Tenet Healthcare Corporation · NYSE:THC
Tenet Healthcare — Investor Presentation (January 2011)
48 slides from Tenet Healthcare's investor presentation, Jan 11, 2011
Slide 1: Presentation To Investors
Exhibit 99.1 Tenet Healthcare Corporation Presentation To Investors Trevor Fetter President and Chief Executive Officer January 11, 2011
Slide 2: Forward-looking statements
Forward-looking statements Certain statements contained in this presentation constitute “forward-lookingstatements” within the meaningof Section 27A of the SecuritiesAct of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements are based on management's current
Slide 3: The hospital industry: a compelling investment
The hospital industry: a compelling investment Strong demographic changes driving growth The growth rate of the over 65 population will more than double to over 3.0% between 2010 and 2012 Per capita spending on healthcare nearly doubles between age 50 and age 65 Affordable Care Act Expands insurance
Slide 4: Tenet at a glance
Tenet at a glance Acute Care Hospitals(1) 49 November 2010 EBITDA Outlook: Beds (1) 13,430 - Including CA Provider Fee $1,050 - $1,100 mm Employees - Excluding CA Provider Fee $986 - $1,036 mm 57,000 US Coverage(1) 11 states Current 2010 EBITDA Estimate(5) (Excluding CA Provider Fee) $1,050 mm Inpat
Slide 5: Q4 2010 preliminary performance highlights and EBITDA outlook
Q4 2010 preliminary performance highlights and EBITDA outlook (1) (1) Inpatient and outpatient year-over-year volume trends both improved relative to Q3 Inpatient admissions declined by 2.0% (compares to a 3.5% decline in Q3) Outpatient visits increased by 2.9% (compares to a 2.0% decline in Q3) Com
Slide 6: Our national hospital and outpatient center footprint
Our national hospital and outpatient center footprint 49 acute care hospitals 81 free-standing OP centers $9.2 billion in revenues Focus on high growth markets Ambulatory Surgery Centers (ASCs) Diagnostic Imaging Centers (DICs) Acute Care Hospitals DIC in development Well-positioned in attractive gr
Slide 7: Tenet Healthcare: A compelling investment
Tenet Healthcare: A compelling investment Continued Strong Organic Growth in Earnings Consistent Strategy Driven by Innovative, High Margin, Capital Efficient Initiatives Operating Integrity, Growth and Infrastructure Investments Reduce Future Risks 7
Slide 8: Significant positive momentum – multiple value drivers
Significant positive momentum – multiple value drivers Strong Net Revenue Growth (1) Superior EBITDA Growth and Margin Expansion (1) ($ millions) ($ millions) $1,050 14% $982 $9,200 12% $9,014 $739 $8,585 10% $631 $658 $8,083 $543 8% $7,669 $7,557 $7,676 $422 6% 4% 2% 0% 2004 2005 2006 2007 2008 200
Slide 9: Tenet has led same-hospital admissions growth over the last 15 quarters
Tenet has led same-hospital admissions growth over the last 15 quarters Same-Hospital Admissions Growth(1) Ranking(2) Over Last 15 Quarters 3 6 6 4 3 8 8 6 1 st nd rd Ranked 1 Ranked 2 Ranked 3 ___________________________ 1. Data for Tenet reflects the results of our existing 49 hospitals. 2. Metric
Slide 10: Strong organic net revenue growth
Strong organic net revenue growth (1) (1) ($ millions) $9,200 $9,014 $8,585 $8,083 $7,669 $7,676 $7,557 2004 2005 2006 2007 2008 2009 2010 Estimate(2) ___________________________ 1. Data reflects the results of our existing 49 hospitals. 2. Actual 2010 results may vary when they are released in Febr
Slide 11: Tenet's same-hospital EBITDA growth has outpaced its largest peers
Tenet’s same-hospital EBITDA growth has outpaced its largest peers in eight out of the last 15 quarters EBITDA Growth(1) Ranking(2) Over Last 15 Quarters 3 4 8 7 5 3 5 6 4 st nd rd Ranked 1 Ranked 2 Ranked 3 Consistent improvement of operating metrics has driven solid organic EBITDA growth _________
Slide 12: Tenet's EBITDA margins have expanded 590 basis points since 2004
