Welcome to the Second Quarter 2014 Tenet Healthcare Earnings Conference Call. My name is Shannon, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. The slides refer to in today’s call are posted on the company’s website. Please note the cautionary statement on forward-looking information included in the slides. Please note that this conference is being recorded. I will now turn the call over to Mr. Trevor Fetter, President and CEO. You may begin, sir.

Good morning, everyone. I couldn’t be more pleased with Tenet’s second quarter results. We had great performance in virtually every key metric. We drove the strongest growth in commercial volumes in more than a decade and we achieved rates of growth in admissions, outpatient visits, surgeries and emergency department visits that are among the best I can remember. Net of the normalizing items provided in our slide deck, we delivered EBITDA growth of 13% year-over-year. For nearly two years our teams in Tenet hospitals and our headquarters in departments including managed-care, government relations and at Conifer have worked very hard on two key strategies to prepare to grow our business with the implementation of the Affordable Care Act. Early on we push hard to be contracted with as many exchange plans as possible. We did this well before most of our local market competitors. As a result, when we entered the open enrollment period last year, 97% of our hospitals were contracted in at least one exchange plan in every metal type and 86% of our hospitals were contracted with the lowest or second lowest-priced silver plan in their markets. We were well-positioned and as a result, we are confident that we have gained market share in these important commercial insurance product. Our second ACA-related strategy was to conduct a campaign to educate people in our communities about the new coverage options they might have. This included more than 350 events across our markets and we produced nearly 1 million pieces of print material. Our website, pathtohealth.com is still active and we are now gearing up for the next open enrollment period. This campaign was very effective in enrolling people in exchange product and Medicaid. Coordinating with our well-established Medical Eligibility Program at Conifer, we are confident at least 16,000…

Thank you, Trevor and good morning everyone. Overall, we were very pleased with our second quarter results. Volumes came in a lot stronger than we anticipated and were converted into solid EBITDA growth. Our volume growth was broad based as we generated increases in adjusted admissions and virtually every state in which we operate. As a result of our performance in the first half of the year, we are raising our 2014 EBITDA outlook by $50 million to a new range of $1.85 billion to $1.95 billion. Slide 3 provides a high level summary of the quarter. Starting with volumes, we generated a 4% increase in adjusted admissions. This increase included a 2.8% increase in admissions and growth in outpatient visits of 7.1%, 85% of which was organic. We also generated another strong quarter of surgical volumes with an 8.3% increase. We estimate 35% of our volume growth was related to reform, with a majority of our volume increases driven by our well-defined growth strategies, including key service line investments and our relationships with well-positioned payer networks. From a tactical standpoint, our strategies are fine tuned to the specific opportunities we see in each market. And this tailored approach has been responsible for our broad-based success. Turning to our revenue metrics, net of bad debt expense and excluding the year-over-year variance related to the California Provider Fee program, patient revenue per adjusted admission increased by 2.5% on a same hospital basis and 1.9% on a pro forma basis. We generated a 7% increase in commercial managed care revenue per admission and 2.9% growth per outpatient visit. Strong revenue metrics and an enhanced payer mix including the incremental commercial business we generated in the quarter, produced a 2.6% increase in net operating revenues after bad debt expense. We achieved a 6.7%…

Thank you. (Operator Instructions) Our first question comes from A.J. Rice from UBS. Please go ahead.

Thanks. Hello, everybody. Congratulations on a great quarter. Maybe just ask about the volume growth, when you look at the pick up you've seen and you're attributing some of that to ACA-related pick up? Can you -- is there any way to parse out whether you're getting market share gains or whether you're actually seeing people consume more services now because they have coverage and if it's the latter, what services are they consuming if you have any view on that

Yeah. Sure. A.J. thank you and thanks for the comment about the quarter. I am going to ask Britt Reynolds to cover that question. You can imagine some of the market share debtors hard to get on a real-time basis. But we are attributing the statement that we believe we gain market share to the fact that we're not seeing volume growth this nature for many of our local market competitors, so, Britt.

