Tenet Healthcare Corp (THC) 2008 Q1 法說會逐字稿

Good morning and welcome to the Tenet Healthcare conference call for the first quarter ended March 31st, 2008.

This call is being recorded by Tenet and will be available on replay. A set of slides has been posted to the Tenet website to which the management will refer during this call. Tenet's management will be making forward-looking statements on this call.

These 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.

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, including adjusted EBITDA, which are not calculated in accordance with general accepted accounting principles or GAAP.

Management recommends that you focus on the GAAP numbers as the best indicator of financial performance.

During the question and answer portion of this call, callers are requested to limit themselves to one question and one follow-up question. At this time, I will turn the floor over to your host, Trevor Fetter, President and CEO. Mr. Fetter, please proceed.

Thank you, operator, and good morning. Let me start by saying I'm pleased with our results for the first quarter.

Tenet is performing more consistently than at any point in the recent past and it's becoming increasingly clear that the strategies we have in place are proving to be effective.

We have now had two consecutive quarters of break-even to slightly positive same-hospital admissions growth, which is a great improvement over the consistent declines we saw from 2004 through most of 2007.

Our same-hospital admissions were up 1.0% for first quarter, with flu contributing only 20 basis points. While we still have more work to do, this is the first quarter in a long time in which I would say we're pleased with our EBITDA performance.

Same-hospital adjusted EBITDA was up 23% to $239 million. And even though it's still well below our industry peer companies, our EBITDA margin rose 120 basis points year-over-year to 9.9% continuing an upward trend of several quarters. Thanks to our efforts across multiple initiatives, we now after steady flow of physicians joining our medical staffs. Going forward, we expect they will increase the number of patients they refer to our hospitals.

Additionally, we are getting attractive pricing increases from our commercial managed care customers. I believe this is a result of our multi-year efforts to raise our standards for clinical quality, improve the reputations of our hospitals and Tenet as a company and employ better-informed contracting strategies.

The strong cost discipline that we've demonstrated in the past few years continued in the first quarter.

One of the good things about our business is the operating leverage that you can generate through modest increases in volume, when combined with good cost control. This operating leverage helped us deliver good performance in the unit cost metrics that we reported this morning. And though we saw a modest increase in bad debt expense, even here we made real progress.

The rate of growth in uninsured admissions slowed to 5.4% from the more challenging 7 to 10% growth rates we reported last year. Total uninsured and charity admissions actually declined by 1.2% in the quarter.

Those of you who follow the large managed-care companies are well aware that enrollment trends across the managed care industry are flat. That trend, along with the enrollment declines in the rental networks, explains about one-third of the declines in commercial managed care volumes that we experienced in the quarter.

Also, over half the loss in commercial volumes comes from just 3 hospitals. Steve Newman has some very interesting insights into commercial volume growth coming out of our targeted growth initiative, which he will share with you in a few minutes. EBITDA grew more than 20% in the quarter versus Q1 '07. This stronger than anticipated performance was driven by pricing and cost control.

We expect good -- continued good performance on commercial pricing and costs.So if we can close the remaining gap on volumes, particularly the mix of volumes, we are well positioned to meet our earnings objectives for the year. Looking to our 2009 objective, we need to build upon our rate of volume growth and maintain the pricing and cost discipline, I just spoke about.

I'm pleased to report that our volume growth was strong in April with same-hospital admissions up by 3.7% and outpatient visits up by 2.8%. Because there was a lot of noise in Q1 this year due to leap year and Easter, we thought you would find some year-to-date same hospital statistics to be useful.

For the first four months, same-hospital in-patient admissions are up 1.6%, commercial is down 2.6%, charity and uninsured are up 1.3%, and outpatient visits are down just 0.1%.

I want to close by commenting on two other items. Earlier this month, we announced that we had signed a non-binding letter of intent to sell USC University Hospital and USC Norris Cancer Hospital to the University of Southern California.

If this goes through, it will settle all litigation between the parties. And though, we would have preferred to retain these hospitals, the continuation of litigation was beginning, in my opinion to do irreparable harm.

We disclose in the 10-Q certain financial information about the hospitals and the sales transaction but the key take away is that the sales price will be equal to net book value at closing. As a point of reference, the net book value was $311 million at March 31, 2008.

Last year, the hospitals generated EBITDA, excluding corporate overhead and non-recurring items of approximately $25 million. And a normal level of capital expenditures is at least $10 million per year.

Finally, let me remind everyone that we have our annual Investor Day scheduled for four weeks from today in Dallas. It will be available via live webcast. This full day of presentations will give us the opportunity to discuss in detail our operating strategies, progress, and growth initiatives.

And with that, let me turn the floor over to Tenet's Chief Operating Officer, Dr. Steve Newman, to provide further detail on our activities during the quarter. Steve.

Thank you, Trevor, and good morning, everyone.

Let me start by reviewing our progress on medical staff development and relationship building.

Physician relations represents an appropriate starting point because it's the cornerstone of our business and physicians are incredibly influential in determining our market share and growth. We continue to place significant effort into our Physician Relationship Program, our PRP. Through the PRP initiative, we made 13,158 calls on 6,764 physicians in first quarter.

The PRP targeted physicians with existing active staff privileges, increase their admissions to our facilities by 5.7% in the first quarter of '08, compared to their admissions in Q1 '07.

This is our best quarterly performance since we launched the PRP program in late 2005.

We also called on 497 unaffiliated physicians in the first quarter. This group of almost 500 physicians represents practitioners currently lacking admitting privileges at any of our hospitals. This effort is aimed at redirecting physicians already in our service areas. This creates a virtual pipeline for future expansion of our medical staffs.

Many of the calls made in prior time periods resulted in new physicians joining our staffs and contributed to the admissions we achieved in the first quarter. We added 178 active medical staff in the first quarter net of attrition.

When added to the previously reported 2007 expansion of our active medical staff, this aggregates to a 10.3% growth of our hospital's medical staffs since the beginning of 2007.

I want to highlight some of the enhancements we're making in the PRP program.

We are extending the numbers of staff in our hospitals joining the PRP teams, and educating them through our expanded training curriculum.

We are also launching a customized education program for our hospital-based physician recruiters. Our overall admissions grew 1.0% in the quarter compared to admissions in the first quarter of '07.

While we had a decline in aggregate commercial managed care admissions, the aggregate number of negative 3.7% doesn't tell the whole story. You will recall that two years ago, we began implementing our targeted growth initiative, or TGI.

Take a look at the data on slide 15. As you're turning to slide 15, I need to make an important point about TGI.

While we're showing you how we're doing in attracting commercial patients to our hospitals in the targeted service lines, a number of service lines were heavily skewed towards commercial patients were de-emphasized by TGI. These de-emphasized service lines Often include DNA of obstetrics and selected outpatient services.

At the same time, TGI often emphasizes services that apply principally to the senior population.

