Attached files
| file | filename |
|---|---|
| 8-K - FORM 8-K - TENET HEALTHCARE CORP | d8k.htm |
| EX-99.2 - SCRIPT FOR TENET HEALTHCARE CORPORATION INVESTOR CALL - TENET HEALTHCARE CORP | dex992.htm |
 Trevor Fetter
President and Chief Executive Officer
January 11, 2011
Tenet Healthcare Corporation
Presentation To Investors
Exhibit 99.1 |
 2
Forward-looking statements
Forward-looking statements
Certain
statements
contained
in
this
presentation
constitute
“forward-looking
statements”
within
the
meaning
of
Section
27A
of
the
Securities
Act
of
1933
and
Section
21E
of
the
Securities Exchange Act of 1934. Such forward-looking statements are based on
management's current expectations and involve known and unknown risks, uncertainties and
other
factors
that
may
cause
the
Company’s
actual
results
to
be
materially
different
from
those
expressed
or
implied
by
such
forward-looking
statements.
Such
factors
include,
among others, the following: the passage of heath care reform legislation and the
enactment of additional federal and state health care reform; other changes in federal, state, or
local laws and regulations affecting the health care industry; general economic and
business conditions, both nationally and regionally; demographic changes; changes in, or the
failure to comply with, laws and governmental regulations; the ability to enter
into managed care provider arrangements on acceptable terms; changes in Medicare and Medicaid
payments or reimbursement; liability and other claims asserted against the Company;
competition, including the Company’s ability to attract patients to its hospitals; technological
and pharmaceutical improvements that increase the cost of providing, or reduce the
demand for, health care; changes in business strategy or development plans; the ability to
attract and retain qualified personnel, including physicians, nurses and other
health care professionals, and the impact on the Company’s labor expenses resulting from a shortage
of nurses or other health care professionals; the significant indebtedness of the
Company; the Company's ability to integrate new businesses with its existing operations; the
availability and terms of capital to fund the expansion of the Company's business,
including the acquisition of additional facilities; the creditworthiness of counterparties to the
Company’s business transactions; adverse fluctuations in interest rates and
other risks related to interest rate swaps or any other hedging activities the Company undertakes; the
ability
to
continue
to
expand
and
realize
earnings
contributions
from
the
Company’s
Conifer
revenue
cycle
management
and
patient
communication
businesses;
and
its
ability
to
identify and execute on measures designed to save or control costs or streamline
operations. Such factors also include the positive and negative effects of health reform legislation
on reimbursement and utilization and the future designs of provider networks and
insurance plans, including pricing, provider participation, coverage and co-pays and deductibles,
all
of
which
contain
significant
uncertainty,
and
for
which
multiple
models
exist
which
may
differ
materially
from
the
Company's
expectations.
Certain
additional
risks
and
uncertainties
are
discussed
in
the
Company’s
filings
with
the
Securities
and
Exchange
Commission,
including
the
Company’s
annual
report
on
Form
10-K
and
quarterly
reports
on
Form 10-Q. The Company specifically disclaims any obligation to update any
forward-looking statement, whether as a result of changes in underlying factors, new information,
future events or otherwise.
Non-GAAP Information
This
document
includes
certain
financial
measures
such
as
Adjusted
EBITDA,
which
are
not
calculated
in
accordancewith
generally
accepted
accounting
principles
(GAAP).
Management recommends that you focus on the GAAP numbers as the best indicator of
financial performance. These alternative measures are provided only as a
supplement to aid in analysis of the Company. Reconciliation
between
non-GAAP
measures
and
related
GAAP
measures
can
be
found
in
Appendix
D.
Additional Information
Tenet Healthcare Corporation ("Tenet") will file with the Securities and
Exchange Commission ("SEC") a proxy statement in connection with its 2011 annual meeting of
stockholders.
Any
definitive
proxy
statement
will
be
mailed
to
stockholders
of
Tenet.
INVESTORS
AND
SECURITYHOLDERS
OF
TENET
ARE
URGED
TO
READ
THESE
AND
OTHER DOCUMENTS FILED WITH THE SEC CAREFULLY IN THEIR ENTIRETY WHEN THEY BECOME
AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION.
Investors
and
securityholders
will
be
able
to
obtain
free
copies
of
these
documents
(when
available)
and
other
documents
filed
with
the
SEC
by
Tenet
through
the
website maintained by the SEC at http://www.sec.gov.
Certain Information Regarding Participants
Tenet and certain of its respective directors and executive officers are deemed to
be participants under the rules of the SEC. Information regarding these participants is contained in
a filing under Rule 14a-12 filed by Tenet with the SEC on January 7,
2011. This filing and other documents can be obtained free of charge from the sources indicated above.
Additional
information
regarding
the
interests
of
these
participants
in
any
proxy
solicitation
and
a
description
of
their
direct
and
indirect
interests,
by
security
holdings
or
otherwise,
will
also
be included in any proxy statement and other relevant materials to be filed with
the SEC if and when they become available. |
 3
The hospital industry: a compelling investment
The hospital industry: a compelling investment
Strong demographic changes driving growth
The growth rate of the over 65 population will more than double to over 3.0%
between 2010 and 2012 Per capita spending on healthcare nearly doubles
between age 50 and age 65 Affordable Care Act
Expands insurance coverage to 32 million uninsured Americans (2014)
Insurance “reforms”
increase interim coverage (2010)
Newly covered population likely to utilize hospital services at increased
rate Recession has suppressed volume growth and increased bad debt
expense Returning to pre-recession levels expected to expand margins and
growth rates |
 4
Tenet at a glance
Tenet at a glance
Acute Care Hospitals
(1)
Beds
(1)
Employees
US Coverage
(1)
Inpatient Admissions
(2)
Outpatient Visits
(2)
November 2010 EBITDA Outlook:
-
Including CA Provider Fee
-
Excluding CA Provider Fee
Current 2010 EBITDA Estimate
(5)
(Excluding CA Provider Fee)
2011 EBITDA Outlook Range
(5)
-
Represents an increase of $100mm -
$200m over
the 2010 estimate
___________________________
1.
