Tenet Healthcare Corporation

Greetings and welcome to the Tenant Healthcare Corporation first quarter 2020 conference call. Today's call is being recorded. It's now my pleasure to introduce your host, Regina Nethery, Vice President, Investor Relations. Please go ahead. Thank you.

We're pleased to have you join us for a discussion of Tenant's first quarter 2020 results, as well as an update on the impact of the COVID-19 pandemic. Tenant Senior Management participating in today's call will be Ron Rittenmeyer, Executive Chairman and Chief Executive Officer, Saumya Sutaria, President and Chief Operating Officer, and Dan Consomi, Executive Vice President and Chief Financial Officer. Our webcast this morning includes an accompanying slide presentation, which has been posted to the Investor Relations section of our website, tenanthealth.com. Listeners to this call are advised that certain statements made during our discussion today are forward-looking and represent tenant management's expectations based on currently available information. Actual results and plans could differ materially. Tenant 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, subsequent Form 10-Q filings, and other filings with the Securities and Exchange Commission. Now I'll turn the call over to Ron.

Thank you, Regina. We appreciate everybody joining us this morning. Today's call will be different than our previous quarterly updates given the current pandemic. and the need to detail our response and plans as we see the situation unfolding. I will cover the Q1 top line view, which Dan will discuss in greater depth, and I will follow with details on the COVID-19 pandemic and how it developed across our business, our response, and how we're now moving forward to reopen closed departments and hospitals and returning to operations at USPI. I'll also touch on the impact of Conifer and our response. These remarks are going to be a bit longer than normal to capture the events and add transparency, so we will extend the call time as needed to ensure we answer your questions. Starting with slide three, let me start with a view of our position when this pandemic began to present. At the end of February, we were really pleased with the early progress of Q1, and following a really strong and sustainable 2019, we were looking at what appeared to be a very strong Q1 across all dimensions. At the end of February, we noted admissions were up 1.1%, outpatient visits were up 5.5%, emergency room was up 6%, and surgeries were on a solid trend, all of which continued into the early weeks of March. And we expected that to continue into the second quarter and the year, we would execute strategies we had firmly put in place in the past 18 to 24 months. As an example, our hospital segment was ahead of budget due in part to the successful service line development and investments in 2019, the very detailed organizational consolidations in the field focused on improved effectiveness, coupled with the increase in surgical specialists choosing to bring their cases to our hospitals that was delivering ahead of expectations. It was also clear we were beginning to realize value from the capital investments made in the second half of 2019. The USBI segment was ahead of budget due to similar service line expansions at the end of last year, higher acuity procedures, and the effective ramp-up of acquired and de novo centers from 2019. Our conifer business continued with strong client revenue growth performance, translating to stronger fees and ongoing efficiency initiatives. The focus on detail was having an immediate impact and we are quite pleased with the early signs of continued improvement. This level of performance coupled with the continued expense management and operational improvements resulted in a strong company-wide results through February ahead of our expectations. These were great results by any measures and indicative of the strides we had made as an organization during the last year toward the basis of sustainable forward performance. Slide four, as we entered late February, the pandemic was beginning to take shape as a potentially serious situation. And we began to take early actions in anticipation of yet unknown changes in our hospitals and surgery centers. Our initial response was to acquire PPE and forward by PPE in anticipation of an unknown need. We tasked our operations team with developing a ventilator management system, a clear supply distribution plan, for rapid resupply to all acute care locations and a staff deployment plan from our internal tenant resource staffing agency so we could add critical staff where needed. While we had protocols for infectious disease management, we immediately designed and deployed additional clinical protocols and contingency PPE utilization plans to tighten how we engaged in dealing with this highly infectious situation based on the available CDC information at the time. We developed an analytical tracking system to monitor nationwide PPE usage and inventory, ventilator and testing capacity, which then would be reported to our COVID-19 command center every morning. We activated a nationwide COVID-19 call with all hospitals, USPI and Conifer, led by our incident command center and chief medical officer, and included our nursing, pharmacy and supply chain leadership integrating a key functional area as a quick response team. We established within a few