Tenet Healthcare Corp (THC) 2007 Q1 法說會逐字稿

Good morning, and welcome to the Tenet Healthcare's conference call for the first quarter ended March 31, 2007. Tenet is pleased that you have accepted their invitation to participate in this call. Please note that this call is being recorded by Tenet and will be available on replay. The call is also available to all investors on the web, both live and archived.

Tenet's management will be making forward-looking statements on this call. Those forward-looking statements are based on management's current expectations and are subject to risks and uncertainties that may cause those forward-looking statements to be materially incorrect. Certain of those risks and uncertainties are discussed in Tenet's filings with the Securities and Exchange Commission, including the Company's Form 10-K and its quarterly reports on Form 10-Q to which are you referred. Management cautions you not to rely on and makes no promises to update any of the forward-looking statements.

Management will be referring to certain financial measures and statistics, including measures such as EBITDA, which are not calculated in accordance with Generally Accepted Accounting Principles or GAAP. Management recommends that you focus on the GAAP numbers as the best indicator of financial performance but it is providing these alternative measures as an supplement to aid in the analysis of the Company. Reconciliation between non-GAAP measures and related GAAP measures can be found in the press release issued this morning and on the Company's website. Detailed quarterly financial and operating data is available on First Call and on the following websites -- tenethealth.com, businesswire.com, and companyboardroom.com.

During the question-and-answer portion of the call, callers are requested to limit themselves to one question and one follow-up question.

At this time, I will turn the call over to Trevor Fetter, President and CEO. Mr. Fetter, please proceed.

Thank you, Operator, and good morning, everyone. I intend to keep my comments relatively brief this morning so that you can hear from our new Chief Operating Officer, Dr. Steve Newman, on our operating strategies and from Biggs Porter on the financial aspects of the quarter.

Also, please remember that we will discuss our operating strategy in greater detail in less than a month at our upcoming Investor Day on June 5th here in Dallas. The meeting will also be available by a live webcast at tenethealth.com. In addition to providing further insight into our strategies, at Investor Day we'll share specific examples of the impact our initiatives are having on performance. You'll hear from the individuals leading the initiatives as well as from some of the operators who are implementing them. Again, the date is June 5th.

Before I turn things over to Steve and Biggs, let me offer my own thoughts and provide some context to the quarter. I see a good deal of evidence that our turnaround strategies are working. I remain confident that we're on the right course even though our performance likely will not improve in a straight line. As I'll discuss in a minute, we have some regions and hospitals that are not improving according to our plans or as rapidly as other regions. That is what held us back in the quarter. To put volumes in context, our admissions declined in the first quarter while still a decline was less than the decline a year ago. While the breakeven and pre-tax income from continuing operations was essentially even with last year, it's difficult to make a blanket statement about the quarter without getting into a detailed discussion. Biggs will do that in his remarks because it's important that you understand all the drivers.

As you recall, we launched a series of initiatives to build a more sustainable foundation for the Company at the same time that we worked to resolve our legacy issues and rebuild the trust and confidence among our physician base. These efforts were grounded in our commitment to quality. As we started earning external recognition for clinical quality, we focused on developing strategies to leverage this distinctiveness into growth. These strategies fell under the umbrella of our Targeted Growth Initiative or TGI. There is continuing evidence these strategies are producing their intended result.

Our California region continued its strong fourth quarter results into the first quarter, with a 0.9% increase in admissions. Our Texas region, which followed California in our phased rollout of TGI, increased admissions year-over-year by 2.9%, excluding the two Dallas hospitals that we will stop operating this summer.

The one region in which we continue to struggle is Florida where, among other factors, we've been hit hard by new competition in cardiology. You may recall that a few years ago the Certificate of Need regulations in the state were relaxed. Three of our hospitals gained new, competitive threats, and one of our hospitals gained an opportunity to compete with a new program of its own. In addition to opening new and competing heart programs, certain of our competitors are also engaging in aggressive physician employment strategies.

The success of our commitment to quality is directly visible in the differential volume growth which distinguishes our service lines, earning the coveted Centers of Excellence designations. In Q1, the delta in year-over-year volumes between hospitals with and without United Health Care Centers of Excellence designations in cardiology, is 10 percentage points. Hospitals with Centers of Excellence designations were down 1% in volume, and hospitals without the designations were down 11%. While the absolute growth was negative, the relative difference still demonstrates the value of pursuing these designations through excellent clinical quality.

Our performance was also affected by a number of unique situations such as USC University Hospital in Los Angeles where volumes have been soft due to instability within the medical school. I also mentioned Florida a minute ago where the decline in just cardiology volumes represents more than half of the total decline in admissions we saw nationwide in the first quarter. If you add the admissions impact of these two items and exclude the two Dallas hospitals that we will stop operating this summer, the negative impact from basically five hospitals accounts for more than 80% of the decline in admissions Companywide in the quarter.

Now I'd prefer to be reporting a quarter where all our regions and hospitals were performing more consistently, but I believe that the negative drivers I just mentioned are isolated instances that should not be mistaken as flaws in our overall strategy nor should investors conclude that the weakness in volumes is Companywide. 26 of our 55 go-forward hospitals generated positive growth in admissions. The strategies that we set back in 2003 is sound. It requires that we maintain and enhance our commitments to quality, service, and volume-building activities.

And here to talk more about these items is Dr. Steve Newman. Steve?

Thank you, Trevor, and good morning, everyone. This was my first quarter as Chief Operating Officer. I've spent virtually all of my time fine-tuning the turnaround strategies we've initiated over the past few years and making sure our operators are focusing their efforts only on the levers that drive improved performance. After visiting our hospitals in six states in the first quarter, it's clear to me that we have the right strategies to get the job done, but what's needed now is a much more consistent level of excellence in implementing these strategies across our entire system.

At our annual management conference in Dallas last month, I told our hospital teams the only priorities that really matter right now are these: number one, continue to improve the quality of our excellent clinical care; two, grow in-patient and out-patient volumes and revenues consistent with our targeted growth initiative; three, retain and recruit the best employees and physicians; and four, improve cost management each day. I call these my prescriptions for success at Tenet, and I told our hospital leaders that these four priorities and only these four should guide everything they do every day. My most critical assignment right now is to assure that our hospital leaders are not distracted from executing our turnaround strategies. I intend to remove anything that gets in their way.

I also intend to make sure we have the appropriate level of rigor and a real sense of urgency at every level in the organization. With enhanced focus and increased accountability, I expect to see noticeable improvement in both our quality and earnings metrics in the months ahead.

We are already seeing the benefit of this effort in some of our first-quarter results. Let me share with you some of the highlights. Since I was a regional leader in California until the end of the year, I'm particularly pleased with the continuing recovery in that region during the first quarter. If we exclude USC University Hospital's results from California's performance, California's admissions were up 0.9% in the first quarter.

In large measure, we can credit the second part of my prescription I just told you about for the California recovery. That is a tight focus on growing volumes, consistent with our Targeted Growth Initiative. You will recall that TGI is our initiative to use a rigorous, evidence-based approach to decide which services to emphasize and which to de-emphasize at each hospital. As Trevor mentioned, admissions are down at USC. Since USC has been a very successful hospital for us in the past, its downturn has a ripple effect on other aggregate Company metrics, including pricing. We remain hopeful that this situation will be resolved favorably.

