Jan 12, 2011
Executives
Thomas Rice – SVP, IR Trevor Fetter – President and CEO Steve Newman – COO Biggs Porter – CFO
Analysts
Tom Gallucci – Lazard Capital Adam Feinstein – Barclays Capital Sheryl Skolnick – CRT Capital Group John Ransom – Raymond James Ann Hynes – Caris & Company Doug Simpson – Morgan Stanley Gary Taylor – Citigroup Justin Lake – UBS A.J. Rice – Susquehanna Financial Group Shelley Gnall – Goldman Sachs
Operator
Good day, ladies and gentlemen, and welcome to the Tenet Healthcare conference call to introduce its outlook for 2011 and discuss the company’s strategies and current business trends. My name is Jeff, and I'll be your operator for today.
At this time, all participants are in a listen-only mode. Later we will facilitate a question-and-answer session.
(Operator instructions) As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr.
Thomas Rice, Senior Vice President and Head of Investor Relations. Please proceed, Mr.
Rice.
Thomas Rice
Thank you, operator. And good morning, everyone.
Tenet's management will be making forward-looking statements on this call. These statements are based on management's current expectations and are subject to risk and uncertainties that may cause those forward-looking statements to be materially incorrect.
Management cautions you not to rely on and makes no promises to update any of the forward-looking statements. The presentation Tenet is making today includes non-GAAP financial information.
A reconciliation of this information to GAAP can be found in the Appendix to the presentation. Finally, we note that Tenet will be filing a proxy statement in connection with its 2011 Annual Meeting of Shareholders and urge shareholders to read these materials once filed with the SEC.
During the question-and-answer portion of the call, callers are requested to limit themselves to one question and one follow-up question. At this time, I would turn the call over to Trevor Fetter, Tenet's President and CEO.
Trevor?
Trevor Fetter
Thank you, Tom. And good morning, everyone, and thanks for joining us.
We decided to hold this call, instead of attending the JP Morgan Conference, in order to have sufficient time to cover more topics. We also wanted to allow the analyst community to ask questions.
To those of you on the West Coast, I‘m sorry to hold the call so early, but since we are issuing preliminary results for 2010 and an EBITDA outlook for 2011 and beyond, we wanted to complete the call before the market opens. Before I start with our results and outlook, I want to briefly address the unsolicited proposal we received in November from Community Health.
As you know, in December, our Board of Directors unanimously determined that the Community Health proposal of $6 per share in cash and stock grossly undervalued Tenet and was not in the best interests of Tenet or its stockholders. The Tenet Board believes that Community Health‘s proposal does not reflect the value of our compelling growth prospects and that Tenet‘s stockholders, not Community‘s stockholders, deserve to benefit from Tenet‘s growth.
At the conclusion of my prepared remarks today, my colleagues and I are happy to take your questions. Let‘s now turn to the presentation.
The slides we are using are at both tenethealth.com and streetevents.com. Many of you know us very well.
But for those of you who are new to the Tenet story, let me take just a minute to provide some background. I‘d like to start with some brief comments about our industry, so please turn to slide three.
With large barriers to entry, a lack of foreign competition, and limited risk of substitution, this has always been viewed as a stable industry. The industry has suffered a bit during the recession, but is now at a positive inflection point as we begin the New Year.
2011 is when the baby boomers begin to enter the Medicare program, and they do so at the rate of a new beneficiary every eight seconds. The growth rate of the population of 65 and over will double, from 1.5% to more than 3%, between 2010 and 2012.
And per-capita spending on healthcare nearly doubles between age 50 and age 65. In addition to aging, the population is becoming increasingly obese.
While this poses challenges for our country, these are secular trends that will drive higher growth in demand for hospital services compared with the last decade. The Affordable Care Act, enacted last year, also changes the landscape for our industry in a positive way.
In addition to these powerful forces, as the economy pulls out of the recession, we should see positive cyclical trends as well. Rising unemployment has contributed to a cyclical decrease in utilization and an increase in bad debt expense.
These factors have put recent pressure on hospital industry margins and growth rates. Slide four provides a brief overview of Tenet.
The company consists of 49 acute care hospitals and 81 freestanding outpatient centers in 11 states. We also provide services, mainly in the revenue cycle, to hospitals outside of Tenet.
In 2010, these three businesses, inpatient, outpatient and services, together generated more than $9 billion in annual revenue and approximately $1,050 million in EBITDA. We anticipate EBITDA will increase in 2011 to a range between $1,150 million to $1,250 million.
In terms of corporate governance, we believe we have one of the finest boards in the industry. Collectively, our directors have an impressive professional history with personal accomplishments in healthcare, government, or in corporate management.
I am the only insider on the Board, and no two board members serve together on any other boards or have any other interlocks. Please refer to Appendix C for a more complete description of our board.
While it would be premature to provide a pre-release of Q4 results, we do know enough about our performance in the quarter to make some preliminary statements. The information on slide five and Appendix A provides the highlights and a starting point for the longer term outlook I‘ll discuss in a moment.
First, it‘s important to note that we now expect to recognize in 2011 the $64 million from the California Provider Fee program that we had expected to recognize in 2010. The conditions necessary to record that income in 2010 were not met.
And as of yesterday, official approval of the program from CMS had yet to be granted, although it is expected within days. Setting aside this item, our operations performed very well in 2010.
For the full year 2010, we estimate that we will achieve EBITDA of $1,050 million, approximately $280 million of which we generated in the fourth quarter. As you can see from the slide, these core operating results exceeded the high end of the relevant range reflected in our November outlook.
This performance was supported by improving statistics in both inpatient and outpatient volumes in the fourth quarter, during which time both total and commercial volumes, while still negative, were better than the trend in Q3. Outpatient visits grew by approximately 2.9%, driven by our recent outpatient acquisitions.
In addition to improving volume trends, we continued to be very effective in managing costs. We had favorable malpractice trends, and we benefitted from the impact of rising interest rates on malpractice expense.
Slide six shows our geographic footprint. You can see our presence is primarily in the southern half of the United States, with market concentrations in California, Texas, and Florida.
We operate primarily urban or suburban hospitals serving fast-growing metropolitan markets. Our hospitals tend to be large.
We have four academic medical centers. Although the markets we serve have had above-average population growth in the past decade, certain markets have had higher-than-average levels of uninsured populations and unemployment.
But we believe we are in good markets for the future and that we are well positioned within those markets. Under the Affordable Care Act, the historic disadvantage of being in states with high numbers of uninsured people is mitigated, as many of these people gain insurance.
Slide seven demonstrates that like the industry itself, Tenet represents a compelling value to investors. Tenet has continued to deliver strong growth in earnings.
