observation and you’re right. There is a quite a bit of activity as it relates to health systems around the country. As you alluded to, we added three in the third quarter, one in Texas, one in Florida and one in New Mexico. We had a two additional health system partners earlier in the year and we expect to add a couple more later in the year. And that’s a pretty consistent, that’ll get us to a seven for the year, which is pretty consistent with what we saw in 2018. And to be honest, we are really focused on making sure that we partner with the right health systems around the country. When I say that health systems that are focused on ambulatory growth, focused on physician alignment, because as you can imagine, each of these health system partners takes a whole lot of time and energy and attention, and we want to ensure that we do a really good job of focusing on helping them execute their ambulatory strategy, not only the new health system partners, but the 50 plus health system partners that we currently have within the portfolio. So a lot of activity related to health systems. And to your other question, what’s driving that is the significant shift that many health systems are seeing from inpatient to outpatient and we wanting to make sure that they have ambulatory footprint that can accommodate that business as it moves from the higher cost settings to the lower cost settings. And to your last point related to payers, helping to facilitate this. And I would suggest that you don’t have to look any further than what we saw with United’s announcement a couple of weeks ago related to them actively trying to push some of the lower complexity business out of the hospital and to ASC. So a combination of all those things is certainly driving quite a bit of activity on the USPI side of things, in terms of new health system partners as well as driving growth with our existing health system partners.

Great. Thanks.

Thank you. Our next question is coming from Ralph Giacobbe from Citigroup. Your line is now live.

Great. Thanks. So you’ve seen volume trends obviously accelerate and inpatient particularly outpacing outpatient on the last kind of couple of quarters. Can you maybe just discuss any outside service lines, geographies and maybe more – any more detail on sort of market share? If you have that sort of that data about sort of capturing and what you’re seeing there. Thanks.

Hey, Ralph, it’s Saum. The volume growth is broad based. Obviously, we’re focused on higher acuity. Volume growth from a procedural standpoint, surgeries and in the Cath Lab and the interventional lab, et cetera, which is an important part of our strategy, but just as importantly, as we’ve talked about the last couple of quarters, we’re very focused on making sure we have good emergency department throughput and high quality ICU for sick medical cases that are still significant portion of what we end up seeing in the hospital today. And I think, we’ll continue to be given the aging of the population and kind of the disease burden that we see in many of our markets. So I would say, this is a combination of emergent and elective work and I don’t see that demand slowing. This is a question of us getting our operations and access and ability to schedule and manage our assets better, as a mechanism to move market share and see growth numbers that are above what we see in terms of just basic demographic and utilization trends in our market.

Okay. That’s helpful. And then just a quick follow-up. I think in your prepared remarks, you talked about commercial volume trending higher. I was hoping, you can give us a little more detail. What was the growth in pure commercial? I know when you look at payer mix, it includes, I think that may in Managed Medicaid, but just pure commercial being give a sense of what that growth was and how it compared to what you saw on the first quarter and second quarter? Thanks.

Hey, Ralph, it’s Dan. Good morning. The commercial volume trends were also very positive from we were three or four quarters ago. The growth in commercial inpatient volumes was very consistent with our overall inpatient growth of 3.6%. It was a little bit north of 3%. So the trends there are very similar and obviously that’s very encouraging, given that a line of business.

Okay. And just in terms of relative to the first quarter and second quarter, as it been sort of in that same kind of 3-ish percent range or just third quarter some level of step-up. Any help there? Thanks.

No. The trend is very consistent with the trend that we’ve seen with overall admission. Start out the first quarter, pretty solid, continued to build on that in the second quarter and continued growth in the third quarter. And so the commercial trends were very consistent.

Okay. Fair enough. Thank you.

Thank you. Our next question is coming from Ann Hynes from Mizuho Securities. Your line is now live.

Hi, good morning. So obviously, being able to maintain your 2019 EBITDA guidance with the $50 million headwinds is good. Can you just tell us what is surprising you versus your original guidance that you were able to maintain that despite the headwinds? Is that the commercial admits? Is it – just any detail, it’d be great.

