Q2 2024 Tenet Healthcare Corp Earnings Call

Daniel Cancelmi, Sun Park, USA Daniel Cancelmi, Saumya Sutaria, Daniel Cancelmi, Sun Park, USA Daniel Cancelmi, Sun Park, USA

Operator: Good morning. Welcome to Tenet Healthcare's second quarter 2024 earnings conference call. After the speaker remarks, there will be a question and answer session for industry analysts. If you'd like to ask a question at that time, please press star one on your telephone keypad. Tenet respectfully asks that analysts limit themselves to one question each.

Speaker Change: Good morning. Welcome to Tenet Healthcare's second quarter 2024 earnings conference call. After the speaker remarks, there will be a question and answer session for industry analysts. If you'd like to ask a question at that time, please press star one on your telephone keypad.

Speaker Change: Tenet respectfully asks that analysts limit themselves to one question each.

William McDowell: I'll now turn the call over to your host, Mr. Will McDowell, Vice President of Investor Relations. Mr. McDowell, you may begin. Thank you for joining today's call. I am Will McDowell, Vice President of Investor Relations. We're pleased to have you join us for a discussion of Tenet's second quarter 2024 results, as well as a discussion of our financial outlook. Tenet Senior Management participating in today's call will be Dr. Saum Sutaria, Chairman and Chief Executive Officer, and Sun Park, Executive Vice President and Chief Financial Officer.

Speaker Change: I'll now turn the call over to your host, Mr. Will McDowell, Vice President of Investor Relations. Mr. McDowell, you may begin.

William McDowell: Good morning everyone and thank you for joining today's call. I am Will McDowell, Vice President of Investor Relations. We're pleased to have you join us for a discussion of Tenet's second quarter 2024 results as well as a discussion of our financial outlook.

Speaker Change: Tenet Senior Management participating in today's call will be Dr. Saum Sutaria, Chairman and Chief Executive Officer, and Sun Park, Executive Vice President and Chief Financial Officer.

William McDowell: Our webcast this morning includes a slide presentation that has been posted to the investor relations section of our website, TenetHealth.com. Listeners to this call are advised that certain statements made during our discussion today are forward-looking and represent management's expectations based on currently available information. However, actual results and plans could differ materially. Tenet is under no obligation to update any forward-looking statements based on subsequent information.

Speaker Change: Our webcast this morning includes a slide presentation which has been posted to the Investor Relations section of our website, TenetHealth.com.

Speaker Change: Listeners to this call are advised that certain statements made during our discussion today are forward-looking and represent management's expectations based on currently available information. Actual results and plans could differ materially.

Speaker Change: Tenet is under no obligation to update any forward-looking statements based on subsequent information.

William McDowell: Investors should take note of the cautionary statement slide included in today's presentation, as well as the risk factors discussed in our most recent Form 10-K and other filings with the Securities and Exchange Commission. And with that, I'll turn the call over to Saum. Thank you, Will, and good morning, everyone. Our second quarter performance exceeded our expectations and extends our track record of consistently strong operating results driven by fundamental growth and disciplined operations.

Speaker Change: Investors should take note of the cautionary statement slide included in today's presentation, as well as the risk factors discussed in our most recent Form 10-K , and other filings with the Securities and Exchange Commission. And with that, I'll turn the call over to Saum.

Saumya Sutaria: Thank you, Will, and good morning, everyone. Our second quarter performance exceeded our expectations and extends our track record of consistently strong operating results driven by fundamental growth and disciplined operations.

William McDowell: In the second quarter, we reported net operating revenues of $5.1 billion. Consolidated adjusted EBITDA was $945 million, representing growth of 12% over second quarter 2023, with an adjusted EBITDA margin of 18.5%. USPI produced another very strong quarter with $447 million in adjusted EBITDA, representing 21% growth over second quarter 2023. Same facility revenues grew 7.1%, and adjusted EBITDA margins remain robust. Orthopedic volumes were strong, with total joint replacements in the ASCs up 23% over the prior year, coupled with ongoing growth in urology and GI procedures. Acuity and pair mix were strong.

Saumya Sutaria: In the second quarter, we reported net operating revenues of $5.1 billion. Consolidated adjusted EBITDA was $945 million, representing growth of 12% over second quarter 2023, with an adjusted EBITDA margin of 18.5%.

Saumya Sutaria: USPI produced another very strong quarter with $447 million in adjusted EBITDA, representing 21% growth over second quarter 2023. Same facility revenues grew 7.1% and adjusted EBITDA margins remain robust.

Saumya Sutaria: Orthopedic volumes were strong, with total joint replacements in the ASCs up 23% over prior year, coupled with ongoing growth in urology and GI procedures. Acuity and payer mix were strong.

Saum Sutaria: During the quarter, we expanded our reach by adding 11 new centers, including a new partnership with the Florida Orthopedic Institute in three surgery centers that perform over 15,000 cases annually. You may recall that we acquired a larger number of centers in the first quarter of this year. The integration of those centers is on track, and the operating performance of the acquired centers has been in line with our expectations. We continue to be pleased with USPI's de novo development activity, with nearly 25 centers currently in the syndication stages or under construction. Turning to our hospital segment, adjusted EBITDA was $498 million in the second quarter of 2024.

Saumya Sutaria: During the quarter, we expanded our reach by adding 11 new centers, including a new partnership with the Florida Orthopedic Institute in three surgery centers that perform over 15,000 cases annually.

Saumya Sutaria: You may recall that we acquired a larger number of centers in the first quarter of this year. The integration of those centers is on track and the operating performance of the acquired centers has been in line with our expectations.

Saumya Sutaria: We continue to be pleased with USPI's de novo development activity with nearly 25 centers currently in syndication stages or under construction.

Saumya Sutaria: Turning to our hospital segment, adjusted EBITDA was $498 million in the second quarter of 2024. Same-store hospital admissions grew 5.2 percent as we are taking advantage of a strong utilization environment by opening up capacity.

Saum Sutaria: Same-store hospital admissions grew 5.2% as we are taking advantage of a strong utilization environment by opening up capacity. Second quarter 2024 revenue per adjusted admission was up 5.7% over the prior year, reflecting continued strength in acuity and payer mix. Cost control was excellent. We are making significant investments to expand our network to support growth in our market. Soon, we will open our new hospital in Westover Hills, near San Antonio. This hospital will expand capacity in an area that is growing at six times the national average.

Saumya Sutaria: Second quarter 2024 revenue per adjusted admission was up 5.7% over the prior year, reflecting continued strength in acuity and payer mix. Cost control was excellent.

Saumya Sutaria: We are making significant investments to expand our network to support growth in our markets.

Saumya Sutaria: Soon, we will open our new hospital in Westover Hills, near San Antonio. This hospital will expand capacity in a geography that is growing at six times the national average.

Saum Sutaria: The hospital will focus on procedural services with state-of-the-art operating rooms and cath labs, a large emergency department, and an entire floor devoted to women's services. I'd like to take a moment to thank again the Tenet and Conifer colleagues who worked to respond to the cybersecurity attack that took place at Change Healthcare earlier this year.

Saumya Sutaria: The hospital will focus on procedural services, with state-of-the-art operating rooms and cath labs, a large emergency department, and an entire floor devoted to women's services.

Saumya Sutaria: I'd like to take a moment to thank again the Tenet and Conifer colleagues who worked to respond to the cybersecurity attack.

Saum Sutaria: In addition, I would note that Conifer continues to deliver outstanding cash collection and AR days results. Turning to our full-year guidance, At this point in the year... Due to organic outperformance in both of our business units and our optimism about the rest of the year based upon fundamental strengths, we are raising our full year 2024 adjusted EBITDA guidance to a range of $3.825 to $3.975 billion, which represents an increase of $300 million or another 8% at the midpoint of the range over our prior guidance increase announced after Q1.

Saumya Sutaria: that took place at Change Healthcare earlier this year. In addition, I would note that Conifer continues to deliver outstanding cash collection and AR Days results.

Saumya Sutaria: Turning to our full year guidance.

Saumya Sutaria: At this point in the year,

Saumya Sutaria: Due to organic outperformance in both of our business units and our optimism about the rest of the year based upon fundamental strengths

Saumya Sutaria: We are raising our full-year 2024 adjusted EBITDA guidance to a range of $3.825 to $3.975 billion, which represents an increase of $300 million.

Saumya Sutaria: or another 8% at the midpoint of the range over our prior guidance increase announced after Q1.

Saum Sutaria: Before turning the call over to Sun, I'd like to spend some time discussing our Capital Deployment Framework. As we fully emerge from the pandemic, our repositioned portfolio of businesses is generating stronger results with attractive margins and strong free cash flow generation. The mix of businesses can thrive in any variety of political and regulatory environments as the fundamental tailwinds in the ambulatory demand for USPI, the high-acuity program needs for our hospitals in growing markets, and the need for efficient, effective healthcare services like those from Conifer are strong in the marketplace.

Speaker Change: Before turning the call over to Sun, I'd like to spend some time discussing our Capital Deployment Framework.

Speaker Change: As we fully emerge from the pandemic, our repositioned portfolio of businesses is generating stronger results with attractive margins and strong free cash flow generation.

Speaker Change: The mix of businesses can thrive in any variety of political and regulatory environments as the fundamental tailwinds in the ambulatory demand for USPI, the high-acuity program needs for our hospitals in growing markets, and the long-term effects of COVID-19.

Speaker Change: and the need for efficient, effective healthcare services like those from Conifer are strong in the marketplace.

Saum Sutaria: In terms of capital deployment going forward, our top capital priority remains the expansion of low-cost, high-quality ambulatory surgical centers for communities around the country. This is a very fragmented marketplace, and we will use our disciplined approach to improve access, patient care, and performance for our physician partners to create value. Due to our strength in our cash flow profile, we have increased our planned 2024 capital spend per available hospital bed above recent levels. These investments will fuel future organic growth.

Speaker Change: In terms of capital deployment going forward, our top capital priority remains the expansion of low-cost, high-quality ambulatory surgical centers for the communities around the country.

Speaker Change: This is a very fragmented marketplace, and we will use our disciplined approach to improve access, patient care, and performance for our physician partners to create value.

Speaker Change: Due to our strengthened cash flow profile, we have increased our planned 2024 capital spend per available hospital bed above recent levels.

Saum Sutaria: We've built a data-driven culture and will continue to invest in improving patient experience and clinical quality. Just as we were one of the industry's early movers in capturing savings in our offshore captive global business center, we are now investing in selected AI-enabled technologies to enhance our clinical and administrative efficiency. We embrace the opportunity for change that can ultimately improve our future earnings and cash flows. We have an ongoing commitment to deleverage the balance sheet and have retired $2.1 billion of debt so far in 2024.

Speaker Change: These investments will fuel future organic growth. We've built a data-driven culture and will continue to invest to improve patient experience and clinical quality.

Speaker Change: Just as we were one of the industry's early movers in capturing savings in our offshore captive global business center, we are now investing in selected AI-enabled technologies to enhance our clinical and administrative efficiency.

Speaker Change: We embrace the opportunity for change that can ultimately improve our future earnings and cash flows.

Speaker Change: We have an ongoing commitment to deleverage the balance sheet and have retired $2.1 billion of debt so far in 2024. Our current leverage ratio on an EBITDA minus NCI basis is 3.27 as of June 30, 2024, demonstrating our focus in this area.

Saum Sutaria: Our current leverage ratio on an EBITDA minus NCI basis is 3.27 as of June 30th, 2024, demonstrating our focus on this area. And finally, we will return capital to shareholders via share repurchase. We've repurchased approximately $550 million through June 30th of this year at competitively attractive trading multiples, which completed our prior repurchase authorization. We are pleased to announce that our board has authorized a new $1.5 billion share repurchase program.

Speaker Change: And finally, we will return capital to shareholders via share repurchase. We have repurchased approximately $550 million through June 30th of this year at competitively attractive trading multiples, which completed our prior repurchase authorization.

Speaker Change: We are pleased to announce that our board has authorized a new $1.5 billion share repurchase program.

Saum Sutaria: With a strong and proven management team, a highly flexible balance sheet, and a low trading multiple, each of these capital deployment priorities positions us to drive value for shareholders, and we will continue to demonstrate discipline in our capital deployment. And with that, I will now provide a more detailed review of our financial results.

Speaker Change: With a strong and proven management team, a highly flexible balance sheet, and a low trading multiple, each of these capital deployment priorities positions us to drive value for shareholders and we will continue to demonstrate discipline in our capital deployment.

Speaker Change: And with that, Sun will now provide a more detailed review of our financial results. Sun.

Sun K. Park: Thank you, Saum, and good morning, everyone. Our results in the second quarter continue our positive start to the year, with adjusted EBITDA coming in well above our guidance range. In the second quarter, we generated total net operating revenues of $5.1 billion and consolidated adjusted EBITDA of $945 million, a 12% increase over second quarter 2023. These results were driven by strong same-store revenues, continued high patient acuity, favorable payer mix, and effective cost control.

Sun K. Park: Thank you, Saum, and good morning, everyone.

Sun K. Park: Our results in the second quarter continue the positive start to the year, with adjusted EBITDA coming in well above our guidance range.

Sun K. Park: In the second quarter, we generated total net operating revenues of $5.1 billion and consolidated adjusted EBITDA of $945 million, a 12% increase over second quarter 2023.

Sun K. Park: These results were driven by strong same-store revenues, continued high patient acuity, favorable payer mix, and effective cost controls.

Sun K. Park: I would like to highlight some key items for each of our segments, beginning with USPI, which again delivered strong operating results in the second quarter. USPI's second quarter adjusted EBITDA grew 21% over last year, with its adjusted EBITDA margin at 39.2%. On a same-facility, system-wide basis, USPI delivered a 7.1% increase in revenues over last year, with net revenue per case up 6.8%, driven by high levels of acuity. Surgical case volume grew slightly as well, in line with our expectations.

Sun K. Park: I would like to highlight some key items for each of our segments, beginning with USPI, which again, delivered strong operating results in the second quarter.

Sun K. Park: USPI second quarter adjusted EBITDA grew 21% over last year, with adjusted EBITDA margin at 39.2%.

Sun K. Park: On a same-facility, system-wide basis, USPI delivered a 7.1 percent increase in revenues over last year, with net revenue per case up 6.8 percent, driven by high levels of acuity.

Sun K. Park: Surgical case volume grew slightly as well in line with our expectations.

Sun K. Park: Turning now to our hospital segment, second quarter hospital adjusted EBITDA grew 5.3%, with adjusted EBITDA margins up 120 basis points over last year at 12.6%. Same hospital, inpatient admissions increased 5.2%, and revenue per adjusted admissions grew 5.7%, again, demonstrating favorable paramix and continued high acuity levels. Our consolidated salary, wages, and benefits were 42.5% of net revenues in the second quarter, and our consolidated contract labor expense was 2.6% of SWB, both substantially lower than the 45% and the 4.3%, respectively, that we had in second quarter 2023.

Sun K. Park: Turning now to our hospital segment.

Sun K. Park: Second quarter hospital adjusted EBITDA grew 5.3% with adjusted EBITDA margins up 120 basis points over last year at 12.6%.

Sun K. Park: Same hospital inpatient admissions increased 5.2% and revenue per adjusted admissions grew 5.7%, again demonstrating favorable pair mix and continued high acuity levels.