short days tracking and monitoring of these important items including the actual by hospital of positive and negative cases, persons under investigation, COVID discharges and deaths coupled with a closed communication process so every engaged hospital and group across the entire enterprise were using the same source of information and receiving the same precise recommended actions. This also allowed an open and immediate sharing of learnings, best practices, and fundamental peer support across the entire network. Additionally, as new CDC, state, local, and other agency rules, procedures, and information were being issued, which was quite frequent, the command center ensured we remained in a constant and aligned execution across our network. As we began to see these cases present in hospitals, we immediately acted to ensure patient and staffing safety was addressed across every location, focused on isolating COVID-19 cases. We were keenly aware that the protection of our staff and facilities were critical for our system to remain responsive, and we were able to accomplish this throughout our entire system, remaining on the front line and responsive to the communities. At the same time, across the country, The shelter-in-place and suspension of all elective surgeries began to quickly roll out. Much of these actions took place between March 15th and the 22nd, followed by the U.S. Surgeon General's tweet on March 14th to basically halt all elective surgeries. While some governors may not have officially suspended elective care, shelter-in-place orders across the country achieved the same effect. During the same period of approximately March 15th to March 26th, we saw the number of PUI cases jump from less than 400 to over 1,000, and a strong increase in confirmed COVID-19 cases while the number of PUIs continued to increase daily. Our pre-planning was instrumental in ensuring we had a defined set of plans and were able to maintain, although with some difficulty, the initial surge across the system. We had significant increases in Detroit, Massachusetts, Florida, and Southern California, with each system responding aggressively and doing an incredible job. Our other markets also felt the initial strains in these early weeks, dealing with numerous cases and the unknown preparation for what we were told would be a new surge in many locations. Fortunately, we maintained coverage and response and were able to handle the spikes and issues that presented across the system. Slide five, while these serious clinical issues were engaging our frontline and support functions, we quickly realized that the significant drop in volumes was going to have an immediate serious effect on our business. We determined we needed a new staffing strategy for our headquarters and non-clinical operations, which led us to taking actions over a series of weeks to furlough approximately 10% of the workforce, which included 3% of hospital field operations, ensuring, however, we maintain staffing coverage to handle the actual and potential demand for COVID-19 patients, as well as the necessary staffing to respond to emergencies that might have presented in the hospitals. We took action to furlough and flex down teams at USPI, closing over 100 facilities and reducing the hours and days and the balance of the facilities. We maintained a minimal staff as recommended by CMS and some USPI locations prepared to handle any overflow from hospitals driven by the need to serve emergencies, which fortunately did not occur. Given the reductions were in the hospital units not directly addressing COVID-19 patients, We redeployed personnel if possible and shut down certain service lines to ensure we maintained adequate PPE and space available for the potential surge of patients. By the end of March, ER traffic and admissions had decreased by 35%, hospital surgeries by 50%, and USPI surgical volumes by 75%, driven by the shelter-in-place orders and the potential patient's apprehension of contracting a virus and many more in medical facilities. The increase in COVID cases in areas like Detroit, Florida and Massachusetts required the use of premium time and we also had USPI hospital nurse volunteers who were not needed at their locations due to the shutdown volunteer to travel to our Detroit and Arizona hospitals as well as some that volunteered to go to New York City to support hospitals in the hardest hit areas of the country. We added temporary staffing where possible and many more. and were persistent on a constant resupply and balancing as we engaged every available source and chased down many that proved to be false to acquire additional PPE. While the situation was chaotic, our frontline personnel were heroic. Our teams behind the scenes worked endlessly to support every location in delivering this mission of care. I'd like to take a minute also to comment on our Global Business Center in Manila. In Manila, the lockdown occurred on March 15th, forcing our 900 associates to work from home. As part of the creation of this organization, our business continuity planning was truly put to the test. Within a short period of time, our Manila operation was functional and performing at about 98% of the pre-lockdown levels from home. We continue to see excellent performance from the Global Business Center, and we continue to increase the leverage of this highly effective and skilled team. Moving to slide