Hey, Ann, this is Dan. Good morning. There’s a couple of things in terms of why we are still feel confident with our overall guidance for the year. Yes, there were – but there was more than $50 million of unanticipated headwinds. So if you go back to when we set our original guidance, let me call off a couple of those. So the discount, right? That’s where the treasury rates have declined as a result of that when we discount and calculate our actuarial liabilities for workers’ comp and malpractice. That’s on $29 million of expense this year so far. And we had not anticipated. $10 million of strike – Hurricane Dorian costs in the third quarter. We also had some incremental nursing costs that we’re noteworthy. And then the California Provider Fee are going to be slightly lower than we had anticipated at the beginning of the year by about $14 million. So when you add those pieces up, it’s north of $50 million. So why are we still feel good about maintaining the guidance? A couple of things. One, the volume environment that we’ve been able to generate, it has improved quite a bit as we’ve moved through the year, including our commercial book of business as I just mentioned. So as we moved, this is the second time we’ve adjusted our overall volume guidance for the full year end. And so we’re – like what we’re continuing to generate so far here in the fourth quarter. And so that has really helped to mitigate some of the headwinds that I just mentioned. Also, our cost management continues to be very good. We were only up a little over 2% this quarter, even though some of those incremental costs were in the quarter. So combination of what we’re seeing from a volume perspective, a cost management perspective, pricing continues to be solid. Our pricing yield continues to be good, close to 3% growth in the quarter driven by negotiated rate increases as well as growth in our acuity. So that’s driving top line revenue growth. And then when you look at our other businesses, USPI continues to perform very well, very consistent, driving nice growth as we’ve moved through the year. Surgical volume growth has been solid. Revenue yield, again, very consistent with their expectations and then Conifer has continued to execute on a number of different cost efficiencies, actions. And you’ve seen the improvement in the margins year-over-year of Conifer. So all those things, when you add it all up, that’s why we feel comfortable about reiterating our outlook for EBITDA, despite some of those challenges we’ve faced.

Ann, this is Ron. We always – there’s never totally clear line of sight to everything. We understand the math and obviously there’s some things we have to step over in the fourth quarter probably as well. But at the end of the day, we have to set a number that we believe is achievable. And if it means, we’ve got to push a little harder to get there, we will. I think we have a very driven organization from an attitude standpoint about going after the right cost things. Obviously, we have really gotten very focused on the growth stuff. We’ve started to use analytical models that are very fact-based now obviously, and making business decisions. So I mean, all of this – none of this stuff just happens by accident. It takes time to build it. And for the last two years, that’s what we’ve worked on. And I believe now we’re starting to see some of this stuff form up and start to make a difference. So we’re going to continue down this path. And so that’s why we were comfortable and uncomfortable all the time about these things. But it really, I mean that’s what makes the job of leading the business what it is. So I think we’re in pretty good shape in terms of what we’re anticipating and so.

All right, great. Thank you.

Thank you. Our next question today is coming from A.J. Rice from Credit Suisse. Your line is now live.

Hello, everybody. Best wishes to Brendan and congratulations to Regina. I guess, first real quick on the cash flow, you’re maintaining your guidance at $600 million to $800 million. I think year-to-date, you’re at $361 million in free cash flow. When you look to the fourth quarter, I guess I would imply you think you’re going to have a big free cash flow quarter. What would be some of the variables that would give you comfort and maybe then us comfort that you can hit that?

