Q1 2025 Tenet Healthcare Corp Earnings Call
Operator: Good morning and welcome to Tenet Healthcare's first quarter 2025 earnings conference call. After the speaker's remarks, there'll be a question and answer session for industry At that time, if you'd like to ask a question, please press star 1 on your telephone. Tenet respectfully asks that analysts limit themselves to one question.
Good morning, and welcome to Tenet Healthcare's first quarter 2025 earnings conference call. After the Speakers' remarks, there'll be a question and answer session for industry analysts at that time, if you'd like to ask a question. Please press star one on your telephone keypad tenant.
Tenant respectfully ask 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, Investor Relations.
Speaker Change: I'll now turn the call over to your host Mr will Mcdowell, Vice President of Investor Relations. Mr. Mcdonald you may begin.
William McDowell: Mr. McDowell, you may begin. 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 first quarter 2025 results, as well as a discussion of our financial outlook.
Okay.
Speaker Change: 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 Tennant's first quarter 2025 results as well as the discussion of our financial outlook tenant senior management participating in today's call will be Dr. <unk>, <unk>, Chairman and Chief Executive Officer, and Sun Park Executive Vice.
Unknown Executive: 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.
Sun Park: President and Chief Financial Officer.
William McDowell: Our webcast this morning includes a slide presentation which 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. Actual results and plans could differ materially. Tenet is under no obligation to update any forward-looking statements based on subsequent information.
Sun Park: Our webcast. This morning includes a slide presentation, which has been posted to the Investor Relations section of our website tenet health Dot com.
Sun Park: Listeners to this call are advised that certain statements made during our discussion today are forward looking and represent managements expectations based on currently available information actual results and plans could differ materially.
Sun Park: And it is under no obligation to update any forward looking statements based on subsequent information investors should take note of the cautionary statement slide included in today's presentation as well as the risk factors discussed in our most recently formed.
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 recently filed Form 10-K and other filings with the Securities and Exchange Commission.
Sal: Filed Form 10-K, and other filings with the Securities and Exchange Commission and with that I'll turn the call over to Sal.
Saum Sutaria: With that, I'll turn the call over to Saum. Thank you, Will, and good morning, everyone. We reported first quarter 2025 net operating revenues of $5.2 billion and consolidated adjusted EBITDA of $1.163 billion, which represents growth of 14% over 2024. Adjusted EBITDA margin of 22.3% in first quarter 2025, a 320 basis point improvement over the prior year, demonstrates our strong growth and continued operating. USPI had a nice start to the year as we generated $456 million in adjusted EBITDA, which represents 16% growth over first quarter 2024. Same facility revenues grew 6.8% in the first quarter and were highlighted by a 12% growth in total joint replacements in the ASCs over the prior year.
Sal: Thank you will and good morning, everyone.
Sal: We reported first quarter 2025, net operating revenues of $5 $2 billion and consolidated adjusted EBITDA of 1.163 billion, which represents growth of 14% over 'twenty 'twenty four.
Sal: So the EBITDA margin of 22, 3% in first quarter, 2025, or 320 basis point improvement over the prior year demonstrates our strong growth and continued operating discipline.
Sal: U S. P. I had a nice start to the year as we generated $456 million and adjusted EBITDA, which represents 16% growth over first quarter 2024.
Sal: Same facility revenues grew six 8% in the first quarter and were highlighted by a 12% growth in total joint replacements in the a M. A c's over the prior year.
Saum Sutaria: Turning to our hospital segment, Adjusted EBITDA grew 12% to $707 million in the first quarter of 2025. Same-store hospital admissions were up 4.4% as we continue to open up capacity to respond to the strong utilization environment. Acuity and payer mix remains strong with first quarter 2025 revenue per adjusted admission up 2.8% over the prior year. In all, our first quarter results were above our expectations, driven by fundamental outperformance, continued strength in same-store revenue growth due to customer demand, high acuity, and effective cost management.
Sal: Turning to our hospital segment adjusted EBITDA grew 12% to 707 million in the first quarter of 2025.
Sal: Same store hospital admissions were up four 4% as we continue to open up capacity to respond to the strong utilization environment.
Sal: Acuity and payer mix remains strong with first quarter 2025 revenue per adjusted admission up two 8% over the prior year.
Sal: You know our first quarter results were above our expectations driven by fundamental outperformance continued strength in the same store and same store revenue growth due to customer demand high acuity and effective cost management.
Saum Sutaria: Regarding our 2025 full-year guidance, we are not addressing the underlying outperformance in our business units during the first quarter. We're early in the year, and while we are very pleased with both our fundamental outperformance and the continued demand for our services and momentum we carry into the balance of the year, we'll address our full-year expectations in the future.
Sal: Regarding our 2025 full year guidance, we are not addressing the underlying outperformance in our business units. During the first quarter were early in the year and while we are very pleased with both our fundamental outperformance and the continued demand for our services and momentum we carry into the balance of the year will address our full year <unk>.
Sal: Expectations in the future.
Saum Sutaria: Turning to capital deployment, we are well positioned to create value for shareholders through effective capital deployment of the cash flows that our portfolio of business generates. We've demonstrated an ability to flex our operations during challenging times, and our transformed portfolio is better positioned to handle economic stress. We continue to see significant opportunity for M&A in the ambulatory space and intend to invest a baseline of approximately $250 million towards this opportunity each year. During the quarter, we added six new centers, including a strategic partnership with Choice Care Surgery Center in Midland, Texas. Choice Care is a 16,000 square foot, state-of-the-art, multi-specialty surgery center with a focus on orthopedic surgery and urology, among other service lines.
Sal: Turning to capital deployment deployment, we are well positioned to create value for shareholders through effective capital deployment of the cash flows that our portfolio of business generates we've demonstrated an ability to flex our operations during challenging times and our transformed portfolio is better positioned to handle economic stresses.
Sal: We continue to see significant opportunity for M&A in the ambulatory space and intend to invest a baseline of approximately $250 million towards this opportunity each year.
Sal: During the quarter, we added six new centers, including a strategic partnership with choice care surgery Center in Midland, Texas Choice cares, a 16000 square foot state of the art multi specialty surgery center with a focus on orthopedic surgery and urology among other service lines.
Saum Sutaria: Our cash flows have enabled us to make incremental investments in capital expenditures to fuel organic growth such as our expanded L&D department at our Abrazo West campus in Arizona. Our top-tier medical professionals and latest medical technology reflect our commitment to delivering exceptional care to women and their families in one of the fast-growing communities in the United States. We have significantly deleveraged our balance sheet with a net debt to EBITDA minus NCI ratio of 3.1 as of March 31st, 2025, competitive with our leading peers. We remain committed to a deleveraged balance sheet as it provides us the flexibility to actively deploy capital to create value.
Sal: Our cash flows have enabled us to make incremental investments in capital expenditures to fuel organic growth such as our expanded LNG department at our ABRAZO West campus in Arizona.
Sal: Our top tier medical professionals and latest medical technology reflect our commitment to delivering exceptional care to women and their families and one of the fast growing communities in the United States.
Sal: We have significantly deleveraged, our balance sheet with a net debt to EBITDA minus NCI ratio of 3.1.
Sal: As of March 31, 2025 competitive with our leading peers.
We remain committed to a deleveraged balance sheet as it provides us the flexibility to actively deploy capital to create value.
Saum Sutaria: We believe that our current valuation is disjointed relative to our growth prospects, strong operating capabilities, and transformed portfolio of business. We see this as an opportunity that we can capitalize on via share repurchase. We repurchased 2.6 million shares in the first quarter of 2025 for $348 million. And going going forward, we plan to be active repurchasers of our shares, particularly at our current valuation multiple, leveraging the significant cash flow generation of our business.
Sal: We believe that our current valuation is disjointed relative to our growth prospects strong operating capabilities and transformed portfolio of businesses we.
Sal: We see this as an opportunity that we can capitalize on via share repurchase.
Sal: We repurchased two 6 million shares in the first quarter of 2025 for $348 million and growing going forward. We plan to be active re purchasers of our shares, particularly at our current valuation multiple leveraging the significant cash flow generation of our business.
Saum Sutaria: In summary, we've had a strong start to the year based on fundamental growth and cost management. We are executing effectively on our growth strategy with an intense focus on serving our patients and delivering value with our physician partners. Importantly, we are not altering our business strategy because of healthcare policy uncertainty that the industry is currently facing. We will steadily execute on our growth strategies with consistent capital investments and continued demonstration of our strong operating capability. We see significant opportunity for growth, which we believe translates into attractive free cash flow generation that we can deploy across our discussed priorities to generate value for shareholders.
Sal: In summary, we've had a strong start to the year based on fundamental growth and cost management.
Sal: We are executing effectively on our growth strategy with an intense focus on serving our patients and delivering value with our physician partners.
Sal: Fortunately, we are not altering our business strategy because of health care policy uncertainty that the industry is currently facing we will steadily execute on our growth strategies with consistent capital investments and continued demonstration of our strong operating capabilities.