six, this now brings us to today. We are carefully coordinating a comprehensive recovery effort across different geographies in compliance with state and local orders while we are continuing to treat COVID patients. During the past weeks, we have engaged in the planning and detailed steps to reopen elective surgeries and to open our hospitals to our patients in our communities. These plans focus on every physician and how they will reengage in their respective practice. including how they plan to prioritize cases, how this fits into a methodical ramp in OR schedules, procedure and diagnostic screening, all while balancing staffing and support units to effectively have a labor plan that mirrors the demand curve. A labor plan that engages with our physicians to ensure their needs are met and balanced with the needs of the patient and the facility. We have begun to resume elective procedures consistent with area regulations and in close consultation with our physician. Our early reads are promising, and we expect it may take us several months to bring up our USPI locations to pre-COVID volumes. In hospitals, it will be a balance of how quickly COVID cases fall, how effectively we can rebalance the surgical volume, and how well we can reach into the communities and reassure the patients and the overall community that the hospital is open and safe. ER volumes will need additional focus, and we've initiated a detailed marketing campaign to reinforce what our ERs can do and do do as appropriate, highlighting our trauma levels and skills and that they are safe and open for business. These campaigns will be tailored to reengage our community along the concepts of a community built on care that has been so successful in the past. It is early for us to make predictions on speed and curve of the restart, but we're engaging at every level to bring our services back to pre-COVID positions. We also have taken steps to ensure adequate bed capacity in case of a surge in COVID cases and have access to in-house COVID testing in all markets. Moving to slide seven, let me address the lingering question about what we believe will happen if the pandemic surges in the fall or winter. As with everyone else, we have no idea if that will happen. But importantly, we do have a plan which should assist us in responding more succinctly and effectively in every market. Our view is this plan is tailored to the market, the demographics, and the learnings we've had from this current situation on deployment of people, supplies, and support. As a framework, we will isolate COVID patients in markets where we have multiple facilities utilizing a designated COVID facility to receive patients. We will ensure every location has limited access and directs COVID-related cases to a specific place where we can determine if that individual needs to be transported or can self-direct to this centralized location. Testing, treatment, as appropriate, admissions, or send-home orders to self-isolate will be coordinated from that primary location. These functions at the designated facility will provide updates and reporting and provide appropriate follow-up with patients and loved ones. Where we have fewer locations, we'll designate a specific wing or floor that can quickly be adapted to their COVID patient load and provide this care isolated from the balance of the facility. Our belief is we can maintain safe, clean facilities that do not treat COVID cases, or if they do, we'll allow them to isolate patients, allowing us to provide the ongoing and reliable care our communities expect while ensuring our response to COVID cases is direct and effective in every community. This also ensures our USPI surgical centers will remain open and functioning, allowing normal flow of patients to continue to receive the needed medical care and life-saving actions we provide. To accomplish this, we need to be transparent in the community of our actions, communicate and advertise the approach, rebuilding the confidence in the safety of the locations. We need teams prepared to move people and take the actions this dictates without delay. These plans are now being finalized across our system and we believe will be extremely helpful if the virus reappears. For headquarters and office locations, we have a strict, zero-tolerance set of procedures enforced daily for every employee to protect them and the others they work with. Slide 8, from a financial perspective, we've addressed specific actions to improve our cash position, which Dan is going to detail deeper during his review. Additionally, while the strength of January to mid-March helped cover Q1, April was a tough month as we realized significant volume reductions across the hospitals and USPI segments driven by the shutdown orders. We closely managed our cost profile by taking responsible and rapid actions, utilizing a list of things designed to ensure our operation areas remained effective recognizing the reduction in support in areas that were closed by the orders on shelter in place and elimination of elective surgeries. As I stated earlier, over a series of weeks, we furloughed approximately 10% of the workforce, which included 3% of hospital field operations, maintaining our operational effectiveness. We have reduced our annual CapEx by $300 million, or about 40%, deferring and eliminating projects unless they are life-threatening are critical to sustaining core