Continuing operations as of December 31, 2010.
2.
LTM continuing operations as of December 31, 2010.
3.
Based on THC share price of $6.69 as of December 31, 2010.
4.
$3.7 billion equity value (includes mandatory convertible) plus $4.1 billion in debt
less $0.4 billion in cash, as of September 30, 2010. 5.
Assumes
California
Provider
Fee
is
recognized
in
2011
as
opposed
to
2010.
Actual
2010
EBITDA
results
may
vary
when
2010
results
are
released
in
February.
2010E Revenue
(2)
Equity Market Value
(3)
Enterprise Value
(4)
Net Debt
$9.2 bn
$3.7 bn
$7.4 bn
$3.7 bn
Corporate Governance
Independent Chairman of the Board
9 out of 10 board members are independent
Diversified experience in public sector, healthcare,
accounting and finance, technology and
manufacturing
Substantial experience with major corporate actions
$1,050 -
$1,100 mm
$986 -
$1,036 mm
$1,050 mm
$1,150 -
$1,250 mm
49
13,430
57,000
11 states
513,000
3.9mm |
 Q4
2010 preliminary performance highlights and EBITDA outlook
(1)
Q4 2010 preliminary performance highlights and
EBITDA outlook
(1)
Inpatient and outpatient year-over-year volume trends both improved
relative to Q3 Inpatient admissions declined by 2.0% (compares to a 3.5%
decline in Q3) Outpatient visits increased by 2.9% (compares to a 2.0%
decline in Q3) Commercial volume trends improved compared to Q3 2010’s
results, but statistic will no longer be disclosed
Preliminary
EBITDA
(excluding
California
Provider
Fee)
of
$1.050
billion
exceeds
previous
outlook
Excluding $64 million California Provider Fee, previous outlook was for $986
million to $1.036 billion Q4 Preliminary EBITDA is $281 million, previous
outlook, excluding the California Provider Fee, was $217 million to $267
million Requirements for California Provider Fee to be recognized in 2010
were not met by year end Recognition is now expected in 2011
Expected amount remains $64 million
New EBITDA Outlook for 2011 established from $1.150 billion to $1.250 billion
(including California Provider Fee)
5
Solid results in 2010 and poised for further growth and value creation in 2011
___________________________
1.
Actual Q4 2010 volume trends and 2010 EBITDA may vary when 2010 results are released
in February. |
 6
Our national hospital and outpatient
center footprint
Our national hospital and outpatient
center footprint
Acute Care Hospitals
Diagnostic Imaging Centers (DICs)
Ambulatory Surgery Centers (ASCs)
DIC in development
49 acute care hospitals
81 free-standing OP centers
$9.2 billion in revenues
Focus on high growth markets
Well-positioned in attractive growth markets |
 7
Tenet Healthcare: A compelling investment
Tenet Healthcare: A compelling investment
Continued Strong Organic Growth
Continued Strong Organic Growth
in Earnings
in Earnings
Operating Integrity, Growth and
Operating Integrity, Growth and
Infrastructure Investments Reduce Future Risks
Infrastructure Investments Reduce Future Risks
Consistent Strategy Driven by Innovative,
Consistent Strategy Driven by Innovative,
High Margin, Capital Efficient Initiatives
High Margin, Capital Efficient Initiatives |
 8
Significant positive momentum –
multiple
value drivers
Significant positive momentum –
multiple
value drivers
___________________________
1.
Data reflects the results of our existing 49 hospitals.
2.
Actual 2010 results may vary when 2010 results are released in February.
3.
Return on capital is defined as income from continuing operations excluding
impairments and debt gains/losses, net of tax, plus after-tax interest expense net of investment income, and 1/3 of rent
expense after-tax divided by invested capital, which is defined as total debt
including our former government settlement obligation less cash plus average equity over the most recent five quarters
excluding impairments in the period recorded plus 8 times rent expense. The
reversal of our deferred tax asset valuation allowance in 2010 has been excluded from the 2010 computation.
Return on Invested Capital
(1)(3)
De-levered Balance Sheet
Superior EBITDA Growth and Margin Expansion
(1)
($ millions)
Estimate
(2)
($ millions)
Estimate
(2)
Estimate
(2)
Strong Net Revenue Growth
(1)
($ millions)
Estimate
(2)
$7,669
$7,557
$7,676
$8,083
$8,585
$9,014
$9,200
2004
2005
2006
2007
2008
2009
2010
6.9%
9.2%
12.1%
12.0%
(3.3%)
2006
2007
2008
2009
2010
Return on Invested Capital
$422
$543
$631
$658
$739
$982
$1,050
2004
2005
2006
2007
2008
2009
2010
0%
2%
4%
6%
8%
10%
12%
14%
EBITDA
EBITDA Margin
$4,436
$4,803
$5,088
$5,039
$5,088
$4,950
$4,059
2004
2005
2006
2007
2008
2009
2010
Debt
DOJ Liability |
 1
6
8
8
3
4
6
6
3
9
Tenet has led same-hospital admissions growth over the
last 15 quarters
Tenet has led same-hospital admissions growth over the
last 15 quarters
Same-Hospital Admissions Growth
(1)
Ranking
(2)
Over Last 15 Quarters
___________________________
1.