Sal: We see significant opportunity for growth, which we believe translates into attractive free cash flow generation that we can deploy across our discussed priorities to generate value for shareholders.
Sun Park: And with that, Sun will provide a more detailed review of our financial results. Sun. Thank you, Saum, and good morning, everyone. We're pleased to report another strong quarter to start off our fiscal 2025. We generated total net operating revenues of $5.2 billion and consolidated adjusted EBITDA of $1.163 billion, a 14% increase over first quarter 2024. Our first quarter adjusted EBITDA margin was 22.3%, a 320 basis point improvement over last year. Adjusted EBITDA was well above the high end of our guidance range, driven by strong fundamentals, including same-store revenue growth, continued high patient acuity, favorable payer mix, and effective cost control.
Sun Park: And with that Sun will provide a more detailed review of our financial results.
Sun Park: Thank you Tom and good morning, everyone. We're pleased to report another strong quarter to start off our fiscal 2025, we generated total net operating revenues of $5 2 billion and consolidated adjusted EBITDA of 1.163, Billion% to 14% increase over first quarter of 2024.
Sun Park: Our first quarter adjusted EBITDA margin was 22, 3%, a 320 basis point improvement over last year.
Sun Park: Adjusted EBITDA was well above the high end of our guidance range driven by strong fundamentals, including same store revenue growth continued high patient acuity favorable payer mix and effective cost controls.
Sun Park: I would now like to highlight some key items for each of our segments, beginning with USPI, which again, delivered strong operating results. In the first quarter, USPI's adjusted EBITDA grew 16% over last year, with adjusted EBITDA margin at 38%. USPI delivered a 6.8% increase in same-facility, system-wide revenues. with net revenue per case up 9.1% and case volumes down 2.1% reflecting our continued disciplined shift toward higher acuity services. Turning to our hospital segment, first quarter 2025 adjusted EBITDA was $707 million, with margins up 310 basis points over last year at 17.5%. excluding the hospitals divested in 2024, our adjusted EBITDA grew 23% over first quarter of 2024.
Sun Park: I would now like to highlight some key items for each of our segments beginning with U S. P I, which again delivered strong operating results.
Sun Park: In the first quarter U S. Adjusted EBITDA grew 16% over last year with adjusted EBITDA margin at 38%.
Sun Park: USPI delivered a six 8% increase in same facility system wide revenues.
Sun Park: With net revenue per case up nine 1% in case volumes down two 1%, reflecting our continued disciplined shift toward higher acuity services.
Sun Park: Turning to our hospital segment first quarter 2025, adjusted EBITDA was $707 million with margins up 310 basis points over last year at 17, 5%.
Sun Park: Excluding the hospitals divested in 2024, our adjusted EBITDA grew 23% over first quarter of 2024.
Sun Park: Same hospital inpatient admissions increased 4.4% and revenue per adjusted admissions grew 2.8%. Our consolidated salary, wages, and benefits in first quarter was 40.6% of our net revenues, a 260 basis point improvement from prior year, and our consolidated contract labor expense was 2% of SW&B. In the first quarter of 25, we recognized a $40 million favorable pre-tax impact for additional Medicaid supplemental revenues related to prior years. As a reminder, first quarter 2024 results included a $44 million favorable pre-tax impact for additional Medicaid revenues related to the prior year.
Sun Park: Same hospital inpatient admissions increased four 4% and revenue per adjusted admissions grew two 8%.
Sun Park: Our consolidated salary wages and benefits in first quarter was 46% of our net revenues a 260 basis point improvement from prior year and our consolidated contract labor expense was 2% of SWM B.
Sun Park: In the first quarter of 'twenty, five we recognized a $40 million favorable pre tax impact for additional Medicaid supplemental revenues related to prior years.
Sun Park: As a reminder, first quarter 2024 results included a $44 million favorable pre tax impact for additional Medicaid revenues related to the prior year.
Sun Park: Next, we will discuss our cash flow, balance sheet, and capital. We generated $642 million of free cash flow in the first quarter, and as of March 31st, 2025, we have $3 billion of cash on hand with no borrowings outstanding under our $1.5 billion line of credit facility. Additionally, we have no significant debt maturities until 2027. And finally, we repurchased 2.6 million shares of our stock for $348 million in the first quarter. Our leverage ratio as a quarter end was 2.46 times EBITDA, or 3.14 times EBITDA less NCI, driven by our outstanding operational performance and continued focus on financial discipline.
Sun Park: Next we will discuss our cash flow balance sheet and capital structure.
Sun Park: We generated $642 million of free cash flow in the first quarter and as of March 31, 2025, we had $3 billion of cash on hand with no borrowings outstanding under our $1 5 billion line of credit facility.
Sun Park: Additionally, we have no significant debt maturities until 2027.
Sun Park: And finally, we repurchased two 6 million shares of our stock for $348 million in the first quarter.
Sun Park: Our leverage ratio as of quarter end was 2.46 times EBITDA were $3. One four times EBITDA less NCI driven by our outstanding operational performance and continued focus on financial discipline.
Sun Park: We are very pleased with our ongoing cash flow generation capabilities and have a commitment to a deleveraged balance sheet. We believe we have significant financial flexibility to support our capital allocation priorities and drive shareholder value.
Sun Park: We are very pleased with our ongoing cash flow generation capabilities and have a commitment to a deleveraged balance sheet. We believe we have significant financial flexibility to support our capital allocation priorities and drive shareholder value.
Sun Park: Let me now turn to our outlook for 2025. As Saum noted, we are not making any adjustments to our full year 25 outlook at this time. while we had strong fundamental app performance in the first quarter. and have continued confidence in our ability to achieve our four-year targets. It is early in the year and we will revisit our four-year guidance as needed in subsequent quarters. As such, we are reaffirming the full year 25 guidance that we initially provided in February. A few items of note, our outlook continues to assume $35 million of net revenues associated with the Tennessee Supplemental Medicaid programs, which have not yet been fully approved.
Sun Park: Let me now turn to our outlook for 2025.
Sun Park: As Tom noted, we are not making any adjustments to our full year twenty-five outlook at this time.
Sun Park: While we had strong fundamental outperformance in the first quarter.
Sun Park: And have continued confidence in our ability to achieve our full year targets. It is early in the year and we will revisit our full year guidance as needed in subsequent quarters.
Sun Park: As such we are reaffirming the full year 25 guidance that we initially provided in February.
Sun Park: A few items of note our outlook continues to assume $35 million of net revenues associated with the Tennessee supplemental Medicaid programs, which have not yet been fully approved.
Sun Park: As such, we did not record any revenues associated with these programs in the first quarter of 2025. We expect second quarter consolidated adjusted EBITDA to be in the range of 24% to 25% of our full year consolidated adjusted EBITDA at the midpoint. We expect USPI's EBITDA in the second quarter to be in the range of 24.25% to 25.25% of our full-year USPI-adjusted EBITDA at the midpoint. Turning to our cash flows for 2025, we continue to expect free cash flows in the range of $1.8 billion to $2.05 billion. Distributions to NCI in the range of $750 million to $800 million.
Sun Park: As such we did not record annual revenues associated with these programs in the first quarter of 'twenty five.
Sun Park: We expect second quarter consolidated adjusted EBITDA to be in the range of 24% to 25% of our full year consolidated adjusted EBITDA at the midpoint.
Sun Park: We expect USPI as EBITDA in the second quarter to be in the range of $24 25 to $25 two 5% of our full year USPI adjusted EBITDA at the mid point.
Sun Park: Turning to our cash flow for 25, we continue to expect free cash flow in the range of $1 8 billion to $2.05 billion.
Sun Park: Distributions to NCI in the range of $750 million to $800 million.
Sun Park: resulting in free cash flow after NCI in the range of $1.05 billion to $1.25 billion, all consistent with our initial 2025 guidance.
Sun Park: Resulting in free cash flow after NCI in the range of 1.05 billion to $125 billion, all consistent with our initial 2025 guidance.
Sun Park: And finally, as a reminder, our capital deployment priorities have not changed. First, we will continue to prioritize capital investments to grow USPI through M&A. Second, we expect to continue to invest in key hospital growth opportunities, including our focus on higher acuity service options. Third, we will evaluate opportunities to retire and to refinance debt. And finally, we'll have a balanced approach to share repurchases depending on market conditions and other investment opportunities. Given our attractive free cash flow profile and current valuations, we plan to continue to be active repurchasers of our stock in 2025. We're pleased with our strong start to the year and are confident in our ability to deliver on our Outlook for 25 as we continue to provide high quality care for those in the communities we serve.
Sun Park: And finally as a reminder, our capital deployment priorities have not changed first we will continue to prioritize capital investments to grow USPI through M&A.
Sun Park: Second we expect to continue to invest in key hospital growth opportunities, including our focus on higher acuity service offerings.