We have established a consistent strategy driven by innovative, high margin, capital efficient initiatives that have significant runway in front of them. And we‘ve run our company with a high degree of integrity, providing extensive transparency and emphasizing clinical quality and regulatory compliance.
With these key initiatives in place, along with continued industry trends, we expect to exceed current industry margins within the period of the outlook we are providing today. Slide eight provides a summary view of the primary drivers of economic value.
As you can see, each of these drivers is moving in the right direction, and those positive trends are well-established. Let‘s start with the chart in the upper left.
Despite difficult headwinds, since 2006, we have grown revenues steadily at an annual rate of 5%, which is consistent with our long-term outlook. This growth has been fueled by our improved managed care pricing, which reflects our superior value proposition.
This is an organic story, not one driven by acquisitions. The EBITDA and margin chart in the upper right illustrates powerful growth over the last seven years.
We have more than doubled EBITDA and margin since 2004, and this is presented on the same base of 49 hospitals we have today. On the lower left, you can see the significant reductions in debt, which along with improved earnings has produced one of the more solid balance sheets in the industry.
The chart on the lower right shows how we‘ve dramatically increased return on invested capital. As this is one of the most fundamental measures of value creation, we are proud of our track record and expect to continue achieving growth in ROIC.
Slide nine compares Tenet‘s volume growth at our 49 hospitals to that of our largest peers for the period Q1 2007, the first year following our 2006 settlement with the Department of Justice, to Q3 2010, the most recent quarter for which comparable statistics are available. What this chart shows is that in six of those 15 quarters, Tenet reported the strongest admissions growth compared to our largest competitors.
In 14 out of the 15 quarters, we ranked first or second among these three companies. The revenue growth you see on slide 10 is organic, and as I mentioned earlier, has grown at a steady and consistent rate of 5% since 2006.
Slide 11 compares Tenet‘s EBITDA growth at our 49 hospitals to our largest peers since the beginning of 2007. In eight of these 15 quarters, or more than half of the time, Tenet ranked first in same-hospital EBITDA growth.
Slide 12 provides a closer look at Tenet‘s strong growth in EBITDA and EBITDA margin since 2004. EBITDA growth has averaged a compound annual increase of 16% during this seven-year period.
This track record clearly demonstrates our long-term ability to produce superior and sustained earnings growth. Of course, this is the most fundamental of value drivers.
It‘s also important to note that this seven-year period of sustained growth included the most significant recession in 70 years. Again, I want to remind you that this growth is virtually all organic.
This is not an acquisition story. We have grown through cost control and quality initiatives, coupled with improved pricing.
We did it against strong headwinds. And we accomplished this growth while significantly deleveraging and de-risking the company.
Slide 13 puts our margin growth in context. Tenet has grown margins at the same time that peer margins have declined.
To be specific, Tenet expanded margins by 590 basis points while the industry, excluding Tenet, suffered margin erosion of 230 basis points. This margin differential is now just 260 basis points, and we expect to more than close this gap over the next few years.
In just a moment, I‘ll discuss the specific initiatives we are using to close the remaining margin gap. Slide 14 provides a more detailed look at our risk profile.
I showed you earlier how we reduced debt and repaid our obligation to the government. On this chart you can see that whether you look at our leverage ratio compared to our industry peers or the weighted average debt maturities, Tenet has one of the better risk profiles in the industry.
Beginning with slide 15, I‘d like to transition from our past performance to our future. We are focusing on organic growth, building high margin businesses, and growing EBITDA, free cash flow and ROIC.
This is reinforced and incentivized throughout the organization. To this end, we increased our focus on growing outpatient volumes; we significantly expanded our high-growth revenue cycle business and emphasized physician alignment as a way to build our service lines and capture the benefits of the operating leverage inherent in our business.
The foundation for these growth strategies includes integrated clinical systems that are driving quality and efficiency and providing an enhanced value proposition to our physicians. And as in the past, we maintain high standards of clinical quality and regulatory compliance.
On slide 16, we‘ve translated these strategies into the seven key drivers towards a 16% to 18% EBITDA margin. This list should look very familiar to anyone who has seen our investor presentations over the past year.
Let‘s take a closer look at each of these drivers. Slide 17 illustrates our first initiative, significant expansion of our outpatient service business.
The current market remains uniquely attractive for outpatient acquisitions. We closed on 24 outpatient acquisitions in 2010 for a total outlay of $65 million.
We expect these acquisitions will contribute an additional $25 million to EBITDA in 2011 and more in subsequent years. Our pipeline is strong.
So we anticipate our 2011 acquisition program will continue at a similar pace to last year‘s. We expect the partial year contribution from 2011 acquisitions to generate an additional $10 million in EBITDA.
We should achieve full contribution from the 2010 and 2011 acquisitions by 2013 when we will have a $65 million run rate from that point forward. Even though we expect to continue making outpatient acquisitions, as a practice, we do not include unidentified acquisitions in our earnings outlook.
Therefore our earnings outlook through 2015 includes only the $65 million run rate from outpatient acquisitions that we have completed or for which we have visibility today. Our revenue cycle business, which you will see highlighted on slide 18, operates under the brand Name Conifer.
Although we‘ve talked about Conifer at investor meetings over the past few years and many of you have met the leaders of Conifer, I believe that some investors may not fully appreciate the potential of this business. This slide compares Conifer‘s key metrics to the only comparable publicly-traded company, Accretive Health.
This side-by-side comparison demonstrates that these two businesses, Conifer and Accretive, are similar in magnitude. Given the comparable size of its business, please note that Accretive, which went public in 2010, has a current enterprise value of approximately $1.5 billion.
As Conifer gains momentum and becomes a greater contributor to our earnings, we expect this will become a more visible source of value in our shares. Conifer is highly strategic to driving superior performance for Tenet in the revenue cycle.
Over the past five years, it has driven Tenet‘s reduction in accounts receivable days from 58 days to 46 days today, an improvement that has unlocked approximately $300 million in cash. Conifer has also reduced our billing cycle times by almost 35%.
We achieved almost 40% of our self-pay collections at the point of service in 2010, up 12 points from five years ago. Conifer has also contributed to our cash generation by assisting otherwise uninsured patients in qualifying for government programs.
Last year, Conifer enabled 100,000 of our patients who were otherwise uninsured to qualify for state Medicaid programs. As most of you know, the sales cycle on outsourcing services can be very long, but Conifer has already made significant penetration in the market and built a substantial pipeline for future sales.
So we have a high degree of confidence in the $85 million of incremental EBITDA contribution that we have incorporated into our 2015 earnings outlook. Slide 19 describes the growing earning contributions we expect from our Medicare Performance Initiative, or MPI.
MPI is built on a unique foundation of information systems capabilities and analytic tools we developed at Tenet. These systems and tools give us excellent insights into our business and enable us to work with physicians to improve quality and reduce variation in resource utilization.