Data for Tenet reflects the results of our existing 49 hospitals.
2.
Metric records number of quarters in which the Company ranked #1, #2 or #3 among the
three companies in the 15 quarters from Q1’07 to Q3’10. Ranked
1 st
Ranked 2
nd
Ranked 3
rd |
 10
Strong organic net revenue growth
(1)
Strong organic net revenue growth
(1)
($ millions)
Estimate
(2)
___________________________
1.
Data reflects the results of our existing 49 hospitals.
2.
Actual 2010 results may vary when they are released in February.
$7,669
$7,557
$7,676
$8,083
$8,585
$9,014
$9,200
2004
2005
2006
2007
2008
2009
2010 |
 11
Consistent improvement of operating metrics has driven solid organic EBITDA
growth Tenet’s same-hospital EBITDA growth has outpaced
its largest peers in eight out of the last 15 quarters
Tenet’s same-hospital EBITDA growth has outpaced
its largest peers in eight out of the last 15 quarters
EBITDA Growth
(1)
Ranking
(2)
Over Last 15 Quarters
___________________________
1.
Data for Tenet reflects the results of our existing 49 hospitals.
Community’s same-store year-over-year EBITDA growth calculated using reported same-store income from operations, same-store
depreciation and amortization, and same-store minority interest in earnings for
each quarter. HCA year-over-year EBITDA growth based on reported consolidated EBITDA.
2.
Metric records number of quarters in which the Company ranked #1, #2 or #3 among the
three companies in the 15 quarters from Q1’07 to Q3’10. Ranked
1 st
Ranked 2
nd
Ranked 3
rd
4
5
6
3
7
5
8
3
4 |
 12
Tenet’s EBITDA margins have expanded
590 basis points since 2004
(1)
Tenet’s EBITDA margins have expanded
590 basis points since 2004
(1)
($ millions)
Estimate
(2)
Cost control initiatives coupled with improved pricing has yielded significant margin
expansion ___________________________
1.
Data reflects the results of our existing 49 hospitals.
2.
Actual 2010 EBITDA may vary when results are released in February.
$739
$982
$1,050
$658
$631
$543
$422
11.4%
10.9%
8.6%
8.1%
8.2%
7.2%
5.5%
2004
2005
2006
2007
2008
2009
2010
EBITDA
EBITDA Margin |
 13
Tenet’s consistent EBITDA improvement
relative to peers has narrowed the margin gap
Tenet’s consistent EBITDA improvement
relative to peers has narrowed the margin gap
Tenet is on track to exceed current industry average margins
___________________________
1.
Peer
Average
EBITDA
margin
of
Community
Health
Systems,
Hospital
Corporation
of
America,
Health
Management
Associates,
LifePoint,
Universal
Health
Services
and
Vanguard
Health
Systems.
Vanguard
2010
EBITDA
margin
reflects
last
twelve
months
financials
as
of
September
30,
2010
and
the
remaining
peers
reflect
2010E
Wall
Street
research
estimates.
Peer Avg:
(230bps)
Tenet:
590bps
2004–2010E
Change
10.8%
2.6%
THC EBITDA Margin
Peer
Average
Margin
(1)
0%
5%
10%
15%
20%
2004
2005
2006
2007
2008
2009
2010E |
 14
Tenet has one of the lowest leverage ratios
and longest maturity profiles in the industry
Tenet has one of the lowest leverage ratios
and longest maturity profiles in the industry
Active management of capital structure has significantly improved Tenet’s debt
profile ___________________________
1.
As of September 30, 2010. Total Debt less Cash and Cash Equivalents/LTM
EBITDA. 2.
Includes $1.525 billion issuance announced on November 9, 2010.
3.
Pro forma for Detroit Medical Center acquisition. Assumes $120 million of
EBITDA at Detroit Medical Center as per Wall Street research. 4.
Pro forma for announced acquisition of Psychiatric Solutions.
5.
$216 million due February 1, 2013.
6.
Borrowing availability under our revolving credit facility was $460 million at
September 30, 2010. Becomes $500 million under the new agreement, as of September 30, 2010.
No
significant
debt
maturities
prior
to
2015
(5)
No
significant
maintenance
covenants
Ample
liquidity
with
$398
million
of
cash
as
of
9/30/2010;
$800
million
undrawn
credit
line
(6)
provides flexibility
Weighted Average Debt Maturity (years)
Leverage Ratio
(1)
Leverage Ratio
Years
(2)
(3)
(4)
4.0
4.0
5.0
5.0
6.0
6.0
8.0
HMA
Community
UHS
LifePoint
Vanguard
HCA
Tenet
4.8x
4.7x
4.3x
3.9x
3.8x
3.7x
2.7x
HCA
CommunityVanguard
UHS
HMA
Tenet
LifePoint |
 15
Well-defined growth strategy
Well-defined growth strategy
High margin businesses
Growth in EBITDA, cash flow,
ROIC
Organic growth
Outpatient
Capacity utilization & operating
leverage through physician
alignment
Revenue cycle business
Financial Objectives
Growth Drivers
Integrated clinical systems driving the capture of incentives, improved clinical
quality, provider integration and cost efficiencies
Greater than average benefit from new federal law
Operating Foundation |
 Current
HIT
investments
necessary
to
achieve
government’s
“meaningful
use”
will
capture
government
incentives
and
contribute
positive
benefit
to
earnings
beginning
in
2012,
while
also
improving
clinical
outcomes
and
operational
efficiency
16
Improve outpatient/inpatient mix
High growth/high margin revenue cycle management business focused on acute
care providers
Significant cost savings extracted from productivity and other efficiency
initiatives Outpatient
Conifer
MPI
(1)
Health IT
Significant reductions in uncompensated care and increased paying volumes due
to Affordable Care Act
Available capacity and increasing volumes position Company for substantial
margin expansion
Economic recovery and reduced unemployment expected to decrease bad debt
expense and drive margin expansion
Affordable
Care Act
Operating
Leverage
Bad Debt
Seven key drivers of a 16 –18% EBITDA margin
Seven key drivers of a 16 –18% EBITDA margin
Tenet-specific
Macroeconomic
Industry
___________________________
1.