Tenet’s EBITDA margins have expanded 590 basis points since 2004 (1) (1) ($ millions) $1,050 $982 11.4% 10.9% $631 $658 $739 $543 8.6% 8.2% 8.1% $422 7.2% 5.5% 2004 2005 2006 2007 2008 2009 2010 Estimate(2) EBITDA EBITDA Margin Cost control initiatives coupled with improved pricing has yielded signi
Slide 13: Consistent EBITDA improvement relative to peers has narrowed the margin gap
Tenet’s consistent EBITDA improvement relative to peers has narrowed the margin gap 20% 2004–2010E Change 15% Peer Avg: (230bps) 2.6% Tenet: 590bps 10.8% 10% 5% 0% 2004 2005 2006 2007 2008 2009 2010E Peer Average Margin(1) THC EBITDA Margin Tenet is on track to exceed current industry average margin
Slide 14: One of the lowest leverage ratios and longest maturity profiles
Tenet has one of the lowest leverage ratios and longest maturity profiles in the industry Leverage Ratio(1) Weighted Average Debt Maturity (years) Leverage Ratio Years (2) 8.0 4.8x 4.7x (3) 4.3x (4) 3.9x 3.8x 3.7x 6.0 6.0 5.0 5.0 2.7x 4.0 4.0 HCA CommunityVanguard UHS HMA Tenet LifePoint HMA Communi
Slide 15: Well-defined growth strategy
Well-defined growth strategy Financial Objectives Growth Drivers Organic growth Outpatient High margin businesses Revenue cycle business Capacity utilization & operating Growth in EBITDA, cash flow, leverage through physician ROIC alignment Operating Foundation Integrated clinical systems driving th
Slide 16: Seven key drivers of a 16–18% EBITDA margin
Seven key drivers of a 16 –18% EBITDA margin 1 Outpatient Improve outpatient/inpatient mix High growth/high margin revenue cycle management business focused on acute 2 Conifer care providers 3 MPI(1) Significant cost savings extracted from productivity and other efficiency initiatives Current HIT in
Slide 17: Targeted acquisitions and organic growth will drive EBITDA margin expansion
Targeted acquisitions and organic growth will drive meaningful EBITDA margin expansion 1 Outpatient EBITDA Impact ($ millions) $10 $10 $10 $65 $10 $25 2011 2012 2013 2013 Run-Rate 2010 Acquisitions 2011 Acquisitions 2012 Acquisitions 2013 Run-Rate EBITDA contribution from acquisitions completed in:
Slide 18: Conifer ranks among revenue cycle industry leaders
Conifer ranks among revenue cycle industry leaders 2 Conifer Conifer Accretive # Client Hospitals 79 64 Client Net Patient Revenue $13.4bn $14.0bn # Employees 2,600 2,100 Solution Spans Entire Revenue Cycle Value Proposition = Increasing Client Yield Margin Expansion Inherent in Business Model Provi
Slide 19: Medicare Performance Initiative will continue to deliver significant cost savings
Medicare Performance Initiative will continue to deliver significant cost savings 3 MPI $30 million in 2010 cost savings achieved $50 million incremental savings in 2011 and subsequent years as MPI is rolled out to more hospitals and more DRGs; augmented by other supply and productivity initiatives
Slide 20: HIT investments improve clinical outcomes and operational efficiencies
HIT investments improve clinical outcomes and operational efficiencies 4 Health IT Clinical systems are critical to physician alignment and integration, reduction of medication errors, standardization of clinical practice and reduction of cost ($ in millions) 2009 2010(1) 2011 2012 2013 2014 2015 20
Slide 21: Reduced bad debt expense expected to contribute to EBITDA growth
Reduced bad debt expense expected to contribute to EBITDA growth 5 Bad Debt Recession Has Driven Increase in Bad Debt Expense Key Takeaways Prior to the recession, Conifer drove self- Pre-Recession Recession pay collections from 32% to 36% Tenet has executed its plan throughout the 8.0% 7.7% recessi
Slide 22: Increase in capacity utilization provides significant upside opportunity
Increase in capacity utilization provides significant upside opportunity 6 Operating Leverage Utilization of Licensed Beds (1) 54% 52% 50% (2) Tenet 5-Yr High Utilization Tenet 2010E Utilization Tenet Projected 2015 Utilization Adjusted fixed expenses to right-size cost structure during economic dow