Moving on to the Texas region, we saw a strong recovery in the first quarter with admissions up 2.9% when RHD and Trinity are excluded. This resulted from multiple factors. First, the implementation of our Targeted Growth Initiative which we launched about 18 months ago in Texas, and which is now maturing in most hospitals.

Second, over the last 18 months, we have hired five new chief executive officers at our Texas hospitals. These enthusiastic leaders have now had sufficient time to settle into their jobs and to develop the kinds of productive working relationships with their physicians that are critical to growing market share and improving financial performance.

Third, we have made progress with our physician alignment strategies in Texas. Our initiative to develop an effective physician employment model in Texas appears to be yielding early, positive results. For instance, we've established primary care clinics at four locations as part of our newly created Cyprus Fairbanks Health Network in Houston. This is helping us to secure a loyal base of primary care physicians and, in some selective cases, specialists as well.

We have learned many lessons from our own past mistakes and those of others with regard to physician employment. We are not purchasing any existing physician practices, for example, and we are adding productivity targets and incentives for meeting quality metrics to our physician employment agreements.

I should caution you about the sustainability of this rate of improvement in Texas. The gain in key operating statistics in Texas exceeded our own first quarter expectations. Obviously, we can't be sure the current rate will continue. But we've been working on the Texas issue for some time, and we are optimistic that the improvement we've seen will continue even if the rate of progress begins to slow at some point.

The good news here is that our turnaround in Texas is clearly linked to consistent execution of our strategies. That bodes well for the entire Company over time.

In Florida, our hospitals continued to experience soft admissions in the first quarter. We believe this, in part, resulted from fewer snowbirds making their annual trek south during the winter months as well as loss of year-round population in some areas. In Palm Beach County, where we have our largest cluster of hospitals, we've lost some market share in cardiology and in managed care in general. We believe the diversion of a significant portion of our cardiovascular business to new open heart surgery competitors is primarily responsible for this noticeable drop in both Medicare and commercial managed care business at our hospitals.

We're taking multiple actions in Florida to address the recent softness. Since I became Chief Operating Officer in January, I've made three trips there to assess the situation and meet with our hospital managers. We are currently completing the implementation of several new strategies to stem the loss of volumes in Florida, and we are confident there's significant opportunities for us in cancer, neurology, and neurosurgery, as well as the cardiovascular services where we have traditionally been very strong.

For example, we recently started an open heart surgery program at Palmetto General Hospital in Dade County. In the first quarter of 2007, we performed 25 open heart surgeries and 280 percutaneous cardiac interventions at Palmetto. The good news is that all of this volume is incremental new business that we couldn't capture previously.

In addition, we recently undertook an analysis of the demographic data regarding our physicians in Florida in order to better understand the factors causing our weaker admissions. The analysis shows a worrisome aging of the primary care base, especially for our Palm Beach hospitals. As they pass a certain age, physicians see fewer patients in their offices and scale back the number of hospital patients they render care to. The malpractice climate in Florida has been a barrier to the recruitment of private, primary care physicians who are necessary to meet community needs. We are embarking on new strategies to recruit new, younger, primary care physicians similar to our recent physician employment efforts in Texas.

In addition, we are more aggressively implementing our physician sales and service program in Florida, and we're beginning to see the impact it can have on growing our patient volumes. However, these efforts take time, and you should not expect us to reverse our loss of Florida volumes quickly.

I've also made it a top priority to augment our marketing and business development efforts in Florida by recruiting experienced business development directors and PSSP coordinators at all of our hospitals. We have also deployed more marketing resources and increased our Florida advertising budgets.

The bottom line in Florida is that we've implemented a variety of turnaround strategies but they are less mature than in other regions. We are now focused intensely on consistent execution of these strategies and improvement in physician relations as we rebuild our market share in the state.

Part of the third element of my prescription for success that I mentioned earlier is a focus on recruiting and retaining physicians. We've described PSSP, our principal initiative in this area, in earlier calls, and I can tell you that we're still seeing improved referral patterns from the physicians that have been our primary focus so far. As we gain more experience and improve our focus, we are providing new tools to help our people.

For example, today we are launching our volume building workshops for hospital chief executive officers. These intensive one-day education programs consist of didactic and role-playing modules focused on interactions with physicians. The workshops are being held for Texas CEOs today but over the next 120 days we will roll them into every region.

In addition, we now develop lists of all physicians within the zip codes that define a hospital market, and we've begun calling on high prospect physicians that are not affiliated with our hospitals. This is in addition to those physicians that have longstanding relationships with Tenet hospitals but may have diminished their referrals or become inactive members of our medical staff. When we meet with non-Tenet physicians, we not only explain the culture change and new investments at the hospital and at Tenet, but we also work collaboratively with them to get them properly credentialed by the local hospital medical staffs.

As we dig deeper into our prospect lists, we're continuing to generate the kinds of satisfying results we have shared with you on earlier calls. We added just over 1,100 physicians to our focus list in the first quarter. Most of those on the list who had already affiliated with us had been referring far fewer patients than they had in the past. But in the first quarter, we saw an increase of 13.6% or 560 admissions from these physicians compared to their admissions to our hospitals in the first quarter of 2006. When you recall that Tenet's goal for admissions growth for 2007 is approximately 6,000 incremental admissions, it's clear that PSSP continues to make a meaningful contribution towards this goal.

We also have refined PSSP to put priority on visiting physicians that have received quality designations by the managed care plans. Some of these physicians may not currently have or use admitting privileges at a Tenet hospital, but they are on our focus list because there's a geographic match. For example, Aetna has a strategy of identifying physicians rather than hospitals as the primary focus of its quality strategy. Aetna offers financial incentives to its members to use these doctors based on their patterns of utilization and quality outcomes. While our reward for targeting these physicians may take longer than other parts of our PSSP initiative, we believe this approach holds significant promise over the longer term.

The first element of my prescription for success is a focus on improving clinical quality. As you know, one aspect of our strategy for growth is to gain quality Centers of Excellence designation for our hospitals from the managed care payers. In the first quarter, we again saw a dramatic differential in admissions between our hospitals that have designated Centers of Excellence and those that don't. Although both rates were still negative in the quarter, our COE hospitals, our cardiology admissions, declined by only 1% while our non-COE hospitals were down almost 11%.

The issue comes into better focus if we exclude Florida where, as I mentioned earlier, some of our cardiology programs have experienced significant declines due to new competitors. Not counting Florida, our Centers of Excellence hospitals were actually up 4.5% in cardiology admissions while the non-COE hospitals declined by 7.1%. In other words, there's even a wider growth gap between COE and non-COE cardiology programs of almost 1,200 basis points. That evidence is what gives us confidence that our quality strategy is playing an increasingly important role in generating our future growth.