MPI = Medicare Performance Initiative.
1
2
3
4
6
5
7 |
 17
Targeted acquisitions and organic growth will
drive meaningful EBITDA margin expansion
Targeted acquisitions and organic growth will
drive meaningful EBITDA margin expansion
___________________________
1.
Acquisitions closed in 2010. Full year impact reflected in 2011 metrics.
2.
Acquisitions expected to be negotiated and closed in 2011. Metrics represent partial
year impacts (except for purchase price). 3.
Percentage growth based on 2010 Outlook of 3.9mm OP visits, which includes OP visits
associated with newly acquired centers. ($ millions)
EBITDA Impact
Outpatient
1
Tenet physician alignment and targeted growth initiatives expected to drive further
outpatient growth Outpatient Acquisition Strategy
2010 Acquisitions
(1)
2011 Acquisitions
(2)
Total 2011 Impact
Centers Acquired
24
15–25
40–50
Purchase Price ($mm)
$65
$100
$165
2011 Outpatient Visits
(000s)
215
50–60
265–275
Impact on 2011 Visits
(3)
(% increase)
5%
1%–2%
6%–7%
2011
2012
2013
Run-Rate
2013
$65
$65
$55
$35
Total
20
20
10
--
2012
20
20
20
10
2011
$25
$25
$25
$25
2010
EBITDA contribution
from acquisitions
completed in:
$10
$10
$10
$25
$10
$65
2010 Acquisitions
2011 Acquisitions
2012 Acquisitions
2013 Run-Rate |
 18
Conifer ranks among revenue cycle
industry leaders
Conifer ranks among revenue cycle
industry leaders
___________________________
Source: Tenet and Accretive Health as of September 30, 2010 10-Q filing. Wall
Street research. Note: Market data as of December 31, 2010.
Conifer
2
Strong momentum with meaningful provider penetration and a substantial pipeline for
continued growth Conifer
Accretive
# Client Hospitals
79
64
Client Net Patient Revenue
$13.4bn
$14.0bn
# Employees
2,600
2,100
Solution Spans Entire Revenue Cycle
Value Proposition = Increasing Client Yield
Margin Expansion Inherent in Business Model
Provides Long-Term Contracts
2011E EBITDA Multiple
N/A
16.8x
Enterprise Value
N/A
$1.5bn
2011 Revenue
N/A
$885
2011 EBITDA
N/A
$88
Substantial embedded value within Tenet |
 19
Medicare Performance Initiative will continue to
deliver significant cost savings
Medicare Performance Initiative will continue to
deliver significant cost savings
MPI
3
MPI’s
Goal: Cost reduction captured through physician adoption of best practices
$30 million in 2010 cost savings achieved
$50
million
incremental
savings
in
2011
and
subsequent
years
as
MPI
is
rolled
out
to
more
hospitals and more DRGs; augmented by other supply and productivity
initiatives MPI
cost
savings
are
cumulative
2011
2012
2013
2014
2015
Run-Rate Savings
Incremental Savings
$100
$150
$200
$250
$50
$50
$50
$100
$50
$150
$50
$200
$50
($ millions) |
 2009
2010
(1)
2011
2012
2013
2014
2015
2016
Healthcare IT (HIT)
Program Expense
(2)
$12
$21
$50
$60
$40
$15
–
–
Federal HIT Incentives
–
–
$15
$70
$97
$81
$44
$13
EBITDA Impact
($12)
($21)
($35)
$10
$57
$66
$44
$13
HIT Capital Expenditures
$49
$69
$106
$115
$69
$14
–
–
Foundation Systems
(# Go-Live)
–
8
12
20
9
–
–
–
CPOE Systems
(# Go-Live)
–
–
9
17
14
9
–
–
20
HIT investments improve clinical outcomes and
operational efficiencies
HIT investments improve clinical outcomes and
operational efficiencies
___________________________
1.
Estimate pending final close. Actual results may vary when results are
released in February. 2.
Excludes recurring clinical support operating expenses and HIT benefits to operating
performance. Health IT
4
Federal HIT incentives contribute positive benefit to earnings starting in
2012 Clinical systems are critical to physician alignment and integration,
reduction of medication errors, standardization of clinical practice and
reduction of cost ($ in millions)
Penalties avoided
by achieving
“Meaningful Use”
(Net present
value of $315mm) |
 21
Reduced bad debt expense expected to
contribute to EBITDA growth
Reduced bad debt expense expected to
contribute to EBITDA growth
___________________________
1.
Data reflects the results of our existing 49 hospitals.
2.