For example, our resurgence in Florida which made a key contribution to our profitability in the quarter was heavily Medicare-driven. The point to keep in mind is that the targeted growth means exactly that.

We are targeting the service lines with the greatest potential for growth in volumes and profitability, and as slide 15 shows, for commercial managed care the targeted service lines performed better than the aggregate commercial volumes.

Let's look at the eight service lines most commonly targeted for growth in our hospitals.

Seven of the eight service lines showed significant growth in comparison to volume in Q1 '07. The range is from up 0.4% to up 9.5%. The one service line that was down out of the eight, as we've mentioned on other quarterly calls, was cardiovascular services, also known as CAD EP which was down 12.9%.

The emergence of local competitors has caused to us lose market share in these services but we've implemented plans to stabilize and subsequently recapitalize market share in this service line.

Moving our perspective from targeted service lines to individual hospitals, commercial volume declines were very concentrated and more than half of the decline of 1520 commercial admissions occurred in just three hospitals. Each of these hospitals was confronting unique local issues. These issues are being methodically addressed, and we believe a number of them can be reversed within a reasonably short time period.

In fact, in April, we saw commercial admissions return to flat in these 3 hospitals. I would be remiss if I failed to spend just a few minutes highlighting the remarkable progress we continue to achieve in Florida.

Our 10 Florida hospitals had aggregate admission growth of 1.1% in Q1 '08 over Q1 '07. This is the best performance turned in by our Florida operations since Q1 '04.

We have continued to succeed in reducing out migration from our network oncology cancer care and advanced cardiac services.

We are regionalizing certain services like advanced neuro interventional activities at Del Ray Medical Center while several of our other Florida centers are obtaining primary stroke center designations and will act as referral sources to Del Ray for the most advanced care. I should also note that commercial managed care open heart procedures in Florida increased 14 cases or 17.7% compared to the first quarter of 2007.

This is our first market share gain in Florida, commercial open heart procedures since 2005.

Finally, I want to offer some additional color on April volumes. We are very pleased to see April admissions growth of 3.7% over April of '07. Even if we normalized for the extra weekday in April '08 versus April '07, this would have to be characterized as a very strong performance.

Importantly, all five of our regions achieved volume growth in April and broad-based resurgence over a softer March, and importantly commercial admissions grew by a very encouraging 0.9%.

Let's spend a few minutes looking at our outpatient business. We were particularly disappointed with the decline of 1.1% in outpatient visits and a 2.1% decline from commercial payers in the face of an extra day for leap year. The majority of losses was in imaging and referred laboratory studies.

While overall outpatient surgeries were down 1.7%, I'm pleased to report the volume of out patient surgery in our freestanding centers increased 11.7% in the first quarter. With the moderation of outpatient losses over the last six quarters, we are becoming more aggressive in implementing initiatives to recapture market share.

To do so, we have expanded the staff in our outpatient services group and continue to make selective and opportunistic acquisitions in both ambulatory surgery centers and diagnostic imaging centers.

This is a highly competitive business but we believe we can win the business with service excellence, quality outcomes, operating efficiency, and industry leading throughput times which patients and physicians increasingly demand. To this end we are implementing centralized scheduling on a number of campuses giving physicians and their critically important office staffs the ability to do one-stop scheduling.

We're also replicating techniques which are driving success in our freestanding centers in our hospital-based outpatient surgery units. Before leaving the outpatient discussion, it is note worthy that April outpatient volumes were up 2.8% compared to April of '07. Additionally, this volume improvement was broad based with four out of the five regions in the company showing gains for the month. Turning to pricing, we achieved very solid improvements in the quarter.

This is the tangible result of the steady stream of new agreements successfully negotiated and announced since last summer. These enhancements include not only the normal inflationary resets but also reflect significant progress towards our objective of closing the pricing gap relative to competitors to achieve rate parity. There are still isolated instances where we have yet to attain rate parity. While we have negotiated the great majority of our contracts in the near term, potential incremental gains remain in the intermediate to long term.

Our managed care teams carefully monitor our commercial volume activity in each of our markets. It's been interesting to observe that we have experienced good growth in commercial volumes in many of the same markets where we have seen significant pricing gains.

A significant percentage of our pricing gains have simply closed the previously existing gap between Tenet's commercial rates and that of our key competitors. Since our rates have only just now caught up to our competitors, pricing has not been a deterrent to commercial volume growth.

Last week we reached a memorandum of understanding with independence Blue Cross for our new multiyear contract which would give all of their subscribers in the Philadelphia area access to our two hospitals.

Honaman University Hospital and St. Christopher's Hospital for children. This new agreement will also cover faculty practice physicians and all of our outpatient facilities. We are also pleased that this new agreement includes provisions for our hospitals to receive incremental payments for reaching mutually agreed upon quality goals.

While the total dollar amount of these potential quality payments is small, relative to the size of the contract, this formal recognition of quality differentials strengthens what we see as an important precedent in the industry. Our strategy is to position ourselves for success in a paid-for performance environment.

We've also made substantial progress at improving the cost structure of our hospitals, outpatient facilities and support services. Productivity is measured by FTEs for adjusted average daily census improved 1.2% in the quarter compared to Q1 '07. Same-hospital contract labor expense per adjusted patient day was down 10.7%. Part of this was due to an 18% reduction in registered nurse turnover in the quarter. Same-hospital supply cost for the quarter were also well controlled, increasing by just 3. 9% per adjusted patient day.

This is excellent supply cost containment, in view of a 1.2% increase in orthopedic, neurosurgical and general surgery procedures, which required the use of implantable devices.

While we made significant improvements in overall costs during the quarter, we continue the rollout of new and improved tools for our managers to help them track productivity and improve throughput and efficiency through process redesign. We are also expanding our efforts to standardize many high-cost implants.

In summary, our strategies to grow our admissions, our medical staffs, and to control our costs are working.

This combined with improved pricing through managed care negotiation and TGI focus delivered significant bottom line improvement.

With that, let me turn the floor to over Chief Financial Officer, Biggs Porter, for his review.

Thank you, Steve, and good morning.

Trevor and Steve have already done a good summary, so I will focus more detail on some of financial elements of the quarter.

Before I do, I will note that our first quarter adjusted EBITDA of 234 million keeps us well on the path to achieve our outlook for 775 to 850 million adjusted EBITDA for the year. Same-hospital basis, adjusted EBITDA increased 239 million, an increase of 23%.

It was a relatively straightforward quarter but there are a few items I will mention. First, (Inaudible) costs settlements added $2 million pretax, down from the 12 million recorded in the first quarter of 2007.

Second, there was 8 million of bad debt mitigation resulting from the settlement of long overdue disputed managed care accounts. Third, we recorded 6 million in funding from Georgia Medicaid, 4 million of which is retroactive to last year, as the state reversed approximately 7 million of its funding cuts we disclosed last year.