Hey, A.J., it’s Dan. How are you? Yes. Let me approach it from two angles, sequentially from the Q3 and then year-over-year, last year’s fourth quarter to this year. So as you mentioned, our year-to-date free cash flow is approximately $360 million. It’s $361 million. We produced $318 million of adjusted free cash flow in Q3. Now to get to the midpoint of our full year guidance, we need roughly $340 million of free cash flow. And in the fourth quarter, we just produced $318 million. So that accounts for a large portion of it. Now there’s a couple of puts and takes to that I’ll call out. But you see, what we generate in Q3 almost gets you there to the midpoint for the full year guidance. But there’ll be some things we’ll move around. Obviously, earnings will be – we’re projecting earnings to be higher in the fourth quarter. So that should drive some additional cash flow generation. We are expecting by $25 million of incremental California Provider Fee funding monies to come in as well as some Texas Medicaid cash to come in, when you compare the fourth quarter to the third quarter, so there’s $25 million. We feel really good about our – when we called this out in the release, we saw about a one-day increase in our days in AR. That’ll come down. And the fourth quarter we made some process improvements, consolidated some sites to improve our processing functions on a longer term basis, save some money as well. That’s about $50 million just there and incremental cash flow. There’s a couple of minor things gone the other way. We do expect our capital expenditure investments to be about $25 million higher in the fourth quarter compared to the third. So that’ll take…

Okay. And maybe briefly follow-up on labor costs. I think the only thing you mentioned about labor was the one day strike, but it looks like your overall expenses were well contained. Some of the other providers were saying, they had to see an uptake in agency labor et cetera this quarter. I just wonder if you would comment on what you’ve seen on the labor side?

We actually feel really good about how we’ve been able to continue to manage our labor costs over the past several years. We did see an uptick in Q3 as we mentioned, because of the nursing strike. But we continue to be very focused on premium pay, whether that’s over time, whether that’s contract labor. And I would say, we get a lot of questions. We’ve seen anything unusual from a trending perspective. We really aren’t. So maybe Saum, if you want to add a couple of other point?

Yes. Thanks, Dan. We commented on this last quarter that as we had volumes continue to increase that we face some pressure from a premium labor standpoint. And so this has been a big focus in – the big area focus in the last quarter in terms of managing that more tightly. Yes, look, it’s a combination of things. It’s managing that more tightly and generating more predictability around our fulltime staffing, based upon having the confidence to believe that we’re going to have the volume trends that we saw last quarter continue into the third quarter. The last part of it is, we’ve been focused on length of stay management. As you can imagine, that has an impact here on the net effect of not just the volume but how long the patients are in the hospital and getting to a more appropriate length of stay in every case also gives us some benefits. So this is not something where the work is done. I think this is going to be an ongoing daily operational area of focus into the next few quarters. And again, if we have a winter surge, I’m sure that we will face additional risks in premium labor. But the good news is we have a little of a better foundation at this point in Q3 to work with and manage it.

Okay, great. Thanks.

Thank you. Our next question today is coming from Pito Chickering from Deutsche Bank. Your line is now live.

Good morning, guys. Thanks for taking my questions and nice quarter. And Brendan, thanks for help over the years. To dig a little more into Ralph’s question, you’ve been talking about volume growth investments for a while since, Ron joined and now we’re obviously seeing it. Is the growth coming from increased liquidation of ORs, CapEx investments there? Or is it coming from just increased utilization of existing ERs and ORs? Can you give us any metrics around doctors this year or is it coming from new doctors being recruited or from increasing the utilization of docs active – active docs today?

