Welcome to the Q3 2014 Tenet Healthcare Earnings Conference Call. My name is Christine, 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 referred 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. I will now turn the call over to Trevor Fetter, Tenet’s President and CEO. You may begin, sir.

Thank you operator, and good morning everyone. Last evening we have reported Tenet’s best quarter in more than a dozen years. We generated growth in patient volumes that led the industry and major of portion of that, approximately 60% is independent of the Affordable Care Act. That non-ACA core growth alone would make Q3 one of the strongest volume quarters I can remember. The growth was also a broad based, including inpatient admissions, commercial admissions, outpatient visits, surgery and emergency department visits. Beyond our hospitals the rest of our businesses are performing well and the acquisition and development landscape has never looked better. There are a number of highlights on Slide 2 and Slide 3 in the presentation that we posted to our website, yesterday evening. It was a strong quarter across the Board, but I’d like to focus my comments this morning on our outpatient business, our strategic use of joint ventures and Conifer. Each of these elements of our overall strategy are performing exceptionally well and probably getting less attention than they deserve. Let me start with outpatient. In the volume section on Slide 3, you can see that we drove 8.5% growth in total outpatient visits in the third quarter, of which nearly 90% was organic. Outpatient surgery growth was particularly strong, increasing by 14.7%. I’d like to go now from reporting to headline numbers toward a deeper dive into the strategy that we have been implementing for the past five years as summarized at the bottom of Slide 4. Our outpatient team has done an outstanding job in creating this business. In 2010, we earmarked $400 million to develop or acquire outpatient centers and set an objective of generating EBITDA of $70 million from this initiative in 2014. I am pleased to report that on an…

Thank you Trevor and good morning everyone. It was a great quarter from a volume, pricing and cost perspective. Slide 3 provides a high level summary of the quarter. We generated adjusted EBITDA of $459 million which was stronger than our guidance for the third quarter. Also our volume growth in the quarter was stronger than we anticipated as we generated adjusted admissions growth of 4.9%. We estimate about 60% of our volume growth was unrelated to the growth we’re generating form the Affordable Care Act. Our volume trends are increasingly broad-based as we drive increases in adjusted admissions in all of the 14 states in which we operate hospitals. Our inpatient volume continue to strengthen as we achieved admissions growth of 3.9%. Our outpatient business was even stronger with visit growth of 8.5%. While our outpatient development and acquisition program contributed to this success, 89% of the growth was organic. It is also important to note that both inpatient and outpatient growth rates in the third quarter improved compared to our solid second quarter performance. Indicating our volume initiatives are building momentum. We also continued to achieve incremental commercial volumes. Both inpatient and outpatient commercial growth in the third quarter exceeded our strong performance in the second quarter. Our commercial admissions trends are the strongest we've generated in more than a decade. Most of our volume growth was driven by our well-defined strategies including key service line investments, enhanced physician alignment and solid relationships with well positioned payer networks. However, it's also clear that the Affordable Care Act is providing additional support, as about 40% of our volume growth in the quarter was attributable to the ACA. Turning to Slide 9, we've normalized our results for a number of significant items that impacted our year-over-year third quarter comparison. Most…

(Operator Instruction). Our first question is from Justin Lake of J.P. Morgan. Please go ahead.

Lot of detail in 3Q and into 4Q, so I want to look ahead and think about -- I know it’s early to talk about ‘15 on specifics, but Trevor, Dan maybe you can give us some color around how we should think about headwinds and tailwinds going into ‘15 around ramping reform how to think about core utilization going forward et cetera, with what core growth rate is -- just some of the moving parts we should keep in mind?