operations. We've also successfully issued $700 million of additional secured bonds and have increased our revolver by $400 million to $1.9 billion. We received approximately $345 million in grants to date, or approximately 0.2% of the $175 billion authorized by Congress for grants under the CARES Act and other stimulus legislations. CMS has advanced us approximately $1.5 billion under their advance payment authorization, which we'll have to pay back starting in August and completing by March 2021, unless Congress acts to extend the repayment schedule, which would be extremely helpful. We also expect to defer in 2020, based on the CARES Act, approximately $250 million in payroll taxes, which we will have to repay 50%, December 2021, 50% in December 2022. Early in the pandemic crisis, we have also delayed the funding of our 2019 401k match that we typically funded in March each year. We did release it for our eligible furloughed employees so they could avail themselves of this resource, and at this point, we're going to be shortly funding the balance of all eligible employees. That leads to the question of guidance. and guidance is important and we as much as everyone else on this call would like to firm up expectations for the second quarter in the full year. Frankly, we pulled our guidance on April 2nd because it was clear the pandemic as it developed was simply impossible to put any reasonable framework together. We realize April will be a very weak month given the shutdown and the lack of elective surgeries. We view May as the beginning of the recovery and are pleased with many facilities opening Thank you for joining us. as they start to reopen across the country. Again, as with hospitals, much will depend on market, partners, and state and local approach to opening the economy. Conifer will continue to perform as they have throughout the crisis and will have to deal with decreasing billings resulting from the pandemic. Their focus remains on current and past due collections for all clients, as well as patient intake functions and tenant, which we believe will begin to ramp up. Our objective is to return quickly but to do so safely and with a keen awareness of the market level conditions which will dictate our level of engagement. We'll manage the cost profile tightly with attention to adding back services and staff based on demand and ensuring we do not get ahead of ourselves in this process. Since we're not prepared to answer any of the guidance questions, we are planning to hold a briefing in June to discuss the business and how we're viewing the restart across all of our areas since, as I said earlier, today we can't predict the speed of the recovery. We will approach this as an open call, similar to the various financial conferences we attend each year. We will provide an overview and an update, but will not discuss specific numbers other than to put them in context of what we see occurring. Realize we can discuss trends and observations, but the specificity we do at calls like this, normal earnings calls, is not realistic to expect in this update since our financial books will not be closed or audited, so we want to set a clear expectation now. We will provide a question and answer session as well as to ensure we can provide as much transparency as possible since we know how important these next few months will be dealing with this unknown situation. We will still hold our scheduled learning calls to provide the quarterly analysis and in-depth discussion you expect. Regarding the spin economy, We were on schedule at the end of February. As you would expect, for the last eight weeks, we have been 100% engaged on the pandemic and are now equally engaged in recovery. This is no signal in this statement. So please do not speculate. As we will continue the actions to prepare to spend on schedule, fully aware there may be new bumps in the road we have to address. As with guidance, we'll continue to ensure we're transparent on the timing and spend advising any changes if necessary. As I noted at the beginning of the call, we've had a tremendous momentum based on the solid foundation that teams have laid over the last two years. The foundation built by the successful turnaround led by this team has served us well in executing and leading through the pandemic. Our continued focus on portfolio optimization, use of detailed analytics fueled by real-time data, improved patient physician experience, Strong and reliable globalized operating model and solid underlying free cash flow focus will continue to position us for strong return to growth once we begin to reopen and operate. This team is energized, focused, accountable, and most of all, operates with clarity as a team. We've been through some difficult transitions during the last two years as we restructured the company. The COVID-19 crisis created a new high bar and testing the ability to develop, execute and lead the organization through these incredible situations. Our hospital teams were incredible, as were our USPI colleagues and our support teams across the organization, including Conifer. Throughout all of this, their response was selfless in all aspects. I'm immensely proud to have stood shoulder to shoulder with them in this crisis and know they are here together to deliver the next phase. So with that, I'm going to turn it over to Dan and I'll finish then with a few closing comments. Dan?