Let me conclude with a brief comment on our ongoing union negotiations. As many of you know, some of our employees in California and at three hospitals in Florida have been working under a month-by-month extension of our contract with the Service Employees International Union that expired at the end of 2006. We have also been negotiating with the California Nurses Association since last October on a new wage agreement for CNA-affiliated nurses at some of our hospitals in California. The existing CNA agreement also expired at the end of 2006, and our unionized nurses have been working under a month-by-month extension. We have not yet been able to reach a new agreement with either union. We remain optimistic that we'll be able to do so. But in the meantime, it's possible that you may hear about some union activities or see some negative media coverage as we continue these tough negotiations.

With that, I'd like to turn it over to Biggs Porter, our Chief Financial Officer. Biggs?

Thank you, Steve, and good morning, everyone. I'll start my review of the quarter with a look at patient volumes. When we issued our outlook for admissions growths of 0.5% to 1.5% for 2007 two months ago, we expected to see a reversal of the rate of decline and then for volumes to build gradually through 2007 versus prior year quarters as our strategies to drive profitable growth take further hold. As it is, there was a year-over-year decline of 1.7% in the first quarter, or even in the more relevant metric of 1.4% after excluding the two Dallas hospitals to be divested this summer.

This is neither stellar nor acceptable, but there is still some moderation in the statistics as last quarter's decline in commercial managed care admissions, excluding the two Dallas hospitals, was 3.1% for the quarter compared 3.2% in the fourth quarter.

Growth in admissions in the outlook range of 50 to 150 basis points requires an incremental 2,800 to 8,400 admissions for the year. Excluding the two hospitals to be divested in Dallas, the first quarter decline was 2,090 admissions so our outlook range remains an achievable objective. I will talk more about this later, but I want everyone to remember that while volume growth is critical for us to achieve our long-term earnings potential, we could continue to improve our results over the near term and near immediate term through price, cost and cash flow focus, as well.

Turning to revenues, net operating revenues grew by 3.1% reflecting soft volumes but helped by reasonably good pricing. We saw good growth of 8.1% in the managed care revenues, which was driven in part by the continued migration from traditional managed -- excuse me, traditional Medicare and Medicaid programs to managed programs.

Revenues were affected by favorable cost report settlements of almost $12 million in the quarter, down from just over $27 million in last year's first quarter. While cost report settlements and adjustments from them may continue, we can't say at what value.

On cost control, total controllable operating expenses were up 4.1% but the more important measure was a measure of unit costs which rose by 6.3%, which although we may have made some progress, still reflected higher staffing expense and fixed cost absorption than what we believe is necessary for our current volumes. This is not just about headcount but also the effects of higher than desired turnover and higher contract labor cost. I will talk more about that in a moment when I speak to the full-year expectations and our actions to mitigate the risk of volume shortfalls.

I should also note that we had reductions linked to stay of 2%, and this correspondingly drives cost per day.

Supply costs actually declined in the quarter by 0.7%. While it's true that this cost item tends to move with patient volumes, and part of the decline was further result of decline in surgeries, this kind of result is still quite extraordinary given the otherwise steady adverse impact from the high rate of medical inflation.

Other operating expenses rose by 8.8%. This line item includes the costs of increased medical fees, including the increased burden of ED on-call payments as well as subsidies to hospital-based physician groups, especially anesthesiologists who are in short supply. We also had some significant costs for systems development reported here, and malpractice expense increased to $49 million from $43 million a year ago. There were a few adverse awards or settlements during the quarter which contributed to the increase in malpractice expense. While we cannot say with certainty, this may be an anomaly for the quarter.

Rising rents also contributed to the increase along with a decline in the amount of overhead costs allocated to discontinued operations. These costs were partially offset by a $7 million gain on the sale of a medical office building.

To say it again, as I mentioned in my fourth quarter remarks, we are continuing to carry staff costs in excess of our intermediate -- excuse me, of our immediate current needs. We have facility level plans in place to realign staffing at current volumes. We also have specific targeted reductions in baseline overhead costs and discretionary overhead spending which should have a positive effect on the profitability of future quarters.

Turning to bad debt, bad debt as a percentage of net operating revenues came in at 6.2%, compared to 5.5% in the first quarter a year ago and 5.7% in the fourth quarter. If we exclude the two Dallas hospitals to be divested this summer, bad debt would have been 6%. More importantly, after normalizing fourth quarter of last year for the effect on bad debt expense of improved collections, the first quarter shows a fairly stable bad debt situation. We continue to deploy our bad debt reduction strategies to mitigate risk in this area or hopefully to yield net improvement over time.

Turning to pricing, net in-patient revenue per patient day rose by 3.6% while net out-patient pricing per visit increased by a much stronger 11%. One factor contributing to this was a relative mixed change toward higher priced commercial managed care volumes. As we said many times in past quarters, pricing metrics can be somewhat misleading in that they are significantly impacted by the particular type of patient presenting themselves at a specific hospital.

The decline of volumes at USC provides an interesting example of this. If we exclude USC from both last year's and this year's first quarters, and calculate an increase in net in-patient revenue per patient day, the increase would have been 4.6% rather than the 3.6% reported number.

Those of you who have followed Tenet closely over the last few years will notice that we have reduced the amount of detail we are disclosing this quarter on some of our commercial pricing metrics. It has gotten to the point that the disclosure of this type of detailed information has become counterproductive in our ongoing negotiations with managed care payers. The fact is, while we have received steady increases in most of our markets, we still have a number of markets where our -- where our information on competitors' pricing indicates that Tenet is being underpaid. Our pricing objective remains to achieve a rate parity across all our plans and all our facilities and in all our markets. On this basis, we still have several markets and contracts which need to have greater than average increases to obtain rate parity.

On cash flow, we ended the quarter with $584 million in cash, down $200 million from year end. Adjusted free cash flow used in continuing operations was $272 million. Adjusted free cash flow is a non-GAAP term we define to reconcile to GAAP in the release.

Discontinued operations provided $17 million in cash, primarily due to the ongoing collection of accounts receivable from sold hospitals. Excluding this cash from disc-ops as well as payments against reserves of $7 million and a small tax payment of $2 million, cash used in continuing operations would have been $162 million. Note that this $162 million included the combined $96 million annual funding of our 401(k) match and incentive compensation.

It should be noted that shortly after the end of the first quarter, we received a tax refund of $171 million, which we have previously disclosed as being expected around this time. It is worth noting that our focus on cash flow is increasing. We have always had cash-related targets, but the more comprehensive measure of free cash flow has been added to our balance scorecard metrics in 2007.

Total Company capital expenditures were $111 million in the quarter, of which $110 million was in continuing operations. These capital investments included $11 million for the construction of our new Eastside Hospital in El Paso and $35 million related to the $150 million of bonus capital we authorized for commitment last year. This brings our total spending on the [bolus] to about $75 million with a remainder in the pipeline.

The deployment of our bolus capital has been slower than we anticipated due to long lead times and regulatory approvals and moving from placing of an order to the final installation, including any construction and site preparation activities. We otherwise find ourselves walking the fine line of ensuring value generating expenditures are executing expeditiously and applying good discipline to more mundane capital activities.

Let me now turn to adjusted EBITDA and our outlook. Adjusted EBITDA was at $189 million for the first quarter for a margin of 8.3%. The reconciliation of this number to the GAAP definition of net income is provided in the earnings release we issued this morning. This number included $6 million of negative EBITDA for Trinity and RHD, which will be discontinued by year-end and are not in our 2007 outlook for continuing operations. It also included a number of other items reflected in our earning release.