Absolutely, thanks A.J. When we take a look at our market share, again as Trevor caveated there. We’re saying about 60% of our key markets -- the 30 key markets that we are at number one, number two position and with market share gains, so we are seeing movement in key service lines of course there and the vast majority of the balance of that is really a flat so no degradation with rare exception in an isolated case and maybe an isolated state. And the other and not a specific statement there about a problem just more about market dynamic. I would tell you our focus to your later question is demand and we are really seeing good volume growth across all of previously discussed TGI initiatives. So when you look in types of services, they are following those TGI service lines that we mentioned previously, open heart services, orthopedic surgeries, neurosurgical services, neurology medicine, vascular surgery, as well as the basic medicine services. So a lot of work in ‘13 and lot of continued work on growing these service lines. So, the combination of both like can’t delay.

Okay. And maybe if I get little bit of follow-up on your managed-care we contract, it came in a year with some big contracts, obviously, the last one E9 to get done, often when you contracted or when providers are re-contracting, they are actually looking at maybe some pressure on pricing, but it seems like you guys are actually looking for increases in the back half, I am really walk forward, right? Can you give us some color there? Are you actually coming out of these contracts assuming that almost immediately you are getting some benefit from, is that right?

That is right. I’ll ask Clint Hailey who runs managed-care for us to comment and A.J. keep in mind one thing with respect to managed-care is that, our starting position continues to be a value play relative to our local market competitor. So as Clint enters these negotiations, he’s starting from a position of strength in terms of value plus the integration of Vanguard. I may have stolen some of your thunder there, Clint. But go ahead and make -- give some color to with a process we've been going through this year.

Thanks. Thank you for the question. That’s exactly right. We are -- the big contracts that we've done this year integrating the Vanguard facilities into those contracts have been all about getting prices up more towards market. If you will, we had some facilities that were quite low and needed to -- needed some market adjustment. So we've achieved that in those negotiations.

Okay. Great.

Our next question comes from Josh Raskin from Barclays. Please go ahead.

Hi. Thanks. The question relates to your commercial managed care volumes. I’m wondering if you could give us an update on what the actual same-store growth commercial admits was and then if you had a comparable number for the first quarter that’d be helpful as well?

Well, Josh, we haven’t been disclosing the actual members for long time. This was the best rate of improvement in over 10 years, commercial X the exchanges had been negative for a long time. And so that was abating and we also had the exchange in our business coming in. So, sorry to disappoint and not quoting the statistic, but it is far in a way the best that we've seen in over 10 years.

Right, Dan, sort of what I was trying to drill in. I guess excluding may be I can ask you a different way, Trevor, excluding the, I think, it was 2700 admits for the exchanges with the commercial -- commercial admission, would they have been up on a year-over-year basis excluding the exchange?

Yeah, they would have been down but a lot, by much narrower larger, much closer to flat than had been the case in over 10 years. We still have in pure commercial excluding exchanges. You still have a bit of problem of a shrinking pie. And that you well know because you follow the managed care industry and see the enrollment stats there. But anyway we’re very pleased with the way that total commercial book has shaped up and the exchanges are an important part of that.

Okay. And then just follow-up the guidance say, I understand the seasonality of volume being a drag as going to 3Q, but obviously that should pick up in 4Q. But it looks like the guidance for just admissions is implying a pretty noticeable reduction in sort of that same-store growth on a year-over-year basis. So is this curious, what is this just sort of healthy level of conservativism, not exactly sure what drove the all of the upside in the second quarter, and may be some of se exchange members lose coverage, or is there something more to it that would create sort of difficult where it had been a worse comps in second half than what we saw in second quarter.

Good morning, Josh. This is Dan. How are you? And let me try to address that. In terms of our volume that we saw and generate in the second quarter compared to the third quarter. Obviously, we’re very pleased with what we’re able to drive to in the second quarter. When we look out into the second half of the year, we are optimistic with the volume trends that we’re seeing. We’ll continue to hold. In fact, when we look at our in-patient volume in the month of July, it’s consistent with our second quarter volume. But listen, this is a new environment we’re operating in and as we look into down the road, we think it’s appropriate to get some more experience under our belt. Before we incorporate more positive or optimistic assumptions about volume growth into the second half of the year. But obviously very poised and we’re obviously driving toward -- continuing to maintain that volume level that we saw in the second quarter.

Got it. Thanks.

Our next question comes from Brian Zimmerman from Goldman Sachs. Please go ahead.

