34th Annual J.P. Morgan Healthcare Conference

Transcription

1 34th Annual J.P. Morgan Healthcare Conference Trevor Fetter, Chairman and CEO, Tenet Healthcare January 12, 2016

2 FORWARD-LOOKING STATEMENTS Certain statements in this presentation constitute forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. These statements are based on management s current expectations and involve known and unknown risks, uncertainties and other factors that may cause the Company s actual results to be materially different from those expressed or implied by such forward-looking statements, including, among others, changes in laws and regulations affecting the healthcare industry; adverse litigation, government investigations or regulatory developments; our success in implementing our business development plans and integrating newly acquired businesses, including our United Surgical Partners International joint venture; the ability to continue to expand and realize earnings contributions from the revenue cycle management, healthcare information management, capitation management and patient communications services businesses under our Conifer Health Solutions subsidiary; our ability to identify and execute on measures designed to save or control costs or streamline operations; and our success in completing recently announced acquisition and divestiture transactions. Forward-looking statements regarding financial performance provided in this presentation are derived from preliminary internal financial projections and are subject to revision based on the preparation of our fiscal quarter-end and year-end accounting and financial reporting processes necessary to prepare the financial statements. Because the financial statements for the quarter and year ended December 31, 2015 have not yet been completed and will be subject to closing adjustments and audit procedures, the estimates regarding these periods is subject to change, and actual results may differ materially from these estimates. These and other risks and uncertainties are discussed in the Company s filings with the Securities and Exchange Commission, including the Company s annual report on Form 10-K and quarterly reports on Form 10-Q. We disclaim any obligation to update any forward-looking statement in this presentation, whether as a result of changes in underlying factors, new information, future events or otherwise. NON-GAAP FINANCIAL INFORMATION This presentation may include certain financial measures, such as Adjusted EBITDA, that are not calculated in accordance with generally accepted accounting principles (GAAP). Adjusted EBITDA is a non-gaap term that is defined by the Company as net income (loss) attributable to Tenet Healthcare Corporation common shareholders before various charges, including litigation and investigation costs. Management recommends that you focus on the GAAP numbers as the best indicator of financial performance. These alternative measures are provided only as a supplement to aid in analysis of the Company. Reconciliation between non-gaap measures and related GAAP measures is included in the financial tables at the end of the Company s earnings releases for the year ended December 31, 2014, and for the quarter ended September 30, 2015, located on the investor relations section of Tenet s website, 2

3 2015 Strategic and Financial Highlights Positioning Tenet for Long-Term Sustainable Growth Created leading U.S. ambulatory services platform through acquisition of USPI ( ) Sharpened acute care portfolio through sale of Saint Louis University Hospital ( ) Redeployed cash generated from transaction proceeds to areas where we expect stronger returns, including acquisitions (hospital and ambulatory), and share repurchases Improved market position through Dallas joint venture with Baylor Scott & White Health and sharpened portfolio with sale of North Carolina facilities; raised about $500M in cash proceeds to-date ( ) June July August September October November December Conifer selected by prominent health system (Dartmouth- Hitchcock Health) to manage hospital and physician revenue cycle services (6.4.15) Expanded footprint in Coachella Valley, CA, with acquisition of Hi- Desert Medical Center ( ) Added Tucson market in Arizona through innovative Carondelet joint venture (9.1.15) Gained No. 1 position and regional scale in Birmingham, AL, through Baptist Health System joint venture ( ) Renewed multi-year agreement with largest health plan customer (Aetna) ( ) Increased scale and strengthened urgent care capabilities with USPI s acquisition of CareSpot Express Healthcare ( ) Delivered Adjusted EBITDA within or above Outlook range in Q1, Q2 and Q3 Generated improved Adjusted Free Cash Flow in 2015; raised Adjusted Free Cash Flow Outlook during the year Achieved $200 million of annual run-rate synergies following Vanguard acquisition, at high end of initial range 3

4 Tenet Healthcare Today 84 Acute Care Hospitals 20 Short-Stay Surgical Hospitals 474 Outpatient Facilities* 6 Health Plans 9 U.K. Hospitals and Clinics 20 Conifer Health Solutions Client Service Centers Conifer Clients in 43 States Acute Care: Leading Hospital Operator High-quality, low-cost provider Focused on high-acuity inpatient services #1 or #2 positions in twothirds of markets *Outpatient defined as ambulatory surgery centers, satellite emergency departments, diagnostic imaging centers and urgent care centers USPI: Leading Ambulatory Platform in the U.S. Higher-margin, faster-growing, more capital-efficient business Aligned with healthcare trends Pioneered three-way partnerships 4 Conifer: Leading Business Process Services Provider Industry leader in growing market Hospital and physician revenue cycle management services Value-based care solutions