In late February, we provided an outlook for 2007, which put adjusted EBITDA in the range of $700 million to $800 million. While the first quarter was somewhat weaker than we had anticipated in terms of patient volumes, we saw many signs that our growth strategies were gaining traction, but were held back by Florida and USC. As a result, it is entirely too early to start refining our outlook for 2007 or even commenting on whether it is more likely that we will be at the high or low end of the range.

Since I know some of you struggle to reconcile our 2007 outlook, I'm going to take a moment to give you a sample [of it]. The purpose of doing this is not to give you specific, new line item guidance but to show you how the variables operate and to communicate the types of actions we are engaged in to mitigate risk or give us upside. As I said earlier, I want to emphasize that near term performance is not all about volumes.

If you assume normalized, adjusted EBITDA for the first quarter was around $180 million, then annualized, you have $720 million. Using around $180 million for this purpose seems reasonable after eliminating the $6 million losses at RHD and trinity and the $7 million gain in the sale of MOB and normalizing for cost reports, malpractice expense and dish payments. This is subjective, and I recognize everyone will have to draw their own conclusions about the starting point.

But the question then becomes one of how do you get a model to work for the $720 million level to, say, the middle of our outlook or higher. Here's one bridge to that result. First, we should add back to the annualized figure above the detailed plans we have to reduce overhead staffing cost over the next three quarters relative to first quarter expense levels. These efficiencies aggregate to over $50 million for the rest of this year.

Second, we have initiatives with potential to significantly contribute to 2007 results. These include additional staffing reductions at the hospitals, DRG documentation, corrective actions to increase recovery to the level we're entitled, similarly improve our AD coating to ensure services and severity are all properly captured, charge capture and other revenue-related initiatives, improved denial management, improved bad debt expense from our bad debt initiatives, continued success in improving costs on medical devices, and further reductions in consulting and other overhead spending. The list of our action plans is, in fact, longer, but I will stop here as remaining items become increasingly finite.

Now let's assume the starting point and the concern at the end of our outlook for admissions. I am not leading you to this in assumption, but it will be a good way to show how the variables work. In order to have admissions and visits for the year at 0.5% -- and 2% growth respectively, our remaining quarters need to have admissions growth over the prior year quarters of 1.2%, and out-patient visit growth of 3.3%. Since the first quarter has higher admissions than average for the year, this would result in equivalent admissions of 2.2% below the first quarter.

At first quarter average pricing at mix, this would result in lower average quarterly revenue of $50 million for the next three quarters compared to the run rate we achieved in the first quarter, or $150 million in the aggregate for the next three quarters.

You may recall that we believe the incremental margin on each admission is 40%, other variables remaining constant. Versus our first quarter, this would suggest a reduction in quarterly income for the next three years -- next three quarters, excuse me, of an aggregate $60 million versus the first quarter so $150 million times 40% for $60 million.

Although our merit increases are not until the fourth quarter, let's assume that absent mitigating actions on our part, our costs and pricing move at the same rate of growth for the remainder of the year so that the $60 million is a logically produced number.

Using this dataset and assuming we only capture just over $30 million from the initiatives I discussed above, it would be around the middle of our outlook. If you start with a different normalized EBITDA number for the first quarter and hold the same volume assumptions, it just changes how much I would say we have to achieve for our initiatives in order to hit the middle of the range.

We are actively pursuing the full captured initiatives which are of a much higher potential value than what I used a moment ago and also performance much better than admissions data I used above. If we are successful, then there is upside or additional mitigation of volume risk. I've said before that our objective is to have a balanced outlook with offsetting risks and opportunities with good risk mitigation and opportunity capture plans. There's a lot of the year and risk left ahead of us but I believe we still have that balance. Of course in the end, it is our performance that matters.

So with that, we can turn to Q&A so Operator, could you please provide the instructions for our callers who wish to ask questions.

Thank you. (OPERATOR INSTRUCTIONS) We do ask that you please limit yourself to one question and one follow-up question. We'll pause for just a brief moment to compile the Q&A roster. Thank you. Your first question is coming from Adam Feinstein of Lehman Brothers. Please go ahead.

Okay. Thank you. Good morning, everyone, and thank you for all of the details there. I just have a couple of questions. I guess I understand that your point -- about the pricing, about not wanting to give too much detail, but just trying to understand in terms of what the real commercial pricing is. I guess we have seen some slowdown in the quarter relative to the past year. And one thing -- you guys highlighted -- did a good job of highlighting the mix shift in terms of the commercial managed care relative to the Medicare managed care. But we're certainly just trying to understand in terms of what the reasonable pricing outlook could be?

And then just my other question was with respect to the volumes. Just wanted to get a sense, you guys mentioned Florida and California and Texas, but was just curious about some of the other markets also. Clearly you mentioned the three most important, but just wanted to see if volumes were trending higher or lower in some of the other markets, as well? Thank you.

Adam, this is Steve. With respect to managed care total pricing compared to Q1 '06, it was up 5.2%. If you look at managed commercial, first quarter '07 compared to '06, it was up 5%.

With respect to your question about the volumes, we're seeing around budgeted volumes for the other regions that I didn't mention in the highlights.

And when you say budgeted, does that mean just in terms of the absolute trend, are you seeing growth or are you seeing a decline in -- in those markets?

Reasonably comparable to prior year.

Okay. Thank you very much.

Thank you. Your next question is coming from Tom Gallucci of Merrill Lynch. Please go ahead.

It's actually David [Seekers] for Tom. Just wanted to ask about CapEx. I guess if you just roll the quarter forward, you're well below your expected capital expenditures for the full year. You said it would be lumpy, but are you spending in areas -- what's the kind of breakup between maintenance and growth? Or also geographically, are you spreading the CapEx evenly out the portfolio or are you spending less in certain areas?

Well, I think our evaluation is by hospital by hospital in term of where the capital goes and then, of course, ultimately it's project by project as we make sure that we're investing in the right kinds of growth activities.

The first quarter capital was clearly lower than what we would expect on a quarterly basis for the rest of the year. We still have plans to spend $750 million to $800 million, as we said, going into the year. There were delays on the bolus spending associated with approvals by [Oshpod] primarily and then a lot of the CT scanners we've ordered. We actually placed orders back in September, but we had a construction project that have to take place before they're installed and we don't pay for them until they're installed. So they're in the pipeline. Clearly they're going to -- cost is going to be incurred the year, but they're still in front of us.

I don't have a mix between maintenance and growth. Internally, we certainly look at it that way, but we haven't broken it out to the outside world.

So on the bolus, is that $100 million behind which would put you up kind of on your run rate or -- ?

No, we have $75 million left to go in the bolus. That's spread over the remainder of this year.

Okay, and you talked about USC a bunch. Where does the relationship stand right now, and are you -- are you spending on that facility? Kind of what's going on between you and -- and the University?