Fourth, we recorded 6 million in distributions from an HMO in which we have an equity interest. Fifth, we incurred impairment restructuring charges of approximately $1 million.

Six, we increased our provision for litigation related to California wage and hour and other matters by $47 million.

The first four items I just mentioned are included in our adjusted EBITDA results. The last two related to impairment and restructuring and litigation are not. It is, of course, a judgment call as to which of these items might be nonrecurring, not just for the quarter but for the year. Of those affecting adjusted EBITDA, the only item which I would rule out from repeating on an annual basis is the 4 million retroactive portion of the Georgia Medicaid funding.

I will talk more about Medicaid funding in a minute.

Turning to volumes, the 1% admission growth we achieved in the first quarter was within the range used as the basis for our 2008 outlook.

A very strong January and adequate to good admissions performance in February was followed by lower volume numbers the month of March. Among other factors, there was no meaningful contribution in flu admissions in March. In fact, flu added only 20 basis points to our admissions growth for the entire quarter. That was essentially confined to the month of February.

Assessing the underlying organic growth in admissions in the first quarter is complicated by leap year and early Easter holiday. Although, we looked at it, and I know others have tried to measure the impact, we don't think there's a single correct measure of the effects.

Our only real conclusion is that we were close to our outlook range for the year on admissions but fell short in outpatient visits and add negative payer mix shift away from commercial managed care. We are still early in the year, and we continue to believe we can achieve our outlook on admissions of 1 to 2% growth, but believe, at this point, that outpatient visits will more likely be in the range of 1 to 2% as well, rather than our original outlook of 2 to 3%.

We believe, however, that the softness in visits in commercial volumes have been and will be more than offset by favorable pricing. Now on to revenues.

First quarter consolidated net operating revenues rose 2.4 billion, increase of 6.9%. Although helped by admissions growth, this 6.9% relative increase was principally due to strong pricing.

Slide 24 on the web shows that we experienced solid progress in all our key pricing metrics. Same-hospital revenue per adjusted admission increased by 5.5%. The net effect of year over year cost reported adjustments, and the unusual effects of the retroactive Georgia Medicaid funding, and first quarter HMO distribution, basically offset each over.

In addition, the positive effects of our managed care negotiations and other price enhancement efforts, we averaged better-than-expected Medicare pricing in the first quarter.

Before leaving pricing, I want to caution, we may experience some moderation in pricing gains as we proceed through the year. There are four factors.

First, first-quarter pricing was influenced by increase in procedures requiring medical devices. These higher price procedures may not continue through the year at the same level.

Second, in the second and third quarter we anniversary earlier pricing enhancements from our efforts to improve the accuracy of the (Inaudible) in our emergency departments. We will continue to make refinements, as necessary, to increase accuracy, although it is still early to predict to what degree that might result in additional charges being captured.

Third, we believe that as we proceed through the year, we may experience payer shifts from higher priced smaller plans to our larger more competitively priced large payers and have additional shifts between payer categories.

Offsetting this, there will be additional increases in managed care which are already negotiated. We also continue to monitor the status of medicaid funding in California and Florida. Although these states continue to face budgetary pressures, we can not predict the outcome. At this time, we do not believe the effects will be material to our 2008 or 2009 outlook. Based on our current understanding, the effect on 2008 appears to be less than $10 million. As you can see, there are still a number of variables that will affect pricing for the remainder of the year.

For this reason, we have left our pricing outlook range fairly conservative. Obviously, we will continue to monitor this.

We do believe we have good visibility into managed care contract pricing for the next two years, because approximately 84% of our commercial rates for 2008, 68% for 2009, are already covered in signed contracts. As a majority of these contracts include escalators, favorable commercial pricing momentum can be expected to continue.

Turning to costs, the cost strategies we implemented in the second-half of last year had a dramatic and visible impact on our cost metrics in the first quarter. Same-hospital total controllable operating expense per adjusted patient day, increased by just 2.6%. This is a very good result consistent with the walk-forward for 2008 earnings, we shared with you on our fourth-quarter call in late February. We believe this tight cost control picture was an extraordinarily low 2% increase in same-hospital salaries, wages, and benefits per adjusted patient day. This growth was below what we granted in our average merit increases.

The low growth and SWB is therefore, the result of declining headcount, further supported by effective management of temporary labor costs. Some of these savings came from improved employee retention. Supply costs also were well controlled with same-hospital growth of 3.9% per adjusted patient day.

The growth in prosthesis and implant procedures and costs continued to pressure this line item, increasing by more than 10 million or approximately 11%. We also realized further decline in malpractice expense, which declined by $4 million or almost 9%.

This reduction was net of the adverse 5 million impact resulting from lower interest rates which increased discounted future liability estimates. As of the impact of interest rates, we would have achieved a 19% reduction in malpractice expense.

Our costs were somewhat negatively affected by increase in length of stay in addition to higher utilization medical devices. There was some revenue offset for these but it does affect cost performance particularly if you look at it from a per admit standpoint.

On bad debt, as previously mentioned, growth in same-hospital uninsured admissions moderated in the quarter showing an increase of just 5.4%. Uninsured visits declined by 3.8%. This growth was well below the 10% increase in uninsured admissions experienced in the fourth quarter. Revenues from the uninsured rose by $18 million, 12.2% on a same-hospital basis.

This increase in uninsured revenue has been driven by increases in our charge master as well as efforts to improve the accuracy captured in our emergency departments. These changes in uninsured charges create a parallel effect on bad debt expenses. For the last three quarters,our refined ED charge capture initiative has been the source of majority of increase in bad debt expense.

Another significant factor influencing bad debt in the quarter was net growth in amount of revenue build as balance after insurance. The increase in balance after added $4 million to bad debt expense for the quarter. An offset to bad debt was realized as a result of the resolution of some older disputes with commercial payer. The $8 million I mentioned earlier.

So to summarize, bad debt expense grew over the prior year first quarter by $16 million. Pricing of the uninsured contributed 17 million, an increase in balance after insurance contributed 4 million, several miscellaneous items contributed an additional 3 million for a total of $24 million. Bad debt was reduced by the aforementioned resolution of older disputes with a commercial payor by $8 million.

Settlement related to relatively old accounts receivable, this cash had virtually no impact on our receivables. Switching the focus to accounts receivable slide 27 on our website shows that the accounts receivable increase was concentrated in the 0 to 90-day bucket with both the 91 to 180-day and the over 180-day bucket showing improvements.

Managed care and aggregate self-pay collection rates remained constant in the quarter on our 18-month look-back basis. While same-hospital uninsured admissions and revenues were up over prior year first quarter, charity was down, making this another quarter in which there are opposing trends.

