Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2012 Tenet Healthcare Earnings Conference Call. My name is Anne, and I will be your coordinator for today's call. As a reminder, this conference is being recorded for replay purposes. [Operator Instructions] At this time, I would now like to turn the presentation over to your host for today's call, Mr. Thomas Rice, Senior Vice President of Investor Relations. Please proceed, sir.

Thank you, Anne, and good morning, everyone. Tenet's management will be making forward-looking statements on this call. These statements are qualified by the cautionary note on forward-looking statements contained in our annual report on Form 10-K. [Operator Instructions] At this time, I will turn the call over to Trevor Fetter, Tenet's President and CEO. Trevor?

Great. Thanks, Tom, and good morning, everyone. Let me start by saying that we were pleased with our performance in the fourth quarter and the year. In fact, these results, both for the fourth quarter and the full year, are the best that we've had in 10 years. Our fourth quarter performance represents growth of 17% and was slightly ahead of the midpoint of our outlook range both for the quarter and for the year. Looking to 2013, we are confirming our outlook range, which extends our existing compound annual growth trend of 15% for a full decade. Our performance was led by strong top line growth with solid pricing and significant growth in outpatient and surgical volumes. This marks another quarter where our volumes were among the strongest in the industry. By the way, the flu only contributed 30 basis points to our inpatient growth and 50 basis points to our outpatient growth. Here are some volume highlights: Adjusted admissions increased by nearly 3%. This marks the ninth consecutive quarter that we've grown adjusted admissions and the 19th quarter out of the last 22 quarters. Outpatient visits, surgeries and ER visits were all up between 7% and 9%. This is very strong performance. Pricing remains solid, with commercial growing within our expected range and acuity was stable to slightly up. With all the interest in how exchange pricing is developing, I want to give you an update on our recent activity. In the last few weeks, we signed the first of our contracts for insurance products to be sold under the exchanges. These contracts are with 3 large Blues plans and cover 15 or roughly 30% of our hospitals. The first thing that you should know is that these contracts are all structured like commercial contracts, not managed government…

Thank you, Trevor, and good morning, everyone. In November, we provided a preliminary 2013 outlook for adjusted EBITDA of $1.325 billion to $1.425 billion. This morning we are confirming that outlook. The midpoint of that range, $1.375 billion, represents growth of 14.3% over 2012. This performance would extend to a full decade, a trend for compounded annual growth in adjusted EBITDA in the neighborhood of 15%. Let's review the major drivers of our expected earnings growth in 2013. One of our larger growth drivers will be our Medicare Performance Initiative, or MPI. MPI has a very strong track record, achieving incremental savings of $70 million in 2011 followed by savings in excess of $80 million in 2012. This history of success supports our confidence that we will capture at least another $80 million of MPI savings this year. The second growth driver is our HIT initiative. Our implementation plan has been well executed, and we have achieved our targeted milestones while coming in under budget. Through the end of last year, 26 of our hospitals have achieved the required meaningful use criteria, with another 14 hospitals expected to meet the criteria this year. Up until 2013, this program has been a drag on our earnings. However, this year, the direct impact of the HIT program on EBITDA turns positive due to our expected recognition of additional HIT incentive payments. This is expected to result in a $33 million EBITDA improvement relative to last year. A third source of EBITDA growth will be from acquisitions. Conifer closed on 2 acquisitions late last year that are expected to contribute $10 million to $15 million of EBITDA. Our recently-announced joint venture with John Muir should build momentum over the course of the year and have a positive impact on 2013 EBITDA. In addition,…

[Operator Instructions] And our first question comes from the line of A.J. Rice with UBS.

Maybe I'll just take off on some of the comments around health reform. And as you think about your focus on acquisitions, the focus on recruiting of doctors, other things in terms of running the business and develop a strategy over the next year, can you just comment on anything you're doing? I know -- I appreciate the comments on exchanges. Anything else that you can point to that you're doing differently as you try to prepare for health reform?