Good morning Justin this is Dan, let me address that. So as we look into 2015 there obviously a number of growth opportunities that we’re going to continue to pursue and execute on. As you know we’re not completed with our 2015 planning at this point. Let me just try to give you couple may be more notable items -- just have a sense of what we’re think about 2015. So when we look ahead of the next year certainly the synergies that we’ve been capturing and realizing from the Vanguard integration we will continue to build on those and continue to grow those as we move through next year. As we’ve mentioned at number of different times we’re very optimistic that over the longer term we’re going to see our synergy range, the high end of 200 million over the longer term. So you should expect us to see continuing synergies in 2015. How we look at healthcare reform at this point obviously, the open enrollment period for the exchange business will be opening up here pretty soon in few weeks. So we don’t have complete visibility into that yet so that one of the reason obviously we’re not done with our planning. And we’ll see how that plays out from the Medicaid expansion perspective I would say other than the State of the Common Wealth of Pennsylvania there is likely to be no other states that expands Medicaid then the states that we operate in. And Pennsylvania is a pretty small state for us and one of our facilities up there is a children’s facility which generally speaking a large portion of the children are already covered by some funding so the impact from Medicaid expansion in Pennsylvania won’t be material. We’re obviously -- we will continue to drive performance improvement from our performance excellence program that’s been a very successful program. Our outpatient development program has also been incredibly successful as Trevor mentioned in his remarks. And so we’re going to continue to build on many of the things that we’ve been focusing on past several years. Now in terms of some headwinds -- just point out a few that – everyone’s aware of them, so we will encounter some headwinds related to the HIT incentives, numbers probably say the $50 million territory of a headwind compare to '14 versus '15, as I mentioned in my remarks there is about $30 million of Medicaid headwinds in Detroit to think about and then just as a reminder the incremental Medicare cuts under the Affordable Care Act build in 2015 and there is about roughly an $80 million of incremental Medicare cuts next year. So obviously those are some of the more notable items that just -- that we're thinking about and as we wrap up our business plan in next several months.

Okay and one quick follow up in the -- you mentioned exchanges, can you just give us an idea of the benefit of reform you had in the third quarter, let's say? Can you break it down exchanges versus Medicaid just rough percentages? 80% Medicaid? 20% exchanges? Or how should we think about that?

Sure Jos and it's about two-thirds of exchange.

Great.

In terms of -- from an earnings perspective.

Thank you. Our next question is from Brian Zimmerman of Goldman Sachs. Please go ahead.

Hi, thanks and good morning. I appreciate the detail you gave us around the growth initiatives in your outpatient services. I was curious what you see in terms of continued runway and which area seem to be a bit more attractive in terms of growth going forward? Just any idea on how we can size up future opportunities there?

Well so, thanks Brian, its Trevor. This is an area where I'm often asked, how much opportunity -- how much capital deployment opportunity is there in outpatient, and as you can see we're doing it in a wide variety of types of centers and we're really deploying as much capital as we can to it, because it aligns with trends in consumer driven healthcare, consumers want more convenient, we're able to offer services at a better price point because we don't have all the high cost infrastructure of a hospital and we don't have the 24*7 operations and the emergency department's taking all comers, et cetera, and as we broke up for you, the economics are terrific. So we were handed a great opportunity in the Vanguard acquisition, because Vanguard is a little bit less far along in developing outpatient in its markets, so we have that -- we have still continued in market opportunities. There are always acquisitions that we're looking for in outpatient development opportunities, these new types of centers we've had very good success with the Freestanding Emergency Department and we see the emerging business of urgent care is one that's very appealing even though its smaller dollars and a slower ramp up. So we will continue to be very active in this and I really want to call it out because it's something that often just gets blended into the hospital result and it's a great success story for Tenet.

That's helpful and then I guess my follow up is around the commercial volumes, very strong this quarter. Obviously Reform's playing a part of that, but if you a strip apart Reform how should we be thinking about commercial volume growth and just what's driving that increase?

Good morning, this is Dan. Yes, as we mentioned in our remarks we're realizing and generating the most favorable trends that we've seen from a commercial inpatient perspective in about a decade and it really it's -- certainly the exchange is contributing to that, but the lion share, when you think about our investments and strategy and focus over the past several years is really been to drive incremental business in these attractive service lines and we're seeing the benefits from that.