5 Tenet is Aligned with Key Trends Shaping Healthcare Healthcare coverage expected to expand further through Exchange enrollment and Medicaid expansion, presenting growth opportunities for providers Tenet s uninsured and charity care admissions have declined by more than 20% since 2013* Consumers are actively seeking lower-cost solutions and better value as they assume more responsibility of their healthcare spend Tenet offers patients and payers high-value services through networks of hospitals and outpatient centers Volumes are shifting to outpatient settings due to technology advancements and increased demand for care that is more convenient, affordable and accessible USPI is the largest operator of ASCs in the U.S. The industry is migrating to value-based payment models with government and private payers shifting risk to providers 80% of Tenet s hospitals participate in ACOs and Conifer is a leading provider of ACO solutions Consolidation continues across the entire healthcare sector through both traditional M&A as well as joint ventures and partnerships Tenet is achieving regional scale with acquisitions and joint ventures *Compares YTD 9/30/13 to YTD 9/30/15 on a same-hospital basis 5

6 Overview of Acute Care Hospitals Operator of 84 hospitals that serve as the hub of Tenet s healthcare delivery system Licensed Beds by State + Focus on urban and suburban markets 60% of licensed beds located in states that have yet to expand Medicaid Other * IL 5% 11% GA 5% TX 26% High-quality, patient-centered care at a market-competitive price Positioning hospitals to gain market share as consumerism and narrow networks grow MI 8% AL 8% AZ 9% CA 12% FL 16% 84 Hospitals 30 22K 13 Beds + Licensed States Markets 2,100 Employed Physicians 170 Outpatient Facilities ** 80% of Hospitals in ACOs + Includes all hospitals operated by Tenet as of January 4, 2016 * Includes Missouri, South Carolina, Tennessee, Massachusetts and Pennsylvania ** Excludes USPI s facilities and includes Tenet s satellite emergency departments, hospital-based outpatient centers and freestanding urgent care centers that are reported under the Hospital Operations and Other operating segment as of January 4,

7 Strategic Priorities for Acute Care Hospitals Focus investment on higher-growth inpatient service lines Organize our portfolio to enhance scale and build strong regional networks through acquisitions, partnerships and joint ventures Improve operational effectiveness, capital efficiency and margins Continue to position our hospitals for participation in value-based care Deliver a strategically-relevant value proposition to commercial payers 7

8 Driving Growth in High-Acuity Inpatient Services Deploying service line experts to develop and enhance services in a consistent manner Growth in Key Service Lines * Adopting market-wide service line strategies so that neighboring Tenet hospitals offer complementary capabilities Utilizing employment and other physician alignment tools to support service line development and valuebased care capabilities 11.0% Neurosurgery 3.7% Orthopedic Surgery includes joint replacements, spine and general/upper extremity 3.6% Cardiac Surgery Focusing on consumer engagement, including more access points for patients seeking both information and care 3.5% Trauma *Compares YTD 9/30/15 inpatient discharges to prior year period 8

9 Improving our Hospital Portfolio St. Louis, MO Sale of Saint Louis University Hospital Joshua Tree, CA Acquisition of Hi- Desert Medical Center, pairing with two existing Tenet hospitals Hickory & Sanford, NC Sale of facilities to Duke LifePoint Healthcare (two hospitals) Tucson & Nogales, AZ Joint venture with Ascension and Dignity Health for Carondelet Health System (three hospitals) Dallas/Fort Worth, TX Joint venture with Baylor Scott & White Health (five hospitals) Delivering on Acquisition and Divestiture Plan 9 Birmingham, AL Joint venture with Baptist Health System (five hospitals) Atlanta, GA Definitive agreement for sale of facilities to WellStar Health System (five hospitals) Acute Care Hospitals in 13 States

