Tenet Healthcare Corporation Aktie

[Audio Gap] conversation with Tenet Healthcare. Presenting today, we have Saum Sutaria, who's the Chairman and CEO; Sun Park, who's the CFO; and Will McDowell from Investor Relations. If you -- I don't know, do you want to start off with some exciting forward-looking statements?

Sure. Thanks, Kevin, and thanks, everyone, for joining us today. In the course of our conversation today, we may be making some forward-looking statements. In the context of those statements, I'd suggest you refer back to our cautionary statement, included in our most recent earnings release as well as other SEC filings. Back to you, Kevin.

All right. Thank you. Yes. So I guess maybe if we're going to start off, I think there's a lot of focus on utilization and volumes. And kind of given all the disruption that kind of happened in Q1 from weak flu, from weather in certain markets, can you talk a little bit about how you're seeing kind of core demand in your markets today?

Yes. No, that's a good place to start. So first of all, I mean, for us, I think this was a pretty straightforward quarter. The volume from the respiratory season in the first part of the quarter in January was obviously lower than what we saw prior year. But sequentially, every month got better. So if January was below expectations, March was above expectations, and the trend line improved nicely.

And importantly, for us, like we didn't have a situation where month-to-month, we were trying to climb out of some kind of earnings hole. We flexed appropriately in January. We felt very good about the earnings coming out of the first month. We accelerated going into the second and third month.

And obviously, in the acute business, which is what I think you're generally referring to, we ended up outperforming in the quarter. And our SDP environment and other things were pretty clean from that perspective relative to our guide. So we were really pleased coming out of the first quarter with a beat of $50-ish million on that segment and the things we were able to achieve there.

Importantly, our new hospitals that we had built and had ramped up in Florida, for example, they're ramping up nicely. So we feel very good about that. Our physician practices, which we monitor very closely, are busy because they're a precursor to what may happen in a hospital down the line. So we feel very good about our physician practices, mostly were specialty-based right, are busy.

That's a good sign for USPI. USPI had a good utilization quarter. We grew the acuity. We grew the revenue at the high end of our range. And despite the storms and whatnot, we were able to recover to the point where we had, again, a good quarter that beat our expectations by a little bit and launched us off into the second quarter.

So I think we're comfortable with where things stand from a utilization perspective after the first quarter. And I think probably the most important statement related to that is we're comfortable that the algorithm that completes the year to our guidance is intact. And in fact, we feel more bullish about it today than we did at the beginning of the year because of what we've learned in the first quarter about the ability of our operations to deliver what they need to deliver.

Yes. So maybe that's the next place to go to because Q1 had so many moving pieces as far as like the Conifer deal and SDPs and all that. So like when you think about those moving pieces, what do you think the core growth was at Tenet kind of in Q1? And what does that imply kind of for like the rest of the year?

Yes. So we've been getting this question a lot. I mean, I think there were a couple of normalization items, obviously, right? We had the Conifer $40 million in our Q1 this year, and then we had $40 million of out-of-period Medicaid payments in Q1 of '25. So basically offset each other.

Once you normalize for that, I mean, the other big change was obviously HICS impact, right? And we talked about it being, let's call it, down about 10%. As a reminder, we sort of thought about the full year impact to be about 20% impact. So certainly better than what we had thought.

But I think taking a step back, it's reasonable to think that Q1 was whatever it is, and then it will get worse over the course of the year due to the grace period dynamics and effectuation dynamics and things like that. So I think all that, as Saum said, is within our expectations, and we've accounted for that, and we feel good about being able to manage all that.

Your question about core growth, I mean, I think the only context I would add beyond the actual numbers is that our Q1 of '25 was an exceedingly strong quarter. Just to remind everyone, we were at 17.5% margins on the Hospital segment. Offsetting that -- there were some probably some timing amounts between our Q1 and Q2 of last year.

So when we take a step back, we're not necessarily focused on the algebra of Q1 versus Q1, Q2 versus Q2, all those things. We take a look at our performance in Q1, how we were able to flex our operating expense management with volume. And as Saum said, if you sort of annualize our current trends, we feel very comfortable about the rest of our guidance.

Okay. Is there anything else that you would point to just as like anything ramping up through the year or anything that you would say should be getting better sequentially versus just a normal continuation of year-over-year trend each quarter?

Well, I think the first thing is that the growth strategies that we have in place -- again, I think we're referring to acute. The growth strategies that we have in place, including the focus on a high acuity business, where we've put capital behind that makes sense. And we see ourselves continuing to deliver results and expansion of services in those areas.

Our, as I said, physician practices and physician affiliations, which in many of these markets have been building, makes sense. As you know, we've stepped up our capital expense in the RemainCo hospital business after our transactions from a couple of years ago. So we feel more confident about the growth opportunities there. So that's a positive.

And I think in the fourth quarter call, not the fourth quarter '25 call, we did outline that we had made plans over the course of 2025 for things we would do from an expense reduction standpoint, both what I would describe as traditional levers and more innovative levers with technology, AI and other things. We're executing on those, and those will build over time. It's not like we finished all that in 1 quarter, right? So those will build over time.

So again, I come back to -- when we look at the balance of the year and we see obviously going from an algebraic Q1 to Q1 to a 10% full year core growth, right, from '25 to '26, we're more confident now than we were at the beginning of the year that we're on that trajectory, and we see both the utilization and expense opportunity to deliver on that.

Yes. So I guess just talk about the utilization again a little bit more. So when we look at least the public company average volume growth, like Q2 2023 was kind of the peak from a hospital volume perspective, and it's been decelerating. It's back to target. So it's not like we were below target in 2025 per se, but we were back to the long-term averages again. And now we've got some headwinds from a coverage perspective. Like what makes you think that like 2026 could be a normal year from a utilization perspective, we won't see something below that?

Well, let's talk about utilization in the industry as I see it anyway, and then let's talk about Tenet. Because I think probably the most important response I would give to your -- the peak was whatever quarter you said in 2023. That wasn't the peak of our -- Tenet's Hospital segment performance, right? Think about it, right? We've improved margins, improved earnings, grown the business and successfully built stronger platforms since that peak of utilization, right?

Because I think -- and this gets to the second part of my answer, which is the strategy which is based not upon chasing volume, but upon high acuity business. And really, what we guide internally to and externally to at USPI is revenue, right? We're looking to grow revenue and grow earnings in a way that improves over time, return on invested capital in the business by being rational about what we're growing and having a more focused strategy.

And that strategy coming out of COVID, we said it at your conference 4 or 5 years ago, I think. We're not chasing pre-2019 volumes exact because we believe the market has changed. The benefit of building a platform around patients with multiple chronic illness and high acuity gives us a degree of efficiency between the growing Medicare segment and the multiple chronic illness commercial book and those in Medicaid who have the same sort of medical problems with one set of investments in technology, in physician types, in service lines that we can build and grow more efficiently. And that's how ROIC has improved as the margins have improved.

From a long-term perspective -- and it actually goes back to something we started saying here at your conference a number of years ago. Look, we always said that our view was COVID unfortunately caused the mortality of about 1 million to 1.5 million people prematurely that were in the last 5 years of their life. And therefore, there was a demand hole created, and that demand was going to rebuild over 5 years as people got back into the last 5 years of life. And you would have outsized utilization, right? And that's what we've had. And here we are 5 years later, and it's normalizing, okay?

So I think that thesis holds. And what have we done over the last 5 years? We've improved the business, but we've also ridden a utilization wave. We always knew that going into '26, '27, '28 and beyond, the algorithm to build and manage earnings in the acute care hospital segment would have to change to a growth strategy and an efficiency strategy at the same time in a balanced way that would grow earnings. And that's why we began to plan and make that pivot in 2025, and now we're delivering on that pivot. And I think that can be very attractive in the acute segment for the next 4 or 5 years.

And then, of course, our ace in the hole is that half of our EBITDA is coming from a line of business that's not affected by Medicaid, not affected by the exchanges that much, has significant growth ahead of it in the ambulatory segment. And so the company's progress despite the headwinds can still look good. That's how we're thinking about this long term. I actually think our business diversification, USPI acute, is more powerful and advantageous to us in the next 5 years than it has been the last 5 years, right?

Yes. I mean, that's definitely one of the things we like about Tenet right now. But I guess just to stay on the hospital side before we pivot to the USPI side, you talked about deemphasizing low acuity stuff, focusing on the high acuity stuff. What should we be thinking about? What service lines are we talking about here as far as where the investment is and where the growth is going to be for you guys?

Yes. I mean, broad-based cardiovascular, significant amount of work in neurosciences, both stroke and degenerative neurological disease, surgical and medical, significant expansions in robotic surgery and what's happening there, cancer surgery, especially with the incidence of a number of types of things post-COVID that we've seen escalate are important activity in interventional radiology labs and other things, the delivery of not just diagnostics, but therapies in that market. We're investing in that. Those are the types of services that we're focused on. In addition to like trauma and like the traditional high acuity, right?

Yes. Okay. And then you mentioned that the exchange subsidies were kind of running at about half of what you thought they might be in Q1. Is that your experience? Or is that what you were accruing to? Because I know there's a lot of questions about the paid premiums as far as Q1 goes. So how are you thinking about that?

Yes. That's the experience we saw in our admissions in our mix, as well as what we saw in our revenue impact as well. And just because we've gotten some questions on these as well, just to kind of say it here. We take very careful assessment of all of our payer groups, obviously, including exchange in the last quarter, and we feel we're very appropriately reserved from a revenue basis. So I think our metrics are pretty parallel between admissions and revenue.

Okay. And then when you think about that impact, did it change at all through the quarter? Like you talked about Q1 being lower and then ramping through the year. Like did you see a ramp through the quarter? Or is that...

Yes. So on a volume basis, we talked about that. From an exchange basis, we looked -- I don't think there were any discernible patterns that we could really point out. We'll obviously find out more as we get into Q2.

Okay. And then when we think about USPI, which is a unique business for you as far as how big it is a part of your business versus your hospital competitors. The shift to outpatient has been this thing we've been talking about for a long time now. In some cases, you could argue it's been going on for 20-plus years. Like, where are we in the shift to outpatient? Everyone loves their baseball analogies. What inning are we in?

Yes. Well, I mean, I don't think -- like it's almost -- baseball analogies, I'm not sure anybody has ever gotten -- we've been perpetually in the like third or fourth inning, right? I mean -- I actually think the next 20 years, we're going to see the same thing. It's just going to be higher acuity work in the ASCs.

You have to think about the market this way, which is that you have traditional service lines in the ASCs that continue to grow because of population demand and other things, but there's also a lot of replenishment work you have to do in those traditional service lines. As doctors retire, you bring new ones on, et cetera. And so the growth comes mainly from a demographic perspective, right? Then you have new service lines or newer service lines in the ASCs that are still ramping to their full potential in orthopedics, in spine, in robotic surgery, in urology.

And so the reason we spend a lot of our time disproportionately in those areas, there's lots of new doctors you can bring into the ASC environment in those areas, right, that have never been there before. And that creates a different opportunity to grow versus some of the high-volume but low acuity quick type of procedures that used to dominate in our ASCs.

And so that shift is really important because what that shift is doing aside from short term, strategically giving us a better base of earnings and a better value proposition for the payers because that work comes out of hospitals, it's giving us a runway to grow new doctors in an ASC business. Whereas if we were traditional service lines only, you spend more time replenishing than you do growing, if that makes sense.

Yes. No, it definitely does. Yes. So I guess maybe thinking about it that way, when you think about those lower acuity, the GI [ ortho ] penetration from a doc perspective, like where is that versus like an ortho or a cardio?

Yes. Very different, right? Very different for ambulatory gastroenterologists who have, whatever, 5 to 10 years of practice because they've earned enough to be able to buy into an ASC. Many of them have ASC affiliations already, right? Whereas in orthopedics or in spine or in other areas, you have a lot of doctors that can still enter the market. Both are great parts of the portfolio, but they require different work and different thinking. And as you think about building for the future, you can't take one at the expense of the other. You have to do both.

Yes. And then when we think about that business you mentioned, I think everyone right now is thinking ortho is still a big driver, but maybe it's getting towards -- is it getting towards the end of the inning analogy? And then is cardio ready yet? It wasn't -- it seems -- like people talk about cardio, but it also kind of seems like that's maybe a harder lift in some ways. So how do you think about that trend?

First of all, I think there's a lot of growth opportunity in orthopedics. And even in just hips and knees, let alone shoulders and ankles and other things, the inpatient-only list is evolving. I think there's opportunity in all of those areas. But just frequency-wise, there's still more opportunity in growing hips and knees. And even at our scale, we're still reporting very attractive growth rates in those areas. It tells you there's demand if you can build the right platform for the doctors to work in.

Cardiac is, as you know, for, again, multiple years and probably here as well, I've said I don't think this is going to be transformative over the last 5 years. It hasn't really been, and there's reasons for that. I mean, many of the doctors are employed by health systems. It's a heavy Medicare predominance. It's expensive to build those ASCs because you have to have a cath lab and a C-arm and all of the radiation protection. It's different than just buying some colonoscopy units or whatever, right? So the math on the economics is a bit different.

It will grow. It will grow more slowly. We're heavily invested now in really building out unique EP models to bring more EP into the ASC setting. We're partnering with some manufacturers on that to really design a good model, and we're excited about that. But it's going to be a multiyear build.

Yes. And then can you talk a little bit about your acquisition strategy? You guys have already earmarked $250 million for deals. What do you look for when you look for M&A within USPI?

Yes. I mean, we're looking for very good physician partnerships, ones that are looking for healthy growth rather than cashing out. We're looking for doctors that will work with the type of quality, safety compliance protocols that we expect. Our complication rates in our ASCs are much, much lower than industry average. We take that seriously.

And one, doctors that want to be in network with payers, right? We are insistent that we're in network with payers. And we contract on a freestanding ASC basis, not getting into HOPD and other sorts of things in the ASC business. And those types of things, when you combine it with the high acuity focus, we're bringing -- that's how we tend to be deploying our energy with our development team.

Yes. Actually, can you just -- I want to have you say that again, the second part because I get the question a lot about site neutrality because I think that there's a conception among some that, oh, you're a U.S. -- you're a hospital company and you've got surgery centers, that must mean you have a lot of site-neutral exposure. Can you just talk about your site-neutral exposure?

We have no site-neutral exposure. Every one of our ASCs is on freestanding rates today. I mean, I really -- maybe there's 1, I don't know, but I'm not even sure there's 1. So I think all of our ASCs are on freestanding rates today.

And of course, we do have surgical hospitals within the USPI portfolio. So they have some site neutrality risk. But remember, with site neutrality, at least my opinion, surgery is not the first area. Imaging, lab, those sorts of area. Well, these specialty surgical hospitals, they don't do a lot of that work.

And I'll add to this by making the comment about Tenet on the acute side. Our business model at Tenet is not focused on driving HOPD work, right? I mean, we're not a large employer at scale of primary care that then is driving business into an HOPD diagnostics environment. We use freestanding diagnostics where we own things like imaging and other things. They're generally in the freestanding arena. And so as an entity, we have, I think, less site neutrality exposure than one might assume because of our business model choices on the acute side and because of our contracting strategies on the ASC side.

Okay. That's perfect. And I guess as far as the inpatient-only list, because you have a hospital business and a surgery center business, like how do you think about the puts and the takes as far as that shift goes?

I mean, yes, you're going to win some and you're going to lose some, but the upside is on the ambulatory side, right? I mean I'm just saying, like I don't -- you can't fight that. You have to have a strategy in the acute care hospitals -- that is our belief, you have to have a strategy in the acute care hospitals that's focused on enough acuity that really drives the success in that market such that the siphon of certain low acuity things doesn't disrupt your hospital success strategy. That's why -- that's another reason we're focused on that high acuity business. Right? Because it's -- that's not moving outpatient.

Yes. So actually, just to go back to the M&A commentary, what do you think as far as multiples go? It sounds like you've got a very particular criteria. It sounds like these are great assets. What's the pressure on multiples right now?

On the ASCs?

ASCs, yes.

No, same. I mean I don't think we've seen a substantial change in the multiples. Of course, we focus on the post-synergy multiple more than we do the acquisition multiple. Some places, we can do better than others when we improve supply costs or improve throughput or bring them in network into the plans.

So internally, we think that way. But we're not seeing multiple -- we haven't really seen multiple changes in the acquisition environment for the assets we're buying for many, many years. It's really been in a generally stable range.

Yes. Your Q1 deal flow is pretty strong, like -- so should we expect then, the $250 million to be kind of a low number? Or is that just timing, when things come together?

Yes. I mean, it's -- obviously, it's always lumpy quarter-to-quarter. But yes, you're right that we would, of course, based upon Q1, love to target a higher number for the year, right? I mean, as long as there are assets with the characteristics I described earlier and opportunities that are there, and we have a pipeline that can support it, no question, we would continue to build and grow above the guide, if that's what it ends up being.

Yes. So I guess one of the questions that I've had about the company is just the cash balance. Like -- it just seems like you've got a lot of cash there. You've had it for a little while. Are you trying to signal something? Like, is there something we should be thinking about from a larger transaction perspective or capital deployment? And why not -- your debt is now callable. Why not take down the 27-plus tranches?

Yes. So first of all, I think from a debt management standpoint, that's on the menu, right? And I think we're focused on a couple of things. One is just making sure our annual debt, either repayment or refinancing stacks, there's no one big year where we're under pressure, right? We did some of that when we pushed out some of our unsecured in '28 to a much later period last time. So those are kind of the longer-term strategies we're focused on.

And then there's -- the interest rate environment right now is volatile, unpredictable, whatever word we want to use, right? So I fully expect as we get closer to the maturity date, we'll make appropriate decisions on whether we pay down debt or not. And if you look at our near-term debt stack, the interest rates on those instruments are actually pretty good, right? They're from a different generation of financings. They're in the 4% and 5% range. So with cash on balance sheet versus that, post-tax basis, it's actually pretty -- it's not enough to really make a huge difference. So we'll make the appropriate decisions there.

On the cash balance side, you're absolutely right. We're in a very strong cash position. We're generating a lot of free cash flow after NCI. This year, we're expecting about $1.7 billion free cash flow after NCI. We also have a lot of cash still coming from the Conifer transaction over the next 2, 3 years.

So a couple of things. One, our cash position right now isn't meant to signal some sort of -- we're hoarding our acorns for something, right? We fully recognize that our shares at current multiples are -- we feel highly undervalued. So we're going to be aggressive, repurchase of our stock. As Saum said, there's -- USPI M&A is always priority #1 for us from a capital allocation standpoint, all those things.

So I think over a course of reasonable time over multiple quarters, if you take a look back at us a year from now, 1.5 years from now, you'll have seen us utilize our balance sheet in a good way. On a monthly basis, on a quarter-over-quarter basis, it may look like we're carrying a cash balance in a certain period. So -- but our longer-term strategy on capital allocation is -- hasn't -- one, hasn't changed. And then two, I think we can -- we have a lot more flexibility.

Yes. So I guess maybe just remind us all. So debt leverage targets that you have?

We haven't publicly talked about a specific leverage target, but we're sitting at 2.8x EBITDA less NCI. We're very comfortable operating in that range. And certainly, we could flex up and down several half turn off of that and still be in a very comfortable position. So we're good with where we are.

Yes. Is there -- I mean, all the capital has -- I'm trying to think. I guess you've built maybe a hospital, but like pretty much all the capital has been towards the USPI side of things. Like would you be buying hospitals? Is there -- or is that just not the focus for the company?

No, no. We spend capital in our hospitals for both maintenance, IT and strategic initiatives every year, right? I mean -- and so there is a significant CapEx that goes into the -- maintaining a very strong Hospital segment, which is obviously very important to maintaining a very strong USPI. So there is capital that goes in there.

Yes, M&A capital on the Hospital segment has not been high. We haven't really been in the acquisition market for hospitals that way. I mean, if opportunistically, something were to come up that's a natural extension of a market that would be accretive to us, we would, of course, look at it. Look, we've proven the ability to buy things, integrate them and make them perform. We do that reliably, right? And we have a process that we run from an integration.

So we're not afraid of it. But there hasn't really been a need to. We have built a few hospitals, as you point out, and those are doing very well. That's important because that hasn't always been the case with the company, but it is happening consistently with the hospitals that we've built. They're doing well. And so if there are natural extension opportunities on big market positions we have where there's population growth, commercial population growth, we would examine them for expansions, but in targeted type of builds, right? They're specialty hospitals, almost.

Yes. And then one of the themes that is capturing everybody's attention is AI. If you think about -- what do you guys think about the opportunity for AI for you, I guess, in each business, if it's a separate opportunity? And then is there anything that people are getting ahead of their skis on as far as what we're all excited about AI, are we too excited on XYZ?

Yes. Well, let me just say that I think there's a dialogue that goes on out there about -- are certain industries or certain companies going to end up being winners or losers from AI. And that's a pretty stark -- winners and losers, right, from AI. And I think for any company or any industry like ours, there is a chance that you're going to win on some things and lose on some things depending on who is applying the AI and how they're applying it.

The imperative on us as a management team is to grow our capabilities and expertise to drive the company to become a winner from AI, period. Right? And if that takes different talent or different leadership or different, that is an opportunity we have to capture, and we have to be open to that.

Now where are our opportunities? We have a lot of opportunity in Conifer. We've talked about that. I think people understand conceptually, the automation of the payments environment in particular parts of the chain in the revenue cycle that could materially reduce the cost to collect. That is a game changer not only for our own economics, but also since we have a third-party service company, the ability to go to market with a very different value proposition at a cost to collect 1% below what we charge today. That's a significant movement in the industry if we can get there. So we are absolutely focused on that.

Then there are things in the -- what I would describe as overhead and corporate function environment. So it's not just overhead, but the things we do in compliance, in accounting, in audit. That because we operate in a much more standardized model, we have the ability to more easily apply these tools, right?

So if you just -- the simple concept I think of is you have engineers that have this incredible ability to apply these AI models, but they don't know anything about your business and the workflow and what people do that makes that workflow work. So you have to be able to partner with them to do that. Now if you enter an environment with an engineer and you have 10 markets and you're doing length of stay management 10 different ways in 10 markets, guess what, that engineer is going to have a very hard time helping you.

On the other hand, if you're like us, where you've spent years standardizing our workflows in Tenet across almost everything we do, we have more ability to utilize the capacity and intellect of those engineers to help us with our people to build and use those tools. That's why we're seeing some early benefit from doing this.

So I gave an example the other day on the call about analytics in Conifer and standardizing and automating some of those analytics using AI tools. Well, we produce the same reports for ourselves internally in every one of our clients. They're not different. So we were able to do that and reduce that cost by 60%. Now is everything going to get reduced by 60%? I don't think so.

But the point is that we have to be open to doing that and trying it. And I think the most important thing that we've put in, in the company right now is the governance that allows us to review everything and decide what moves forward, but more importantly, what pilots do you kill early because there is no business case. Otherwise, you spend a tremendous amount of money on pilots that aren't going anywhere. And that governance is important to making this successful in terms of how we deploy AI. And with that, I think we're going to be a net winner from this. And it will build over time.

Yes. And this -- maybe the way you just described that is the answer. But I think when we think about AI, I think one of the powerful things about it is that it is AI. And I think there's a conception potentially that everyone can roll it out and everyone can get the same benefits from it because it will help you get there. And you're arguing that there's a potential comparative advantage you can outcompete the rest of the industry potentially in what you're doing.

Well, I believe that. I think that from what I have seen and experienced and immersed myself in, it is very important to be able to combine engineering capacity with real workflow know-how. And the more the workflow is standardized, it's been easier for them to operate in that environment to help us build tools.

Where it's less standard, they, of course, struggle a bit more to help you build that. And I think that, that work that we have done over the last few years, whether it be in Conifer or standardizing our clinical operations or other things or even some of our -- the way our corporate functions work and do audit or compliance around the company will give us more opportunity to accelerate using those tools.

All right. I think that's all we have time for. Thank you very much.

Thank you very much for inviting us.

Good morning, and welcome to Tenet Healthcare's First Quarter 2026 Earnings Conference Call. [Operator Instructions]

I'll now turn the call over to your host, Mr. Will McDowell, Vice President of Investor Relations. Mr. McDowell, you may begin.

Good morning, everyone, and thank you for joining today's call. I am Will McDowell, Vice President of Investor Relations. We're pleased to have you join us for a discussion of Tenet's first quarter 2026 results as well as a discussion of our financial outlook. Tenet's senior management participating in today's call will be Dr. Saum Sutaria, Chairman and Chief Executive Officer; and Sun Park, Executive Vice President and Chief Financial Officer.

Our webcast this morning includes a slide presentation, which has been posted to the Investor Relations section of our website, tenethealth.com. Listeners to this call are advised that certain statements made during our discussion today are forward-looking and represent management's expectations based on currently available information. Actual results and plans could differ materially. Tenet is under no obligation to update any forward-looking statements based on subsequent information. Investors should take note of the cautionary statement slide included in today's presentation as well as the risk factors discussed in our most recent Form 10-K and other filings with the Securities and Exchange Commission.

And with that, I'll turn the call over to Saum.