Let me just add that, even excluding these changes the trend in commercial has continued to improve over 5 quarters spread, you might elaborate on that so. I mean that -- if you look at that as a book of business that was under very significant pressure at most times throughout the last decade, both through an improvement in the enrollment trend at the payer level and also through our strategies, we've really been able to bring that trend much closer to flat and growth.

Sure Trevor, yes Brian. The trends I think that Trevor was speaking to actually go back maybe more like 8 plus quarters of improvement sequentially quarter over quarter. What we're really seeing now and proud of what we're seeing is the consistent investment in core service lines that lend themselves to commercial enrollees and across the broader portfolio now, we are seeing that service line deployment really take hold in very key markets for us. And though that particular service line growth and high acuity, high TGI historically defined areas are really paying dividends, the reason I'm excited about that is because there is no reason to believe that's going to change going forward. Our market share position in those are solid, and our continued development in that will increase in those markets where we're strong and we're learning and demonstrating best practices across the country where we are strong in markets and replicating that across others where we have the same opportunity.

Thank you. Our next question is from A.J. Rice of UBS Uniform. Please go ahead.

Hey, everyone. Thanks for taking the question. Just a broad question would be on the capital deployment. I guess two areas of big spending for you guys, New Braunfels which you've got as a 12 million drag this quarter. I assume that's about the worst you will see and should turn positive overtime, can you give us some sense of that? And also when you did Vanguard you inherited some significant capital commitments in Detroit. Where you add on those? When do those start to phase down to a more normalized level? And when do you expect to see the contribution from those kick in?

So let make a brief comment A.J. I am going to hand it over to Dan for New Braunfels and then I'd like Keith to talk a little about the portfolio optimization strategy that we are pursuing. The only thing I'd like to say on the capital piece overall is with respect to Detroit, yes we inherited a large commitment, but we are really seeing the benefit of these investments the Vanguard had made. I had pointed and the reason I did it, in my script that the fastest growing hospital and three of the top ten fastest growing in Detroit, it's now just because of Medicaid expansion, that was happening even before that occurred. It's because we’ve made these investments that are very strategic in that market and the market is a good solid markets, though [bonding] we’ve been taking market share. So we like what we are seeing from the investments both that Vanguard made, the continued commitment that we have is less than half of the total Vanguard commitment in Detroit that -- we are investing it smartly in things that we want to do as opposed to anything that we feel we have to do. And I am very optimistic about our performance in Detroit. New Braunfels is an interesting story as it's a large high profile start up hospital. We've done that five times within the last decade at Tenet, but Dan you might want to just to answer A.J.'s question and then I'd like Keith comment on the overall landscape in acquisitions and portfolio management.

Good morning, A.J. In the New Braunfels market we are very optimistic. It's -- we view it as a significant growth market and we really like the opportunity that we see down the road. The results in the third quarter that are outlined on our slides, what the pressure points there really relates just to the timing of when the joint commission completed the survey which triggers the Medicare provider number and certification date. And there was just -- they completed the survey within the allotted time frame that they have, but it feels a little bit longer we had hoped. So with that results in due to the delay in the survey was just we don't necessarily have the provider number at this point and what that does, it delays being able to build Medicare -- Medicare you can go back and go back to the survey date, but Medicaid and then some certain other payers, you have to have that provider -- the Medicare provider number before you can bill those payers.

Thanks Dan. And just to add a couple of things A.J. first on Detroit, the Howard hospital opened earlier this year, we've actually -- with some expansions space on our service -- we have a few service lines growing pretty fast there. So we’re continuing to invest in that. The last of the large projects that were part of the $500 million is the a children's tower which has been sort of right sized to sort of where we see the future of children's business and I will say what we have under construction today, a free standing emergency department and kind of day hospital but a 24x7 for emergency in Troy, Michigan, also Big Beaver Road, right and sort of a great location in Oakland County and as a result of that we sort of really moved our project Downtown to more intensive care, more things that we would expect to see in a real high utility hospital. That project will start construction soon and will go through the end of ‘16 and expect to be open in 2017. That was -- if you recall -- we had a two year grace if you will on our five year commitment. Then our routine commitment, we will be completed with that and finalize all projects with that through 2015. So we really are nearing the end of those projects and in addition to that as Trevor said we’re seeing really nice growth in results from the investments. On the portfolio optimization side, we spent a good bit of efforts strategically this year across the company. We think we have a very good game plan, we are very aggressively moving in the areas where we think we can move more quickly to reshape the portfolio. We have some areas where we are much underway and have been for a while, but are just on a little slower track due to limited potential strategic partners in most of those cases, in some cases as well as just some of the existing relationships that we already have. So we feel very good that we will make significant progress over the next 90 to a 180 days on the portfolio optimization and we‘ll see a lot of things change here going forward, so just a little color on that.