Sure. And A.J., thanks for the question. I'll make a couple of comments, then ask Britt Reynolds to describe in a little bit greater detail our appetite on acquisitions. But what you've heard so far is an emphasis on value. So whether it is high quality, low cost, all being part of the equation to have a value proposition in our market that is superior to our competitors, building out those capabilities within Conifer that I mentioned is a very important part of making that all work and enabling us with confidence to enter some of these risk-oriented contracting structures that are becoming more prevalent under health reform. We've been very aggressive in outpatient acquisitions, as you know. We believe that outpatient capacity will be important in serving the newly uninsured -- or newly-insured patients who were previously uninsured. And we continue to have excess capacity in our hospitals, both physical capacity but as well, through our productivity improvements, we keep opening up more capacity in ERs, ORs, et cetera. But I think at this point in time, we have a greater appetite for hospital acquisitions than we've had in the past. We've been aggressive in physician acquisitions. And Britt, I'll turn it to you. I would just say in doing so that Britt, who joined us from HMA a little bit more than a year ago, has quite a lot of personal experience in making and integrating acquisitions. You might just start with Emanuel. We announced we finally signed the definitive agreement, have started the filings. Why don't you take off from there, Britt.

Sure. Thanks, Trevor. Yes, we -- as Trevor mentioned, we signed our definitive agreement with Emanuel Medical Center in Turlock, California. And this is an excellent example of a market, we believe, that can be integrated with our existing 2 hospitals in that region, Doctors Modesto, Modesto California and Doctors Manteca, and gives us greater market share opportunity and penetration in that geography. And we'll also couple that with our managed care plans that we own in the state, as well as the existing ACO that was covered this morning, the successful end market. That's an example, if you will, of a microcosm of the strategy that we're taking in many of our markets, which include physician integration and alignment, appetite for acquisition or other alignment strategies, including IPAs, as well as we have, again, a continued robust pipeline and appetite for hospital acquisitions, as Trevor included.

Okay, that's great. And maybe just to comment on the supply expense area. That's been an area of success for you guys. Can you drill down and talk about where specifically you're seeing the opportunity for some savings?

Sure. In fact, let me ask Scott Richardson. Scott has been our operations CFO for many years and is actually retiring this spring. I'd like to take this opportunity to thank him because he has been an architect of the Medicare performance initiative. He has done a lot to drive that performance on cost that you've seen. Not to worry, although Scott is retiring, these are well-ingrained systems and methods in our company. But why don't you just give a few examples of what has driven this -- the excellent performance over 6 quarters in -- over a very extended period of time, but actual declines over 6 quarters in supplies' expense?

Sure, Trevor. Thanks. Yes, A.J., some of the areas that we are focusing in on and have been focusing in on are implants, orthopedic hip implants and knee implants, et cetera, due to the incredible cooperation by our orthopedic surgeons at our hospitals. They have changed their behavior to some degree and helped us get some lower pricing through the standardization of the implants that they're utilizing. Pharmacy and the medications, we have a very robust plan. Every year, our program looks at the utilization of certain drugs, exchanging different drugs, going to a lower-cost drug that has just the same level of effect. Spine implants as well is a big focus this past year. And again, gaining the cooperation from our physicians, we are able to see some significant savings. And we believe that there's still some more there, and we continue to work with our physicians. Another area is blood. Having -- standardizing blood protocols throughout our hospitals, making certain that there's not waste, that we're using just the right amount has gained us savings. And the other area that we looked at is more or less the commodities area, which is more or less that mid-level area of supplies. And this past year, we've been looking into the operating room where you're not getting the big, fancy, heavy-priced implants and -- in cardiac implants, we're looking at the mid-level types of supplies like packs, instruments, et cetera, and we're able to get some lower cost on those. So there's still a litany of costs to go through standardization and utilization and behavior changes from the physicians. So we continue on a very robust program on getting those costs down.

And our next question comes from the line of Andrew Schenker with Morgan Stanley.

I was wondering if you could just give us a little more -- appreciate all the color on the pricing exchanges. I was wondering if you could give us a little more color on how the narrow network and tiered network products are looking to be structured, right? There's obviously no enrollment in their product space. Maybe just a little more color on how we should be thinking about those things.

Sure. And I have with us today Clint Hailey who runs all of our managed care operations. Do you want to just give a little bit more insight into how those networks are shaping up?