Sun Park: Third we will evaluate opportunities to retire and to refinance debt and finally, we'll have a balanced approach to share repurchases, depending on market conditions and other investment opportunities.
Given our attractive free cash flow profile and current valuations we plan to continue to be actively purchasers of our stock of our sock in 2025.
Sun Park: We're pleased with our strong start to the year and are confident in our ability to deliver on our outlook for 'twenty five as we continue to provide high quality care for those in the communities we serve.
Operator: And with that, we're ready to begin the Q&A. Operator. Thank you.
Sun Park: And with that we're ready to begin the Q&A operator.
Sun Park: Thank you at this time, we'll be conducting a question and answer.
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. As a reminder, Tenet respectfully asks that analysts limit themselves to one question. Confirmation, tell them to indicate your line is in the question. You may press start to if you'd like to remove your question from. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start button.
Sun Park: If you'd like to ask a question. Please press star one on your telephone keypad as.
Sun Park: As a reminder, tenant respectfully ask that analysts limit themselves to one question each.
Sun Park: A confirmation Calvin to Kate Your line is in the question queue. You May press star two if you'd like to remove your question from the queue.
Sun Park: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Operator: One moment, please, while we poll for questions.
Stephen Baxter: Our first question comes from Stephen Baxter with Wells Fargo. Please proceed with your question. Hey, good morning. Just a couple of quick ones here. I just wanted to ask, you know, specifically understand the posture you're adopting on guidance.
Speaker Change: Our first question comes from Stephen Baxter with Wells Fargo. Please proceed with your question.
Stephen Baxter: Hey, good morning, just a couple of quick ones here I just wanted to ask specifically I understand the posturing or adopt then on guidance, but I guess as we think about the first quarter itself is there anything that you would kind of call out maybe the size of $40 million of incremental Medicare supplemental that you can frame it potentially as an out of period item that we should think about bridging from Q1.
Stephen Baxter: But I guess as we think about the first quarter itself, is there anything that you would kind of call out maybe besides the 40 million of incremental Medicaid supplementals that you'd frame as potentially as an out-of-period item that we should think about bridging from Q1 to Q2? And then just on USPI, you know, revenue per case growth, you know, the highest we've seen for quite some time in a normal operating environment, despite the total joint case growth being a little bit lower than it was this time last year, anything you'd kind of call out there as the driver of sort of the higher acuity, higher revenue intensity, and potentially backfilling, you know, the total joint growth?
Stephen Baxter: Q2, and then just on USPI revenue per case growth the highest we've seen for quite some time in a normal operating environment. Despite the total joint case growth being a little bit lower than it was this time last year anything you can kind of call out there is the driver in sort of the higher acuity higher revenue intensity and potentially backfill in the total total joint growth.
Thank you.
Thank you.
Saum Sutaria: Yeah, hey, Steve, Saum here. Thanks for the question, or questions.
Speaker Change: Yeah, Hey, Steve some here thanks for the question.
Speaker Change: Our questions number on the on the first point no. There's nothing else I mean, we're just not addressing guidance. This early in the year, we recognize the fundamental outperformance. So there are no other items there on the USPI side from a revenue per case growth standpoint.
Number, on the first point, no, there's nothing else. I mean, we're just not addressing guidance this early in the year. We recognize the fundamental outperformance.
So there are no other items there. On the USPI side, from a revenue per case growth standpoint, three factors, you know, obviously, our contracting platform, acuity, and, you know, we continue to take strategic opportunities, in particular, accelerating some of what we've been working on for the last year or two, on low acuity, low acuity work. And, you know, I mean, look, the growth rates on joints and things like that, I mean, as the platform gets bigger and bigger, obviously, on a percentage basis, the growth rates will come down a bit. But, you know, we're pleased with the, with the joint, you know, the growth, the continued, ongoing march forward in moving the joints into the outpatients.
Speaker Change: Three factors, obviously, our contracting platform acuity and you know we continue to take strategic opportunities in particular accelerating some of what we've been working on for the last year or two are on low acuity low acuity work and you know I mean look the growth rates on joints and things.
Speaker Change: That I mean, as the platform gets bigger and bigger.
Speaker Change: Obviously on a percentage basis.
Speaker Change: The growth rates will come down a bit, but we're pleased with the with the joint.
Speaker Change: The growth the continued ongoing March forward and moving the joints into the outpatient setting as we've said we think that's a big opportunity this decade.
So, you know, we're pleased with that.
Greg Henenbach: Our next question comes from Greg Henenbach with Morgan Stanley Investment. Please proceed with your question. Thank you.
Speaker Change: Our next question comes from Greg hanging back with Morgan Stanley investments. Please proceed with your question.
Greg Henenbach: For USPI, can you just talk about the pipeline of potential acquisitions and just your confidence of being able to deploy the $250 million in investment? Yeah, the pipeline looks good. I mean, you know, 250 is always kind of a goal range that we put. Obviously, we have been, well, we've certainly been spending on average a lot more than that, almost double that, because of some of the platforms over the past five, six years. But yeah, that's still our goal, and the pipeline looks healthy. The number of de novo's look healthy in terms of indicated centers that will stand up from the ground up.
Greg: Thank you for USPI can you just talk about the pipeline of potential acquisitions, and just your confidence of being able to deploy that $250 million and investment.
Speaker Change: Yes.
Speaker Change: Yes, the pipeline looks good I mean, $2 50 is always kind of our goal.
Speaker Change: Range that we put obviously.
Speaker Change: We have been while we've certainly been spending on average a lot more than that almost double that because of some of the platforms.
Speaker Change: Over the past five six years, but yes, that's still our goal and the pipeline looks healthy.
Speaker Change: The number of de Novo's look healthy.
Speaker Change: In terms of our syndicated centers that will stand up from the ground up.
The corollary question that often comes is the multiples aren't really changing very much from where they've been. You know, obviously our focus is a little bit more on on some centers that have the potential for USPI to deploy it. service line diversification capabilities and add things like ortho and whatnot that may not be necessarily part of those centers but yeah we feel pretty good. I mean the USPI environment looks great, right, and you know again I'm sure it'll come up but I'll remind you that you know we don't have as much exposure in that environment to certainly Medicaid and while the exchanges are certainly relevant there, they're less relevant than the hospital side.
Speaker Change: You know corollary question that often comes as the multiples arent really changing very much.
Speaker Change: From from where they've been.
Speaker Change: Obviously, our focus is a little bit.
Speaker Change: More on.
Speaker Change: On some centers that have the potential for USPI to deploy its service line diversification capabilities and add things like ortho and whatnot that may not be necessarily part of those centers, but.
Speaker Change: Yes, we feel we feel pretty good I mean, the USPI environment looks great right and you know again I'm sure it'll come up but I'll remind you that we don't have as much exposure in that environment to certainly Medicaid and while the exchanges are certainly relevant there they are less relevant than the hospital segment.
Got it. Appreciate the call. Thanks.
Speaker Change: Got it appreciate the color.
Speaker Change: Thanks.
Joanna Gajuk: Our next question comes from Joanna Gajuk with Bank of America. Please proceed with your question.
Speaker Change: Our next question comes from Joanna <unk> with Bank of America. Please proceed with your question.
Joanna: Oh, hi, good morning, Thanks, so much for taking the question.
Speaker Change: So maybe.
Speaker Change: I guess I wanted to follow up actually the first question around just the strength in the quarter I understand that you want to be conservative and you don't want to put all the elements.
Speaker Change: But just walk us through because the hospital segment, where in particular, those margins, which are much better than you think.
Speaker Change: 40 million out of period. So is there something else in that segment that came in much better than internal expectations. Thank you.
Joanna Gajuk: Hey, it's Saum again, and Sun can comment, just so that we're both consistent on this. I don't see, I mean, we had a good quarter. I mean, we had a bunch of things in motion from last year regarding expense management. You know, you can, maybe you can review some of those statistics. Obviously, as we started to think about various policy changes and other things that could be out there, could be part of the discussion, we were thinking about expense management very carefully coming into 2025. The growth environment's been good. We've been able to accommodate volume without adding a lot of contract labor, where we have been expanding capacity.
Tom: Hey, its Tom again, and Sun can comment.
Tom: Just so that we're both consistent on this I don't see I mean, we had a good quarter I mean, we had a bunch of things in motion from last year regarding expense management.
Tom: You can maybe you can review some of those statistics, obviously as we started to think about various policy changes and other things that could be out there could be part of the discussion we were thinking about expense management very carefully coming into 2025 the growth environment has been good we've been able to accommodate vol.
Tom: <unk> without adding a lot of contract labor.
Tom: We have been expanding capacity, our recruiting of staff and nursing has been good our retention rates have improved.
Our recruiting of staff and nursing has been good. Our retention rates have improved. Yeah, I don't, I mean, I know it, it, it, I understand the question, you know, is there something else in there, but there's not. It's just, it's just, we, we put together, you know, three or four good things together in the same quarter, and it ended up generating better results than we might have expected.