MPI was launched in early 2009. In the first year, we launched the program with an examination of the top five DRGs, or Diagnostic Related Groups, at each of our hospitals.
For those new to our industry, DRG is a Medicare term that has become a common language for describing specific services. The concept driving MPI is to identify best practices among our physicians for these targeted DRGs.
We then identify physician champions to lead the adoption of those practices by other physicians. The goal is safer, better care, at a lower cost.
In MPI, we can identify not only the profitability of each physician for each DRG, but also the specific reasons why the clinical practices of individual physicians might make or lose money for the hospital. While physicians generally like to think their procedures are profitable for hospitals, if they use overly expensive supplies or keep patients in the hospital too long, those thin Medicare margins evaporate.
While today there are no consequences to the physician within Medicare, there can be consequences in managed care. We help the physicians understand when their clinical practices could cause them to be dropped from a managed care network.
We can help the physicians remain in network, reduce costs, improve profitability, and increase clinical quality. Everyone wins.
Those of you who have followed Tenet closely may remember a slide with bubble charts for DRG 871 and a certain doctor number six. His costs per case had improved significantly in the 12 months post-MPI implementation, but were still at a level which lost money for the hospital.
In preparing this presentation, we checked on doctor number 6 and found that for the last six months both the variable costs per case and average length of stay for his patients have declined. Thanks to MPI, his cases in DRG 871 are now solidly profitable for the hospital.
Alongside MPI, we have had other related programs to help reduce costs. These include standardization and purchasing initiatives related to supplies, length of stay and case management initiatives, labor productivity initiatives, and standardization of clinical care.
Some of these are more mature than others, but all are expected to achieve significant benefit going forward and are included in the aggregate savings we target as part of MPI. As we expand MPI to a larger number of hospitals in 2011, we expect to build on the savings achieved in 2010 and add an incremental $50 million in savings annually to that base.
Since these annual savings are cumulative, by 2015, we expect MPI to achieve a $250 million reduction in our cost base. Because MPI, our Medicare Performance Initiative, is so important, we‘ve included supplemental slides on the topic in Appendix B of this presentation.
Slide 20 provides some important insights into our substantial investments in Health IT. We are spending $620 million on advanced clinical systems from 2009 to 2014, which is offset in large part by aggregate federal incentives of $320 million.
These investments suppressed our earnings growth in 2010 and will do so again in 2011. But the impact on earnings turns positive next year, in 2012, as we expect federal incentive payments to exceed our implementation costs by $10 million.
It‘s important to remember that we would have made these investments over time in any event, but the federal incentives motivated us to accelerate the program. There are two important things not to miss on this slide.
The first is the line with a circle around it. That‘s the effect on EBITDA, assuming zero operating benefits, but just netting the cost against the incentive payments.
The second important point is off to the right. The penalties for not implementing these systems are significant.
There are penalties in perpetuity which have a net present value of approximately $315 million. It makes sense to invest in these systems, and even more sense to maximize the incentives and minimize the penalties, because advanced clinical systems are essential to patient care, the competitiveness of our hospitals, and the satisfaction of our physicians.
Turning to slide 21, an economic recovery should help us reduce bad debt expense. Conifer is also expected to contribute to a decline in bad debt.
From 2006 to the second quarter of 2008, Conifer drove our self-pay collection rate from 32% to 36%. Since then, recessionary pressures have driven collection rates back down to 29%.
An economic recovery alone should drive these collection rates back toward our pre-recession level of 36%, and we believe that Conifer will improve our collection rate to a level above that. As you can see on slide 22, we have plenty of available inpatient capacity, and our long range outlook is to improve modestly in comparison to our peak capacity utilization in the past five years.
Like the impact from reduced bad debt, we assume a major portion of this contribution will be driven by the economic recovery, as economic and job growth drives volume growth. Tenet is currently operating at a 50% utilization for licensed beds, which means that we have no near-term capacity constraints, but rather, significant upside potential for earnings.
We estimate that incremental inpatient volume has roughly a 40% margin. The operating leverage in our business model provides upside coming out of the recession.
Of course it‘s more than just a macroeconomic story. We have a series of volume-building initiatives to augment industry-average volume growth.
Slide 23 outlines the impact on profitability from the Affordable Care Act, otherwise known as healthcare reform. The Act is negative to earnings in the near-team, but distinctly positive beginning in 2014.
Of course, there are many uncertainties in projecting the ultimate impact of recent legislation post-2014. One of the most difficult parts is estimating the changes in utilization of healthcare services by today‘s uninsured and charity patients as they become insured.
It‘s safe to assume that newly insured people will consume more healthcare services, on which we expect good margins as a result of the operating leverage I spoke about earlier. It is very subjective at this point as to what the pricing, payer and case mix will be.
Our best estimate is that the net impact on earnings will be positive, as you will see in our earnings walk forward. In 2014, we anticipate that inpatient volumes could surge by as much as 7.5% and outpatient visits could grow by 5%.
The most important take-away from this discussion is that while uncertainties make it difficult to predict the precise impact of the law on the profitability of the industry, there is no question that our geographic presence and business model will position Tenet to capture substantial net benefits from this new law. Putting this all together, I‘d like now to turn to our near-term and long-term outlooks for our financial performance, which you can see on slide 24.
We won‘t release our final results for 2010 until mid to late-February. But as I mentioned earlier, our preliminary estimate for 2010 EBITDA is approximately $1,050 million.
Our initial outlook for 2011 EBITDA is a range of $1,150 million to $1,250 million, or 10% to 20% growth over 2010. Since the California Provider Fee is now expected to be recorded in 2011 and will not be recorded in 2010, if you set aside that item entirely, the growth range is expected to be from 3% to 13%.
Our cash balance at December 31, 2010 was approximately $400 million, reflecting favorable EBITDA performance offset by capital spending of approximately $460 million and working capital and other liability changes. The assumptions underlying our 2011 outlook are appropriately conservative, reflecting the uncertain strength of the economic recovery.
More specifically, we are assuming total admissions will be flat to down 1%. The adverse payer shift that we have experienced in recent years is assumed to continue into 2011, with an unfavorable impact of approximately $25 million.
We are assuming the headwinds from bad debt expense will continue. And while we also included $35 million of negative EBITDA associated with the Health IT expenses in the year, I want to remind you that this is the last year in which our Health IT program will be a net financial drag on our reported earnings.
Slide 25 is intended to place our 2011 outlook in context. This graph compares our initial outlooks to our ultimate performance in 2009 and 2010.
It shows we have under-promised and over-delivered. While we strive to be as accurate as possible in issuing our outlooks, we also try to avoid unwarranted optimism.