Well, we -- the litigation that the University filed against us is pending. That will take potentially years to reach some resolution. So in the interim, we're running the hospital business as usual. We're continuing to invest in the hospital. We -- in January, we opened a new patient tower on the campus that had been under construction for a few years. We just appointed a new Chief Executive Officer in the hospital, an outstanding person who had been running the hospital on an acting basis prior to that. And unfortunately, I don't think that the litigation has -- certainly has not had a helpful effect on the stability of the medical school and the hospital relationship. And there are many other issues within the school itself that apparently have caused some degree of dissatisfaction among the faculty and some defections. So that's why we gave -- the results there were so starkly different from a year ago. But that's why we continued to give those statistics excluding USC in our commentary.

And going forward, you expect that to turn around within a certain timeframe?

Well, I think as of -- you have two kind of unique situations at work here. One is you have litigation and I really can't say more about the litigation. And the second thing is as with any academic medical center, the performance of the hospital is highly dependent on the volume of patients that are being treated by the physicians that are faculty members at the medical school. So this isn't -- none of these academic centers operate like a normal hospital that has -- that can accept patients from all over, from physicians that are within the community. They have to be faculty members of the University. So that's what makes it so dependent on the stability and growth and retention and recruitment of faculty to the medical school.

Is that going to change any time? Are we expected to run the Q1 trends forward or do you see improvement happening within the year?

I suppose I may not have been clear. We run the hospital. We do not run the medical school so the future of the medical school is really in the hands of the University.

Okay. And the litigation is ongoing for a while?

Yes. And just to be clear, we did not initiate the litigation. Initiated by the University.

All right. Thank you.

Your next question is coming from Sheryl Skolnick of CRT Capital. Please go ahead.

Good morning, gentlemen. Good job in California and Texas, and not at all surprised by Florida given our visit. So I'm going to move on to cash flow and cash. So a couple of questions around that. First of all, last year in the first quarter, you also had negative cash flow from operations before CapEx. This year you have it again. Clearly the timing of these 401(k) payments and I know that you reduced the amount of the match once so you probably can't do that again. But the timing of that, the cash bonuses, is there anything you can do about that? Maybe folks want to take little equity or something like that?

Because I'm very concerned that you've got this negative cash flow. You're going to have to have positive cash flow at some point in time, otherwise why bother to operate the business as a for-profit business? That's what you're supposed to do is generate cash flow, my view. And at some point if this continues, even with the April receipt of the tax refund and whatever other asset sales you can get out of discontinued operations or anything else, you may have to dip into the revolving credit facility, which you said you hadn't.

So do you expect to have positive cash flow from operations? Is there a target? Can you give us any sense of that, number one? Number two, do you have any change in your position which had been that you didn't expect to use the $800 million line? Do you now think that you might or will have to? And three, how do you grow the business if you can't spend the CapEx?

Sheryl, this is Trevor. Let me start with a narrow comment on the 401-K and then Biggs will address the broader cash flow questions.

Great.

But just to be clear, I think you're aware of this history, but perhaps the other listeners are not. The Company up until about 2002 had a 401-K match at a 3% level which was approximately equal to the hospital competitive landscape. Unfortunately, in those brief few years when the Company was extraordinarily profitable, the management increased the 401-K match to 5%. So where it is -- so we then in 2003 or 2004 brought it back down to 3%, where it had been before. Unfortunately, that was viewed by the population at large as a takeaway and has probably been responsible for accelerating, to some degree, the unionization of our hospitals in California. So as I think you pointed out in your question or comment, it would be unwise in our judgment to roll that 3% down further. We think it's a competitive level, but it's certainly not above competitive levels.

As for the incentive compensation numbers, those are all driven -- there's very extensive disclosure in our proxy about how that is derived. It's based on the balanced scorecard which we've disclosed to our shareholders. And the more senior one is in the organization, the more heavily compensation is equity based to the point for our senior-most officers, it ranges from, say, 50% to 90% of total compensation. So we think we are using equity heavily, particularly restricted stock, in the compensation plans. And with those two comments, I'm going to ask Biggs to fill out the rest of your question on cash flow.

And you may have to repeat the questions to me again if I don't cover them all but --

Okay.

-- with respect to cash flow, certainly the quarter is a user. I think that that is not unusual, the first quarter we've already talked about, 401-K and the incentive comp. But beyond that, payables typically run up at the end of the year, and then are paid down in the quarter and also receivables typically go up in the first quarter so both of those represent uses of cash, if you will. And our cash flow statement would suggest that some of those two -- all three of those things including the 401-K is about $300 million. So you have usage in the first quarter associated with those items which doesn't occur later in the year.

Now we would expect over the rest of the year that there is -- I'm going to say at least a reversal of that in the amount of maybe $200 million, as liabilities grow towards the end of the year. So -- and other working capital changes. So I think there's probably about $200 million missing in your calculation potentially as you look at where we would go from here.

So to kind of roll that into summary analysis, we've got about $600 million at the end of the quarter. We have a tax refund of $170 million. If you add some other receipts in to give you $200 million of refunds and asset sales, you're -- you have $800 million. The remaining interest for the year, if you just do it on a flat line basis, would be about $300 million so that brings you down to $500 million of cash. You've got the increase in payables, the working capital changes I just referred to of about, say, $200 million. You've got remaining EBITDA of $500 million to $600 million, within our outlook, and remaining CapEx of $650 million to $700 million. That's going to leave you for the year at about the same place where we said we'd be at the end of the year for cash of $475 million to $625 million. The -- plus or minus some roundings in there, some other features that I didn't pick up because I'm not doing this in a lot of detail. But there's no point in the year where we would project having to go into the credit line, more the opposite. We're actually sitting and making sure that we're doing the right thing for how we invest the cash that we have and not focused on the use of the credit line.

Okay, because it's an important line item. Just one clarification. As I look at the sequential change in receivables on the balance sheet, it went up but it only went up modestly, $14 million after the allowance for doubtful accounts. So why do we see this big increase in receivables on the cash flow statement?

Well, there's reclass -- reclassifications on the balance sheet get eliminated when you do the cash flow statement. Secondly, you have to pick up the depreciation and amortization change in the cash flow statement as well as what's listed as accounts receivable to try to match that up to the change in receivables on the balance sheet. But there's still reclassifications which are affecting the analysis, which are eliminated when you do the cash flow --

So that's not all patient account receivables is what you're saying?

Well, there's -- it's basic account receivables. There's also activity associated with discontinued operations.

Okay.

So there was some -- and there was some reclassification of receivables between continuing ops and disc ops in the quarter. It's not otherwise material, but it does confuse, if you will, if you're trying to compare the cash flow statement back to the balance sheet.

Okay. And one final detail item. Can you explain what looked like surgeries were down about 7% in the quarter? Is that what I saw? Out-patient?

Yes. Sheryl, this is Steve Newman. The surgeries were down significantly more in the out-patient surgery area than the in-patient. Some of this had to do with the way we count surgeries that change year to year. For example, one of our hospitals moved all of its pain management procedures out of what was counted as out-patient surgeries other out-patient procedures. We're talking about thousands of procedures that were done at this particular facility over the course of a quarter. So part of it is actually down where we've lost business to competing freestanding ambulatory surgery centers. But others are pretty much related to the way we count.

Okay, and how many new beds do you expect to have open by the end of this year and maybe going into next? Because I know you had some construction projects, you had Twin Cities, you have USC Norris and then El Paso I guess is next year, right?