Pito, it’s Saum. Thanks for the question. Look, it’s a combination of things, as I have been talking about all year. The first area of focus for us has really been what I call growth operations, right? Let’s get our basic processes around access, scheduling, OR utilization, managing block times, managing block times in the cath lab, not just in the OR. A lot of that growth operational work has been an area of focus for us to just make it easier for people who want to choose to do business with us from that perspective. So that’s kind of number one. Believe it or not, there’s a lot of lift from getting that service level right. And what that does is translates into our second area of focus, which has been utilizing our commercial field force to go and share with doctors what we’re able to do from an operational perspective that will make their life more efficient and effective if they choose to give us a chance. Again, some of these doctors haven’t used our operating rooms or cath labs or procedure rooms for many years. Some of them split their business between us and other hospitals. And that operational lift and service lift, we’ve seen more trial again from those folks in our hospitals and we just have to maintain that service level effectively in order to lock in that movement of market share. So that stuff comes down to operations, quality and safety. I mean, it’s a little bit of blocking and tackling but it’s also creating the right environment within our procedural areas to make that a priority for what we do in the hospital. The third area of focus I think we’ve talked about is the – certainly the emergency department. And just making sure that we are not going on diversion, that we’re moving the patients effectively through the continuum. We’re not letting people come into the emergency department and leave the emergency department without being seen. Again, one might think of it as standard blocking and tackling and ER flow management. But we’ve tried to do that systematically across the board. Look on the physician side. I won’t get into specifics there, but not surprisingly the same operational challenges that I described in the hospitals are there in our employed physician practices for example. So ensuring better access, scheduling, lower wait times for specialty appointments. And just like you would on the volume side on hospitals, tracking our ability to grow the physician practices that we own and manage is a very, very important part of our day to day operations improvement work that we’re doing. And if we make those practices more successful and at the same time the hospitals are improving their service environment, we’re likely to earn the business from our employed physicians in the hospital based upon those operations. So again, it’s a bit of a virtuous cycle if you can continue the positive service levels.

Great. And then for follow-up, this quarter we saw a $25 million of non-core headwinds. You guys talk that which depressed margins. As we move into 2020, are there any headwinds besides Medicaid DSH? We should think about – and do you think that we should see – continued just to see leverage on 2020 assuming seems the revenues are at the similar levels?

Pito, it’s Dan. Yes. As I mentioned in my prepared remarks, we feel really good as we move into next year. We expect to continue to generate volume growth not only the ambulatory platform but the hospital platform. Our price and we know where we’re at from a pricing perspective. We’ve got good line of sight there and we feel really good about our ability to continue to manage costs. In terms – listen, there’s always some headwinds, there’s always some tailwinds. If you’re looking for a headwind, I’ll point one out. We have it on our EBITDA bridge, there’s scheduled Medicaid funding reductions next year. That’s no surprise. That’s been out there for awhile related to the Affordable Care Act. But that’s the one that, we’ll have to obviously step over. But again, we feel good about our ability to drive growth next year.

Great. Thanks so much.

Thank you. Our next question today is coming from Stephen Tanal from Goldman Sachs. Your line is now live.

Good morning, guys. Thanks for the question. Just wanted to dig in a little bit more into revenue per adjusted admission. So it sounds like can you just call that as positive. Thinking about that relative to kind of maybe the shift to inpatient if you will or just strong results in that side and maybe a better medical surgical mix. But if I heard anything wrong there, I’d be curious to hear that. And then, maybe just a little bit more color on kind of payer mix. Commercial admissions, I guess slightly softer than overall growth. How about the others kind of Medicare, Medicaid, each inclusive of managed care and then maybe just some color on self pay charity and rates overall. Just that broader discussion would be really helpful.

Yes, Stephen. This is Dan. Good morning. A couple of things. So in terms of the revenue yield growth, as I mentioned, it’s up about 3% this quarter. Very solid, combination of growth and some of our higher acuity service lines. Obviously it plays a part in that as well as our contracting positions that we’ve been able to negotiate. So as we continue to grow our volumes and it’s in the right service lines, it’s obviously going to be a positive revenue yield. So that has improved as well as we moved through the year. Due in part to, as I mentioned, our commercial book of business has continued to improve as we move through the year. And so, we feel good about that. In terms of the payer mix, as I mentioned a few minutes ago, the payer mix has improved, the commercial volume improvement has been very similar to the overall admissions improvements as we’ve moved through the year. So nice to see the commercial book of business being solid as well. In terms of self pay and uninsured, I would say there’s nothing really unusual there. The numbers move around somewhat from quarter to quarter. There’s not a large amount of that volume, but enough of it – if it moves a little bit it can have an impact on the overall percentage that may look disproportionate to our overall volume trends. So I wouldn’t – there was nothing really from an uninsured or self-pay perspective to say that’s anything different than what we have seen over the past several quarters.