Sun K. Park: Our consolidated salary, wages, and benefits were 42.5% of net revenues in the second quarter. And our consolidated contract labor expense was 2.6% of SWB.

Sun K. Park: both substantially lower than the 45% and the 4.3% respectively that we had in second quarter 2023.

Sun K. Park: Our second quarter results also include a favorable adjustment of $30 million from additional Medicaid supplemental revenues in Texas related to prior years. Our USPI and hospital segments continue to deliver outstanding performance in the second quarter, reflecting strong fundamental same-store revenue growth and disciplined expense management. Next, we will discuss our cash flows, balance sheet, and capital structure. We generated $602 million of free cash flow in the second quarter, and as of June 30, 2024, we had nearly $2.9 billion of cash on hand, with no borrowings outstanding under our $1.5 billion line of credit facility. We also invested $61 million in USPI acquisitions in the second quarter at Attractive Multiples. And finally, during the second quarter, we repurchased 2 million shares of our stock for $270 million.

Sun K. Park: Our second quarter results also include a favorable adjustment of $30 million from additional Medicaid supplemental revenues in Texas related to prior years.

Sun K. Park: Our USPI and hospital segments continue to deliver outstanding performance in the second quarter, reflecting strong fundamental same-store revenue growth and disciplined expense management.

Unknown Executive: Management. Next, we will discuss our cash flows, balance sheet, and capital structure. We generated $602 million of free cash flow in the second quarter, and as of June 30, 2024, we had nearly $2.9 billion of cash on hand, with no borrowings outstanding under our $1.5 billion line of credit facility. We also invested $61 million for U.S. P.I. acquisitions in the second quarter at attractive multiples. And finally, during the second quarter, we repurchased 2 million shares of our stock for $270 million. Here today, through June 30, we have repurchased 4.8 million shares for $548 million. Our leverage ratio as of June 30 was 2.61 times EBITDA, or 3.27 times EBITDAless NCI, a substantial improvement from your end, reflecting the proceeds that we received from our hospital debesatures, as well as our outstanding operational performance.

Sun K. Park: Next, we will discuss our cash flows, balance sheet, and capital structure.

Sun K. Park: We generated $602 million of free cash flow in the second quarter, and as of June 30, 2024, we had nearly $2.9 billion of cash on hand, with no borrowings outstanding under our $1.5 billion line of credit facility.

Sun K. Park: We also invested $61 million for USPI acquisitions in the second quarter at Attractive Multiples.

Sun K. Park: And finally, during the second quarter, we repurchased 2 million shares of our stock for $270 million.

Sun K. Park: Year-to-date through June 30, we have repurchased 4.8 million shares for $548 million. Our leverage ratio as of June 30 was 2.61 times EBITDA, or 3.27 times EBITDA less NCI, a substantial improvement from year end, reflecting the proceeds that we received from our hospital divestitures, as well as our outstanding operational performance. I would note that we have not yet made most of the tax payments and gains from the hospitals. The impact of these payments would increase our current leverage ratios by about 15 to 20 basis points based on our current 2024 adjusted EBITDA guidance. Finally, we have no significant debt maturities until 2027, and all of our outstanding senior secured and unsecured notes have fixed interest rates.

Sun K. Park: Year-to-date through June 30, we have repurchased 4.8 million shares for $548 million.

Sun K. Park: Our leverage ratio as of June 30 was 2.61 times EBITDA, or 3.27 times EBITDA less NCI, a substantial improvement from year-end, reflecting the proceeds that we received from our hospital divestitures, as well as our outstanding operational performance.

Unknown Executive: I would note that we have not yet made most of the tax payments in the gains from the hospital sales. The impact of these payments would increase our current leverage ratios by about 15 to 20 basis points based on our current 2024 adjusted EBITDA guidance. Finally, we have no significant debt maturity until 2027, and all of our outstanding senior secured and unsecured notes have fixed interest rates. We have made substantial progress, transforming our balance sheet and capital structure, and we are well positioned with a high degree of financial flexibility and cash flow generation to support our capital allocation priorities.

Sun K. Park: I would note that we have not yet made most of the tax payments and the gains from the hospital sales.

Sun K. Park: The impact of these payments would increase our current leverage ratios by about 15 to 20 basis points based on our current 2024 adjusted EBITDA guidance.

Sun K. Park: Finally, we have no significant debt maturities until 2027, and all of our outstanding senior secured and unsecured notes have fixed interest rates.

Sun K. Park: We have made substantial progress transforming our balance sheet and capital structure, and we are well positioned with a high degree of financial flexibility and cash flow generation to support our capital allocation priorities. Let me now turn to our Outlook for 24. For 2024, we now expect consolidated net operating revenues in the range of $20.6 to $21 billion, an increase of $600 million over prior expectations. As Saum mentioned, we are raising our 2024 Adjusted EBITDA Outlook by $300 million to $3.825 to $3.975 billion, reflecting the strong fundamental performance of our business.

Sun K. Park: We have made substantial progress transforming our balance sheet and capital structure, and we are well positioned with a high degree of financial flexibility and cash flow generation to support our capital allocation priorities.

Sun K. Park: At the midpoint of our range, we now expect our full-year 24-adjusted EBITDA to grow 10% over 23, or 18% when taking into account the impact of reduced EBITDA from divested facilities. At USPI, we are now expecting 2024 adjusted EBITDA of $1.75 to $1.81 billion, a $100 million increase over prior expectations. In addition, we have increased our assumption for same-facility net revenue per case growth by 250 basis points, or 4.5 to 5.5 percent range, for 2024.

Unknown Executive: Let me now turn to our outlook of 2024. For 2024, we now expect consolidated net operating revenues in the range of $2.6 to $21 billion, an increase of $600 million over prior expectations. As SOM mentioned, we are raising our 2024 adjusted EBITDA outlook by $300 million to $3.825 to $3.975 billion, reflecting the strong fundamental performance of our businesses. At the midpoint of our range, we now expect our four-year 24 adjusted EBITDA to grow 10% over 23, or 18% when taking into account the impact of reduced EBITDA from devastated facilities. At USPI, we are now expecting 2024 adjusted EBITDA of $1.75 to $1.81 billion, a $100 million increase over prior expectations.

Sun K. Park: This is partially offset by a 50 basis point reduction in our assumption for same facility surgical case growth from one point to one to two percent for 2024, and Hospitals. We are raising our 24 Adjusted EBITDA Outlook Range by $200 million to $2.075 to $2.165 billion. We have increased our assumption for growth in hospital inpatient admissions to 3-4% for full year 24, a 150 basis point increase over our prior estimates. Finally, we would expect third-quarter consolidated adjusted EBITDA to be in the range of $900 to $950 million.

Speaker Change: Let me now turn to our Outlook for 24.

Speaker Change: For 2024, we now expect consolidated net operating revenues in the range of $20.6 to $21 billion, an increase of $600 million over prior expectations.

Speaker Change: As Saum mentioned, we are raising our 2024 Adjusted EBITDA Outlook by $300 million to $3.825 to $3.975 billion, reflecting the strong fundamental performance of our businesses.

Saum: At the midpoint of our range, we now expect our full-year 24 Adjusted EBITDA to grow 10% over 23, or 18% when taking into account the impact of reduced EBITDA from divested facilities.

Saum: At USPI, we are now expecting 2024 adjusted EBITDA of $1.75 to $1.81 billion, a $100 million increase over prior expectations.

Unknown Executive: In addition, we have increased our assumption for same facility, net revenue per case growth by 250 basis points to 4.5 to 5.5% range for 2024. This is partially offset by a 50 basis point reduction in our assumption for same facility, surgical case growth to 1.1 to 2% for 2024. In hospitals, we are raising our 24 adjusted EBITDA outlook range by $200 million to $2.075 to $2.16 to $1.65 billion. We have increased our assumption for both in hospital and patient admissions to 3% to 4% for 4.24, a 150 basis point increase over our prior expectations. Finally, we would expect third quarter consolidated adjusted EBITDA to be in the range of $900 to $950 million.

Saum: In addition, we have increased our assumption for same facility net revenue per case growth by 250 basis points.

Saum: to 4.5 to 5.5% range for 2024. This is partially offset by a 50 basis point reduction in our assumption for same facility surgical case growth to 1 to 2% for 2024.

Saum: In hospitals, we are raising our 24-hour adjusted EBITDA outlook range by $200 million to $2.075 to $2.165 billion.

Saum: We have increased our assumption for growth in hospital inpatient admissions to 3-4% for full year 24, a 150 basis point increase over our prior expectations.

Saum: Finally, we would expect third quarter consolidated adjusted EBITDA to be in the range of $900 to $950 million dollars.

Unknown Executive: And if we anticipate that USPI's EBDOT in the third quarter will be about 24% of our full-year USPI EBDOT guidance at the mid-time. Turning to our cash flows, we now expect free cash flows in the range of 1.1 to 1.35 billion dollars, an increase of $150 million at the mid-point. This range includes the payment of about $700 million in net taxes related to our completed investors. Adjusting for these tax payments, this represents 1.925 billion dollars a free cash flow at the mid-point of our 2024 outlook. Which reflects the continued strong cash performance even after the loss, if you thought, from our deficit hospitals.

Sun K. Park: And we anticipate that USPI's EBITDA in the third quarter will be about 24% of our full year USPI EBITDA guidance at the midterm. Turning to our cash flows, we now expect free cash flows in the range of $1.1 to $1.35 billion, an increase of $150 million at the midterm. This range includes the payment of about $700 million in net taxes related to our completed divestitures.

Saum: And we anticipate that USPI's EBITDA in the third quarter will be about 24% of our full-year USPI EBITDA guidance at the midterm.

Saum: Turning to our cash flows, we now expect free cash flows in the range of 1.1 to 1.35 billion dollars, an increase of 150 million dollars at the midpoint.

Saum: This range includes the payment of about $700 million in net taxes related to our completed divestitures.

Sun K. Park: Adjusting for these tax payments, this represents $1.925 billion of free cash flow at the midpoint of our 2024 outlook, which reflects the continued strong cash performance even after the loss of Yudha from a desolate hospital. The continued improvement in our cash flow performance has allowed us to de-leverage our balance sheet while making disappointing investments in our business and delivering value for our shareholders. And finally, as a reminder, our capital deployment priorities have not changed for 2024. First, we will continue to prioritize capital investments to grow USPI through M&A.

Saum: Adjusting for these tax payments, this represents $1.925 billion of free cash flow at the midpoint of our 2024 outlook, which reflects the continued strong cash performance even after the loss of Yudha from our domestic hospitals.

Unknown Executive: The continued improvement in our cash flow performance has allowed us to debuff our balance sheet while making the disciplined investments in our business and delivering value for our shareholders. And finally, as a reminder, our capital deployment priorities have not changed for 2024. First, we will continue to prioritize capital investments to grow USPI through M&A. Second, we expect to invest in key hospital growth opportunities, including our focus on higher at UD service offerings. Third, we will evaluate opportunities to retire and or repunance debt. And finally, we'll have a balanced approach to share purchases, depending on market conditions and other investment opportunities.

Saum: The continued improvement in our cash flow performance has allowed us to de-leverage our balance sheet, while making disappointing investments in our business, and delivering value for our shareholders.

Saum: And finally, as a reminder, our capital deployment priorities have not changed for 2024. First, we will continue to prioritize capital investments to grow USPI through M&A.

Sun K. Park: Second, we expect to invest in key hospital growth opportunities, including our focus on higher acuity service offers. Third, we will evaluate opportunities to retire and or refinance debt. And finally, we'll have a balanced approach to share repurchases depending on market conditions and other investment opportunities. As Saum noted, our Board of Directors recently authorized a $1.5 billion share repurchase program as we have completed the prior program.

Saum: Second, we expect to invest in key hospital growth opportunities, including our focus on higher acuity service offerings.

Saum: Third, we will evaluate opportunities to retire and or refinance debt.

Speaker Change: And finally, we'll have a balanced approach to share repurchases depending on market conditions and other investment opportunities. As Saum noted, our Board of Directors has recently authorized a $1.5 billion share repurchase program as we have completed the prior program.

Unknown Executive: As some noted, our board of directors has recently authorized a $1.5 billion share repurchase program, as we have completed the prior program. We are pleased with our strong performance thus far this year, and the significant progress we've made with this portfolio. We are confident in our ability to deliver on our increased outlook for 2024, as we continue to provide high quality care for those in the communities we serve.

Sun K. Park: We are pleased with our strong performance thus far this year and the significant progress we've made with this portfolio. We're confident in our ability to deliver on our increased outlook for 2024 as we continue to provide high-quality care for those in the communities we serve. And with that, we're ready to begin the Q&A. Operator.

Speaker Change: We are pleased with our strong performance thus far this year and the significant progress we've made with this portfolio. We are confident in our ability to deliver on our increased outlook for 2024 as we continue to provide high quality care for those in the communities we serve. And with that, we're ready to begin the Q&A. Operator?

Unknown Executive: And with that, we're ready to begin the Q&A.

Unknown Executive: Operator? Thank you.

Operator: Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. As a reminder, we ask that you please limit your question to one. A confirmation tone will indicate your line is in the question queue.

Operator: At this time, we'll be conducting a question-and-answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. As a reminder, we ask that you please limit to one question. A confirmation tell Windicate your line is in the question Q. You may press star 2 if you'd like to remove your question from the Q. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Speaker Change: Thank you. At this time we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. As a reminder, we ask that you please limit to one question.

Speaker Change: A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Operator: You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start button. One moment, please, while we poll for our first question comes from Brian Tanquil with Jefferies. Please proceed with your question. Hey, good morning, guys, and congrats on a solid quarter. I guess my question is, I think about the ASC revenue per revenue adjustment on the same store side, and looking at your adjustment as well as surgical case volume, how should we be thinking about that? Is that mostly acuity driven? And then maybe as a follow-up to that, how do you think about the runway left to expand joint replacements, 23% growth this quarter? You know, what's the runway there?

Operator: One moment, please, while we pull for questions.

Speaker Change: One moment, please, while we poll for questions.

Brian Tanquilut: Hi, first question comes from Brian Tanquill, which please proceed with your question. Hey, good morning, guys, and congrats on fellow quarter. I guess my question is like think about the ASC revenue adjustment on the same source side, and looking at your adjustment as well on social case volume. How should we be thinking about that?

Saum Sutaria: Thank you. Hey Brian, thanks and I appreciate it. You know, on the net revenue per case, yeah, I would think of that as a combination of acuity and mix. I mean, a lot of it, obviously, as we build higher acuity and activity into the ASC portfolio, both in some of the standard service lines by expanding or increasing the range of procedures we perform there, and then obviously, in newer segments like orthopedics, cardiac, Urology, et cetera, robotics, you know, you see that type of increase.

Speaker Change: Our first question comes from Brian Tanquil with Jefferies. Please proceed with your question.

Saum Sutaria: And the mix has been strong, you know, so both of those in combination give us a lot of optimism about the ability to sustain net revenue per case increases over the prior year. You know, the ASCs are quite busy. I mean, last year was an incredibly busy year; this year is a very busy year from that perspective. The acuity continuing to increase is a good fundamental marker of strength.