Speaker Change: Yeah, I mean I know.
Speaker Change: I understand the question is there something else in there, but theres not its just it just we we put together.
Speaker Change: Three or four good things together in the same quarter and it ended up generating better results than we might've expected Sun.
Sun? Yeah, I'll just add, look, the $40 million of out-of-period you mentioned, you know, obviously that's balanced with about the same amount, $44 million of out-of-period adjustments we had in Q1 of last year. So that's, you know, kind of even. And then as Saum said, I think it really was operational strength. You know, our acuity, our payer mix remains strong. You know, our net revenue per adjusted emissions of 2.8% compares very favorably to our op-ex per adjusted emissions of about 50 bps, I believe it was. And then, you know, as Saum said, we were very focused on operating discipline, especially labor.
Speaker Change: To add.
Speaker Change: It looked a $40 million of out.
Speaker Change: <unk> you mentioned, obviously, that's balanced with about the same amount $44 million of out of period adjustments. We had in Q1 of last year. So that's kind of even.
Speaker Change: And then as Tom said I think it really was operational strength, our acuity or payer mix remains strong.
Speaker Change: Our net revenue per adjusted mission of two 8% compares very favorably to our opex per adjusted admissions.
Speaker Change: 50 bps I believe it was.
Speaker Change: And then on.
Speaker Change: As Tom said, we are very focused on operating discipline, especially labor.
You know, we, we had a overturning basis point improvement in SWB in the hospital segment between Q1 of last year and Q1 of this year. That reflects not only the contract labor discipline, but just a stable wage environment overall, as well as other operating discipline from our field force. And then I would say finally, you know, we remain very focused on our other lines as well. If you look at our supplies, if you look at our other op-ex line items, we've demonstrated some incremental improvement there as well. Not just this quarter versus Q1 of last year, but if you look at our results, you know, we've been working hard at this quarter by quarter making some incremental improvements.
Speaker Change: We had a over 200 basis point improvement in <unk> in the hospital segment between Q1 of last year and kind of this year that reflects not only the contract labor discipline, but just.
Speaker Change: A stable wage environment overall as well as other operating discipline from our field Force and then I would say finally, we remain very focused on our other lines as well if you look at our supply if you look at our other Opex line items we've.
Speaker Change: A demonstrated some incremental improvement there as well not just this quarter versus Q1 of last year, but if you look at our 24 results. We've been working hard at this quarter by quarter, making some incremental improvements. So I think all those things have contributed to a very strong Q1.
So I think all those things have contributed to a very strong Q1.
No, great. Thank you.
Speaker Change: Great. Thank you.
Our next question comes from Ryan Langston with T.D. Cowan. Please proceed with your Great, thanks.
Speaker Change: Our next question comes from Ryan Langston with TD Cowen. Please proceed with your question.
Ryan Langston: Good morning. You mentioned a couple times, obviously, the first quarter, we saw really tight labor management. I guess, how much more room do you think you can actually improve that labor, you know, performance, and then maybe just give us a sense on what types of initiatives you guys have put in place and or are working on to kind of keep up that level of performance? Well, if I improve... We're referring specifically to the narrow issue of the percentage of contract labor. I'm not sure that necessarily decreasing that further is an improvement, right? Because obviously there are times where you would utilize contract labor in order to open up capacity for things that you may be doing, which are accretive.
Speaker Change: Great. Thanks. Good morning, you mentioned a couple of times, obviously in the first quarter, we saw really tight labor management I guess how much.
Speaker Change: Much more room do you think you can actually improve that labor.
Speaker Change: Performance and then maybe just give us a sense on what types of initiatives you guys have put in place <unk> are working on to kind of keep up that level of performance.
Speaker Change: Well.
Speaker Change: If by improve.
Speaker Change: Were referring specifically to the narrow narrow issue of the percentage of contract labor I'm not sure that necessarily decreasing that further as an improvement right. Because obviously there are times, where you would utilize contract labor in order to open up capacity for things that you may be doing.
Speaker Change: Which are accretive so I think what we've said all along was that our strategy was to.
So, you know, I think what we've said all along was that our strategy was to... reduce contract labor, have our full time employees that provide good care, leverage all the nursing school and other relationships, techs and other things that we built during COVID in order to help train graduates that then might choose to stay within our system and positively impact our retention rates, because there's a degree of familiarity there. And of course, the net consequence of all that is that we can return to following our overall SWB inflation, rather than just being focused on the narrow topic of contract labor expenses.
Speaker Change: Reduced contract labor to have our full time employees that provide good care leverage all the nursing school and other relationships tax and other things that we built during COVID-19 in order to help train.
Speaker Change: Graduates that then might choose to stay within our system and positively impact our retention rates because there's a degree of familiarity there and of course. The net consequence of all that is that we can return to following our overall SW be in.
Speaker Change: <unk>, rather than just being focused on the narrow topic of contract labor expenses.
So that that's kind of the journey that we've been on, as you can, as you can imagine, appreciate from from our comments over the past couple of years. So I think, look, I mean, you know, the the importance in the next year or two is really on recruiting and retention. of the staff necessary to build and grow the business. I think the contract labor is fine where it is. Okay, thank you.
Speaker Change: So thats kind of the journey that we've been on.
Speaker Change: Ken.
Speaker Change: As you can imagine I appreciate from from our comments over the past couple of years. So.
Speaker Change: I think look.
Speaker Change: The importance in the next year or two.
Speaker Change: Is is really on recruiting and retention.
Speaker Change: Of the staff necessary to build and grow the business.
Speaker Change: I think the contract labors fine where it is.
Speaker Change: Okay. Thank you.
Megan Holtzahn: Our next question comes from Brian Tanquilut with Jefferies.
Speaker Change: Our next question comes from Brian <unk> with Jefferies. Please proceed with your question.
Megan Holtzahn: Please proceed with your Good morning, guys. This is Megan Holtzahn for Bryan, and congrats on the quarter. I guess just pigging off, Joanna. Picking off Joanna's question, on the hospital business, can you provide some color in the acuity, the payer mix, what drove that revenue per adjusted emission? Some of your peers have spoken to exchange volume growth. Are you seeing the same growth and can you quantify that growth?
Good morning, guys. This is meghan holds on for Brian Congrats.
Speaker Change: Congrats on the quarter I guess just piggy. Thank you Joanna.
Speaker Change: Pigging ask Jo Ann's question on the hospital business can you provide some color and the acuity of the payer mix what drove that revenue per adjusted admission.
Speaker Change: Some of your peers have spoken to exchange volume growth are you seeing the same growth and can you quantify that growth.
Megan Holtzahn: Hey, Megan.
Speaker Change: Yeah, Hey, Megan Thanks for the question, Yes, I think couple.
Thanks for the question. Yeah, I think a couple pieces. I'll repeat our statement that we saw continued acuity strength as well as a strong peer mix. You know, I think if you look at our stats in terms of total managed care as percent of our net patient revenues, it remains around 70%, very consistent with kind of what we had last year. And then our acuity strategy is, again, very consistent with last year.
Speaker Change: A couple of pieces of the pieces.
Speaker Change: So I will repeat our statement that we saw continued.
Speaker Change: Acuity strength as well as a strong payer mix I think if you look at our stats in terms of total managed care as a percent of our net patient revenues. It remains around 70% very consistent with kind of what we had last year and then our acuity strategy.
Speaker Change: Again, very consistent with last year on the exchange growth we we.
On the exchange growth, we agreed that was a continued strength for us. In Q1 of 25, we saw a 35% increase in exchange admissions, and at this point, our revenues from exchange is about 7% of total consolidated revenues. So a little higher, I think, than fiscal 20, where we ended in fiscal 24. And we'll see for the rest of the year. You know, we think The environment continues to be strong across our different payer areas and we'll update our guidance as we go.
Speaker Change: We agreed that was continued strength.
Speaker Change: US in Q1 of 25, we saw a 35% an increase and exchange admissions.
Speaker Change: And at this point are ready.
Speaker Change: Revenues from exchange is about 7% of total consolidated revenues, so little higher I think.
Speaker Change: Then in fiscal 'twenty, where we ended the fiscal 'twenty four.
Speaker Change: And we will see for the rest of the year, we think.
Speaker Change: The environment continues to be strong across our different payer areas.
Speaker Change: And we will update our guidance as we go.
Speaker Change: Thank you.
Justin Lake: Our next question comes from Justin Lake with Wolf Research. Please proceed with your question. Thanks. Good morning.
Speaker Change: Our next question comes from Justin Lake with Wolfe Research. Please proceed with your question.
Speaker Change: Thanks, Good morning, just wanted to.
Justin Lake: Just wanted to follow up on the the SWV discussion and certainly kind of jumped off the page on the hospital side is, you know, beyond the contract labor, is there anything else special going on in the quarter? And if not, you know, is this a reasonable kind of run rate to be thinking about, you know, whether it's SWV per adjusted admission or the ratio itself? And, you know, just to follow up on that, like, if it is. What would have to go wrong for you not to, you know, materially outperform? I mean, it certainly seems like, I guess the question would be, if you're, is this what you, is this ratio?