Perfect. Thank you. And maybe just a couple of quick follow-ups on those unanticipated headwinds. I guess the California Provider Fee, should we be thinking about $58 million quarterly is kind of the new run rate into 2020. And then just on the other side, on the discount rates, if rates stay unchanged, just to be clear, there should be no more of that kind of pressure both those sound, right?

Yes. In terms of the California Provider Fee revenue, yes, roughly $58 million, $59 million a quarter going forward. And in terms of the discount rate, we didn’t put anything into our guidance for Q4. But listen, the rates move – rates move we either have to absorb additional expense, we have to step over or sometimes you get a benefit from it. But assuming the rates stay where they’re at, and then yes, you wouldn’t necessarily have any more incremental expense associated with that. But the rates are going to move. So it’s just a matter of where they go.

Thank you.

Thank you. Our question is coming from Kevin Fischbeck from Bank of America. Your line is now alive.

Great, thanks. So the volume number has been good and it’s been improving the last few quarters. Just want to get a sense, I think, we’re still expecting and I think a lot of people are still expecting you guys to continue to look at you portfolio. And if things make sense to divest over time, do you feel like the volume improvement, the last few quarters has really changed any kind of sense of urgency or desire? Are you now at a point where your portfolio was right or is there still an opportunity to continue to evaluate it?

Thanks. This is Ron. Thanks for the question. I would answer that this way. We continue to look very hard at our portfolio in total. We believe there are opportunities there, but we’re not going to discuss those publicly as I said in the past, because as you know, when you do that you tend to destroy the opportunity. But I would say, that we have – if anything, we have probably begun to even become more focused on how we’re going to run the business and that’ll be probably a topic that we’ll address to JPMorgan this year in terms of what is our next move on strategy. We just finished a two day strategy session with the Board. We’re doing a lot of work on that now. But I think, from a portfolio standpoint, we’re very open minded about what we do in terms of developing different pathways, including, we’re not against divesting in certain things if it makes sense to us and the price works in our favor and it makes sense in the community. We’re not against acquisitions in terms of USPI and continuing to really become aggressive in that area. As well as understand our balance as we look at debt and we’re very aware of our debt levels and actions we need to take to help spend that down. So all of that is part of the strategy and I just think it’s a little early for us to get into that. But to answer your specific question, we’re probably more engaged in that now that we’re stabilizing some of the other areas than we were in the past. Probably the best way to answer that.

Okay, great. And then I guess when we think about the volume improvement that you’ve seen in the last few quarters, it’s not just you, you seen community do at HCA, it has been doing it UHS has been doing it. So it seems like there’s a broad-based kind of affirming and demands. So it sounds like you kind of attributed some of that improvement to obviously what you’re doing operationally, but also that you’re seeing the demand improve at the local market level. Is there some broader comment or driver that you would point to as to why demand seems to be rising more broadly? Is it just a lag to the economy finally now kicking into improve the volume growth? Or is there something else? Just trying to figure out how sustainable this broad – what seems to be a broad-based return of volumes? Is this the right run rate or is there something impacting this to the positive?

I’ll let Saum jump in here as well. But I would say, from the top, at least from my role, the changes we’ve made obviously contribute to that. It’s not we’re just accidentally seen a lot of people walk in specifically to our hospitals. We have to provide the need that the community needs. We need to position ourself in the community as the primary place of interest as the location that can provide the care that the community needs. And that’s been our focus. We started that with a marketing program in early last year. We have really built upon that that feeds in terms of the type of doctors that you want to bring in to serve a community need. Once you provide that, then the community needs starts to develop and that begins to attract people. Inside, you have to operate the hospital at a much higher level of efficiency, so that you can satisfy not only the patient. In terms of inpatients today have a much higher expectation on quality, much higher expectation on service, you have to provide that. From the moment they walk through the door to the moment they leave. And that goes back to all the processes and programs we’ve been addressing. And then beyond that you’d have to have the service lines that that community requires in terms of what its care is needed. So I think on a broad-base, we have a very focused change that we’ve been making. It’s not just accidental that we’re getting the volume. A lot of it is because we are providing a pathway into servicing a need that the community has that we probably didn’t do as well in the past. So I’ll pass that over to Saum.

