Trevor Fetter - President and CEO Dan Cancelmi - Chief Financial Officer Clint Hailey - Chief Managed Care Officer and Senior Vice President Britt Reynolds - President, Hospital Operations Dan Waldman - Head, Public Affairs Keith Pitts - Vanguard Vice Chairman Steve Mooney - Senior Vice President, Patient Financial Services.

A.J. Rice - UBS Josh Raskin - Barclays Brian Zimmerman - Goldman Sachs Joanna Gajuk - Bank of America Merrill Lynch Andrew Schenker - Morgan Stanley Darren Lehrich - Deutsche Bank Ralph Giacobbe - Credit Suisse Gary Lieberman - Wells Fargo Frank Morgan - RBC Capital Market Gary Taylor - Citi John Ransom - Raymond James Whit Mayo - Robert Baird.

Welcome to the Second Quarter 2014 Tenet Healthcare Earnings Conference Call. My name is Shannon, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. The slides refer to in today’s call are posted on the company’s website.

Please note the cautionary statement on forward-looking information included in the slides. Please note that this conference is being recorded. I will now turn the call over to Mr. Trevor Fetter, President and CEO. You may begin, sir..

Good morning, everyone. I couldn’t be more pleased with Tenet’s second quarter results. We had great performance in virtually every key metric.

We drove the strongest growth in commercial volumes in more than a decade and we achieved rates of growth in admissions, outpatient visits, surgeries and emergency department visits that are among the best I can remember. Net of the normalizing items provided in our slide deck, we delivered EBITDA growth of 13% year-over-year.

For nearly two years our teams in Tenet hospitals and our headquarters in departments including managed-care, government relations and at Conifer have worked very hard on two key strategies to prepare to grow our business with the implementation of the Affordable Care Act.

Early on we push hard to be contracted with as many exchange plans as possible. We did this well before most of our local market competitors.

As a result, when we entered the open enrollment period last year, 97% of our hospitals were contracted in at least one exchange plan in every metal type and 86% of our hospitals were contracted with the lowest or second lowest-priced silver plan in their markets.

We were well-positioned and as a result, we are confident that we have gained market share in these important commercial insurance product. Our second ACA-related strategy was to conduct a campaign to educate people in our communities about the new coverage options they might have.

This included more than 350 events across our markets and we produced nearly 1 million pieces of print material. Our website, pathtohealth.com is still active and we are now gearing up for the next open enrollment period. This campaign was very effective in enrolling people in exchange product and Medicaid.

Coordinating with our well-established Medical Eligibility Program at Conifer, we are confident at least 16,000 people enrolled in exchange-based products and tens of thousands more enrolled in Medicaid as a result of our efforts. Conifer is now enrolling 250,000 patients per year in Medicaid programs.

We have developed a real expertise in enrollment and believe these efforts have positioned our hospitals as trusted providers of choice with many of the newly insured individuals and families. Our best estimate is that ACA-related factors added just under one quarter of our EBITDA growth and about one-third of adjusted admissions growth.

It’s still early in the implementation of this new law, so projecting the effect for the rest of the year is difficult at best. While the ACA has augmented our growth, I’d like to focus my comments on the other three quarters of our growth story. As you can see, our growth in volumes ex-ACA exceeded our expectations by a wide margin.

We believe this is the result of our successful edge execution of the strategies that we've been putting in place for a number of years.

This include targeted investments in key service lines, a substantial expansion of our outpatient network, our performance excellence initiative, investment in advanced clinical systems and a focus on physician alignment and clinical integration among other things. We've got a lot of momentum right now that is completely unrelated to the ACA.

For example, last week, we cut the ribbon to open the new heart hospital at Detroit Medical Center. This new service line specific hospital is attached to our Harper University Hospital. Harper by the way led our entire company and volume growth in Q2. In Northwest Detroit, we opened a large new emergency room at Sinai Grace Hospital a few months ago.