Speaker Change: Follow up on the <unk> discussion and certainly kind of jumped off the page on the hospital side.
Speaker Change: Yes.
Speaker Change: Beyond the contract Labor is there anything else special going on in the quarter and if not.
Speaker Change: Is this a reasonable kind of run rate to be thinking about whether it's swg per adjusted admission or the ratio itself.
Speaker Change: And just.
Speaker Change: Follow up on that.
Speaker Change: If it is.
Speaker Change: What would have to go wrong for you or not.
Speaker Change: Materially outperform I mean, it certainly seems like I guess the question would be if your is this what you would this ratio.
what you embedded in your hospital EBIDTA guidance, or is it running materially better? Thanks.
Speaker Change: Embedded in your hospital EBITDA guidance or is it running materially better.
Speaker Change: Yes.
Hey, Justin. I mean, a couple things. I mean, we're not really updating guidance, right? I mean, there's a few things. Obviously, the more we diversify the business into the ambulatory side, that helps in terms of the the USPI, the USPI component and in particular the impact on salary wages and benefits. So I you know, look, I think Without some discontinuity in the environment, we feel pretty good about the various aspects of labor management that we are undertaking in this environment. And at the same time, again, I can't emphasize enough from my perspective, the importance of having our own workforce that knows our physicians and knows our environment and doing better and better on retention of that staff is a really important part of our strategic goal to expand capacity in a high quality way.
Justin Lake: Hey, Justin.
Justin Lake: I mean, a couple of things I mean, we're not really updating guidance right I mean, there's a few things obviously the more we diversify the business into the ambulatory side that helps.
Justin Lake: In terms of the.
Justin Lake: The USPI USPI component.
Justin Lake: In particular the impact on.
Justin Lake: Salary wages and benefits.
Justin Lake: So look I think.
Justin Lake: Yeah.
Justin Lake: Without some discontinuity in the environment, we feel pretty good about the various aspects of labor management.
Justin Lake: That we are undertaking in this environment and at the same time again I can't emphasize enough from my perspective, the importance of having our own workforce that knows our physicians and knows our environment.
Justin Lake: And doing better and better on retention of that staff is a really important part of our strategic goal to expand capacity.
Justin Lake: And in a high quality way and that's kind of the balance that we're that we're looking for right now.
Saum Sutaria: And that's kind of the balance that we're looking for right now.
Saum Sutaria: Our next question comes from Peter Chickering with Deutsche Bank. Please proceed with your question. Hey guys, great job this quarter. I guess, you know, you're going to see a trend here. I'm going to hit the S&B leverage, maybe a slightly different way here. Your average likely to stay was down for 2.3% on a same sort of basis. You know, is that due to flu or is that just better productivity? As you think about where average likely to stay can trend, where do you think we can exit the year? Or is this leverage due to uncompensated care, which looks to be down this quarter, despite revenues going up.
Justin Lake: Our next.
Speaker Change: <unk> comes from Peter Chickering with Deutsche Bank. Please proceed with your question.
Justin Lake: Hey, guys.
Speaker Change: Good job this quarter I guess.
Speaker Change: Going to see a trend here I mean at the S&P leverage maybe a slightly different way here.
Speaker Change: Average length of stay was down to three days a percent on a same store basis.
Speaker Change: That did a flu or is that just better productivity and as you think about where average length of stay can trend. What do you think we could exit the year.
Speaker Change: This leverage due to uncompensated care, which looks to be down this quarter.
Speaker Change: Despite revenues going up it looks like this is due to implicit price concessions charity write offs down so any thoughts around uncompensated care reductions down this year and how that impacts your margins. Thanks.
Saum Sutaria: It looks like this is due to implicit price concessions and charity write-offs down.
So any thoughts around uncompensated care reductions down this year and how that impacts your margins?
Saum Sutaria: Well, let's go in reverse order. The uncompensated care piece is not the same store, right? I mean, remember, we divested a bunch of assets, in many cases that were in markets with less favorable payer mix. So, I don't think you can look at that decline necessarily on a same-store type of basis. If that helps. Yeah.
Speaker Change: So let's go in reverse order.
Speaker Change: The uncompensated care piece is not same store rate I mean, remember, we divested a bunch of assets in many cases that we are in markets with less favorable payer mix.
Speaker Change: So I don't think you can.
Speaker Change: I don't think you can look at that decline.
Speaker Change: Necessarily on a same store on a same store type of basis.
Speaker Change: If that helps.
Sun Park: And then do you want to take the other? Yeah. So on some of your other questions, look, I mean, I mean, on the length of stay, yeah, there probably was some flu impact, but I think overall, again, it comes back down to operating discipline and trying to make sure we balance the right. patient care, as well as our workflows and efficiency, right? So we're working hard on that. And then, you know, I think your general question around kind of sustainable. Sustainment of kind of these pieces. Look, I think it all comes back onto two things that we mentioned.
Speaker Change: And then do you want to take the other yeah, yeah. So.
Speaker Change: And some of your other questions look I mean on the length of stay.
Speaker Change: There probably was some fluent path, but I think overall again it comes back down to operating discipline and trying to make sure we balanced the rate.
Speaker Change: Patient care as well as our workflows inefficiency right. So we're working hard on that.
Speaker Change: And then I think your your general question around kind of sustainable.
Speaker Change: Sustainment of kind of the pieces look I think it all comes back down to two things that we mentioned, it's a stable external environment in terms of wages and fees.
Sun Park: It's a stable external environment in terms of wages and fees. And then we focused a lot on our operating discipline, which was just showing up in our metrics.
Speaker Change: And then we focused a lot on our operating discipline, which is showing up in our metrics. One final kind of footnote to Tom's answer on the uncompensated care number.
One final kind of footnote to Saum's answer on the uncompensated care number. I think you're absolutely, I think Saum's right. It's not same store, so I think that distorts the comparison. And then I think, obviously, if you look at the individual line items, while some are going up and some are going down versus 24, you kind of have to take that all together. And if you look at the total uncompensated care percentage as revenues, we've been pretty consistent 24 to 25. So I don't think that's driving the margin.
Speaker Change: Absolutely I think it sounds right. It's it's not same store so that I think that distorts. The comparison and then I think obviously if you look at the individual line items.
Speaker Change: While some are going up and some are going down versus 24, you kind of have to take that all together and if you look at the total uncompensated care percentage as revenues, we've been pretty consistent 20% to 25, So I don't think thats driving the margins.
Ben Hendrix: Our next question comes from Ben Hendrix with RBC Capital Markets. Please proceed with your question. Great, thank you very much. Just a quick question back to ambulatory rate growth, the strong 9.1% growth. I appreciate the commentary about the continued mixed shift in M&A towards higher acuity specialties, but I had noticed that one of your ASC peers has started to see in the last couple quarters a more balanced mix of rate and volume growth overall in the ambulatory.
Speaker Change: Our next question comes from Ben Hendrix with RBC capital markets. Please proceed with your question.
Ben Hendrix: Great. Thank you very much.
Speaker Change: Just a quick question back to the ambulatory rate growth.
Speaker Change: Strong nine 1% growth I appreciate the commentary about the continued mix shift in M&A towards higher acuity specialties, but just I noticed that one of your peers have started to see last couple of quarters, a more balanced mix of rate and.
Speaker Change: And volume growth overall in the ambulatory and just wondering just based on your M&A plans and based on the shift you're seeing.
Ben Hendrix: Just wondering, just based on your M&A plans and based on the shift you're seeing towards higher acuity, how persistent you think this rate momentum is over the next couple of years? Thanks.
Speaker Change: It's higher acuity, how persistent you think just rate momentum malls over the next couple of years. Thanks.
Saum Sutaria: Well, I mean, projecting, projecting out over the next couple years on ASC rates is a little bit tough. I mean, I think that if you think about what we have been doing, and it's a fair criticism, by the way, if that's what it is, that, you know, our rate guidance has been under what we have been actually achieving for a couple of years. That's fair. You know, our guidance, obviously, is much more long-term in terms of the revenue growth, combination of volume and rate. are Near-term impact is driven a lot by what we have been doing around not only growing higher acuity, but at the same time working actively to create capacity to re-syndicate some of our partnerships and other things with certain low acuity business moving out of the ASC environment.
Speaker Change: Well I mean projecting.
Speaker Change: <unk> out over the next couple of years on.
Speaker Change: ASC rates is a little bit tough.
Speaker Change: I mean, I think that if you think about what we have been doing and it's a fair criticism by the way if that's what it is that our.
Speaker Change: Our rate guidance has been under what we have been actually achieving.
Speaker Change: For a couple of years that's fair.
Speaker Change: Our guidance, obviously is much more long term in terms of the revenue growth combination of volume and rate.
Speaker Change: Our.
Speaker Change: Near term impact is driven a lot by.