That's great. Dan, just a real quick on your 30 million Medicaid headwind in Detroit, that wasn't clear. Is that a quarterly number or a full year number?

That’s an annual number A.J. A.J. Rice – UBS: Okay alright thanks a lot.

Thank you. Our next question is from Andrew Schenker of Morgan Stanley. Please go ahead.

Following up on some of your comments on the contribution from exchanges there, looking into next year, any update you can provide as we head into open enrollment here? About changes towards your first choice network contracting? Are you in more or less narrow network products? And similarly any lessons you learned about helping enroll insured in to the exchange and what is your expectations for next year, are you going to be able to drive incremental people into programs?

Sure thank you Andy I’ll make a brief opening comment then I’ll ask Clint Hailey to talk about the landscape on contracting. Actually has changed a lot as the exchanges have become better established and many new insurers have appeared on the scenes in the new product, et cetera. From going back to probably last 18 months, I think a real strong point of Tenet’s Affordable Care Act strategy was to first of all position our hospitals very effectively within the exchange networks. Particularly those that were offered at the lowest price point in the Silver category. And then completely separate effort which was oriented toward driving exchange enrollment but also medicate enrollment, we call Path to Health, we did that in conjunction with Conifer. And its very well established throughout our system we have had a 800 number of physical counselor’s on site and hospitals and online ability to do this really step tagged on to a lot of capabilities Conifer already had and its impossible now how many actually enrollment we drove into that but it’s in the tens of thousands. And we think that positioned our hospitals as trusted places to go to find information about what insurance products may be available to you. That’s all still in place, we haven’t stopped doing it all, in fact we are getting ready to gear up here for the next open enrollment that starts within a matter of a week or so. And we think that’s going to be equally effective and I’ll ask Clint now to talk a bit about how our position with the exchange market places is and what you’re seeing in terms of contracting and there has been a lot of talk about narrow network what does that mean exactly, et cetera. Thanks, Clint?

Sure thanks for the question. Just to get everybody on the same page. For 2014, we’re in about 80% of the health plan offerings on exchange today and 86% of the two lowest cost Silver plan and so -- which we considered to be the sweet spot in terms of enrollment. And our desire for 2015 is to be positioned comparably. That said there are quite a bit more activity for 2015 then there was for 2014 amongst both insured -- more insurers, in the market as well as existing insurers having more options that they’re offering. As well as more provider interest, there are providers who dabbled in it a little bit in 2014 that are going bigger in 2015 and then there are providers that sat on the sidelines entirely in 2014 who are participating in 2015. So it’s going to be real interesting to see, once we have public -- once it becomes public here in the next week or so, what exactly is going to be offered in each of our market. With that said I think there is going to be substantially more available to consumer which is to Trevor’s earlier point an indicator of how viable or even strong the market has been. And what opportunity from our channel perspective this represents for Tenet. All that said I think we are well positioned for ‘15 for the states that there has been public information on. We’ve been positioned well and we believe we’ll be positioned well in other states that are not public today, but we just won’t know for another week or so.

And I think the manage care of the exchanges -- the manage care contracting is going incredibly well. I have a lot of visibility into pricing for ‘15 and ‘16 as well. So all around I think a good story on manage care.

Okay maybe just a quick little follow here. How is the collection rates actually been on the exchange price to deductible think of as, is it trending closer to commercial are you seeing higher non [licensing]?