All right. Thank you, Will, and good morning, everyone. In the first quarter, we reported net operating revenues of $5.4 billion and consolidated adjusted EBITDA of $1.16 billion, which represents an adjusted EBITDA margin of 21.6%. We are pleased with the start to the year, performing above our previously provided expectations. As anticipated towards the end of last year, the operating environment is dynamic. There are payer mix shifts, seasonal effects and insurance enrollment uncertainty in the exchanges and Medicaid that impact demand. Despite these challenges, we delivered a clean quarter characterized by disciplined operations, benefits from execution on our previously described expense opportunities, stable volumes despite headwinds and as a result, significant free cash flow generation.

USPI generated $484 million in adjusted EBITDA, which represents 6% growth over the first quarter of 2025 and a robust 22% of our full year 2026 adjusted EBITDA guidance. We are pleased with USPI's start to the year as we set an aggressive EBITDA target as a percent of the full year for the first quarter that we were able to exceed. We have seen a pattern over the last few years with a modest shift towards an increased distribution of cases and, therefore, earnings into the first quarter. Given our focus on acuity, same-facility revenues grew 5.3% at USPI, highlighted by double-digit same-store volume growth in total joint replacements in the ASCs over prior year. Our operations in the first quarter were somewhat impacted by two major winter storms and uncertainty from vendor cyber attacks, however, our operating teams managed through them and were able to reschedule many of the procedures lessening the overall impact in the quarter.

We have a robust pipeline of assets interested in joining USPI this year. As such, we've had a particularly strong start to the year investing $125 million in the first quarter to acquire 7 ASCs. Additionally, we have commenced patient care at 3 de novo centers. This represents half of our targeted full year spend already completed in the first quarter.

Turning to our Hospital segment. First quarter 2026 adjusted EBITDA was $678 million, which was nicely above our expectations and represented 27.5% of our full year 2026 adjusted EBITDA guidance. We reported 16.7% EBITDA margins in the quarter, which were driven by disciplined expense management and growth initiatives, which offset the expected impacts of unfavorable payer mix and reductions in exchange enrollment. The results in the quarter reflect no significant changes in supplemental Medicaid program revenues compared to our original expectations.

We have seen declines in exchange coverage with same-store exchange admissions down about 10% compared to first quarter 2025, but not yet at the level we assumed as the average for the full year. We continue to assess the overall environment for effectuation rates and the impact on future exchange volumes, but we believe we have the tools to manage this impact under a variety of scenarios. We continue to make investments in technology to enable growth and streamline operations. We are executing on the expense initiatives that we discussed on our fourth quarter 2025 earnings call and are recognizing the benefits. These initiatives include engagement tools, which are improving recruitment and retention efforts, process automation to address length of stay and capacity controls, which improve our clinical throughput. Among these things, we are executing on AI-related capabilities in our hospitals, physician practices and the global business center to drive further efficiencies, most of which have been useful for supporting extending the productivity metrics of our team.

Importantly, we have learned that while all of these tools will not work in a pilot state, setting up a governance that either green lights for rapid scaling up or red lights for shutdown help us remain focused. We have included third-party EMR integrated solutions with -- which will increase our clinician productivity, decrease administrative burden and improve patient access through programs such as ambient scribe, automated discharge summaries and autonomous professional fee coding in various pilot programs. Additionally, we have increased back-office AI automation, which is improving productivity and consolidating third-party spend to reduce costs. For example, we have almost doubled or more the productivity of our Conifer analytics team.

As we look forward, we are actively identifying and piloting agentic workflows to transform further business processes. So far, our work has enabled us to more than offset the expected and unexpected headwinds that arose in the quarter. Regarding full year 2026 guidance, as in prior years, at this time, we are not addressing the underlying outperformance in our business units during the first quarter. We're pleased with our year-to-date performance, we're reaffirming our full year guidance, and we'll address our expectations for the full year in the future. As a reminder, after normalizing for the non-recurring items that were reported in 2025 in the first quarter of '26 and excluding the headwind from the expiration of the premium tax credits, our 2026 adjusted EBITDA is expected to grow at 10% at the midpoint of our range. And finally, we continue to see significant opportunity to utilize share repurchase at our current valuations. We repurchased 1.35 million shares for $318 million in the first quarter of 2026 and expect to continue to deploy capital for share repurchase over the balance of the year.

In conclusion, we adapt to the environment, focus on strong clinical quality recommit to helping our doctors have an easier environment to operate in and focus on delivering reliable earnings in this transitionary period. Our balance sheet is strong, and our diversified asset mix with a focus on ambulatory care gives us a significant strategic advantage in the market as we look ahead.

And with that, I will turn it over to Sun for more details. Sun?

Thank you, Saum, and good morning, everyone. We had a nice start to the year in the first quarter of 2026, generating total net operating revenues of $5.4 billion and consolidated adjusted EBITDA of $1.162 billion. First quarter adjusted EBITDA margin was 21.6%, driven by disciplined operating expense management, including good progress on the expense initiatives that we outlined last quarter.

I would now like to highlight some key items for both of our segments, beginning with USPI. In the first quarter, USPI's adjusted EBITDA was $484 million, with adjusted EBITDA margin at 36.7%. USPI delivered a 5.3% increase in same-facility system-wide revenues with net revenue per case up 5.6%, and same facility case volumes down 0.3%. As Saum noted, volumes were impacted by the winter storms early in the quarter, and while we were able to reschedule many of the procedures, there was an overall impact.

Turning to our Hospital segment. First quarter 2026 adjusted EBITDA was $678 million, resulting in an adjusted EBITDA margin of 16.7%. This represents 27.5% of our expected full year '26 adjusted EBITDA. Same-hospital inpatient adjusted admissions rose 0.6% in the quarter and were impacted by a decline in respiratory admissions of 41% compared to first quarter '25. This driver represented a 90 basis point reduction in admissions growth in the quarter. Revenue per adjusted admissions declined 1.5% year-over-year in the first quarter '26 due to the impact of reduced exchange volumes within our overall payer mix and the year-over-year impact of the $40 million favorable out-of-period supplemental Medicaid revenues that we reported in the first quarter of 2025.

Exchange revenues represented about 6% of consolidated revenues in the first quarter of '26, a 9% decline from first quarter of '25. Our consolidated salary, wages and benefits was 40.5% of net revenues in the quarter, consistent with our performance from the prior year despite the net revenue headwinds, demonstrating our ability to flex our operating model. Overall, operating expenses per adjusted admissions were also favorable to our expectations, which contributed to our outperformance in the quarter. In the first quarter of '26, we recognized a onetime approximate $40 million favorable revenue adjustment as a result of the completed Conifer transaction. This amount was included in our original guidance. And I would also note that this adjustment is not included in our revenue per adjusted admission calculations. We recorded supplemental Medicaid revenues of $304 million in the first quarter of '26, consistent with what we assumed in our guidance.

Importantly, we did not benefit from out-of-period supplemental Medicaid revenues related to prior years in this quarter. We're pleased with our ability to manage through the various dynamics throughout our first quarter and feel we have the ability to deliver on our commitments over the balance of the year.

Next, we will discuss our cash flow, balance sheet and capital structure. We generated $978 million of adjusted free cash flow in the first quarter. And as of March 31, 2026, we had $2.97 billion of cash on hand with no borrowings outstanding under our line of credit facility. Additionally, we have no significant debt maturities until late 2027. And finally, during the first quarter, we repurchased 1.35 million shares of our stock for $318 million. Our leverage ratio as of March 31, '26, was 2.24x EBITDA or 2.83x EBITDA less NCI, driven by our strong operational performance and financial discipline. We remain committed to maintaining a deleveraged balance sheet and believe that we have significant financial flexibility to support our capital deployment priorities and drive shareholder value.

Let me now turn to our outlook for 2026. As Saum noted, we are not making any adjustments to our full year 2016 outlook at this time. While we had strong fundamental outperformance in the first quarter, have continued confidence in our ability to achieve our full year targets, it is early in the year, and we will plan to revisit our full year guidance as needed in subsequent quarters. As such, we are reaffirming the full year '26 guidance that we initially provided in February.

Our outlook continues to exclude any contributions from potential increases in supplemental Medicaid programs that have not yet been approved and finalized by CMS. For second quarter '26, we expect consolidated adjusted EBITDA to be 24% to 25% of our full year consolidated adjusted EBITDA at the midpoint. We expect that USPI's EBITDA in the second quarter will also be 24% to 25% of our full year '26 USPI EBITDA at the midpoint.

Turning to our cash flows for '26, we continue to expect adjusted free cash flow after NCI in the range of $1.6 billion to $1.83 billion. This range includes the payment of about $150 million in tax payments for the Conifer transaction this year. Excluding these tax payments, this would represent $1.865 billion of adjusted free cash flow after NCI at the midpoint of our '26 outlook. We remain focused on strong free cash flow conversion from our EBITDA performance, including the continued outstanding cash collection performance of Conifer, while continuing to invest in high-priority areas of our businesses.

Turning to our capital deployment priorities. We are well positioned to create value for shareholders through the effective deployment of free cash flow. First, we will continue to prioritize capital investments to grow USPI through M&A. And as Saum noted, we have had a strong start to the year and have a number of future opportunities to support our $250 million annual target for USPI M&A. Second, we expect to continue investing in key hospital growth opportunities to fuel organic growth, including our focus on higher acuity service offerings. Third, we'll continue to be active in share repurchases. We continue to see significant opportunity at our currently compressed valuation multiple. And finally, we will continue to evaluate opportunities to retire and/or refinance debt.

We are pleased with our strong start to the year and remain confident in our ability to deliver on our outlook for 2026. We continue to execute our strategy across our transformed portfolio of businesses resulting in a more predictable, more capital-efficient company that is well positioned to drive value through effective capital deployment.

And with that, we're ready to begin the Q&A. Operator?

[Operator Instructions] Our first question comes from Ryan Langston with TD Cowen.

Payer denials this year appear to be broadly accelerating across the industry. Are you seeing this activity increase in your business? And maybe is it more MA versus commercial? And is the rise in uninsured -- or uncompensated care you're seeing primarily related to the exchange subsidy expiration, or is there anything else you could call out there?

Yes. Thanks for the question. Payer -- I mean, denials, I would say, payer disputes, many of which can result in denials and back and forth are are high. They have been high, as I've said before, they're too high for what is appropriate, especially when comparing back to kind of pre-pandemic periods just as a marker. I don't think that in our business, we have seen a net impact of disputes and denials changing in this quarter relative to before, so meaning last year. So look, they're high, they have been too high, but we don't see a meaningful trend this quarter that's different. We can only guess obviously with the slight increase in uncompensated care that some of it has to do with the expiration of the exchange subsidies.

Our next question comes from A.J. Rice with UBS.

If I look at the last number of quarters, there's been consistency of outperformance in the hospital segment overall. I wonder if you could talk maybe broadly because we haven't talked about markets in a general sense. Is there -- are there some markets where you've implemented strategies that you'd call out that have been particularly successful. And as you look across the portfolio, maybe discuss some markets that still have an opportunity for significant improvement as you deploy new strategies to improve their performance.

Thanks, A.J., and I appreciate you calling out the strength of the hospital business over the last few years. We have been focused on a broad strategy of obviously increasing acuity focusing on our ability to succeed with our transfer centers, adding new surgical programs and increasing our emergency-related services, especially trauma programs and other things. And in a combined sense, that is a -- it's a global strategy. I mean, implemented locally, but we have opportunities and are implementing in every market that we have. As you're aware, based upon the portfolio shifts that we made, we remained in markets in which we thought the execution of our overall strategy would be successful. No, look, there are things like, for example, enrollment in the exchanges that differ state to state and what the impact will be. So there are some differences there in terms of what's happening, in terms of throughput and other things that it may impact even the uninsured piece. But if you step back and now sort of with my commentary today, which is that we're in this transitionary period, where there's some coverage changes that are occurring. We'll see how all that settles out. But when you look at the opportunity to find efficiencies, you look at the support services for the hospitals, and you look at some of the automation opportunities that I described. Once again, those are available in each market. Of course, some markets are bigger than other markets. So at a dollar level, you might get more impact in one market than another, but they're scaled appropriately and are available in each of the markets. So if you look at our earnings in the first quarter this year, they were driven by consistency across our markets in terms of the efficiency opportunities. Look, the other thing I would point out is just good old fashion discipline around flexing our cost structure. We kind of knew early in the year by the time we had given guidance that one of the winter storms that already come through, and we were able to maintain our SWB as a percentage of our top line by flexing even though the revenues were going to be a little bit more challenged. So some of this is just continuing to maintain the old-fashioned -- "old fashion" discipline of anticipating and flexing intraorder, which, of course, is also an opportunity available in all markets. I hope that helps.

Our next question comes from Jason Cassorla with Guggenheim Partners.

I wanted to go back to your prepared remarks around your efforts around length of stay and throughput improvements you're clearly seeing the benefits there given length of stay has been down about 3% in each of the past 6 quarters by our math, but that improvement is coming despite your high acuity service line focus, which would naturally carry a higher length of stay. I guess could you just double a little bit more on the length of stay opportunity for you and what that run rate looks like as you move through the rest of the year and beyond?

Yes. No, I appreciate the question. And you're right that the two are actually coupled in an interesting way, which is in order to maintain available capacity to always service the high acuity needs that arise in the community, whether from direct arrival at our hospitals or for outlying hospitals that might need help or support, which we always try to say yes to you have to make sure that your throughput and capacity management is good enough to have the availability of beds to be able to say yes, for those things. And so we see the two being very intricately linked in terms of a requirement to succeed in the high acuity strategy. Now look, you're right that as the acuity goes up, there's a length of stay headwind that does come with it because the cases are more complex and and longer. But look, we're pleased with the fact that we are managing that overall length of stay to something better than even breakeven in terms of our reported length of stay because that's creating capacity in our hospitals. And I would remind everybody that part of the strategy, of course, is capital avoidance on additional capacity that's really not necessary when you can improve productivity that way. So again, for us, all these things are intricately linked and look, we're pleased that some of these new tools that we're trying out are helping to add to our more traditional length of stay management that we've talked about over the last 4 or 5 years.

Our next question comes from Brian Tanquilut with Jefferies.

This is a tough quarter, so congrats on beating that [indiscernible] line. Maybe just on the Medicaid side. A lot of your peers have spoken about Medicaid trends, whether that's immigrants not land paperwork. And just curious, what are you seeing in the Medicaid book? And as we've seen uncompensated care step up here, which was across the space, right? How much of that is Medicaid versus maybe exchange members versus other dynamics?

Yes. No, I appreciate it. And obviously, it's somewhat speculation. But I guess we sort of speculate based on our markets. So I'll be a little bit careful of how sure I am in my answers, but I would say that, look, Medicaid is down a little bit, and we see a little bit more of that in places like California, that does suggest that some of what's happened is either disenrollment or lack of renewal of enrollment with populations that may not have been qualified to begin with based upon at least federal regulations, so that's one fact point that we see. The second question that has been out there, especially because we are in a lot of important border communities where we do a lot of work for the broader communities that are there. Look, we do see a little bit of hesitation at times with those populations. We partner a lot with the important FQHCs in those markets. And there's just kind of this tone of hesitation. The impact at the end of the day has been on the hospitals minimal because obviously, we're there taking care of people who are sick and have needs. But on the outpatient side, for people who are doing more primary care and other things in the community, we're hearing about a little bit more impact and certainly hesitation from coming into consumer care.

Our next question comes from Scott Fidel with Goldman Sachs.

I think my question probably ties to the last two. But I wanted to ask it from just the -- from the acuity and case mix perspective, overall for the -- for both the hospital and the USPI, how those rates look year-over-year? And maybe you could layer in on the tailwind side, the proactive service line expansions and investments that you've made on higher acuity and then on the headwind side, obviously, some of these dynamics or dynamics relating to the dynamic environment that we saw in some of the end markets in the first quarter.

Sure. Well, let's start with USPI. I mean there's no question there about the increase in acuity. I mean, I called out -- I mean, we've had -- we obviously are on the outpatient side, probably the largest single provider of outpatient joint replacements when you collectively look at almost 570 assets at USPI, many of which do orthopedics. And we're still posting double-digit growth in total joint replacement surgeries within the ASCs and off of a pretty high base. So it just suggests that demand is out there, right? If you create the right operating environment for these surgeons and give them an efficient safe way to do the work, the demand is out there. And so we continue pushing in our high acuity strategy. I mean you can see it in the revenues, and when you add to that as you asked for other service lines, the types of things we're doing in urology, the types of things we're doing in robotics, we're probably up to over 150 robotic surgery programs in the ASCs that are general surgery based. Those types of things are growing quickly. I mean the only services that are declining are the high-volume, low acuity areas, which is, as we've said, we're less focused on in this diversification path. So again, in summary, on the USPI side, the acuity is growing. The case mix is improving in the direction we want to. We have a good number of service line starts and physician additions. The assets that we're acquiring are also supportive more of the service line strategies that we're interested in. And our de novos that we open will also have the opportunity to do this type of higher acuity work. So I would say that, that looks very good. On the hospital side, the journey that we've been on is obviously -- I mean, we made this decision in the very early part of the pandemic. It's been 5 years that we've been really pushing this high acuity strategy. And you see it in the CMI, the margins, the net revenue per case, all of that. This quarter obviously has some differences that Sun can go into in terms of the comp to the first quarter last time with a bunch of onetime items. And look, the CMI for the first time, was down a little bit, but this is temporary, right? We had some weather-related issues. We had some -- we certainly had a decline in the intensity and volume of the respiratory business. But as I said, we made up for that significantly by flexing and also by focusing more on some of our other type of work in the hospitals. And I think the quarter ended up fine. Like I don't think anything changes going forward just because there was one quarter with significant respiratory impact.

Our next question comes from Craig Hettenbach with Morgan Stanley.

On the back of the $125 million invested in USPI in Q1, really strong starts to the year. Saum, can you just talk about the M&A engine what's working and also just context of why a tenant might be a preferred acquirer of choice out there in the marketplace?

Yes. Well, I mean, I think what's working fundamentally what's working is that USPI has just got a multiyear track record of acquiring assets, adding value to them, both clinically our quality performance is consistent. Our ability to bring these facilities in network and do well is consistent our broad-based an ongoing supply chain and purchased services agenda helps to reduce costs and create efficiencies. And then our business development team is terrific in helping these centers oftentimes go from single specialty to multispecialty or help them design their OR operations if they're already multi-specialty to be able to do those more efficiently, as I've always talked about, right, the ability to do kind of "dirty and clean surgery" in the same center with the right protocols and the right scheduling. I mean all of these things are things that we work on consistently, but we're just ahead in the market when it comes to executing on these things. And I think physicians know that, I think many of the MSOs that we partner with know that, the health systems that we partner with not only know that, but because of the expertise of some of these health systems, they contribute actively to our quality improvement agenda and other things, I mean Baylor, Memorial Herman. I mean these guys are experts in many of these areas, and they contribute actively to the partnership in USPI to make those improvements. So look, I think all of those things has created a nice virtuous cycle of reputation enhancement as we do these things, and we deliver on what we say we're going to do. So we're still very selective. Our diligence processes are robust. We still say no to more centers than we say yes to. And that's fine because we still think that the opportunity for high-quality ASCs supports USPI's growth algorithm.

Our next question is from Justin Lake with Wolfe Research.

Just a couple of numbers questions for me. First, your guidance assumes $250 million of exchange impact for the year. I apologize if I missed it, but do you have a number for the quarter maybe relative to what we would have thought maybe is a $60 million, $65 million run rate? And then on DPP, in your slides, you talked about $22 million to the DPP down $22 million for the year. I'm curious, does this include the $40 million decline because of that period so that you were actually up [ $18 ] million excess.

Good question. Sun, do you want to take those maybe in reverse order.

Yes. Justin, it's Sun. Yes, you're right on the DPP question. That includes the $40 million. So if you normalize for that for '25 out of period, then it would be a slight increase. So you're correct. On the [ HICS, ] we mentioned that exchange revenues in Q1 were about 6% of our consolidated revenues as a comparator in Q1 of '25, it was about 6.5% of our consolidated revenues. So if you kind of do the [indiscernible] a 9% to 10% decrease in revenues versus Q1. So I would say it's roughly at half of kind of the overall 1 year kind of 20% reduction in volumes that we kind of talked about in February. And we do expect with all the dynamics around kind of the first quarter and the grace period with some of the enrollees or re-enrollees that I think our guidance range of kind of 20% reduction and $250 million overall impact is still pretty consistent.

Our next question comes from Kevin Fischbeck with Bank of America.

Yes. I guess two questions. One, maybe following up on that one. So the Q1 impact is lower. Is that how -- is it lower but in line with what you thought Q1 would be because you always assumed it would ramp? Or was that potential area of the outperformance? And then you talked a little bit earlier about flu. I know one of your competitors had a pretty high margin decremental margin on lost volume in Q1. It sounds like you did a better job flexing costs. Any way to kind of size what you think the EBITDA impact was to both USPI and the hospitals from the flu and the weather disruption.

Yes, it's Saum. I can take the latter part of it. I mean I don't know about flu specifically, but just I mean we look at respiratory ER traffic, admissions and other things. And similar to what we've heard, for example, respiratory admissions were down like 40% in the quarter. and it had an earlier effect. I mean, if I look at the quarter, January to February to March, things improved steadily month-over-month, week-over-week almost. So that by the time we were in March, in the early to middle part of March, we had a keen sense that the revenue and admission and volume intensity was increasing, but because we had kind of anticipated the impact early in the quarter, we had already done some of our cost flexing. And then, of course, as we talked about, previewed on our fourth quarter call, we had developed a more systematic type of cost agenda in the second half of 2025 that we executed that added to our savings. And so just -- it created a situation in which the anticipation of the need to flex plus other cost improvements plus the month-over-month improvement during the quarter, allowed us to outperform in the hospital segment, what our expectations were despite some of these headwinds. I -- in terms of what our expectations were. I mean we had sort of made a simple linear assumption. I would say that the outperformance in the quarter in the segment is a combination of the two things, one being the cost management and efficiencies; and two, being that the first quarter exchange impact was probably a little bit less than at least a simple linear assumption for the full year.

Our next question comes from Ann Hynes with Mizuho.

Maybe we can shift to the Washington outlook. Is there anything that you're paying attention to on the regulatory and legislative outlook, especially on the regulatory with the upcoming outpatient rule. Is there anything that we -- that is on your radar screen that we should be aware of?

Sure. I mean, obviously, the -- we're keenly awaiting the outpatient rule, especially given the type of policy commentary that's been coming out of CMS, HHS, broadly and CMS supporting care in lower cost settings. And one of the ways to help that, of course, is to provide robust or more robust outpatient rate support relative to what was sort of as expected, but nothing incredibly positive on the IPPS side. So we're looking forward to seeing that. I would tell you, other than the commentary they're making, I don't have any proprietary insight to share. We, of course, have been following all of the discussion and commentary about the various parts of the sector. And look, from our perspective, we're just trying to stay on the right side of the value equation, having efficient health systems being accessible at all times, efficient in what we're doing and obviously providing surgical care at scale at half the cost sometimes of what it is to do the same work in a hospital. So with USPI, I mean. So look, I think all of those things we feel like we're well positioned as we look ahead. I mean I -- if you really look at USPI, and I know this question was asked maybe as a sub-question earlier by Kevin, USPI had an even cleaner quarter despite all the noise because it's the weather impact was there, but you don't really see that much of an impact from the exchanges or Medicaid in that business, as we've pointed out before.

Our next question comes from Pito Chickering with Deutsche Bank.

Looking at -- back to hospitals at your first quarter, I understand that there's $22 million of loan payments, offset by recoveries of $40 million this quarter. But when we normalize sort of the margins, sort of get to, I guess, the 15% range is generally where your guidance is. And if I think about margins for hospitals, generally, they the year is better than just the first quarter because of the strong fourth quarter. So I guess, can you just walk me through how we should think about the hospital margins with 1Q, excluding the $40 million as a bridge into the rest of the year?

Well, I'll start on, if you want to add that. I mean, look, I think that if you come back, step back to our guidance for the year, which is in the Hospital segment, a 10% normalized year-over-year growth which there was obviously some discussion and dialogue about when we put it out there. We feel very confident that we're on track to that. Now some of that's going to be margin improvement. Some of that is because we had visibility from our work in the second half of 2025, which was going to be expense management, execution of expense management initiatives that we were designing this year that we would see benefit this year from and obviously a enhancing. So I don't know that the algorithm is exactly like it would be in a normal year. The respiratory volume impact in Q1 is a headwind to margins because those tend to be capacity filling and margin accretive, we overcame that, and as we sort of return to normal operations, plus have a year where we are executing on a broader efficiency strategy. I would say that we think that this year's performance will support margin growth in the Hospital segment. I don't know if you want to add to that. But like we feel very confident about the balance of the year.

Yes, I think that's right. The only thing I would add, Pito, is if you kind of just look at our Q1 hospital margin of 16.7%, you're right, we should normalize for the onetime [indiscernible] for $40 million. And then the only other thing I would mention is, like we said, the exchange impact likely sort of grows over the rest of the year from what we had in Q1. So that probably damps down margin a little bit on a run rate basis. But when it's all said and done, as Saum said, kind of a year guidance, of sort of 15% implied margins, I think that's still right on our expectations.

I mean on the impact, I get the guidance that you've given virtual in the first quarter, but the uninsured payer mix declined year-over-year in the first quarter, I thought that would have been increasing. So I guess, how does that fit within that [ HICS ] guidance you guys have provided.