Brian Gil Tanquilut: Hey, good morning guys and congrats on a solid quarter. I guess my question is I think about the ASC revenue per revenue adjustment on the same store side And looking at your adjustment as well in surgical case volume. How should we be thinking about that? Is that mostly acuity driven and then maybe as a follow-up to that

Brian Tanquilut: Is that mostly a Q&A driven, and then maybe as a follow-up to that? How do you think about the runway left to expand join replacements, 23% grow this quarter? What's the runway there?

Speaker Change: How do you think about the runway left to expand joint replacements, 23% growth this quarter, what's the runway there? Thank you.

Unknown Executive: Thank you.

Unknown Executive: Hey, Brian, thanks and appreciate it. On the net revenue per case, yeah, I would think of that as a combination of a Q&A and mix. I mean, a lot of it, obviously, as we build higher Q&A activity into the ASC portfolio, both in some of the standard service lines by expanding or increasing the range of procedures we perform there, and then obviously in newer segments, like orthopedics, cardiac, urology, et cetera, robotics; you see that type of increase. And the mix has been strong. You know, so both of those, in combination, give us a lot of optimism about the ability to sustain that revenue per case increases over prior year.

Speaker Change: Hey Brian , thanks and appreciate it.

Speaker Change: You know, on the net revenue per case, yeah, I would think of that as a combination of acuity and mix. I mean, a lot of it, obviously, as we build higher acuity,

Speaker Change: activity into the ASC portfolio both in some of the standard service lines by expanding or increasing the range of procedures we perform there and then obviously in newer segments like orthopedics, cardiac

Speaker Change: Urology, et cetera, robotics, you know, you see that type of increase. And the mix has been strong, you know, so both of those in combination.

Speaker Change: Give us a lot of optimism about the ability to sustain net revenue per case.

Unknown Executive: You know, the ASC is quite busy. I mean, last year was an incredibly busy year. This year is a very busy year from that perspective. But the Q&A continuing to increase is a good fundamental marker of strength. Yeah, I've said this before.

Speaker Change: increases over over prior year. You know, the ASCs are quite busy. I mean, you know, last year was an incredibly busy year. This year is a very busy year.

Speaker Change: from that perspective. But the acuity continuing to increase is a good fundamental marker of...

Saum Sutaria: You know, I've said this before, my view on the orthopedics area is... It is the number one growth vector in this segment for the next, you know, could be 5 to 7, 10 years. I mean, there's just so much more that can be done in expanding the market, but also, you know, hospital outpatient-based work that moves into a freestanding setting. So, it's a combination of the two.

Unknown Executive: My view on the orthopedics area is... It is the number one growth factor in this segment for the next, you know, could be five to seven, ten years. I mean, there's just so much more that can be done in expanding the market, but also, you know, hospital outpatient-based work that moves into a free-standing, that moves into a free-standing setting. So it's a combination of the two. I mean, that's how it's always been in the ambulatory surgery environment. First, you get migration; then you get market expansion with more qualified patients who choose to go into a, you know, simpler, cheaper, easier service setting.

Speaker Change: of Strength. Yeah, I've said this before, my view on the orthopedics area is...

Speaker Change: It is the number one growth vector in this...

Speaker Change: in this segment for the next, you know, it could be five to.

Speaker Change: 5 to 7, 10 years. I mean, there's just so much more.

Speaker Change: that can be done in expanding the market, but also, you know, hospital outpatient based work that moves into a freestanding.

Saum Sutaria: I mean, that's how it's always been in the ambulatory surgery environment. First, you get migration, then you get market expansion with more qualified patients who choose to go into a, you know, simpler, cheaper, easier service setting. And I think both of those things will provide a tailwind.

Speaker Change: that moves into a freestanding setting. So it's a combination of the two. I mean, that's how it's always been in the ambulatory surgery environment. First, you get migration, then you get market expansion with more qualified patients who choose to go into a, you know, simpler, cheaper.

Unknown Executive: And I think both of those things will provide a tailwind. So I continue to believe that the orthopedics arena will do all of the other service opportunities in this area over the next five years.

Sun K. Park: So I continue to believe that the orthopedics arena will dwarf all of the other service opportunities in this area over the next five years. Our next question comes from Ann Hynes with Mizzou Health. Please proceed with your question. Great. Thank you. Good morning.

Speaker Change: easier service setting. And I think both of those things will provide a tailwind. So I continue to believe that the orthopedics arena will dwarf all of the other service opportunities in this area over the next five years.

Unknown Executive: Thank you.

Ann Hynes: Our next question comes from Anne Heinz with Missuho. Please proceed with your question. Great. Thank you. Good morning. I just want to ask about supplemental payments. Do you remind us how many states currently have programs? And maybe what is the opportunity going forward for states that might not have programs to introduce programs? Or maybe existence states that actually have programs that could have potential for enhancements. Thanks.

Sam: Thanks, Sam.

Ann Kathleen Hynes: Our next question comes from Ann Hynes with Mizuho. Please proceed with your question.

Sun K. Park: I just want to ask about supplemental payments. Can you remind us how many states currently have programs and maybe what the opportunity going forward is for states that might not have programs to introduce programs or maybe existing states that actually have programs that could have the potential for enhancements? Thanks. Anne, thanks for your question. Six of our current hospital markets participate in supplemental programs. And as we all have seen, there's discussions around potential expense expansions that, you know, hopefully will come true pending final approval.

Ann Kathleen Hynes: Great. Thank you. Good morning. I just want to ask about supplemental payments. Can you remind us how many states currently have programs?

Ann Kathleen Hynes: and maybe what is the opportunity going forward for states that might not have programs to introduce programs or maybe exist in states that actually have programs that could have potential for enhancements. Thanks.

Ann Hynes: Anne. Thanks for your question. Six of our current hospital markets participate in supplemental programs. And, as we all have seen, there's discussions around, you know, potential expense expansions that, you know, hopefully, we'll come through a pending final approval. You know, I think in your second question about special enhancements, you know, I would use obviously Missuhogan as a good example. For a long time, Missuhogan, while participating in the supplemental programs, was under reimbursing providers for the important acts of health care that we provided the population. Over a long period of effort and lobbying and coordination with the bears, we were finally able to, as you know, this year, get approved an enhancement to the HRA program.

Ann: Ann, thanks for your question. Six of our current hospital markets participate in supplemental programs, and as we all have seen, there's discussions around, you know, potential expansions that, you know, hopefully will come true pending final approval.

Sun K. Park: Um, you know, I think in your second question about, um, potential enhancements, you know, I would use, obviously, Michigan as a good, good, example. For a long time, Michigan, while participating in these supplemental programs, was under-reimbursing providers for the important acts of healthcare that we provide to this population.

Speaker Change: You know, I think in your second question about potential enhancements, you know, I would use obviously Michigan as a good example. For a long time, Michigan, while participating in these supplemental programs, was

Speaker Change: under-reimbursing providers for the important

Sun K. Park: Over a long period of effort and lobbying and coordination with the payers, we were finally able to, as you know this year, get an enhancement to the HRA program approved, and that made a significant impact on our economics in that market. Now, as I think Saum had mentioned before, that enhancement this year basically takes us up to an acceptable or average reimbursement rate for the Medicaid population or a sustainable piece, which enables us to invest in the market going forward, which enables us to continue these important services.

Speaker Change: and Accident Healthcare that we provided to the population.

Speaker Change: Over a long period of effort and lobbying and coordination with the payers, we were finally able to, as you know this year, get approved an enhancement to the HRA program. And that made a significant impact to our economics in that market.

Ann Hynes: And that made a significant impact to our economics in that market. Now, as I think some had mentioned before, that enhancement this year basically takes us up to an acceptable or average reimbursement rate for the Medicaid population, or a sustainable piece, which enables us to invest in the market going forward, which enables us to continue these important services.

Speaker Change: As I think Saum had mentioned before, that enhancement this year...

Saum: basically takes us up to an acceptable or average reimbursement rate for the Medicaid population.

Speaker Change: or a sustainable piece, which enables us to invest in the market going forward, which enables us to continue with these important services. So, I think that's kind of where we are now. In terms of other states, I mean, I think we're...

Ann Hynes: So I think that's kind of where we are now in terms of other states. I mean, I think we're, we feel good about the sustainability of these programs. There's a good mix of, if you will, red and blue states that are providing these programs to, again, support the important access that we provide. So I think this is a very positive and sustainable piece for the providers.

Sun K. Park: So I think that's kind of where we are now in terms of other states. I mean, I think we feel good about the sustainability of these programs. There's a good mix of, if you will, red and blue states that are providing these programs to, again, support the important access that we provide.

Speaker Change: We feel good about the sustainability of these programs. There's a good mix of, if you will, red and blue states that are providing these programs to, again, support the important access that we provide. So I think this is a very positive, sustainable piece for the providers.

Saum Sutaria: So I think this is a very positive and sustainable piece for the providers. Our next question comes from Justin Lake with Wolf Research. Please proceed with your question. Thanks. Good morning.

Justin Lake: Next question comes from Justin Lake with Wolf Research. Please proceed with your question. Thanks. Good morning. One of the asks about the hospital business, how did it look relative to your estimates in the second quarter? If we call over your expectations, I should say a relative to the second quarter, acts of $30 million on expected text. I think it was a flood of David or Texas payments, then the end. Looking at the back half of the year, your implied guidance for the third quarter seems to be about 500 million, which might be up about 25% extra ventures in the hospital business.

Speaker Change: [inaudible]

Speaker Change: Our next question comes from Justin Lake with Wolf Research. Please proceed with your question.

Saum Sutaria: I wanted to ask you about the hospital business. How did it look relative to your estimate? In the second quarter, if we pull back on your expectations, I should say relative to the second quarter X, the $30 million of unexpected tech, I think it was a Florida payment or Texas payment, then the then, you know, and, you know, kind of looking at the back half of the year. Your implied guidance for the third quarter seems to be about $500 million, which might be up about 25% ex divestitures in the hospital business.

Justin Lake: Thanks, good morning. I wanted to ask you about the hospital business. How did it look relative to your estimates?

Speaker Change: In the second quarter, your expectations, I should say, relative to the, in the second quarter, x the $30 million of unexpected tech...

Speaker Change: I think it was a Florida payment or a Texas payment, and kind of looking at the back half of the year,

Speaker Change: Your implied guidance for the third quarter seems to be about $500 million, which might be up about 25% ex divestitures.

Justin Lake: Obviously, you took up your hospital expectations; just curious as to what's driving that strong second half performance given by at least my estimates. The second quarter was generally in line, except $30 million. Thanks.

Saum Sutaria: Obviously, you took up your hospital expectations. Just curious as to what's driving that strong second-half performance, given, by at least my estimates, the second quarter was generally in line, ex that 30 million bucks. Thanks. Yeah, hey, Justin, it's Saum.

Speaker Change: In the hospital business, obviously you took up your hospital expectations.

Speaker Change: Just curious as to what's driving that strong second half performance given, by at least my estimates, the second quarter was generally in line at that 30 million bucks. Thanks.

Unknown Executive: Hey, Justin, look, I think fundamentally, at least you asked relative to our own expectations, the second quarter of Texas was still strong and above our expectations. And mostly on the basis of strong volumes, success in opening up capacity that we chose to start to open up in the early part of the year. And also really, really good cost control. If you look at it, contract labor was strong. Overall, SWB was strong. We felt very good about our supply expenses and where the supply expenses increased. It was all on the basis of acuity and volume. So, you know, just the fundamentals looked very clean and, you know, we still think that given the mix and the demand that we're seeing.

Saum Sutaria: Look, I think fundamentally, at least you asked relative to our own expectations, the second quarter, ex-Texas, was still strong and above our expectations, and mostly on the basis of strong volumes, success in opening up capacity that we, you know, chose to start to open up in the early part of the year, and also really, really good cost control. You know, if you look at it, contract labor was strong, overall SWB was strong, we felt very good about our supply expenses, and where supply expenses increased, it was all on the basis of acuity and volume.

Saum: Yeah, hey Justin, it's Saum. Look, I think fundamentally, at least you asked relative to our own expectations, the second quarter ex-Texas

Saum: was still strong and above our expectations and mostly on the basis of

Saum: strong volumes, success in opening up capacity that we

Saum: you know, chose to start to open up in the early part of the year.

Saum: and also really, really good cost control. You know, if you look at it, contract labor was strong. Overall, SWB was strong. We felt very good about our supply.

Saum Sutaria: So, you know, just the fundamentals look very clean, and we still think that given the mix and the demand that we're seeing, we have the opportunity to build over the course of this year. So, we felt like, the guidance that we put forward for the rest of the year should reflect that optimism as we look forward. You know, every month has been different in the first half of the year, some months stronger than others, and that's okay.

Saum: expenses and where the supply expenses increased. It was all on the basis of acuity and volume. So, you know, just the fundamentals look very clean and

Unknown Executive: We have the opportunity to build over the course of this year. So, you know, we felt like the guidance that we put forward for the rest of the year should reflect that optimism as we look forward. You know, every month has been different in the first half of the year; some months stronger than others. And that's okay. But in totality, the strength in the hospital segment has been significant. So, when we look at the second half of the year, we recognize that, you know, an individual month may go one way or another. But in totality, we feel optimism about the demand that we see our ability to service it at, you know, a very efficient or good cost structure and the mix.

Saum: You know, we still think that given the mix and the demand that we're seeing, we have the opportunity to build over the course of this year. So, you know, we felt like...

Saum: The guidance that we put forward for the rest of the year should reflect that optimism.

Saum: as we look forward.

Saum Sutaria: But in totality, the strength in the hospital segment has been significant. So when we look at the second half of the year, we recognize that an individual month may go one way or another, but in totality, we feel optimism about the demand that we see and our ability to service it at, you know, a very efficient or good cost structure in the mix. Our next question comes from Whit Mayo with SBB LaRinc. Please proceed with your question. Hey, thanks.

Saum: You know, every month has been different in the first half of the year, some months stronger than others, and that's okay, but in totality, the strength in the hospital segment has been significant. So, when we look at the second half of the year, we recognize that, you know, an individual month may go...

Saum: One way or another, but in totality, we feel optimism about the demand that we see, our ability to service it at, you know, a very efficient or good cost structure and the mix.

Whit Mail: Our next question comes from Whit Mail with FB Bealorank. Please proceed with your question. Hey, thanks. So, many ways to quantify the capacity additions that you guys are adding. You've opened up some, as you said. Now you're kind of stepping that up. Is it contributing to the growth now?

Saum: Our next question comes from Whit Mayo with SVB LaRinc. Please proceed with your question.

Saum Sutaria: Saum, any way to quantify the capacity additions that you guys are adding? You opened up some, as you said. Now you're kind of stepping that up. Is it contributing to the growth now? I presume not.

Benjamin Whitman Mayo: Hey, thanks. Saum, any way to quantify the capacity additions that you guys are adding? You opened up some, as you said, now you're kind of stepping that up. Is it contributing to the growth now? I presume not. And just any way to maybe quantify the number of beds, units, anything to help us think about the...

Unknown Executive: My purpose and not in just any way to maybe quantify the number of beds, units, anything to help us think about, you know, the amount of capacity that you're going to be adding. Thanks. Yeah, no way. It's a good question. And we haven't done that in the past, partially because for us, the capacity openings tend to be selective in markets that were, you know, as we have a diversity of markets that have been lagging a bit in recovery from a COVID perspective. But I would say that if you look at our volumes this quarter, this past quarter, capacity expansion that we undertook from the first quarter got its staffed up appropriately. You know, initially you'd typically staff these things with a little bit of contract labor and move to permanent labor work effectively.