Slide 23: Affordable Care Act expected to increase volumes
Affordable Care Act expected to increase volumes 7 Affordable Care Act The Affordable Care Act is expected to be negative to earnings through 2013 due to Market Basket reductions (reducing positive annual market basket adjustments) However, expected to be positive in 2014 and 2015 due to: Migration
Slide 24: EBITDA outlook for 2010 and 2011
EBITDA outlook for 2010 and 2011 EBITDA Guidance Range Commentary 2010 $1,050mm $64 million California provider fee extracted from 2010 and moved Estimate(1) to 2011 Cash balance at December 31, 2010 is approximately $400 million with favorable EBITDA performance offset by higher capital spending (a
Slide 25: Tenet has exceeded initial annual outlook in 2009 and 2010
Tenet has exceeded initial annual outlook in 2009 and 2010 1. Actual 2010 EBITDA may vary when results are released in February. 25
Slide 26: Long-term outlook: 2010–2015
Long-term outlook: 2010–2015 Guidance Range Drivers Revenue Growth 4%–6% CAGR Continued pricing improvement balanced by modest volume growth (1) Government pricing pressure as measures from the “Affordable Care Act” are implemented Improving outpatient mix 36% of net patient revenue Flat to positive
Slide 27: Tenet's EBITDA growth
Tenet’s EBITDA growth Projected EBITDA growth is more modest than historical growth rates ($ millions) $2,500 $2,250 $2,000 $1,535 $1,750 $1,500 $1,250 $1,050 $1,335 $1,000 $1,150 $500 $422 $0 2004 2010 2011 2013 2015 Estimate(2) Lower End of EBITDA Range Upper End of EBITDA Range __________________
Slide 28: EBITDA walk forward (2010–2013)
EBITDA walk forward (2010–2013) Key Drivers 2013 Initial benefits from Medicare Performance Initiative 2013 EBITDA EBITDA Margin Run-rate impact of near-term outpatient acquisitions $1,535 14-15% Return on Health IT investments through incentives $1,535 $100mm Moderate reduction in bad debt expense
Slide 29: EBITDA walk forward (2013–2015)
EBITDA walk forward (2013–2015) Key Drivers 2015 Improvement in capacity utilization from new federal 2015 EBITDA law, demographics and other factors drive operating EBITDA Margin leverage $2,250 18-19% $2,250 Full impact of Medicare Performance Initiative $250mm upside opportunity Additional third
Slide 30: Tenet Healthcare: a compelling investment
Tenet Healthcare: a compelling investment Positive Industry Trends Strong demographic changes driving growth Growth rate of Americans over 65 will more than double from 2010 to 2012 Recession has suppressed volume growth and increased bad debt expense New federal law expands insurance coverage to 32
Slide 31: Appendix A: Selected Q4'10 Disclosures
Appendix A: Selected Q4’10 Disclosures 31
Slide 32: Selected Q4'10 Disclosures
Selected Q4’10 Disclosures Q4’10E(1) Q4’09 Change (%) Admissions 126,977 129,631 (2.0) Paying Admissions 118,583 121,239 (2.2) Uninsured + Charity 8,394 8,392 0.0 Admissions OP Visits 999,827 971,741 2.9 Paying OP Visits 900,182 872,228 3.2 Uninsured + Charity 99,645 99,513 0.1 OP Visits Patient day
Slide 33: Appendix B: Medicare Performance Initiative
Appendix B: Medicare Performance Initiative 33
Slide 34: Medicare Performance Initiative (MPI) Overview
Medicare Performance Initiative (MPI) Overview What is MPI? MPI is a program with the goal of creating a sustained, standardized approach following nationally recognized best practices to improve clinical outcomes and reduce variable costs This program is built on a unique foundation of information
Slide 35: 1. Physician Behavior Change
1. Physician Behavior Change How are savings achieved through different methods of treating disease and performing procedures? An analysis is performed on 5 MS-DRG groups at each hospital where total costs exceed revenues to identify variable costs that can be reduced Physician champions are enliste
Slide 36: Physicians championing behavior change have led to reduced ALOS and variable cost