Well, I mean, look, I think we should watch and wait, right? I mean effectuation rates and other things are important to track the first quarter often is a relief valve for payment premiums and other things. So I would say we watch and wait. From our perspective, the way we think about this year is anticipate that the challenge could increase and plan accordingly in a disciplined way to manage to the earnings guidance that we have given. I mean, if -- obviously, if the impact is less or if the uninsured impact doesn't increase as much. Those are all opportunities for outperformance for us. I mean, I would just reiterate, we're not spending a lot of time thinking about downside risks right now. We're spending our time thinking about how the strategy in both segments plus our expense opportunities plus how this exchange uninsured Medicaid market plays out could create upside opportunities for us. That's where our mindset is right now after this quarter.

Our next question comes from Whit Mayo with Leerink Partners.

I just wanted to hear more about the reserving and revenue recognition for the exchange patients, what the underlying estimates are for attrition and maybe what the exit rate on the decline in volumes was within March.

Hey, it's Sun. Listen, I think on a -- on your first question, we obviously pay through Conifer, very close attention, patient by patient, if we can, on their ex coverage status, premium payment status, all those details that you would imagine. And I think, again, we'll review this as the year develops and we get more data. But I think we're very appropriately reserved on our overall patient population, right, including [ HICS. ] And that sort of speaks to kind of the numbers that we shared in Q1, where admissions were down, as we said, 9% and if you do the algebra, I think revenues from [ HICS ] is down probably 9% to 10% as well. So it's sort of 1:1 is where we're sitting. So I think we're in a very reasonable situation there. And then like we said, we'll continue to observe the sales go. From a month-over-month trend perspective, I mean, our overall volumes, not just fix but overall, improved through the course of Q1 coming into March, which, again, I think, gives us some confidence into our rest of your guidance. On [ HICS, ] I don't know that there's any trends that we would point out. I think in January being sort of a great period for a lot of the enrollees, I mean I think that did help January numbers somewhat. But again, I think it's too early to kind of have any trend discussions.

Our next question comes from Stephen Baxter with Wells Fargo.

I wanted to ask about the same-store revenue per admission decline of 1.5 points in the first quarter. I guess we do have a lot of moving parts with some of the Medicaid changes you discussed and also the exchanges. But on the other hand, you also have less flu, which I think would trend to push up some of those metrics. I hope to just get a better sense of some of the moving parts that impacted that metric? And then maybe a direct comment on what you're seeing on commercial and whether that's a headwind in the quarter that assume gets better through the balance of the year.

Yes. I mean, why don't we should probably just start with the comp from the prior year and then the math because it's -- for us, it really wasn't that worrisome so. I don't know if you want to just walk through that perhaps.

Yes. I think just on a popular [indiscernible] basis, I mean, we said NRAA was down 1.5% in the Hospital segment. A lot of that between the $40 million of [indiscernible] Medicaid, we run out in Q1 that we didn't have in Q1 of '26, and then the reduction in [ HICS ] that, as we talked about, presumably moved volume into uncompensated or other payer classes. Those two combined, I think, was worth 2% to 2.5% of NRAA headwind. So once you normalize for that, we're sort of at 50 bps to 1%. Then I think there are some other moving parts that we talked about. Tom, I don't know if you want to comment directly on flu. But yes, I think flu impacted our emissions, but in the scheme of our total adjusted admissions base and our net revenue base, it's a relatively small component. So whether or not flu was there not, I don't know that impacts NRAA that much.

Yes. I mean the only other thing I would add is clarifying point, but also the onetime Conifer $40 million that we announced, even though it was part of the hospital segment, we excluded that in looking at the NRAA because that's appropriate. It wasn't related to the case volume. But just in case anybody is looking at the math that way. So I mean, in summary, look, I would say the biggest driver was the [indiscernible] period thing, and we had a very high NRAA in 2025 back to what my overall commentary. The acuity strategy is working very, very well, and we're not worried about it. And obviously, it did not have an impact. In fact, it was the opposite, we outperformed on the earnings despite the revenue, which is just right now, a marker of the flexibility and operating discipline, I think, that's required in this environment as things settle out. I suspect in the coming months and when we talk again, we'll probably have a lot more insight into how I sense that the desire for predictability, how the exchange market and uninsured at Medicaid will settle out for this year, which will give us a much better opportunity to kind of update our guidance for the year based upon the outperformance so far.

Our final question is from Andrew Mok with Barclays Bank.

You mentioned that 8 volumes were down 10%, and you had expected unfavorable payer mix. But when I look at the managed care mix disclosure, it actually looks relatively stable year-over-year. So can you help us understand what you saw on payer mix inside of that, including the moving parts on the government side.

Hey, Andrew, it's Sun. -- sorry, go ahead, Saum.

No, you go ahead, please. Sorry.

Yes. Sorry. I was going to say, Andrew, yes, we did see the 10% reduction as we talked about. But I think your question on the rest of managed care sorbent that. One reminder, when we report managed care, we also include managed Medicaid and managed Medicare in that component. So I think we saw a reasonable strength in so the payer mix is, to your point, it remains to be stable as a percent of total revenues. So I think that did offset the [ HICS ] impact a little bit. Again, we'll see. I think Q1 in terms of payer mix trends, we were happy with, but I think there's some more trending and data that we need to see into Q2 before we can make some more detailed comments.

And the only qualitative thing I was going to add there was just -- look, I think that as people come off the exchanges, they find different employment and other things, especially those that need health care have family they need to cover. We do think there's going to be some percentage of them that obviously pick up commercial coverage, and we've talked about that before. That's good. And then we did have strength in Medicare. I mean, we do a lot of work on appropriate utilization, appropriate admission rates from the ER appropriateness of interfacing with these plans on Medicare Advantage. And we have strength in the Medicare side in addition, which, again, is consistent with our acuity strategy given what these patients need. So I appreciate what you're seeing in those metrics. It does look better than I would have expected based upon the theory of the case of what could have happened with the exchanges. And again, it's just -- for us, it just all goes to the point that the trend line in Q1 of the type of headwinds was more mitigated than the simple straight-line assumption for the year. And again, we're pleased that it helped drive outperformance rather than a headwind we couldn't catch up to.

We have reached the end of the question-and-answer session, and this concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.

Welcome back to the Barclays Global Healthcare Conference. My name is Andrew Mok. I'm the facilities and managed care analyst here at Barclays and I'm pleased to welcome on stage Tenet Healthcare. We have Saum Sutaria, CEO; Sun Park, CFO; and Will McDowell, Vice President of Investor Relations.

So why don't I kick it off to Will for a prepared statement, and we'll dig into Q&A.

Thanks, Andrew. Good morning, everyone. Thank you for joining us today. In the context of our conversation today, we may be making some forward-looking statements. I would suggest in the context of the statements, you refer back to our cautionary statement filed with our most earnings release as well as other SEC filings. And with that, I'll turn it back to you, Andrew, for Q&A.

Great. Maybe to start, Tenet has delivered mid-teens EBITDA growth over the last 2 years. Yet your guidance this year still embeds an impressive 10% core growth. How would you contrast the strong organic growth underpinning this year's outlook with what drove results in prior years?

Well, I think as we said, look, at a big picture level, we're still in a reasonably good demand environment. Our strategy, of course, has been very focused on high acuity care, both in the ambulatory business and in the acute care hospital business. That demand continues to be strong. It's obviously less elastic in many ways in terms of what we're doing there. The last couple of years, especially as we've gone through our portfolio reorganization with obviously some asset divestitures but also a few new hospital buildings.

We have increased the amount of capital that we're spending in the markets that we retain with the confidence that our market positions are strong, that our ability to build and grow services for the community have been attractive opportunities, and we expect to see some returns from those investments as everybody would.

And then finally, as we indicated, 2026, we think, is an important opportunity to really take a look on a broad basis at the cost structure of the organization and begin to prepare for the coming years with some cost-reduction initiatives that I think will be accretive to this year's results.

And so when you look at the totality of that, and sure, you can step back and look at the last few years and our success there. But if you look at the totality of that and look forward, which is what we've done, we got very comfortable with the guidance that we provided for 2026.

Great. And there does seem to be a big step function change in cost savings in the guidance this year. How much of that reflects new enablement from AI versus deliberate cost actions taken in anticipation of a known headwind?

Well, I think both -- I mean, I'm not sure that there isn't overlap between those two, right? I mean, in other words, we've spent a lot of time improving the efficiency of the organization at all levels, obviously, first and foremost, in our operations. .

But also in -- over the last few years, rightsizing our overhead structure as we have gone through some asset divestitures from a hospital market standpoint, and we've -- we committed to when we started that program, and we delivered on some of that rightsizing.

So when you look at the opportunities ahead of us, a lot of it does have to do with the ability to remove work, automate work, find opportunities to use technologies like AI to find efficiencies or enable our workforce to be more efficient and increase the span of management control in what we're doing in the hospital business in particular. On the ambulatory side, some of those initiatives might have a slightly different purpose, right?

I mean sure, there may be some efficiencies that we gain. But at the same time, the ability to pilot and over time, deploy some of these technologies could also help us with asset utilization, for example, right? If you think about the ambulatory surgery business, the asset utilization is a key operating statistic that we follow in terms of our ability to generate returns from the fixed capital structure that we have there. So these technologies, we think, will help us not only on direct efficiencies productivity, but also things like improving asset utilization over time.

Great. Maybe digging into the hospital segment a bit. You've included a $250 million ACA exchange headwind in your 2026 guidance. Can you talk about any sort of observations you're seeing so far this year, how that's playing out? And could you highlight the most important variables embedded in that assumption that will influence the year?

Yes. Let me bounce it to Sun.

Yes. On the second part, these are all moving targets where we use our best judgment, but it seems to be that a lot of us are sort of projecting, call it, 20% reduction overall of enrollment. I think something that we thought hard about is that some of our particular states, Michigan, Arizona, as examples, at least the enrollment data that we saw in January seem to have a little more pressure.

So their state-to-state variability as well that we try to reflect. On the positive side, we do think there's probably a small proportion of these 10% to 15% of these patients who will find rotation into other coverage, i.e., other commercial coverage, whether it's through job switch or [ what have you ]. And then two other dynamics that we're tracking closely. One is how many of these patients are moving from maybe silver to bronze which for us, I think, is fine, based on our contracts. And then elective coverage, right?

So the other dynamic we try to put into our guidance number, we do think patients who lose coverage, especially the elective procedures will probably be impacted. So all those things kind of went into our $250 million guidance. Obviously, the vast majority of that is in the hospital space. And without commenting specifically on Q1 dynamics, I mean, I think we're seeing something along those lines.

Right. And what impact do you think that shift to bronze would have on things like utilization and acuity trends?

I mean for us, again, from an acute hospital standpoint, right, the bronze -- silver to bronze coverage, I think is, like I said, fine, and won't have very much impact. As you start talking about physician visits, HOPD activities, things like that, you could see certainly impact there. But again, for us, that's a very small part of our hospital business.

Right. If we look at same-store admissions in the hospital segment, I think it has declined for the first time in 3 years in the fourth quarter, your initial outlook embeds 1% to 2% volume growth. That's below recent history. Could you frame how much of that moderation is due to the disruption to the ACA exchange coverage versus any change in underlying demand?

Yes. I mean, look, these are projections, right? I mean, sure, that's going to be a part of it. I think we left this year play out. The fourth quarter had a relatively softer, at least from prior year, flu season our acuity was still strong. Obviously, our net revenue was still very strong, and the margin performance was outstanding.

So I think we let this year play out to see what happens. Our guidance is based upon, as I said right upfront, to belief that despite these movements in coverage that will play out over the year, we still see a relatively strong underlying demand environment for -- in particular, what we're focused on in terms of high acuity care in combination with the initiatives that we have invested in over the last couple of years.

So where it lands, we'll see. We're actually, again, as I would say, reiterating and pretty confident in the fact that we've given what is reasonable guidance for this year, we think.

Right. And on the last earnings call, you noted commercial rates are tracking in the 3% to 5% range with strong visibility through 2027. How have you been able to secure such strong commercial rate particularly as we move further away from pandemic era inflation?

Yes. Well, look, look, I think there's a lot of turmoil in the payer and provider markets, that's playing out very publicly, right? And there's a lot of situations where plans and providers, both in the MA and commercial business or out of network, and you read about this all the time. I wouldn't say fundamentally that the nature of the negotiations have changed very much. I would say that the topics that generate contention are similar. I don't think they've changed very much.

I think there's a lot more noise around them. But for us, what I think is becoming clear and clear is that there is a value that our combined portfolio brings to whether you're a government payer, a private payer in the government lines of business or the commercial business based upon 3 or 4 simple things. One is a commitment to site of care savings, in particular, with the ambulatory business, but also in our acute care business, we have much less of an extensive hospital-based outpatient model for things like lab, X-ray and other things.

We push into a freestanding setting even in our own practices that we have there. So we have less exposure there. Those are 2 things. The third is in our acute care business, we tend not to be, from a commercial standpoint, the premium priced competitor or the highest priced competitor in the markets in which we operate, we aim to provide value to the payers.

And the last piece is we have been very disciplined about reasonable utilization. I mean things that are clinically appropriate, appropriateness of admission from the emergency department, for example, is something that many of the health plans often recognize us for in the discussions that we have with them around that. So we feel like we have a more defensible, both operations and pricing platform. It's value creating for both parties.

And therefore, as we look forward, we tend to be able to negotiate reasonable rate escalators with the payers as we look forward. And over time, it provides value to both parties.

Right. Sticking on with the commercial market, there's been mixed data points on the strength of U.S. employment. What trends are you seeing across your core markets? And how are those showing up in payer mix or utilization?

I mean, I would say the employment environment is still pretty strong. I mean we have more recent job reports that may have gone up or down or whatever, but I think overall unemployment rate is still at very, very attractive levels in the United States when you look at it historically.

So I wouldn't say that we're seeing -- I mean I wouldn't say that we're seeing any obvious impact from employment -- macro employment rate related demand in our health care services environment.

Great. Let's move on to USPI. There's been a continued shift in the growth of USPI with growth tilted more towards revenue per case in recent years. Do you expect that to continue in 2026? And is there anything in particular driving the strength this year?

I mean we're focused on doing more of the same, operations excellence, transitioning where we can to higher acuity -- lower volume but higher acuity procedure mix, where those opportunities exist, building upon strategies with respect to new innovative services. Obviously, the inpatient-only list discussion supports that in terms of the new opportunities or growing opportunities there?

And then just -- I mean, the reality is the core markets of orthopedics and other things are still from a volume standpoint, very large and have opportunities to move from an HOPD to an ambulatory environment. So our focus from an operational service line, physician relationship, et cetera standpoint is very, very similar. We had a very good year last year with respect to our ability to onboard and acquire new assets into the portfolio.

We see a similarly strong environment in front of us with the pipeline for 2026. So I would expect that we would have a successful year there as well. And as I said, we're working on some of the things for the future, they'll take a little bit of time to embed more technology into this business to see if we can improve some of the typical operating statistics that are more managed in a traditional manner today to improve them for the future.

I wanted to follow up on that inpatient only list. I think you previously you framed that as a gradual tailwind for USPI with some early opportunities in spine and urology. How is that policy shift influencing your physician recruitment strategy, capital allocation and payer contracting today?

I mean, look, on the margin, we're focused on actually translating the opportunities created from the inpatient-only list down to a list of very specific assets service lines, physicians that we would target in bringing them on board. But remember, in the areas of especially urology, we have led the way in terms of our partnerships and building that into the ASC environment. We've talked about it for a couple of years.

It's been successful. We've been piloting and growing spine programs, in particular, with orthopedic spine -- but now, obviously, the opportunity to bring more neurosurgical spine into the ambulatory surgery environment. And there are other things, electrophysiology and cardiac which is, of course, more voluminous as an opportunity but requires a different configuration of operating room. You can't just stick them in a normal ASC, those opportunities, I think, will grow over time. And yes, you bet, it's the focus of design, physician relationships, capital, all of it as we look ahead.

Great. There's also been ongoing discussions in Washington around site-neutral payments. if hospital outpatient reimbursement were to move closer to ASC rates for similar procedures, how do we ensure that ASCs continue to differentiate and retain their value proposition?

Yes. Well, let me just say, at least first from my perspective, from a site-neutral policy perspective, while there's a range of outcomes being discussed, at least from my time spent in that regulatory and legislative environment, the focus is much more on things like lab, x-ray, rehab than it is on surgical cases which legitimately both clinically and operationally oftentimes need the structure of an acute care hospital versus a freestanding ambulatory setting, et cetera.

So if I were to place my bet on where any kind of policy might land in this area, it will focus more on those much lower acuity areas. So I mean, we're not terribly focused on what that change would be. I would remind everybody that our ASC platform is already on freestanding rates. And we think that's important. But that's not really the case because we're worried about HOPD price compression in surgical care.

Great. Let's transition to Conifer. Revenue cycle management has become an increasingly strategic priority for hospitals, which capabilities of Conifer's platform are driving the greatest benefit for hospitals today and which capabilities do you expect to accelerate with full ownership of Conifer?

Yes. No, that's a really good question because if you look at our results with Conifer, which have been outstanding, both for us and for our clients, as we have noted or even as our clients have noted, the drivers of revenue cycle performance over the last decade have largely been around the discipline that true workflow automation can create in the back end of the revenue cycle in accounts receivable, the discipline around the mid-cycle, but in particular, around accuracy of coding and clinical documentation.

And then third, what I would describe as an ability to build a more globalized workforce to have an attractive cost to collect for all of that work. And that pays dividends every single day. I mean you can see it in our cash results every quarter.

I do think your question is an insightful one about how you look forward in the revenue cycle, right? So one is the cost to collect should come down because much of that work can either be automated or be supported very actively to much bigger spans of control using artificial intelligence, number one. Number two, I think the ability to really enable the front end which has been the talk and as you've seen in the industry, expensive acquisition after acquisition that hasn't paid off, which we have actually stayed out of, I think, becomes a real opportunity now in terms of just the discipline around registration, insurance capture, accuracy of billing, preauthorization, I think there's a real opportunity there now because the technology is finally ready to help from that perspective.

And then if you go to the back end of the revenue cycle, the ability to utilize artificial intelligence to have a much more disciplined approach to capturing what comes out of the clinic or the hospital in the physician's own documentation, starting from scribe, all the way to producing the code and delivering the claim to the payer or the government for payment becomes another real opportunity. So the game is changing in this space in terms of what the value drivers will be.

Right. Denial intensity also remains elevated across the industry. You've described building tools and mechanisms with payers and using technology to improve dispute resolutions. How do you measure the success of those efforts? And what's the remaining bottleneck here?

Yes. I mean the -- first of all, dispute and denial rates have been going up at a rate and have gone up at a rate that is obviously frustrating because it creates cost back and forth that somewhat we would argue somewhat unnecessary.

Look, the key metric to look at is the yield on the dispute and denial rate, right? So for us and in our platform within Conifer, while the dispute and denial rate has gone up significantly our yield rates have not gone up anywhere near that rate.

So that's a success. Problem is going from here to here, meaning dispute rates down to what the actual yield rate, there's a bunch of costs that comes in, in terms of generating the same yield that you think you deserve. That's where the opportunity to reduce cost is. I mean if we're going to have this back and forth with increased rates of denials and disputes, you would ideally find a way to manage that to the same efficacy with a much lower cost. And that's where we're spending our effort.

Great. Maybe to finish up here on capital deployment. Tenet has a meaningful cash balance now and you expect roughly $3 billion of free cash flow in 2026. Can you outline, how you'll be balancing capital deployment this year between growing USPI, investing in hospital service lines, share repurchase and debt retirement?

Yes. So we feel very fortunate to be in such a strong leverage and free cash flow position. Look, if we take a step back and take a look, despite some of the things that we just talked about today, whether it's exchange or future reimbursement that may or may not present to ourselves. We still feel that our business is very investable from a capital standpoint. Whether it's the high acuity strategy in the hospital space, whether it's USPI, obviously, both organic and inorganic opportunities, Conifer that we just talked about from a technology standpoint. So there's still a lot of opportunity to invest capital.

So I think you'll see us continue to do that. Kind of the same rationale that implies from a -- what do you still do with the rest of the cash flows. Because even after that, there's a lot of flexibility. And we honestly do feel our shares even at -- even after the recent performance are very attractive for long-term investments. So yes, you will see us do that. Last year, we were a little over $1.3 billion of share repurchases. We think that was a very good investment. So you'll see us continue to go on those trends.

And then look, we talk about a little bit less now and that our leverage is in such a 2.25x EBITDA. So it's a less frequent topic, but we still remain committed around a deleveraged company and being very disciplined with the balance sheet. So you'll see us opportunistically address our debt load as well.

Great. And as you look at specific service lines to invest in on the hospital side, where do you see the greatest opportunities there?

Well, I mean, as I indicated before, our focus on the acute care side in terms of investments tends to be more service line oriented in the high acuity space than it does sort of lots of infrastructure for general med-surg. So I mean we're back to trauma, cardiovascular, neurosurgery, invasive cancer surgery, broad-based general and abdominal surgery, robotics, those sorts of things.

Great. Well, with that, we're just about out of time here, so why don't we stop there. Saum, Sun, Will, thank you so much for joining us today, and please enjoy the rest of the conference.

Thank you for having us.

Good morning, and welcome to Tenet Healthcare's Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] I'll now turn the call over to your host, Mr. Will McDowell, Vice President of Investor Relations. Mr. McDowell, you may begin.

Good morning, everyone, and thank you for joining today's call. I am Will McDowell, Vice President of Investor Relations. We're pleased to have you join us for a discussion of Tenet's fourth quarter 2025 results as well as a discussion of our financial outlook. Tenet's senior management participating in today's call will be Dr. Saum Sutaria, Chairman and Chief Executive Officer; and Sun Park, Executive Vice President and Chief Financial Officer.

Our webcast this morning includes a slide presentation, which has been posted to the Investor Relations section of our website, tenethealth.com.

Listeners to this call are advised that certain statements made during our discussion today are forward-looking and represent management's expectations based on currently available information. Actual results and plans could differ materially. Tenet is under no obligation to update any forward-looking statements based on subsequent information. Investors should take note of the cautionary statement slide included in today's presentation as well as the risk factors discussed in our most recent Form 10-K and other filings with the Securities and Exchange Commission.

With that, I'll turn the call over to Saum.

Thank you, Will, and good morning, everyone. We reported 2025 net operating revenues of $21.3 billion and consolidated adjusted EBITDA of $4.57 billion, which represents 14% growth over 2024. Full year adjusted EBITDA margin of 21.4% improved over 200 basis points from the prior year.

Our fourth quarter results were, again, above our expectations, driven by strong same-store revenue growth, high acuity and disciplined cost control. I would note that our full year adjusted EBITDA ended the year nearly $500 million higher than the midpoint of our initial expectations.

USPI continues to deliver attractive results. Volumes were strong and mix was good. Adjusted EBITDA grew 12% in 2025 to $2.026 billion. Same-facility revenues grew 7.5%, highlighted by double-digit same-store volume growth in total joint replacements in the ASCs over prior year. This performance was once again well above our long-term goal of 3% to 6% organic top line growth.

We had an active year in the M&A and de novo activity lines as well, investing nearly $350 million in 2025 and adding 35 facilities to the portfolio, and the pipeline for both M&A and de novo development remains strong as we look into 2026. We remain the preferred acquirer and developer of assets in this space.

Turning to our Hospital segment. Adjusted EBITDA grew 16% to $2.54 billion in 2025. Same-store revenues per adjusted admission was up 5.3% over the prior year as payer mix and acuity remains strong. We've continued to reinvest back in our business to further our capabilities, stepping up our growth capital in 2025.

And finally, over the past 3 years, we have been active repurchasers of our shares, retiring approximately 22% of our outstanding shares for around $2.5 billion since our share repurchase program began in the fourth quarter of '22. We expect to continue to deploy capital for share repurchase, particularly at our current valuation multiples. Our portfolio of businesses is now more predictable with consistently strong performance in both the Hospital segment and USPI. Our results represent a continuation of a multiyear track record of strong same-store revenue growth, improved margins and disciplined execution by our management team. We remain focused on driving further organic growth supplemented by accretive M&A at USPI.

Turning to 2026 guidance. We are projecting full year 2026 adjusted EBITDA of $4.485 billion to $4.785 billion, driven by ongoing strength in demand and acuity, physician recruitment and service line expansion as well as additional sites of care joining the portfolio. We are also tackling expense management more structurally in anticipation of the next few years. We anticipate full year adjusted EBITDA for USPI of $2.13 billion to $2.23 billion. The continued mix shift of services towards lower-cost sites of care will be furthered by the beginning of the phaseout of the inpatient-only list in 2026. We see this as a gradual tailwind for USPI that will play out over several years. In this first year, we see opportunities in areas such as high acuity spine and urology procedures.

We have detailed tactical plans to capitalize on the opportunity and are actively operationalizing our capabilities to serve patients in 2026. USPI continues to be a high-growth, capital-efficient business that delivers high returns on capital expenditures.