Since we explicitly identified the California Provider Fee each time we issued our 2010 outlook, we have excluded it from 2010 for this purpose. Slide 26 summarizes our high-level overview of the outlook for the next five years.
We are expecting revenue growth to stay in the same, well-established range of 4% to 6% that we achieved over the last five years. This revenue growth reflects continued pricing improvement, balanced by modest volume growth through 2013, enhanced by the volumes expected as a result of the Affordable Care Act in 2014 and 2015.
While it fully reflects pricing pressure from the federal health legislation, this is offset by an improving outpatient mix and strong growth from Conifer. In the middle of our range, annual EBITDA growth is expected to average 14%, slightly lower than the 16% compound annual growth we‘ve generated over the last six years.
And by 2015, we expect our margin in the middle of the EBITDA range to be 16% to 18%, exceeding today‘s industry average. Meeting these objectives corresponds to annual EPS growth of 37% to 50%.
EPS growth will be accelerated by our utilization of our $2 billion NOL. Based on these assumptions, we expect the NOL to be fully utilized by 2014 or 2015.
Throughout this period, we expect to continue to invest in our hospitals. We reflected those investments by including annual capital expenditures in a range of $450 million to $550 million.
Slide 27 provides an illustration of the EBITDA generated under this outlook. What‘s most notable about this growth trajectory is that it‘s actually 200 basis points lower than our track record for EBITDA growth going back to 2004.
At the high end of the 2015 range, the growth rate is actually equal to that of the past six years. Volume growth, pricing and enhanced operating leverage, net of continued adverse payer mix shifts are expected to contribute $80 million by 2013.
We also expect run rate improvement in Medicaid funding, including follow-on California Provider Fees and Provider Fees in other states, to contribute an additional $40 million in this period. These assumptions result in the mid-point of our 2013 EBITDA outlook coming in at $1,435 million and a margin of 13% to 14%, which is sufficient to close roughly 80% of the margin gap relative to current peer group performance.
This growth trajectory provides significant value creation for our shareholders. But, as we move into 2014 and 2015, with all aspects of the Affordable Care Act coming into play, we expect additional acceleration in our earnings growth.
Slide 29 starts from the midpoint of our 2013 outlook with an EBITDA of $1.435 billion and builds to our midpoint for our 2015 outlook of $2 billion. To remain conservative, you will note we added no incremental EBITDA contribution during this time period from additional acquisitions in our outpatient business, consistent with our practice of not including unidentified acquisitions.
Conifer and MPI continue to make significant contributions of an incremental $50 million and $100 million respectively. Our Health IT initiative will contribute an estimated positive $44 million in 2015, which is roughly $10 million less than it will contribute to 2013 EBITDA, hence the negative $10 million on this chart.
The impact from healthcare reform is expected to add more than $230 million to EBITDA in 2015 relative to 2013. This impact reflects the increased utilization of our hospitals and outpatient centers by previously uninsured segments of our patient population.
This aggregate contribution reverses the unfavorable $90 million impact that we expect through 2013 and adds as much as $140 million beyond this breakeven point. Volumes, pricing and operating leverage continue to drive growth, adding almost $200 million to our 2015 outlook.
In part, this growth reflects a stabilization in payer mix, which has been assumed to be eroding through 2013. The aggregate impact from these items puts the midpoint of our 2015 outlook at $2 billion, with a margin of 16% to 18%.
By this point, we expect to have more than fully closed the current margin gap relative to our peer group. We thought it would be helpful to disaggregate our 2015 outlook into two segments, looking first at the period prior to the implementation of the most significant pieces of the Affordable Care Act in 2014 and next at our expectation for the first two years after full implementation of the Act, namely 2014 and 2015.
Slide 28 summarizes our outlook for the first of these two time periods. This slide provides detail on the contributions to EBITDA growth from 2010 to 2013 from our seven primary growth drivers.
Note that while outpatient, Conifer, MPI and Health IT are making significant contributions, aggregating $330 million by 2013, our assumption from the impact from reduced bad debt is modest, at $25 million. And we include a $90 million adverse impact from healthcare reform.
This $90 million is primarily the impact of the Medicare pricing concessions that the industry accepted as part of the political process of enacting healthcare reform. We believe this outlook is realistic, and it was prepared as part of our normal long-range planning last fall and reflects 2010 results.
We believe that it creates meaningful shareholder value. Under normal circumstances, we wouldn‘t provide an outlook so far into the future, but we felt it was important for shareholders to make their own determinations regarding the value and achievability of the plan.
To summarize on slide 30, I made several points at the outset about our industry being at an inflection point with strong favorable trends. Moreover, Tenet represents a compelling investment within the industry.
We have produced an enviable track record of growth in the real drivers of shareholder value. The growth we’ve generated is the product of a clear and consistent strategy that has built significant momentum.
It hasn‘t been easy. We‘ve generated this growth through the basics of a high quality value proposition for our customers, very effective cost controls, and investments in technology and our physical plants.
We have dramatically reduced our risk profile and financial leverage. We emphasize high standards of clinical quality and regulatory compliance, and our strategies are sustainable.
Once again, we exceeded our operating targets in 2010, and we look forward to building on that momentum in the year ahead. This concludes my prepared remarks, but before I ask the operator to open the call to Q&A, I have a couple of requests.
Due to our limited time, and in fairness to others in the queue, I‘d like to request that you ask just one question. And because we are constrained in what else we can discuss, I‘d also ask that you limit your questions to our fundamentals and outlook.
Finally, I don‘t anticipate that we will be able to get through the queue entirely. So if you have a question and we weren‘t able to call on you, please feel free to call us later this morning at 469-893-2522.
Operator, please open the call to questions.
Operator
Thank you. (Operator instructions) It looks like our first question comes from the line of Tom Gallucci with Lazard Capital.
Please proceed.
Tom Gallucci – Lazard Capital
Good morning. Thanks for all the color, Trevor.
I guess my question would really just be a little bit more about the MPI. I think that one of the ideas behind the proposed acquisition was improving the standardization across the platform.
You showed some of the earnings numbers that you expect from MPI in the next few years. Can you just remind us where you are actually in the rollout of that physically and how me hospitals is it in?
How does that piece of the equation progress as we look forward?
Trevor Fetter
Yes. So, Tom, thank you.
Why don’t I ask Steve Newman to describe the rollout and then Biggs to just remind the audience what we have assumed in terms of results from MPI going forward? Steve?
Steve Newman
Tom, we’ve rolled MPI out to 36 hospitals to date. Each of those hospitals is working on five DRGs.
We anticipate that the remainder of our hospitals will be touched by MPI by the end of this first quarter.