Hi, thanks. Good morning. Just to follow-up with a volume question on. Can you give us any idea on how volumes progressed throughout the quarter and you mentioned July seems to be somewhat consistent both for the commercial business and may be on the exchanges?

Hi Brian, this is Dan. I’ll just have one. As we move through the quarter, the volume improved sequentially from month-to-month. In terms of our aggregate volume, so April was solid growth, a little bit better in May and June was even a little bit more. So even after it normalized for the extra day, between May and June, exchange volume tracked pretty much the same except in June. It leveled off in terms of compared to the month of May, but there was incremental growth from March to April and April to May. So obviously as we moved into July as I mentioned, the volume in the month of July were relatively consistent with the quarter. So the trend looks pretty good.

Okay. That’s helpful. And then you’ve mentioned in your prepared remarks briefly just a significant growth that you’ve seen in ASCs and urgent care centers and then -- I was hoping to get a bit more granularity into what trends you’re seeing there and any comments you could make on the med post urgent care development we’re seeing?

Sure. The strategy to invest in variety of types of outpatient centers has been a real cornerstone of our transformation because we started at a point where we were underrepresented in outpatient and we’re trying to seek a point where we are probably overrepresented in outpatient. It's a higher return on capital business. It’s higher margins. It's less complex. It's a great way of building channels in the local market into the hospital. So that's why you heard me talk about all those different types of outpatient centers. And we’re having great success with different models whether it’s urgent care or the freestanding emergency department. And we’re going to continue to make that real point of emphasis. And specifically, on the urgent care business, after a lot of consideration, it was our conclusion that it would be best to operate that business, kind of, as a separate line of businesses, separate brand identity and so that's what -- med post label. And urgent cares to some extent are acting as a substitute for physician offices. They're certainly a substitute for emergency services but they’re very effective in a community in building attachment to the hospitals. And so just one small anecdotal piece of evidence but I mentioned, the opening of our Resolute Hospital in New Braunfels. By the time the hospital opened, the first patient to arrive in the hospital who was in an emergency situation being brought there in an ambulance was somebody who had visited the urgent care that we’d opened in the same market earlier. And so they had records on that patient. He was in the EMR that were used for the whole network and so it was an example of that -- the benefit of that channel strategy.

Our next question comes from Kevin Fischbeck from Bank of America Merrill Lynch. Please go ahead.

Good morning. This is actually Joanna Gajuk filling in for Kevin today. So in terms of what you gave on your revised guidance for reform benefit, which you said that now you expect reduction and it showed to be higher, but is there any other change in your view for the full year around the reform? And specifically, can you also comment about acuity of this newly insured population that you’re seeing? Is that higher than expected? Any comment you can make around that will be helpful? Thank you.

Sure. This is Dan, I will address that. Let me hit the acuity question first. In term of what we’re seeing in so far this year. From a Medicaid perspective and Medicaid volume, we’re seeing is, the acuity is higher than the traditional Medicaid volume that we typically treated. From an exchange perspective, the exchange patients that we’re saying, the acuity there is, it’s about 8% higher than the -- we’ll call it our traditional, commercial book of business. So acuity is up a little bit. We, so far, what we’re seeing from an exchange perspective. In terms of the overall revisions and upward revision to our overall reform guidance for the year, what we see in terms of the conversion and migration of individuals who were previously uninsured are either into coverage under a state Medicaid program or under an exchange product is tracking a little bit better than what we had anticipated at the beginning of the year. And the exchange volume grew nicely in the second quarter, especially compared to the first quarter, which was an entirely unexpected given how the enrollment ramped up as the first quarter progress. So, all in, we’re more optimistic, based on what we’ve seen so far in our facilities from the ACI and so accordingly we made the adjustments.

Our next question comes from Andrew Schenker from Morgan Stanley. Please go ahead.

Just a follow-up on some volumes here. If I look at your Medicaid volumes specifically on the outpatient side, it’s almost three times the decline you saw in management charity care. In addition on my math it’s about two thirds the total increase in outpatient that it came from the Medicaid side when you account for uninsured charity and grant to that, and you attribute about 85% as to organic growth. Maybe if you could just talk about some of the dynamics that we’re really driving that Medicaid volume growth above and beyond the declines in uninsured charity care. So are these average -- historic Medicaid patient using more, is it previously uninsured using more and maybe just talk about that dynamic a little bit more?