With the largest investment in that sector of the city in over a decade and in Q2 our inpatient admissions at Sinai Grace grew by 6%. Speaking of the Detroit Medical Center, I'm very pleased with our operations there. I'm confident that we have a bright future in Detroit and that the return on the investments we're making will be strong.

The Mayor and the civic and business leaders in Detroit are doing a great job in turning the city around and I am proud that Tenant is the largest employer in the city is an important part of it. It’s been a very busy season for us. In early, June, we acquired Texas Regional Medical Center near Dallas.

Three weeks later, we opened our 79 hospital Resolute Health in New Braunfels, Texas. Resolute is an innovative healthcare network in a fast-growing community. In the poll we conducted it was rated by consumers as the top hospital in New Braunfels even before it was open.

On Friday of last week, at long last, we completed the acquisition of our 88th hospital Emanuel Medical Center in Turlock, California and in two weeks we break ground on a new hospital on the west side of El Paso, Texas. We made an announcement last week regarding a new contract with UnitedHealthcare.

We now have completed new contract negotiations with all major national commercial payers to include everything former Vanguard facilities and employed physicians. I'm very pleased that we reached agreement with United and want to thank our managed-care team for doing a great job.

Conifer is gaining recognition as a leader in its sector and its earnings are growing as it completes the integration of some major revenue cycle clients. Two weeks ago, a survey by Black Book Rankings of over 1,000 executives and users ranked Conifer as the number one provider of value-based care solutions.

Last week, Conifer announced that the Yale New Haven Health System has engaged its value-based care team to help them redesign their clinical networks to set the stage for a comprehensive population health management strategy, which will optimize quality, safety and patient satisfaction across their system.

Conifer is on track to generate more than $1 billion of revenue this year. Through Conifer value-based care, the company is strongly positioned for the opportunities arising from population health management, risk-based contracting and health plan operations.

As of today, with six health plans and our 12-accountable care organizations Tenet is bigger and more experienced in risk-based model than most other provider organizations. Our outpatient group continues to build a great business with higher margins and returns on capital augmenting our hospital business and improving the economics of our company.

The fact that 85% of our very strong outpatient growth was organic is proof of the great job that they're doing in managing our outpatient business. Tenet is a very different company today than it was just a short time ago. In terms of our size, scope and diversity of our business segments, Tenet is a transformed company.

In 2008, the year that we launched Conifer, Tenet operated 50 hospitals serving 24 markets in 12 states. In addition, we had a portfolio of 63 outpatient centers, consisting almost entirely of ambulatory surgery centers and diagnostic imaging centers. In total, we had about 60,000 employees, including 372 physicians.

Fast-forward to 2014, we are now operating 80 hospitals serving 31 markets in 14 states. We operate more than 190 outpatient centers, including 42 urgent care centers and 14 satellite emergency rooms, facilities that are filling gaps in primary care, meeting consumer demands for convenient access and providing new channel for our hospitals.

We have more than a 705,000 employees, including almost 1,900 employed physicians.

Tenet has also become an attractive acquire for hospitals seeking to become part of a larger system, as evidenced by the acquisition that I have already mentioned, as well as the steady progress in our effort to acquire five hospitals and form a new network in Connecticut in partnership with the Yale New Haven Health System.

There are currently significant value creation opportunities to be captured through participating in the consolidation that’s taking place in many markets. Tenet is being invited into many discussions giving us the ability to be selective in deciding which transactions will create the most value over the long-term.

I'm also very excited about the new types of partnership opportunities we are creating. This began with our joint venture of San Ramon Regional Medical Center with John Muir Health System in 2013 and we’ve said on these calls that we will see more opportunities like that in the future.

Now, largely due to the reputation and track record that Keith Pitts developed at Vanguard and Tenet’s history have being a good partner and steward of acquired and partnered hospitals. We have a partnership with Yale New Haven Health System in Connecticut.