Collection rates from self-pay accounts. The increase in bad debt expense
includes factors in addition to the decline in collection rates. Key
Takeaways Recession Has Driven Increase in Bad Debt Expense
Bad Debt
5
Economic recovery expected to moderate bad debt expense and drive EBITDA margin
expansion Prior to the recession, Conifer drove self-
pay collections from 32% to 36%
Tenet has executed its plan throughout the
recession
AR days declined from 54 days in Q1’08 to 46
days in Q3’10
Point of service collections increased from
34.5% in 2008 to 39.4% YTD 2010
Billing cycle times reduced by 19% from Q1’08
Right Care, Right Place initiative
53% increase in Medicaid qualifications in
2010 compared to 2008
Expense reductions expected from
improved collections in the future
2007 collection rate of 36% declined to 29% in
2010
(2)
Economic recovery alone expected to
improve collections back to 36%
Conifer expected to drive improved collections
beyond 36%
(1)
Pre-Recession
Recession
7.2%
6.3%
6.9%
7.3%
7.7%
8.0%
2005
2006
2007
2008
2009
2010
YTD
Sept
Bad Debt as % of Net Revenue |
 22
Increase in capacity utilization provides
significant upside opportunity
Increase in capacity utilization provides
significant upside opportunity
___________________________
1.
Utilization defined as daily census divided by number of licensed beds.
2.
Actual 2010 utilization may vary when results are released in February.
Utilization of Licensed Beds
(1)
Operating Leverage
6
Adjusted fixed expenses to right-size cost structure during economic downturn
while also maintaining capacity to increase volumes in near term
$40
million
incremental
EBITDA
for
every
one
percent
increase
in
total
volumes,
assuming
current mix
$80 million incremental EBITDA from a one percent increase in capacity
utilization No significant near-term capacity constraints
(2)
54%
50%
52%
Tenet 5-Yr High Utilization
Tenet 2010E Utilization
Tenet Projected 2015 Utilization |
 23
Affordable Care Act expected to increase
volumes
Affordable Care Act expected to increase
volumes
___________________________
Assumptions: Conversions of uninsured to Medicaid and exchanges use Congressional
Budget Office assumptions (57% conversion) evenly split between Medicaid and exchanges.
Existing volumes convert at existing case
mix. Exchange pricing is slightly lower than projected commercial pricing.
Note:
Volume
growth
estimate
assumes
the
same
market
share
of
newly
insured
as
Tenet
presently
has
of
Medicaid
and
commercial
patients
and
that
utilization
of
hospital
services
are
consistent
with
current
Medicaid
and
commercial
populations.
Ultimate
outcomes
of
the
new
law
will
vary,
potentially
significantly,
depending
on
actual
pricing
of
the
exchanges,
migration
of
lives
(including
to
Medicaid
and
exchanges
from
commercial
coverage),
case
mix
and
utilization
of
hospital
and
outpatient
services
by
the
newly
insured,
exchange
copays
and
deductibles
and
other variables.
Affordable Care Act
7
The Affordable Care Act is expected to be negative to earnings through 2013 due to
Market Basket reductions (reducing positive annual market basket
adjustments) However, expected to be positive in 2014 and 2015 due to:
Migration of existing charity care to an insured status (revenue, bad debt and
income increase) Migration
of
uninsured
volumes
to
an
insured
status
(revenue
and
bad
debt
decrease,
income
increases)
Increased utilization of healthcare by the newly insured (revenue, bad debt and
income increase) Expected to result in 7.5% inpatient and 5.0% outpatient
volume growth Our 2015 estimated EBITDA range provides for substantial
variation Tenet is positioned to benefit more from coverage of the newly
insured due to our concentration in areas of high uninsured populations |
 24
EBITDA outlook for 2010 and 2011
EBITDA outlook for 2010 and 2011
EBITDA
Guidance Range
Commentary
2010
Estimate
(1)
$1,050mm
$64 million California provider fee extracted from 2010 and moved
to 2011
Cash balance at December 31, 2010 is approximately $400 million
with favorable EBITDA performance offset by higher capital
spending (approximately $460 million), the deferral of the
California Provider Fee, and working capital and other liability
changes
2011
$1,150mm–
$1,250mm
Conservative macroeconomic assumptions
Admissions decline of 1% to flat
Adverse payer mix shift of $25 million
Bad debt remains an elevated 7.4% to 8.4%
HIT expense, net of incentives, expected to increase $14 million
to
$35 million
$50 million in MPI and other cost savings
Outpatient acquisitions adding $30 to $40 million
Follow-on provider fees of $40 million expected, guidance range
allows for variability
___________________________
1.
Actual 2010 EBITDA results may vary when 2010 results are released in
February. |
 25
Tenet has exceeded initial annual outlook
in 2009 and 2010
Tenet has exceeded initial annual outlook
in 2009 and 2010
1.
Actual 2010 EBITDA may vary when results are released in February.
|
 26
Long-term outlook: 2010–2015
Long-term outlook: 2010–2015
Guidance Range
Drivers
Revenue Growth
4%–6% CAGR
Continued
pricing
improvement
balanced
by
modest
volume
growth
(1)
Government pricing pressure as measures from the “Affordable Care
Act” are implemented
Improving outpatient mix
36% of net patient revenue
Flat to positive admissions growth
Strong growth from Conifer and outpatient acquisitions
EBITDA Growth
11%–16% CAGR
Reduction in bad debt expense
Economic recovery
Affordable Care Act
Growth in high margin business
Conifer
Outpatient services
Increased operating leverage
MPI
Health IT incentives
EBITDA Target Margin
16%–18% by end of 2015
Capital Expenditures
$450mm–$550mm per annum
Seismic requirements met as of Q4 2010
EPS Growth
37%–50% CAGR
Continued trend of deleveraging and improving the capital structure
NOL
$2 billion NOL (December 2010)
Expected to be fully realized by 2014 or 2015
NPV of $550mm–$600mm
___________________________
1.