As we have stated on prior calls it is difficult to trace the precise cause and effect on this but we continue to believe that our strategies to emphasize favorable product lines, educating patients on the appropriate source for healthcare services and assisting patients with available funding options are mitigations to what is a key risk the industry. Turning to cash flow and capital expenditures, as we discussed in our fourth quarter call CapEx in the first quarter included spillover from the fourth quarter.

Accordingly, most of the capital spend in the quarter occurred in January as we pay for equipment which was delivered or in the pipeline at the end of last year. We still intend to adhere to our earlier outlook of $600 to $650 million in CAPX in 2008. As we also stated in our fourth quarter call, we anticipate our capital spending will be more balanced over the first and second half of the year with significantly less concentration in the fourth quarter. I should also note, we have received regulatory relief with respect to certain of our California hospitals which will reduce our sizemic requirements over the next several years.. Although not likely to be significant this year, we are still determining how large the aggregate effect will be.

With respect to cash flow, the earnings release lays out a fair amount of detail on the cash flow of the quarter and how it compares to last year. You may recall that adjusted cash flow from continuing operations came in lower than anticipated in the fourth quarter of last year primarily due to work capital.

I indicated in the year-end earnings call that we were focused on payables and overdraft management and reducing days in accounts receivable over the course of 2008.

In the first quarter we approved our payables position consistent with our objectives. The improvement in accounts receivable is still ahead of us but we held the line in first quarter with days in receivables flat against last year at 54 days. We are still targeting day or two reduction in receivable days by the end of the year.

Accordingly, receivables grew in the quarter proportionate to the growth in revenues and as I said our growth in A R was in the zero to 90-day bucket. Given $66 million in debt service, and $24 million payment to the Department of Justice in second quarter, in addition to continuing capital investments, our January 30 cash position is likely to be modestly below our March 31 cash balance. June 30 is expected to mark our quarterly low point in cash for the year.

Going forward, we expect cash to build as a result of stronger operating cash performance in the second half of the year, our initiatives to produce $400 to $600 million in cash from balance sheet improvement actions, and resolution of the USC matter. The respective upside and downside from there will largely be favorable resolution of the Redding Insurance arbitration and the continency reflected in our increased litigation reserve. In terms of the 400 million to 600 million in initiatives, progress is being made.

The MOB transaction is moving along as we have selected Jones [inaudible] as our broker on the transaction and we expect the formal offering announcement and related documents to go out the next couple weeks. There's a slide on the web giving some high-level information on the M.O,Bs that we own and are being offered. We also continue to work with the other shareholders and the Board of Broadlane to establish an approach to the monetization in current shareholder interest. Accordingly, we still expect the list of action items in making up the 400 to 600 million to be completed by roughly the end of next year although much of it could be and should be sooner.

Some of you have asked about earnings loss from these balance sheet initiatives. Bottom line income standpoint, we expect the interest income generated from the cash procedures to be sufficient to offset any loss of EBITDA generated presently by these assets. Looking at EBITDA alone, I don't believe we will have a loss of EBITDA sufficient to change our express outlook range for 2008 and the $1 billion or better in EBITDA targeted for 2009.

Moving to the outlook, slide 29 gives our current outlook for the key metrics of substantial performance. 2008 outlook continues to include an expectation of adjusted EBITDA in the range of 775 to 850 million. Our growth of 10 to 20% over the 701 million of adjusted EBITDA for 2007. At this time, we're holding net outlook, as we are the outlook on cash flow and year-end cash.

I will remind you though, that the cash outlook does not include any of the anticipated 400 to 600 million in cash proceeds I just discussed. Nor does the outlook reflect any effects of the sale of USC, the Redding arbitration or the litigation for which we have increased reserves.

We are adjusting our outlook for outpatient visits slightly and offsetting with improved price. We have updated 2008 and 2009 walk-forward charts on the web to show these effects.

In the prior quarters, I have done rather detailed, if not torturous, walk-forwards from year-to-date actual start outlook.

This quarter, I'm happy to say, that outside of the offsetting changes to visits, the price that I just referred to, there is no real need to establish a new reconciliation of actuals to the outlook. Let me now ask our operator to assemble the queue for questions.

Thank you. (OPERATOR INSTRUCTIONS) Our first question is coming from Adam [Feinstein] from Lehman Brothers. Adam, you may go ahead.

Thank you. Pretty close. Thank you for all of the details, as always. Starting with volumes, clearly, you are seeing improvement there on the commercial managed care side you spent time there.

I was curious about the Medicare fee for service or Medicare part A, just the weakness there.

Just curious if there was any reason why that would have been the case. I would think with flu, you'd see a lot of Medicare patients. So just wanted to understand that portion of the volumes.

Adam this is Steve Newman.

We continue to show general strength across the company in the Medicare fee for service business. Obviously, the growing segment is the Medicare managed care business, where we've seen significant growth over the last year.

Okay. So you think all of that is a function of just the mix shift to the commercial Medicare? Right. All right. Then just a follow-up question, if I may here.

So with all the improvement you're seeing in pricing, when do you think we'll start to -- I know, Biggs, you highlighted there could be some offsetting things throughout the year but just, you know, you've been signing a lot of these contracts over the last several months.

Curious in terms of your thoughts when we'll start to annualize some of this benefit. Do you think that's something that will annualize in the fourth quarter, or is that something that based on all the contracts you have signed, that we won't see you annualize that until the first quarter of 2009?

I think that for the standpoint of the negotiated prices, we should continue to see benefits throughout the year. We did have price increases kick in in the second half of last year, so there will be some year-over-year effects of that anniversary-ing.

Having said that, we do think the negotiations are going to continue to benefit the risk or the thing that's harder to measure is to what degree there could be payer shift as we go through the year that might offset that some.

Okay. Thank you very much. Great quarter.

Thank you. Our next question is coming from Tom Gallucci with Merrill Lynch.

Good morning. Just wanted to make sure I understood a little more on the volume side of things. You talk about year to date up 1.6%. I guess the flu would have had maybe a 0.1 or 0.2% boost to that. Then you still have an extra weekday for the four-month period, an extra day I guess in general. So it would seem that maybe you're still under 1% through the first four months adjusted for the day.

Trying to think about going forward. The TGI category seemed to be doing well. The non-TGI categories, can you help us understand what -- is there a thing that you're proactively closing, or is it just things that you're not emphasizing as much? And if you're not emphasizing as much but you still want to be active in them, how do you stop the deterioration and actually get some growth in those non or lesser important categories?

I think that's a good question. I think you've accurately characterized it. We are getting good growth in our TGI-focused areas.

As will you remember early on in the rollout of TGI, we had significant service de-emphasis in our California region. As we moved TGI east across the company, there were less active service closures but certainly de-emphasis has occurred. In many instances, where we don't have the service line emphasized, what we attempt to do is maintain market share and to work on improving the efficiency of rendering the care in those particular areas.

Sometimes we work directly on variable costs, such as implants or length of stay or supply costs that occur in rendering of care to those patients. But all in all, I think the number of services that we have to shrink are very small today as we look across the entire company.