10 Focused on Operating Efficiencies Enhancing Throughput 1 Optimizing Supply Chain Driving Labor Improvement Reduced Medicare Excess Days by 5% from 2014 Drove 11% increase in discharges before noon Emergency Room Improved patients discharged <120 minutes by 3% Reduced time to admit through ER by 14% Reduced patients who left without treatment by 4% Operating Room Improved OR On Time first case start time by 3% GPO consolidation effective 2/1/16 Insourcing service line purchasing experts Continue to directly negotiate physician preference items Savings will begin in 2016 and will ramp up over the next several years Drove 15% YOY reduction in contract labor utilization in Q3 15 (same-store) Optimized workforce Matched staff to volume and acuity 1. Q compared to 2014 year-end Capturing Cost-Saving Opportunities to Drive Efficiencies 10

11 Overview of United Surgical Partners International Premier Operator Leading operator of ambulatory surgery centers (ASCs) in U.S. 249 ASCs, 20 short-stay surgical hospitals, 20 imaging centers and 81 urgent care centers Attractive case mix: over 40% of revenue coming from orthopedics Superior payer mix: over 50% of cases are commercially insured Strategic Partnerships Pioneered three-way partnership model for development of ASCs 50 health system partners and over 4,000 physician partners Enterprise ambulatory solutions, including urgent care following CareSpot acquisition Creating Value Reinvesting free cash flow generation in outpatient acquisitions Compelling transaction multiples that are well below where Tenet trades Leveraging highly scalable ambulatory platform 11

12 Strategic Priorities for Ambulatory Care Segment Build and expand relationships with health system partners through further development of ambulatory offerings Capture consolidation opportunities of fragmented ASC market with compelling economics Leverage national presence, operational expertise and surgical capabilities to earn market share as care shifts to outpatient settings Be a leader in performing complex cases in the ambulatory environment in conjunction with our health system partners Deliver consumer-driven, value-based solutions to patients, employers and payers 12

13 Attractive Consolidation Opportunities in ASC Market Highly Fragmented ~$24B Market 1 Top Six Companies Own <20% Purchase centers at attractive EBITDA less NCI multiples and reduce multiple below 5x by year two Pursue acquisitions with and without not-for-profit partners Enter attractive new markets and strengthen existing markets Capture additional synergies as scale increases Source: 1. McKinsey & Co. 2. Company filings and Tenet/USPI research 13

14 Overview of Conifer Health Solutions A/R Management Clinical Integration Clinical Revenue Integrity Health Plans Consumer Experience Hospitals & Health Systems Employers Physicians National Scale and Scope 800 clients in 43 states 20 Service Centers 14,500 employees Jointly owned with Catholic Health Initiatives Impact: $28 billion in net patient revenue processed annually 24 million patient touch-points 5.5 million managed lives $20 billion medically managed spend No. 1 Black Book ranking for Value-Based Reimbursement, Accountable Care and Revenue Cycle Outsourcing solutions Population Health Financial Risk Management Industry Leader in Revenue Cycle Management 50% Larger than our Next Competitor 14

15 Strategic Priorities for Conifer Health Capture additional share of the revenue cycle management market that is currently insourced today Generate new client relationships through opportunities from USPI and acute care portfolio activities Expand revenue cycle management and value-based care service offerings through organic development and small acquisitions Leverage data from tens of millions of patient interactions to capture new opportunities and service the value-based care environment to drive competitive differentiation Develop services for the ambulatory segment, leveraging USPI s capabilities 15

16 Conifer is Well-Positioned to Succeed in Growing Markets Total U.S. RCM addressable market 1 Revenue, $ in Billions U.S. Employers value-based changing care services needs market Revenue by service segment, $ in Billions $52 $56 +4% CAGR $43 $20 +15% CAGR Outsourced $12 +10% CAGR $29 Insourced $31 $32 Population Health Wellness Consulting $21 $4 $4 $42 $6 $ Overall market size accounts for hospital and physician RCM Source: McKinsey & Co. 16

17 Partnership Strategy to Drive Growth Across Business Lines Providing Enterprise Solutions for Challenges Facing Not-for-Profit Health Systems Not-for-Profit Systems Represent 80% of U.S. Hospitals 17

18 Trusted Partner to Leading Not-for-Profit Health Systems Existing partners represent ~10% of the U.S. hospital industry, as measured by both revenue and beds 18

19 Demonstrated Record of EBITDA Growth and Margin Improvement Adjusted EBITDA Adjusted EBITDA Margin 2014 Adjusted EBITDA Q3 15 Adjusted EBITDA 2 Ambulatory: 4% Ambulatory: 21% Conifer: 10% Hospital Operations & Other: 86% Conifer: 11% Hospital Operations & Other: 68% 1. Midpoint 2015 pro forma Outlook. This pro forma Outlook assumes the following transactions occurred on January 1, 2015: USPI, Aspen, Hi-Desert, Carondelet, Birmingham, the Dallas joint venture with Baylor Scott & White Health, and divestitures in North Carolina, St. Louis and Atlanta. For more information on the pro forma Outlook for 2015, please see slide 11 of Tenet s Q3 15 earnings presentation, available at 2. Includes first full quarter of EBITDA contributions from USPI and Aspen 19

