Tenet Healthcare Corporation · NYSE:THC
Tenet Healthcare — Investor Presentation (December 2002)
38 slides from Tenet Healthcare's investor presentation, Dec 3, 2002
Slide 1: EPS Trend
EPS from operations, before adoption of SFAS 142. EPS Trend
Slide 2: 1999 Back to Basics Strategy; Pricing Strategy
EPS from operations, before adoption of SFAS 142.. 1999 Back to Basics Strategy • Growth – Cull hospital portfolio – Eliminate capitation – Cancel unprofitable managed care contracts – Raise prices • Cost – Exit physician practice business • Service / Quality – Improve quality – Focus on core servic
Slide 3: Hospital Gross Charges
Acute hospitals only; excludes divested hospitals; includes new and acquired hospitals from date of operation. PRICING STRATEGY Hospital Gross Charges Vary by Facility; Mean CAGR 22. 6%
Slide 4: Unit Revenue CAGR only 7.9%
Acute hospitals only; excludes divested hospitals; includes new and acquired hospitals from date of operation. PRICING STRATEGY Unit Revenue CAGR only 7.9%
Slide 5: Net Patient Revenue Rose 15.1% CAGR
Acute hospitals only; excludes divested hospitals; includes new and acquired hospitals from date of operation. PRICING STRATEGY Net Patient Revenue Rose 15.1% CAGR
Slide 6: Differences in Pricing Structure
Acute hospitals only; excludes divested hospitals; includes new and acquired hospitals from date of operation. PRICING STRATEGY Differences in Pricing Structure Inpatient Outpatient Medicare • Fixed, per-procedure base rate • Fixed per-procedure base rate • Adjustments for IME, capital and DSH • Sma
Slide 7: Price History – All Payors
Acute hospitals only; excludes divested hospitals; includes new and acquired hospitals from date of operation. PRICING STRATEGY Price History – All Payors
Slide 8: Business Mix Shift Embedded in Pricing Data
Acute hospitals only; excludes divested hospitals; includes new and acquired hospitals from date of operation. PRICING STRATEGY Business Mix Shift Embedded in Pricing Data
Slide 9: Medicare Price/Acuity Driving Growth
Acute hospitals only; same facility since FY99. MEDICARE Price/Acuity Driving Growth
Slide 10: Outliers Became Larger Driver
Acute hospitals only; excludes divested hospitals; includes new and acquired hospitals from date of operation. MEDICARE Outliers Became Larger Driver
Slide 11: Hospitals on SWA Drove Outliers
* Includes medical education payments and exempt units Acute hospitals only; excludes divested hospitals; includes new and acquired hospitals from date of operation. MEDICARE Hospitals on SWA Drove Outliers
Slide 12: SWA Rule Causes Steep Increase in Payments
Acute hospitals only; excludes divested hospitals; includes new and acquired hospitals from date of operation. MEDICARE SWA Rule Causes Steep Increase in Payments
Slide 13: Non-acquisition SWA Hospitals Will Increase
MEDICARE Non-acquisition SWA Hospitals Will Increase from 2000 to 2003E
Slide 14: Non-acquisition SWA Hospitals Will Increase 2000 to 2003E
Excludes acquired hospitals MEDICARE Non-acquisition SWA Hospitals Will Increase from 2000 to 2003E
Slide 15: Medicare Strategy; Managed Care Contracting Overview
Excludes acquired hospitals MEDICARE Medicare Strategy • Expect government change in outlier rates • Expect public discussion to continue, given dependence many hospitals have on the current mechanisms MANAGED CARE Managed Care Contracting: Overview • Pricing weak 1996 to 1999, but strong in recent
Slide 16: Price/Acuity Impact: From 0 to >50%
Source: Salomon Smith Barney Research estimates based on data from CMS, Milliman USA, AAHP, KPMG. MANAGED CARE Price/Acuity Impact: From 0 to >50%