So our efforts are to grow the targeted growth service lines both in terms of volume and profitability while focusing on improving quality and service in that area and maintain the standards improving profitability in those services that were not in the targeted growth priority list.

Just as a matter of perspective, what percent of your business maybe roughly -- maybe or the eight TGI categories versus the rest?

Not to be glib, but not as much as we'd like in the future. Probably 40% of our total business are in the TGI service lines. We'd like to see that grow over time.

Thank you.

Our next question is coming from Matthew Borsch of Goldman Sachs.

Thank you for taking the question. This is Shelly for Matt Borsch. Question on some of your market. I'm wondering if you're seeing any differential demand for outpatient services that could be related to co-pay or increased sensitivity because of the economy? And maybe if you could comment on any increase in unemployment in your end markets? That would be interesting, too.

Sure, Shelly. I've got the unemployment statistics.

Let me start by saying that we have managed our portfolio in a way where we've reduced over the past few years our exposure in markets like California and Florida.

In those markets, unemployment is down slightly more than it is in the United States, but we have other markets importantly, El Paso, where the employment actually up, unemployment that decreased. And in the -- we did a lot of looking for any sort of recession effect in our business.

The only indication we could come up with is that in the managed care sector, our non-ER managed care business is weaker than our ER-based managed care business but patient credit quality is even with last year and we have more of our uninsured patients are employed now than they were a year ago. That's up by 10 points to nearly 70%.

Okay. Great. Thanks. That's a lot of detail.

As we look at the surgery declines, I'm wondering if you could comment on any color. Is there any important trend to take away from the decline in surgery volumes related to the copays, deductibles or the elective component?

It's interesting. We've certainly seen a decrease over the last year in areas like plastic surgery. There are multiple factors involved in that.

For example, many have been shifted to competitors ambulatory surgery facilities, so we see those volumes continue to drop. It's hard to know whether, that is, related to the overall economy or whether or not it's simply a shifting out of our facilities.

Okay. Great. Thanks very much.

Thank you. Our next question is coming from Ken Weakley of Credit Suisse.

Thanks. Good morning. I was just curious, in terms of the recovery of Tenet at some point debt paydown will be an element of that. I don't know if I missed it during the presentation. I didn't hear it all.

Can you walk me through your thoughts on strengthening the balance sheet in times, say in '09, '010, what your hopes and plans are for that level of -- debt level at that time?

We continue to have the benefit of time. We don't have any debt due until December 2011, so there's still a fair runway.

Our general approach baseline plan has been and continues to be to improve our performance, and as we get out to a period of time, some reasonable period of time before December '11, start to refinance, get the benefit of improved credit performance and lower interest rate.

In between now and then, if the stars align and it makes sense to do something sooner, so be it, but the baseline is to concentrate on our performance.

Second question, on the pricing strength, can you give a little more color on how uniform your pricing gains may be across your footprint and what the duration of the contracts may look like in terms of -- not just how long the contract is going to but what the increases will be in the out years?

Sometimes there's a big difference between initial versus the latter price. So I'm just trying to get a sense of what we should expect going forward.

Ken, this is Steve Newman. Part of your question is the duration of the agreements.

And as we've said before they vary between two and four years. Certainly, we want inflationary resets on an annual basis, plus those things which move us, along with the market to maintain our rate parody during that time period, but I wouldn't say that we are front-end loading or back-end loading any of our contracts. It's fairly smooth throughout the period.

Okay. Very good. Thank you.

Thank you. Our next question is coming from Cheryl [Gonic] with CRT.

Another thing that your shares are trying to be down about 4%. One of the other hospital companies are also down about 4%.

I can only speculate that it's related to concerns about quality of your earnings. About potentially, we've heard criticism over the last couple weeks that the company is over reserved, and to put it bluntly, the only way it can make its numbers is through one-time items. I guess I want to give you the opportunity to respond to that so that I don't have to misstate what the company's view is or I can reflect it accurately in my own thought process about the company.

And specifically, related to as you discussed, Biggs, some of, the albeit in my mind small one-time items this quarter that may, in fact, be ongoing issues for the company that are positive.But I think it is something that needs to be discussed, especially when you report an absolutely fabulous reported EBITDA number, you have negative cash flow from operations, albeit we understand the seasonality of that. It does lend itself to that criticism and I'd like to hear your response.

We take the approach of communicating a lot about our results and trying to be as clear as possible as to what the content of items are.

Not to encourage people to back them out because they're one-time, but rather just to make sure that we give a good basis for our analysis.

And as I pointed out, started out the conversation with the list of items, which influenced the quarter although some of it small, the only thing I've pointed out which seemed to be truly not repeatable, at least on an annual basis is the retroactive adjustment on Georgia Medicaid, which is only about $4 million.

One of the reasons for me interesting that -- mentioning that, we had a focus on Georgia and Florida Medicaid funding last year and had said it was reducing by 60 million. So there was clearly a $7 million reduction, or improvement, if you will, restoration of that in Georgia, so it's worth noting.

In the context of that it was worth noting that 4 million of it hit this quarter on a retroactive basis.

In terms of one of the other items on the managed care negotiations and the $8 million related to the settlement of some old accounts, we have been doing that quarter after quarter. That has been a mitigation of bad debt expense.

That is a reflection of the fact that we continue to work the older account and try to get favorable resolution. Of course, some of them are not favorably resolved. They're reserved for it. It has no effect.

Others that are favorably resolved were able to bring in cash and take that to the bottom line. I'd call that myself good quality earnings because it's reflected in good cash performance. The bad debt provisioning in general is based upon historical collection rates. It's methodical. It is not judgmental, so there's no warehousing of conservatism there.

Just simply a matter of if we're able to improve our collection rates and improve the history on them, then we are able to reserve less, indicating that we're going to have higher collections going forward.

Once again, I think that it's logical and appropriate, but certainly, not any kind of major excess conservatism or tapping of reserves. I think it's just good accounting based upon reality of what we're experiencing.

I think that every quarter there's going to be a certain number of items which don't necessarily repeat themselves quarter to quarter, taking the HMO income, by example, may not have that this quarter, but there will be something else next quarter. There's always little things which will move around quarter to quarter.

If somebody wants to systematically throw those out, I don't think it makes sense. We definitely believe that we're on a right path in terms of our aggregate pricing. There's little bits of noise in there, but think that negotiations are very strong. They're very favorable, and to the extent I expressed any kind of caution it's because there are unknowns with three-quarters left to go, and it is possible that we'll have some payer shifts. That's why we have range of 775 to $850 million in EBITDA. So I think that our approach is sound, our communication is very thorough.

It's not intended to communicate that anything should be rejected from a quality of earning standpoint, but rather just to give good insight what's influenced it.