Saum Sutaria: And just any way to maybe quantify the number of beds, units, anything to help us think about the amount of capacity that you're going to be adding? Thanks. Yeah, no, wait. It's a good question.

Saum Sutaria: And we haven't done that in the past, partially because, for us, the capacity openings tend to be selective in markets that are, you know, as we have a diversity of markets that have been lagging a bit in recovery from a COVID perspective. But I would say that if you look at our volumes this quarter, this past quarter, the capacity expansion that we undertook from the first quarter, got it staffed up appropriately, you know, initially, you typically staff these things with a little bit of contract labor and move to permanent labor worked effectively.

Benjamin Whitman Mayo: You know, the amount of capacity that you're going to be adding. Thanks.

Saum: Yeah, no, wait, it's a good question. And we haven't, we haven't done that in the past, partially because for us, the capacity openings.

Speaker Change: tend to be selective in markets that were, you know, as we have a diversity of markets that have been lagging a bit.

Speaker Change: in recovery from a COVID perspective. But I would say that if you look at our volumes this quarter, this past quarter,

Speaker Change: capacity expansion that we undertook from the first quarter, got it staffed up appropriately. You know, initially, you typically staff these things with a little bit of contract labor and move to permanent labor worked effectively. And so we're continuing to make those investments.

Saum Sutaria: And so we're continuing to make those investments in order to support the back half. Maybe just to follow up on that, as you think about turning these services back on, how different are the service lines today versus what you turned off with COVID, thanks.

Unknown Executive: And so we're continuing to make those investments in order to support the back half.

Unknown Executive: And maybe just to follow up on that, as you think about turning these services back, how different are the service lines today versus what you turned off with COVID. Thanks. Yeah, actually most of the service line expansion recovery, however you want to look at it, is less about reinstating things that we may have closed prior; it's more about increasing demand in the area. Because that we already chose to serve. I mean, decisions that we made to exit service lines, we're not going to revisit those unless there's some more fundamental change in the market. Decisions we made to deemphasize certain things or capacity in favor of acuity or focused acuity are certainly things that we would look at expanding.

Speaker Change: in order to support the back half.

Speaker Change: Maybe just to follow up on that, as you think about turning these services back, how different are the service lines today versus what you turned off with COVID? Thanks.

Saum Sutaria: Yeah, actually, most of the service line expansion recovery, however you want to look at it, is less about reinstating things that we may have closed prior; it's more about increasing demand in the areas that we already chose to serve. I mean, decisions that we made to exit service lines, we're not going to revisit those unless there's some more fundamental change in the market. Decisions we made to de-emphasize certain things or capacity in favor of acuity or focused acuity are certainly things that we would look at expanding.

Speaker Change: Yeah, actually most of the most of the service line expansion, recovery, however you want to however you want to look at it is is less about reinstating things that we may have closed.

Speaker Change: Prior it's it's more about

Speaker Change: Increasing demand in the areas that we already chose to serve. I mean, decisions that we made to exit service lines, we're not going to revisit those unless there's some more fundamental change in the market. Decisions we made to de-emphasize certain things or capacity in favor of acuity.

Saum Sutaria: And so when you look at the nature of some of that capacity expansion, it tends to be more med-surg because we feel like we can adequately staff the ICUs, the trauma, the elective higher-end surgeries effectively and still be able to hire and retain effective staff to expand in that med-surg arena. And so it's oftentimes servicing the same areas that we would have been servicing, plus obviously opening up capacity for more throughput in general med-surg. Our next question comes from John Ransom with Raymond James. Please proceed with your question. Hey, good morning, and... I never thought I'd say Tenet with 3.3 turns of leverage.

Speaker Change: or focused acuity are certainly things that we would look at expanding. And so when you look at the nature of some of that capacity expansion, it tends to be more med-surge because we feel like we can adequately staff

Unknown Executive: And so when you look at, when you look at the nature of some of that capacity expansion, it tends to be more med surge because we feel like we can adequately staff the ICUs, the trauma, the elective higher end surgery effectively and still be able to hire and retain effectively staff to expand in that med surge arena. And so it's oftentimes servicing the same areas that we would have been servicing, plus obviously opening up capacity for more throughput in general med surge.

Speaker Change: the ICUs, the trauma.

Speaker Change: the elective higher-end surgery effectively and still be able to hire and retain effectively staff to expand in that med-surg arena. And so it's oftentimes servicing the same areas that we would have been servicing, plus obviously opening up capacity for more throughput.

Speaker Change: in General Med Surge.

John Ransom: Our next question comes from John Ransom with Raymond James. Please proceed with your question.

Speaker Change: Our next question comes from John Ransom with Raymond James. Please proceed with your question.

John Ransom: Hey, good morning, and I never thought I'd say tenet with the 3.3 terms of leverage. I thought that was going to happen after they fired me years from now, so congratulations on the rapid de-leveraging. My question just, if we step back and take the long term view of the ASC division, the volume numbers have kind of bounced around a little bit for a lot of reasons, mix shift and some decisions you got to be able to.

Saum Sutaria: I thought that was gonna happen after they fired me years from now. So congratulations on the rapid deleveraging. My question is, just, if we step back and take the long-term view of the ASC division, the volume numbers have kind of bounced around a little bit for a lot of reasons, mix shift, and some decisions you guys have made. But as you look in the, look in the future years. What's a good number as we think about sort of steady-state AFC volume growth? Thanks.

John Wilson Ransom: Hey, good morning and

Speaker Change: I never thought I'd say Tenet with the 3.3 terms of leverage.

Speaker Change: I thought that was going to happen after they fired me years from now, so congratulations on the rapid deleveraging.

Speaker Change: My question just...

Speaker Change: If we step back and take the long-term view of the ASC division, the volume numbers have kind of bounced around a little bit for a lot of reasons, mixed shift and some decisions you guys have made, but as you look in the

Unknown Executive: And as you look in the look in the out years, what's a good number as we think about sort of the steady state ASC virus mix. Yeah, thanks, John, and appreciate the point on the leverage. And you know, I think probably it's a good thing for me too that we've delivered the company. So look, our algorithm on the ASC organic growth volumes of long term, 1 to 3% is right. I mean, 2 to 3% is right. This year, you know, obviously we had started the year, 1 to 3% because of the incredible, you know, comp from last year, which was multiples above normal.

Speaker Change: Look in the out years. What's a good number as we think about sort of the steady state ASC volume growth? Thanks.

Saum Sutaria: Yeah, thanks, John. And I appreciate the point on the leverage. And, you know, I think it's probably a good thing for me that we've delivered the company. So look, our algorithm on the ASC organic growth volumes of long term 1 to 3% is right. I mean, 2 to 3% is right.

Speaker Change: Yeah, thanks, John , and appreciate the point on the leverage and, you know, I think probably it's a good thing for me, too, that we've delevered the company.

Saum Sutaria: This year, you know, obviously, we had started the year 1 to 3% because of the incredible comp from last year, which was multiples above normal. And this is the thing about the ASC business, which is, again, if you go back and look, and we've done this, you know, very carefully, over the last 10 to 15 years, both pre and post-Tenet, being a participant with USPI, the volumes can be lumpy. There are years where the growth significantly outperforms the typical range, and then there are years where it's at or below the lower end of the range.

Speaker Change: So, look, our algorithm on the ASC organic growth volumes of

Speaker Change: Long-term, 1-3% is right. I mean, 2-3% is right. This year, you know, obviously, we had started the year 1-3% because of

Speaker Change: because of the incredible comp from last year, which was multiples above normal. And this is the thing about the ASC business, which is, again, if you go back and look, and we've done this very carefully.

Unknown Executive: And this is the thing about the ASC business, which is again, if you go back and look, and we've done this, you know, very carefully over the last, you know, 10 to 15 years, both pre and post 10 it being a participant with USPI, the volumes can be lumpy. There are years where the growth is significantly out, outperforms the typical range, and then there are years where it's, you know, at or below the lower end of the range. But from a long-term perspective, it's an incredibly consistent business, and I think the reason for that is the fundamental tailwind of demand of moving things into a lower-cost setting in the better service environment that you see there.

Speaker Change: over the last, you know, 10 to 15 years, both pre and post-Tenet being a participant.

Speaker Change: with USPI, the volumes can be lumpy. There are years where the growth is significantly outperforms the typical range, and then there are years where it's.

Saum Sutaria: But from a long-term perspective, it's an incredibly consistent business, and I think the reason for that is the fundamental tailwind of demand for moving things into a lower-cost setting and the better service environment that you see there. And the drivers, ultimately, of that expansion are the ability, of course, to take what are often single-specialty centers that start with more capacity than they need for that specialty and then get them into the hands of a USPI that has expertise in making single-specialty centers multi-specialty or taking single-specialties and expanding, with appropriate clinical protocols, the acuity that can be performed in those centers.

Speaker Change: you know, at or below the lower end of the range. But from a long-term perspective, it's an incredibly consistent business. And I think the reason for that is the fundamental tailwind of demand of moving things into a lower cost setting and the better service environment that you see there.

Unknown Executive: And, you know, the drivers, ultimately, of that expansion, are the ability, of course, to take what are often. Single Specialty Centers that start with more capacity than they need for that specialty, and then get them into the hands of a USPI that has expertise in making single specialty centers multi-specialty, or taking single specialty and expanding with appropriate clinical protocols, the acuity that can be performed in those centers, and so there's a management competency there that's important. And then, of course, the center's mature, the ability to be ahead of the challenge of refreshing, recruiting, and refreshing the medical staff in advance of potential volume declines. You know, all centers mature, and being able to renew their, you know, kind of ability to build and grow with a, with a new and diversified medical staff.

Speaker Change: And, you know, the drivers ultimately of that expansion are the ability, of course, to take what are often

Speaker Change: single specialty centers that start with more capacity.

Speaker Change: then they need for that specialty, and then get them into the hands of a USPI that has expertise in making single specialty centers, multi-specialty, or taking single specialty and expanding with appropriate clinical protocols the acuity that can be performed in those centers. And so there's a management competency there.

Saum Sutaria: And so there's a management competency there that's important. And then, of course, as centers mature, the ability to be ahead of the challenge of recruiting and refreshing the medical staff in advance of potential volume declines as, you know, all centers mature and are able to renew their ability to build and grow with a new and diversified medical staff. And USPI is really, really good at both of those things.

Speaker Change: That's important. And then, of course, as centers mature...

Speaker Change: The ability to be ahead of the challenge of refreshing, recruiting and refreshing the medical staff in advance of...

Speaker Change: potential volume declines as, you know, all centers mature and being able to renew their, you know, kind of ability to build and grow with a with a new and diversified medical staff. And USPI is really, really good at both of those things. And so that's why I think we feel good about the long term.

Unknown Executive: And USPI is really, really good at both of those things, and so that's why I think we feel good about the long-term, you know, the long-term volume algorithm at USPI. Obviously, when you couple that with the fact that the reimbursement trends in this area tend to be favorable, regulatory trends, increasing the number of procedures that are appropriate for an ASC, tend to be favorable. You get more confident in the revenue growth range that we put forward from a USPI standpoint. And then, of course, it's all about cost control and just maintaining the margin profile that we have. And so then the EBITDA guidance in that range becomes more predictable over a longer period of time.

Saum Sutaria: And so that's why I think we feel good about the long term, you know, the long term volume algorithm at USPI. Obviously, when you couple that with the fact that reimbursement trends in this area tend to be favorable, and regulatory trends increasing the number of procedures that are appropriate for an ASC tend to be favorable.

Speaker Change: You know, the long-term volume algorithm at USPI. Obviously, when you couple that with the fact that

Speaker Change: The reimbursement trends in this area tend to be favorable.

Speaker Change: Regulatory trends increasing the number of procedures that are appropriate for an ASC tend to be favorable.

Saum Sutaria: You become more confident in the revenue growth range that we put forward from a USPI standpoint. And then, of course, it's all about cost control and just maintaining the margin profile that we have. And so then the EBITDA guidance in that range becomes more predictable over a longer period of time. So, a long way to maybe say the growth algorithm in this segment is actually more predictable over the long term than it is in other healthcare service segments. Thanks for that!

Speaker Change: You get more confident in the revenue growth range that we put forward from a USPI standpoint. And then, of course, it's all about cost control and just maintaining the margin profile that we have. And so then the EBITDA...

Unknown Executive: So, long way to maybe say the growth algorithm in this segment, I think, is actually more predictable over the long term than it is in other health care service segments. Thanks for that.

Speaker Change: guidance in that range becomes more predictable over a longer period of time. So, long way to maybe say the growth algorithm in this segment, I think, is actually more predictable over the long term than it is in other health care service segments.

Saum Sutaria: And then just as a follow-up, I mean, SCD, you know, a long time ago, there were some short-term challenges. You had a lot of de novo sites, you had a lot of re-syndications you had to do. Is all of that in the rear view mirror?

Unknown Executive: And then just as a follow-up, I mean, SCD, you know, long time ago there were some short-term challenges. There was, you had a lot of denobocytes; you had a lot of recindications you had to do. Is all of that in the review mirror? And the denobocytes that you thought you had did that panel in terms of opportunity, that it'd be a bigger smaller. The SCD portfolio, you know, in particular, again, it goes back to this kind of tailwind in orthopedics. We feel good about it. I would say this: it's sort of, it's kind of; we don't think about SCD, USPI anymore.

Speaker Change: Thanks for that. And then just as a follow-up, I mean, SCD, you know, a long time ago there were some short-term challenges. You had a lot of de novo sites, you had a lot of re-significations you had to do. Is all of that in the rearview mirror and did the de novo sites that you thought you had, did that pan out in terms of opportunity? Did that end up being bigger or smaller?

Saum Sutaria: And did the de novo sites that you thought you had pan out in terms of opportunity? Did that end up being bigger or smaller? The SCD portfolio, you know, in particular, it goes back to this kind of tailwind in orthopedics we feel good about. I would say this, it's sort of, it's kind of, we don't think about SCD USPI anymore. I mean, it's within our markets. The assets have been distributed into our management, geographic management model fully with our field operators.

Speaker Change: The SCD portfolio, you know, in particular, again, it goes back to this kind of tailwind in orthopedics.

Speaker Change: We feel good about, I would say this, it's sort of, it's kind of, we don't think about SCD-USPI anymore. I mean, it's within our markets, the assets have been distributed into our management, geographic management model.

Unknown Executive: I mean, it's within our markets; the assets have been distributed into our management geographic management model fully with our, with our field operators. So it's not like there's a separate segment or a separate management team or a separate recruiting pipeline or anything like that. And, you know, that we've done more buy-ups. I mean, we've stopped sort of reporting on it. So we feel good about the way that that's been integrated. On the denobocytes, that's a good reminder. We should update on that in the future. Yes, we have had denobocenters that have come through that pipeline.

Saum Sutaria: So it's not like there's a separate segment or a separate management team or a separate recruiting pipeline or anything like that. And, you know, that we've done more buy-ups. I mean, we've stopped sort of reporting on it.