Turning to our Hospital segment. We are expecting adjusted EBITDA in the range of $2.355 billion to $2.555 billion in 2026. Our plans reflect the headwind associated with the expiration of the enhanced premium tax credits on the exchange marketplace. We continue to closely monitor enrollment levels as well as the potential off-ramps for individuals to obtain coverage through a lower metal tier commercial plans or other options. We are assuming a 20% reduction in overall enrollment as we have more significant exposure in states such as Arizona, Michigan and California. We recognize the uncertainty regarding effectuation rates as individuals make determinations if they can afford their premiums and the resultant expected increase in uninsured rates and have conservatively taken these matters into our initial guidance.

Additionally, we are implementing cost savings plans to help mitigate this pressure and we'll continue to engage with our patients to ensure that they have good access to care. We are confident in our ability to achieve the strong core earnings growth we forecast for 2026. The significant margin improvements that we have made over the past few years provides us a strong foundation from which to grow our transformed portfolio of businesses. We carry momentum into this new year, and have many opportunities to expand our services and deliver value for patients, physician partners and in turn, our shareholders.

And with that, Sun will provide us a more detailed review of our financial results. Sun?

Thank you, Saum, and good morning, everyone. We are very pleased with the performance in 2025, which again demonstrated robust same-store revenue growth in both the hospitals and USPI segments and adjusted EBITDA that exceeded our expectations each quarter, driven by continued high patient acuity favorable payer mix and effective expense management.

In the fourth quarter, we generated total net operating revenues of $5.5 billion and consolidated adjusted EBITDA of $1.183 billion, a 13% increase over last year. Our adjusted EBITDA margin in the quarter was 21.4%, a continuation of our improved margin performance over multiple quarters.

For full year 2025, net operating revenues were $21.3 billion and consolidated adjusted EBITDA was $4.566 billion, a 14% increase over '24. Adjusted EBITDA margins in '25 was 21.4%, up 210 basis points from the prior year.

I would now like to highlight some key items for both of our segments, beginning with USPI. In the fourth quarter, USPI's adjusted EBITDA grew 9% over last year, with adjusted EBITDA margins at 40.5%. USPI delivered a 7.2% increase in same-facility system-wide revenues, with net revenue per case up 5.5% and same-facility case volumes up 1.6%.

Turning to our Hospital segment. Fourth quarter adjusted EBITDA was $603 million, a 16% increase over fourth quarter of '24. Same-hospital inpatient adjusted admissions were flat and revenue per adjusted admissions grew 7.5% year-over-year. Our consolidated salary, wages and benefits was 40.2% of net revenues in the quarter, a 110 basis point improvement from the prior year. And our contract labor expense was 2.1% of consolidated SW&B expenses.

Next, we will discuss our cash flow, balance sheet and capital structure. We generated $367 million of free cash flow in the fourth quarter and $2.53 billion of free cash flow for full year '25. As of December 31, 2025, we had $2.88 billion of cash on hand with no borrowings outstanding under our line of credit facility. Additionally, we have no significant debt maturities until late 2027. And finally, during the fourth quarter, we repurchased 943,000 shares of our stock for $198 million. We repurchased 8.8 million shares for $1.386 billion in 2025.

Our leverage ratio as of December 31 was 2.25x EBITDA or 2.85x EBITDA less NCI, driven by our strong operational performance and financial discipline. We remain committed to a deleveraged balance sheet, and believe that we have significant financial flexibility to support our capital deployment priorities and drive shareholder value.

Let me now turn to our outlook for 2026. Our 2026 outlook assumes continued growth in same-store volumes and effective pricing as well as strong operational efficiencies and disciplined cost controls. Additionally, we anticipate further contributions from M&A and de novo center openings at USPI. In addition, we're also assuming same hospital admission growth of 1% to 2%, adjusted admissions growth of 1% to 2% and same-facility USPI revenue growth of 3% to 6% for 2026. Importantly, our outlook does not assume any contributions from potential increases in supplemental Medicaid programs that have not yet been approved.

Also, we believe that the expiration of the enhanced exchange tax credits will result in lower volume growth and a less favorable payer mix. We estimate that this represents a $250 million impact to our 2026 adjusted EBITDA, primarily in the Hospital segment. Clearly, there are a wide range of potential outcomes here, and we will continue to monitor enrollment levels and effectuation rates. We will also leverage Conifer's capabilities to assist our patients with their insurance coverage.

Based on all those items, we expect consolidated net operating revenues for 2026 in the range of $21.5 billion to $22.3 billion and consolidated adjusted EBITDA for 2026 in the range of $4.485 billion to $4.785 billion.

There are 2 normalizing items that I would like to call out when comparing 2026 adjusted EBITDA to the prior year. First, we reported $148 million of prior year supplemental Medicaid payments in 2025. Second, in the first quarter of 2026, we will recognize a onetime $40 million favorable revenue adjustment as a result of the completed Conifer transaction. After normalizing for these items and excluding the headwind from the expiration of the enhanced premium tax credits, our 2026 adjusted EBITDA is expected to grow 10% at the midpoint of our range.

Finally, we would expect first quarter 2026 consolidated adjusted EBITDA to be 24% of our full year consolidated adjusted EBITDA at the midpoint. We anticipate that USPI's EBITDA in the first quarter will be 22% of our full year 2026 USPI EBITDA at the midpoint.

Turning to our cash flows. For 2026, we expect adjusted cash flow from operations in the range of $3.2 billion to $3.6 billion. Capital expenditures in the range of $700 million to $800 million, resulting in adjusted free cash flows in the range of $2.5 billion to $2.8 billion. And adjusted free cash flow after NCI in the range of $1.6 billion to $1.83 billion. This range includes about $150 million in tax payments for the Conifer transaction. Excluding these tax payments, this would represent $1.865 billion of adjusted free cash flow less NCI at the midpoint of our 2026 outlook. We remain focused on strong free cash flow conversion from our EBITDA performance, including the continued outstanding cash collection performance at Conifer while continuing to invest in high priority areas of our businesses.

Turning to our capital deployment priorities. We are well positioned to create value for shareholders through the effective deployment of free cash flow, and our priorities have not changed. First, we will continue to prioritize capital investments to grow USPI through M&A. And as Saum noted, we see a strong pipeline to support our $250 million annual target for USPI M&A in 2026. Second, we expect to continue investing in key hospital growth opportunities to fuel organic growth, including our focus on higher acuity service offerings. Third, we'll continue to have a balanced approach to share repurchases and depending on market conditions and other investment opportunities. And finally, we will continue to evaluate opportunities to retire and/or refinance debt.

In conclusion, we had another outstanding year in 2025 with strong revenue growth, disciplined operations and very attractive free cash flow generation. We are confident in our ability to deliver on our outlook for 2026 and can continue to drive value for patients, physician partners and shareholders.

And with that, we're ready to begin the Q&A. Operator?

[Operator Instructions] Our first question comes from Ben Hendrix with RBC Capital. Ben, are you there?

We'll go to the next one. Our next question comes from Stephen Baxter with Wells Fargo.

I was hoping that perhaps you could expand a little bit on the same-store hospital volume performance in the quarter and any moving parts there? It looked like it was a little bit weaker than the trend. And then just as you're thinking about hospital volumes in 2026, it looks like at the midpoint, you might be looking for that to potentially improve a little bit versus the 2025 performance. So just, I guess, help us think about the moving pieces there with the exchanges and the core performance.

Yes. I mean, obviously, our acuity was good, which is what we're really focused on in the fourth quarter. Flu. I mean, I would just say from our standpoint, the respiratory season was probably a little weaker than otherwise might have expected. And that's probably the basic explanation.

In 2026, understanding all the moving pieces, as I indicated in my comments, we had invested significantly in growth capital during the year, and we expect to see returns from some of those investments into 2026, and thus the improvement that you pick up on.

Our next question comes from Whit Mayo with Leerink Partners.

When you say, Saum, that you're tackling expense management more structurally, what do you mean by that? And can you elaborate on what's incremental about the cost efficiencies that you expect to see this year?

Yes. Structurally, what really refers to the notion that we are looking as opposed to what I would describe as more traditional annual expense management. We're looking, as we've talked about over the past year, more thoroughly at the deployment of technology, basically that allows us more expense reduction opportunities, and that includes application of those technologies in our global business center. That's a little bit of a different pathway than before, more sustainable, more what I would describe as modernization of the business given some of the new tools and technologies available to us. It's not just AI, which has, I think, become kind of the central buzzword for this, but there's a lot more that can be done in automation.

And then the other thing is just as we look at our clinical throughput, application of those technologies ramping up in our clinical throughput, we believe, is another area to take things to the next level. So whether that's areas like length of stay management or throughput in some of the more high-value portions of the hospitals, real estate, et cetera, ORs, ERs, et cetera. Those kinds of things become more structural in nature. That's what I meant by that.

Our next question comes from Ben Hendrix with RBC Capital Markets.

Apologies for getting cut off earlier. I just wanted to get a little more color on the hospital admission growth guide, the 1% to 2%. Just wanted to talk a little bit about the slowdown from last year, the degree to which if we can parse out that slowdown between exchange expiry, between kind of investments toward higher acuity and higher margin capabilities in the hospital setting and then also just a general slowdown of admissions that we've been seeing across the acute sector to begin with. So just any commentary you can offer there.

Ben, it's Sun. Saum already commented on kind of the Q4 mission, including sort of the flu respiratory season being sort of not material for us. And then as we get into 2026, a lot of it has to do with this CapEx and technology investment that we've made in '25, creating some volume momentum coming into '26.

On your question about the exchange, as we said in our comments, there's a pretty wide range of potential outcomes here. As Saum mentioned, we're assuming about 20% decrease in enrollment. But we'd have to then -- there's lots of areas where -- what happens to those volumes, right? Do they -- those people find -- do those patients find alternate coverage and other plans, alternative plans. Certainly, a big majority of them could become uninsured. But that volume will still show up at our hospitals, obviously, and in USPI. It's just the question then becomes, can we optimize our cost and efficiency. So our range anticipates some impact of lost volumes, but I think our EBITDA range, and as we discussed, our lost EBITDA range is quantifying the exchange a little bit more.

Our next question comes from Matthew Gillmor with KeyBanc Capital Markets.

Maybe following up on the cost efficiencies. Are you able to quantify what you're able to pull through this year. I was also curious about the timing, building throughout the year such that you'll get a year-over-year benefit in future periods? Or do they take place earlier in the year, so they're all captured in '26?

Yes. No, we're not providing specific guidance between that. I mean, if you think about our guidance core growth of EBITDA standpoint. I would just expect that embedded in there is both the value of the initiatives that we have invested in through capital and growth strategies for this year and expense management strategies that would be more -- as I said, more structural over and above what we might have done in a typical year. And as I indicated, the thought process behind those isn't just about 2026, it's about being prepared for the years ahead.

Our next question comes from Kevin Fischbeck with Bank of America.

Yes. I just want to follow up on that point. I guess, when we think about that type of growth, I mean, is this the type of growth that you think is sustainable in out years as we think about offsets because 10% is a pretty big number to be thinking about. And so I just want to understand, is this new focus on expense management replicatable? Or are you -- is it kind of -- this is what we're doing in year 1, and that's it? Or is this is what we're doing in year 1, and we should be thinking about similar types of opportunity in the out years because it is a little hard to bridge what would normally be viewed as a hospital business that might grow 3% to 5%. Now you're saying it's 10%, like, is that sustainable?

Well, Kevin, I mean, I think 2 things. One is we've built up a track record of acuity growth and net revenue per case growth ahead of generally what the market does. Our margin expansion over the past, not just 2 years, as I indicated, but even beyond that in the Hospital segment itself has been significant above and beyond the asset sales that we did, which obviously helped some of that margin improvement. We said all along that we kept the markets where we felt like we had the best opportunities for growth and leadership.

And as we look ahead to the environment that may be coming in '28, '29, et cetera, with OBBB and other things, now is the time to take on the challenge of really being well prepared for that. And so look, we understand what the core growth guidance is. We think it's very attractive guidance. We think there's a lot of work that's going to be required to get there and creativity. But on the other hand, that's exactly the work we should be doing given the platform that we've built. And so that's what we're going after.

Our next question is from Josh Raskin with Nephron Research.

I want to stay on the same topic and Saum, appreciate what you just said. I sort of looked at it, margins are up 680 basis points since 2019 and the Hospital segment is up 660 basis points. So it's not really mix. It seems as though we've heard a lot about process improvement and optimization at Tenet for a couple of years, and now we're hearing about this new focus on expense management.

I'd just be curious to get your view on just the broader technology agenda, specifically, including AI and overall business, including revenue cycle management. And just do you think there's additional step function improvements in margins. I guess that's the main question. Do you think we're going to see continued margin improvement like we've seen in the past?

Yes. I mean I don't -- obviously, we're giving guidance in a year where there happens to be a headwind that we've done our best to quantify with respect to the exchange premium tax credits. Stated a different way, if those headwinds weren't there, we've been saying all along that we continue to believe there's margin expansion opportunity in the Hospital segment. The urgency with respect to much of what we're talking about doing is enhanced because of the -- what's happened on the exchange marketplace or what hasn't happened on the exchange marketplace as the case may be.

The other thing I'm mindful of is that there are -- what happens with respect to many of these reimbursement items might change over the next couple of years, right? So we're not really planning out to that level of specificity for '27, '28, et cetera. There are elections that happened between now and then that could alter, modify or just transform policy from where it is today. But I think this gets back to the first part of your question, which is, as we look around the environment, we've done a lot in this organization to improve reliability, accountability, the types of efficiencies we've taken as we've scaled the company down in the Hospital segment, reliably moving our overhead structure in line with that. All the things you would expect from an organization that is attempting to be best-in-class in what it does.

And now with the advent of many of these technologies in AI and automation, the ability to actually begin to deploy those and see if we can drive the next level of improvement, we're better set up for that now because we have more standard processes. We have more standard workflows. We have labor standards and supply standards that have been uniformly disseminated across the company. It's much harder to do those things when every market is doing something very different versus having established those standards. And we've done that. And we've consistently demonstrated that establishing those standards have improved our business. So now it's about taking that to the next level, and that's really what we're talking about.

Our next question comes from Justin Lake with Wolfe Research.

Wanted to follow up on some of the guidance stuff. I appreciate all the details. You mentioned -- obviously, the DPP, you gave us the onetime benefit there last year that comes out. I'm just curious if you could specify, is DPP other than that flat year-over-year? Or any change within that core guidance? Maybe you could also give us the run rate of DPP. And then I thought your estimate of the impact of the subsidy expirations was towards the higher end of my expectations at least. And I'm curious how you treated at least your thoughts on the potential shift of some of these enrollees back to employer commercial. What you've assumed there versus, let's say, I think UHS or one of your peers is assuming none and one of your peers is assuming 15% to 20%.

Justin, it's Sun. Thanks for your question. On your question about the Medicaid supplemental payments. Yes, as you pointed out, so a couple of numbers here. We finished 2025 with $1.34 billion in total supplemental payments. And obviously, we pointed out about $148 million of that is out-of-period payments. So let's call it $1.2 billion effective run rate for 2025. In '26, our guidance assumes effectively a pretty consistent number with our '25 normalized baseline. So hopefully, that helps.

And then on your question about exchange, yes. I mean, like we said, we assume about 20% overall reduction of enrollment. I would say on your question about our assumptions for people finding alternative plans, including commercial, we're about 10% to 15% as our internal assumption. Now all of that, again, depends on what we've seen in Q1 and what run rates we see, but that's our assumption embedded in our guidance.

Our next question comes from Peter Chickering with Deutsche Bank.

Can I ask about sort of the first quarter guidance, normally, you guys are getting more than 24% of EBITDA in the first quarter. I think in the script, you said that 21% come for the ASCs, which is normal. So it means that the change is actually in the Hospital segment. So is this something fundamental like the flu or lower surgical demand? Or is this just the $40 million of prior period DPP from last year or something else? And then just a quick clarification. Can you quantify the DPP that you received in the fourth quarter of '25?

Peter, it's Sun. Just to be clear, our USPI Q1 guidance is 22% of our full year guidance in Q1 for USPI. And then for our Hospital, you're right. I think the $40 million onetime benefit in Q1 kind of skews the total rates. Other than that, we see pretty standard annual Q1 percentages as a percent of full year. And then for your question on DPP Q4, we had $315 million.

Our next question is from Andrew Mok with Barclays Bank.

This is Thomas Walsh on for Andrew. With Conifer services to CommonSpirit concluding at the end of this year, could you frame the current plan to redeploy existing resources to growth opportunities and otherwise reduce expenses to rightsize the cost structure?

Well, I mean, we have a full year of service that we have to execute with respect to Conifer and our client this year. So we're not expecting to take cost reductions this year from that perspective. If anything, we may both increase revenue and cost if we end up doing more from a transition service standpoint, and that may come with a margin.

After that, we've talked about the fact that we have other growth opportunities that are already locked in starting in and around 2027 that will allow us to redeploy talent in that direction. So we can see that we'll be rebasing a bit the business at Conifer and preparing it for future growth. I mean, I don't know, I would kind of just go back to the core of what actually happened here in what we did. I mean if I were to be very simple about this, we had an expiring contract for which the cash flow that we would have taken in between 2026 and 2032 was basically breakeven at best because at the end of that period, we would have significant obligations to the client in terms of payments that would need to be made and equity that we'd have to buy back.

I mean one thing that may not have been so clear, we haven't made cash distributions from that joint venture in the last decade, and that resulted in a pretty significant buildup of redeemable noncontrolling interest and other liabilities. So what we did was we retired $885 million of those obligations on the balance sheet and got back 23.8% of the equity that was in the joint venture for $540 million. And then if you look at the remaining 6 years of the transaction of the contract that got dealt with in the transaction, we received $1.9 billion in accelerated cash flow over 3 years that would have come over 6 years in the contract and the present value of those 2 things was roughly double what we would have got by running off the contract.

So I mean, we've gone back for what it's worth and done the math. If you just look at this on an NPV basis after tax, the incremental value from actually running out the contract that we've created, again, post-tax present value was north of $1 billion. We calculate $1.1 billion. I mean this was absolutely the right path to go down in addition to getting complete control of the strategic future of Conifer. How we deal with that in 2027 and beyond, including growth opportunities, investments that we can now control in reducing the cost to collect and positioning Conifer to be more competitive, is the work of 2026 that we have in this asset. But maybe that kind of bottom line calculation now that we've had a chance to look at what the earnings will look like in the out years based on what we know today is helpful in framing what we did in this transaction. Again, after-tax NPV of about $1 billion to $1.1 billion is what we calculate. We're pleased with the outcome.

Our next question is from Scott Fidel with Goldman Sachs.

I was hoping maybe you could elaborate a bit on -- for the ASC business, how you're thinking about and planning for investments that could be either around the new facilities in terms of organic or de novo expansion. From a case mix and procedure perspective, just interested in where you see underlying demand is strongest, where you see the best opportunities to continue to drive the trend that you've had of favorable case mix and profitable sort of acuity procedure growth in some of these specialty areas in the ASC business?

Yes. No, thanks for the question. I guess I would make 3 comments. One is that I alluded earlier to the inpatient-only list and additional opportunities there. I think that will be a slow tailwind going forward as there are more things that qualify in that area. I think USPI is well known to be kind of at the leading edge of the innovation in higher acuity procedures in that area. We continue to build on our urology platform, looking forward to doing more spine work there. A lot of the robotics capabilities that we have brought into the ASCs continue to allow us to find new avenues of expansion. And obviously, the large ongoing opportunity that we continue to see double-digit growth in our joint programs across the network.

All those areas are, I think, attractive looking forward. We had a big M&A year, and a lot of the value that USPI brings after we acquired the assets and get into those settings is the planning for service line diversification and whatnot. So we have a big cohort this year. Usually, it takes about a year to start to work on new physician entry and restructuring of the operating schedules where possible to bring some of that higher acuity in. Sometimes, as we've talked about in the past, it removes lower acuity procedures in the context of doing that. When you get new centers, usually takes a year or so to kind of get that done. So we have a lot of work to do in that regard.

And then the last point I would make is that Q4 as we expected about a year ago, we said that we saw a ramp going forward. Q4 had a nice pickup in GI case recovery as well. And that was an important driver of that performance. So I think it's the same this year. We expect the year to build over the year stronger and stronger. The first quarter last year was an incredibly strong quarter for us because of a lot of the synergies that dropped on the Covenant transaction, the CPP transaction in Q1 of '25. But as we kind of overcome that this first quarter, we expect to see growing momentum in the business looking ahead.

Our next question is from Ryan Langston with TD Cowen.

Can you tell us where exchange volumes and revenues tracked in the fourth quarter? And I know you don't assume any pickup from the supplemental programs that aren't approved. But do you have any insight into where we're at in the approval process for the pending programs like Florida, Arizona, California?

Ryan, on Q4 for exchanges, we were about almost 7 -- I'm sorry, 7.5% of total admissions for HICS. And then a little over 6%, 6.5%, somewhere in there of our total consolidated revenues was from exchange. On your question about Medicaid supplement payments, yes, we are obviously tracking all these sort of the pending submissions and approvals in some of the states that you mentioned. We don't -- I don't know that we have any specific updates to provide at this time. We'll obviously continue to monitor.

Yes. I mean I think it's just worth reemphasizing we haven't put anything in our guidance about programs that haven't yet received approval for '26. Anything incremental, sorry, I should be clear. Anything incremental in our guidance.

Our next question comes from A.J. Rice with UBS.

Maybe just some comments on what you're seeing with managed care contracting. Obviously, that sector continues to be under pressure with some of the government programs, et cetera. And I wondered, is there any change in discussion in terms of the pace of new contract or contract renegotiations or terms or just general update in rates?

Yes. A.J., it's Sun. No real change in our commentary. Look, I think we have very positive and successful conversations with payers in general based on Tenet's overall service lines and what we bring to the table, including USPI as part of the overall package as well. Our commentary on rates is pretty consistent. We see 3% to 5% range from payers. And overall, from a contracting standpoint, we're virtually contracted in 2026, I would say, high 90s. And then even for '27, we're about 80% contracted. So I think we're in a very good spot. Thanks for your question.

Our next question is from Sarah James with Cantor Fitzgerald.

Can you elaborate a little bit more about what you saw in payer mix in 4Q for USPI and then unpack what you're assuming for Hospital and USPI as far as the scale of change in '26 between 1Q '26 and 4Q '26?

I'll take the second half of it. I don't think we're anticipating any different -- if you're asking the question about are we anticipating any sort of a different mix quarter-to-quarter than we saw in the amount of EBITDA that we generate in the Hospital segment or USPI proportionally, I don't think we're saying that at all.

I mean this is always the case where you could have movement of a percentage point or something like that up or down depending on -- we deal with winter weather, we deal with hurricanes, we deal with -- but we rebook those things and attempt to deal with them. Sometimes that's intra-quarter, sometimes it's out of quarter. So I'd personally focus on the overall guide and our message in terms of the percentages for Q1 aren't meant to imply that we're changing our proportions for Q2, 3 and 4. Yes...

Got it. I guess I was thinking more in terms of as effectuation takes place, if you would expect the payer mix to change at the end of the year and to what degree compared to your assumptions [ on 1Q ]?

Yes, I would say that -- I mean, there's a reason why the guidance range is wider than it normally is. I mean we don't know, right? I mean we're tracking it. We have a unique vantage point with Conifer because we do enrollment work as well. So we get a bit of a view into what that enrollment work is yielding in terms of where are people going, what reaction are they having to their premiums as they get exposure to them. So I think we'll have some leading-edge insights there. But let's be honest, it's not perfect at this stage. It's very early in the year. And I think the guidance is appropriately broad in the Hospital segment because we really don't know exactly how that's going to translate. We've been transparent with our assumptions with you all so that you can see where that's going to run relative to what actually happens.

And Sarah, this is Sun. On your question about payer mix on USPI. I would say it's been very consistent. As Saum mentioned, we have some GI that came back. So that will tweak the overall mix a little bit from a payer standpoint, but nothing substantive. So we're very pleased with our payer mix. In Q4, we reported at USPI net revenue per case growth of 5.5%, total EBITDA margins above 40%. So I think all those metrics show very strong revenue acuity.

Our next question is from Benjamin Rossi with JPMorgan.

Just as a follow-up for the ambulatory side. For the $30 million EBITDA headwind across ambulatory from the EAPTCs expiring, how much of your payer mix for the ambulatory segment came from the ACA exchanges in 2024 and 2025? And then did you see any pull forward across that cohort here during the fourth quarter, given your typical seasonal dynamics for ambulatory?

Yes, Ben, we don't disclose that information in terms of the segment. But we've been pretty clear all along that the HICS exposure at USPI is significantly less than the hospital segment. And no, we did not see any significant pull forward. We looked for it. Remember, we talked about this a quarter ago as well. We looked for it, but we did not see any significant pull forward.

Next question comes from John Ransom with Raymond James. John, are you there? Are you muted, John?

Sorry, can you hear me now?

We can.

Sorry. There's a big narrative over the past few months that providers are getting on top of payers with coding advances assisted by AI, particularly claims resubmissions are easier. Is that exaggerated? What inning are we in? And just given that you're positioned owning Conifer and being a provider, what's your position on that debate?

Yes. I mean, John, I can only comment for Tenet and I guess, to some extent, for how we operate at Conifer. Our coding has always been appropriate, compliant. It's -- we audit carefully. We haven't changed our coding practices over the last few years, either for ourselves or necessarily for our clients. We aim for very high degrees of accuracy and we have not made changes in those areas. We have obviously been successful in increasing our acuity, which has supported our net revenue per case in terms of our pathway there.