That's very helpful. It is sort of a shame that you give a 22-page press release and a 31-page slide show along with your earnings and it's held against you, and your investors, more importantly. So it just seems a little bizarre to me.

I guess what I would like to follow up with, you had some very strong progress against the turnaround goals. You've talked about the physician recruiting, progress with doctors you've target, given an almost 6% increase.

There were a couple of other volume-related initiatives that I was wondering whether they, too, are operating as planned, the acquisition of the mental health business in Stanislaus County in California.

We didn't hear about the Philadelphia hospitals this quarter. Also, if you can give us any sense what the outlook is for the performance of the new El Paso hospital that would be great.

I'll start with the results from the Stanislaus center in Modesto, Cheryl?

Yes.

That particular facility has not quite met our expectations in terms of volume because we lost three psychiatrists in the first three months after the acquisition. It is still profitable. It is still adding to our volume.

The total number of incremental admissions for the quarter is around 450. With respect to the transaction, St. Christopher's with temple that is meeting our expectations, and added about 650 admissions to the quarter.

If and those were profitable admissions, you'd say?

Definitely profitable.

Great. Thanks so much.

Thank you. Our next question is coming from Justin Lake of UBS.

Thanks. Good morning. Couple questions.

First on bad debt. Your slide show indicates that your uninsured charity care admissions were up 1.3% year to date for April? That's materially higher than the 1.2% decline through March.

So just doing some quick math. It looks like April uninsured and charity care admissions might have been up 8 to 10%.

Can you tell you what you see in April on the uninsured and charity side if those numbers sound correct?

First comment would be on a month-to-month basis as you drill into the various categories. You get more fluctuation when you look at it over a broader period. I don't think there's a particular reason or cause in there for a month to month fluctuation. Sometimes it's a it matter of classification, particularly from a month to month standpoint.

Charity, once somebody walks in the hospital will take a certain amount of time to determine are they going to be uninsured charity. Do they get covered by Medicaid, and that creates some fluctuation on a month to month basis, including reclassifications that occur in subsequent periods where there's determinations made after the fact based upon further information given. So I don't think there's a particular story in there.

Looking at the one month, we obviously look at it following May and the quarter and see if there's a trend there but for one month I wouldn't over-react.

Okay, said that 8 to 10% number is approximately correct.

And can you tell us what the month of April would look like without -- I know you report this number, the ex charity care and uninsured admissions.

If I were to back out 8 to 10%, or 8 to 10% increase in the uninsured. It would like that 3.7% in April might be closer to 1%. Am I in the ballpark or what does April look like without the uninsured and charity care?

I don't have the breakdown, but I think that your math is producing too severe an adjustment.

So 1% would be too conservative?

I believe so.

Okay. Quickly, maybe you could comment on bad debt.

Give me the questioning again, Justin.

Sure. Just looking for what the admissions look like in the month of April, if we x-ed out uninsured and charity care.

Justin, we don't have the number. We didn't break it out that way.

It would reduce from the the 3.7%. We don't have a crisp answer for you on that.

No problem. And just given what your potentially seeing there in April, I know month to month this stuff is going to fluctuate but following on the heels of what one of your largest peer in national said today regarding bad debt I'm just curious. What have you got embedded in your assumptions in that roll-forward table when you put out 850 million this year, a billion next year, as far as your bad debt assumptions, either as a percentage of revenue or percentage of admits and how that is expected to roll forward?

Well, our outlook for the year gave range of 6.5 to 7% on bad debt expense. Included in the roll-forward table effectively is at the lower end that 6.5% which presumes to the extent we have any increase we're able to mitigate through our bad debt initiatives, which we have been doing.

So I think it's a reasonable and achievable assumption, roll forward table, but in terms of what the range could be, 6.5 to 7%.

Okay. Just one last question on managed care pricing.

You reported managed care pricing I think was 4.6% in the quarter. I know you billed in Medicaid into that, government managed care. Can you tell us what it looks like just on the commercial book alone?

Justin, you ask that question all the time and we always say the same thing. We don't break that out specifically, but thank you for your question.

Thanks, guys.

Our next question is coming from Gary Lieberman of Stanford Group.

Thanks. Good morning.

Could you tell us in your guidance what you've embedded in terms of expectations on the commercial admissions growth, either for the TGI service lines or for the commercial managed care admissions all in?

Well, you know, the guidance has a range. I think at the upper end of the range, it would probably have relatively constant mix in the first quarter.

At the lower end of the range, it would have some shift, as I said earlier, from a payer mix standpoint between payer categories, not just between plans but between payer categories.

Okay. But I mean if I look at it -- if I'm looking at the chart on slide 15, is the year-over-year growth -- do you need the year-over-year growth to become materially above 0%, or can it sort of stay in the sort of negative percentage range?

Price increases we believe can offset what we've experienced and some continuation of volume loss and commercial managed care.

So we think we can achieve in the range with further loss of commercial managed care, obvious it depends on how significant it is. It doesn't have to turn positive.

Once we get to 2009, it becomes more important that we have commercial growth combined with other TGI growth, where there's profitable target growth initiative lines that depend on Medicare.

So it's going to take a combination of the profitable businesses volume growth they're in, in order for us to achieve 2009.

Okay. And then if I could just ask a quick follow-up to.

That in terms of the sale of the medical office buildings, how -- in terms of your thinking, how do you expect that to impact volumes in general, and I guess specifically, sort of the commercial managed care segment, and I guess specifically, with regards to the sale of the medical office building space, do you expect, you know, a portion of the physicians current residing in those medical office building space to go somewhere else or what's your thinking there on what kind of visibility do you have?

We don't expect it to have any impact on our volumes. We think that, you know, we operate with them on a market basis, a new owner will operate with them on a market basis.

And I think that the new owner be somebody who is a professional property manager and might be more effective at it than we are. That's one of the reasons why I think the MOBs are good assets to sell.

Thanks a lot.

Our next question is coming from Rob Hawkins of Stifel Nicolaus.

Good afternoon. Most of my questions have been asked, but I've got a couple.

The turn-over for the physicians that you mentioned earlier in kind of the net number was pretty good.

Can you give me a benchmark against last year and speak a little bit to what your target is for this year? You did a 178 net. Is that right?

Right. Rob, we expect that number to vary from quarter to quarter.

It's influenced by a number of factors. The largest factor is when physicians finish their training, either in residency or fellowship, which is usually in June. So we expect to have them relocate to our hospitals and medical staffs, usually in the third quarter, and that's when you can expect, although not always, the highest number of staff additions.

There's a pipeline for adding physicians to our medical staff, especially those that are being employed and those that are relocating from out of state.

The pipeline duration is six to nine months, after we identify the physicians, sign the letter of intent, eventually sign an agreement with them and get them on site with a state licence to practice, and then, after our malpractice coverage comes through, they can go before the Medical Executive Committee and the Governing Board to get their privileges granted.