Sure. Sure, Trevor. We try to design those narrow network or tiered benefit plan arrangements such that the health plan has adequate flexibility to sell a network or design a network or a benefit plan that will sell to consumers, all at the same time enhancing steerage to us. And in the cases, in question with the 3 Blues plans that we've signed contracts with, we didn't specify any particular hospitals being excluded or anything like that, if that's where you're headed with the question. Generally speaking, we don't do that for a variety of reasons. But we do, generally speaking, when we have narrow network arrangements, try to limit the number of hospitals in a network or the number of freestanding outpatient centers, et cetera, and that's kind of the way we approach the narrow network contracting.

Okay, great. And then is it -- just a little bit more on that. I mean, is it -- is the discount predicated on a minimum volume requirement there? Is there assigned scale? Just trying to get a better sense of that.

We do it in a variety of ways. The most preferential way is revenue guarantees, so that you have some -- in that way, again, it gives the health plan a lot of flexibility as it relates to how they achieve certain threshold levels or revenue. But they all vary. In some cases there's -- it's more specific and different metrics and things of that nature. Does that -- I hope that helps.

No, that was very helpful. And then just changing direction a little bit here. You guys obviously saw some great outpatient volumes and highlight your outlook there to continue acquisitions. I was just wondering if you could give us a little more color on what the pipeline looks on the outpatient side and what the runway looks going forward as you continue to expand into that channel.

Sure. Britt, you want to comment on that?

Sure. When we acquired several -- in total, de novo projects of those acquisitions, roughly 17 in 2012, that pipeline and the staging of the pipeline from initial interest all the way through letters of intent continues on that same robust pattern as we saw last year. So our pipeline is equally as attractive as we've seen in the past several years and have every reason to believe that, that will continue, as well as an increased appetite that we mentioned earlier for de novo development, particularly in the freestanding ED arena in many of our markets.

And our next question comes from the line of Tom Gallucci with Lazard Capital Markets.

I guess, the first is just on reform. Obviously, optimistic there. Can you give us a little bit of a sense of sort of how you think about the Medicaid side of things versus the exchange side of things? You addressed some of the pricing, which sounds pretty good. What sort of enrollment expectation do you anticipate? Or is it a case where you can sort of count on the Medicaid initially helping out and then the exchanges sort of ramp up over time?

So that's -- okay, Tom, thanks for the question. I think it's important we'll probably get more questions on our views about reform. So just a couple of opening comments, I'll ask Dan Cancelmi to address the question specifically. But we are not yet providing specific guidance or modeling details about our expectation on health reform, but the main point we really wanted to make today had to do with something that seems so basic. But our geographic presence and payer mix has been a disadvantage historically relative to other companies in the industry with higher margins. And it's been a source of the gap between our margins and, say, the highest ones that are out there in comparable companies. And as our expectations become more tangible on reform, we see a lot of upside in our markets, but for the same reasons that we had these headwinds before. So we're getting some kind of general comments, so we'd like for some more details to be filled in, in, say, the next few months, and then we'll be able to do more in terms of very specific guidance later in the year. Dan, you want to talk a little bit about Medicaid?

Tom, just let me provide a brief overview of how we've been looking at reform in our various models, and in particular from a Medicaid perspective. What we've been doing is we look at our current uninsured population, and we bifurcate it between uninsured and charity. And based on our markets, we go in and analyze and project what various levels within those 2 categories we believe will convert to Medicaid. Now obviously, with certain states indicating that they will expand Medicaid, and then including most recently Governor Scott in Florida, I was -- which we were certainly pleased to hear that. We look at the states that have indicated that they will expand Medicaid, as well as the states where they still haven't necessarily indicated or they've indicated that they're not going to expand. And we run a -- we stress-test our model a number of different ways for states that are going to expand, states that are not going to expand at least in the near future. And based on our overall modeling, it's -- we believe it's going to be a materially-positive impact on us, and Medicaid certainly will be part of that. And we've looked at it with a full expansion for all the states. We've also looked at it with the states who have indicated at least at this point that they're not going to expand.

Okay. And then maybe as a follow-up to those comments, given that some states are -- some states may or may not, does that meaningfully change your strategy, where you might invest in outpatient or buy facilities on an inpatient basis?