Speaker Change: What we have been doing around not only growing higher acuity, but at the same time working actively to create capacity to re syndicate some of our partnerships and other things.
Speaker Change: With certain low acuity business moving out of the ASC environment and it took us a while to get that balance right, but I think we've got that balance a lot better and then when you add on top of that.
And, you know, it took us a while to get that balance right, but I think we've got that balance a lot better. And then when you add on top of that, the fact that, you know, most of what we're doing in the ASC costs 30 to 50% less than the same acute care setting, our contracting strategies have been helpful because, you know, there is a desire by all stakeholders to move things into a lower cost setting, including, you know, providing fair rates in the ASC environment, which we've been able to achieve. So, you know, when you put all that together.
Speaker Change: The fact that most of what we're doing in the ASC cost, 30% to 50% less than the same acute care setting our contracting strategies have been helpful. Because.
Speaker Change: There is a desire by all stakeholders to move things into a lower cost setting.
Speaker Change: Including providing fair rates in the ASC environment, which we've been able to achieve so when you put all that together.
I don't disagree with the premise at all that we should see momentum on the net revenue per case in the ASC environment for some time to come. And that's a, you know, that's a good thing.
Speaker Change: I don't disagree with the premise at all that we should see momentum on the net revenue per case in the ASC environment for some time to come.
Speaker Change: And Thats.
Speaker Change: That's a good thing.
And that's, and the ASC should be the leading edge of innovation of getting. you know, appropriate higher acuity care into a lower cost setting.
Speaker Change: The ASC is should be the leading edge of innovation of getting.
Speaker Change: Yes.
Speaker Change: Appropriate higher acuity care into a lower cost setting.
Speaker Change: Okay.
Whit Mayo: Our next question comes from Whit Mayo with LaRinc Partners. Please proceed with your question. Hey, thanks.
Speaker Change: Our next question comes from Whit Mayo with Leerink Partners. Please proceed with your question.
Whit Mayo: Hey, thanks.
Whit Mayo: Saum, when you talked about opening up capacity on the acute care side, just any numbers around this to frame maybe what the year over year increase was from those initiatives? Well, I think the numbers, what I was referring to is specifically the same store hospital growth numbers. included capacity expansion as one of the reasons that they were so robust. I mean, we haven't quantified, if you're asking how many beds or something like that, we haven't quantified that.
Whit Mayo: When you talked about opening up capacity on the acute care side, just any numbers around this to frame maybe what the year over year increase was from.
Whit Mayo: Those initiatives.
Whit Mayo: Well I think the numbers what I was referring to is specifically the same store hospital growth numbers.
Whit Mayo: No.
Whit Mayo: Included capacity expansion as one of the reasons that they were so robust.
Whit Mayo: I mean, we haven't quantified if youre asking how many beds or something like that we haven't quantified that.
Although, and to be honest with you, I'm not even sure I could tell you sitting here right now exactly how many beds we opened up. Right.
Whit Mayo: Although and not to be honest with you im not even sure I could tell you sitting here right now exactly how many beds, we opened up.
Whit Mayo: Right.
Saum Sutaria: Maybe just another question just around USPI and the commentary around physician additions, recruiting efforts. You talked about re-syndication efforts as well. Just wondering if there's anything to share about what those numbers mean in terms of a year-over-year increase versus maybe history. I would say that the physician activity is on a numbers basis, gross numbers basis, very similar to in the past. I mean, the ASC environment is an environment where you have to be constantly engaged in renewing, refreshing, and re-syndicating partnerships. What I was referring to before on the re-syndication piece directly tied to the commentary about net revenue per case is that sometimes that's a specialty shift, right?
Whit Mayo: Maybe just another question just around USPI and the.
Commentary around physician additions recruiting efforts you talked about re syndication efforts as well just wondering if there's anything to share about what those numbers mean in terms of year over year increase versus maybe history.
Whit Mayo: I would say that the physician activity is is on a numbers basis gross numbers basis.
Whit Mayo: Very similar to in the past I mean, the ASC environment is an environment, where you have to be constantly engaged in renewing refreshing and re syndicating partnerships, what I was referring to before on the re syndication piece directly tied to the commentary about net revenue per case is that <unk>.
Whit Mayo: Sometimes thats a specialty shift right I mean in many ASC as youre renewing refreshing et cetera, the same specialties, but if youre, making service line shifts in transitions towards higher acuity you may be re syndicating with different specialists then we're in the afcs before and Thats what.
I mean, in many ASCs, you're renewing, refreshing, et cetera, the same specialties. But if you're making service line shifts and transitions towards higher acuity, you may be re-syndicating with different specialists than were in the ASCs before. And that's what I was referring to. And that obviously takes a lot more work to get done. You have to identify new individuals, perhaps new practices that join an existing ASC versus simply working with your existing practices to add doctors when they may have retirements or departures or whatever the case may be. So it's, you know, the service line transition work that we've undertaken in the last few years, it's a lot of work.
Whit Mayo: I was referring to and that obviously takes a lot more work to get done you have to identify new individuals', perhaps new practices that join an existing ASC.
Whit Mayo: Versus simply working with your existing practices to add doctors when they may have retirements are departures or whatever the case may be so.
Whit Mayo: This service line transition work that we've undertaken in the last few years, it's a lot of work and it's and again as you know we had took us a while to get admittedly the balance right and how we've how we've been doing it we feel much better about it now it's been much more consistent for the last couple of years and it's driving earnings growth.
And it's, and again, as you know, we, it took us a while to get admittedly the balance right in how we've, how we've been doing it. We feel much better about it now. It's been much more consistent for the last couple of years. And it's driving earnings growth above our expectations and above USPI's long-term trends, which is, which is terrific because it's a momentum driver for that business. Thanks.
Whit Mayo: Above our expectations and above Uspi's long term trends, which is which is terrific because it's a momentum driver for that business.
Whit Mayo: Okay. Thanks.
Whit Mayo: Thanks.
Operator: As a reminder, we ask that you please limit yourself to one question.
Speaker Change: As a reminder, we ask that you. Please limit yourself to one question. Our next question comes from Ann Hynes with Mizuho. Please proceed with your question.
Ann Hynes: Our next question comes from Ann Hynes with Mizzou Health. Please proceed with your question. Hi. Good morning. Thank you.
Ann Hynes: Hi, good morning, Thank you again.
Ann Hynes: Again, I want to focus on the Q1 beat because it was so meaningful. I know you said that it was better than your internal expectations. Can you just go through what was the main driver, what surprised you most about the quarter internally? And also, you know, I get this question a lot just because the macroeconomic environment is very volatile. People are concerned about a recession. Do you think there is any type of like front-loading of volumes? If people are worried that they might lose their jobs? Thanks. You want to take the first part and then...
Ann Hynes: Again, I want to focus on the Q1 beat because it was so meaningful I know you said that it was better than your internal expectations can you just go through what was the main driver what's surprised you most about the quarter internally and also I get this question a lot just because of the macroeconomic economic environment is very volatile.
Ann Hynes: People are concerned about a recession do you think there is any type of like front loading of volumes. If people are worried that they might lose their jobs.
Thanks.
Ann Hynes: You want to take the first part and then sure.
Ann Hynes: Sure.
Hey, Ann. I'll take the first part and then hand off to Saum. On the Q1 beat, listen, I mean, I think we covered a lot of the dynamics that we talked about in terms of what we assumed in our guidance versus where we're showing up. I mean, obviously, we mentioned before the strength in exchange patients growing 35% admissions. You know, we weren't quite sure how, what that number would be in Q1. You know, we figured it would be relatively strong. But again, compared to last year, you know, we expected to go down. So we weren't quite sure how that would turn up.
Ann Hynes: Great.
Ann Hynes: I'll take the first part and then hand off to some on the Q1 beat listen I mean, I think we've covered a lot of the dynamics that we talked about.
Ann Hynes: Of what we assumed in our guidance versus where we're showing up I mean, obviously, we talked we mentioned before the strength in exchange patients growing 35% admissions.
Ann Hynes: We weren't quite sure how.
Ann Hynes: What that number would be in Q1.
Ann Hynes: We figured it would be relatively strong, but again compared to last year.
Ann Hynes: We expect it to go down so we weren't quite sure how that would turn up but we were very pleased to see pleased to see that and I think that's reflective of not only the coverage and payer environment, but also our continued networking strategy of being broad access to these exchange population. So I think we're pleased to see that.
But we were very pleased to see that. And, you know, I think that's reflective of not only the coverage and peer environment, but also of our continued networking strategy of being broad access to these exchange populations. So I think we're pleased to see that. Other than that, I don't know that we have anything else to point out that we haven't covered already.
Ann Hynes: Other than that I don't know that we have anything else to point out that we haven't covered already so I'll handoff that some on the.
So I'll hand off back to Saum on the other questions.