20 $0 $0 $1,041 $1,600 $3,200 $1,900 $2,800 $1,900 $430 $1,050 Fixed Rate Debt with Staggered Maturities Reduces Interest Rate Risk 94% of our debt has a fixed rate Over 80% of our debt matures in 2020 or beyond $4,500 $4,000 Fixed Rate Unsecured Debt, $7.780B 56% Secured Notes Covenant Overview Fixed Rate Secured Debt, $5.241B (1) 38% Floating Rate Secured Debt, $900M (2) 6% $3,500 $3,000 $2,500 $2,000 $1,500 $1,000 $500 $ Secured Unsecured Incurrence tests, not maintenance tests: secured debt to EBITDA ratios must be met only when incurring additional secured debt or refinancing existing secured debt. Ratios do not need to be maintained at all times and do not impact Tenet s ability to raise additional unsecured debt Ratio calculations are based on trailing twelve month EBITDA (not EBITDA less NCI) and allow for many adjustments, including the exclusion of non-recurring items and the addition of historical pro forma results for acquisitions As of September 30, 2015, Tenet had $6.251 billion of senior secured indebtedness; this includes the amounts labeled as Secured above plus $110 million outstanding on our revolving credit facility Tenet has the ability to raise additional secured and unsecured debt and our capacity to borrow additional secured debt grows as Adjusted EBITDA grows As of September 30, 2015, we had approximately $1.4 billion of capacity to borrow additional senior secured first lien notes under our 3.0x incurrence test We expect 2016 Adjusted EBITDA to exceed $2.3 billion, which is the midpoint of our 2015 pro forma Adjusted EBITDA Outlook 1. Excludes $758 million of capital leases and mortgage notes as of September 30, 2015; these amounts are not considered secured debt for our ratio calculations. 2. Represents our $900 million of floating rate senior secured notes due 2020; excludes amounts drawn on our revolving credit facility due

21 Capital Allocation and Refinancing Remaining Flexible in a Changing Environment No near-term need to raise additional debt in the high-yield market Our next maturity is $1.0 billion of senior secured notes due in 2018 Free cash flow generation expected to be sufficient to self-fund our cash needs, including: Surgery center acquisition program; historically, acquisitions have averaged approximately $150 million annually Estimated $1.5 billion in payments from 2016 to 2020 to purchase the remaining 49.9% Welsh Carson ownership interest in USPI the payment in 2016 is expected to be in the range of $125 million to $135 million Cash distributions to minority partners Asset sales are proceeding as expected continue to anticipate $1 billion of net proceeds To date, generated approximately $500 million in cash through asset sales Expect to complete Atlanta transaction as early as Q1 and receive approximately $575 million in cash, liquidate approximately $75 million of working capital (as of September 30, 2015) and reduce our indebtedness by approximately $86 million from the elimination of capital lease obligations Of the $1 billion in net proceeds, approximately $130 million is a result of the elimination of capital leases Prioritizing ambulatory acquisitions over new hospital construction Complete two large hospital projects (El Paso and Detroit Children s Tower) in early 2017 and then reduce capital dedicated to new hospital construction Use increased free cash flow to fund USPI payments and pursue outpatient acquisitions at very favorable multiples (below 5x EBITDA less NCI multiples by year 2) Continue to review Conifer tuck-in acquisitions, hospital acquisitions and joint ventures to strengthen our portfolio Target leverage of 4x to 5x EBITDA: De-lever primarily through EBITDA growth Leverage should decline to approximately 5x by the end of 2018 Net debt anticipated to remain in the targeted 4x to 5x range thereafter $500 Million Share Repurchase Represents ~20% of our Market Cap 1 1. As of market close on January 8,

22 Strong, Integrated Business Model: Well-Positioned for the Future Solid positions in our three operating segments anchored by acute care hospitals Offering solutions to help health systems navigate the rapidly changing healthcare model Growth channels for each segment through M&A and partnership activities Achieving synergies through shared services Expect greater proportion of EBITDA from highergrowth, higher-margin segments Positioned to deliver long-term value for shareholders 22

23