Slide 17: Components of Managed Care Contracts
Acute hospitals only; excludes divested hospitals; includes new and acquired hospitals from date of operation. MANAGED CARE Components of Managed Care Contracts Payment Mechanisms Per Diems Case Rates % of Charges Stop Loss Pass Throughs • Fixed daily rate depending on level of service. • Fixed rate
Slide 18: Stronger Volume Growth in Recent Years
OPERATING STRATEGY Stronger Volume Growth in Recent Years
Slide 19: Fastest Growth Consistently Among Baby Boomers
OPERATING STRATEGY Fastest Growth Consistently Among Baby Boomers
Slide 20: Baby Boomers will Need Increasingly More Healthcare
OPERATING STRATEGY Baby Boomers will Need Increasingly More Healthcare
Slide 21: Forecast Overview; Fiscal 2003 Forecast
Source: National Hospital Discharge Survey, Center for Disease Control and Prevention, 1999 FORECAST Forecast Overview • FY2003 Forecast • FY2004 Forecast – Revenue Build-up – Cost Assumptions – Cash Flow • Leverage Guidance • Share Repurchases FORECAST Fiscal 2003 Forecast
Slide 22: Fiscal 2004 Forecast; Revenue Build-up
* As adjusted for FAS 142 FORECAST Fiscal 2004 Forecast • Bottoms-up process • Conservative assumptions – Assumes no gross charge increases • Range of outlier and pricing scenarios • Operations focus - certain items excluded – Assumes no litigation or audit settlements – Assumes no capital structure
Slide 23: Patient Days Forecast
FORECAST Patient Days Forecast
Slide 24: Outpatient Forecast
FORECAST Outpatient Forecast
Slide 25: FY04 Key Growth Assumptions
FORECAST FY04 Key Growth Assumptions • Patient days and outpatient visits growth of 3% • Blended pricing growth of 4% - 6% – Managed care pricing growth of 4% - 7% – Medicare pricing growth of approximately 3% • Outpatient pricing growth of approximately 3% • Net revenue growth (excluding all outlie
Slide 26: Salaries, Wages & Benefits
FORECAST Salaries, Wages & Benefits As a % of Net Operating Revenue
Slide 27: Supplies
FORECAST Supplies As a % of Net Operating Revenue
Slide 28: Other Operating Expense
FORECAST Other Operating Expense As a % of Net Operating Revenue
Slide 29: moe
300% 50% moe 150% 100% 50% 00% Excluding All Outliers: Historical 2. wo 1 2 3 %
Slide 30: Forecast FY04 EBITDA Margins
FORECAST Forecast FY04 EBITDA Margins Revenue and EBITDA Adjusted for Outliers by Case
Slide 31: Other Assumptions For FY04 Forecast
Outlier Assumptions: Downside Base Upside Total Outliers $100M $150M $200M % Total Medicare 2.5 % 3.8 % 5.0 % % Outlier+DRG 4.7 % 6.8 % 8.9 % FORECAST Other Assumptions For FY04 Forecast Depreciation and amortization $570 Million Interest $250 Million Minority interest expense ($40 Million ) Investm
Slide 32: Fiscal 2004 Cash Flow Forecast
FORECAST Fiscal 2004 Cash Flow Forecast
Slide 33: Base Case Cash Earnings FY2004 Forecast
FORECAST Base Case Cash Earnings FY2004 Forecast
Slide 34: Per Share Forecast
Per Share Forecast $3.26 $1.79 Cash Flow from Ops Free Cash Flow
Slide 35: Leverage Policy
* Approximate balance at November 29, 2002 FORECAST Leverage Policy
Slide 36: Leverage Policy
FORECAST Leverage Policy
Slide 37: Share Repurchase Strategy
Target 2.0x Pro Forma for Possible Outlier Change FORECAST Share Repurchase Strategy
Slide 38: Summary
Summary • Fundamental strength remains • Successful operating strategies remain • New pricing strategy creates contract structure with larger fixed component; expect continued increases • Solid balance sheet and excellent liquidity • Conservative capital structure strategy • Share repurchase is best
Tenet Healthcare — Investor Presentation (December 2002) on 6ix