Saum Sutaria: Yeah, I don't, I mean, I don't, you know, how can one tell, honestly, if there's a surge in demand that's coming? I mean, we don't, we don't necessarily see. in our, for example, our physician practice offices or other things. significant changes. Sometimes you see changes at USPI in cancellation rates and other things. We haven't really seen much of a difference there. I don't know that there's anything I could point to to affirmatively say that people are trying to utilize their coverage out of a fear of losing it. I don't, you know, we probably have to think a little bit more about how to track some things that might give us a sense that that's happening.
Other questions yes.
Speaker Change: How can one Tao.
Ann Hynes: Honestly, if there is a.
Ann Hynes: A surge in demand Thats coming I mean, we don't we don't necessarily see.
Ann Hynes: In our for example, our physician practice offices or other things.
Ann Hynes: Significant changes, sometimes you see changes of USPI in cancellation rates and other things we haven't really seen.
Ann Hynes: Much of a difference there I don't I don't know I don't know that Theres anything I could point to to affirmatively say that people are trying to utilize their coverage out of fear of losing it.
Ann Hynes: No.
Ann Hynes: We'd probably have to think a little bit more about how to track some things that might give us a sense that that's happening.
Ann Hynes: Thanks.
Benjamin Rossi: Our next question comes from Benjamin Rossi with JPMorgan Chase. Please proceed with your question. Great, thanks for taking my question here. So I appreciate the unknown here, but regarding tariffs, we've been getting some commentary from your peers on framing exposure on finished goods supply spend, particularly outside of the US.
Speaker Change: Our next question comes from Benjamin Rossi with Jpmorgan Chase. Please proceed with your question.
Benjamin Rossi: Great. Thanks for taking my question here. So I appreciate the unknown here, but regarding tariffs we've been getting some commentary from your peers on framing exposure on finished goods supply spend particularly outside of the U S.
Benjamin Rossi: Do you have any additional context on framing there and then maybe how much of your supply spend would be off contract or direct from manufacturers?
Benjamin Rossi: Any additional context on framing there and maybe how much of your supply spend would be off contract or a direct from manufacturers and then beyond scope of supply there any differences in your procurement setup between ambulatory and hospital.
Saum Sutaria: And then beyond scope of supply, are there any differences in your procurement setup between ambulatory and hospital? Yeah, no, thanks for the question. And I think just, I mean, remember, we are active members of, of health trust. And that's true, not just on the hospital business. But, you know, you can imagine at our scale where the anchor client on the ambulatory surgery side, as well and well engaged with with the other peers and partners who also are in the ASC business. So there is no, there is no separation between Tenet and USPI and our engagement with and our engagement with health trust.
Benjamin Rossi: Yes, no. Thanks for the question and I think just I mean remember we are active members of health.
Benjamin Rossi: Healthtrust and that's true not just on the hospital.
Benjamin Rossi: Business, but.
Benjamin Rossi: You can imagine at our scale, where the anchor.
Benjamin Rossi: Client on the ambulatory surgery side.
Benjamin Rossi: Well and well engaged with with the other peers and partners who also are in the ASC business. So there is no.
Benjamin Rossi: There is no.
Benjamin Rossi: Separation between tenet and USPI and our engagement with.
And now we don't have any commentary to add. I mean, the numbers that you have heard are in terms of the supply spend base, the location of where it's coming from the pharmaceuticals points, all the same. No different. Got it. Thanks for the color. Yep.
Benjamin Rossi: And our engagement with Healthtrust and now we don't have any commentary to add I mean, the numbers that you have heard.
Benjamin Rossi: In terms of the supply spend base.
Benjamin Rossi: The location of where it's coming from the pharmaceuticals points all the same.
Benjamin Rossi: No different.
Benjamin Rossi: Got it thanks for the color.
Benjamin Rossi: Yes.
A.J. Rice: Our next question comes from A.J. Rice with UBS. Please proceed with your question. Hi, everybody. Thanks. I understand that you don't want to sort of quantify things that are unknown that are being discussed in Washington, but as I think about and see commentary from nonprofit peers, we see some nonprofits saying they're putting in hiring freeze so they get clarity. Others are saying they're looking at their capital budgets. I wondered if you could comment. Obviously, you've got the public exchange, the supplemental payment, questions related to provider tax, even some discussion about site-neutral payments. Are there contingency plans that you make at this point?
Speaker Change: Our next question comes from AJ Rice with UBS. Please proceed with your question.
AJ Rice: Hi, everybody. Thanks.
Speaker Change: I understand that you don't.
AJ Rice: I don't want to sort of quantify.
AJ Rice: Things that are unknown that are being discussed in Washington.
AJ Rice: But as I think about and see commentary from.
AJ Rice: Nonprofit peers, we see some nonprofit saying theyre putting in hiring freeze so they get clarity others are saying they are looking at their capital budgets I wondered if you could comment obviously you got the public exchange the supplemental payment questions related to provider tags, even some discussion about site neutral payments are there.
AJ Rice: The contingency plans that you make at this point do you sort of just have to sit back and see what happens.
A.J. Rice: Do you sort of just have to sit back and see what happens, or how do you guys think about getting in front of any of that, or is it affecting in any way your business? And then I will throw in there, specifically in managed care contracting, do you approach that differently? Do they approach it differently? I know you typically do three-year deals. Is there any thought that maybe we should take a little more narrow focus until there's some clarity? Any thoughts along those lines would be helpful.
AJ Rice: Or how do you guys think about getting in front of any of that or is it affecting in any way your business and then I will throw in there specifically in managed care contracting do you approach that differently do they approach it differently I know you typically do three year deals is there any thought that maybe.
AJ Rice: We should.
AJ Rice: Take a little more narrow focus until there's some clarity any any thoughts along those lines would be helpful.
Sure, A.J., thanks for the question. So let's just, I mean, I'll just say, let's just step back, right? Our, coming into this year, regardless of the policy uncertainty. I think the best way to frame the answer to this question is, have we changed our priorities or have we added to our priorities? And I would I would argue it's the latter. And our number one priority going into this year was to build off of what was a strong utilization environment in 2024 with us having significant outperformance of our expectations and carrying that into 2025, both through our capital initiatives, our growth prospects and acquisitions at USPI and the capacity expansion in the markets where we thought we still had beds that we could open up as we could accommodate that without excessive contract labor.
Speaker Change: Sure Hey, Jay Thanks, Thanks for the question so let's just.
AJ Rice: Let's just step back right.
AJ Rice: Coming into this year, regardless of the policy uncertainty.
AJ Rice: I think the best way to frame the answer to this question is have we changed our priorities or have we added to our priorities and I would I would argue it's the ladder and our number one priority going into this year was to build off of what was a strong utilization environment in 2024 with.
AJ Rice: US having significant outperformance of our expectations and carrying that into 2025, both through our capital initiatives, our growth prospects and acquisitions at USPI and the capacity expansion in the markets, where we thought we still had beds that we could open up as we could accommodate.
Speaker Change: That without access of contract labor.
Saum Sutaria: So that still remained priority one. Okay, priority two was the cost control. And in particular, it had to do with what I've talked about earlier, which is labor. And now I would say what we've added to that is a much tighter look and initiation of some actions on the supply side to tighten up our utilization where it's possible to do so in advance of any theoretical tariff business or whatever may come to pass. And that's, you know, that's kind of priority number two. Priority number three has been engaging as constructively as possible in the discussion in Washington, both through our various agencies that we work with, but more importantly, in my view directly, as myself and selected other leaders have been doing, in order to shape the dialogue.
AJ Rice: So that still remains priority one.
AJ Rice: Priority two was.
AJ Rice: The cost control and.
AJ Rice: In particular, it had to do with what I've talked about earlier, which is labor and now I would say what we've added to that is a much tighter look.
AJ Rice: And initiation of.
AJ Rice: Some actions on the supply side to tighten up our utilization, where it's possible to do so in advance of any theoretical tariff business or whatever may may come to pass.
AJ Rice: And Thats.
AJ Rice: That's kind of priority number two priority number three.
AJ Rice: Has been engaging as constructively as possible in the discussion in Washington, both through our various agencies that we work with but more importantly in my view directly as myself and selected other leaders have been doing in order to shape the dialogue.
about, you know, the potential impact of cuts. I mean, you know, I've said this publicly before, and I'll do so a little bit more in the coming weeks in other forums. The polling is very clear about how the public all over the country feels about the importance of the exchange tax subsidy extensions and Medicaid. And, you know, when I, others are sharing it, I'll share it here in a couple weeks, that what we've found in our work, it's really important insight about how much support there is for these programs and for healthcare coverage for people.
AJ Rice: About.
AJ Rice: The potential impact of cuts.
AJ Rice: I've said this publicly before and I'll do so a little bit more in the coming weeks and in other forums.
AJ Rice: The polling is very clear about.
Speaker Change: How the public all over the country.
Speaker Change: Feels about the importance of the exchange tax subsidy extensions and Medicaid.
Speaker Change: Others are sharing at all share it here in a couple of weeks.
Speaker Change: We have found in our work.