And finally, just to unpack a little bit the question earlier related to this with Sun's comments about our managed care contracting environment. We also don't have extremely heavy HOPD market drive from what we're doing. So we do a lot on the basis of freestanding outpatient in what we do, and that ends up being a value to the plans. We have not found ourselves in conflict over coding practices. We find ourselves in conflict over the nature of the amount of time and energy we put into disputes, denials, underpayments and things of that nature. That have a process back and forth that you got to work through. But increasingly, we've been setting up systems with the health plans to have adjudication mechanisms to work with them on in order to resolve these things in a less resource-intensive way. Some payers have been better than others about doing that with us, but that's the path we're moving down.

Our final question is from Craig Hettenbach with Morgan Stanley.

And I appreciate all the details given the fluid backdrop in terms of puts and takes on this year. Saum, just keying off of your comment of taking an active approach to buybacks, especially at the current valuation multiple given the significantly stronger balance sheet, free cash flow generation and CommonSpirit kind of proceeds, how are you and the Board just thinking about kind of the right cadence here of buybacks?

Well, yes, I mean I purposely indicated I purposely noted and indicated that -- I mean, all these things link together, right? I mean it's not just that we have significant cash on the balance sheet. We just described maybe in more detail today, the kind of value we just generated from the Conifer transaction. Effectively, a portion of that transaction was like debt retirement, right? I mean it was an obligation on the balance sheet that was real coming up in the next few years.

And so then the other proceeds from that go back into investing in the business, investing in USPI, and it gives us the opportunity for more share buybacks. And I would link this to our guidance for 2026 in terms of -- I know we've talked a little bit about our growth rates and core growth rates. I mean we attempt to operate and behave like a company that trades at a higher multiple. We will deploy our balance sheet like an organization that recognizes that the multiple has a valuation that's attractive to buy back shares. And I think we've done that over the last year.

I mean that's our mindset, right? We expect to perform at that level. We also expect to deploy our balance sheet in a way that demonstrates we have confidence in our ability to operate. That might be the easiest way to describe how we think about the 2. They're interlinked for us.

We have reached the end of the question-and-answer session, and this concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.

Greetings. Welcome to the Tenet Healthcare Analyst Conference Call. [Operator Instructions] Please note, this conference is being recorded.

I will now turn the conference over to Will McDowell, Tenet's Vice President of Investor Relations. Thank you, you may begin.

Good morning, everyone, and thank you for joining today's call. I am Will McDowell, Vice President of Investor Relations. We're pleased to have you join us for a discussion of Tenet's announcement of our accretive Conifer transaction. Tenet senior management participating in today's call will be Dr. Saum Sutaria, Chairman and Chief Executive Officer; and Sun Park, Executive Vice President and Chief Financial Officer.

Listeners to this call are advised that certain statements made during our discussion today are forward-looking and represent management's expectations based on currently available information. Actual results and plans could differ materially. Tenet is under no obligation to update any forward-looking statements based on subsequent information. Investors should take note of the cautionary statement in today's press release as well as the risk factors discussed in our most recent Form 10-K and other filings with the Securities and Exchange Commission.

One note before I turn the call over to Saum, as we discussed in today's release, our fourth quarter 2025 adjusted EBITDA is expected to be at the upper end of the guidance range that we had previously provided on October 28, 2025, driven by continued strength in same-store revenues and disciplined expense management in both the hospitals and USPI. We will not make any further comments about 2026 guidance or other details about 2025 results on this call.

With that, I'll turn the call over to Saum.

All right. Thank you, Will, and good morning, everyone. I'm very pleased to announce that we have closed an accretive asset sale regarding Conifer's revenue cycle management services contract with CommonSpirit. Conifer has been providing high-quality services under this contract since 2012. This transaction results in total value to Tenet of $2.65 billion comprised of a mix of cash payments reduction of material balance sheet liabilities and the value of the additional 23.8% of Conifer equity that we acquired as part of this transaction. This amounts to an approximate just under 14x multiple on the impacted 2025 adjusted EBITDA less NCI.

We have spoken in the past about our belief that there was hidden value in Conifer relative to our overall equity value. This transaction is a clear example of that. Now while this is another example of an attractive asset sale, this is a complex transaction that may not have been expected by the public markets. And as such, we wanted to have this call to provide a more fulsome discussion about the value we have generated.

I'm now going to turn the call over to Sun, so he can provide some details about the transaction. Sun?

Thank you, Saum, and good morning, everyone. I'd like to spend a minute to walk through the mechanics of the transaction, so you can understand the economics and the value that we have generated as a result. There are several components, so we'll review them step by step.

The key components of the transaction are as follows: First, Conifer will continue to provide revenue cycle services to CommonSpirit through the end of 2026 as financial terms that are consistent with the existing contract. Said another way, we expect the same amount of adjusted EBITDA in 2026 from our services that we would have recognized had the transaction not taken place. For context, estimated annual adjusted EBITDA less NCI from this contract in 2025 was approximately $190 million.

Second, because the equity transfer of CommonSpirit's stake in Conifer is retroactively effective as of January 1, 2026, we will not record any income available for noncontrolling interests, or NCI, expenses related to CommonSpirit. All of Conifer's economics will be recognized by Tenet in 2026, such that our NCI expense will be lower by approximately $100 million.

Third, CommonSpirit will pay $1.9 billion to Tenet over the next three years, $540 million in the first quarter of 2026, followed by three equal annual installments of $453 million at the beginning of the first quarters in 2027, '28 and '29, respectively.

Fourth, in the first quarter of 2026, Tenet will pay $540 million to CommonSpirit to address the elimination of CommonSpirit's capital account and execute the redemption of their 23.8% equity stake in Conifer, again, effective as of January 1, 2026. This $540 million payment to CommonSpirit will offset the $540 million first installment payment due to Tenet in 2026.

CommonSpirit's capital account of $885 million is largely reflected on Tenet's balance sheet and the line item: redeemable noncontrolling interest in equity of consolidated subsidiaries. We will reduce this balance in the first quarter of 2026. And finally, Tenet's additional paid in capital balance will increase by $305 million as a result of the transaction.

And with that, I will turn the call back to Saum.

All right. Thank you, Sun. We understand CommonSpirit's desire to in-source their revenue cycle and support their broader transformation objectives. For over a decade, this has been an excellent relationship for Conifer and we have supported CommonSpirit's industries and contributed to a strong revenue cycle foundation for their future. We're proud of the work we have done for them, and we look forward to seeing them continue to advance their important mission in the communities they serve.

Conifer is deeply committed to innovation in its work and automation to reduce the cost to collect in its operating model for both Tenet hospitals and third-party clients. As we look to the future, we see opportunities to leverage Conifer scale to advance offshoring, automation and apply AI to drive greater efficiencies and enhanced capabilities to better serve clients. It is imperative these investments continue and in a manner that is aligned throughout our organization. This transaction returns full strategic control of our growth and future in Conifer to Tenet.

In summary, this transaction further strengthens our cash flow position over the next several years. As we step into 2026, we will be focused on actively deploying capital to generate shareholder value. With share repurchase being an important priority for us in addition to continued M&A in the ambulatory space and capital expenditures to fuel organic growth, all the while maintaining a deleveraged balance sheet.

And with that, we're ready to begin with Q&A. Operator?

[Operator Instructions] Our first question comes from the line of Brian Tanquilut with Jefferies.

Congrats on the quarter. But just maybe to focus on this Conifer topic today. As we think about the remaining partners and equity holders within the Conifer book of business, I mean, how are those conversations going? Obviously, this is a big client that's transitioning away. So just curious if you're hearing any reactions or what you can share with us, Saum, in terms of where we -- how we should feel confident that you'd be able to retain the remaining portfolio of clients?

I don't think -- I mean I don't think that's even a topic of conversation. I mean, Conifer's client service and results, including for Tenet have been excellent and continue to be excellent. You guys see that every quarter in terms of what we report. And from our standpoint, we have new clients coming on board. So we expect to substantially redeploy resources at the end of this year for our growth objectives. So I wouldn't think of this as anything other than a highly accretive asset sale happened to be a contract rather than what we've done in the past, which are hospitals. But from our standpoint, the return of strategic control of Conifer fully to Tenet is important for the types of investments we're going to be making in the future. So we fully believe in the opportunity in this market and our ability to grow.

Our next question comes from the line of Josh Raskin with Nephron Research.

This is actually Marco on for Josh. Just one quick one to start. I know you stopped disclosing Conifer level results back in 2023, but it would just be helpful if you could frame where that business currently sits relative to the revenue and EBITDA contribution? And then the real question is just you spoke to expansion of investments in AI, automation and on some other areas in Conifer. Can you just recap where investment spending has been focused over the past year or two? And then just give a little bit more detail on the magnitude of that ramp-up that you're speaking to? And what functionalities you're actually trying to improve moving forward?

Okay. Let me answer. There's a lot of questions in there. Let me give you a brief answer to some of them. First of all, we're not going to talk more about -- you can imagine the ink is just dry on this. So how we think about Conifer beyond the numbers that Sun gave you around EBITDA minus NCI impacted EBITDA minus NCI for 2025 of $190 million. It's pretty much the extent of what we're going to do today. We obviously have an earnings call coming up in -- and more after -- during and after that, where we'll have some more detail about that with respect to how we see Conifer playing out over the year. Obviously, we're going to need to make that clear.

Look, from our standpoint, we've been -- I've been talking about this for the better part of 1.5 years in terms of some of the investments that we've been making in the business to support the revenue cycle for ourselves and for our clients at Conifer in particular, in improving the conversion of automated scribe based notes and other things into appropriate claims. Areas like coding, where we have been investing in automation areas like denials management, where we have been investing in AI-driven solutions to improve the speed and veracity of dispute management with the insurers and also enhancements that have been made with automation technologies, some of which are powered by AI, some of which are powered more by advanced analytics to enhance our automated workflow tools, which is one of the things that makes Conifer so efficient and reliable in the work that it does.

So from our standpoint, none of that changes, right? We're on a multiyear path here to improve, which results over time and reductions in the cost to collect. That's a good thing because it takes resources away from what is an administrative function and allows people to redeploy them into clinical areas and that makes Conifer more and more competitive in the marketplace over time. So none of that changes. So we are very, very much focused on continuing that journey and doing it with full strategic control of Conifer so those decisions can be made by Tenet.

Our next question comes from the line of A.J. Rice with UBS.

Hi, everybody. Just trying to understand your comments about stepping up consideration of offshoring, investing for AI and other capabilities. Were you constrained under the current arrangement by maybe your partner's limited willing to commit capital on doing things so that now you have the ability to -- as a sole strategic controller of Conifer to step up spending? Any sense of how much incremental capital outlay you would direct towards Conifer on a go-forward basis? And then often, when you have a restructuring like this, there's expense reduction opportunities, have you commented on how you might adjust the cost structure beyond '26 in Conifer? Or do you think you can redeploy that into other growth right away?

Yes. So A.J., a few different things. First of all, I mean, this was a joint venture. So in a joint venture, both parties work together collaboratively, usually to make investment decisions and other things. So I wouldn't characterize that as being constrained. I mean we had a joint venture partner and we made decisions on a variety of these things together. So I don't want to put any kind of sense of blame that one party was constraining the other. We were in a situation where we both had to make decisions together. We're now not in that situation, but that doesn't mean that both parties didn't have good ideas throughout the life of the joint venture. And so we will both be heading in slightly different directions at this point, but I don't want to leave the impression that one party was constraining the other because I don't think that's fair to either party.

Right now, we are entirely focused as Sun indicated. 2026 is going to be a busy year because it's a big account, and we are responsible for servicing the account through the year. And with the same terms and earnings and other things that we would have expected. And then there will obviously be a transition that comes at the end of it.

Our current growth agenda is going to allow us to redeploy a lot of our people, technology, resources very, very quickly from that standpoint. And we continue -- in the last part of your question, we continue to grow and increase the amount of activity that we are pursuing offshore within the Conifer business and in fact, more broadly, within the Tenet business, so that our global business center in Manila is scaling up and has scaled up over the last year. We'll provide an update on that on the earnings call. But it continues to scale up, and we would anticipate doing the same in 2026.

Again, I come back to a very important point here that I've tried to make, which is the ability to combine workflow automation, AI and offshore creates a real opportunity to lower the cost to collect over time progressively in this outsourcing business, which is just going to make Conifer more and more competitive in the marketplace. Separate all of that from -- at the end of the day, this is just a highly accretive asset transaction that made sense at this time.

Our next question comes from the line of Justin Lake with Wolfe Research.

I appreciate you running through the numbers. I just want to make sure I kind of understand the economic impact here. So you're saying, I think if you said $190 million of EBITDA minus NCI and $100 million of NCI, you're saying EBITDA here is around $300 million, let's say, ground numbers, NCI $100 million. You keep the EBITDA, you'll lose the NCI of '26 and then in '27, the $300 million of EBITDA goes away. First of all, is that the right way to think about it?

And then secondly, the all-in cash, when you think about the inflows and outflows and maybe the cost of kind of running this thing and exiting it and all that, can -- is there a number that you want us to think about like an after-tax number potentially in terms of kind of a net that we should be thinking about after all is said and done, of kind of cash to the company that we should pencil in?

Okay. So a few things. Justin, why don't -- Sun, why don't you walk through the numbers again and then I can provide some color on maybe some of the areas, Justin, that you've asked about.

Yes. Justin, I think you're largely correct on your first part. Yes, the EBITDA less NCI for this contract was approximately $190 million, as said. The $100 million of NCI reduction that we will see in 2026 is, of course, reduction on the value we get from our revenue cycle services to CommonSpirit, but also to other non-CommonSpirit agreements as well. So that's on the overall Conifer book. So I would just make that distinction on the $100 million of NCI expense. We're not commenting specifically on the EBITDA for impact for '27 yet. As Saum said, we have a lot of work to do to plan through that.

And then Saum, back over to you.

Well, yes. And then do you want to talk about the two very direct cash components of this, which are the cash payments plus the direct liability reductions on the balance sheet? Maybe just cover those for Justin again and then I'll comment.

Yes. Sorry about that. Yes. Justin, I guess right, on the $1.9 billion payment to us, that will largely be a normal taxable structure. As a reminder, if we were receiving revenues throughout the rest of the contract, those would -- the income there would have been normally taxable revenue streams as well. So I think it's apples-to-apples.

On the other cash component, where our balance sheet will see a reduction of $885 million of capital account plus some smaller amounts in other liabilities, I think the tax piece there gets relatively modest, and we'll have more information about that as we go. But I think the largest taxable component is the $1.9 billion that I just mentioned.

Yes. And then the last piece, of course, is the direct reduction on the balance sheet liabilities, which obviously at the end of this contract would have been something that we were making payments on in addition to whatever the cost of redeeming the equity would have been. So that's how I would think about it. Obviously, by bringing back our 23.8% equity, we obviously pick up other value in the ownership of that equity, right, because we now own 100% of it. That's the only noncash portion, Justin, I guess, is the way to answer that, the value of the equity. The rest of it is all a direct benefit.

Our next question comes from the line of Sarah James with Cantor Fitzgerald.

Can you talk about Conifer's AI investment strategy a little bit more and how you're prioritizing opportunities across the front-end mid-cycle versus back end of rev cycle in terms of ROI?

Well, as I said, we don't think of this as an AI-only environment. I think there are multiple things that go into this, including automation and robotic processing that contribute to this. Some of those technologies may be powered a bit by AI. But there are areas where AI is very helpful in creating efficiencies and generating the -- what I would describe as prior paper-based or human capital-based approach to doing things. Sometimes it's augmenting, sometimes it's checking, sometimes it's producing paper-based things in a more automated fashion like denials management processes and coding.

There's also just analytics which don't really get powered by AI, but advanced analytics that drive workflow efficiencies. So if you think about in the revenue cycle, a lot of what helps make the people who are running it more effective is having the algorithms in place for millions and millions of claims to sort them as accurately, efficiently and quickly as possible in order to generate the highest yield.

So our investments are split between things we're doing to drive automation, things we're doing to improve the reliability and speed of the workflow and things where we are deploying AI in order to either augment what people are doing or in some cases, replace what people are doing in a higher fidelity way. And the combination of those three things drives our investment strategy. The objective, of course, is straightforward. It's reduction in the cost to collect, stepwise over time, which makes the business more competitive from a pricing standpoint. And secondly, improving the yield and the speed at which you realize that yield, which is really the product that Conifer produces for the marketplace. That's how we think about it. And strategically, our investments are focused across those areas, both with our domestic and global business center today. Does that help?

Yes. Thank you.

Our next question comes from the line of Whit Mayo with Leerink Partners.

When CHI obtained its equity stake years ago in Conifer, did they give you cash for that equity stake? I don't think they did. And is that partially why they're paying back to you $1.9 billion to account for the ownership? And can you also just remind us the time frame that this contract was structured to run through?

The contract began in 2012. It was -- it would have ended 20 years later, so 2032. And with -- I don't know if I don't believe there was a capital contribution at that time, but you may know...

I don't think so. I don't think there was not, Saum. And then with the $1.9 billion is related to the revenue cycle contract, not necessarily the equity. That's just the breakup fee.

Our next question comes from the line of Craig Hettenbach with Morgan Stanley.

Just wanted to circle back on how this could influence your capital allocation strategy. So first, just as you've delevered the balance sheet, you're still kind of comfortable operating around current leverage ratios. And then on USPI, is kind of the strategy there still mostly focused on tuck-in type deals?

Well, the capital allocation priority categories haven't changed, right? I mean growing USPI, I think we forecast already in 2025, we would be well above our $200 million to $250 million in capital allocation. We continue to see a very strong pipeline for USPI. Sometimes those are individual tuck-in centers. Sometimes those are multicenter businesses that we're acquiring. We also have a robust de novo strategy that we're investing in significantly as that ramps up. We've talked about the investments in organic growth that we're making, obviously, with better margins and returns on capital in our hospital segment. Of course, within that segment is Conifer, and we've already talked about the capital allocation priorities there.

We're cognizant of the fact that this is, again, a highly accretive transaction and contributes to cash relative to what this asset was being valued at, and that gives us an opportunity, as I indicated in my comments, first and foremost, around share repurchase especially given our trading multiples today. So the categories don't change. We just have an opportunity to accelerate, and we have more cash available to us to redeploy in share repurchase.

Our last question will come from the line of Kevin Fischbeck with Bank of America.

Great. Just wanted to understand a little bit better to make sure that I understand the EBITDA impact that you're talking about. I understand that you're not able to fully put a point on 2027 EBITDA. But when you talk about the $290 million going away. Is that kind of your view about the EBITDA of that business plus whatever deleveraging? Could you talk a bit about how you're going to redeploy assets. I wasn't sure if that $290 million assumes maybe there's some drag or fixed cost leverage or whether that assumes full redeployment of assets?

And then this comment about the investments you're going to be making, are these comments kind of normal course that these are the types of investments we've seen at Conifer year after year where you're just kind of orienting them in a certain way? Or are you talking about a step-up of investment in 2027? And beyond that might create a drag in the out years?

Kevin, I just want to clarify the EBITDA minus NCI, the impact of EBITDA minus NCI that we're talking about is $190 million, and it's upon that $190 million that I described the upfront approximately 14 multiple of the total value in this transaction, not $290 million. We haven't commented -- I mean, obviously, we haven't commented any further about how this is going to look in '26, let alone '27. As I said, the ink is just drying on this, and we have some work to do to understand how we're going to manage the business over time. And remember, in 2026, we still have a contract of services that we need to run, and we're going to generate, in addition to everything we talked about here, the usual revenue and margin on this contract during 2026. It's just that we won't have to share any NCI expense given that our equity was redeemed retroactively to January 1 of this year. So that will create additional earnings in 2026 as a result. And then in 2027, there will be a change. We haven't said what that change is going to be. We're obviously mapping are growth opportunities, both from the perspective of clients that are already locked in that we plan on onboarding and redeployment of resources and assets.

But I mean if ultimately, the question is about do we realize that there is probably some restructuring activity that's going to have to take place? Yes, of course. But mean from my perspective, we've demonstrated the operating discipline to manage our business effectively and grow our earnings and margins despite having had other asset sales. So you can fully expect that the level of attention to the operations will be the same. What's different in this situation is that we have growth opportunities that are already in front of us. And so we expect redeployment of our resources, people, talent, technology, et cetera, as a first priority for Conifer as we come to the end of 2026 and the beginning of 2027, and we'll guide to that at the appropriate time.

If anything, if I close, I mean, from a qualitative perspective, all that means is, for us, the actual embedded value in owning 100% of Conifer is even higher given our future growth that's already locked in with this redeployment that will occur. And we feel very good about that.

Thank you. We have reached the end of our question-and-answer session. And with that, ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. Please disconnect your lines, and have a wonderful day.

Good morning, welcome to Tenet Healthcare's Third Quarter 2025 Earnings Conference Call. [Operator Instructions]

I'll now turn the call over to your host, Mr. Will McDowell, Vice President of Investor Relations. Mr. McDowell, you may begin.

Good morning, everyone, and thank you for joining today's call. I am Will McDowell, Vice President of Investor Relations. We're pleased to have you join us for a discussion of Tenet's third quarter 2025 results as well as a discussion of our financial outlook. Tenant senior management participating in today's call will be Dr. Saum Sutaria, Chairman and Chief Executive Officer; and Sun Park, Executive Vice President and Chief Financial Officer.

Our webcast this morning includes a slide presentation, which has been posted to the Investor Relations section of our website, tenethealth.com. Listeners to this call are advised that certain statements made during our discussion today are forward-looking and represent management's expectations based on currently available information. Actual results and plans could differ materially. Tenet is under no obligation to update any forward-looking statements based on subsequent information. Investors should take note of the cautionary statement slide included in today's presentation as well as the risk factors discussed in our most recent Form 10-K and other filings with the Securities and Exchange Commission.

And with that, I'll turn the call over to Saum.

All right. Thank you, Will, and good morning, everyone. We had another quarter of strong performance where we exceeded our expectations for revenue, adjusted EBITDA and margins.

Third quarter 2025 net operating revenues were $5.3 billion, and consolidated adjusted EBITDA grew 12% over the third quarter 2024 to $1.1 billion. This represents an adjusted EBITDA margin of 20.8%, which is 170 basis points improvement over the prior year, driven by our strong same-store growth and continued operating efficiency. USPI continues to excel, and we generated $492 million in adjusted EBITDA, which represents 12% growth year-over-year. Same-facility revenues grew by 8.3% in the third quarter, highlighted by 11% growth in total joint replacements in the ASCs over the prior year.

Our M&A and de novo activity remains robust as we acquired 11 centers and opened 2 de novo centers in the quarter, including facilities specializing in high acuity procedures such as spine and orthopedics. We have already spent nearly $300 million on M&A in this space year-to-date and expect to continue adding additional centers in the fourth quarter. The M&A and de novo pipelines remain strong.

Turning to our hospital segment. Adjusted EBITDA grew 13% to $607 million in the third quarter of 2025. Same-store hospital admissions, adjusted admissions were up 1.4% in the quarter. And third quarter 2025 revenue per adjusted admission was up 5.9% over the prior year as payer mix and acuity remains strong. In September, we opened our newest hospital facility in Port St. Lucie, Florida. This facility expands capacity in one of the fastest-growing areas in the country. The hospital will provide comprehensive emergency in specialty care and is focused on leveraging state-of-the-art technology, including robotics and advanced cardiac catheterization techniques.

Turning to our full year guidance. At this point in the year, we are once again raising our full year 2025 adjusted EBITDA guidance to a range of $4.47 billion to $4.57 billion. Building upon our substantial post second quarter guidance increase, indicating the confidence we have in our business this year, we have now increased our adjusted EBITDA guidance by $445 million or 11% at the midpoint of the range from our initial guidance. Additionally, we are increasing our investments in capital expenditures in 2025 and now expect to invest $875 million to $975 million to fuel organic growth in the future, a $150 million increase at the midpoint over our prior expectations.

In addition to this increased investment, we are also raising our expectations for full year 2025 free cash flow minus NCI to a range of $1.495 billion to $1.695 billion, an increase of $250 million at the midpoint from our previous guidance range. This increase is driven not only by the fundamental growth in adjusted EBITDA, but also by the strong cash collection performance of Conifer.

Let me turn to 2026 with a few points. Uncertainty about the enhanced premium tax subsidies and the impact on reimbursement and enrollment in the exchanges still exists. Approvals for various increases in state directed payment programs for 2026 are still pending. Currently, in our hospital segment planning process, we see healthy patient demand that would support same-store volume growth and a stable operating environment supported by disciplined cost controls in 2026. Our strategy, which is more focused on higher acuity services, has delivered a track record of improved margins and strong earnings growth over the past few years. The return on invested capital for this improved portfolio of hospital assets is such that we have confidently increased our CapEx per bed from prior levels to higher levels in both 2024 and 2025, and we should continue to see the benefits of that into 2026.

At USPI, we expect same-store revenue growth in line with our long-term expectations, a continued focus on high acuity cases, operational efficiencies and disciplined cost controls. Additionally, we expect further contributions from M&A and de novo development. I would note that USPI is less exposed to Medicaid and the exchanges and our ASCs are on freestanding rates. We will continue to operate and invest in this attractive segment. In summary, we continue to deliver our commitments for sustained growth, expanding margins, a delevered balance sheet, and improved free cash flow generation. Our strong execution is driving attractive EBITDA growth that we are converting into significant free cash flow and our transformed portfolio of businesses are well positioned to drive sustained performance in the future.