No. So take Texas as an example. It's hard to imagine a set of -- a scenario in which the situation in Texas any worse than the status quo today. And even with the status quo, Texas is an attractive place to have hospitals and outpatient centers. We don't like the fact that 1/4 of the state's population is uninsured. But keep in mind that even absent an expansion of Medicaid, there will be subsidies for people with incomes between 100% and 140% of the federal poverty level to be able to buy insurance on the exchanges. And also keep in mind that going back to the implementation of SCHIP in the late '90s that within 3 years every state was in. So we -- as it stands in Texas today, we're living with the status quo. Status quo is far from ideal, but it's something that we've dealt with and a lot of our expansion in outpatient has been in Texas. And I think we would look for it to become better from here.

And our next question comes from the line of Darren Lehrich with Deutsche Bank.

I wanted just to ask a little bit about Conifer. And obviously, you've got a lot of revenue growth built in for 2013. I guess I'd be interested just to hear from you how you think the profitability in Conifer might ramp up. And just looking at the fourth quarter, how much investment in the P&L did we see getting ready for CHI? So maybe just a little bit more color on how you expect Conifer to ramp up this year.

Okay. Good question. So to talk a little bit about how Conifer is ramping up, I've got our CEO of Conifer, Steve Mooney here. And then with respect to how the Conifer numbers fit within Tenet's expectations, why don't we have Dan Cancelmi comment on that. But Steve, why don't you start with just the growth pipeline and how the CHI integration is going, et cetera?

Thank you, Trevor. Darren, it's Steve. Yes, so this year is going as expected so far. We talked about the big deal last year with CHI. And Dan mentioned earlier the expectations for the revenue this year. So that actual revenue started flowing to us as of 1/1 of 2013, and that's on plan. So things are looking good from that standpoint. Implementation is going very well. We actually implemented our first 4 hospitals into our standardized database as of the fourth quarter. And as you know, I think that's about a 18-month to 2-year transition on that, as far as that's concerned. Pipeline is still looking very strong. As you know, we did a couple acquisitions last year, the Dell Revenue Cycle business, as well as InforMed, which expanded our service capabilities. As a result of that, we actually signed 10 new contracts in the fourth quarter, one in our patient communications business, 3 of those were in that area and 7 of them were in our value-based care business. As we're seeing hospitals continue to figure out how they're going to play in the new world of reform, our database underneath the InforMed acquisition is becoming very popular in the market. So things are going well. As kind of Dan mentioned, we don't see the profitably coming off CHI, obviously, to really being meaningful to 2014. Although we will see some dollars trickle into the latter part of the year this year. Obviously, it will ramp into 2014, but everything is looking very strong at this point in time. So...

Yes. And just to follow up on that, Darren. As I mentioned, we've incorporated about $10 million to $15 million of earnings from the 2 acquisitions that we closed on in the fourth quarter. And when we look out into -- throughout the course of the year, the earnings overall, roughly speaking, for the full year, in the neighborhood of, say, $120 million give or take, which is nice growth over 2012. As Steve mentioned, the contribution from CHI will be fairly modest. There's a lot of integration costs being incurred, and as well -- that's the same thing on the 2 acquisitions, as well. So this is an important business. And as the revenue continues to grow throughout 2013 and 2014, Conifer is going to be approaching $800 million, $900 million business and reaching $1 billion in terms of revenue in the next several years.

That's great. If I could, I just want to clarify one thing. As it relates to the disproportionate share cuts and just running through your 10-K this morning, it looks like you've got $217 million of Medicare DSH and if I saw this right, $280 million or so of Medicaid DSH. Are those the right figures? And then when you think about $140 million of annualized DSH cuts starting in Q4, maybe just help us think about the assumptions you're making to get to that number.

As I mentioned from a Medicare perspective, right now we're looking at, based on our modeling, about a 50% reduction in the Medicare DSH revenues starting in the fourth quarter. Medicaid is approximately 25%. And so in aggregate, you have about a $35 million reduction for the quarter. And if you take it out on an annual basis, it's roughly $140 million on an annual basis. We will certainly learn more in the second quarter when Medicare issues the proposed rules, and we're certainly staying on top of that and making sure that any input that we can provide into the process we will certainly do and have been doing that.

And our next question comes from the line of Joshua Raskin with Barclays.