Commercial pricing negotiated; 90% of 2011, 60% of 2012, at contractual price
increases consistent with 2010. |
 Tenet’s EBITDA growth
Tenet’s EBITDA growth
($ millions)
Projected EBITDA growth is more modest than historical growth rates
$1,250
$1,535
$2,250
27
___________________________
1.
2010 –
2015 CAGR based on mid-point of projected range.
2.
Actual 2010 EBITDA may vary when results are released in February.
Estimate
(2)
$422
$1,050
$1,150
$1,335
$1,750
$0
$500
$1,000
$1,500
$2,000
$2,500
2004
2010
2011
2013
2015
Lower End of EBITDA Range
Upper End of EBITDA Range |
 EBITDA walk forward (2010–2013)
EBITDA walk forward (2010–2013)
Key Drivers
Initial benefits from Medicare Performance Initiative
Run-rate impact of near-term outpatient acquisitions
Return on Health IT investments through incentives
Moderate reduction in bad debt expense as a result of
economic recovery
$1,535
$1,050
___________________________
1.
Operating Leverage is driven by the combination of assumptions on volumes, pricing
and cost drivers. $100mm
cushion
$100mm
upside opportunity
(1)
28
2013
EBITDA
2013
EBITDA
Margin
$1,535
14-15%
$1,435
13-14%
$1,335
12-13%
$65
$35
$150
$80
$40
$80
$25
($90)
2010
Outpatient
Conifer
MPI
Health IT
Medicaid
Funding
Bad Debt
Expense
Operating
Leverage
Affordable
Care Act
2013
$1,335 |
 EBITDA walk forward (2013–2015)
EBITDA walk forward (2013–2015)
Key Drivers
$1,535
$2,250
Improvement in capacity utilization from new federal
law, demographics and other factors drive operating
leverage
Full impact of Medicare Performance Initiative
Additional third party revenues and benefits from
utilization of Conifer’s capabilities
Affordable Care Act
Recovery of
Losses
Through ‘13
Gains
During
’14-’15
29
(1)
___________________________
1.
Operating Leverage is driven by the combination of assumptions on volumes, pricing
and cost drivers. $250mm
cushion
$250mm
upside opportunity
2015
EBITDA
2015
EBITDA
Margin
$2,250
18-19%
$2,000
16-18%
$1,750
15-16%
$50
$100
$5
$190
$90
($10)
$140
$1,750
$1,335
2013
Conifer
MPI
Health IT
Bad Debt
Expense
Operating
Leverage
2015
$1,435 |
 30
Tenet Healthcare: a compelling investment
Tenet Healthcare: a compelling investment
Positive Industry Trends
Strong demographic changes driving growth
Growth
rate
of
Americans
over
65
will
more
than
double
from
2010
to
2012
Recession has suppressed volume growth and increased bad debt expense
New federal law expands insurance coverage to 32 million uninsured Americans
(2014) Delivering Consistent Performance
Superior EBITDA growth and margin expansion
Accelerated Adjusted Free Cash Flow
De-levered balance sheet
Same-hospital admission and EBITDA growth has outpaced peer group
Positioned to Outperform
Continued strong organic growth in earnings and cash flow
Consistent strategy driven by innovative, high margin, capital efficient
initiatives Operating integrity, past growth and infrastructure investments
reduce future risks |
 Appendix A:
Selected Q4’10 Disclosures
31 |
 32
Selected Q4’10 Disclosures
Selected Q4’10 Disclosures
0.1
99,513
99,645
Uninsured + Charity
OP Visits
0.0
8,392
8,394
Uninsured + Charity
Admissions
(3.1)
628,438
608,890
Patient days
3.2
872,228
900,182
Paying OP Visits
2.9
971,741
999,827
OP Visits
(2.2)
121,239
118,583
Paying Admissions
129,631
Q4’09
Q4’10E
(1)
Change (%)
Admissions
126,977
(2.0)
___________________________
1.
Actual Q4’10 results may vary when Q4’10 results are released in
February. |
 Appendix B:
Medicare Performance Initiative
33 |
 34
Medicare Performance Initiative (MPI)
Overview
What is MPI?
MPI is a program with the goal of creating a sustained, standardized approach
following nationally recognized best practices to improve clinical outcomes
and reduce variable costs This program is built on a unique foundation of
information system capabilities and allows us to improve the way we treat
disease and perform procedures on Medicare patients Any
benefits
of
the
initiative
should
also
have
a
“halo”
effect
on
other
payers
This is critical given the direction of health care reform to a more “value
based purchasing model”
involving the delivery of higher quality at lower pricing near Medicare payment
levels MPI encompasses many different initiatives:
1)
Physician behavior change
2)
Labor management
3)
Supply chain initiatives
4)
Case management program
MPI initiatives are identified, tracked, measured and shared
|
 35
1. Physician Behavior Change
How are savings achieved through different methods of treating disease
and performing procedures?
An analysis is performed on 5 MS-DRG groups at each hospital where total costs
exceed revenues to identify variable costs that can be reduced
Physician champions are enlisted to support the changes in behavior that will
reduce the variability of how different physicians treat the same
disease Customized prescriptive work plans are developed to reduce the
variable costs using local, national, and acceptable best practices for
standards of care Repeatable
process
is
hardwired
to
address
more
MS-DRGs
in
the
future
What’s in it for the physician?
High cost/ low quality physicians are already being excluded by health plans in
certain markets
Hospital
and
physician
incentives
will
be
more
aligned,
creating
greater
opportunity
for
success under health reform based payment models
Improving profitability and quality enhances the hospital’s ability to
attract the best employees and fund investments in capital equipment and
facilities |
 36
Physicians championing behavior change
have led to reduced ALOS and variable cost
5%
2%
1%
1%
Average Length of Stay
3%
9%
Variable Cost per Case
(unadjusted for inflation)
5%
7%
4%
6%
___________________________
Note: Data includes first 16 Wave 1 MPI hospitals, and each hospital’s unique
base period represents the six months proceeding the formal launch of Wave 1 of MPI.