Speaker Change: fully with our field operators. So it's not like there's a separate segment or a separate management team or a separate recruiting pipeline or anything like that. And

Speaker Change: and you know that we've done more buy-ups I mean we've stopped sort of reporting on it so we feel good about the way that that's been integrated.

Saum Sutaria: So we feel good about the way that that's been integrated. On the de novo piece, that's a good reminder. We should update on that in the future. Yes, we have had de novo centers that have come through that pipeline. I don't know that it's been, you know, an average of 10 per year, which is what we estimated before. But I don't think it's been that far from that.

Speaker Change: On the DeNovo piece, that's a good reminder. We should update on that in the future. Yes, we have had DeNovo centers that have come through that pipeline. I don't know that it's been...

Unknown Executive: I don't know that it's been, you know, an average of 10 per year, which is what we estimated before, but I don't think it's been that far from that. We're in the third year, I believe, of this arrangement. And we'll update on that more specifically in the future if that's of interest.

Speaker Change: You know, an average of 10 per year, which is what we estimated before, but I don't think it's been that far from that. We're in the third year, I believe, of this arrangement. And we'll update on that more specifically in the future if that's of interest.

Saum Sutaria: We're in the third year, I believe, of this arrangement, and we'll update on that more specifically in the future if that's of interest. As a reminder, we ask that you please limit yourself to one question.

Unknown Executive: As a reminder, we ask that you please limit it to one question.

Speaker Change: Go to www.Flydreamers.com for more.

Kevin Fischbeck: Our next question comes from Kevin Fischbeck with Bank of America. Please proceed with your question.

Operator: Our next question comes from Kevin Fischbeck with Bank of America. Please proceed with your question. Kevin, are you muted?

Speaker Change: As a reminder, we ask that you please limit to one question.

Speaker Change: Our next question comes from Kevin Fischbeck with Bank of America. Please proceed with your question.

Kevin Fischbeck: Kevin, are you muted? Your live with the speaker. Sorry about that.

Kevin Mark Fischbeck: You live with the speaker. Sorry, sorry about that. Yeah, I was wondering if you could provide some color on your volume outlook. First, on the hospital side, you're taking up the inpatient volume number, but not the adjusted admission number. Usually, we think about outpatient volume growing at least as well as inpatient volume. So just trying to understand, obviously, you've outperformed so far; you're up to date in that direction, but just trying to understand the drivers for that.

Kevin Mark Fischbeck: And the second, the lower USPI volume outlook, you just gave a little more color about what is driving that. Is that just decisions about service lines, or is there something else going on driving that? Thanks. Yeah, let me. I'll start with the first, and you want to take the second.

Speaker Change: Kevin, are you muted? You're live with the speaker.

Unknown Executive: Yeah, I'm wondering if you could provide some color on your volume outlook. I guess first on the hospital side, you're taking up the inpatient volume number but not the adjusted admission number. Usually, we think about how patient volume is growing, at least as well as inpatient volume.

Kevin Mark Fischbeck: Sorry about that. Yeah, I was wondering if you could provide some color on your volume outlook, I guess.

Speaker Change: First, on the hospital side, taking up the inpatient volume number but not the adjusted admission number. Usually, we think about how patient volume growing, at least as well as inpatient volume.

Unknown Executive: So just trying to understand, obviously you've performed so far your day in that direction, but just trying to understand the drivers to that.

Speaker Change: trying to understand, you know, obviously you've outperformed so far your data in that direction, but just trying to understand the drivers to that. And the second, you know, the lower USPI volume outlook, you just brought a little more color about, you know, what is driving.

Unknown Executive: And the second, the lower USPI volume outlook, you just brought a little more color about what is driving that? Is that just decisions about service lines, or is there something else going on driving that? Thanks.

Speaker Change: That is just decisions about service lines or is there something else going on driving that? Thanks.

Unknown Executive: Yeah, let me maybe I'll start with the first, and you want to take a second. So, I mean, I'm on the second, and we'll come back to the first. Look, as I said, the ASCs are incredibly busy. I mean, last year was a very busy year in the ASCs, and in some cases, really pushing the envelope on, you know, volumes that these ASCs have seen before, and we're kind of tracking in that same area. We always thought the volume would build a little bit as the year went on this year, given just given the nature of the comps and the kind of volumes.

Saum Sutaria: So I mean, on the second point, and we'll come back to the first. Look, as I said, the ASCs are incredibly busy. I mean, last year was a very busy year in the ASCs and, in some cases, really pushing the envelope on volumes that these ASCs have seen before, and we're kind of tracking in that same area. We always thought the volume would build a little bit as the year went on this year, just given the nature of the comps and the kind of volumes. And we are always cognizant of the fact that ASCs are designed to stretch. That's what the fourth quarter is defined by, right?

Speaker Change: Yeah, let me maybe I'll start with the first and you want to take the second. So I mean on the second and we'll come back to the first. Look as I said the ASCs are incredibly busy. I mean last year was a very busy year in the ASCs and in some cases really pushing the envelope on

Speaker Change: you know, volumes that these ASCs have seen before. And we're kind of tracking in that same.

Speaker Change: area. We always thought the volume would build a little bit as the year went on this year given just given the nature of the comps and the

Unknown Executive: And we are always cognizant of the fact that ASCs are designed to stretch. That's what the fourth quarter is defined by, right? So our view is, even if it may feel busy, you know, you always can figure out how to stretch them, given we always do that in every, every fourth quarter that we see. You know, I think what's playing out in the ASC industry this year is, after a really strong year of recovery, and there was, last year, of course, some one-time recovery work that happened. The actual organic growth is just making up for that one-time recovery.

Speaker Change: and the kind of volumes. And we are always cognizant of the fact that ASCs are designed to stretch. That's what the fourth quarter is defined by, right? So our view is even if it may feel busy.

Saum Sutaria: So our view is even if it may feel busy, you know, you can always figure out how to stretch them, given we always do that in every fourth quarter that we see. You know, I think what's playing out in the ASC industry this year is after a really strong year of recovery, and there was last year, of course, some one-time recovery work that happened. The actual organic growth is just making up for that one-time recovery.

Speaker Change: You know, you always can figure out how to stretch them, given we always do that in every fourth quarter.

Speaker Change: that we see.

Speaker Change: You know, I think what's playing out in the ASC industry this year is after a really strong year of recovery.

Speaker Change: And there was last year, of course, some one-time...

Saum Sutaria: And so, you know, we're seeing new cases, new patients, new doctors performing activity in the ASCs. It's replacing some of that one-time growth from the prior year. And therefore, the total numbers are just sort of growing very slowly over the previous year. But the ASCs are incredibly busy. And if you look at the margins, they're busy at a level where the operating leverage is actually creating very, very strong margins. You know, the business doesn't have a lot of fixed costs at the center level.

Speaker Change: Recovery work that happened.

Unknown Executive: And so, you know, we're seeing new cases, new patients, new doctors perform activity in the ASCs. It's replacing some of that one-time growth from the prior year, and therefore the total numbers are just sort of growing very slowly over prior year. But the ASCs are incredibly busy. And if you look at the margins, they're busy at a level where the operating leverages is actually creating very, very strong margins. You know, the business doesn't have a lot of fixed costs at the center level. And so when there's that type of throughput, the margins look really good.

Speaker Change: The actual organic growth is just making up for that one-time recovery.

Speaker Change: And so, you know, we're seeing new cases, new patients, new doctors.

Speaker Change: perform activity in the ASCs, it's replacing some of that one-time...

Speaker Change: growth from the prior year.

Speaker Change: And therefore, the total numbers are just sort of growing very slowly over prior year, but the ASCs are incredibly busy. And if you look at the margins, they're busy at a level where the operating leverage is actually creating very, very strong margins, you know.

Saum Sutaria: And so when there's that type of throughput, the margins look really good, and they have all this year, which is why we, again, feel good about it. Our recruiting activity that I just described feels strong, and so again, we think about this long term and getting back to a normal growth algorithm over the coming year and potentially into next year. So that's really how I would describe the ASCs.

Speaker Change: The business doesn't have a lot of fixed cost at the center level, and so when there's that type of throughput, the margins look really good, and they do all this here, which is why we, again, feel good about it.

Unknown Executive: And they do all this here, which is why we again feel good about it. Our recruiting activity that I just described feels strong. And so again, we're, you know, we think about this long term and getting back to a normal growth algorithm over the coming year and potentially into next year. So that's really, that's really how I would describe the ASCs.

Speaker Change: Our recruiting activity that I just described feels strong, and so, again, we think about this long-term and getting back to a normal growth algorithm.

Saum Sutaria: Look, changing the volume guidance at USPI is simply a recognition of math. I don't think it's anything more than that. No differently than us taking up the acuity and mix impact on the net revenue per case. The volume and revenue per case guidance still translates into, you know, really strong overall revenue guidance, and so we feel pretty good about it. Thanks, Solomon.

Speaker Change: over the coming year and potentially into next year. So that's really how I would describe the ACs. Look, changing the volume guidance at USPI, it's simply a recognition of math.

Unknown Executive: Look, bringing, changing the volume guidance at USPI. It's simply a recognition of math. I don't think it's anything more than that. No differently than us taking up the acuity and mix impact in the net revenue per case. The volume and revenue and revenue per case guidance still translates into, you know, really strong overall revenue guidance. And so we feel pretty good about it.

Speaker Change: I don't think it's anything more than that. No differently than us taking up the acuity and mix.

Speaker Change: impact in the net revenue per case. The volume and revenue per case guidance still translates into, you know, really strong overall revenue guidance, and so we feel pretty good about that.

Unknown Executive: Thanks, Tom, and on the, Kevin, on your questions about the hospital piece, so on the inpatient admissions, yeah, I mean, we saw 4.2% and 5.2% admissions growth in Q1 and Q2 of this year, respectively. Plus, you know, we are seeing a, again, like we said, a favorable utilization environment; we're working hard to select, we open up capacity and invest.

Sun K. Park: On your questions about the hospital piece, so on the inpatient admissions, yeah, I mean, we saw 4.2% and 5.2% admissions growth in Q1 and Q2 of this year, respectively. Plus, you know, we are seeing, again, like I said, a favorable utilization environment. We're working hard to selectively open up capacity and invest. So all those things, you know, I think we thought it was appropriate to bring up our inpatient admission outlook for the year up to 3 to 4%.

Speaker Change: Thanks, Solomon. Kevin, on your questions about the hospital piece, so on the inpatient admissions, yeah, I mean we saw

Kevin Mark Fischbeck: 4.2% and 5.2% emissions growth in Q1 and Q2 of this year, respectively.

Kevin Mark Fischbeck: Plus, you know, we are seeing a, again, like we said, a favorable utilization environment.

Unknown Executive: So all those things, you know, I think we thought it was appropriate to bring up our inpatient admissions. In addition, Alva for the year up to 3 to 4%.

Speaker Change: working hard to selectively open up capacity and invest. So all those things, I think we thought it was appropriate to bring up our inpatient admission, ALVA for the year, up to three to four percent.

Sun K. Park: On the adjusted admissions piece, you know, that's where it gets a little bit less predictable with the mix of in and out patients. You know, when we look at our Q1 and Q2 trends, we're in the 1.8 and 2.4% levels for the first two quarters. So we thought, based on current data, it's appropriate to stay at our 1.3 to 1 to 3% range. So, again, it's a little bit, you know, kind of data and trend driven. Our next question comes from Josh Raskin with Nephron Research. Please proceed with your question. Hi, thanks. Good morning.

Unknown Executive: On the adjusted admissions piece, you know, that's where it gets a little bit less predictable with the mix of in- and out-patient. You know, when we looked at our Q1 and Q2 trends, you know, we're in the 1.8% and 2.4% levels for the first two quarters. So we thought, you know, based on current data, it's appropriate to stay at our 1.3% to 3% range. So, again, the sensitive will be, you know, kind of data and trend driven.

Speaker Change: On the adjusted admissions piece, you know, that's where it gets a little bit less predictable with the mix of in and out patient. You know, when we look at our Q1 and Q2 trends, you know, we're in the 1.8% and 2.4% levels for the first two quarters.

Speaker Change: So we thought, you know, based on current data, it's appropriate to stay at our 1.3, 1 to 3 percent range. So, again, as Saum said, it was all the, you know, kind of data and trend driven.

Joshua Raskin: Our next question comes from Josh Ruskin with Neffron Research. Please proceed with your question. Hi, thanks. Good morning.

Joshua Richard Raskin: What percentage of revenues for both segments come from patients with exchange-based coverage? And should we assume those patients are generating margins, you know, somewhere between what you earn on a typical commercial or Medicare, maybe even slightly closer to commercial? So, hey Josh, it's Sun.

Speaker Change: Our next question comes from Josh Raskin with Nephron Research. Please proceed with your question.

Joshua Raskin: What percentage of revenues for both segments come from patients with exchange-based coverage? And should we assume those patients are generating margins, you know, somewhere between which you are not a typical commercial or Medicare may be even slightly close to commercial?

Joshua Richard Raskin: Hi, thanks, good morning. What percentage of revenues for both segments come from patients with exchange-based coverage, and should we assume those patients are generating margins somewhere between what you earn on a typical commercial, or Medicare may be even slightly close to commercial? Thank you. Thank you. Thank you.

Unknown Executive: So, hey, Josh, it's done. I think on the hospital side, what I can tell you is that, you know, we are seeing continued to see admissions growth on exchange. So this year, it's about this quarter, excuse me, is up 62% on exchange admissions. From a revenue perspective, what I have for you here is about 6.5% of hospital revenues is from exchange as a percent of our total consolidated revenues.

Sun K. Park: I think on the hospital side, what I can tell you is that we are seeing, and continue to see, admissions growth on exchange. So this year, it's about, this quarter, excuse me, is up 62% on exchange admissions. From a revenue perspective, what I have for you here is about six and a half percent of hospital revenues are from exchange as a percent of our total consolidated revenues. We can do some algebra and get back to you on what it may be for the hospital segment, but hopefully, that piece still helps. On the USPS side, I mean, I think.

Sun K. Park: So, hey Josh, it's Sun. I think on the hospital side, what I can tell you is that, you know, we are seeing, continue to see admissions growth on exchange. So this year, it's about

Speaker Change: this quarter, excuse me, is up 62% on exchange admissions. From a revenue perspective, what I have for you here is about 6.5% of hospital revenues.

Unknown Executive: We can do some algae, bring it back to you on what it may be for the hospital second, but hopefully that piece still helps. On the USPS side, I mean, I think the increasing exchange volume is there as well, but not as pronounced as it is in the hospitals.

Speaker Change: is from exchange as a percent of our total consolidated revenues. We can do some algebra and get back to you on what it may be for the hospital segment, but hopefully that piece helps. On the USPS side, I mean, I think...

Sun K. Park: The increase in exchange volume is there as well, but not as pronounced as it is in the hospitals. We'll have to get back to you on the revenue proportion of the USPI and margins. The margins, I think it's fair, you know; it's favorable to the government-paid programs, obviously.

Speaker Change: The increase in exchange volume is there as well, but not as pronounced as it is in the hospitals. And we'll have to get back to you on the revenue proportion in the USPI space.