Just want to quickly follow-up on the exchange contract that you guys signed, and I appreciate all the color you've given. But just curious how is that being applied to that existing Blues relationship? Are these discounts only for new members that come into the exchanges? Or does this now cover their entire population? And then what do you about members that were previously insured with the Blues plan that end up on an exchange?

Thank you for the question. No, it does -- it applies to all of the individual exchange members in the 3 Blues plans, contracts that we talked about this morning. So we obviously talked a lot about cannibalization of existing individual members flowing through the lower exchange network rates but that's the reason that tiered benefit plans and narrow networks are so important is so that we get a disproportionately higher share of that volume into our hospitals that offset that cannibalization.

So just to understand it, if for some reason reform doesn't work out and these exchanges are not popular or what have, you would just take sort of this new relationship and upsize it -- update the pricing to your existing book of business. And what you're saying is you guys can more than offset that because theoretically as a bigger part of the network NAM, as a larger percentage of the hospitals within that network, you're going to make that up on volume. Is that the idea?

No. So the question I thought was on exchanges. Do we anticipate any cannibalization? And the answer to that is yes. However, the rates that we're talking about here apply to subsidized exchange product members, members who enroll through the exchanges. It doesn't apply to individual -- current individual enrollees in these health plans business.

Very important distinction. Let's just make sure there's no misunderstanding of that. So these -- as I mentioned in the opening comments that Clint is clarifying, this is pricing for people who enroll through the exchange; presumably they're receiving some kind of subsidy to do so. It's not the existing commercial book that includes individuals.

Got you. So the only potential cannibalization would be if someone were to opt out of their employer group plan by -- that they were previously insured with this Blues plan and then opt for an exchange-based product because they have some subsidy, then that would be an individual that would potentially change. But none of the existing book of business really converts over.

There's actually some limitations on that in the law based on my understanding of it, where if people have employer coverage, then they're not eligible for exchanges. So it's -- this has to do with, I think our biggest cannibalization risk is in the current individual book of business that these Blues plans have moving over, going through exchanges, getting subsidies and getting a lower price. But again, we're willing -- from a broader strategic perspective, Tenet has always been willing the entire time I've been here to reduce price in exchange for a narrower network, enhanced steerage and things of that nature. So we see this as very much in line with the strategies we've had all along. The market, the environment just hasn't been conducive to a lot of narrow network activity in the last 5 to 7 years that I've been here.

Okay, got you. That's helpful. And then I just want to make sure -- a clarification on the DSH cuts as well. If you take half of the Medicare number and 1/4 of the Medicaid number, I was coming up with about $180 million, maybe $179 million or so, and you guys are saying about $140 million on an annualized basis, not a huge differential. But $40 million obviously on the EBITDA number could be a little bit important in 2014. So is that just rounding in terms of the 50 and the 25 or is there something else that goes into the calculation?

No, in that, the DSH number for Medicaid that's disclosed, it's traditional disproportionate share revenue, as well as additional supplemental payments from various states, such as the California Provider Fee program. So the core traditional Medicaid DSH, depending on how you define that, roughly in the $125 million , $135 million range. So roughly 1/4 of that gets you to the $140 million number that I mentioned.

Okay. So only $125 million, $135 million is subject to the DSH rate-down [ph] . Got you.

Correct.

And our next question comes from the line of Sheryl Skolnick with CRT Capital Group.

You've addressed a number of the issues with respect to reform in these contracts. But I have to ask this question, so buckle up. Fair warning. The notion of exchanging price for volume is not new to the hospital industry. And in the past, it hasn't always worked out especially well for hospitals. I'm a little bit curious as to what gives you the confidence that you're willing to engage in these kinds of contracts now. Do you have historical experience with either these plans or in these markets that the steerage actually can happen? Are there sort of -- is there insight to the plan design and perhaps competitiveness of these plan sponsors that may give you confidence that if they have these tiered networks or these narrow networks that you'll actually be able to get the volume? Because I would be a little bit concerned that -- it's great to have the contracts, the volume has to show up in your hospitals. And yes, it's all better than getting them as uninsured, and I get all of that. But I'm a little bit concerned about -- or curious about more so than anything else about the notion of exchanging volume for price and what experience you have, like I said, that makes you more confident that this is the right way to do it at this time.