Sure. We have obviously limited insights into why they’re coming to the hospitals. We know who is coming to the hospital. So I'll ask Britt to comment a little bit on the Medicaid population and what we think, we know in relation to what’s driving it.

Sure. Thank you. Good morning, Andrew. As far as the Medicaid population goes, you know that the steps are correctly in terms of the percentage of volume growth. What we’re seeing on inpatient and outpatient utilization, you focused a lot of that on the outpatient question. We’re seeing those folks as I mentioned earlier from a service lines standpoint be heavy utilizes on the inpatient side of those key high acuity service lines neurosurgery, trauma, open heart, orthopedic cases, so whatever is still related to the driver of that. We do know that they are utilizing now that they are on the insurance roles through the ACA, utilizing high acuity services, I think implied some degree of pent-up demand. On the outpatient side, I think it’s just a further into our continued investment in that strategy. We are physically in more places. We are integrated in our market approach. And we have higher access and better price points. I think that just a place that they are naturally going to go, especially if they are entering the newly insured market.

I just like to go back to something I said in the opening comment. We actively welcomed the newly insured and the newly enrolled in Medicaid. We undertook this very serious campaign to attract these patients to our hospitals and have them understand that we were in a trusted sources of information about how to enroll. So it does not surprise me that they’re using us in such a high percentages and in our outpatient centers because those are the most accessible points of access.

Our next question comes from Darren Lehrich from Deutsche Bank. Please go ahead.

Thanks. Nice job in the quarter guys.

Thank you, Darren.

I want to first ask about M&A, you’ve cut a lot going on. Obviously, there is been a number of news items out of Connecticut and you mentioned the Tucson opportunity. I guess just maybe stepping back Trevor, maybe Keith, can you help us think about in the next year or two what you think the developments in Connecticut might look like with that network, looks like how it fits in. And then wasn’t fully clear to us just relative to the Ascension JV as how your broader Arizona and Phoenix presence fits into that announcement. So maybe if you would mind just giving us some color on that? Thanks.

Yeah. Sure. Keith is here and he will cover that.

Hi. Darren, there are couple of things. Well, Connecticut obviously, the regulatory issues there, which had been mostly at the state level or not, certainly in the communities have been very welcoming to us in Connecticut. We’ve been on the ground there for a while. What we see there is really a network forming together with the Yale New Haven Health System to create a value based care, if you will, network that covers frankly the state and the sort of bordering areas as you may know, our Wooster hospital is 45 minutes or 50 minutes from the eastern most hospital i.e. four quarter that we have under contracts. So we really -- it’s sort of a natural extension in New England. We think ultimately because we have in many cases of taking Wooster as an example. Our employees, they live in five states. So it’s really a pretty small geographic region. So its just part of -- go in network and other part is really the partnership strategy that Trevor mentioned earlier in his comments, which we see a lot of opportunities in our existing markets as well as potentially new markets to partner with others to be able to create pretty strong networks that we can offer to purchasers of care, which kind of gets me to Arizona a little bit. So you may have read that Banner, the largest player in Arizona, recently assigned a deal to buy the university system in Tucson. And so our ACN partnership, which is the Arizona Care Network. There’s a partnership between us and Dignity Health in Phoenix. We see the need we desire kind of also be in the other large population center which is Tucson to be able to compete on more of a state wide basis with the Banner network and that was one of the drivers for us, putting together as partnership, which we were originally going to have as an 80-20 partnership. And then of the Ascension who currently sponsors that organization is going to remain at partnership -- a partner at about that same level as Dignity in the market for some kind of annuity purposes. So we see again along the same line, its kind of moving to more of a statewide network over time in Arizona.

Our next question comes from Ralph Giacobbe from Credit Suisse. Please go ahead.

Thanks. Good morning. I was wondering if you could help us in terms of what percentage did the exchange book was previously uninsured, sort of, as far as you can tell. And then maybe more broadly sort of on the exchange, sort of, how good is the data around capturing sort of the reform benefit, again specifically on the exchange?

Good morning, Ralph. This is Dan. We estimate that the exchange book of business hat we’re seeing that roughly 37% of that was previously uninsured and so the remaining 60%, 65% either had commercial coverage or some other form of coverage whether it was Medicaid or some other payers. So we can’t -- I would tell you we can’t validate that for every single exchange patient because we may not have seen an exchange patient in previous years, but we have pretty good visibility and that’s -- we believe a pretty good estimate of the portion of the exchange business that was previously uninsured.