Biggs Porter
Just to expand that thought and to talk about $50 million that we’ve assumed from MPI and all the related initiatives we’ve put into that bucket for this presentation, put in context, we achieved $30 million in 2010 from the partial year effects. We’re just looking at five DRGs at 36 hospitals.
Savings on those will grow on just those DRGs as physician adoption grows, but also from achieving a full year run rate on those initial implementations. To point out these with the DRGs with the greatest losses, but they are not necessarily low-hanging fruit.
So there’s lots of opportunities going forward, even a profitable DRG can also be made better. So we expand the number of hospitals, we expand the number of DRGs as we going forward.
We are adding the remainder of our hospitals this quarter and adding DRGs over time, and there is about probably over 100 DRGs with significant volume at each of our hospitals. There is lots of runway from here.
Now the other things we put under the MPI umbrella are productivity in length of stay initiatives, which we have and would expect to continuously improve over time, and we have better tools available to us now with more internal consulting resources, also we’ve added that than ever before. We are also focusing more on education, the middle of frontline managers, which is really where the day-to-day decisions are made on those fronts.
And we demonstrated improvements on all of these things, and as I said in 2010, and expect with all the runway ahead of us that we can achieve what we’ve put into the forecast of $50 million a year at the middle range. I’d just add one more thought to it.
Clinical standardization and our advanced systems will also enhance this effort.
Operator
All right. Our next question comes from the line of Adam Feinstein.
Please proceed.
Adam Feinstein – Barclays Capital
Yes. Thank you.
Good morning, everyone. I guess, just wanted to get some more color.
In the long-term outlook you gave, you gave volume growth assumptions of flat to positive. Just want to get some more color and clarity there as you are thinking about that.
Is that assuming growth in all payer – or flat to positive growth in all payer classes? And just as you think about the swing factors there, when you say flat to positive, I guess just to get to the positive level in relative to the flat level, maybe just talk about as you guys think about the swing factors.
So just want to once again get a better understanding of the volume assumptions throughout the 2010 to 2015.
Trevor Fetter
Adam, I just need to clarify something, which was flat to down 1%. So it was flat to negative.
Biggs Porter
In 2011, it’s flat to negative. It’s zero to negative 1%.
Then over the five-year period, we assume volumes grow only slightly. You may recall on the inpatient utilization charge that Trevor showed earlier, we just go from – just go up 200 basis points, which is equivalent of about 4% aggregate inpatient volume growth over the five-year period.
So that’s not annual number, that’s aggregate cumulative number by the end of the five-year period. So that’s very modest, if you will, volume growth assumed.
In terms of payer classes, we are going to stop focusing discretely on commercial volumes, but for the sake of understanding here, Trevor did mention, I think that’s in the slides, there’s $25 million net negative payer shift, adverse mix shift included in our 2011 numbers. What that reflects is a negative 3% year-over-year change in commercial volumes.
So we’ve assumed that in 2011, it’s still negative. We assumed in 2012, in fact, that commercial volumes are still negative – at half that rate, a negative 1.5.
And then we assume commercial volumes were flat, zero growth rate going forward. So the growth that we’ve assumed is not in commercial, and in fact, commercial is still negative over the next couple of years before going zero.
Adam Feinstein – Barclays Capital
Okay, great. And then just a follow-up on the volume, I appreciate all the details here.
So, it's interesting on the healthcare reform you gave some assumptions around volume growth. Certainly just from building our own models, we know a lot of work goes into figuring that out.
But just once again, as you think about that 7.5% inpatient, 5.0% outpatient growth, just wanted to get more color. Do you guys think that's going to be pretty evenly mixed, or are there certain regions where you think that volume growth is going to be better from healthcare based on the uninsured mix that you have in certain geographies?
Biggs Porter
The way we derived it, in fact, would have it vary by region because what we did was we took the CBO – the Congressional Budget Office estimates for the conversion of the uninsured to exchanges in Medicaid and applied those to each of our markets and assumed, meaning the volume of uninsured in each of our markets the populations, the demographics, and assumed the utilization of services of that newly insured was the same as it was of the existing, let’s say, Medicaid and commercial patients. We also assumed that our market share was constant with where it is today.
So we basically just assumed we picked up our share in each market of whatever is there in terms of uninsured and charity patients presently, as they can afford into Medicaid or into an exchange status. So it does vary then.
So in areas where there are greater populations of the uninsured, then we would assume that there is a greater influx of volume to us there. There’s probably going to be a number of questions on healthcare reform, and just to try to kind of put a pin in it and dress what I think at a level of detail makes sense at this point in time, I’d like to lay out a few things here.
In 2015, there’s $140 million net improvement from health reform. And using sort of large round numbers, basically it’s a roughly breakeven scenario before the volume increases we just talked about.
It’s about $325 million at that point of cumulative market basket and dish reductions. Offsetting that, there is just over $300 million of bad debt improvement.
So, as I said, pretty much a wash before you get to the volume increase. What we expect in terms of revenues on that 7% and 5% we just talked about in terms of volume increases is about $500 million of additional revenues.
Against that is about $350 million of cost, including bad debt on the new volumes. That represents about a 30% margin on the new volume, which is a blend of the expected margins or incremental margin rates on exchange in Medicaid.
That’s below what we traditional have said incremental margin is on inpatient and even more so on outpatient, because of the mix here being more strongly Medicaid. As I said, we used Congressional Budget Office estimates on the conversions, but included in everything I just talked about, there is a $30 million hedge in revenues for risk associated with pricing the new migration of existing commercial business.
So we recognized there is some risk in these assumptions, and we tried to apply a hedge for that. Having said all that, there are obviously lots of scenarios, people are going to create both higher and lower, and we could just spend an entire conference call on this subject.
But we think that what we’ve done here is very reasonable, and in fact, the only external model – other external model we’ve seen on this at any level of detail had lots of different assumptions going lot of different directions, but at the end of the day, in 2015, created the same aggregate consolidated EBITDA that we have. So we think we’re, on that basis, in the right zone of what we have, but recognizing it’s highly subjective because it’s five years out.
So I think that’s what makes sense to trying to draw the line in terms of what we should disclose about our assumptions to health reform. We’ll take more questions, but that should try to give you all the basic parameters.
Adam Feinstein – Barclays Capital
Okay. Thank you very much.
I appreciate it.
Operator
(Operator instructions) Our next question comes from the line of Sheryl Skolnick with CRT Capital Group. Please proceed.
Sheryl Skolnick – CRT Capital Group
Good morning, gentlemen. Arguably, this is the single most important conference call you've had, given what's at stake, which is the independence and ultimate valuation of the company over the near term, if not the long-term.
So presumably, you've done a very good job of – and it sounds as if you've done a very good job of documenting some of the key assumptions and the growth drivers. But right now, the stock is only being valued inclusive of the provider tax fee revenue, however we are going to call that for California, at roughly 5.5 times at the low end of your estimate for next year.