Okay, a totally valid question. Let's first roll back why are we talking about this at all. And the reason is that there was a tremendous amount of investor interest around the JPMorgan conference because there was a lot of rhetoric, as you know, coming out of a variety of sources that exchange pricing for hospitals would be around Medicare, Medicaid or whatever. So the point is as simple as this: We never believed that, that would be the case. We believed that this is a distribution channel for selling product to the individual market and that there was no reason that we or other hospitals should accept significant discounts from commercial rates that we already have with these plans for business that includes large blocks of individual business. And so today, what we're saying is proof of the way that we anticipated that this would work is that with 3 significant Blues plans covering nearly 1/3 of our hospitals, we've entered into contracts for exchange products only that are at very slight discounts relative to where we are with them today. Now getting to the, like I said, very valid question that you're asking, nobody has yet attempted to sell an exchange product. So no one knows how big this will be, to what extent will it cannibalize their other business, to what extent will volume show up, which is yet another argument as to why you shouldn't really take significant discounts on this business. And that's why it's important that we've actually entered into these transactions at very modest discounts relative to the existing book. If those Blues plans, for example, and others with whom we will enter into new contracts, if they are very successful in building a substantial business on the exchange, then the narrow networks and tiered benefits that Clint has negotiated will give us a disproportionate gain in market share in that new incremental volume. But again this is -- I think the -- literally the question is unanswerable at this point because nobody knows. Nobody knows whether a single person will sign up for this stuff. We think that they will. And we think this will become an important new distribution channel to individuals and to the consumers, and we think that as the consumer is more engaged in purchasing that health insurance themselves, we're well-positioned because of the value proposition that we have of high-quality and reasonable cost and lower cost relative to some of the biggest brand-name competitors that we have in local markets. So anyway, that's kind of the way we're thinking about this. Do you know, Clint, did I leave anything out?

No, I think you got it. The only thing I might add just to supplement that a little bit is, Sheryl, you mentioned that historically trades for price for volume haven't worked out so well. I've lived through a lot of those trades. And generally speaking, the trades historically, at least that I've experienced, have been from being non-part to becoming participating in a network. And so the incremental discounts have been pretty large. So call it 50% discount, 60%, 70% discounts. So the incremental volume you have to get to make up for that incremental discount is pretty dramatic. Go back to what Trevor said about our incremental discounts and the amount of incremental volume necessary to make that up is not that great. And furthermore, I would just -- one other thing I would add to that is when we had those joining of networks, there wasn't anybody being squeezed out of networks. So you were just joining a network that everybody could be in; there were no limitations at all. In the scenarios we're talking about, we're looking at limiting networks or limiting the benefits for higher-cost providers. So in theory, that would lead to enhanced steerage for a much smaller discount.

Okay, great. And one of the things you mentioned, Trevor, which is sort of underlying the question of reform here, was that in Texas, it was a -- Texas is one of the geographic areas where you've invested a lot in outpatient. And that raised a question in my mind, Texas -- maybe Texas sees the light at some point and all the stocks go through the roof because Texas opts in. Remote, but not impossible because nothing's impossible in politics. But as you think about the deployment of your CapEx budget, especially in the year before reform, does it play -- does reform and the opt-in, opt-out, the reform dynamics, what role does that play in the geographic allocation of your capital spending program?

Well, okay. So don't forget about Texas that -- our home state by the way, where our headquarters is -- don't forget that Texas also is a bit unique by having a very robust economy, job creation, a diversified economy and net migration into the state. So aside from the dynamics on Medicaid and the uninsured in Texas, there's a robust commercial business here. And we have been participating in that and allocating capital into Texas for that reason. So Exhibit A would be our Sierra Providence East hospital, which we built in 2008. And by 2012, it's already bursting at the seams and we're doing a major expansion with the capital cost being nearly half of what the original cost was to construct the hospital. We're very confident that will be a great investment. We're making other investments in outpatients all over that El Paso market and into our other inpatient facilities. So we're not hesitating on Texas because of Medicaid. Like I said, the status quo, we understand very well. The status quo in Texas, absent the uninsured problem, has been relatively positive compared to other states, and we see more upside from here in Texas.

Okay. But it's not just Texas, it's those other states that might all of a sudden become attractive and offer you new growth opportunities by investing CapEx. That's kind of more what I'm getting at.