Source: Internal company data.
Pre-MPI
Post-MPI
Pre-MPI
Post-MPI 9%
0
2
4
6
8
All Payer -
Combined
Medicare -
Combined
All Payer -
Procedural
Medicare -
Procedural
All Payer -
Medical
Medicare -
Medical
$0
$5,000
$10,000
$15,000
All Payer -
Combined
Medicare -
Combined
All Payer -
Procedural
Medicare -
Procedural
All Payer -
Medical
Medicare -
Medical |
 37
2. Labor Management
Labor Management Specialists are assigned to each Region
Each hospital is provided an array of labor productivity tools –
Position
Control, Staffing Grids, Visionware
Labor Management Specialists make site visits to work with hospital teams
to improve use of tools and understanding of program
New Labor Management Reporting System (LMRS) has been developed
Replaces previous bi-weekly labor reports
Reflects both paid and productive FTEs and dollars
Departmental drill downs available
Future enhancements to include more meaningful department-level drill
down |
 38
Better labor management has resulted in lower
labor expense
Paid FTEs per AADC
Contract Labor per APD
___________________________
Source: Internal company data.
1.
2010E based on November YTD results plus December forecast. Core hospitals
only. Estimate
(1)
Estimate
(1)
$41
$44
$37
$20
$16
2006
2007
2008
2009
2010
4.31
4.32
4.26
4.18
4.12
2006
2007
2008
2009
2010 |
 39
CMI-adjusted Supply Cost per Adjusted Patient Day
(1)
3. Supply Chain Initiatives
3. Supply Chain Initiatives
Numerous supply chain initiatives
have been identified and
implemented
These require significant work with
physicians and staff to change
behavior, but can result in significant
savings
Supply chain initiatives that have been most effective
include:
High cost drugs –
medication utilization management
Cardiac Rhythm Management (CRM) devices
Drug eluting stents
Ortho and spine implants
High cost supplies –
custom procedure tray utilization
Purchased services –
Food and Nutritional Services and
Environmental Services
Blood product sourcing and improved utilization
___________________________
1.
Core hospital supply cost only.
2.8%
2.6%
3.5%
3.5%
3.2%
2.4%
1.2%
3.2%
1.6%
(0.1%)
(1%)
0%
1%
2%
3%
4%
5%
Q3 2009
Q4 2009
Q1 2010
Q2 2010
Q3 2010
Percent Change -
MedSurg PPI
Percent Change -
Supply Expense per CMI-Adjusted Patient Day |
 Cumulative Cardiac Rhythm Management
Contracting Savings: 2009 –
2011
(2)
40
Many supply chain initiatives have controlled or
decreased supply expense
Many supply chain initiatives have controlled or
decreased supply expense
Pharmacy Spend Per
Adjusted Patient Admission
(1)
Estimate
___________________________
1.
Source: Internal company data.
2.
Source:
Internal
company
data.
Savings
for
2009
through
2011
on
this
initiative
projected
to
be
in
excess
of
$20
million.
Region
Impact %
California
(28.8%)
Central
(28.3%)
Florida
(24.7%)
Philadelphia
(24.1%)
Southern States
(19.6%)
Total
(25.2%)
$397
$397
$401
$411
2007
2008
2009
2010 |
 41
4. Case Management Program
4. Case Management Program
Case Management Specialists are assigned to each Region and perform
on-site visits to hospitals
Medical Necessity screening is performed using Interqual
guidelines
prior to, or as soon as possible after, bed placement
Clinical rationale for decision is clearly documented
Goals of an effective case management program are:
Correct use of observation status
Ensure length of stay is appropriate
Reduce managed care denials
Tactics used to reach these goals are:
All clinical departments, nursing departments, and the Utilization Management (UM)
committee share in ownership
Implement multidisciplinary patient care conferences
Adequate & effective Physician Advisor coverage with UM knowledge
Physician education and support |
 42
Hospitals have direct access to
MPI-level variable cost
analytics, updated on a
monthly basis
MPI analytics and reporting now on intranet
Best Practices are shared regularly
throughout the company
It is expected that every hospital
management team is implementing
those applicable Quick Wins |
 43
MPI Summary
MPI is a program that delivers higher quality at lower costs and
positions Tenet well
for the country’s move to value based purchasing
MPI is sustainable: $30mm in savings were captured in 2010 and $50mm in
savings are targeted for 2011 and beyond
2011
2012
2013
2014
2015
Run-Rate Savings
Incremental Savings
$100
$150
$200
$250
$50
$50
$50
$100
$50
$150
$50
$200
$50
($ millions) |
 Appendix C:
Tenet Board of Directors
44 |
 45
Tenet’s Board of Directors is aligned with
shareholder interests
Tenet’s Board of Directors is aligned with
shareholder interests
Substantial Wealth
of Directorship
Knowledge
Executive
Leadership
Experience
Independent Board
of Directors
Independent Chairman of the Board
Separation of Chairman and CEO roles
9 out of 10 independent board members
No two directors can serve on another public company board together (prevents
interlocking directorates) Each of the directors has served in a leadership
role within a large, complex organization Diversified experience with
leaders in public sector, healthcare, accounting and finance, technology and
manufacturing
1 former Chairman and CEO of an S&P 500 corporation
2 former CEOs and/or Presidents of a major business unit of S&P 500
corporations 1 former Chairman and CEO of an international public accounting
firm 2 former Governors of U.S. States, of which one was a former member of
the U.S. Senate and former President of a major university
Healthcare:
Allscripts,
Athersys,
CorMatrix
Cardiovascular,
Eclipsys*,
EndoGastric
Solutions,
IMS
Health*,
Intuitive Surgical, MAKO Surgical
Selected
Corporations:
Deloitte*,
Electronic
Data
Systems*,
GreenPoint
Financial*,
Hovnanian,
Intuit,
North Fork Bancorp*, Office Depot, Prudential Financial, Qwest Communications,
Unisys*, United Technologies
Other: Allina Hospitals and Clinics*, The Cleveland Clinic Foundation*
Board members have experience with major corporate actions: Eclipsys*, Electronic
Data Systems*, IMS Health*, North Fork Bancorp*
* -
Indicates prior Directorship affiliation |
 46
Tenet’s Board of Directors is aligned with
shareholder interests (cont’d)
Tenet’s Board of Directors is aligned with
shareholder interests (cont’d)
Government Experience
Provider Experience
Operating and Financial Expertise
Edward
A.