And with that, Sun will provide us a more detailed review of our financial results. Sun, over to you.

Thank you, Saum, and good morning, everyone. We delivered strong results in third quarter 2025, with adjusted EBITDA above the high end of our guidance range, once again driven by strong same-store revenue growth, continued high patient acuity, favorable payer mix and effective cost controls. We generated total net operating revenues of $5.3 billion and consolidated adjusted EBITDA of $1.1 billion, a 12.4% increase year-over-year.

Our adjusted EBITDA margin in the quarter was 20.8%, a continuation of our improved margin performance over multiple quarters. I would now like to highlight some key items for both of our segments, beginning with USPI, which again delivered strong operating results. In the third quarter, USPI's adjusted EBITDA grew 12% over last year, with adjusted EBITDA margins at 38.6%. USPI delivered an 8.3% increase in same-facility system-wide revenues, with net revenue per case up 6.1% and same-facility case volumes up 2.1%.

Turning to our hospital segment. Third quarter 2025 adjusted EBITDA was $607 million, with margins up 160 basis points over last year at 15.1%. Same-hospital inpatient adjusted admissions increased 1.4% and revenue per adjusted admissions grew 5.9%. Our consolidated salary, wages and benefits was 41.7% of net revenues, a 160 basis point improvement from the prior year and our contract labor expense was 1.9% of consolidated SWB expenses. These improvements continue to be driven by our data-driven approach to capacity and labor management and disciplined operating expense controls.

Finally, we recognized a $38 million pretax impact for Medicaid supplemental revenues related to prior years in the third quarter of 2025. As a reminder, in total, year-to-date, we have recorded $148 million of favorable pretax impacts associated with Medicaid supplemental revenues related to prior years. Next, we will discuss our cash flow, balance sheet and capital structure. We generated $778 million of free cash flow in the third quarter, amounting to $2.16 billion of free cash flow year-to-date, which is up 22% over the same 9-month period in the prior year. As of September 30, 2025, we had $2.98 billion of cash on hand with no borrowings outstanding under our line of credit facility. Additionally, we have no significant debt maturities until 2027.

And finally, during the third quarter, we repurchased 598,000 shares of our stock for $93 million. Year-to-date through September 30, we have repurchased 7.8 million shares for $1.2 billion. Our leverage ratio as of September 30 was 2.3x EBITDA, or 2.93x EBITDA less NCI driven by our outstanding operational performance and continued focus on financial discipline. We believe we have significant financial flexibility to support our capital allocation priorities, and drive shareholder value and are very pleased with our ongoing cash flow generation capabilities. We remain committed to a deleveraged balance sheet.

Let me now turn to our outlook for 2025. For '25, we now expect consolidated net operating revenues in the range of $21.15 billion to $21.35 billion, an increase of $150 million over prior expectations. As Saum mentioned, we are raising our 2025 adjusted EBITDA outlook range by $50 million at the midpoint to $4.47 billion to $4.57 billion, reflecting our outperformance in the hospital business. This is in addition to the substantial $395 million guidance raise that we announced in the second quarter. At the midpoint of our range, we now expect our full year 2025 adjusted EBITDA to grow 13% over 2024.

Turning to our cash flows for 2025. We now expect free cash flows in the range of $2.275 billion to $2.525 billion, distributions to noncontrolling interest in the range of $780 million to $830 million, resulting in free cash flow after NCI in the range of $1.495 billion to $1.695 billion, an increase of $250 million at the midpoint from our previous guidance range. This reflects our focus on strong free cash flow conversion from our EBITDA growth, the continued outstanding cash collection performance of Conifer and continued investment into high priority areas of our business.

Now turning to our capital deployment priorities. We are well positioned to create value for shareholders through the effective deployment of free cash flow and our priorities have not changed. First, we will continue to prioritize capital investments to grow USPI through M&A. Second, we expect to continue investing in key hospital growth opportunities to fuel organic growth, including our focus on higher acuity service offerings. Third, we will evaluate opportunities to retire and/or refinance debt. And finally, we'll continue to have a balanced approach to share repurchases, depending on market conditions and other investment opportunities.

We continue to deliver consistent growth and a disciplined operations, which has translated into outstanding financial results. We are confident in our ability to deliver on our increased outlook for 2025 as we continue to provide high-quality care for our patients.

And with that, we're ready to begin the Q&A. Operator?

[Operator Instructions] Our first question comes from Kevin Fischbeck with Bank of America.

Great. I wanted to ask you about the Q4 guidance and kind of the expectations for utilization. Are you guys building anything in there for higher utilization before these subsidies expire? And how do you think about the capacity, I guess, particularly within USPI to accommodate utilization there? And then I guess, secondly, you mentioned that USPI is insulated from the headwinds for next year, but just trying to understand a little bit where you do see that pressure. I guess can you talk a little bit about exchange exposure within USPI.

All right. There's a lot of questions in there, Kevin. So let me just tackle one by one. And Sun, we can kind of complement here. First of all, we haven't built in anything nor are we seeing any kind of rush to the office, if you will, with respect to the exchange subsidies. We're not planning nor are we saying that we expect them to expire at this stage. I think much of what we're hearing is that it may take time, but a compromise will be achieved from our intelligence coming from Washington. So we're just sort of patiently waiting to see what happens there.

From a capacity utilization standpoint, at USPI, we typically have, as you know, busier late November and certainly December and have planned for staffing and capacity stretch that happens in that time period every year. So the simplest way to look at it is we're not worried about our capacity to take on the demand that we would see in the typical end of the fourth quarter USPI. We began planning for that every year, months in advance with a very well-established protocol of how we do things. And there should be no reason that's different this year, including if there happen to be more demand that came because of the -- any kind of change in the exchanges or whatever that may be ahead of us from that perspective.

What we have said about exchange business at USPI is a couple of things. One is there's a lot less exposure there on a per case or revenue basis than in the hospital segment. And the reason for that we have said is that we typically see the exchange business, especially newer exchange members behaving with consumption patterns that are more similar to, for example, Medicaid and that explains some of the difference.

Sun, I don't know if there's anything you want to add here.

Yes. Just a couple of metrics, Saum. I would also just note for USPI, our implied Q4 guidance is about an increase of $80 million roughly from Q3 into Q4, which is fairly standard, if you look at our historical pacing and change into Q4. So I think we remain confident in our -- both our capacity as well as our ability to take care of those patients.

And then in exchange, I would just note that for Q3, exchange was 8.4% of our total admissions and 7% of our total consolidated revenues. So a slight increase in total as a percent of admissions from Q2 and reasonable relatively flat in terms of total percent of consolidated revenue. So we do see continued strong exchange performance, but at this point, no significant increase in Q3. So we'll see in Q4. Thanks for your question.

Our next question comes from Scott Fidel with Goldman Sachs.

Wanted to hopefully just draw a little bit more to the CapEx inputs for the year, including the increase in the CapEx guidance. Maybe if you can talk about specific allocation of capital related to the increase and then maybe bucket some of the key larger investments that you're making within the CapEx for the full year?

Scott, I appreciate the question. So I would just characterize the increased capital expenditure as more investment in both program or clinical program infrastructure, service line support and various other growth strategies in the hospitals. I mean, obviously, our CapEx plan for the year included the residual capital that was required to open up the Port St. Lucie Hospital. So this is capital expenditure that has extended above and beyond that where we see opportunities for growth.

Look, as I indicated, the demand environment continues to be very healthy and we see opportunities. And the efficiency with which we operate, our focus on service levels to the physician community, we see the opportunity for them to choose our site as a location of care for their patients more and more. Obviously, the way in which we tend to deploy this capital is focused more on our high acuity strategy, so things that are relevant to the cardiac care unit, intensive care unit, cath labs, high-end imaging, et cetera, surgical programs. But that's really how we're making the investments around the country. And as we reviewed them, through this business planning cycle, we felt it was a good time, given the demand that we continue to see through the third quarter to go ahead and make those investments and raise our guidance.

Our next question comes from Craig Hettenbach with Morgan Stanley.

Yes. I want to just extend that just focused on free cash flow here, the increase to guidance. You mentioned kind of improved cash collections at Conifer. You also have margins coming up. So any other context around kind of free cash flow and importantly, just the sustainability of those trends as you see it?

Sun, go ahead.

Craig, thanks. Yes, as mentioned, this has been a long-term focus of ours, making sure not only EBITDA growth and EBITDA margins come through, through strong operational performance. also then making sure that converts through free cash flow. And we listed some of the key drivers there. Obviously, the continued improving and a fantastic performance by Conifer on cash collections. Obviously, growth in EBITDA comes through.

And then probably a couple of other things that I'd point out. More broadly, in terms of working capital management, we have spent a lot of time and focus on making sure we're optimizing all components of there. And then obviously, one of the additional benefits of our continued deleveraging is improvement in interest expenses, which also helps our free cash flow generation. We believe these operational efficiencies that we've implemented similar to our margin performance, whether it's Conifer or working capital management or continued EBITDA generation, we obviously will work hard to make these sustainable over a long period of time.

Our next question comes from Jason Cassorla with Guggenheim Securities.

Great. I just wanted, Sun, to go back to your commentary around the implied 4Q guidance on USPI. At the midpoint, it would imply year-over-year growth, a little over 8%, which is still strong, marks a little bit of a deceleration from like the low to mid-teens you've done this year. Just any thoughts around that? Is it conservatism? Anything from a timing perspective, like the pace of development coming online that's impacting that? Just any further detail around the implied fourth quarter guidance for USPI would be helpful.

Well, Sun, we can -- let me start. I don't think anything we're saying about the business demand, organic performance really changes. I mean, obviously, we have certain assets at a larger scale and various other pricing elements that begin to lap year-over-year from that perspective. And so if anything, it's just math, basically. But there's really no -- I mean we don't there's no implication. We're not looking at this fourth quarter at USPI really any differently than in prior fourth quarter. As I said, we're intensely just focused on the ramp-up of business that we typically would see. Sun?

Yes, I don't think I have anything further to add, Saum. Thanks.

Our next question comes from Ann Hynes with Mizuho.

Great. Just looking at the -- obviously, margins and cash flows have been very strong. Costs have been very good. going into 2026, especially the labor environment, I think that's better than expectations in 2025. Do you expect that to continue into 2026 on the labor side? And then any other inflationary pressure you would call out as we do our models, that would be great.

Go ahead, Sun.

Sure. And while we're not commenting specifically on '26 yet, we'll note a couple of things. You're right. Our labor environment has generally been very strong and conducive to our operations. whether it's full-time labor expenses, whether it's our management of contract labor and other premium labor, whether it's pro fees, I think they've all been to our expectations. And in the current environment, as we sit here today, don't see any meaningful changes coming.

In terms of other inflationary pressures, again, not commenting specifically on '26, but obviously, the other topic that we've talked about is tariffs, we've said that for 2025, we've been able to manage that fairly well due to both our sourcing optimization exercises, whether it's contracting, whether it's working with our vendors, whether it's picking the right products, as well as through efforts through our GPO. So we remain confident based on our contract structure that we have a couple more cycles where we'll be able to manage this. But obviously, as we get into the future years, we'll have to remain nimble on the tariff dynamic.

Our next question comes from Benjamin Rossi with JPMorgan Chase.

I guess just checking in on Conifer, how did Conifer's contribution within the Hospital Operations segment shake out during 3Q? And then you've previously mentioned Conifer's ability to sit with patient eligibility and enrollment services during things like Medicaid redeterminations. I guess should the ACA exchange subsidies expire, do you think Conifer could have a similar utility for you in helping identify patients with lost coverage and to be eligible for coverage elsewhere?

Well, I mean, that's a very good insight about some of the capabilities that we have in Conifer. And by the way, I would flip it the other direction as well. Given the time frame we're at, but the likelihood -- the positive likelihood of a compromise that we keep hearing, it will also be important that we have invested in the right capacity and capabilities to utilize Conifer's ability to help with enrollment and enrollment in our markets in our clients' markets on the exchanges if the exchange enrollment time line gets delayed or extended.

So yes, obviously, the capabilities to help enroll in other products is there, but we're also ramping up our investments and approach to support what might be a little bit of a dislocated enrollment time line on the exchanges given the potential for a later compromise. So it will work well on both dimensions, and we have been investing up in both our staffing and field deployment in preparation for that already. Conifer is performing well according to our expectations within the segment, not a lot else to comment on there. I mean obviously, we are really happy with the way it's performing in the market for us and our base of clients from a cash collection standpoint that I noted before.

Our next question comes from Ryan Langston with TD Cowen.

Nice to see the ASC volumes positive. Any particular service lines or maybe even geographies driving this? And maybe same thing for the acute side, any hospital service line stronger or weaker than you expected in the third quarter?

Yes. No, I appreciate the question. A couple of things. I mean we said this at the start of the year when we gave guidance that we kind of saw the environment USPI picking up later in the year just given -- we look very carefully, obviously, at how busy our positions are. And as we looked at that, we saw it ramping up in the latter part of the year. I would say probably the biggest driver of that growth in addition to the core of the higher acuity services that we're investing in, ortho, spine, some of the things we're doing in robotics and other things. Those things continue to go strong.

We saw just based upon the numbers, healthier GI recovery into the third quarter which is kind of what we were expecting, given what the volumes and business of our physicians look like in the first half. So that was probably an outsized driver of the USPI volume contribution. On the hospital side, and you can tell from the city net revenue per case, et cetera, I mean, that environment continues to be strong. Obviously, things like trauma and high acuity emergency visits and stuff. There's less elasticity there, right, with market conditions, given the nature of that.

The only thing I would note on the hospital side is that especially outpatient visits, which contribute to adjusted admissions, the respiratory and infectious disease volumes were a little bit lower than perhaps expectations. And that just may signal some sort of a slower start to the respiratory season. The numbers certainly seem to indicate that. But again, we're talking about the third quarter, right? So it's less of a harbinger than 1 would say. But factually speaking, the infectious disease respiratory areas are the only areas I would call out on a proportional basis.

Our next question comes from Justin Lake with Wolfe Research.

I might have missed it, but I was hoping to get an update on total contribution from DPP provider taxes in the third quarter. and your updated estimate on that benefit for the year. And then I appreciate you pointing out the $148 million of prior year DPP that we should think about as being kind of onetime, I assume. Any other items we should consider for 2026 in terms of that bridge year-over-year versus kind of typical growth?

Yes. Justin, on the DPP in Q3, we had about -- recorded almost $350 million, $346 million of supplement Medicaid programs, of which we noted $38 million of that was prior year. So that brings us to about a little over $1 billion of -- $1.02 billion for year-to-date in fiscal '25, then of that $148 million was out of period. So I think we're on track. It's right in the middle of kind of our expectations once you normalize for the out of period prior year payments. And then in terms of normalization. I would say from a technical math basis, the $148 million of Medicaid supplemental payments that we pointed out are the largest normalization factor for '25 and '26, obviously, there are a lot of other dynamics that we -- that Saum touched on in his opening comments around reimbursement and other dynamics that we'll have to take into consideration as we get deeper into guidance in our next earnings call.

Our next question comes from Brian Tanquilut with Jefferies.

Just a question on capital allocation. Obviously, you've set goals for USPI's acquisition spend, and you've already exceeded that. And then how should we be thinking about that and then the buyback in terms of how you're thinking about your thrown capital to buyback since you've hit your M&A targets already?

Yes. I mean the M&A targets every year are obviously guidance that we go into the year with respect to expectations of what we're going to do. We're responsive to a marketplace, as you can imagine. And we're very careful about our diligence in maintaining our high bar for acquisitions. This year, we have found more opportunities, a broader pipeline certain processes that may have been competitive in addition that we want and just continued momentum on our de novo strategy.

So mean the kind of cash flow that USPI generates, we can fund those increases. Now obviously, if you go back historically, with the platform deals that we have done, we've also outspent our typical guidance. So yes. Look, we try to update that as we go quarter-to-quarter based upon what we're seeing in the environment and what we're bringing on board. Obviously, having these additional assets on board is positive for the organization going into the following year. And as I noted, we also continue to see some more opportunity in the fourth quarter. So we'll see how that all plays out. I mean we just remain focused on executing the M&A and de novo strategy. And if we do it with the appropriate diligence and onboarding, we're just updating what the spend looks like in a given year.

Look, on the second point, we've been very active repurchasers of our shares this year. I would continue to reiterate at our trading multiples were long-term active repurchasers of our shares this quarter, obviously, was lower than the prior quarter. There's also a lot more uncertainty in the market. And we feel fine about what we've achieved this year in that regard.

Our next question comes from A.J. Rice with UBS.

As you start to think about 2026 budgeting together, et cetera, are there any particular areas on the expense management side. I know you've talked a little bit about some of the things you're seeing this year in labor. But whether it's labor supplies, other there are opportunities for incremental savings or programs to initiatives to move forward? And then obviously, there's a lot of discussion about AI, whether there's anything on AI that's worth calling out that you're focused on being able to deploy that.

A.J., so short, medium, long term, kind of all embedded in there. We have undertaken over the last few months and ongoing business transformation initiative that is designed to look for those opportunities and also do contingency planning given the uncertainty in the marketplace. Those opportunities would include how we think about all aspects of what I would call labor costs within the organization.

Obviously, this year, as we have noted before, we have done some work to rightsize our corporate structure, given some of the asset divestitures that we've had in the past. It has very much been our philosophy to -- I think you know this, to use advanced analytics and where we have the ability to more automation and leveraging our global business center, which is continuing to perform well and scale up. This will -- this year proportionately will be one of the larger scale up years in the last few years. within the global business center, which we feel very good about.

So there are a lot of opportunities there. Sun already talked about supplies, I won't say a lot more there, and we continue to invest actively in improvement opportunities and our ability to drive more efficient and better collections in Conifer, some of which we've noted in earlier parts of this call. So very much comprehensively looking at these opportunities. But with the mindset of finding both shorter-term and longer-term opportunities that will impact the business.

Our next question comes from Josh Raskin with Nephron Research.

First was a quick clarification, I think, on Kevin's question. Did you see the contribution from exchanges, the revenue contribution was less than the percentage of adjusted admissions? And then my real question just sort of getting back to the M&A environment for the ASCs. There's been a couple more reports, media reports in terms of maybe a competitive landscape. And I'm just curious if that's been changing or if you're seeing anything on valuations yet? And as you speak to your conversations with physicians, maybe how they're evaluating opportunities in ASCs as well?

I think the commentary, going back to the first question from Kevin was simply that the exposure to exchanges either on volumes or revenue is less than in the hospital business, USPI, the exposure whether you're looking at volumes of exchange patients or revenue from exchange patients proportionally in their business is less than the hospital business. That was what the comment was. I hope that helps clarify.

The ASC opportunity, first of all, I would say it has so many different dimensions in terms of the growth platform that we have built at USPI, right? We're active in de novos. Those are more focused on higher-end specialties and partnerships with our more proactive health system partners. So there's really 2 threads there. We've worked hard to work with MSO organizations that are deploying capital and scaling their businesses to be the partner of choice on the ASC side. I think that has played out very nicely. And really there, the strategies are across multiple different service lines, GI, orthopedics, stuff that we do with MSOs in ophthalmology, obviously, our urology platform, et cetera. So there are multiple avenues of growth that develop there.

Of course, we talk about the acquisition market a fair amount. And in that acquisition market, we have been, for a long period of time, the partner of choice. It's the reason we've scaled so effectively. But physicians to get to your question of what are they looking for? I mean they're looking for somebody who's delivered a consistent track record who has demonstrated the ability to grow, who has demonstrated the ability to take on new assets and find that other doctors tell them that it went well when onboarded. And they're looking -- many times, single specialty physicians are looking for somebody who has a proven track record to help them diversify their business. to grow the center and make it multispecialty, which is, as you know, something that USPI has historically been very, very good at in terms of running larger multi-specialty type of centers that help these physicians get to the next level of maturity in their investments.

So when I look across the board on the way the market works, we continue to be the advantaged party in what it takes to build and grow this segment. And so that's what gives us the confidence to continue ahead to spend more than we had originally thought we would spend and look forward to a healthy pipeline in 2026.

This is Sun. Josh, just to give you the numbers again. What we said was for [indiscernible], it represents 8.4% of our admissions in Q3 of '25 and 7% of our total consolidated revenues. So the admissions that is a little slightly higher than the revenue stat, and that's been consistent for us historically. Hopefully, that helps.

Our next question comes from Whit Mayo with Leerink Partners.

So CMS is this new Wiser model in fee-for-surface Medicare that starts next year. Do you see any impact on prior for administrative work for USPI? I know it's only 6 states, but Texas is one of them and knee arthroscopy and certain implants. I think there are an area they're focused on. So just any thoughts or insight into how you're preparing for this.

Yes. Well, there is some movement in the preauthorization space in fee-for-service Medicare. As you correctly note, the Wiser program still has some uncertainty about how and what scope of services that will be implemented for. But yes, we have taken into consideration what will be required there. There are really 3 threats to it. One is premiering documentation, understanding of documentation requirements for appropriate care. Two is actually consistently complying with those. And three is the operational element of managing our scheduling to be complemented by preauthorization having been achieved. So we're sort of prepared to do all of that. I mean we don't talk about it much, but we have a very capable revenue cycle function within USPI that deals with all of the end-to-end type of services that are required there. And so we feel pretty good about that.

Look, the other thing is that in any marketplace, when these types of things are introduced, there's an adjustment period. But also physicians have the opportunity to adjust different mix into the centers as they fill their -- especially the ones that have block time. And so I think part of the move here will also be to increase commercial mix and work with the physicians to increase their commercial mix in that process.

Our last question comes from Andrew Mok with Barclays Bank.

This is [ Thomas Wilson ] on for Andrew. As we await the finalization of the hospital outpatient role, could you comment on whether the removal of the inpatient-only list is a net positive or net negative for the enterprise?

Okay. So that came through really garbled. I think the question was, is the inpatient only rule list going away? And is that a benefit to us. I don't know that it's going away. I think there's been discussion about the inpatient-only rule list and what that impact would be. I mean, obviously, for us, the benefit would be in the USPI segment and potentially a push for more in certain types of volumes that have been in the hospital setting into the outpatient setting.

In our acute care hospital segment, because of our greater focus on high acuity work, proportionally, and it's not to say that we don't have the business. But proportionally, those cases wouldn't be affected as much as maybe a typical general acute care facility. But we haven't done any quantification of that, that we've shared anywhere. I think this policy is still very much up in the air being discussed and not even at the point where I would say that we're engaging in rule-making discussions about it.

We have reached the end of the question-and-answer session, and this concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.

Thank you.

Okay. Perfect. All right. So good morning, everyone. Thanks for joining us. I'm Steve Baxter, the Healthcare services analyst here at Wells Fargo. We're very pleased to have Tenet Healthcare with us this morning. As you likely know, Tenet operates a network of ASCs, acute care hospitals and a revenue cycle management business.

From the company, we're happy to have CEO, Saum Sutaria; CFO, Sun Park, and Will McDowell from Investor Relations. Thanks again for being here. And I think we're going to start maybe by throwing it to Will for a cautionary statement.

Yes. Thanks, Steve. Good morning, everyone. Pleasure to be with you today. Just in the course of our conversation today, we may be making some forward-looking statements. In the context of those statements, I would suggest you refer back to our cautionary statement included in our most recent earnings release as well as recently filed SEC filings.

And with that, I'll turn it over to Saum for some opening comments.

Thank you, Will, and thanks for having us. I appreciate the opportunity here today midyear, mid-Q3, really, in terms of where we are. We feel a great deal of confidence in the business. I would reiterate our earnings guidance for the year, including the raise that we put out after Q2 in both EBITDA, free cash flow and our M&A guidance for USPI. We're pleased with the way we are progressing through this year, in particular. From an operations standpoint, the margin expansion has been notable and significant, in particular, consistent with our high acuity strategy, which I'm sure that we'll get into.

We're also very pleased that from a more fundamental standpoint, the balance sheet remains strong, leverage sitting just above 3x EBITDA minus NCI, which we're very happy about as we look forward. And I think as we get into a variety of things related to policy and whatnot, we're pretty engaged in those topics, I think there will be a lot to talk about from that perspective.

Okay. That's great. Yes, thank you for those comments. And if we were to kind of think about -- obviously, you had a very strong start to the year, as you mentioned, the EBITDA guidance, the free cash flow guidance have both come up a lot at this point. As we kind of separate things a little bit between maybe Medicaid supplemental payments, which are kind of a discrete item in some ways. I know that's not always how the companies would think about them, and what we'd call maybe like the core performance. How would you characterize, if we kind of strip out the moving parts on the Medicaid figures? What's gone right in the first quarter and the second quarter? What's driven the outperformance that you've seen so far year-to-date?

Yes. Well, Sun, you may want to comment on the proportion of the guidance increase, but primarily, this was on organic performance.

Yes. And like you said, we did have about 100 -- a little over $100 million of out-of-period Medicaid supplemental payments in addition to our kind of baseline that contributed to about 1/3 of the raise. But as Saum said, the majority of the raise was based on core operating performance. Strong volumes, strong acuity in the hospital space, obviously strong operating expense controls and then the same parallel facts in the USPI space as well.