Our next question comes from Gary Lieberman from Wells Fargo. Please go ahead.

Good morning. Thanks for taking the question. I guess, maybe to talk about the continuation of the outreach? Are you continuing to do more that or has that sort of subsided and up again going into next year?

Yes. Let me ask Dan Waldman, our Head of Public Affairs to comment on that. He is running this program.

U=Yeah. Thanks. I -- we -- as Trevor mentioned, we have kept the pathtohealth website going. We are continuing to work with Conifer which through their patient communication enrolment eligibility personnel continued to provide counseling and information to collect leads patient who are do not enroll during the last period but who are interested in enrolling in the next year. So we are actually looking at re-engaging as we get into the fall, as you would probably know the enrolment period is starting a little bit later this year in November. So we are going to start gearing up with our hospitals and along the same lines that we did last year, really using trusted community groups that we formed partnerships with more than 350 of them in our key markets to get education out and then holding enrolment events in our hospitals using Conifer personnel to make sure that we can get as many people as enroll possible. We actually have a lot of high hope for next year because we think a lot of problems that we incurred that we experienced last year with the various websites are going to be smooth down this year.

Our next question comes from the Frank Morgan from RBC Capital Market.

Good morning. Two questions, I was curious if you have any commentary around the actual growth in the surgical volume by service line and can you attribute much of this in the new insured population? And then secondly, you referred the Dish payments in the 1115 waivers? Was there any prior period catch-up included in your result as result of Texas Dish and if so, how much?

Yeah. Let’s have Dan Cancelmi that 1115 and dish question first and then Britt will fill in on the surgery volumes.

Good morning, Frank. It’s Dan. Yeah. In terms of the 1115 waiver adjustments, it was negligible. It was actually little less than $2 million. So we do not have any significant adjustment in the second quarter.

Good morning, Frank. It’s Britt. On the surgical volumes, let me give you a couple of points here. In a year-over-year basis, the surgery growth has been in the vast majority of our surgical area, thoracic surgery, trauma, orthopedics, open-heart which we would count as surgery, general surgery, cardiovascular medicine, all those are showing growth, not only overall, but in our expanded coverage areas, particularly on the exchange, which is a high point for really I think for us in terms of what we are seeing in the exchange patient. It’s really in the high activity arena. I will step just away for a quick second because you didn’t -- you asked specifically about surgery, we are also seeing other high activities areas like NICU as well in growth in that exchange population. And then another, I think, positive telling story is a sequential growth look from Q1 to Q2 on the surgical side of the equation and quite candidly, we saw growth in surgery Q1 to Q2, which is a little counter intuitive from the seasonality standpoint, but we saw growth Q1 to Q2 in every surgical category with the exception of thoracic surgery. So we see that's a positive.

Our next question comes from Gary Taylor from Citi. Please go ahead.

Hi. Good morning. A couple of questions. First, maybe for Trevor or for Clint. We have just been trying to track through the quarter the last couple of months all of the health plan, contract renewals and expansion that you have been highlighting? It has been little difficult to discern which ones are significantly expanding potential patient populations, which ones are renewals? Are there any of those large ones, you announced United, Humana, Cigna, Aetna, any of those that are particularly expanded with the potential to bring material new patient population into the Tenet facility?

Clint, do you want to address that?

Yeah. Sure. Thanks for the question. In terms of the major commercial contracts we have done, all of the facilities we are in, all of those networks, as components or sub-components of some of those renewables, though we did have exchange networks that we were not in, that we joined in some cases and we try to highlight some of those, some of the more significant ones. But that’s really the only incremental areas. We do have some things in the works on that front for other smaller contracts, but the major national plans we renewed.

We also had networks so tiers that we were not in that we became in as a result of a, so, I mean, you are right, Gary, it’s hard from the outside to discern that because there are often be special networks and it might be something that they were just setting up or there is a particular employer that the network is formed around. But I think it’s safe to say, Clint, that in any every case of these major national negotiations that the new contract offer access to an expanded population compared to the prior contract. It might be small in some cases or it might be larger but we have not ever renewed any of them where we have gone backwards in terms of the accessible patient population.