Unknown Executive: And I will have to get that to you on the revenue proportion of the USPI space. And margins. And margins, I think that's fair; you know, it's favorable. Then government aid programs, obviously. I think what we said is close or comparable; obviously, a little bit left to our book of commercial pair business. Yeah, I mean, the overall exchange acuity is also important, you know, to know. I mean, the exchange volume is up. Overall exchange acuity tends to be lower than, for example, Medicare. But that's probably not surprising to you. But, you know, obviously, margins are the combination of the revenue contracted rate and the acuity.

Speaker Change: and Margins.

Speaker Change: In margins, I think it's fair. It's favorable than the government-paid programs, obviously. I think what we've said is it's close or comparable, obviously a little bit less, to our book of commercial pair business.

Sun K. Park: I think what we've said is it's close or comparable, obviously a little bit less, to our book of commercial pair business. Yeah, I mean, the overall exchange acuity is also important, you know, to know that although the exchange volume is up, overall exchange acuity tends to be lower than, for example, Medicare, but that's probably not surprising to you. But, [inaudible] You know, obviously, margins are a combination of the revenue contracted rate and the acuity. Thanks. Our next question comes from A.J. Rice with UBS.

Speaker Change: Yeah, I mean, the overall exchange acuity is also important, you know, to know. I mean, the exchange volume is up. Overall exchange acuity tends to be lower than, for example, Medicare, but that's probably not surprising to you.

Speaker Change: You know, obviously margins are a combination of the

Speaker Change: revenue contracted rate and the acuity.

Unknown Executive: Understood.

Unknown Executive: Thanks.

AJ Rice: Our next question comes from AJ Rice with UBS. Please proceed with your question. Hi, everybody. Thanks.

Albert J. William Rice: Please proceed with your question. Hi everybody, thanks. Maybe one point of clarification and then the broader question. The $300 million raise for the year versus first quarter guidance, how much of that is what you've seen year-to-date, and in your mind, how much are you raising your expectations for the back half of the year? And then my business question would be on managed care pricing. I know we've been in this period where I think you were getting a little bump or at least toward the higher end of the historic trend as they were compensating you for maybe some of the labor pressures and not just you but the industry. Where are we in those discussions? Do we have one more year?

Speaker Change: Understood, thanks.

Speaker Change: Thanks.

Speaker Change: Our next question comes from AJ Rice with UBS. Please proceed with your question.

AJ Rice: Maybe at one point of clarification and then the broader question, the 300 million raise for the year versus first quarter guidance. How much of that is what you've seen year to date? And in your mind, how much are you raising your expectations for the back half the year?

Albert J. William Rice: Hi everybody, thanks. Maybe one point of clarification and then the broader question, the $300 million raise for the year versus

Albert J. William Rice: First Quarter Guidance.

Albert J. William Rice: How much of that is what you've seen year-to-date and in your mind, how much are you raising your expectations for the back half of the year?

Unknown Executive: And then my more business question would be, I'll manage care pricing. I know we've been in this period where I think you were getting a little bump or at least high toward the higher end of historic trend as they were compensating you for, maybe some of the labor pressures and not just you, but the industry. Where are we at in those discussions? Do we have one more year? How much visibility do you have on 2025 at this point in your contract negotiations in the rest of this year? If you give some thoughts, there. Yeah, thanks, AJ.

Speaker Change: And then my more business question would be on managed care, pricing, I know we've been in this period where I think you were getting a little bump or at least toward the higher end of historic trend as they were compensating you for

Saum Sutaria: How much visibility do you have on 2025 at this point in your contract negotiations and the rest of this year? If you could give us some thoughts there. Yeah, thanks, AJ. So, look, on the first point, and Sun, you should comment in more detail.

Speaker Change: maybe some of the labor pressures and not just you, but the industry. Where are we at in those discussions? Do we have one more year? How much visibility do you have on 2025 at this point in your contract negotiations and the rest of this year? If you give us some thoughts there.

Unknown Executive: So look on the first point and Sun, you should comment in more detail. You know, as we obviously, as we thought about our guidance and similar to my comments in the first quarter, you kind of have to take the first and second quarter, raise it together because some of the first quarter raise, obviously, was forward looking and not what was booked, you know, for the first quarter and the out of period increases. So we can answer the question for the second quarter raise, but from our perspective, you know, you kind of have to take, and I realize that we've complicated the situation in hopes of, in some ways, making it clear by separating our guidance raises from first quarter, being mostly related to booked and ongoing changes in supple mental payments, and then now more cleanly addressing the fundamental out performance of our business in the second quarter, but both of them had forward looking components.

Sun K. Park: Yeah, thanks, AJ. So, look, on the first point, and, Sun, you should comment in more detail,

Saum Sutaria: You know, as we obviously think about our guidance and, similar to my comments in the first quarter, you kind of have to take the first and second quarter raises together because some of the first quarter raise was obviously forward-looking and not what was booked for the first quarter and the out-of-period increases. So we can answer the question about the second quarter raise, but from our perspective. You kind of have to take it, and I realize that we've complicated the situation in hopes of, in some ways, making it clear by separating our guidance raises from first quarter being mostly related to booked and ongoing. [inaudible] changes in supplemental payments and then now more cleanly addressing the fundamental outperformance of our business in the second quarter. But both of them had forward-looking components. So I'll pass that.

Sun K. Park: You know, as we obviously as we thought about our

Sun K. Park: guidance and similar to my comments in the first quarter

Speaker Change: You kind of have to take the first and second quarter raises together because some of the first quarter raise Obviously was forward-looking and not what was booked

Speaker Change: You know for the first quarter and the out of period

Speaker Change: increases. So we can answer the question for the second quarter raise, but from our perspective.

Speaker Change: You know, you kind of have to take, and I realize that we've complicated the situation in hopes of in some ways making it clear by separating our guidance raises from first quarter being mostly related to booked and ongoing.

Speaker Change: , changes and supplemental payments and then now more cleanly addressing the fundamental outperformance of our business in the second quarter, but both of them had forward looking components. So I'll pass that, just on the managed care, I'll pass that over for more detail in a second, on the managed care side

Unknown Executive: So I'll pass that just on the manage cares. I'll pass that over for more detail in a second on the manage care side. Yeah, you're right about that. I mean, I think that I would just characterize that, you know, generally speaking, contract negotiations have more or less normalized. In terms of the way in which they're working and discussing, I mean, there isn't really as much discussion about highly acute inflation. That being said, contracts that haven't been renegotiated over the last few years, we're still very much in discussions about, you know, the opportunity to catch up, if you will, from what's happened in the last few years from an inflationary perspective.

Sun K. Park: Just on the managed care side, I'll pass that over for more detail in a second. On the managed care side, Yeah, you're right about that. I mean, I think that, um... Yeah, I would just characterize that, you know, generally speaking, contract negotiations have more or less normalized in terms of the way in which they're working and discussing. I mean, there isn't really as much discussion about highly acute inflation. That being said, contracts that haven't been renegotiated over the last few years, we're still very much in discussions about, you know, the opportunity to catch up, if you will, on what's happened in the last few years from an inflationary perspective. Thanks, Tom.

Speaker Change: Yeah, you're right about that. I mean, I, I think that

Speaker Change: I would just characterize that, you know, generally speaking, contract negotiations have...

Speaker Change: more or less normalized in terms of

Speaker Change: the way in which they're working and discussing. I mean, there isn't really

Speaker Change: as much discussion about highly acute inflation. That being said, contracts that haven't been renegotiated over the last few years

Speaker Change: We're still very much in discussions about, you know, the opportunity to catch up, if you will, from what's happened in the last few years from an inflationary perspective.

Unknown Executive: Thank you, Tom, and just to put a little more detail on the first piece, H.A. on the $300 million at the meeting guidance increase, about 200, I would view as performance in the first half, and then the 100 million would be projecting that out into second half. And then, as Tom said, you know, when we raise guidance in the prior quarter, a big component of that was from our Medicaid H.R.A. payments, even if you recall, we raised guidance on that by $209 million, but 88 of that was recognized in Q1. Some of that was for prior period, but recognized in Q1.

Sun K. Park: And just to provide a little more detail on the first piece, AJ, on the $300 million increase in estimating guidance. About $200 million I would view as performance in the first half, and then the $100 million would be projecting that out into the second half. And then, as Saum said, when we raised guidance in the prior quarter, a big component of that was from our Medicaid HRA payments. If you recall, we raised guidance on that by $209 million, but $88 million of that was recognized in Q1. Some of that was for a prior period but recognized in Q1. And then the remainder of that was expected to come through in the second to fourth quarter. So those are the different pieces.

Speaker Change: And just to provide a little more detail on the first piece, AJ, on the $300 million estimating guidance increase.

Albert J. William Rice: About 200 I would view as...

Albert J. William Rice: performance in the first half.

Albert J. William Rice: And then the $100 million would be projecting that out into the second half. And then as Saum said, when we raised guidance in the prior quarter,

Saum: A big component of that was from our Medicaid HRA payments.

Saum: If you recall, we raised guidance on that by $209 million, but 88 of that was recognized in Q1. Some of that was for a prior period, but recognized in Q1. And then the remainder of that was expected to come through in Q quarter, second to the fourth.

Unknown Executive: And then the remainder, you know, of that was expected to come through in, you know, Q1 or second to the fourth. So those are the different pieces. Yep.

Andrew Mok: Thanks. Our next question comes from Andrew Mock with Barclays. Please proceed with your question.

Saum: So those are the different pieces.

Andrew Mok: Our next question comes from Andrew Mok with Barclays. Please proceed with your question. Hi, good morning.

Saum: Thanks.

Saum: Our next question comes from Andrew Mok with Barclays. Please proceed with your question.

Andrew Mok: Hi, good morning. Through the first half of the year, there's a pretty widespread between your inpatient surgical growth, up 4%, and hospital outpatient surgical growth, down 3%. So just curious what's driving that spread. I don't think there was anything unusual going on from a con perspective, but would love more color there. Thanks. Yeah, so a couple things. I mean, one is, you know, obviously, inpatient surgical tends to reflect some of the acuity, both emergent and elective acuity, in the programs that we've been focused on building. And so I would think of it as no more than that.

Saum Sutaria: Through the first half of the year, there's a pretty wide spread between your inpatient surgical growth, up 4%, and hospital outpatient surgical growth, down 3%. So just curious what's driving that spread. I don't think there was anything unusual going on from a comp perspective, but would love more color there, thanks.

Andrew Mok: Hi, good morning. Through the first half of the year, there's a pretty wide spread between your inpatient surgical growth up 4% and hospital outpatient surgical growth down 3%. So just curious what's driving that spread. I don't think there was anything unusual going on from a comp perspective, but would love more color there, thanks.

Saum Sutaria: Yeah, so a couple of things. One is, obviously, inpatient surgical tends to reflect some of the acuity, both emergent and elective acuity, in the programs that we've been focused on building. And so I would think of it as no more than that.

Speaker Change: Yeah, so a couple things. I mean, one is, you know, obviously inpatient surgical tends to reflect some of the acuity, both emergent and

Saum Sutaria: And the inpatient surgical takes up OR capacity, obviously, significantly. And so, you know, for us, obviously, outpatient hospital surgeries, as we've talked about, in a more general sense, also have this kind of trend of moving into the freestanding setting, right? And so you have both dynamics going on at the same time. Is that shift in the outpatient setting accelerating, or is it pretty steady from your perspective? I don't know if it's accelerating or not.

Speaker Change: Elective Acuity and the programs that we've been focused on building and so

Unknown Executive: And the inpatient surgical takes up our capacity, obviously, significantly. And so, you know, for us, obviously, outpatient hospital outpatient surgeries, as we've talked about in a more general sense, also have this kind of trend of moving into the freestanding setting. Right. And so you got both dynamics going on at the same time.

Speaker Change: I would think of it as no more than that. And the inpatient surgical takes up OR capacity, obviously, significantly. And so, you know, for us, obviously, outpatient, hospital outpatient surgeries, as we've talked about in a more general sense,

Speaker Change: also have this kind of trend of moving into the freestanding setting, right? And so you've got both dynamics going on at the same time.

Unknown Executive: Is that shift in the outpatient setting accelerating, or is it pretty steady from your perspective? I mean, we noticed it too. It's hard to say it's a long-term trend right now in terms of what's going on, especially because you have the confounding aspect of the mixed shift, right? Medicare and Medicare Advantage utilization is obviously the commercial side is strong, the exchange side is even stronger as a subset of the commercial book, etc. So there's a significant payership, Medicaid is down a bit, and so there's a mixed shift going on that confounds it. So I don't want to draw any long-term conclusions yet on the basis of what we've seen.

Speaker Change: Is that shift in the outpatient setting accelerating or is it pretty steady from your perspective? I don't know if it's accelerating. I mean, I, you know, we noticed it too. I mean it's a...

Saum Sutaria: I mean, you know, we noticed it too. It's hard to say it's a long-term trend right now in terms of what's going on, especially because you have the confounding aspect of the mixed shift, right? I mean, Medicare and Medicare Advantage utilization is up. Obviously, the commercial side is strong. The exchange side is even stronger as a subset of the commercial book, etc., so there's a significant payer shift. Medicaid is down a bit. And so there's a mix shift going on that confounds it. So I don't want to draw any long-term conclusions yet on the basis of what we've seen.

Speaker Change: It's hard to say it's a long-term trend right now in terms of what's going on, especially because you have the confounding aspect of the mix shift.

Speaker Change: Right, I mean Medicare, Medicare Advantage utilization is up.

Speaker Change: Obviously the commercial side is strong, the exchange side is even stronger as a subset of the commercial book, etc. So there's a significant payer shift. Medicaid is down a bit.

Speaker Change: mix shift going on that confounds it. So I don't want to draw any long-term conclusions yet on the basis of what we've seen.

Unknown Executive: Got it. Thanks for all the color.

Speaker Change: Got it. Thanks for all the call in.

Philip Chickering: Next question comes from Peter Chickering with Deutsche Bank. Please proceed with your question. Hey, good morning. I think it's taking my question. Another question on ASC volumes.

Saum Sutaria: Thanks for all the calls. Our next question comes from Peter Chickering with Deutsche Bank. Please proceed with your question. Hey, good morning.

Speaker Change: Our next question comes from Peter Chickering with Deutsche Bank. Please proceed with your question.

Philip Chickering: Thanks for taking my question. Another question on ASC volumes: can you talk a little more about urology and the potential for that to provide a multi-year tailwind as robotic procedures move out of the hospital and into the ASC? And on the other hand, can you talk about the interplay between the weaker areas like pain and ophthalmology, or are there other areas that we should be thinking about from a sort of case, you know, headwind? And when did this segment stop being a headwind for surgical volumes and ASCs? Yeah. Well, a couple of things.

Philip Chickering: Can you talk a little more about urology and the potential for that to provide a multi-year tailwind as robotic researchers move out of the hospital in the ASC? And on the other side, I can talk about the interplay between the weaker areas, like pain and ophthalmology, or are there other areas that we should be thinking about from a case, you know, headwind? And what is a segment stopping headwind to surglow into ASC? Yeah. Well, a couple of things. I mean, I think, you know, in terms of urology, this is a specialty where it has largely been divided by acute care hospitals.

Philip Chickering: Hey, good morning. Thanks for taking my question. Another question on ASC volumes. Can you talk a little more about urology and potential for that to provide a multi-year tailwind as robotic procedures move out of the hospital and VSC?