We expect, net of attrition in 2008 to add a total of about 1,000 active medical staff. Once again, that's net of attrition.

The numbers in total are larger than that but they also include the comings and goings of hospital-based physicians, which really don't contribute to the growth of our inpatient and outpatient volumes.

And is that kind of in that same 10% range or better for year-over-year?

1,000 would probably mean our growth for the year would be in about the 8% range.

Great. And I missed which states you're shifting or or requalifying charity patients to Medicaid. That was kind of an impressive stat for this quarter.

I know you mentioned problems with Florida and California and their Medicaid problems. Can you give us an update of where you got some of that benefit and maybe what the outlook is for other states for your facilities, whether you might be able to -- maybe continue to see that improvement?

I don't think we have broken it out by state. We did comment in the release that there was the benefit of working to get people qualified, and that certainly has been a focus of ours, but I think it's a broad focus. I wouldn't isolate it to the any given state.

I thought the way it was worded in the press release made it sound that way.

This is something that we can maybe continue to see whittle down a little bit, the charity care for the year?

That's certainly our objective.

Okay. I'll jump back in the queue. Appreciate your time.

Thank you. Our next question is coming from Kemp Dolliver with Cowen and Company.

First question relates to USC. And I may be over-interpretting the language in the 10-Q, but it says it might go into discontinued operations in the second quarter.

What's the triggering event if it hasn't happened already? Do they need to raise financing, or do you need a definitive?

Well, certainly having a definitive agreement is more conclusive. There's a number of tests under the accounting standards that have to be passed or required before you put something in disc ops. A definitive agreement would be in line with that. Keeping in mind, this particular facility is a little difference from a normal disposition activity because it is related to resolving a dispute as opposed to just an action to go and change our portfolio.

So the test on how they would apply would end up being a little different. As we progress through it, more definitive, yes that would be the point. Where it would make sense to go onto discontinued operations.

Okay. Thanks.

The second question is when I do the math on the benefit from the Stanislaus acquisition, then the pickup from St. Christopher's, those combined looked like they accounted for three-quarters of the same-store admissions growth in the quarter, which, given some of the statistics, in terms of physician recruiting and the like, surprising that their contribution is that large.

So I guess I'm trying to appreciate what's going on in two contexts. What else other than the decline in commercial managed care was a drag on your volumes, and also, are any of these -- any of the statistics that you give in terms of physician recruiting and the like inclusive of the physicians who might be referring from St. Chris or physicians that remained at Stanislaus? Thank you.

Kemp, this is Steve. I think that your estimate is pretty close. My estimate was about 65%.

You said three-quarters. So I think we're pretty much in the ballpark. As we said before, three hospitals are responsible for the majority of the commercial managed care loss. The others are either up or flat to slight -- very slightly negative. And we've seen that across the company. I think that we continue to focus on things that we've identified previously. That is, expanding our medical staffs, especially, consistent with the TGI service lines.

That obviously takes awhile to grow those practices, and as we've said, ramping up the new physician practices, depending on whether there are specialists or whether they're a primary-care physician is an 18 to 24-month process.

You will see those that were added in '07 add sequentially to the volumes going forward.

We continue our PRP practice. We continue our strategy to be an in-network provider in our managed care contracts. All of these things should aggregate to admissions volume growth over time.

We're seeing an individual markets that we're clearly taking market share from the competitors, but there are all sorts of externals that have been identified earlier in the discussion, including the overall economic conditions and the overall activities by managed care payers to diminish inpatient utilization.

So there are a number of puts and takes with respect to what aggregate volume looked like in a large company like ours that operates in 12 states and we'll continue to focus on those things growing volume locally.

That's great. Thank you.

Thank you. Our next question is coming from John Ransom from Raymond James and Associates.

Good work on a multi-year turnaround. I know it hasn't been easy. I have a strange question.

Does quality matter yet to payers, and is there an inflection point coming, in your opinion, with CMS not paying for mistakes and infection rates becoming more public? In other words, the investment that you've made in quality is the return really still to come?

I know you've gotten on some of these preferred list, but I just wonder if it's any benefit yet.

It's actually a great question. It is one we ask ourselves all the time. I think we were early in emphasizing clinical quality.

We made a bet that there would be a greater and quicker move towards both consumers, as well as, payers recognizing differences in clinical quality and then rewarding with it volume and price.

We -- as you point out on these centers of excellence, our rate of designation is like six times the national average for these payers. We now have increasingly built in bonuses for good performance and quality into our managed care contract, even though it's still small, even last week, when we announced this new agreement in Philadelphia, that includes a bonus for achieving quality standards.

It's becoming the strategy for CMS to differentiate on pay for performance. They haven't exactly figured out how to do it yet. We certainly are qualifying for all of the additional payments or the lack of deductions, however you want to look at it, that they put in place for the core measures, then for the H cap surveys and all that.

So as you look at different hospital organizations, we are submitting 100%. We are getting the supplemental pilots and so forth but it hat not resulted in the differential volumes that I would have expected.

It has certainly helped our reputation. I think that absolutely gives us power in negotiation. I also believe, it will come and it will come faster than anybody anticipates, and it's a really hard thing to do. It takes years, so it's good that we have this head start.

So we have no regrets on it, and as you look at whatever statistics you want to choose, we look good on quality. It's absolutely the right thing to do.

I think it's a smart strategy, and it was probably a little early but I think that it will ultimately be proven to be very effective from an economic point of view. Certainly the continued declines, stabilization and now declines we've seen in malpractice as a result of that as well.

I think it's terrific.

It I guess my as you look at your infection rates, do you have any good data on how your infection rates might compare to the industry average and do you have any idea what your exposure might be when they stop paying for that stuff and is that an area where you might see a quicker return on your quality initiatives than some other things?

I'll ask Steve to comment on. That infection rates are now part of the core measures as well.

Right. Certainly the surgical infections, ours are significantly lower than the national means and compare well to those that are published that we see.

Overall infection rates across all hospitals are not published today, except on certain state databases, but we continue to focus on those things to decrease the likelihood of hospital-acquired infections.

We also have a multiyear project to prepare us for what are called never 27 or never 28 events that are supposed to not occur in hospitals in which certain payers, CMS with eight effective October 1st of 2008, subsequent years, probably adding to that list. We are working with our patient-care services and nurses to improve our systems to diminish the likelihood that we have any of those never events.

So this is a multi-year process for us, John. We continue to accelerate it. We think it will serve us well in the pay-for-performance environment and eventually, we believe, that premium outcomes should get premium pay.

Thank you. Our question is coming from Mike [Scarlango] with Merrill Lynch.

Hi, good morning. Biggs, looking at the cash balance of 278, I think you mentioned it would be down modestly at the end of the second quarter, which is going to be kind of a skinny number relative to the company's cash burn. So hoping we could nail down the timing of some of these cash inflows.