Okay. That's great. And then as we look about the improved profitability you saw in the first half of the year, obviously, is a big positive. I think one thing that definitely -- I think people are trying to reconcile a little bit is the performance on volumes as we move from the first quarter into the second quarter where across the industry, and I guess you guys were no exception that volumes were a little bit weaker in the second quarter. I guess as you guys have had a chance to continue to step back and study the second quarter and the trends in the first half. Yes, I guess how would you frame the second quarter's performance and kind of what that could mean for as we think about the balance of the year?

Yes. I mean the primary framing for our second quarter was excellence in operations, right? I mean I think the important thing about our acute care business is the ability to generate earnings, or in this case, even beat our expectations in our earnings regardless of what in that window, the volume picture looked like in that quarter. And that's very important because there are 2 things related to that. And I kind of alluded to this in my opening comments.

The high acuity business is less elastic, right, and less subject to demand variation. And the ability to bring that business in, protect capacity for that business in particular, helps us generate more consistent earnings, right? And that may be different than the industry at large. But for us, that's a very important component of how we generate earnings in what we're doing and also the role that we play in the communities in which we exist. So that's one piece of the puzzle.

The second piece of the puzzle is just the ability to be nimble in our expense management. We demonstrated this back during COVID, in particular, with labor management during that period of time, when volumes were very, very erratic and in some ways, fluctuate from month-to-month and year-to-year with COVID. And even now, as you look at the first and second quarter, the difference between those two, our ability to drive expense management in order to generate more predictable earnings continues to be proven out. As I've said, we've now hardwired this into the enterprise in a way where we can rely on it. And so my characterization of Q2 was it was a strong quarter.

Appreciate that. And then as we -- again, I know there are obviously going to be quarter-to-quarter variations and volume trends, and I think everyone appreciates that, that followed the business for a long time. It would look like the second half of the year is expected to be a bit stronger than maybe the first half was when you look at the guidance for adjusted admissions, same-store in the hospital business. I guess, how are you guys thinking about that at this point in time? Is there any kind of discrete drivers of that, that we should kind of think about?

Yes. I mean one thing I would say is that just based upon Q2, we've not changed our demand forecast or our algorithm for how we're thinking about driving business in the second half of the year, right? I mean if anything, after Q2, of course, we went back and took a look at all of the things we could control, ER throughput left without being seen, the ability to move patients through the house, et cetera, et cetera. And our operations are solid. I don't think there was anything particular in a market or an operating parameter or anything else. And there's nothing about the demand environment that's obviously changed in one region or another to drive that. So from our perspective, we're very focused on continuing to do the things that will drive earnings including with the increased guidance that we put in for the year, which again, I would just tell you, we feel confident and reiterate today.

Okay. Great. And yes, as you mentioned in your kind of lead-in comments, like obviously, a lot of focus on policy at the moment. And -- the most near-term thing potentially in terms of the timing perspective would be the enhanced exchange subsidies and whether they're extend there. And obviously, it's very hard to predict that. But I would love to, I guess, first, just get an update on kind of where you are in the engagement process around trying to advocate for that and what you're hearing there? And then additionally, I know there's been, again, like it's a difficult item to size, I'm sure. But as you think about it, as we get closer to the actual event, what do you think the company would need to see or to be prepared to potentially actually help us think about what the exposure could look like there?

Yes. Well, let me -- let's spend a few minutes on this because I think it is the most important topic from a policy standpoint that exists in the near-term environment anyway. And I think if you think about the last time that we spoke publicly to now, the conversation, and I think many of you have noted this, has really shifted towards the importance of figuring out a pathway to extend the premium tax credits for a variety of reasons, which we'll go into in a second. But I think that shift is very positive. I think the range of outcomes has broadened, right? This used to be a discussion of yes versus no. Now it's a discussion of, yes, with what vehicles; yes, with what new terms and conditions; yes, how does it play into, what was done in the OBBB to reduce "fraud waste and abuse" within the program. But there is an increasing understanding among the majority party that this is politically very important.

So I look at this two ways beyond the industry in terms of what's driving that change today. First of all, this is a private sector solution, right? We're sitting in Massachusetts, where the exchanges were actually developed by Republican Mitt Romney, which is what the Obamacare exchanges were modeled after. But there are really two things driving this from what we can see.

The first is a recognition that the value of the premium tax credit to individuals below 400% of federal poverty level is equal to or, in most cases, significantly greater than the benefit of the tax relief that was provided in the OBBB. And so what does that mean? I mean in simple terms, what that means is essentially that without the extension of those credits, the talking point that the OBBB tax cuts becomes a benefit for the wealthy rather than for all citizens, actually becomes a reality if you're somebody who's sitting on the exchanges. And that's an important point in terms of the midterm elections.

The second thing that's interesting and is growing in the narrative is how important these exchange premium tax credit seem to be for small businesses. So I looked at this before. I mean there are on the order of 16 million small businesses in the United States with under 50 employees, the traditional definition would be under 500. But under 50, where you don't have to statutorily provide health insurance, they employ roughly 30 million, 35 million people in the U.S. every year.

And if you think about the primary federal subsidy to small business that exists today, is the small business tax credit -- the tax incentive, the QBI, right? The average small business in America turns out of that size generates no more than $100,000 in net income that's taxable. So when you take a 22% average tax rate and then take a 20% benefit on that, you're talking about a benefit of around $4,000 or $5,000. If those businesses ended up having to provide insurance coverage to their employees, that would run on the order of $8,000 to $9,000 per employee per year.

So if you think about it, the exchange premium tax credits are the most significant subsidy, federal subsidy to the competitiveness and employment vehicle in small business today. And I think as you combine that with the politics, you'll see some polling work released this week from the very respective Fabrizio Award Group looking specifically at Texas and Florida that will show that the Republican backing among voters and the exchanges overlap incredibly significantly. And the #1 issue that you see in particular among small business owners which are 3x likelier than the average voter to have voted for the administration today support the extension of these credits.

Why? Because of the simple math I just gave you related to how important it is to their small businesses. So I think there's momentum building in the dialogue that is helping the environment understand the importance of these premium tax credits well beyond the health care industry. And I think that's what's probably creating more momentum to continue these subsidies.

Okay. That's great. And then I guess there is a world where, obviously, it can be hard to strike these deals at times and the company will have to plan for contingencies if that's not the case. I guess, what do you think you would need to know to estimate what the potential impact would be like you could be facing a scenario where you're going to need to put out some kind of estimate about this at some point in the next few months?

Yes. I mean, well, you need to understand timing. You need to understand what's happening to the subsidies. You need to understand what enhancements and alternatives that are available, ICRA and other things could be made, in particular for small businesses. And you would probably need to have some understanding of what the moving parts and pieces will look like with respect to pricing of the products on the exchanges over time? Because there has been some discussion of regulating price increases there. And there's also been some discussion of increasing cost sharing meaning reducing out-of-pocket for consumers as a part of this policy. So I think when all of that becomes clear, which, in one way, shape or form, it's going to relatively soon, it becomes a lot easier to estimate what we think the impact of that will be.

Okay. And then to move a little bit on to the Medicaid side of things. Obviously, this year is benefiting from some of the increased Medicaid supplemental payments, which is good to see. There's been a lot of focus around whether some previously submitted applications were going to be able to get across the finish line and maybe get grandfathered in under some of the policies that we've seen with the One Big Beautiful Bill Act. I guess what's the latest thinking on the opportunity set there in front of the company? Is that still something that you think of as a material potential contributor over the next couple of years before we start to think about any of the provisions that start in 2028? Or I guess like is there a different thought process...

Well, I think three things. One is, listen, I mean, first of all, all of our guidance has assumed none of the new programs other than that Tennessee piece were approved, right? And I think we've been clear about that again and again. So anything that does get approved that's going to increase these programs potentially from the applications submitted, will only be a net benefit even beyond what we've already done for the year in terms of our guidance. And I think it also lays the foundation or a new baseline going forward. Now it seems like we're seeing feedback and approvals and back and forth, we've certainly heard about a lot of back and forth between CMS and the state of Florida around their submission. We have and you guys have seen the reports, Texas that appears to have -- or be close to a confirmation of an increased program size. So it feels like this is moving forward, from the perspective of CMS taking and sorting through all of these various applications. And if, in fact, the trend line continues, this looks like it could be a potential benefit to the baseline.

Look, the other thing I would say is that the components of the OBBB that touch Medicaid state directed payment programs have been pushed out all the way into the early part -- well, really the end -- very end of '27 and early '28. And it's really hard to tell what's going to be implemented and actually executed on at that point. So we're not doing a whole lot of planning from that purpose.

One thing I would reiterate, in our market where there is a significant Medicaid population to take care of, including with some of the supplemental payment increases that we have seen that we reported as "onetime items," many of those are based upon work we do organically to grow that business, right? At our cost structure, we welcome this business into our hospitals. And some of the increases that we see in these state-directed payment programs are based upon our work, our services, our receiving high acuity Medicaid transfers that is based upon actual growth of the business and then growth in our market share, of course, of those payments. And we expect to continue doing that and executing upon that as we go forward.

Okay. And then just on the hospital, I guess, capital side of things, the company has created a lot of value through asset sales over the past few years. Do you feel like at this point in time, you've executed on the possible there, and you now have the right set of assets in the hospital business? Or do you think there's potential for more of this over the next several years?

Yes. I mean I always answer this question the same way after every asset sale we did, I said I was happy with the portfolio, right? So we're happy with the portfolio, and we'll leave it at that.

Okay. And then if we think about capital and the improved free cash flow profile of the company, it seems like you have much larger ability to invest than maybe the company has had historically. And I think as we look at -- try to benchmark maybe CapEx as a percentage of revenue and kind of compare that across the peer set. I think one thing that investors maybe have struggled with historically is kind of contrast in the company's commitment to the high acuity strategy and maybe what can be perceived as like a lower level of capital investment. Now that you have more ability to invest, do you think you have the right amount of hospital CapEx? Or do you think there's more opportunity to deploy CapEx over the next few years into the business?

Well, I mean, to answer the question directly, and then maybe you could talk a little bit about the numbers. I don't -- I think the -- the folks that know the company, you say investors, but investors, analysts that know the company, know that very clearly over the last 6 or 7 years, we've taken market share, increased profitability, significantly improved return on invested capital, expanded capacity, opened multiple new hospitals with whatever you're calling the metric of CapEx per bed. So I'm not sure how to answer the question of there's concern. I think demonstrably, the business has improved significantly with the CapEx per bed that we are spending. I will say that one of the nice things about the divestiture program is that we were able to divest markets where we didn't think the return on invested capital would be as good going forward in our business model. That may not be true for the folks who picked up the assets. And so for us, if you look at our capital expenditure, despite having sold at roughly $5-ish billion of revenue in that business, the CapEx is actually up. So the CapEx per bed is going up with the portfolio that we feel comfortable with investing for the future.

And I add a couple of more points. Looking back, obviously, in '24, we spent more CapEx than we did in '23 despite the divestitures that happened in '24, just as an example, that's number one. Number two, if you look at our overall enterprise, right, Conifer and USPI are very capital efficient, right? So if you look at percent of revenues, as [indiscernible] you're talking about, we have to focus on the hospital piece, where the vast majority of our CapEx dollars go. And then as we look forward, it's tough to kind of compare dollars to dollars over a year. There are the divestitures. We've also had several big hospital builds that we've completed over the last 3, 4 years. And then going forward, I think the most important point is, we still believe our portfolio, to Saum's point, is very investable, number one. And number two, to the extent we dial up or dial down our CapEx investment in any particular year. We have the cash flow and the balance sheet capability to dial that for the right return and the right optimization profile versus having to debate availability.

Okay. And it seems like, obviously, your ability to invest, I think, is a bit more clear than I'm sure like local market competitors might see some of the uncertainty out there and maybe have to think about like pausing plans until there's greater clarity. It seems like you have the luxury of that not really being as much of an issue for the company. Do you feel like there could be an opportunity to like pull forward investments that could drive market share over the next couple of years?

Yes. I mean we're doing that already. I mean if you think about our capital planning and the guidance we've given, we're doing that already. I mean, again, our view is we feel that the cost structure of the asset base that we've built on the hospital side is absolutely competitive in every market that we're in, in a way in which we can invest behind it and focus on growth strategy. So even this year, we're pulling forward some capital expenditure on clinical technologies and other things that would help from a growth perspective. And that's good.

On the USPI side, of course, we and the entire industry see the tailwind there that exists, including some of the policy things that may come down the line that will support that business. And so our ability and interest in putting capital behind that business is very high. And as we've indicated, the pipeline is strong, and we've taken our M&A guidance up for the year. So we feel very good about that from a capital expenditure standpoint. And again, if you come back to some of the underlying uncertainties around the policy, remember, look at what we've done operationally. Our planning for resiliency in 2026 has not only begun but it's starting to become tangible for what we may want to do. So we're looking at an aperture with the mindset of depending on what happens in the policy environment, what's under our control to execute on so that we can keep investing in the business as aggressively as we have been, right? This is our opportunity as a more efficient operator to use the challenging environment to build and grow the business as we look ahead to '26 and beyond. And that's kind of the mindset that we're taking. So I mean one of the reasons we feel more optimistic about this regardless of where the environment goes is we have a lot of structural advantages we can take advantage of in a market that might face some reimbursement challenges or might not.

Got it. Okay. And then just before moving on to USPI, I guess just on the hospital side of the business, maybe just spend a minute talking about costs in the business and how things like labor and supplies and whether you've seen pressure from professional fees moderate at all or factors like that?

Yes, Steve, I think we've mentioned and it's no different now that it's a stable operating environment overall from an expense standpoint. Labor has been stable for several quarters. We're back to sort of traditional level in terms of wages. Our contract labor, we're at 1.9% professional fees, whilst it has grown year-over-year, high single digits, low double digits. If you look at our last several quarters, it's been flat sequentially. So I think we're seeing positive development there. So I think if you kind of put all that into the other expense supplies, et cetera, I think they've been well managed. So I think if you take all of it together, it's a stable operating environment. And it's to the point now where we can, as we said before, dial up our investment in expenses up or down just based on the opportunity.

Okay. Got it. And then, yes, to talk a little bit about USPI, you always had a strong start to the year. I think the same-store revenue growth was a little over 7% in the first half of the year. As you mentioned, the focus on high acuity can make it a little harder for us to just look purely at the volume metrics to assess sort of the level of demand in your markets. I guess as you look at the performance in the first half of the year, like how would you characterize it? Like what are you seeing in terms of the demand trends once you kind of factor in the pivot you're making towards acuity?

Yes. No, we're -- I mean, we're really pleased. Obviously, the business has exceeded our expectations in the first half of the year when you look at that kind of revenue and EBITDA growth, the integration of the assets that we acquired last year has gone well, is going well, and performing very much in line, and in some cases, better than our expectations across the board. And the -- as the business builds scale, of course, the ability to generate operating leverage in the business is also important. I mean, I think that if you think about those 50 centers we acquired sometime last year, I'm pretty sure that there's very little left from an overhead perspective that came with that business, right? So the ability to drive the operating leverage is an important part of what we can do. And that, of course, enhances our ability to continue to build and grow in the markets that we're in.

And then just on the policy front. I know that there's been a lot of focus recently on potential phasing out of the inpatient only list. I know those procedures don't immediately move because they're not on a list. But in general, I guess, how do you think about things like that in terms of demand funnel and improving visibility to growth over the next several years?

Well, I mean, look, I think there's a couple of things. One is the ability to do more things more efficiently and with good outcomes in the ASC setting is clear, right? I mean I think it's been clear for some period of time. I think the innovation and the ability to actually perform those services, coupled with physicians having a degree of comfort of performing those services in an ASC setting takes a little bit of time, and it's growing. But I mean it gets fundamentally back to the concepts that you hear from us and others about the tailwind in this industry that will propel not only the growth in ambulatory surgery, but the growth in the types of services that can be provided in this setting, right? I mean -- I'm a big believer in the concept that when you really look at what drives efficiency in the Healthcare system, you can go down a path of looking at complex risk-based structures, which haven't really worked where you can look at site of care opportunities, which the reality is those who are in that business are delivering a lot of savings, and it's simpler and it's clear. And I think that, that is probably the path that we'll see policy go more actively. And if you happen to be in the ASC business, that will be very helpful to us.

And then in terms of just the pipeline of assets like obviously, the company has got an annual target for capital deployment in USPI. You look at the opportunity, I guess, how would you characterize what it looks like now, maybe to what it looked like over the past 5 or 10 years? And any changes in kind of competitive dynamics or interest in potentially doing larger versus smaller transactions there?

We've kind of done all of it, right? We do a lot of small transactions. We've done multiple large transactions. We build a lot of de novos. We don't hesitate to put capital behind the business. Our diligence and investment return thresholds or hurdle rates or whatever you want to call them, are very well established. Our processes and procedures are clearly generating the types of returns from those acquisitions that we want. And for us, more importantly, the strategic positioning around the types of assets that we're buying helps with our higher acuity strategy which, of course, again, as I said, we believe creates value for those in government or private pay that are actually financing this work and the demand that exists for that work.

So we don't see a trade-off between what we want to invest here versus other things that we want to do. Look, even beyond our investments of capital in the hospital business, the minimal maintenance, but certainly M&A capital that we put into the USPI business, there has been significant free cash generated and is being generated looking forward in the business, regardless of policy that is going to also open up what has been a very large aperture for the last couple of years growing this year for shareholder -- returning capital to shareholders through various vehicles. And we've been very active there given our view on kind of the opportunity given the multiples and the valuation, and we will continue to do that. We have a lot more flexibility because of the deleveraging of the business.

Yes. I mean that was going to be kind of the next question. It sounds like that's the answer. As we think about -- I think everyone kind of looks at what you budget for CapEx and you mentioned there's opportunities to maybe do a little bit more, but it sounds like you're pretty happy with where that's at. And there's not a big acceleration required. It doesn't sound like there's necessarily going to be a near-term change to the deployment targets for USPI. Is it right to think that, especially with where valuation is the excess cash flow generation beyond those commitments like should generally accrue to share repurchase?

I'd say, in general, you're seeing that this year, for example, right, overall, over the long term -- look, we're going to be disciplined about it. I think if the additional USPI M&A, for example, we would love to do more. That's obviously the top strategic priorities. I think the most important part is we can -- it's an and, right? We can do more M&A, we can do more CapEx and continue to be very active in returning funds to shareholders. I think, look, where our multiple is today, even after a bit of an improvement over the last several months. We still think it's a very attractive opportunity as an example. So we'll be active and appropriate in that activity. But as Saum said, as we look forward to the future, again, despite or irregardless of the different policy changes, we'll look to continue to be active in different vehicles.

Okay. And then just a couple of like bigger picture questions. I guess, you've driven a really strong improvement in hospital margins over the past several years. I guess how do you think about benchmarking where you are today and where maybe these margins could go over time? And if there still are areas for like larger efficiencies within the company?

Yes. No, I mean, of course, there are opportunities for improvement. I mean there are multiple ways to get there. I mean I think our ability to drive share and in particular, attractive payer mix. It's been a big part of what's helped improve the margins. Our operating efficiencies across our labor, supply chain, other expenses in the business, especially our large purchase services environment that we're very disciplined about having a rotation of contract renewal and refreshment that we've put into place helps to drive savings. We're creative in areas like physician service contracts where we link them to our ability to build volumes so that subsidies that may exist can come down or be tempered over time. I mean all of those things, I think, help. I've pointed out in the past that an area that we would like to continue to improve on, we may have closed half-ish of the gap in capacity utilization that we see with kind of our hospital side industry-leading peer. And so that's an area that we continue to work on as we build.

And that said, as I described, we balance that with how we think about the high acuity strategy and not wanting to put excess capital into lots of med-surg towers, for example, when we can be focused on generating the higher margin, higher acuity business that clearly is demonstrating a better return on invested capital. I think fundamentally, we are -- we look at the lines of business and we think about elasticity in coming environments, and we really believe that the lower elasticity, if you will, in that business -- lines of business really help us. Predictability is very important for us, right? If you think about what we're doing and how we're doing it, and we focus on that a lot.

And then you don't report the Conifer business out separately anymore, but Conifer, I would love to get a quick update there. And I think you've also won some business more broadly for some of the systems that you divested assets to. I would love to just get like a quick update on how Conifer is performing.

Yes. I mean -- again, the divestitures came with -- they took a lot of time largely because there was a lot of diligence going on vis-a-vis Conifer actually. So the Conifer business has expanded even beyond the services that were provided to our hospitals that were sold, in some cases, materially expanded and continues to expand. There have been non-divestiture new logos that have been added to the Conifer. So look, I'm just pleased that the business is growing again. I mean our -- our belief was it was very hard during COVID to get out and sell. And as I said back then, even there were a lot of things we needed to do to tighten up and improve the point solutions portfolio that we could go out with. So both things have happened, and we're starting to see some success on that front. The margins have held. We have not had margin compression. If you look at it, right, we haven't really -- I mean I know you don't see it directly, but we haven't had margin compression really from our -- bringing on new clients in what we have done. So we feel that, that's very good. And there's a lot of work and improvements that have gone into further automation, offshoring and actually a few things that are legitimately AI-driven as opposed to just sort of claiming to be AI-driven that's helping us. It's helping with workforce productivity on the one hand. And it's secondarily helping -- which is making them -- so for example, the metrics that we would put in for how many charts would be coded by a coder or the amount of flow that a typical AR professional would see that they could process, we've increased those metrics. And at the same time, we're using AI more to interrogate all of the details of payer contracts to understand how better to respond to disputes and denials in an automated plus human fashion that's making us more successful.

Like I'm very pleased with the fact that despite the increasing dispute and denial rates, our yield rates have remained very high. Meaning that it might take work, but we're driving those disputes and denials back to cash for us and our clients, and that's really important.

Okay. I think that's about all the time we have. So thank you much for the discussion. Thanks again.

Thank you for having here.

Thanks, Steve.

Thank you.

Good morning. Welcome to Tenet Healthcare Second Quarter 2025 Earnings Conference Call. [Operator Instructions]

I'll now turn the call over to your host, Mr. Will McDowell, Vice President of Investor Relations. Mr. McDowell, you may begin.

Good morning, everyone, and thank you for joining today's call. I am Will McDowell, Vice President of Investor Relations. We're pleased to have you join us for a discussion of Tenet's second quarter 2025 results as well as a discussion of our financial outlook. Tenant senior management participating in today's call will be Dr. Saumya Sutaria, Chairman and Chief Executive Officer; and Sun Park, Executive Vice President and Chief Financial Officer. .

Our webcast this morning includes a slide presentation, which has been posted to the Investor Relations section of our website, tenethealth.com. Listeners to this call are advised that certain statements made during our discussion today are forward-looking and represent management's expectations based on currently available information. Actual results and plans could differ materially. Tenet is under no obligation to update any forward-looking statements based on subsequent information. Investors should take note of the cautionary statement slide included in today's presentation as well as the risk factors discussed in our most recent Form 10-K and other filings with the Securities and Exchange Commission.

And with that, I'll turn the call over to Saum.

Thank you, Will, and good morning, everyone. The second quarter continues our track record of strong outperformance in each of our businesses. We reported second quarter 2025 net operating revenues of $5.3 billion and consolidated adjusted EBITDA of $1.121 billion, which represents growth of 19% over 2024. Second quarter 2025 adjusted EBITDA margin of 21.3% represents a 280 basis point improvement over the prior year, driven by strong same-store growth and very efficient operating performance. .

USPI continues to deliver. We generated $498 million in adjusted EBITDA, which represents 11% growth over second quarter 2024. Same-facility revenues grew 7.7% in the second quarter, highlighted by a 12.6% growth in total joint replacements in the ASCs over the prior year. We added 8 new centers in the quarter, including facilities specializing in high acuity procedures such as spine, orthopedics and neurosurgery. We continue to see a robust pipeline for M&A opportunities and expect to exceed our baseline intention for $250 million of M&A spend in 2025.

Turning to our hospital segment. Adjusted EBITDA grew 25% to $623 million in the second quarter of 2025. Same-store hospital admissions were up 1.6% in the quarter. Second quarter 2025 revenue per adjusted admission was up 5.2% over the prior year as payer mix and acuity remained strong. We are making significant investments to expand our network to support growth in our markets and have confidence that the demographic trends are high acuity service line priorities and our efficient operating platform can generate ongoing returns in this segment. We have also reduced overhead given we downsized our hospital portfolio.

Our results in both segments exceeded our expectations and extend our track record of consistently strong fundamental execution. We continue to capitalize on our compelling valuation and have deployed $1.1 billion to repurchase 7.2 million shares in the first half of 2025. As we noted in our release, the Board of Directors has authorized a $1.5 billion increase to our share repurchase program.

Turning to our full year guidance. At this point in the year, we are raising our full year 2025 adjusted EBITDA guidance to a range of $4.4 billion to $4.54 billion which represents an increase of $395 million or 10% roughly at the midpoint of the range of our prior guidance. The guidance increase is supported by fundamental strength in our businesses and expectations for continued growth.

In summary, we continue to deliver on our commitment to a strong balance sheet and significantly improved free cash flow generation. Finally, in closing, we are committed to a culture of quality, transparency and compliance. This culture permeates our business and is reflected in the dedication of our colleagues and caregivers that go to work each day to care for our patients and communities that we serve. We are pleased that these are the values that we have instilled into our organization, which continue to drive results and outperformance. And with that, Sun will provide a more detailed review of our financial results. Sun, turning it over to you.