Speaker Change: And on the other side, can you talk about the interplay between the weaker areas, like...

Speaker Change: panophthalmology, or are there other areas that we should be thinking about from a sort of case, you know, headwind? And when did this segment stop being a headwind to cervical volumes of ASE?

Saum Sutaria: I mean, I think, you know, in terms of urology, this is a specialty where it has largely been divided by acute care hospitals and in-office procedures, and so we're in the very early innings of, and really being driven by innovative urologists and their organized groups looking to move some of those surgical procedures into a more freestanding, convenient, and comfortable setting. And, you know, our work in that arena is accelerating it by providing good ASC management of higher acuity procedures as part of what they're doing.

Speaker Change: yeah

Speaker Change: Well, a couple of things. I mean, I think, you know, in terms of urology,

Speaker Change: This is a specialty where it has largely been divided by acute care hospitals and in-office

Unknown Executive: And in office procedures. And so we're in very early innings of, and really being driven by innovative urologists and their organized groups. Looking to move some of those surgical procedures into a more freestanding, convenient, convenient setting, and you know, our work in that arena, accelerating it by providing good ASC management of higher acuity procedures as part of what they're doing. And so I think there's a lot of room for, you know, not only growth, but also expansion of the range of services that can be offered in the ambulatory surgery setting. You're right. Robotics and other things will increasingly be, you know, be a part of that.

Speaker Change: looking to move some of those surgical procedures into a more freestanding, convenient

Speaker Change: convenient setting. And, and, you know, our work in that arena accelerating it by providing good

Speaker Change: ASC management of higher acuity procedures as part of what they're doing.

Saum Sutaria: And so I think there's a lot of room for, you know, not only growth but also expansion of the range of services that can be offered in the ambulatory setting. You're right, robotics and other things will increasingly be part of that. And, you know, one of the things we're doing a lot of this work right now, mostly on a single specialty basis in the ASCs.

Speaker Change: So, I think there's a lot of room for, you know, not only growth, but also expansion of the range of services that can be offered in the ambulatory, in the ambulatory surgery setting. You're right, robotics and other things will increasingly be...

Saum Sutaria: Over time, as it grows and penetrates the marketplace, in the next three to five years, I suspect that you'll see it in multi-specialty centers, too. But right now, the efficiencies that come from piloting these programs in single specialty centers seem to make a lot more sense. The ophthalmology business is actually strong these days, partially because of the recovery of utilization. It's just not as strong as certain other areas.

Unknown Executive: And, you know, right now, we're doing a lot of this work, mostly on a single specialty basis in the ASCs.

Speaker Change: You know be a part of that and you know one of the things right now we're doing a lot of this work mostly on a single specialty basis in the ASCs over time as it grows and penetrates into the marketplace in the next three to five years.

Unknown Executive: Over time, as it grows and penetrates into the marketplace in the next three to five years, I suspect that you'll see it in multi-specialty centers too. But right now, the efficiencies that come from piloting these programs in single, single specialty centers, you know, seems to make a lot more sense. The ophthalmology business, actually, these days is strong partially because of recovery of utilization. It's just not as strong as certain other areas. And remember, with pain procedures, it's not about eliminating pain procedures from the environment. It is about... changing the mix to include more invasive and higher acuity type of pain procedures in the ASC setting so that there's a diverse range of procedures, many of which requires sedation and operating room time and other things versus what could be done in another environment.

Speaker Change: I suspect that you'll see it in multi-specialty centers too, but right now the efficiencies that come from piloting these programs in single-specialty centers seems to make a lot more sense.

Speaker Change: The ophthalmology business actually these days is strong partially because of recovery of utilization.

Saum Sutaria: And remember, with pain procedures, it's not about eliminating pain procedures from the environment. It is about changing the mix to include more invasive and higher acuity types of pain procedures in the ASC setting so that there is a diverse range of procedures, many of which require sedation and operating room time and other things versus what could be done in another environment.

Speaker Change: It's just not as strong as certain other areas. And remember, with pain procedures, it's not about...

Speaker Change: eliminating pain procedures from the environment.

Speaker Change: changing the mix to include more invasive and higher acuity type of pain procedures in the ASC setting so that there's a diverse range of procedures

Speaker Change: Many of which requires sedation and operating room time and other things versus what could be done in another environment. And so I don't think that headwind, so to speak, goes away anytime soon because there's a nice mix.

Saum Sutaria: And so I don't think that headwind, so to speak, goes away anytime soon because there's a nice mix that exists today, and you know where we've been selectively focused on trying to either diversify or selectively upscale our acuity in certain places where all we had was low acuity. And with the idea that if we weren't able to diversify or move up the acuity chain, we would be better off moving up the acuity chain in different service lines.

Unknown Executive: And so I don't think that headwind, so to speak, goes away anytime soon because there's a nice mix. There's a lot of things that exist today and where selectively, we've been focused on trying to either diversify or selectively upscale our acuity in certain places where all we had was low acuity pain and with the idea that if we weren't able to diversify or move up the acuity chain, we were better off moving up the acuity chain in different service lines.

Speaker Change: that exists today and you know where selectively we've been focused on trying to either diversify or selectively upscale our acuity in certain places where all we had was low acuity pain.

Speaker Change: and with the idea that if we weren't able to diversify or move up the acuity chain, we were better off moving up the acuity chain in different service lines.

Unknown Executive: And, you know, that's, again, as I said in the past, we will do that in a more measured fashion over time at this stage.

Saum Sutaria: Again, as I said in the past, we will do that in a more measured fashion over time at this stage. Our next question comes from Jason Cassorla with Citi. Please proceed with your question. Great, thanks. Good morning.

Speaker Change: Again, as I said in the past, we will do that in a more measured fashion over time at this stage.

Jason Cassorla: Our next question comes from Jason Cassorla. Would please proceed with your question. Great. Thanks. Good morning. Maybe a couple more on us. First, you know, you've done a number of acquisitions over the past few years, the 45 earlier this year, the SDD transactions and others, either the NOVO activity that's ramping.

Jason Paul Cassorla: Our next question comes from Jason Cassorla with Citi. Please proceed with your question.

Jason Paul Cassorla: Maybe a couple more on USPI. First, you know, you've done a number of acquisitions over the past few years, the 45 earlier this year, the STD transactions and others, the de novo activity that's ramping up. Can you maybe help frame the USPI facility mix between the centers that you would consider are running at a kind of fully mature run rate, you know, compared to maybe more immature centers that have a bit more even maturation to be had?

Jason Paul Cassorla: Great, thanks. Good morning. Maybe a couple more on USPIB first.

Jason Paul Cassorla: You know, you've done a number of acquisitions over the past few years, the 45 earlier this year, the STD transactions and others, the de novo activity that's ramping. Can you maybe help frame the USPI facility mix between the centers that you would consider are running at a fully mature run rate compared to maybe more immature centers that have a bit more maturation to be had?

Unknown Executive: Can you maybe help frame the USPI facility mix between the centers that you would consider are running at a kind of fully mature run rate, you know, compared to maybe more immature centers that have a bit more even a mattress. And then maybe just as a follow-up, can you just remind us what percent of USPI facilities are in a partnership with an external hospital and maybe just what the pipeline or outlook is for incremental hospital partnerships down the line? Thanks.

Jason Paul Cassorla: And then maybe just as a follow-up, can you just remind us what percent of USPI facilities are in a partnership with an external hospital and maybe just what the pipeline or outlook is for incremental hospital partnerships down the line? Thanks. Yeah, so I mean both of these areas. I would say...

Speaker Change: And then maybe just as a follow-up, can you just remind us what percent of USPI facilities are in a partnership with an external hospital and maybe just what the pipeline or outlook is for incremental hospital partnerships down the line? Thanks.

Unknown Executive: Yeah, so I mean, both, both of these areas, I would say a few higher, make a few higher level comments. I mean, first of all, our recent M&A, including in the first quarter, the objective is always to get these centers fully incorporated into the USPI operating platform integrated with the tenant systems, supplies, manage care, et cetera, as quickly as possible, because you want them to operate under the USPI management framework, which is very effective. So again, we're not, you know, we're not looking to keep them in separate segments from that perspective, even one-off acquisitions. I mean, we have a separate and disciplined integration process from that perspective.

Speaker Change: Yeah, so I mean, both of these areas.

Saum Sutaria: If you make a few higher-level comments, I mean, first of all... our recent M&A, including in the first quarter, the objective is always to get these centers fully incorporated into the USPI operating platform, integrated with the Tenet systems, supplies, managed care, et cetera, as quickly as possible, because you want them to operate under the USPI management framework, which is very effective. Again, we're not, you know, we're not looking to keep them in separate segments from that perspective.

Speaker Change: I would say make a few higher level comments.

Speaker Change: Our recent M&A, including in the first quarter, the objective...

Speaker Change: is always to get these centers fully incorporated into the USPI operating platform, integrated with the Tenet.

Speaker Change: systems, supplies, managed care, etc. as quickly as possible because you want them to operate under the USPI management framework, which is very effective.

Speaker Change: Again, we're not, you know, we're not looking to...

Saum Sutaria: Even one-off acquisitions, I mean, we have a separate and disciplined integration process from that perspective. De Novo, of course, you have the runway to start them out in setting up the framework over the 18 months that they're built and put them straight into the USPI platform.

Speaker Change: Keep them in separate segments from that

Speaker Change: from that perspective.

Speaker Change: Even one-off acquisitions. I mean, we have a separate and disciplined integration process from that perspective. De Novos, of course, you have the runway to start them out.

Unknown Executive: Denovos, of course, you have the runway to start them out in setting up the framework over the 18 months that they're built and put them straight into the USPI platform.

Speaker Change: in setting up the framework over the 18 months that they're built and and put them straight into the USPI, straight into the USPI platform.

Unknown Executive: In terms of the percentage of centers that are running at full capacity, or now we don't really disclose that. You know, as I said, my philosophy is the fourth quarter is a reminder that you can always stretch the capacity of an ASC for incremental doctors and incremental cases. As long as they're performed at high quality with good patient safety. And so, you know, even if we feel busy during the year, you know, again, we remind ourselves that we manage to stretch in the fourth quarter, and therefore there's room in these things for growth.

Saum Sutaria: In terms of the percentage of centers that are running at full capacity or not, we don't really disclose that, you know, as I said. My philosophy is the fourth quarter is a reminder that you can always stretch the capacity of an ASC for incremental doctors and incremental cases as long as they're performed at high quality with good patient safety. And so, you know, even if we feel busy during the year, you know, again, we remind ourselves that we manage to stretch in the fourth quarter and therefore there's room in these things for growth.

Speaker Change: In terms of the percentage of centers that are running at full capacity or not, we don't really disclose that. You know, as I said,

Speaker Change: My philosophy is the fourth quarter is a reminder that you can always stretch the capacity of an ASC for incremental doctors and incremental cases as long as they're performed at high quality with good patient safety.

Speaker Change: And so, you know, even if we feel busy during the year,

Speaker Change: Again, we remind ourselves that we managed to stretch in the fourth quarter and therefore there's room for improvement.

Unknown Executive: But a lot of times it's the nature of the partnership, single versus multi-specialty, the different technologies that are needed, expansion of operating room capacity for different types of procedures, nursing capacity, you know, that limits instantaneous ability to expand from a growth standpoint.

Saum Sutaria: A lot of times, it's the nature of the partnership, single versus multi-specialty, the different technologies that are needed, expansion of operating room capacity for different types of procedures, nursing capacity, you know, that limits the instantaneous ability to expand from a growth standpoint. Just on the mix with hospital partners, it's around 30 to 40 percent. Okay. Our next question comes from Sarah James with Cantor Fitzgerald. Please proceed with your question

Speaker Change: in these things for growth. A lot of times it's the nature of the partnership, single versus multi-specialty.

Speaker Change: the different technologies that are needed, expansion of operating room capacity for different types of procedures.

Unknown Executive: Jason, just on the mix with hospital partners. It's around 30 to 40%.

Sarah James: Okay, our next question comes from Sarah James with Cantor Fitzgerald. Please proceed with your question. Thank you. Impition and mission are running above historical average. How do you think about the sustainability of that? And maybe you can help us with orders of magnitude on the drivers between share gain and burn catchment area versus to midnight the temporary utilization management suspension by United or capacity increases. Thanks. Yeah, well, I think in patient utilization is building and growing primarily because of two fundamental things in the marketplace. One is the consistent growth in the aging or aging population, and especially with respect to those that have chronic diseases.

Speaker Change: Just on the mix with hospital partners, it's around 30 to 40 percent.

Speaker Change: Okay, our next question comes from Sarah James with Cantor Fitzgerald. Please proceed with your question.

Sarah Elizabeth James: Inpatient admissions are running above historical average. How do you think about the sustainability of that? And maybe you can help us with orders of magnitude on the drivers between share gain and growing catchment area versus midnight, the temporary utilization management, suspension by United, or capacity increases. Thanks.

Sarah Elizabeth James: Thank you. Inpatient admissions are running above historical average. How do you think about the sustainability of that? And maybe you can help us with orders of magnitude on the drivers between share gain and growing catchment area versus to midnight, the temporary utilization management, suspension by United, or capacity increases.

Saum Sutaria: Yeah, well, I think inpatient utilization is building and growing primarily because of two fundamental things in the marketplace. One is the consistent growth in the aging population, and especially with respect to those that have chronic diseases. I mean, that trend hasn't stopped, and it's a fundamental tailwind for the hospital sector, in my opinion. You know, at least into the early part of the next decade, if you just look at the, you know, you look at the demographics, and then you have the second issue, which is, you know, the unfortunate consequence that happened with COVID, where you had a million premature deaths that, actuarially, would have, you know, in their last five years of life, most of those people would have ended up, you know, succumbing And the number is probably even larger than that.

Sarah Elizabeth James: Thanks.

Speaker Change: Well, I think inpatient utilization is building and growing primarily because of

Speaker Change: Two fundamental things in the marketplace. One is just the consistent.

Speaker Change: growth in the aging or you know aging population and and especially with respect to those that have chronic diseases. I mean that trend hasn't stopped and it's a fundamental tailwind for the hospital sector in my belief.

Unknown Executive: I mean, that trend hasn't stopped. And it's a fundamental tailwind for the hospital sector, in my belief, at least into the early part of the next decade if you just look at the demographics. And then you have the second issue, which, you know, it's kind of the unfortunate consequence that happened with COVID, where you had a million premature deaths that actuarially would have, you know, in their last five years of life, most of those people would have ended up, you know, succumbing to some other disease over a five-year period, but they all died up front.

Speaker Change: You know, at least into the early part of the next decade, if you just look at the, you know, you look at the demographics, and then you have the second issue, which, you know, it

Speaker Change: kind of the unfortunate consequence that happened with COVID where you had a million premature deaths.

Speaker Change: that actuarially would have, you know, in their last five years of life, most of those people...

Speaker Change: would have ended up...

Speaker Change: you know, succumbing to some other disease over a five-year period, but they all died up front. And the number is probably even larger than that. And so what's happening is, I think, every year you have more people aging into, quote unquote, that last five years of life. So you would just naturally expect

Unknown Executive: And the numbers are probably even larger than that. And so what's happening is I think every year, you have more people aging into quote unquote that last five years of life. So you would just naturally expect five years of recovery after the beginning of COVID. I mean, that just mathematically and actuarially seems pretty simple to understand.