Physicians championing behavior change have led to reduced ALOS and variable cost Average Length of Stay Variable Cost per Case (unadjusted for inflation) Medicare - Medicare - Medical 3% Medical 5% All Payer - All Payer - 5% 9% Medical Medical Medicare - Medicare - Procedural 2% Procedural 4% All P
Slide 37: 2. Labor Management
2. Labor Management Labor Management Specialists are assigned to each Region Each hospital is provided an array of labor productivity tools – Position Control, Staffing Grids, Visionware Labor Management Specialists make site visits to work with hospital teams to improve use of tools and understandi
Slide 38: Better labor management has resulted in lower labor expense
Better labor management has resulted in lower labor expense Paid FTEs per AADC Contract Labor per APD $44 4.32 4.31 $41 $37 4.26 4.18 4.12 $20 $16 2006 2007 2008 2009 2010 2006 2007 2008 2009 2010 Estimate(1) Estimate(1) ___________________________ Source: Internal company data. 1. 2010E based on No
Slide 39: 3. Supply Chain Initiatives
3. Supply Chain Initiatives Numerous supply chain initiatives Supply chain initiatives that have been most effective have been identified and include: implemented High cost drugs – medication utilization management Cardiac Rhythm Management (CRM) devices These require significant work with physician
Slide 40: Many supply chain initiatives have controlled or decreased supply expense
Many supply chain initiatives have controlled or decreased supply expense Pharmacy Spend Per Cumulative Cardiac Rhythm Management Adjusted Patient Admission(1) Contracting Savings: 2009 – 2011(2) Region Impact % California (28.8%) $411 Central (28.3%) $401 $397 $397 Florida (24.7%) Philadelphia (24.
Slide 41: 4. Case Management Program
4. Case Management Program Case Management Specialists are assigned to each Region and perform on-site visits to hospitals Medical Necessity screening is performed using Interqual guidelines prior to, or as soon as possible after, bed placement Clinical rationale for decision is clearly documented G
Slide 42: MPI analytics and reporting now on intranet
MPI analytics and reporting now on intranet Hospitals have direct access to MPI-level variable cost analytics, updated on a monthly basis Best Practices are shared regularly throughout the company It is expected that every hospital management team is implementing those applicable Quick Wins 42
Slide 43: MPI Summary
MPI Summary MPI is a program that delivers higher quality at lower costs and positions Tenet well for the country’s move to value based purchasing MPI is sustainable: $30mm in savings were captured in 2010 and $50mm in savings are targeted for 2011 and beyond ($ millions) $250 $200 $50 $150 $50 $100
Slide 44: Appendix C: Tenet Board of Directors
Appendix C: Tenet Board of Directors 44
Slide 45: Tenet's Board of Directors is aligned with shareholder interests
Tenet’s Board of Directors is aligned with shareholder interests Independent Chairman of the Board Separation of Chairman and CEO roles Independent Board of Directors 9 out of 10 independent board members No two directors can serve on another public company board together (prevents interlocking dire
Slide 46: Tenet's Board of Directors is aligned with shareholder interests (cont'd)
Tenet’s Board of Directors is aligned with shareholder interests (cont’d) Operating and Financial Expertise Provider Experience Edward A. Kangas, Non-Executive Chairman Trevor Fetter, President and CEO (Since 2003) Global Chairman and CEO, Deloitte Touche (1989-2000) President, Tenet (2002-2003) Mem
Slide 47: Appendix D: Adjusted EBITDA Reconciliation
Appendix D: Adjusted EBITDA Reconciliation 47
Slide 48: Reconciliation of EBITDA
Reconciliation of EBITDA Adjusted EBITDA, a non-GAAP term, is defined by the Company as net income (loss) attributable to Tenet Healthcare Corporation common shareholders before (1) cumulative effect of changes in accounting principle, net of tax, (2) net income attributable to noncontrolling intere
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