Thank you, Saum, and good morning, everyone. We delivered strong results in second quarter of 2025 with adjusted EBITDA well above the high end of our guidance range, driven by strong fundamentals, including same-store revenue growth, continued high patient acuity, favorable payer mix and effective cost controls. We generated total net operating revenues of $5.3 billion and consolidated adjusted EBITDA of $1.21 billion, a 19% increase over second quarter 2024. .

Second quarter adjusted EBITDA margin was 21.3%, a 280 basis point improvement over prior year. I would now like to highlight some key items for each of our segments, beginning with USPI, which again delivered strong operating results. In the second quarter, USPI's adjusted EBITDA grew 11% over last year, with adjusted EBITDA margin at 39.2%. USPI delivered a 7.7% increase in same-facility system-wide revenues, with net revenue per case up 8.3% and case volumes down 0.6%, reflecting our continued disciplined shift towards higher acuity services.

Turning now to our hospital segment. Second quarter adjusted EBITDA was $623 million, with margins up 300 basis points over last year at 15.6%. Same-hospital inpatient admissions increased 1.6% and revenue per adjusted admissions grew 5.2%. Our consolidated salary wages and benefits was 41% of net revenues, a 140 basis point improvement from the prior year. And our contract labor expense was 1.9% of consolidated SWB expense.

This improvement has been driven by our data-driven approach to capacity and labor management and disciplined operating expense controls. Finally, we recognized a $79 million favorable pretax impact for additional Medicaid supplemental revenues related to prior periods in the second quarter of 2025. This includes the recently approved program in Tennessee. As a reminder, our second quarter 2024 results included a $30 million favorable pretax impact for additional Medicaid supplemental revenues related to prior year.

Next, we will discuss our cash flow, balance sheet and capital structures. We generated $743 million of free cash flow in the second quarter. And as of June 30, 2025, we had $2.6 billion of cash on hand with no borrowings outstanding under our $1.5 billion line of credit facility. Additionally, we have no significant debt maturities until 2027.

And finally, during the second quarter, we repurchased 4.6 million shares of our stock for $747 million. And year-to-date through June 30, we have repurchased 7.2 million shares or $1.1 billion. Our leverage ratio as of June 30, 2025 was 2.45x EBITDA or 3.11x EBITDA less NCI, driven by our outstanding operational performance and continued focus on financial discipline.

We are very pleased with our ongoing cash flow generation capabilities and remain committed to a deleveraged balance sheet. We believe we have significant financial flexibility to support our capital allocation priorities and drive shareholder value.

Let me now turn to our outlook for 2025. For 2025, we now expect consolidated net operating revenues in the range of $20.95 billion to $21.25 billion, an increase of $300 million over prior expectations. As Tom mentioned, we are raising our 2025 adjusted EBITDA outlook by $395 million at the midpoint to $4.4 billion to $4.54 billion, reflecting the strong fundamental performance of our business.

At the midpoint of our range, we now expect our full year 2025 adjusted EBITDA to grow 12% over 2024. At USPI, we are now expecting 2025 adjusted EBITDA of $1.99 billion to $2.05 billion, a $70 million increase over prior expectations. In addition, we have increased our assumption for same-facility USPI revenue growth by 100 basis points to 4% to 7% for 2025. In hospitals, we are raising our '25 adjusted EBITDA outlook range by $325 million at the midpoint to $2.41 billion to $2.49 billion.

Additionally, we are lowering our assumption for same-hospital adjusted admissions growth by 50 basis points to 1.5% to 2.5% for 2025. Finally, we expect third quarter 25 consolidated adjusted EBITDA to be in the range of 22.5% to 23.5% of our full year consolidated adjusted EBITDA at the midpoint. We expect third quarter 2025 USPI EBITDA to be in the range of 23.5% to 24.5% of our full year USPI adjusted EBITDA at the midpoint.

Turning to our cash flows for 2025. We now expect free cash flows in the range of $2.025 billion to $2.275 billion. Distributions to noncontrolling interest in the range of $780 million to $830 million, resulting in free cash flow after NCI in the range of $1.245 billion to $1.445 billion, an increase of $195 million at the midpoint of our range from prior outlook.

Turning now to our capital deployment priorities, we are well positioned to create value for shareholders through the effective deployment of free cash flow and our priorities have not changed. First, we will continue to prioritize capital investments to grow USPI through M&A. Second, we expect to continue investing in key hospital growth opportunities to fuel organic growth, including our focus on higher acuity service offerings.

Third, we will evaluate opportunities to retire and/or refinance debt. And finally, we'll continue to have a balanced approach to share repurchases, depending on market conditions and other investment opportunities. As Tom noted, our Board of Directors has recently authorized a $1.5 billion increase to our share repurchase program. We continue to deliver consistent growth and have disciplined operations, which has translated into outstanding financial results. We are confident in our ability to deliver on our increased outlook for 2025 as we continue to provide high-quality care for those in the communities we serve.

And with that, we're now ready to begin the Q&A. Operator?

[Operator Instructions] One moment please while we poll for questions. My first question comes from A.J. Rice with UBS.

I might just ask about 2 aspects of the backdrop in Washington. The proposed rule on outpatient hospital care as the elimination of potentially of the inpatient-only rule. Can you just comment on what you think that might mean for your hospital and ASC business if that were to go through? And then just any updated figures on the public exchange volumes, how that contributed to the quarter, what you're seeing year-to-year? And do you have any updated thoughts on what the outlook for next year might be if the enhanced subsidies [indiscernible].

A. J., it's Saum. So thanks for the questions. The first one, obviously, enabling additional innovation in the ASCs is positive for the USPI business. I think about it this way, which is one is the reimbursement -- allowable reimbursement and certainly, this move is positive. At the same time, it takes work and experience in higher acuity ASC procedures to actually be able to successfully move those things from an inpatient setting to an outpatient setting.

And as you know, the patient selection criteria and expertise makes a big difference there so that you're doing the right things clinically. Those are all areas in which we're pretty advanced as an ASC operator and platform. So I think it plays to our advantages. I think it represents an opportunity for the future for sure. And I also think it gives us a platform to work with physicians to build the right protocols for many of these things to move into that more freestanding setting with the right patient selection.

Sun, do you want to comment on the update on our exchange volumes?

I would say just as a summary statement there, A.J., obviously, the efforts to lobby for their extension. And importantly, the critical role they play in supporting small businesses and employees of small businesses in America is an added benefit of the exchanges that is obviously part of the discussion today.

Yes. Thank you, Sun. Just to add, obviously, health care exchange remains an important part of our business. For second quarter of '25, we saw about a 23% increase in admissions year-over-year, and we saw about a 28% increase in revenues from exchange year-over-year. In the second quarter, our exchange volume now represents about 8% of our total admissions and about 7% of total consolidated tenant revenues.

Our next question comes from Josh Raskin with Nephron Research.

I was wondering if you could just give some more specifics on the outperformance in the core results, and I'm specifically looking at the incremental $70 million on the USPI side, the increase in guidance. And then within that, is there anything Tenet has done specifically to improve your ability to sort of document categorize patients as you submit claims? Are there new systems, new technologies, new vendors or partners and obviously, anything relating to AI. I'd be curious if there's new things that you're doing within there.

Josh, well, going -- kind of going backwards, we have -- there -- USPI has its own significant revenue cycle capability. We think it's an industry-leading capability. It's an environment that mostly serves our own ASCs, but certainly serves ASCs beyond that. We're pretty busy in advancing a lot of those capabilities. I mean, it is not difficult for me to say that some of the improvement in our results over the last few years has been related to real standardization, technology deployment, better reporting and certain advanced analytical tools that we have deployed into the ASC environment.

Not surprising, given our focus in revenue cycle as a company that we have done that, and it's certainly paying dividends in terms of how we work in that environment, both on the retail collection side, as you can imagine, these are elective procedures, but also on the wholesale collection side, all the way from authorization back through document accurate documentation and more efficient management of the AR through technology and offshore offshore capabilities. So we're really pleased with the platform that's being built for ASC revenue cycle within USPI.

Sun, do you want to comment on the nature of the guide?

Yes, sure. Josh, in the first half and the second quarter, I think both consistent themes, we've seen high acuity, good case mix, good payer mix good growth in some of our key case lines -- [indiscernible], including ortho and total joints. So all the trends that we've discussed previously, I think, continue in USPI for second quarter. That's why you saw the strong net revenue overall growth of 7.7%. And as well as a strong net revenue per case. So -- and then I think good operating expense management. So we demonstrated a 39.2% EBITDA margins in second quarter as well. .

So I think all those trends probably for both Q1 and Q2, which is ultimate about a [indiscernible] million increase versus our prior guidance. And then our general expectation is for those trends to continue into the second half, which is part of the guidance raised for the remaining full year. I think we also remain positive on our M&A activity in terms of contribution. As Tom noted in his opening statement, we expect to exceed our $250 million baseline assumption for USPI M&A. So I think all those things contribute to the guidance raise.

Our next question comes from Andrew Mok with Barclays.

Just wanted to ask about the volumes. There's a little bit of a deceleration there in both the inpatient and adjusted admissions in the quarter. You took down the guidance by, I think, 50 basis points were volumes impacted by any discrete items in the quarter or anything else to kind of call out driving some of the deceleration for the quarter and the full year?

Well, first of all, I think the the guidance is just simply reflecting the math that would play out for the rest of the year. Now it was a strong quarter. I mean we had strong volumes, the right acuity and mix and very much reflects the focus on our service lines as we have prioritized them. So I don't think there's anything particularly unusual other than seasonality.

Our next question comes from Matthew Gillmor with KeyBanc Capital Markets.

I wanted to ask about payer contracting. There's a lot of different dynamics creating pressure on payers. Has there been any discernible shift in terms of your negotiations with payers? Are you still getting the normal updates you'd expect? And is there anything to report with respect to any activity?

Yes. Well, a couple of things. First of all, obviously, different parts of the sector at various times, certainly go through their ups and downs. And I think our philosophy, most importantly, with the health plans, both the national plans and state-based plans is to work consistently to create value in what we do in our level of pricing in our negotiations and also to create predictability for both sides over a multiyear period. I mean, I think that's ultimately what's probably most important on both sides so that each party can then manage their own operations. And we have extended that philosophy over the last few years into the next wave of contracts. I think most people were aware that there are a number of contracts that are coming up, and we're not seeing anything unusual and certainly no change in our guidance with respect to the way that we have been negotiating our contracts.

But again, I think that's because we're committed to the value that we provide there, both from the standpoint of our highly efficient ambulatory business, but also working in an environment with reasonable and predictable rate increases so that we can focus on managing our own operations. Look, the denials activity, and it's really not just denial, it's kind of the disputes, documentation requests, denials, et cetera have ramped up over the past few years post COVID to levels that are, I would argue, not acceptable in some cases.

And we have adapted. Obviously, this is part of Conifer's job is to adapt and learn to respond to those things. In the early days, the responses were driving up expenditures. Today, as we have evolved and realized this is a new normal, we have, of course, deployed more technology, more automation, trained up more offshore staff and other things to be able to respond to those types of requests and activities in a more efficient and I would argue more effective manner. We track things like our yield relative to the volume or dollars that were disputed or denied. And I think Conifer is doing well there for both ourselves and for our clients. relative to the overall industry. You can see it in our results, and I think that translates across the board. And so this is a constant battle with respect to what's appropriate there. And obviously, we welcome both regulation and other things that would support a reduction of some of that what we consider inappropriate activity.

Our next question comes from Justin Lake with Wolfe Research.

First, I just wanted to follow up on A.J.'s question. I do understand that the industry is lobbying for an extension of these subsidies and how important that could be to a lot of folks. But is there a framework that company can share with us in terms of how to think about the potential impact to 2026 earnings if those subsidies do go away and then sticking with that DC stuff. Maybe you can give us an update on the provider tax run rate you're seeing in 2025 versus I think the previous guidance was about $1.1 billion. And have you analyzed and have anything to share with us in terms of the impact of if that the bill that just passed, it does get rolled out what the impact to DPP could be over time a provider taxes.

So we don't have any comments about 2026 at this stage. And certainly, all of the work and effort is focused on helping stakeholders realize again how important the exchanges are for families who utilize them, including those that came off of Medicaid from a Medicaid redetermination standpoint over the last few years. It's very much my belief that because of the existence of the exchanges and the subsidies for the people who don't have very high income levels as Medicaid redetermination proceeded, the exchanges were a critical safety net for the individuals who needed health care insurance to have a landing spot, and it created what I consider a pretty smooth Medicaid redetermination process because of the availability of those insurance options for individuals and families that needed it.

And -- so that, in addition to the fact that the exchanges represent critical support for small businesses that are unable to provide broad-based insurance coverage options to their employees, which supports, obviously, a very large part of the economy represents 2 of the most important prongs of the conversation around why it's important to extend these subsidies, not the least of which is that it affects red states more than Blue states, given the nature of the administration in Congress today, that's also an important fact. So look, I think the work is ongoing in that area. I think it's important, and I think it's important to more than just our industry. It affects other parts of our sector, but it also affects the macro economy through the support for small businesses, which helps to make them more competitive in the U.S. economy at large.

The current situation in Bill that passed a lot of the impacts, as you know, have been pushed out pretty far into the very, very end of '27 or really '28 from that standpoint. And we really don't have any insight into how this will be implemented. There are new legislative proposals that have already come up attempting to resin some parts of BOBBB, which are in play in Congress. And I think it's just -- it remains an area of significant uncertainty. And we don't have any sort of projections to provide from that standpoint, especially because we're talking about, again, as I said, out to 2028.

Sun, do you want to cover -- there was a question in there about the DPP programs

Yes. Let me just clarify that, Justin. So for Q2 of '25, we recorded about $350 million of total Medicaid supplemental payments. So for the first half of this year, we're at about $675 million range. Now we have pointed out some one-timers. So once you normalize for that in the first half of the year, our run rate for the full year is right around the $1.1 billion, $1.2 billion range that we previously discussed.

Our next question comes from Sarah James with Cantor Fitzgerald.

I just wanted to circle back to what went on with the volume guide down. I understand seasonality and just the math of the quarter impact on the year. But what actually changed in this quarter or in your view of the year? Are there certain segments or any later .

Well, the most important thing that we would be focused on that happened in the second quarter was, as I said earlier, the strength and success of our high acuity strategy that has been in place for multiple years, continuing to demonstrate in this market, the ability to generate revenue and earnings across our hospital portfolio. I mean that's really, at the end of the day, that's the most notable and important trend in the second quarter, which is that, that strategy continues to deliver results.

Our next question comes from Stephen Baxter with Wells Fargo.

Just to follow up on Justin's question. I just wanted to ask about the jump-off point for EBITDA this year. Is it as simple as we're moving the out-of-period Medicaid supplemental EBITDA, I think it's $70 million -- $79 million this quarter and $40 million with the first quarter. Or are there any other meaningful areas to consider whether they're Medicaid [indiscernible] payments sort of onetime contributors that you should think about as for bridging into 2026.

We're not making any comments about 2026 nor are we commenting on headwinds and tailwinds yet for the following year.

Our next question comes from Ben Hendrix with RBC Capital Markets.

Just a quick follow-up on the acuity trends that you're seeing. Appreciate that the revenue per show strong acuity trends there, and that's consistent with your strategy. But also I just wanted to square that with the hospital inpatient surgeries being down. Just a little more detail on where you're seeing that stronger case mix and how that's kind of translating into the stronger rates on the hospital side?

Yes. I mean our strength in cardiovascular, orthopedics, spine, neurosurgery, broad-based general surgery robotics. I mean those are all the areas that we continue to focus on in terms of our work. Now I would add to that emergency driven trauma in trauma surgery. As you know, we have a lot of very large urban emergency departments that have built trauma capabilities in order to service patients in need of trauma.

And finally, as we have indicated over the past few years, our transfer strategy always being willing to accept any patient from any outlying hospital as long as we have the services available to help them, we have been committed to providing that help. And obviously, many of those patients tend to be sicker and may require more complex surgery. So all of those things have been contributors to the results from what we describe as the high acuity strategy.

Our next question comes from Whit Mayo with Leerink Partners.

Just 1 quick clarification. I was wondering if you could comment briefly on how much your medical case mix did increase in the quarter, and if it changed much from prior trends. But my real question is looking at the EBITDA growth at USP. Is there any way to quantify the contribution that you may still be seeing from continued synergies, whether from SCD covenant. Just wondering if those are contributing to any of the growth still.

Well, case mix case mix security was up. I'm not sure exactly what you're asking, Sun, you may want to comment more specifically on that question. I mean -- but consistent with what we're saying about acuity case mix index was up. That's referring to the hospital segment. On the USPI side, the revenue growth that we see, obviously, in a very dynamic business comes from all sorts of things, including same-store growth, volume growth our payer contract, annual escalators, rostering of new facilities on to our managed care contracts as part of our network strategy of having an alliance of high-quality, reliable centers, all of that contributes to the revenue growth. But that's why we provide the total revenue growth and also the same-store revenue growth so that one can differentiate between those. And I think all of that data is consistent both with success of the high acuity strategy, but also we're consistently performing in revenue growth above our long-term trend, which has been very positive for USPI. .

Saum, just your I'm sorry, your question on case mix. We're up about 1% year-over-year in Q2. And obviously, if you look at a longer period of time, that growth would be more significant based on acuity.

Our next question comes from Peter Chickering from Deutsche Bank.

Nice quarter here. [indiscernible] trended down nicely even the lowest that I've ever seen with you guys. Can you talk about cash collections and what have you done differently? Or are the payers doing some differently? And -- from a cash flow perspective, should we continue to model sort of the bulk of the cash going into repo with some M&A in there. So you can buy back around 10-plus percent of your market cap each year while still delevering. Is that the right way to think about it?

Just 2 separate things. Sun, do you want to start with the second one and then we'll back into the revenue cycle question.

Yes, sure. So Peter, yes, we obviously very strong free cash flow performance, have increased our guidance for free cash flow after NCI up $195 million. I would say the other notable piece, obviously, is the amount of share repurchases we completed in the second quarter of this year. It was a substantial increase from our normal trends. I would say, looking forward, our capital allocation priorities haven't changed, right? USPI, M&A, hospital CapEx for high acuity strategy and then maintaining our deleveraged balance sheet and a balance share repurchase approach. It's hard to predict what our run rate share repurchase activity will be in the next quarter, the second half of this year into 2016. I think that will depend on [indiscernible] circumstances. But I do believe our free cash flow and financial performance and balance sheet flexibility will afford us to make the right decisions as those things come.

Yes. Look, in summary, on the first part of the question, as the industry has trended up overall in terms of denials and also the times to collect given some of the dispute and back and forth on documentation requests and other things. We remain very focused on trying to keep that as tight as possible using technology automation. I mean one of the advantages that Conifer has is an incredibly standardized workflow that is really critical to not only collections but also timely collections in an environment where those time frames have been increasing for a long period of time.

We're obviously, as we've talked about before, supplementing some of those capabilities that we have today that used to be manual with AI-enabled technologies that allow us to produce more rapid automated responses to various types of disputes based upon pattern recognition that you would see from various sources that allow us to do that more effectively. And that makes in the end what we're doing more, more reliable, but also as you're pointing out, sort of faster.

The other thing I would say about this environment in which we talk a lot about the dispute denial activity. And as I said earlier, I think some of it is highly inappropriate. But it's also important that we spend our time being committed to very accurate documentation and coding. And I think one of the things that Conifer does well is produce accurate documentation and coding and that has a tendency to also reduce the dispute activity to some extent, from the health plans, right? I mean it is a 2-way street. In the end, and both parties have to perform in that and that speeds up collections to some extent.

So anyway, I said this earlier, and I'll let it be adapting to the current environment from a collection standpoint is a critical capability that we have developed, and that capability has moved from being manual when it first started to increase to much more technology-driven and workflow automation driven.

Our next question comes from Benjamin Rossi with JPMorgan Chase.

Just as a follow-up on your ACA exchange volumes. With your reported hospital length of stay down call it, 3% year-over-year and [indiscernible] exchange lines up 28% during 2Q. Is there any additional detail you can provide on procedural mix or length of stay across those exchange-based volumes just been getting some comments from comment payers in recent weeks regarding the elevated trend there across that group. So just curious if there are any particular areas that were contributors to that 2Q growth figure? Or if it was more broad-based across all specialties for your ACA exchange book?

Yes. I don't think there's been anything unusual in this quarter versus prior quarters with respect to the exchange volumes. I mean, remember, the one thing I would say is the exchange business tends to behave similar to the Medicaid business more than the commercial business in the sense that a disproportionately larger amount of it is emergency department driven may still come with higher acuity, but it tends to be more emergency department driven. That's why the impact of the exchanges on our business is higher in the hospital segment versus the USPI segment, even though it's present in both. But I don't think that I noticed anything unusual about the nature of the exchange volumes this year -- this quarter. Sun, is there anything you would point out there?

I think you're right, Saum. It's pretty consistent with prior mix overall.

Our next question comes from Ryan Langston with TD Cowen.

SWB continues to run pretty favorably. I mean I assume as you achieve these levels, this becomes kind of the new baseline expectation to your operators. But I guess the question is, how -- how much more opportunity do you see on SWB? And I guess, what types of initiatives can you execute on to keep up sort of this level of performance.

Well, obviously, effective labor management has been a strength of our organization, not just recently, but over the last few years. We stay focused on the various parameters that drive demand, obviously, length of stay, the acuity, the day-to-day productivity and an accurate staffing needs that we have in our hospitals. But at the same time, from a supply standpoint, we've really, I think, benefited from improved recruiting strategies, relationships with some terrific nursing schools around the country, where we've created good opportunities for their students and graduates to work in our environment and also improving our retention rates as a result of what we've done.

We found that making investments and we have made real investments in our nursing and overall hospital management director and other supervisory levels with special recognitions and other things that have been ongoing for multiple years because we see the value that they provide in terms of creating a stable and effective workforce for patient care. That has been an important part of what we have done over the last few years and recognizing their efforts. I mean, I think, look, all of those things are sustainable strategies, and all of them contribute to the improvements that we've made both in our efficiencies and effectiveness there.

Our next question comes from John Ransom with Raymond James.

I'm going to ask Tom a question he's not going to answer one he answered and we'll ask them another question. Do you think that now that we've gotten the bill behind us and we know the nodes, is the environment if you were able to look to sell any more hospitals as the environment was such that that's more possible there?

John, I'm not sure how to answer that question. We don't comment on asset sales and anything that we may be looking at there. We're pretty happy with the portfolio. It's obviously performing based upon the last couple of years in the post transaction environment. I don't know how to comment on -- I don't know how to comment on whether the broader industry has fully understood the implications for them of the OBBB or anything else that may come.

I would take this opportunity to reiterate that our view from what we have seen so far in the external landscape related to legislation, regulation, et cetera, Washington essentially, we think about this pretty carefully, it has not changed our commitment to our core strategy as it stands right now. And so I feel good about that looking forward.

Yes. So you let me write to my other question. What -- now that the builders behind us, what are your current like legislative and lobbying priorities in D.C.? And then where are you going to spend your time there?

The most important area right now, as I said, both for the health care industry, for the insurance industry. And importantly, we think now that we have an understanding of how important these exchanges are for small businesses and keeping and remaining a competitive workforce for small businesses in America engaging in dialogue about mechanisms to extend the exchange subsidies.

Our final question comes from Kevin Fischbeck with Bank of America.

All right. Great. I guess I wanted to understand a little bit more of the commentary on hospital volumes and the payer mix. I guess how much of the payer mix improvement that you're seeing is because of the exchange growth if we took exchanges out? Would you still be talking about improved payer mix to the same degree? And then -- when we think about the volume outlook, the volume outlook being lower, you guys have always had a different view on volumes. It's hard to kind of tell what -- how much is this high acuity strategy versus underlying demand? Do you have a sense of what underlying demand growth was in the quarter? Was it consistent with where Q1 was? Or did it decelerate kind of similar to how your overall volumes decelerated from Q1 to Q2?

Yes. A couple of things. One is commercial mix was strong. And as I indicated earlier, maybe another way of describing that, I mean obviously, the growth that Sun described in the exchanges indicates that some of that mix strength is definitely on the payer mix side is definitely coming from the exchanges. And this is, again, going back to the importance of the exchanges, as a landing spot as Medicaid redetermination has worked its way through the overall system. It's been an important landing spot.

And then finally, now I mean, I think, look, underlying demand in this environment is still strong on a macro basis. I mean it wouldn't be the case that we would be able to lose significant amounts of underlying what you would call general MedSurg, emergency department, et cetera, demand and exist solely on a high acuity strategy, right?

The high acuity strategy is meant to support the types of margin expansion and growth that we have seen on an efficient basis in the hospital segment and the margin expansion in the hospital segment over the last 12 -- we were just looking over the last 12 months or even over the last 3 to 4 years, it's been significant. And that's really what the strategy has helped support, but I don't think it's worth making anything of one single quarter, especially when you have seasonal trends and quarter-to-quarter trends and ramp on and ramp off of respiratory illness and other things. I think this will play itself out over time. The underlying demand environment when you compare it to a multiyear basis, still seems strong to me.

We have reached the end of the question-and-answer session, and this concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.