Right. El Paso should open in mid-2008 with 104 beds. We added 30 beds at Twin Cities and we opened 140 beds at USC, but that is a phased movement from the USC Norris Cancer Hospital that will take place over the next couple of months. Those are the -- the new beds that we're opening.

Great. Thanks so much.

Thank you. Your next question is coming from Matthew Borsch of Goldman Sachs. Please go ahead.

Hi, thank you. This is actually [Shelly Nott] for Matt Borsch. A question on the Academic Medical Centers. USC issues aside, could you sort of give us, review with us the value proposition in partnering with the AMCs given that I think we're expecting potential cuts to the graduate medical education payments since significant investments you've made in the space? And I understand higher operating cost at these facilities. Maybe an update on their operating environment, as well?

Sure. Clearly, we see this as part of our core operations today. The academic health centers contribute a great deal to the Company in multiple ways, including the creation of best practices, which we're working on emulating at many of our community hospitals. But -- but I think it's fair to say that this is one of the hardest times in recent history to run an academic health center, and also to run the hospital portion of those because of pressures on graduate medical education reimbursement by the federal government. We continue to invest in our Academic Medical Centers and we continue to work on building the relationships with our medical school partners, and we've actually looked at medical school relationship in other parts of the Company where new schools are emerging and things of that nature. But it is a pressure point for us simply because of those secular factors that affect academic health centers in general.

And just to clarify, the best practices that are sort of generated, these are clinical best practices?

Yes, ma'am.

Okay. Thank you.

Your next question is coming from Gary Lieberman of Stanford Group. Please go ahead.

Thanks. Good morning.

Good morning.

I just want to go back to the discussion around CapEx. And I guess if in fact the spending of CapEx on selected projects is probably one of the key drivers in bringing back physicians and bringing back some of the managed care volumes, why is it that it's not more front-end loaded and why was it that you had delays in terms of some of these projects that you mentioned and is there a problem there? Is there something that you can do to refocus to try to get that spending done kind of as quickly as possible to bring back some of those volumes?

Well, part of the benefit of the projects comes from just committing to them, and the positive relationship building result that has with a physician base to demonstrate that we're committed to putting money in the facilities. And they understand, first of all, that we are committed, and understand also the pacing of some of these things. The -- if you were in the hospital, you would in fact see activity going on, preparing, by example, for the CT scanners, and there's about $20 million associated with that as those 11 scanners come in later on in the year. So that, if you will, I wouldn't call so much a delay as just the processes necessary to put the scanners in place because in fact, those POs were issued last September.

The -- in California, there's about $30 million of expenditure which is awaiting Oshpod approval so it's not totally within our control. They have to approve before we could go forward. So certainly people understand that. Yes, we'd like to get it done. If they're value generating activities, we should get them done as soon as we can. So we are trying to move ahead but we are limited by the regulatory body.

There's a smaller example of only about $3 million where there's FDA approval waiting to be given to the particular vendor which has the best equipment, which we chose the best equipment, and we're waiting on that approval. So that's another example. It's smaller dollars. So it's not like we're not trying and focused on getting these value generating capital additions made. It's just a function of, as I said, the time it takes to get facilities ready or, in other cases, approvals.

Great, and if I could just ask one quick follow-up, Trevor. In term of your comments on USC, in that I guess the lawsuit could go on for a number of years, clearly it's not to your advantage for it to go on for a number of years and what, if anything, can you do, and what, what are you doing to try to basically resolve the conflict there so that the operations can improve there as quickly as possible?

Gary, it's obviously very difficult to talk about litigation, but it's not our preference with -- just to reiterate, we did not bring the suit. It's not our preference to have litigation with a university partner. If it's possible to resolve it on a basis that is fair and advantageous, we'll do that. But there's really nothing else I can say about that.

I mean are you hopeful at least that it gets resolved in -- more in the near term than over a course of several years, or is there really no visibility into it?

Really not within our control. The University brought the suit. It takes a very long time. There's been virtually no tangible activity on it since it was brought last summer. And there is -- it is more within their control than ours, I would say.

Okay, great. Thanks a lot.

Thank you. Your next question is coming from [Erin Blum] of Goldman Sachs. Please go ahead.

Hi, thank you. Given that you believe that the results in volumes that California validate your TGI program, is there any impediment to you speeding the rollout of that to other regions?

We are in fact speeding that rollout. We have launched as of the 1st of January into the southern states region and we're now moving through that particular region. And we'll finish in central northeast in the last half of this year. So by the end of this year, we will have rolled out phase one of TGI to every hospital in the Company. I should hasten to add that phase one is the analytics assessment where one draws conclusions. Phase two is the implementation of the changes in service mix, the selected capital investments, the recruitment of professional personnel to grow both quality, volume, and profitability in the selected services. That does take longer. What you're talking about, then, is a lag period of 12 months to 18 months. Hence, the fact you're seeing in Texas now the work -- the results of work that began 18 months ago.

Okay. So it sounds like there will be quite a lag created before I guess the rest of the Company sees the benefits from this. Then on -- I think I understood that Biggs said that the hospital level CEOs on their scorecard, there's a measure of free cash flow. And I'm just curious, do you think that introduces any kind of I guess perverse incentive for them to underspend CapEx since that's the one part of free cash flow that they can very easily control?

Well, it is a balanced scorecard so there's other incentives for them to make sure they're spending money appropriately. They have incentives for volume and for relationships with physicians, etc. So if they were not spending money where it should be spent, it would work against their metrics on volumes and profitability and otherwise. So I think there's balance in the equation, and also as a check and balance to it, we do have a capital plan. It's detailed. We understand everything that's planned to be spent. We also understand how hospitals should be maintained. And so we're going to watch carefully during the course of the year that the right balance is struck. So like I said in my comments, it's -- as finance guy, I usually -- I focus on pure conservation of cash, but also have to focus on value creation and we're just making sure we get that equation right.

Okay, thank you.

Your next question is coming from Darren Lehrich of Deutsche Bank. Please go ahead.

Thanks. Good morning, everyone. I just want to go back to Biggs' comments with regard to the bridging of EBITDA and just make sure I understand the $50 million or so in savings you expect to reap from overhead and staffing reductions. Was that always part of the plan, or is that in response to the different volume trend that you started out the year with? I'm just trying to put that into perspective, whether that's something you are now accelerating in response to slightly weaker volumes or this is always part of the plan for '07?

Some of both. We did have in our original plan for the year reductions in overhead spending this year and next year that we had commitments at a functional level, and they were detailed out coming into the year. In addition, as you recall, I've said last year and again this year, this quarter, that we have been carrying infrastructure costs or staffing costs above the level which was optimal for the volumes we had through much of last year and into fourth quarter of this year. So we began analysis of it last year. But I think that the dollars that we're dropping in now, the $50 million, is I would call corrective action in response to fourth quarter volumes and first quarter volumes.

Okay. And then you didn't attach any sort of number to the coding and reduction of consulting fees, etc. that you enumerated in your second piece of this bridge. Can you just help us understand what that was or what it is?