Hey Andy this is Dan good morning. The collection trends so far are tracking relatively consistent with say the only notable difference at this point really it just the timing of the payment that some of the payment are just coming in a little bit slower, but at this point we believe the collection experience will be comparable.

Thank you. Our next question is form Josh Raskin of Barclays. Please go ahead.

Hi thanks just wanted to clarify some of the comments Dan made about 2015. I think you outlined -- you quantify specifically 116 million of EBITA headwinds for next year so that just over 8% of the 14 guidance. And then you spoke about the synergies in the Medicate expansion in Pennsylvania, obviously the improvement in the ACA and then the performance excellence. Are those comparable in magnitude? Just trying to figure out headwind-tailwind are you implying potential for flattish EBITA next year or what exactly was the message with quantifying to headwind?

We haven't issued the guidance yet, but now listen, we’re going to generate growth, but I just wanted to point out that when we're thinking about all the pluses there are few headwinds we just need to take into consideration.

Okay, okay. So you're still confident, okay. And then just on the accounts receivable maybe it related to the last question, you're seeing an increase there, I think you may have suggested that it was timing related is that co-paid and deductibles or what's driving the increase in the AR?

From the exchange it's really just the timing of the payments just a little bit slower, but it's not material or huge number in terms of the AR growth.

But the overall AR? Forgetting just the exchanges, what's the uptick there?

Well actually we're doing very well on AR performance our days in AR essentially flat over the past several quarters.

Okay so maybe it’s just a growth induced focus.

Yes, if you go back, if you're looking back to like last year, I mean it's just obviously we've bigger platform now at the Vanguard acquisition and couple of the other acquisitions.

Thank you. Our next question is from Kevin Fischbeck of Bank of America. Please go ahead.

Great, thanks. Just wanted to go back into the volume number because that was just bigger number this quarter and I hear when you're saying as far as not wanting to assume that number like this progresses but to the extent that you're droving I guess you said 60% of its organic, so let's say 3% volume growth. Is there anything about the timing of the investment that's you'd done that would say the number should kind of tail off and I think daily we should think about, it sounds to me like you will bring up new heart hospital, children's hospitals in Braunfels feels like the organic number actually should be elevated for a little while, so just wanted to see if there is anything we should be thinking about there as far as the timing of investment is coming on?

Well, I'll make a couple of comments to start and then I’ll ask Britt to fill in with some of our business elements strategies, but like we -- we're really pleased with this momentum we've had on volume. Now part of it this year is easy comparisons the comparisons to get tougher as we go into 2015, but we're seeing this great strong across the board growth and some of the best growth corresponds with some of the places where we've made these very targeted investments and it's not just capital investing for growth it's also focusing on developing service lines that are growing, focusing on certain physicians, we've had a dramatic improvement in our physician alignment strategy and I don't know Britt, you couple of examples, you want to give some flavor because this is sustainable stuff that has strong momentum behind it and I think it's just a different trajectory that we're on the -- than we have been on in some prior years.

Sure, thanks for the question Kevin. As we looked and communicated 60% of our growth is core growth. As Trevor mentioned, our investments in service lines over a number of years not just simply in '14 in the areas like cardiology, neurosurgery are paying big dividends in single out of couple of areas in our Florida region for example, extremely solid growth rates there in those high acuity, high intensity service line and that is a function as Trevor mentioned of recruitment of very talented physicians into that marketplace the development of services around there that is both technology based as well as competency and service based. Then as you look at the market like Detroit we're seeing and able to measure bona fide market share gains in Detroit overall and those again very highly complex acute services where it's the investment in these types of services that for the foreseeable future is to me a very sustainable growth model and that's 60% of our business. The last fee or the corresponding fees in our ACA Medicaid and exchange volume being the 40% as we've already discussed this morning, I wont to elaborate much further, we have strong confidence that in those areas, we're going to continue to see the kind of growth because we're positioning it and addressing it as directly and aggressively as we have in the last 18 months.