And I guess what I would question is, if that's where the market is going to value you at roughly $6.90 a share, what – apart from all you have done to improve operations, to demonstrate the track record, to grow revenues, to operate with integrity, with clarity, with transparency, all the wonderful things you've done and to implement programs that I would argue are unique in the industry, what else can you do to enhance the value of your equity that you haven't already done? And would you be willing to sell the company to the right buyer at the right price?
Because I think that's what this all comes down to.
Trevor Fetter
Well, Sheryl, I appreciate certainly a large part of that question. Look, until this morning, much of this information – in fact, I would say the most important information that we’ve put forth in the call was not in the market.
There has been an information vacuum since we released third quarter results. So we’ve, this morning, given the market quite a lot to absorb and understand relating to the fourth quarter of 2010 and our performance in that quarter, including the improved trajectory and volumes and the outperformance on the EBITDA line.
We’ve given the market a lot to understand in terms of 2011 and just setting aside that provider fee item what the trajectory is for 2011. And then certainly beyond 2011, we’ve given everyone a lot to absorb with respect to our expected trajectory towards 2015 and even what the possible impact of health reform would be.
We’ve got several important external items affecting the company, including the convergence from the recession and what that would do to both the industry and Tenet and then the impending implementation of the most important drivers in health reform that Biggs talked about earlier. So I think this is – I think it’s premature to answer the second part of your question.
And I think with respect to how the company is valued, I think we’ve certainly provided a level of disclosure and transparency here today that should enable the market to reach a more informed opinion that might have been the case in certainly November and December and even earlier this week.
Sheryl Skolnick – CRT Capital Group
Okay. Thank you.
Operator
Our next question comes from the line of John Ransom with Raymond James. Please proceed.
John Ransom – Raymond James
Hi. My question is, if we want to think about free cash flow, taking your numbers in applying free cash flow, is there anything else we need to be thinking about?
You've given us the CapEx range and some of the other things. But in thinking about that, what would you estimate, with no acquisitions, kind of the total deleveraging that might occur between now and, say, 2013?
Biggs Porter
As you say, we haven’t put cash projections into the information that’s there. However, a couple of important points.
The Department of Justice payments that we were making completely retired. We’re complete with that as of the third quarter of last year.
So that’s a drag in the past, which is no longer there going forward. On – another key important point is that the NOL we are projecting to protect us from tax payments until 2014 or ’15 time period.
So, as a result of that, we think that our EBITDA growth will produce increasing free cash flow from a – that a PC [ph] might not have is from a working capital standpoint, what would we assume. And although we’re not giving cash flow guidance yet for 2011 until we fully analyzed carry-on effects from 2010, we would expect that working capital on an annual basis would have to support higher revenues and would grow maybe in the neighborhood of $50 million to $90 million or $100 million in any particular year.
Obviously, the higher revenue growth periods towards the end might require more working capital than the more modest assumptions for first few years. So, something in the range of $50 million to $90 million a year for working capital usage would be the base line.
Now having said that, what Conifer has experienced in the past in driving days and receivables down cooperatively with our hospitals and our expectations to continue to be able to work successfully on that, we may be able to do better than that $50 million level going forward.
John Ransom – Raymond James
Just a point of clarification. Does your CapEx include the outpatient acquisitions, the 450 to 550?
Biggs Porter
Over the next two years, no. They are only in there for the next two years.
John Ransom – Raymond James
What I'm saying is, should we factor in additional dollars are outpatient acquisitions? I'm not sure I understood your answer.
Biggs Porter
Yes. In 2011, we’d be spending –
Trevor Fetter
What he meant was that –
Biggs Porter
About $100 million in 2011 in addition to the CapEx numbers.
John Ransom – Raymond James
Yes, okay.
Trevor Fetter
And we haven’t included outpatient acquisition beyond that, John. But we are anticipating at least making them in 2011 at a rate and value similar to what we did in 2010.
John Ransom – Raymond James
Okay. Thank you.
Operator
Our next question comes from the line of Ann Hynes with Caris & Company. Please proceed.
Ann Hynes – Caris & Company
Good morning. So, when I look at slide 22, Biggs, I know you touched upon it with an earlier question, but the capacity utilization at 52% by 2015, just when I look at it, it seems very conservative, given what we hope would be an economic recovery and secondly, health reform and your exposure and high uninsured markets.
So, I guess my question is, what’s the driver of the conservatism, or maybe I'm just looking at it incorrectly?
Biggs Porter
You’re right. It is conservative.
I think that the – that number for the 2% growth is really before that health reform add-on or the 7% to be clarity. So it was intended to show what’s happening from sort of an organic status quo basis as opposed to what happened traditionally when we get that 7% volume growth anticipated from healthcare reform.
But I go back to you point, I do think it’s conservative even on a status quo kind of basis because we do have a history prior to recession of driving increased volume. We were doing it prior to the recession hitting in 2008.
All of our initiatives associated with traditional integration, we believe, will drive volume. We think demographics will drive volume.
We think that economic recovery will drive volume. The biggest concern is what is the pace of the economic recovery and how quickly does that take off.
So we just chose to be conservative on that point because it’s just one of the harder things to project.
Steve Newman
Ann, this is Steve Newman. I just want to add one point to what Biggs said in a reminder that under the MPI umbrella we also have our case management initiative.
One of the goals is obviously to cut length of stay. So, as we grow volume and cut length of stay, there is not that one-to-one increase in capacity utilization from a census perspective.
Ann Hynes – Caris & Company
All right. And then on that slide you gave, provided $40 million incremental EBITDA for every 1% of total volume, that's assuming your current payer mix.
So, if we have a reacceleration of commercial volume, would there be upside to that, given that you’ve been negatively hurt the downturn in the economy and commercial volume versus –?
Biggs Porter
Yes. If commercial grows at any point greater than the aggregate growth, then there is upside to our incremental margins.
Ann Hynes – Caris & Company
Okay. Great.
Thank you.
Operator
Our next question comes from the line of Doug Simpson with Morgan Stanley. Please proceed.
Doug Simpson – Morgan Stanley
Hi. Thanks for all the detail in the slide deck.
Just a question on managed care contracting. How would you characterize where you see your rates today looking into 2011?
And how much opportunity do you think, relative to some baseline, is there to drive those rates higher? Is there a pretty big dispersion still across the portfolio in terms of your best markets versus your worst markets?
Just any color you could give us on how much room you think there is for improvement.
Trevor Fetter
Okay. Thanks, Doug.
So I guess the first comment I should make about our managed care pricing is that we are, at this point, 90% contracted for 2011 and 60% for 2012. So we have a very significant degree of visibility into what our rates are over at least the beginning part of this multi-year outlook.