Kangas,
Non-Executive
Chairman
Global
Chairman
and
CEO,
Deloitte
Touche
(1989-2000)
Member
of
Tenet
Board
since
2003
Other
Directorships:
Allscripts
Healthcare
Solutions,
Hovnanian Enterprises, Intuit, United Technologies, Eclipsys*,
EDS*
Governor Jeb Bush
Governor of Florida (1999-2007)
Member of Tenet Board since 2007
Other Directorships: Rayonier, Swisher International, Angelica
Trevor
Fetter,
President
and
CEO
(Since
2003)
President, Tenet (2002-2003)
CEO, Broadlane
(2000-2002)
CFO, Tenet (1995-1999)
Other Directorships: Hartford Financial Services Group
Karen Garrison
President, Pitney Bowes Business Services (1999-2004)
Member of Tenet Board since 2005
Other Directorships: Kaman Corporation, Standard Parking,
North Fork Bancorp*
Floyd D. Loop, M.D.
Chairman and CEO, The Cleveland Clinic Foundation (1989-
2004)
Member of Tenet Board since 1999
Other Directorships: Athersys, Intuitive Surgical
Ronald A. Rittenmeyer
Chairman, President and CEO, Electronic Data Systems
Corporation (2005-2008)
Member of Tenet Board since 2010
Other Directorships: AIG, Electronic Data Systems*, R.H.
Donnelley*, Safety-Kleen Systems*, RailTex*
Brenda Gaines
President and CEO, Diners Club North America (2002-2004)
Member of Tenet Board since 2005
Other Directorships: Fannie Mae, NICOR, Office Depot, CNA
Financial Corp*
Senator J. Robert Kerrey
President, New School University (2001-2010)
Former U.S. Senator (1989-2000)
Former Governor (1982-1987)
Member of Tenet Board since 2001
Other Directorships: Genworth
Financial, Jones Apparel
Group, Scientific Games Corporation
Richard R. Pettingill
President and CEO, Allina Hospitals and Clinics (2002-2009)
VP and COO, Kaiser Foundation Health Plans and Hospitals
(1996-2002)
Member of Tenet Board since 2004
Other
Directorships:
Mako
Surgical
James A. Unruh
Chairman and CEO, Unisys (1990-1997)
Member of Tenet Board since 2004
Other Directorships: Prudential Financial, Qwest
Communications, CSG Systems International
* -
Indicates prior Directorship affiliation |
 Appendix D:
Adjusted EBITDA Reconciliation
47 |
 Reconciliation of EBITDA
Reconciliation of EBITDA
Adjusted EBITDA, a non-GAAP term, is defined by the Company as net income
(loss) attributable to Tenet Healthcare Corporation common
shareholders
before
(1)
cumulative
effect
of
changes
in
accounting
principle,
net
of
tax,
(2)
net
income
attributable
to
noncontrolling
interests,
(3)
preferred stock dividends, (4) income (loss) from discontinued operations, net of
tax, (5) income tax (expense) benefit, (6) investment earnings (loss), (7)
gain (loss) from early extinguishment of debt, (8) net gain (loss) on sales of investments, (9) interest expense, (10) litigation and investigation
(costs) benefit, net of insurance recoveries, (11) hurricane insurance recoveries,
net of costs, (12) impairment of long-lived assets and goodwill and
restructuring charges, net of insurance recoveries, and (13) depreciation and
amortization. The Company’s Adjusted EBITDA may not be comparable to
EBITDA reported by other companies. The Company provides this information as
a supplement to GAAP information to assist itself and investors in understanding the impact of various
items on its financial statements, some of which are recurring or involve cash
payments. The Company uses this information in its analysis of the
performance of its business excluding items that it does not consider as relevant
in the performance of its hospitals in continuing operations. Adjusted
EBITDA is not a measure of liquidity, but is a measure of operating performance
that management uses in its business as an alternative to net income (loss)
attributable to Tenet Healthcare Corporation common shareholders. Because Adjusted EBITDA excludes many items that are included in our
financial
statements,
it
does
not
provide
a
complete
measure
of
our
operating
performance.
Accordingly,
investors
are
encouraged
to
use
GAAP
measures when evaluating the Company’s financial performance.
Future period high range estimates assume excess cash is used to
early retire debt. Actual use of cash may vary and therefore interest expense and
other elements of earnings may vary significantly. The reconciliation of net
income (loss) attributable to Tenet Healthcare Corporation common
shareholders, the most comparable GAAP term, to Adjusted EBITDA,
is set forth below.
48 |