Okay. And then just maybe last question. The stocks are kind of weak today and I think you and your competitor who reported last night had a greater quarter. So as my sense is that it's related to some of the sentiment around either the elections as the potential for a public as to gain more share and/or the Supreme Court challenge to subsidy. Do you have any thoughts about as the political winds change a little bit with this election, whether that’s going to have any meaningful impact on where reform will ultimately end up based upon your conversations with VC and have you done any kind of an initial conversations with states about what would happen if this probably is willing to go to the opposite way whether there is a Plan B at the State level?

I was really just thinking as you started that question that I should be asking you the question, now we're just reporting, we're reporting the best quarter ever. The business is stronger than it's ever been across the board more fundamental and I can't imagine why the stocks are getting hammered this morning, but on the topics you raised you about politics, they are probably also to some fear factors. I think the reality is with respect to the Republican control of the senate, the ACA marketplaces and benefits are so deeply established across so much of the country now, it's really hard to imagine taking that on as a fight and trying to dismantle it. Now tweaking it, fine, we could expect that, but keep in mind at least for us we've generated these results with no expansion in Florida and Texas two of our largest states, Texas being our largest state in which we operate. As far as the Supreme Court ruling, there is no conceivable way to predict what's going to happen there, whether they are going to take it up at all, it will play out over the next few weeks. But again you've got millions of people now enjoying the ability to purchase health insurance in an individual market with subsidies and that's something that's becoming really important to them. You've had employers also modify behavior accordingly. So I think this train has left the station big time on both the Medicaid front and on the commercial front. And if that's what's driving volatilities in the stocks, it's probably creating a terrific opportunity for people who look through that to the fundamentals and particularly in our case broad based growth across business lines, outpatient performing exceptionally well, Conifer really terrific, and we couldn't be more pleased with the opportunities that we have in front of us in all of our business segments.

Thank you. Our last question is from Darren Lehrich of Deutsche Bank. Please go ahead.

Okay. Thanks good morning everybody. So we appreciate the fact that you're calling out a number of the headwinds and frankly many of them have largely been known. So I guess I just wanted to flush out a little bit whether you're seeing something in the business into the fourth quarter that makes you just want to call that out a little bit more or if there is something in terms of how your cost initiatives might play out in 2015, that makes you less confident that you would be able to offset some of those things like you have in the past. So just want to kind of flush it out a bit more here.

Hey, Darren this is Dan, good morning. Listen we're really like what we are seeing from our trends so far, in October our volumes generally consistent with what we saw in the second and third quarter, so that's nice to see. And so we're continuing to execute on our various strategies and we're going to generate incremental growth. You're right in terms of those headwinds we talked about -- other than really the Detroit 30 million, the other items were known and there's no surprises there, it was just talking about some of the things that have been out there and just as a reminder. But when we look at it down the road with the incremental, benefits from healthcare reform, our outpatient development, our performance excellence program, the benefits from our outpatient and in tandem with our Conifer business, we really like what we see ahead.

Okay, that's helpful. And if I could just follow up as it relates to the cost side of equation, this is a really good quarter for that. Can you help just parse out a little bit more of where you are getting the most traction and maybe how some of those initiatives might carry forward into the out year?

Yes, we are really satisfied with our cost performance, really across the board, not only from a labor but also from other purchase services spend. And what we're doing and one of the things that the Vanguard integration it's not just applying Tenet's best practices to the Vanguard facility, that's also the best practices that Vanguard had. And we're applying them to the legacy Tenet platform. So we are generating incremental efficiencies really broadly across the platform and we have a team that's focused on this day in and day out and we really -- where we are generating a lot of growth in our earnings from that and we expect that to continue as we move into '15 and beyond.

I think, I mean on specific areas it's medical devices, its pharmaceuticals, its food and nutrition outsourced purchase services. I mean the guys are digging deep into every line item basically in the business and finding great opportunities across the board.

Thank you. I will now turn the call back over to Trevor Fetter.

Thank you, operator. And we have no further comments. I wanted to finish early so you have the chance to dial into the next call and we'll see all you in a matter of a few months. Bye.

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