Yes. It’s definitely fair to say that, yes.

Our next question comes from John Ransom from Raymond James. Please go ahead.

Hi. I am sorry, if I missed this, but could you reset what the revenue differential is for you between incremental new Medicaid patients and incremental new commercial patients coming of exchange?

John, this is Dan. Good morning.

Good morning.

In terms of, when you think about the pricing difference for commercial versus Medicaid patient and in particular this relates to an exchange, like I said the acuity was slightly higher on the Medicaid side. So when you think about a Medicaid incremental admission, depending on the service, depending on the area, you could be 6,000 to 7,000 a case and commercial, obviously, is probably depending again on the service about three times of that give or take.

Okay. And then my second question is as you approach the exchanges for 2015, what might you do the same, what might you do differently and what were the biggest surprises kind of positive and negatives with your experience this year?

Sure. Clint, do you want to take that?

Yeah. Sure. The biggest surprise for me was probably Humana, frankly. They were very aggressively priced in many of our markets and were a pleasant surprise, frankly, in my opinion, because I think they are having attractive premiums on exchanges is important to the success of the exchanges. Beyond that in terms of things that I would have expected that we saw, the Blues were priced very aggressively and to try to retain their membership and they were very successful capturing on that obviously. I think you will see that again in 2015. I think the Blues will continue to be aggressive based on the little bit of information we have been able to see so far. There are some new entrance and so that’s kind of exciting. I have been very pleased to see Centene be positioned, improving their positioning, Molina as well. So, I think all that is good to ensure the competitive environment we saw.

Our final question comes from Whit Mayo from Robert Baird. Please go ahead.

Hey, Whit, you would got to ask something about Conifer?

Okay. Would you like to discuss Conifer, Trevor?

Certainly, I mean, you can ask more than one question because you are the final question but at least one has to be about Conifer. Whit Mayo - Robert W. Baird & Co: Okay. Let me first start with my original question. Just wanted to get it an update on the Phoenix health plan, just any new development on the cap contract or general thoughts going forward?

Yeah. Steve Mooney is here with and I will ask him to address that, Steve.

As far as new development, we continue to be actively engaged with the state that there is no new news but continuing to keep the dialogue open with the state, be responsible partner to those Medicaid members, our patient quality scores, our consumer satisfaction scores continue to be very high. And we are dedicated to taking care of that population and demonstrating to the state that we won’t be a responsible member out there.

And then what is that you wanted to know about Conifer?

Sorry, may be just an update on the Catholic Health integration how that’s playing out at this point?

Good. So glad you asked. Steve Mooney is here to address that.

Thanks Whit. I will wrap it out by previous question. So it’s going well. I think its good to know about CHI and that arrangement which is turning out to be, I think, even better than probably originally expected is to understand and how that organization has grown. So it’s clearly really important for us not going to get contracts together with the winners in the marketplace. They are clearly emerging as one of those. So, just from stat perspective, so when we redid the deal and where we’re at now, they have because of all of their acquisitions have grown their portfolio and it’s under management by about 70%. So whatever they did, they were about 170% of the size they originally were, of which we have only taken in from that standpoint so far. We are under contract included original core amount. And then we have added another 30% to that original core amount. It’s under contract and there is still another 40% that's under the original amount to go. And that's because we are doing, we’re going through due diligence on those assets, we’re understanding what the rolling schedule would be. CHI constantly, whenever they are trying to make an acquisition, moves their schedule around, they might see an opportunity with a particular asset from the new acquisitions that they did have before. So they will move that further up into the schedule, so a lot going on there. Clearly, things are going great from the implementation standpoint. The clients are incredibly cooperative across all the IT platforms and then original deal was really based around revenue cycle management and now because of other four service around value-based care and patient communication engagement we are now rolling out applications on the VBC side of the fence including up and with their other ACOs and on the PCNE side moving some services around scheduling activities to help our consumer engagement and those types of activities. So lots going on with CHI, going well and lot more to come and we don’t think that's trend is stopping.

Okay, thanks Steve, thanks for that. And I understand there are no more questions to queue. So thanks everybody for listening in today. We will see again in another three months.

Thank you ladies and gentlemen. This concludes today’s conference. Thank you for participating. You may now disconnect.