Well, I -- I don't want to give specific targets on each line item I mentioned. I will tell you that the aggregate value of what we believe we have out there is significant. We won't achieve everything that we're pursuing, but we have capture plans for a broad number of initiatives. And the $30 million-plus I referred to would be a fraction of what we're pursuing. But there's not 100% probability of success for anything we're pursuing. So for conservatism, I'm going to stop it at that point.

Okay. And then I guess one more if I could, please. And that is just interested in your comments with regard to population changes in Florida which -- which don't square necessarily with the most recent Census data. I guess just wanted to hear from you what you are seeing and whether the '06 Census data might -- might have been a change over the last year in Broward, Dade, or Palm Beach that you're seeing relative to population growth.

Well, I think it's an excellent point. We've been following that situation from a number of perspectives all the way from the number of airline departures from the Palm Beach airport, all the way to real estate transactions, the restaurant business in both Palm Beach, Broward and Miami-Dade counties. We've looked at all of that and clearly there seems to be some downturn in both population and the economy in south Florida. I wouldn't want one to believe, however, that we felt that all of our shortfalls in terms of volume in our south Florida hospitals was related to these factors. We have other factors that have resulted in the loss of volume and we are addressing those very directly and very aggressively and you'll hear much more about that on Investor Day.

Great. Thanks very much.

Your next question is coming from Mike Scarangella of Merrill Lynch. Please go ahead.

Hi, good afternoon. A follow-up question on cash flow. A question was asked earlier about whether you thought your cash balance would be low enough at the end of the year that you might have to hit the revolver. I guess I'm wondering is there another plan B or do you necessarily hit the revolver? Are there additional asset sales you might be able to put together to raise cash? Is there anything else you could do to raise cash? Would you ever consider issuing equity or is debt the only alternative?

Well, as to asset sales, that we wouldn't comment. It's always the best policy not to comment on asset sales. Our plan is just to execute what we already have in the works that we've made publicly available.

The -- in terms of other capital structure alternatives, what I've certainly been saying, I still believe it is that at this point in time, we think we have the resources to execute our turnaround based upon our existing capital structure. We are focused on that turnaround. As we demonstrate our turnaround, then certainly our creditworthiness improves and we should get benefit of that. But we've got a period of time here before any installments on the debt are due, the first one being in 2011. So our focus for right now is the turnaround and improving our performance.

And you're comfortable with the 2011 maturity date as it stands right now? You don't see a need to push that out at this point?

No. No. I think that as I said, I think we have plans to put ourselves in very good condition going into the period where that would either need to be paid down or refinanced.

Okay. Unrelated question, on the PSSP program, I might have missed it, but did you give the admissions increase for the entire PSSP group in the quarter?

We did not cover that particular factor in this particular presentation. In the quarter, we visited 5,373 physicians for a total of 14,087 visits or an average of 2.6 visits per physician on the target list. I mentioned previously that the new 1,150 that we visited increased their admissions 13.2% when compared to the first quarter of '06. There was a slight decline if one looks at the entire group of 5,373 physicians of approximately 1%.

Okay. What do you -- I think you had 3.7% growth in the fourth quarter so that's a negative departure. What do you think drove that?

Well, certainly switching the focus of this group to doctors that we're seeing for the first time or doctors whose privileges have been inactive for a long time can certainly dilute the yield that you get. So as we adjust the target over time, you can expect that we'll encounter some of those situations when one does, I guess what we would call in other industry, cold calls or working on cold leads that previously bore fruit and it will take some time to recover in that area.

Okay. Thank you.

Thank you. Your next question is coming from Matthew Ripperger of Citigroup. Please go ahead.

Hi, thanks very much. Just quickly, in your opening comments you talked about rate parity across all plans and across all facilities. I just wanted to see if you could clarify really what you meant by that, and whether that's really achievable? And then related to that, I wanted to just see if you could help provide a framework in terms of what commercial -- what percentage of your commercial pay reimbursement would you characterize as below parity?

Well, certainly we've worked hard over the last four years to move our hospitals and our micromarkets up to at least rate parity. And we have some isolated situations and markets where we're still being reimbursed below what we think are market rates. We have targeted those selectively, and [Clint Hailey] and our managed care staff are looking at those very carefully. We believe we will be successful over time. The last three or four times that we've gone at these particular issues, we've been very successful and getting double digit increases to move us to rate parity. Obviously, that's higher than our overall target and results of mid -- mid to upper single-digit increases annually. But I do think we're making progress in that area and we'll continue to focus on making sure our hospitals are reimbursed appropriately for the quality and level of care they're rendering in their communities.

Great. And then a quick follow-up, just coming back to the $50 million staffing cost. I just wanted to see if you could help provide a -- a little granularity in terms of how much of that $50 million is clinical-related or nurse-related and how much is more administrative-related?

I don't have the breakdown when you get down to nurse-related versus staff-related in hospitals. There's also cost reductions at corporate included in the number. And it is both salaries, wages and benefits and other spending on consultants, contract labor, other areas. In some cases, it's a wind-down of initiatives where we have been spending in areas to accomplish a particular result, and as we move towards the completion of that initiative, then the reductions are enabled. So I don't have a breakdown. It's a mixed bag between people, both at the staff levels and the hospitals and at corporate. It includes support staff, significantly in both areas. It includes reduction in systems spend. It includes a reduction in SA and contract labor, and consulting costs. So it's a wide area of reductions. But it is fairly definitively stated in our action plans. We know what the items are. It is, at this point -- it's a process of execution.

Thanks very much.

Your next question is coming from John Ransom of Raymond James and Associates. Please go ahead.

Hi. It's tough to be brilliant after all these smart people have asked questions but we're going to give it a try. The $12 million that you got this quarter from Dish, could you talk about that and the sustainability of that?

The -- overall we think -- I'm sorry. Are you Dish or cost report are you talking about right now?

Dish.

The Dish number is more like $40 million. The --

I'm sorry, the increase in Dish was about $12 million. Yeah. I'm sorry, the increase in Dish was about $12 million. Was that -- we've seen that number be lumpy. Is that a number you feel will be sustainable or is there anything that you're aware of that might reduce that?

It's a little lumpy. We might say take $5 million out of it to get to a more normalized number. Obviously that's pretty judgmental, but --

Sure.

But something in that territory.

Okay. And then I guess secondly, if we go back a year ago to your -- your analyst day, we were going to have $1 billion in cash at the end of the year, and we're sitting here now with $600 million in cash. So as you judge that a year back, did you think you would have more cash than you have, and what were the two or three most critical factors? Was it specifically the hospitals that you mentioned, and then I guess I want to get where we are, I want to follow up with a question on discontinued ops. Thanks.

Okay. On the cash today versus a year ago, to be honest, I gave a reconciliation at 12/31 of some variation there. Some of that was timing. I -- I think that for the most parts, other than what was attributable to lower operations for the year, it was timing in nature and that has sorted its way out over time. The $600 million that we're at today, we thought might be a little bit higher because we thought the tax payment that we received or the tax refund we received might have come in March, but it came in April. Other than that, I think that there is no big variance to expectation today versus what we might have thought a year ago. Most of the events have been timing in nature.