As we look at the – across the country at the markets, we still feel that there is plenty of opportunity where we are positioned low relative to primarily the leading not-for-profit competitors in those markets. Those are real competitors when you get down to it on a managed care point of view.
And we have worked very hard to create a superior value proposition. As I mentioned in the script, we’re managed care payers.
And that consists of a reasonable price, demonstrably high levels of clinical quality on their metrics. I’m not talking about CMS core measures.
I’m talking about the Centers of Excellence programs and other designations that the managed care companies put out for – in order to evaluate the hospitals. And then in our revenue cycle, we have a very smooth, low friction revenue cycle operation with respect to managed care.
We have very low rates of denials. We have a great high rate of automation.
And so, our basic value proposition of managed care is high quality, low cost, ease of doing business, and we do it centralized in a centralized way with the large national managed care companies where we’re able to work with them in order to help them build market share. If they needed pricing concessions in particular market, we can make it up in a different market.
It’s a very collaborative type of relationship. So, of all the moving parts in a multi-year forecast like this, managed care pricing is one of the ones that we have a greater degree of visibility into.
Operator
Our next question comes from the line of Gary Taylor with Citigroup. Please proceed.
Gary Taylor – Citigroup
Hi. Can you hear me?
Trevor Fetter
Yes.
Gary Taylor – Citigroup
Great. Thanks.
Just a couple quick questions on the details, because there is a lot to work through. I thought I heard early in the call a mention around the fourth quarter related to malpractice.
And I didn't know if that was a continuation of the favorable trends that you’ve been expecting for most of the year or if there was anything unusual contributing to the 4Q on that front?
Trevor Fetter
There are two – the mention was – I was trying to condense a lot into a short sentence. There are a couple of things going on.
We have had a long multi-year trend of improving clinical quality. It also gets back to our targeted growth initiative where part of the strategy and targeted growth was to evaluate malpractice risk as part of our evaluation of certain service lines.
And so, over time, we’ve made deliberate effort to improve clinical quality and reduce malpractice that way, but also if there are service lines that are inherently higher risk than others, we’ve taken that into consideration in deemphasizing or exiting those service lines. So we’ve had sort of a real reduction in malpractice experience through improvements in clinical quality.
And if you look over time over the last several years, we have fought a headwind in malpractice through reductions in interest rates that reduce the discount rate that’s used to discount the malpractice liability. Now, even with that headwind, due to the improvements we have made in clinical quality, we’ve cut malpractice costs in-house over the past five years on a per patient day basis, which is the best metric for it.
In the fourth quarter, as you know, interest rates in general increased. And for a long time we’ve been talking about how – as an interest rate environment started to turn and go higher, one of the effects would be on old discounted liabilities, whether it’s workers’ comp or malpractice, you’d get a little bit of a tailwind from that.
So that’s – what I was saying is that in the fourth quarter there is a component of both of those effects, the continued improvement in malpractice experience along with a reduction in the discounted liability or at least an improvement in malpractice expense due to slightly higher discount rates.
Gary Taylor – Citigroup
Okay, great. So it sounds like it's going to be relatively consistent with what we've seen with the last several quarters?
Trevor Fetter
We’ll discuss that in more specifics when we do the fourth quarter call.
Gary Taylor – Citigroup
Okay, great.
Trevor Fetter
All those drivers.
Gary Taylor – Citigroup
Sure. My last question, I just want to make sure I understand this correctly.
So, when we look at the 2011 guidance, I know on the slides it says there's $40 million in provider taxes included, which I believe you characterize as what you think the right sort of recurring run rate is. But then also, you had made a comment that suggested the $64 million from California was also included in that guidance.
So could you just kind of walk us through, I guess, what your view of sort of recurring EBITDA guidance is, adjusted for both of those?
Biggs Porter
Sure. This is Biggs.
In 2011, there is both the $64 million carryover, if you will, of the California provider fee that was applicable to 2009 and ’10, but which isn’t going to be recognized in the P&L until 2011. There is also – the majority of that cash is not going to be received until 2011.
So that’s in 2011. Additionally, in California, we expect a follow-on program – it won’t be a $64 million level, but we expect a follow-on program applicable to 2011 and we expect provider fees to be a range put in place in Pennsylvania.
The aggregate of those is $40 million or better at this point. So in 2011, there is really $104 million in the outlook for provider fees in combination of the carryover plus the expected follow-on or new programs.
And then in the sort of, if you will, ’12 and ’13 period, the $64 million doesn’t recur, but we expect $40 million to recur either in the form of continued provider fees, the bulk of which is the fact that the Pennsylvania fees in multi-year program already as it’s been put into place. And then what you see – if we don’t see continued provider fee out of California or otherwise, we expect to see restoration of some of the state supplemental payments or other things, which would keep us from $40 million run rate Medicaid funding increase level in those years relative to what we had in 2010.
Gary Taylor – Citigroup
Great. That's perfect.
Just the last follow-up. As we are modeling quarterly EBITDA in ‘11, presumably, we have California in the first quarter.
But from the Pennsylvania perspective or from that $40 million run rate perspective to I guess avoid the issue of kind of what's in the EBITDA, what's not in the EBITDA, is there – do you think that $40 million runs ratably through the year, or are we just going to have to live with it being lumpier than that?
Biggs Porter
Ideally, it would run evenly through the year. It could be a little front-end loaded because California program may be front end loaded.
But if we get back to this issue of when is it all approved, when is the point where we can record it, it’s just too subjective right now to say exactly how this will appear quarterly. Maybe we’ll have greater visibility to that by the time we report fourth quarter results more fully in detail in February, and we can give a great review of how the year will unfold at that point.
Gary Taylor – Citigroup
Okay. Great.
Thank you.
Operator
Our next question comes from the line of Justin Lake with UBS. Please proceed.
Justin Lake – UBS
Thanks. Good morning.
Just kind of following up on Gary's question there. As I look at 2011 guidance, I know there's a number of moving parts here, but it looks like you've got a little over $100 million of provider taxes that will run through 2011 that really weren't in the prior years.
If you adjust for that in the $40 million of acquired EBITDA, that basically speaks to about 100% of your EBITDA growth guidance, going from 1,050 to 1,200. I'm just curious if that's – in your mind, it would be indicative of a same-store kind of flat EBITDA, ex those two items.
Is that a fair way to look at it, or are there some moving parts that I'm missing?
Biggs Porter
I’ll try to hit all the big moving parts, and it should get back to some reasonable understanding, which I think you’re pretty close to already. But the big negatives – I'll start with the negatives in 2011 relative to 2010 and I’ll use round numbers.