Yes. There’s not much to build on Ron’s answer. I think that if you focus your energy on emergent and intensive care with the right set of investments, you’re going to see a benefit there from better service and quality. If you focus your service line investments in the areas that are more relevant for acute care hospitals, things that we can uniquely do that are best done in a hospital, especially a high acuity hospital in the types of urban settings we have. You’re materially going to shift the times of service lines that you’re focused on. And the third thing is that, we in the early part of the year made some investments in some clinical technologies and things that we thought would be benefit. We were selective in how we did that in some of the markets to see if it would yield a benefit. And as they have yielded benefits, have given us more confidence to refocus our capital plans to aggressively be aligned towards some of those service line opportunities that we think we’re best positioned to serve in the acute care hospital. And so now as we get into 2020, we realign our capital priorities in a more deliberate manner. Hopefully that will build upon the operational work that we’ve been doing.

I’m sorry, Kevin. We’re going to try to just take one other question, because we’re coming up on the end of the hour here.

Certainly. Our final question is coming from John Ramsey from Raymond James. Your line is now live.

Good morning. Thanks for squeezing me in here. Dan, if we think about your 2020 comments, and just kind of focus on the EBITDA line for a minute. What is the math on the cost cuts that will be fully phased in 2020 versus partially phased in 2019 and then just some of the net headwinds in 2019 that might go away in 2020 versus new headwinds in 2020? Just want to make sure we have those numbers right. Thank you.

John, it’s Dan. A couple things on that. So the incremental cost efficiencies that we’ll be focusing on next year realizing. As we’ve talked in the past, the $200 million program that we announced earlier this year that we’ve talked about that we’d realize roughly $50 million next year. And then as we move through next year, you’d capture the residual of that. And then I’ve already gone through, some of the tailwinds for next year in terms of volume growth and pricing and cost management. Obviously, our cost management, that’s part of it, $250 million is part of the overall cost management of the organization. And in terms of the headwinds that I mentioned, we have it on our bridge and we’ve talked about that in the past. The Medicaid reductions right now are scheduled to go in unless Congress actually officially delays them. They were delayed at the outset of this quarter. But if Congress doesn’t take action, they would be effective retroactive to October 1 of this year. If they stay in place, those reductions, as I mentioned roughly $40 million annually next year in terms of Medicaid reductions. Also, we’ve talked in the past about some of the Medicare DSH reductions that went into effect on October 1 as well that’s roughly $30 million. But those are some of the high level ones and obviously we’re still working through our business plan and we’ll obviously have a lot more to say when we talk about it in February.

And just as a follow-up, it’s not clear about the Trump transparency rules. But what is your general sense, if you had to guess, it’s your big markets where your commercial rates stand versus some of your big competitors? I mean, the thought is that you guys have always been a bit lower than your competitors. But is that something that would be more apparent to people if in fact this rule does what it’s supposed to do?

Yes. John, I mean, obviously we don’t – this is Saum. We don’t know the commercial rates of our competitors, first of all. But I would say that, with the impressions we have in our general strategy in the managed care arena is to provide value to that customer base through the payer as the vehicle. And so, our objective is not necessarily to be the price leader. So, I suspect that we would fare well. But I’m not sure the value in making those kinds of rates transparent in this environment, because there’s a lot of inconsistency as you know from site to site.

Great. Thank you.

Thank you. We’ve reached end of our question-and-answer session. I’d like to turn the floor back over to management for any further closing comments.

All right, well thanks everybody for joining. It’s been just a great pleasure working with everybody. I’ll still be around for a week here or a couple of weeks here. So feel free to call me (469) 893-6992. And we’ll see you at Credit Suisse on Tuesday with A.J. Thanks.

Thank you. That does conclude today’s teleconference. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.