So on the 400 to 600 by the end of next year, can you give us a sense as to how much you hope to have by the end of the third quarter or end of the fourth? Then USC, what's your best guess as to what quarter we should drop that in? Sounds like it should get around 300 million for that. That let me know if I heard that right.

Lastly, you mentioned some cash impact related to Redding and I totally missed what that was.

The last question first. We've had arbitration proceeding going on for sometime with respect to insurance coverage on our Redding Settlement. We don't have the final resolution but if the's resolved in our favor that could produce positive cash inflow, disclosed in our 10-K. You can go look it at it for some more information. It's been out there for awhile.

We would hope certainly that that is resolved and resolved favorably this year. Can't give assurance.

The -- in terms of the broader question on timing, the reason we haven't given specifics is the timing of the 400 to 600 million is because depending upon market conditions and the inherent challenges with large transactions, it's hard to speculate as to MOB with that complete third quarter or fourth quarter or -- if there was a disruption in the market would we have to wait to complete it next year.

Certainly, our expectation would be that we can get that complete this year, but once again, as I said, until it's done, we haven't rolled into it our forecast. In terms of a number of smaller items on the list in terms of the 400 to 600, we would hope we can get the benefit of those second or third quarter, even if the MOB is not complete.

So we're working on it. We're certainly interested in driving cash in sooner as opposed to later. Obviously, that makes sense irrespective of our cash balance. Instead of breaking it down by quarter, I don't think it makes sense to do that until we're closer to knowing what the real timing is of execution on some of these.

USC, is that definitely a second half event, or could that be next year?

I wouldn't want to speculate. I think that we -- we obviously want to get this wrapped up and would certainly hope that it's resolved this year, but there's plenty of things left to do.

Maybe I could just ask a simpler question. What do you think the likelihood is that you need to hit your revolver between now and the year?

What's the likelihood of hitting the revolver?

Yeah.

We still do not believe that we need the revolver this year, and accordingly through these cash activities, do not forecast needing it in the future.

Thank you.

Our next question is coming from Miles Highsmith of Credit Suisse.

Good morning. Just a question.

I know it's sort of intermediate to longer term but can you remind us, what percent of your markets would you say you have a reasonable opportunity for achieving rate per day at this point?

I would say that in almost all of our markets, we have an opportunity to hit rate parody. We've done a lot of that over the last 15 months. We've made a lot of progress there. It's a very small minority of our hospitals now. We're not at rate parody. We intend to give more information about that at Investor Day, as we update our discussion from Investor Day last year, but certainly negotiating from a national perspective has helped us reach rate parody in a number of markets that were below the mean previously.

Okay. That's great. I think I probably asked the question poorly.

Just to make sure, the real question I had was what percent of your markets remaining have the opportunity to achieve rate parody. I think your comment was - it was a small percent that still remains. Is that correct? I think

Right. I don't think that we'd characterize a specific number but it's a small number.

Thank you.

Thank you. Our next question is coming from Whit Mayo of Stephens.

Just back to the volumes for a second. Looking at the medicare volumes and the mix shift that you guys talked about to more Medicare advantage. Can you put in the numbers what Medicare advantage was in terms of the percentage of the overall payer mix?

I could probably do the math, but -- secondly, if we think about your TGI initiatives, how should we see that -- that changing your medicare, medicare-like volumes within the payer mix.

We tonight have specific payer mix information we typically give out. If there's a different question you'd like to ask, we might help you on that.

I guess another question would be, is there any particular state that you guys think you're seeing more of the shift from fee for service in the Medicare advantage? I would presume that Florida would probably be the largest one.

I would say you're right. I think we're seeing it at Florida and we're also seeing it in California.

California has really led the country as far as the states in which we operate the Medicare advantage and Florida has gotten into that particular business, even with physician intermediaries in the last two to three years.

Whit, could you repeat your question on the payer mix? If you're just asking about the disaggregation of managed care, it is the press release.

I can do the math.

It's 16% managed Medicare, 9% managed Medicaid, but is that what you were asking?

That was it.

Sorry. Misunderstood it.

That's fine, guys. One other question I had, do you have any internal expectations with the timing of monetizing or the potential monetizing of Broad Lane?

It's a company in which we are an investee, and it's a matter for all the shareholders of Broad Lane and for the board. So we're working our way through with it them but I don't want to forecast a timing event on that beyond saying that we expect it between now and next year.

Okay. That's fair. Thanks, guys. I appreciate it.

Thank you. Our final question is coming from Cheryl Gonic of CRT.

I did want to follow up on something you said, Biggs, you got seismic relief?

Yes.

Can you be a little bit more -- give us more detail on that? Because as I recall, this was a multi-billion-dollar issue for the company, even after you divested the most seismically needy properties.

And also, is there any progress on the healthcare properties litigation and issues there, especially, since I'm reminded that one of issues out there with Tarzana is seismic?

Okay. On the seismic, the broader question, it's not a multibillion dollar issue. I think in the 10-K, we've had disclosures ranging around $400 million on a current dollar kind of basis subject to inflation.

But the regulations in California were changed over the last couple of quarters to allow for a different form of testing, a different standard to be met, which if met, could create relief from the seismic requirements, and we have applied for that relief for a number of our facilities for some of them we have received that relief. There are still some applications left in. So we know that we do have some amount of relief. We then have to translate that into revisions of our estimates of costs because it may not be the entire facility but some portion of it.

So we have to take that information, basically redo our analysis of what the activity needs to be and what the cost of it is, have to get that approved by the state, et cetera, so there's a ways to go before we have a definitive answer. We are certainly working to determine what a reasonable estimate. Once we feel like we have something we have good confidence in, we'll share it.

If I remember, the press coverage of it initially was that it could be a very significant material reduction in the hospital -- California hospitals generally in their cost.

It varies hospital by hospital.

Some hospitals will not get relief and will have significant expenditures, and others may have no expenditure to make whatsoever.

So if you look it at it on an individual hospital basis, it can be very significant for us but on an aggregate basis, we're still measuring.

And any update on the issues with the 6 leased hospitals and healthcare properties?

We continue to proceed through our discussions. The litigation is stayed while we're in those discussions.

We have been working actively with the -- with ACPI to get resolution and are very help that we will achieve that point near term.

Okay.

As to seismic impact that would not have an effect on us either way because seismic is a responsibility, at least our position has been seismic is responsibility.

I understand that. But my thought was this.

If their issue is they don't want to pay for it and your issue is that you don't want to pay for it, and that facility happens to be one that does not have a big bill, perhaps that leads to an earlier resolution of the thorny little problem.

I don't believe it's going to be a -- a facility that's going to qualify.

Thank you.

At this time I would like to turn the floor because over to Trevor Fetter for any closing remarks.

We just don't have any closing remarks. We'll look forward to seeing you it at our Investor Day. Thanks.

Thank you. This does conclude today's Tenet conference call. You may now disconnect.