Speaker Change: It's really important.
Speaker Change: Insight about how much support there is for these.
Speaker Change: These programs.
Speaker Change: For healthcare coverage for people. So that's been priority number three so priority number four has been contingency planning, we haven't really moved that up the list yet of course, where contingency planning look we did a good job during COVID-19, which was a shock to the system and we will do it again, if we need to but we're not moving that up.
Saum Sutaria: So that's been priority number three. So priority number four has been contingency planning. We haven't really moved that up the list yet. Of course, we're contingency planning. Look, we did a good job during COVID, which was a shock to the system, and we'll do it again if we need to. But we're not moving that up to priority number one, two, or three right now, because we still believe that our operating platform can receive and accept all patients that need care and do it in an accretive manner. And so the growth is still an important, important way to go.
Speaker Change: Two priority number one two or three right now because we still believe that our operating platform can receive and accept all patients that need care and do it in an accretive manner and so the growth is still an important important way to go. If there is some shock that comes out of Washington, obviously priority for May move up.
Saum Sutaria: If there is some shock that comes out of Washington, obviously priority four may move up in terms of our list, but it is not there right now. On your other question about managed care, you know, look, I think in it's The contract renewal cycles come up in various sequences. They tend to be, as you said, three-year potential deals. I don't see a whole lot of reason if you're negotiating fair contracts and partnerships with the plans to be looking at different timeframes to create a bunch of uncertainty every year from that perspective. Okay. All right. Thanks a lot.
Speaker Change: In terms of our list, but it is not there right now.
Speaker Change: On your other question about managed care look I think in in.
Speaker Change: The contract renewal cycles come up in various sequences.
Speaker Change: Tend to be as you said three year potential deals I don't I don't see a whole lot of reason if youre negotiating fair contracts.
Speaker Change: And partnerships with the plans to be looking at different timeframes to create a bunch of uncertainty every year.
Speaker Change: From that from that perspective.
Speaker Change: Okay, alright, thanks, a lot.
Speaker Change: Thanks.
Andrew Mok: Our next question comes from Andrew Mok with Barclays. Please proceed with your question. Hi, you delivered another quarter of double digit same store growth in total joins. I think you've done that almost every quarter since you started disclosing that a few years ago.
Our next question comes from Andrew Mok with Barclays. Please proceed with your question.
Andrew Mok: Hi, you've delivered another quarter of double digit same store growth in total joins I think you've done that almost every quarter. Since you started disclosing that a few years ago can you give us a sense for how that market has evolved over the last five years or so in terms of eligible population or penetration of total seniors and where do you think those numbers can go.
Andrew Mok: Can you give us a sense for how that market has evolved over the last five years or so in terms of eligible population or penetration of total seniors? And where do you think those numbers can go? Thanks. Yeah, well, there's still a lot of HOPD work that goes on there that isn't really due to comorbidities or other sorts of things, right? I mean, there are people that have active HOPD strategies, and then there are just physicians that are less comfortable in a non-hospital environment. And then you have, you know, of course, in some markets more than others, high quantities of employed orthopedic surgeons that aren't really allowed to, quote-unquote, invest in ambulatory surgery platforms. So there's still a lot of runway here to move these kinds of procedures into lower cost settings.
Speaker Change: Thanks.
Speaker Change: Yes.
Speaker Change: There's still a lot of <unk> work that goes on there that isn't really due to comorbidities or other sorts of things right. I mean, there are people that have activate COPD strategies and then theyre just positions that are less comfortable in a non hospital environment.
Speaker Change: And then you have of course.
Speaker Change: In some markets more than others high quantities of employed orthopedic surgeons that arent really allowed to quote unquote invest in ambulatory surgery platform. So theres still lot of runway here to move these kinds of procedures into lower cost settings.
Obviously, Combining that with getting trainees in orthopedics more exposed to same-day type of settings is an important piece of this. And, you know, obviously the insurers creating incentives to do so is important from that perspective as well. And, you know, part of that incentive is you've got to compensate adequately for that outpatient care because it's so much lower cost than a hospital setting. So I think when the issues move from all of these various things in the milieu to only the clinical care considerations, which is who's appropriate for what setting, we'll know that the shift is complete.
Speaker Change: Obviously.
Speaker Change: Combining that with getting.
Speaker Change: Trainees in orthopedics more exposed to the same day type of settings is an important piece of this then.
And obviously the insurers, creating incentives to do so is important from that perspective, as well and part of that incentive is you've got to compensate adequately for that outpatient care.
Speaker Change: Because it's so much lower cost in a hospital setting so I think when the when the issues move from all of these various things in the <unk>.
Speaker Change: Only the clinical care considerations, which is who is appropriate for what setting will know that the shift is complete we're not there yet right, we're kind of halfway through that process.
We're not there yet, right? We're kind of halfway through that process and there's still a runway to go. Great, thanks.
Speaker Change: There's still runway to go.
Speaker Change: Great. Thanks.
Josh Raskin: Our last question comes from Josh Raskin with Nephron Research. Please proceed with your question. All right. Thanks for fitting me in. I guess I want to take the margins from maybe a more optimistic view. So even excluding the $40 million dollar retro payment, the hospital margins were, you know, called 17%. So do you think there's additional room for margin expansion there on the acute care side? I mean, you've seen almost a doubling over the last decade. And maybe what sort of volumes would you need to get there? And what areas do you still think there's operating leverage?
Speaker Change: Our last question comes from Josh Raskin with Nephron Research. Please proceed with your question.
Josh Raskin: Hi, yes, thanks for fitting me in I guess I want to take the margins from maybe a more optimistic view, so even excluding the $40 million retro payment. The hospital margins were call. It 17%. So if you think there is additional room for margin expansion there in the acute care side I mean, you've seen almost a doubling over the last decade, and maybe what sort of volumes would you need to.
Josh Raskin: Get there and what areas do you still think Theres operating leverage.
Josh Raskin: Yeah, Josh, thanks for the question. I mean, look, we always operate with the mindset that there's margin expansion potential. The drivers of the margin expansion, obviously, in the hospital segment as a whole entity, are multifold, right? One is just we've instituted in Tenet and hardwired now, significantly more operating discipline over the last few years than existed prior. That helps. Our controls around utilization and other things are much, much more data-driven. So while we started them top-down during COVID, Based upon that data-driven environment, just the operators have a chance to react much more quickly and nimbly.
Josh Raskin: Yes, Josh Thanks for the question I mean look we always operate with a mindset that theres margin expansion potential.
Josh Raskin: The drivers of the margin expansion, obviously in the hospital segment as a whole entity or our multi fold right. One is just we've.
Josh Raskin: Instituted intended and hard wired now.
Josh Raskin: Significantly more operating discipline over the last few years than existed prior.
Josh Raskin: That helps.
Josh Raskin: Our controls around utilization and other things are much much more data driven so while we started them talk down during COVID-19.
Josh Raskin: Based upon that data driven environment, just the operators have a chance to react much more quickly and nimbly.
Saum Sutaria: Payer mix over the last few years has improved. You can't escape the fact that the exchanges have been a supportive environment. We didn't know what would happen with redetermination. It ended up being accretive to revenue and margins from that perspective. We've also had the benefit of portfolio transformation on the hospital business. you know, on average, slightly lower margin facilities were divested versus the remaining portfolio. And then the operating leverage in the future comes from better cost structure in labor, better standardization of the supply environment. And as I've said all along for many years, you know, we have had a focus on asset utilization, which continuing to build and grow the business to improve our asset utilization will continue to improve hopefully margins, all other things being equal.
Josh Raskin: Payer mix over the last few years has improved you can't escape the fact that the exchanges.
Josh Raskin: I have been a supportive environment, we didn't know what would happen with redetermination it ended up being accretive.
Josh Raskin: Two two revenue and margins from that perspective and of course, we've also had the benefit of portfolio transformation on the hospital business where.
Josh Raskin: On average slightly lower margin.
Josh Raskin: Facilities were divested versus the remaining portfolio and then the operating leverage in the future comes from better cost structure in labor better standardization of the supply environment and as I've said all along for many years, we have had a focus.
Josh Raskin: <unk> on asset utilization.
Josh Raskin: Which continuing to build and grow the business to improve our asset utilization.
Josh Raskin: We'll continue to improve hopefully margins all other things being equal and so that's kind of what we focus on and again that gets back to also Josh just a j's question around priorities. That's why our priorities right now are still in this environment to continue to build and grow the business rather than.
And so that's kind of what we focus on.
Saum Sutaria: And again, that gets back to also Josh, just AJ's question around priorities. That's why our priorities right now are still in this environment to continue to build and grow the business rather than any kind of retreat yet.
Josh Raskin: Then any kind of retreat yet.
That was perfect, thanks.
Josh Raskin: That's perfect. Thanks.
Operator: This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.
Josh Raskin: This concludes today's conference you may disconnect your lines at this time and we thank you for your participation.
Josh Raskin: Alright.