Okay. So you don't judge that you're significantly behind in terms of your cash flow over the past 12 months. Now looking at your discontinued ops, what's left in there? What hospitals are left in there? I've got a list here, and we try to keep up with when you sell them, but I just want to make sure we understand what's left in discontinued ops.

Actually, let me do a follow-up on the prior question. We did have the IRS settlements which were not expected when we gave the $1 billion estimate a year ago. You may recall in the fourth quarter we made two payments to the IRS to remove contingencies. Those payments otherwise wouldn't have been forecast until about 2008. So by the time you hit 2008, it washes out. But for the current year, those did have -- for last year, they did have a negative effect.

Okay. I notice in your cash flow forecast, you didn't include -- don't you have some settlement payments to make as well?

In the fourth quarter, there's one of about -- it's $40 million.

Okay.

Which is, because I was using large, round numbers, I didn't include it.

Okay. All right. What's left in discontinued ops? Which hospitals?

Go ahead. I'm sorry.

Hi. This is Peter Urbanowicz. We have -- we only have one which we have not announced the sale for yet and that's in Encino, Tarzana. The two left that are in discontinued operations, Roxborough and Warminster in Philadelphia, we announced an agreement, and hope to complete the transaction by the end of the second quarter.

Okay. Thank you. And when -- when you get those hospitals sold, could you give us kind of a relative magnitude? I mean you mentioned that the discontinued ops contributed to the cash burn. How much will cash burn be alleviated when those transactions are done?

I don't have that specific number. I'll --

Is it bigger than a bread box? Is it significant? The cash you're still burning?

It's not going to be significant.

Okay. Okay. And I mean, just to kind of -- final question. I mean, you've cited the two hospitals in Dallas. What happens when you close those hospitals? What happens with your cash flow when you close those two hospitals -- when you cease operations in those two hospitals?

Well, the first point was we don't close them. We --

I mean terminate the lease. Excuse me.

There's a new lessee on the facilities when we exit. The -- I would say just generally speaking, we think of the EBITDA numbers as a recurring cash flow number. We do have the ability to collect receivables after the sale. We also have a note receivable out there which we looked at in the 10-Q as identified as the best hospital authority which we will collect in the future. And that will then bring those facilities and our engagement with them to a close from a financial standpoint.

But what I'm saying is I mean once you work through all the working capital stuff, how much will it help here ongoing, kind of annualized cash flow when those leases are terminated? How much of an uptick should we expect?

I would still just look at the -- at the EBITDA as the number. So last year, I think the EBITDA, the use on those facilities was around $12 million.

Okay. So it's not a huge deal.

No.

It's not a huge deal. So once you get, cease to terminate the lease, are we down to -- we're down to the two medical facilities in Pennsylvania and California and Florida? Is that -- that's where we're still having acute issues from a turnaround standpoint?

I'm not sure I followed the question. You're saying are those the facilities where we have the greatest amount of -- ?

I mean is there anything outside of -- anything outside of south Florida and the two medical facilities where you're having significant variances as to expectations at this point?

I think -- John, it's Trevor. For a guy who's struggling to ask his first question, you've asked about eight (inaudible) questions and I think we've said pretty much what we're going to say about regional level detail and hospital level issues already in our prepared remarks.

Well, I mean, I'm sorry. But I mean we're at $600 million, $700 million run rate EBITDA, and we're trying to get to $1.1 billion, $1.2 billion in a couple years and I'm just trying to get there. So I'm sorry. I'll beg off from here. I'm sure I'm the only one who doesn't understand. I'll let somebody else figure it out.

Whether we have our Investor Day, we'll try to see if we can't help you understand a little better once again what the variables are and how we moved from this point to that point.

Okay. Thank you.

Okay, your next question is coming from Gary Taylor of Banc of America. Please, go ahead.

Hi. Good afternoon. Most of my questions have been answered. I just wanted to verify on the two Dallas hospitals, did you just say they lost $12 million in EBITDA in the full year of '06?

Yes.

Okay. So roughly that amount of pick-up we'll see in the back half and that's included in your EBITDA guidance for the year?

Well, I think that what I try to do is this quarter it was $6 million of EBITDA loss.

Okay, I heard that, I thought that was pre-tax but that was EBITDA, okay.

That's EBITDA. So that will -- that kind of run rate is what I normalized out at the quarter.

Right. And your guidance for the year had assumed that you'd see the back half, that loss going away in the back half -- ?

This time of year basically just has those facilities out. And by -- the guidance or the outlook for the year was on -- continuing operations and by the time you get there, those are in discontinued operations.

Okay. That was all I had. Thank you.

Sure.

Okay. Your next question is coming from Andreas Dirnagl of JP Morgan. Please go ahead.

Hi. This is actually [Akios Rabi] for Andreas Dirnagl. I had a question regarding the $50 million in savings that you were talking about. Is part of that assuming a cutback in staffing? And if that is the case, given that we're looking at same-store admissions guidance of 0.5% to 1.5% for the year, wouldn't you assume that the back half would -- you'd experience sort of an increase in admissions, and if that is the case, then wouldn't you -- would you need to hire more expensive, temporary staffing?

Let me try to answer your question, making sure I really understood it. I think that with respect to clinical staffing, we are only anticipating adjusting clinical staffing to the demands of the patients that we're caring for each day. That's numbers and acuity of patients. As you know in California, we have mandated staffing ratios. We have guidelines in the other states in which we operate that we follow internally based on both acuity and number of patients. We can certainly save labor cost dollars in certain ancillary services that vary when we have a decrease in work being done on in-patient and out-patient basis.

The other point that I think that Biggs made that probably was not appreciated as to magnitude is the issue of per diem or contract labor where we have a number of initiatives underway to fill vacancies that we have in our professional staff where we're having to pay premium rates in order to fill those positions. Our labor markets are very competitive in many of the states in which we operate. And we have a lot of activities underway to improve both the recruitment and retention of that professional labor staff. All of those factors intersect to create the cost savings that Biggs referred to earlier.

Okay. Thanks. So are you confirming essentially your same store admissions guidance of 0.5% to 1.5%?

Yes, we said we still felt like that range was achievable.

Okay. Great. And you also are confirming EPS guidance, correct?

Well, the 700 to 800 is -- we've said is still achievable and the EPS just flows right off of that, except for the fact that obviously we've had this tax gain which will change reported EPS for the year.

Okay. And the 700 to 800, what have you assumed again in 1Q for EBITDA? It's 710, right?

I'm sorry?

What is your 1Q assumption for EP -- for EBITDA?

The --

The first quarter --

1Q? You mean first quarter?

Yes.

The -- I'm sorry, the first quarter is the actuals. Are you referring to what I did to normalize it? I normalized it to 180.

To 180, right. Okay. Thanks.

Thank you, ladies and gentlemen. We have time for one more question. Our last question will be from Kemp Dolliver of Cowen and Company. Please go ahead.

I'm covered. Thank you.

Okay. Good. Thank you. All right, Kent, thank you. Operator, thank you very much. We're an hour and a half after the start time so thanks to all the participants. We will look forward to seeing you at our Investor Day. Thank you.

Thank you. This concludes today's Tenet Healthcare's conference call for the first quarter ended March 31, 2007. You may now disconnect your lines at this time and have a wonderful afternoon.