Oh, yes, absolutely. So just this week, we are taking to our board a fairly material expansion of outpatient facilities in another state that -- where we would build new freestanding emergency departments. So we're very mindful of the state-to-state differences. And then going back to something Dan pointed out, we've been using in our investor presentations this year an interesting market-by-market analysis showing the growth potential for commercial lives and government-covered lives in our markets. So we break it -- we kind of break down it to that level how we're thinking about both the impact of reform but also just general growth from economic conditions in those markets.

And our next question comes from the line of Kevin Fischbeck with Bank of America Merrill Lynch.

Actually this is Joanna Gajuk for Kevin today. Just to follow up on the last question here in terms of investments as you prepare for reform implementation. I appreciate the comment about also plans for acquisitions, but anything else we should be thinking about in terms of the company preparing for those volume increase -- potential volume increases in 2014? Or any investments around those contracts or narrow networks that you will be doing over this year to prepare for 2014?

I don't think there's anything else worth mentioning. We -- I already mentioned the excess capacity in our business. We run about, slightly over 50% of capacity utilization. That's plenty of additional bed capacity for patients -- may not be exactly in the right places, but for the most part, that's what we'll utilize.

All right. And then just a follow-up on the, I'm not sure if I missed it, but your outlook for health -- or for HITECH income for 2013. Is it still the same as, I guess, you mentioned earlier -- or rather last time around $75 million? Is that correct?

Yes. This is Dan. Yes, it will be $75 million.

All right. And then for 2014, I believe you guys previously had it in a slide, it would be similar, and therefore '15 it will be down like $25 million or so. Is that still the case?

It will be down slightly in 2015. It will be roughly $50 million in 2015, about $75 million in '13 and 2014.

And our next question comes from the line of Chris Rigg with Susquehanna.

I just want to confirm some numbers here on the Medicare headwinds. The sequestration cut is $45 million for 3-month, the documentation, coding adjustment headwind of $10 million is for one quarter and the DSH is obviously for just one quarter. Is that correct?

Yes, the sequestration is for 3 quarters. So 9 months of the year, that's $45 million. The adds for the coding and documentation is the fourth quarter, and that's at $10 million. And then the DSH reductions, that's fourth quarter as well.

But all incorporated into the outlook?

All those numbers are incorporated into our outlook.

Sure, sure. Okay. And then, I guess, just come back to the exchange pricing real quickly here. Is this -- if absent health reform but factoring in sort of the narrow network component of the variable here, would these be the types of agreements you would cut even without health reform given the incremental volume you'd expect?

Yes. The short answer is yes, but I think the difference would be that absent this new distribution channel of the exchanges, we would not cut these kinds of deals without a higher degree of proof from the plans that we will actually get the volume delivered. So Clint has been doing deals in the past with health plans, in which we've accepted discounts for narrow networks and other things. But they've had different forms of guarantees and other assurances and claw-backs and things like that where if the volume isn't there, you can actually get back to where you were. That would probably be the difference where apropos of what I said in answer to Sheryl's question, we are dealing with an uncharted new set of distribution channels and mechanisms here.

And our next question comes from the line of Whit Mayo with Robert Baird. Whit Mayo - Robert W. Baird & Co. Incorporated, Research Division: Not to belabor the DSH discussion much further, but does that -- do your assumptions include any flow-through of the impact from Medicare Advantage as well?

Yes, there is -- we have looked at that in terms of the impact on the managed care book of business, but those numbers are predominantly related to traditional Medicare and Medicaid. Whit Mayo - Robert W. Baird & Co. Incorporated, Research Division: Okay. And my second question was just any new provider tax programs that are a tailwind this year? And Trevor, maybe any updated thoughts around UPL and potentially your ability to participate in that going forward.

I can -- well, how about just a real quick overview on the provider fee programs. So the California program that we're currently participating in, that goes through the end of 2013. There's already discussion on the table, and we expect the legislature to take it up this summer to extend that program, so we feel pretty confident about that. The Pennsylvania program, we expect that to continue to be out there. The North Carolina program, which was approved earlier in 2012, that business is set on that program, so that's going to continue. Georgia, we just received word that the Georgia program is moving forward. So that's, say, $5 million about from the Georgia program. There's a smaller program in Alabama that's going to continue, as well as some of the other states. So we -- this is -- those programs are in place. The timing of the recognition is evident with California. It can get a little bit lumpy. Just to the -- when the paperwork gets signed off on, but we feel pretty good where those programs are at this point. Whit Mayo - Robert W. Baird & Co. Incorporated, Research Division: And on Texas EPO?