But on HIT initiative, about $15 million growth in expense or net expense in 2011 relative to 2010 –
Justin Lake – UBS
That’s $15 million or $50 million, I’m sorry, Biggs?
Biggs Porter
$15 million.
Justin Lake – UBS
$15 million, got it.
Biggs Porter
$15 million. And it’s consistent with what’s on the slides.
So you can refer back to there on the number of these points for that matter. The healthcare reform is about $15 million negative effect from the market basket adjustments in 2011 relative to 2010, which again is $15 million.
State supplemental payments and Medicaid funding, in general, outside of the provider fees are down $25 million. Within our risk range, we’d say it’s $25 million to $60 million, but let’s just say it’s $25 million for the sake of this.
But then, the cost initiatives are worth $50 million to the plus side; outpatient acquisitions, talk about it’s worth $40 million on the plus side; California provider fees, $64 million; the follow-on fees, $40 million. So if you sum all those up, that takes you to about $130 million of net positive.
So there’s only about $10 million left for all other factors combined. Okay?
Justin Lake – UBS
Got it. So if we were to think about that $10 million, it is about 1% EBITDA growth?
Biggs Porter
Yes, the – I think it –
Justin Lake – UBS
How do you get from 1% to – I'm sorry, go ahead.
Biggs Porter
Well, you have to think in terms of the zero to negative 1% assumption on inpatient value exacerbated by payer mix shift within that a $25 million. So once again, we are choosing to be conservative in terms of our assumption that we do not have volume growth in 2011 at the middle of the range and that we have adverse shift from the continuing declines in commercial in 2011.
Now, if you look at just what was happening here in the fourth quarter, November, December, fairly strong, really showing a different trend from what was there previously. We’ve got certainly chance to do better than that.
But for purposes of the outlook in the middle of the range, we chose to hold at that level.
Justin Lake – UBS
Okay, great. And just last question, the med mal that you talked about just a minute ago, could you put a number around that as far as the benefit in the quarter?
Biggs Porter
Well, as far as the – I think, maybe most important is the effect of the discount rate. It was around $10 million.
There was some similar effect, smaller on workers’ comp. But to put that in perspective, that pretty much just represents a reversal of the hit we took in the third quarter as discount rates lowered because interest rates lowered.
So, for the second half of the year and for the year, the effective discount rates kind of washes out. So it creates some movement in the quarter, but not on an annual basis – at least that’s much smaller on an annual basis.
Justin Lake – UBS
Got it. So you feel like the ’10 run rate on med mal is good for ‘11?
Biggs Porter
Well, the ’10 – okay. The aggregate run rate – let's just take – forget about reductions, forget about changes quarter-to-quarter and just look at aggregate expense.
Our aggregate expense for 2011 compared to ’10, we think, may be pretty similar.
Justin Lake – UBS
Okay, great. Thank you very much for all the detail.
Operator
Our next question comes from the line of A.J. Rice with Susquehanna Financial Group.
Please proceed.
A.J. Rice – Susquehanna Financial Group
Hello, everybody, and thanks for all the information. Just a point of clarification.
On the $400 million year-end cash balance, so some of that – even though none of the $64 million has been recognized, some of it has been obtained and in that cash balance, is that right?
Biggs Porter
There is a relatively small amount, only about $10 million net received at 12/31. So the rest of it is carrying over.
A.J. Rice – Susquehanna Financial Group
Okay. I guess my broader question would be, in light of the last 30 days and taking into account the growth expectations that you guys are laying out without really much dependence upon acquisition activity, does – and when you think about capital allocations, either short-term or long-term, does doing anything proactively on the share repurchase, maybe taking your leverage up some, looking at even a dividend, I guess, would be another way to do it, either one-time or long-term?
Did any of that move up on the radar screen as something worth considering in light of your perception that at least recently the stock has been very undervalued and that maybe is why there was an opportunity for someone to put an opportunistic bid on the table?
Trevor Fetter
A.J., it’s a very good question. And let me answer it this way.
Prior to this bid being put on the table, as you put it, we were actively pursuing some not-for-profit acquisitions, hospital acquisitions in our markets. We think that those types of opportunities will be – I would say, abundant is maybe going too far, but they will certainly be more numerous than they had been in the past once that would be interesting to us.
With respect to the other types of alternative that you are talking about, I think it’s safe to assume that given the circumstances and given our views on the true underlying value of this company, driven by very concise and well articulated strategies that we are considering a number of alternatives at this point.
A.J. Rice – Susquehanna Financial Group
Okay. Any time frame on that or –?
Trevor Fetter
No, I don’t think so. I think – obviously we have taken actions in the past week that will enable shareholders to have some time to see and experience how the market values the company and reach their own conclusions about value for the company.
And we will be very prudent and deliberate as we go forward.
A.J. Rice – Susquehanna Financial Group
Okay. All right.
Thanks a lot.
Operator
Our final question comes from the line of Shelley Gnall with Goldman Sachs. Please proceed.
Shelley Gnall – Goldman Sachs
Thanks very much for fitting me in. I guess just a question.
I think I heard your expectations for your larger outlook include stable market share assumptions. Can you just update us?
I know you've done some work looking into how your market share has been trending. Do you still have the view that your market share has been stable?
Has it been declining in some markets, and have you taken any steps to address that?
Trevor Fetter
Thanks, Shelley. So we made fairly detailed comments about that on the third quarter call.
You know that the information to support those comments is not instantly available. I think that’s something we would address more thoroughly on our Q4 call.
We need some time to pull that together. But there’s nothing that’s happened in our markets to suggest to us and with our own trends to suggest anything other than stable to growing market share.
So we feel pretty comfortable in that respect in here today.
Biggs Porter
And Shelley, this is Biggs. My comments on market share were made in the context of how we got to our healthcare reform volume assumptions that we assume the healthcare reform – our market share didn’t change under healthcare reform.
So that 7% growth in inpatient and 5% in outpatient was purely a matter of capturing our current market share of the presumed utilization of the uninsured as they get insurance rather than assuming there is any market share change that occurs at that point in time. Certainly, one of our initiatives will be to try to go drive towards increasing share of the good new paying volumes that will be out there.
And so strategically, we will work in that direction, but we didn’t reflect it in our assumptions on healthcare reform.
Shelley Gnall – Goldman Sachs
Okay. I appreciate the clarity.
Thank you.
Trevor Fetter
Okay. Well, thanks, everyone, for participating today.
We went a little bit longer – actually a lot longer than I had said we would at the outset. But I appreciate all the questions.
If there are further follow-up questions, as I mentioned at the outset of the call, you can reach us later today, throughout the day, by calling our Investor Relations number. Thanks, everyone.
Good bye.
Operator
Ladies and gentlemen, that concludes today’s conference. Thank you for your participation.
You may now disconnect. Have a wonderful day.