Saum Sutaria: And so what's happening is, I think, every year you have more people aging into, quote unquote, the last five years of life. So you would just naturally expect five years of recovery after the beginning of COVID. I mean, that just mathematically and actuarially seems pretty simple to me to understand.

Speaker Change: five years of recovery after the beginning of COVID. I mean, that just...

Speaker Change: mathematically and actuarially seems pretty simple to me to understand. It's a question of how you then as a provider manage your physician, staffing, physical capacity in order to service that demand. And I think that's what we're seeing right now.

Saum Sutaria: It's a question of how you then, as a provider, manage your physicians, staffing, and physical capacity in order to service that demand. And I think that's what we're seeing right now. I don't see utilization dropping over time. I just see it kind of reaching a steady state at some point, and then we build from there, mostly just on the population growth side. I do think that there are a few things that have, you know, outsized effects currently, and that's primarily, in my view, driven by Medicaid redetermination.

Unknown Executive: It's the question of how you then, as a provider, manage your physician staffing physical capacity in order to service that demand. And I think that's what we're seeing right now. I don't see the utilization dropping over time. I just see it kind of reaching steady state at some point. And then we build from there mostly just on the population growth side. I do think that there are a few things that are, you know, outsized effects currently. And that's primarily, in my view, driven by Medicaid re-determination. And the impact of that, you know, Medicaid down exchange job from a volume perspective, I'm not sure I could quantify perfectly, is less profound than from an earnings perspective, because obviously the reimbursement rates on the exchange book in that conversion are more attractive than what you would have seen on the Medicaid side.

Speaker Change #100: I don't see the utilization...

Speaker Change #100: dropping over time. I just see it kind of reaching steady state at some point. And then we build from there mostly just on the population growth side. I do think that there are a few things that are

Speaker Change #100: you know, outsized.

Saum Sutaria: And the impact of that, you know, Medicaid down, exchange up, from a volume perspective, I'm not sure I could quantify it perfectly, is less profound from an earnings perspective, because obviously, the reimbursement rates on the exchange book in that conversion are more attractive than what you would have seen on the Medicaid side. And so it's helping, obviously, improve the earnings profile in the acute care hospital. We see less of this whole effect, by the way, at USPI.

Speaker Change #100: effects currently, and that's primarily, in my view, driven by Medicaid redetermination.

Speaker Change #100: and the impact of that, you know, Medicaid down, exchange up.

Speaker Change #100: From a volume perspective, I'm not sure I could quantify it perfectly, is less profound than from an earnings perspective, because obviously the reimbursement...

Speaker Change #100: rates on the exchange book in that conversion are more attractive than what you would have seen on the Medicaid side. And so it's helping obviously improve the earnings profile in the acute care hospitals. We see less of this whole effect, by the way, at USPI.

Unknown Executive: And so it's helping, obviously, improve the earnings profile in the acute care hospitals. We see less of this whole effect, by the way, at USPI. And again, that goes back to why we believe in the diversification of our business units.

Saum Sutaria: And again, that goes back to why we believe in the diversification of our business units. I mean, it was, you know, I'm purposely looking ahead and, frankly, looking at the uncertainty in the environment, political, and regulatory. I like the diversification of the business units because, you know, the ability to figure out a way to succeed in almost any environment in the next three years or four years is something we're going to have to figure out how to do. Thank you.

Speaker Change #100: And again, that goes back to why we believe the diversification of our business units. I mean, it was, you know, I'm purposely looking ahead and frankly, looking at the uncertainty in the environment, political and regulatory. I like the diversification of the business units, because

Unknown Executive: I mean, it was, you know, I'm purposely looking ahead and frankly looking at the uncertainty in the environment, political and regulatory. I like the diversification of the business units because, you know, the ability to figure out a way to succeed in almost any environment in the next three years, four years is something we're going to have to figure out how to do. Thank you.

Speaker Change #100: You know, the ability to figure out a way to succeed in almost any environment in the next three years, four years, is something we're going to have to figure out how to do.

Stephen Baxter: Our next question comes from Stephen Baxter with Wells Fargo. Please proceed with your question. Yeah, thanks for fitting in. Just another question on the hospital capacity commentary you're making. Especially, we think about the potential margin impact capacity coming back online. It sounds like maybe it's higher-curity capacity than maybe what you idle during COVID. Is that something that comes back online? Is it margin additive? Or is it a bit of a drag? Did you kind of ramp it up and make investments? I wonder how you should think about that. Thanks.

Stephen C. Baxter: Our next question comes from Stephen Baxter with Wells Fargo. Please proceed with your question. Yeah, hey, thanks for joining us.

Speaker Change #100: Thank you.

Speaker Change #101: Our next question comes from Stephen Baxter with Wells Fargo. Please proceed with your question.

Saum Sutaria: Just another question on the hospital capacity commentary you're making. I guess, how should we think about the potential margin impact of the capacity coming back online? It sounds like maybe it's higher acuity than maybe what you idled during COVID.

Stephen C. Baxter: Yeah, hey, thanks for fitting in. Just another question on the hospital capacity commentary you're making.

Stephen C. Baxter: I guess, how should we think about the potential margin impact, the capacity coming back online? It sounds like maybe it's...

Saum Sutaria: Is that something that comes back online, and it's a margin additive? Or is it, you know, a bit of a drag as you kind of ramp it up and make investments? Just wondering how we should think about that. Thanks.

Stephen C. Baxter: higher acuity capacity than maybe what you idle during COVID. Is that something that comes back online and it's margin additive? Or is it, you know, a bit of a drag as you kind of ramp it up and make investments? Just wondering how we should think about that. Thanks.

Saum Sutaria: Yeah, well, two things. Additional capacity that we bring online, given our ability to manage costs, on a marginal basis. We're not going to do it if it's not margin-accretive. That being said, in the early phases, months of opening up new capacity, especially if you have to do it, you start out with contract labor and other things until you ultimately recruit and staff up your unit. The margins can grow over time as opposed, you know, to where you want them to be as opposed to what you do instantly. But it's generally not the case that we're saying, oh, let's go, you know, find some.

Unknown Executive: Yeah, well two things. Additional capacity that we bring online given our ability to manage cost on a marginal basis. We're not going to do it if it's not margin accretive. That being said, in the early phases months of opening up new capacity, especially if you have to do it, you start out with contract labor and other things. Until you ultimately recruit and staff up your unit, the margins can grow over time to where you want them to be as opposed to what you do instantly. But it's generally not the case that we're saying, let's go find some totally margin dilutive, margin negative service and figure out how we might ultimately flip that.

Speaker Change #103: Yeah, well, two things.

Speaker Change #104: Additional capacity that we bring online, given our ability to manage cost on a marginal basis, we're not going to do it if it's not margin accretive. That being said, in the early phases, months of opening up new capacity, especially if you have to do it,

Speaker Change #104: You know, you start out with contract labor and other things.

Speaker Change #104: until you ultimately recruit and staff up your unit.

Speaker Change #104: The margins can grow over time, you know, to where you want them to be, as opposed to what you do instantly, but it's generally not the case that we're saying, oh, let's go, you know, find some

Saum Sutaria: Totally margin-dilutive, margin-negative service and figure out, you know, how we might ultimately flip that. And that, you know, again, that's our degree of confidence and whatnot in what we're doing around these service lines. In terms of how we think about them, but that's generally our algorithm, we like to see the incremental volume produce at least a contribution margin, you know, up front. I will repeat, I am not, and we are not chasing.

Speaker Change #104: totally margin dilutive, margin negative service and figure out, you know, how we might ultimately flip that. And that, you know, again, that's our degree of confidence and whatnot in what we're doing around these service lines.

Unknown Executive: Again, that's our degree of confidence and whatnot in what we're doing around these service lines in terms of how we think about them. But that's generally our algorithm, as we like to see the incremental volume produce at least a contribution margin upfront.

Speaker Change #104: in terms of how we think about them. But that's generally our algorithm, is we like to see the incremental volume produce at least a contribution margin up front.

Unknown Executive: I will repeat, I am not; we are not chasing mimicking 2020 2019. It's not even part of our algorithm to think that way in the acute care business. We have deliberately and permanently shifted our mix in certain ways in our acute care portfolio. And the revenue and margin profile that we're generating suggests that has been a good decision, at least for Tenet's acute care hospital portfolio.

Speaker Change #104: I will repeat, I am not, we are not chasing.

Saum Sutaria: Mimicking 2019, it's not even part of our algorithm to think that way in the acute care business. We have deliberately and permanently shifted our mix in certain ways in our acute care portfolio, and the revenue and margin profile that we're generating suggests that has been a good decision, at least for Tenet's acute care hospital portfolio. Our next question comes from Michael Hoff with Baird. Please proceed with your question. Thank you.

Speaker Change #104: Mimicking 2019. It's not even part of our algorithm to think that way in the acute care business.

Speaker Change #104: We have deliberately and permanently shifted our mix in certain ways in our acute care portfolio and the revenue and margin profile that we're generating suggests that has been a good decision at least for Tenet's acute care hospital portfolio.

Michael Haath: Our next question comes from Michael Haath with Baird.

Michael Haath: Please proceed with your question. Thank you. So as I think about your first half margin performance, arguably one of the strongest first half margin performance using the company history, if I'm not mistaken. I look across your metrics. It seems like there's still room to get back to pre-COVID levels on hospital occupancy and average length of stay, which optically to me appears to provide more line size to maybe sustained strength of performance going forward. So my question specifically in occupancy levels, one of your peers I've reached near mid 70s. And as I think about where tenet is around 50%.

Speaker Change #105: Our next question comes from Michael Hoff with Baird. Please proceed with your question.

Michael Hoff: So as I think about your first half margin performance, arguably one of the strongest first half margin performances in the company's history, if I'm not mistaken, and I looked across your metric, It seems like there's still room to get back to pre-COVID levels on hospital occupancy and average length of stay, which, optically, to me, appears to provide more line of sight to maybe sustain strength and performance going forward. So my question specifically about occupancy levels, one of your peers has reached near the mid-70s, and as I think about where Tenet is, around 50%, how should we think about the directional view of this moving over time? Is there a path to the 60s or 70s, and what's necessary to happen in order to accomplish this?

Michael Hoff: Thank you. So as I think about your first half margin performance, arguably one of the strongest first half margin performances in the company's history if I'm not mistaken, and I look across your metrics

Speaker Change #107: It seems like there's still room to get back to pre-COVID levels on hospital occupancy and average length of stay, which...

Speaker Change #107: Optically, to me, it appears to provide more line of sight to maybe sustain strength and performance going forward.

Speaker Change #108: My question is specifically in occupancy levels. One of your peers has reached near mid-70s.

Unknown Executive: And how should we think about the directional view of this moving over time? Is your path to 60s or 70s? And what's necessary to happen in order to accomplish this? And I know you've mentioned adding capacity, but here's specifically here at the author on occupancy level. Thank you.

Speaker Change #109: And as I think about where Tenet is, around 50%, how should we think about the directional view of this moving over time? Is there a path to 60s or 70s, and what's necessary to happen in order to accomplish this? And I know you've mentioned, you know, adding capacity, but curious to specifically hear your thoughts on...

Saum Sutaria: And I know you've mentioned adding capacity, but I'm curious to specifically hear your thoughts on this. Thank you. Yeah. Well, I think there are a few things. First of all, I'm not sure those statistics are truly apples to apples in the way that we each may define them in terms of how we think about our capacity. I would say that given that our, you know, collection of markets, market dynamics, and mix are different also than the peers that you reference, we probably take a more measured view of capacity and service lines that we're gonna participate in. And so in some markets, our capacity utilization will be higher than in other markets. So that's generally how I would answer the question.

Unknown Executive: Well, I think there's a few things. First of all, I'm not sure those statistics are truly apples to apples in the way that we each may define them in terms of how we think about our capacity. I would say that, given that our collection of markets, market dynamics and mix. Works are different also than the peer that you reference. We probably take a more measured view of capacity and service lines that we're going to participate in. And so, in some markets, our capacity utilization will be higher than in other markets. So that's generally how I would answer the question.

Speaker Change #111: Yeah, well I think there's a few things. First of all, I'm not sure those statistics are truly apples to apples in the way that we...

Speaker Change #110: Each may define them.

Speaker Change #113: In terms of how we think about our capacity, I would say that given that our, you know, collection of markets, market dynamics and mix

Speaker Change #109: are different. Also,

Speaker Change #109: than the peer that you reference, we probably take a more measured view of capacity and service lines that we're gonna participate in. And so in some markets, our capacity utilization will be higher than in other markets.

Saum Sutaria: I will say that as a macro point... internally, as we've made so many different changes and improvements in our acute care segment over the last five years in terms of what we've been doing, both strategically, operationally, and how we deploy capital. We definitely take notice of the fact that in this industry, the gold standard here and the way in which they manage capacity, capacity utilization, in particular, is a gap between what we have been able to achieve at Tenet and otherwise.

Unknown Executive: I will say that as a macro point we do internally as we've made so many different changes and improvements in our acute care segment over the last five years in terms of what we've been doing both strategically, operationally, and how we deploy capital. We definitely take notice of the fact that in this industry the gold standard peer and the way in which they manage capacity, capacity utilization in particular, is a gap between what we have been able to achieve at Tenet and otherwise. And so that is a constant source of discussion and opportunity for us.

Speaker Change #109: So, that's generally how I would answer the question. I will say that as a macro point...

Speaker Change #109: We do internally, as we've made so many different changes and improvements in our acute care segment over the last five years in terms of what we've been doing, both strategically, operationally, and how we deploy capital.

Speaker Change #109: We definitely take notice of the fact that...

Speaker Change #109: in this industry, the gold standard.

Speaker Change #109: peer

Speaker Change #109: and the way in which they manage capacity, capacity utilization in particular is a gap between what we have been able to achieve at Tenet and otherwise. And so that is a constant source of discussion and opportunity for us.

Saum Sutaria: And so that is a constant source of discussion and opportunity for us. Uh, you know, don't take the comments at the beginning to mean, you know, we're looking for structurally different numbers. I don't know that they're apples to apples, but at the same time, we are very cognizant of the fact that we have improvement opportunities, um, just like we've made improvement opportunities come to fruition in other areas relative to the gold standard peer here in cost control, supply control, etc., etc. We have reached the end of the question and answer session, and this concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.

Unknown Executive: So don't take the comments in the beginning to mean we're looking for structurally different numbers. I don't know that they're apples to apples. But at the same time we are very cognizant of the fact that we have improvement opportunity, just like we've made improvement opportunities come to fruition in other areas relative to the gold standard peer here in cost control, supply control, etc. etc.

Speaker Change #109: You know, don't take the comments in the beginning to mean, you know, we're looking for structurally different numbers. I don't know that they're apples to apples. But at the same time, we are very cognizant of the fact that we have improvement opportunity.

Speaker Change #109: Just like we've made improvement opportunities.

Speaker Change #109: come to fruition in other areas relative to the gold standard peer here in cost control, supply control, etc., etc.

Unknown Executive: We have reached the end of the question and answer session, and this concludes today's conference.

Speaker Change #112: We have reached the end of the question and answer session, and this concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.

Unknown Executive: You may disconnect your lines at this time, and we thank you for your participants.