Yes. On the Texas 1115 waiver program, we started participating in a number of those programs here in Texas in the fourth quarter. They're going to continue through 2013. There is -- we've incorporated some of that into our guidance. It's a little less than $10 million. But we're pleased with that, and particularly the primary market was El Paso. But we're, obviously, looking at some of the other markets as well. Whit Mayo - Robert W. Baird & Co. Incorporated, Research Division: $10 million, that's -- or a little less than $10 million, that's for the full year 2013? Just to clarify.

That's correct.

And our next question comes from the line of Erin Blum with Goldman Sachs.

Can you confirm, did I hear you say that see opportunity to refinance about $1 billion of debt? And if so, which debt were you looking at? And would you consider financing in the loan market?

Yes. Why don't I give Tyler Murphy our Treasurer, an opportunity to address that one, Tyler?

Yes, the debt we're talking about is it's the 8.875% debt. It's callable next July at market exchange [ph] . So much like the transaction we just executed, taking out some -- the debt before the call date. We will continue to watch that debt and see where it makes sense, depending on rates, whether the -- we can get the low fixed rates like we have on the last 2 tranches of 4 1/2% and 4 3/4%. We'll continue to look at fixed rate debt or if those rates start to creep up, then it might be the right time to look at the term loan B market and introduce some floating rate debt exposure back into our balance sheet.

And our last question comes from the line of Ralph Giacobbe with Crédit Suisse. Ralph Giacobbe - Crédit Suisse AG, Research Division: Can you help us or give us your market share in the markets where you signed these exchange deals?

I'm not sure I know. In fact, I don't know off the top of my head. Clint, do you have any insights about that?

No, I don't know off the top of my head, and we very intentionally didn't disclose which...

Which markets.

Whose plans they were because we haven't talked to those Blues plans about whether they would like us to talk about...

Right, exactly.

those contracts or not. So...

I mean, we do -- so we do know the market share of each of our market.

Right, I don't have that, though.

But offhand, I don't think either one of us has that. Sorry about that. Do have a follow-up question we might be able to answer? Ralph Giacobbe - Crédit Suisse AG, Research Division: Yes, yes. The follow-up, I guess, I don't know if you have this answer. But do you have a sense at all in terms of excluded providers, what their share would be in the market? So in other words, what the capture rate could be.

How about a completely different question where we might have the answer. I'm now regretting we didn't cut the call at the top of the hour. Ralph Giacobbe - Crédit Suisse AG, Research Division: Last one, just on the same topic. But I just want to make sure I understand, so we're talking about limiting networks. So I just want to understand how the contract is structured, right? So you have a deal that basically says some sort of promise that these are the hospitals that are going to be in, and we have -- you have visibility on who's going to be out, and that's the rate. And there's sort of no wiggle room in terms of including others. I just want to make sure what your projections are.

No. Okay, so that's a very good question, So Clint, why don't you address how that actually works? And I would just also say you have to be careful on this. Excluding hospitals by name for one hospital due to another has drawn some regulatory problems in the past. So that's not a practice we engage in.

No, we don't have -- to my knowledge, I don't think we have any contracts that specifically name anyone who is excluded. And let's just talk about this generally. The way we generally do it is in a market where, say, we have 10%, 15%, 20% market share, whatever it is, we would say something like this: You can have -- the health plan can have up to 50% of the beds in a market or the hospitals in a market, and they get to choose who they are. We represent some portion of that, and then they go decide who else that they need in the market from a geographic coverage perspective, and that's the way they get to their number or under their number.

Well, I guess, that was the last question. So operator, thank you very much. Thanks, everyone for listening in. Sorry, we went a little bit over time and got a late start there, but we had more people dialing in right at the start time than we anticipated. And we will talk to you again over the next few months and then on the next quarterly call. Thanks.

Ladies and gentlemen we thank you for your participation in today's conference. This concludes the presentation, and you may now disconnect. Have a good day.