And just last week, we announced that we've signed an LOI with Ascension Health to create a joint venture with Ascension and Dignity to acquire three hospitals in the Tucson area. That arrangement would build upon our existing ACO partnership with Dignity in Phoenix and expand our Arizona network.

In short, we are taking action to have momentum in our strategic transformation to a national diversified healthcare services company. In the acute care business, the opportunities we select will continue to be characterized by their potential to drive stronger market position in our chosen markets.

The leveraging of these competitive positions will integrate our hospitals with robust ambulatory presence and greater alignment with our affiliated physicians.

Our integration of Vanguard is going extremely well, from the hospitals we acquired to the outstanding people who joined us, to the management technique that we've adopted from Vanguard, the acquisition is exceeding my expectations in every respect. We've now increased our estimate of acquisition-related synergies for the second time.

And finally, you may have noticed that our earnings release in slide deck have a new look. We’ve refreshed our brand identity to be more progressive and to reinforce the continuing strategic transformation.

We've also launched a new website which we believe will provide additional momentum to our efforts to distinguish ourselves as an employer of choice, a provider of choice and a partner of choice in the health industry. With that, let me turn it over to Dan Cancelmi for more color on the quarter.

Dan?.

Thank you, Trevor and good morning everyone. Overall, we were very pleased with our second quarter results. Volumes came in a lot stronger than we anticipated and were converted into solid EBITDA growth. Our volume growth was broad based as we generated increases in adjusted admissions and virtually every state in which we operate.

As a result of our performance in the first half of the year, we are raising our 2014 EBITDA outlook by $50 million to a new range of $1.85 billion to $1.95 billion. Slide 3 provides a high level summary of the quarter. Starting with volumes, we generated a 4% increase in adjusted admissions.

This increase included a 2.8% increase in admissions and growth in outpatient visits of 7.1%, 85% of which was organic. We also generated another strong quarter of surgical volumes with an 8.3% increase.

We estimate 35% of our volume growth was related to reform, with a majority of our volume increases driven by our well-defined growth strategies, including key service line investments and our relationships with well-positioned payer networks.

From a tactical standpoint, our strategies are fine tuned to the specific opportunities we see in each market. And this tailored approach has been responsible for our broad-based success.

Turning to our revenue metrics, net of bad debt expense and excluding the year-over-year variance related to the California Provider Fee program, patient revenue per adjusted admission increased by 2.5% on a same hospital basis and 1.9% on a pro forma basis.

We generated a 7% increase in commercial managed care revenue per admission and 2.9% growth per outpatient visit. Strong revenue metrics and an enhanced payer mix including the incremental commercial business we generated in the quarter, produced a 2.6% increase in net operating revenues after bad debt expense.

We achieved a 6.7% increase in revenues after bad debt, excluding an $87 million decline in our health plan revenues on a year-over-year basis and the California Provider Fee revenues, we recognized last year. We demonstrated another quarter of tight cost control.

Our performance excellence program initiatives enabled us to control the increase in selected operating expenses of our hospitals to just 0.7% per adjusted admission. Excluding the impact of incremental physician employment, we drove a decline in this cost metric of 0.3%. Bad debt expense declined $71 million to $320 million in the second quarter.

Bad debt expense as a percent of revenue declined to 7.3%, a decrease of 170 basis points. The reduction of bad debt expense is primarily due to a $78 million decline in uninsured revenues as a result of the benefits we are realizing from the ACA as well as our Conifer revenue cycle team continuing to do a good job managing our bad debt levels.

Turning to cash flows. Adjusted cash provided by operating activities from our continuing operations was $318 million in the quarter compared to $174 million in the second quarter of last year.

Adjusted free cash flow from continuing operations, which is after our capital expenditures spend was $76 million in the quarter compared to $51 million in last year’s second quarter. Our cash flows in the quarter were enhanced by $69 million reduction in the net amounts we are owed under the Texas Medicaid Dish and 1115 Waiver Programs.

Since we are past our higher seasonal working capital requirements, we expect our adjusted free cash flow to grow during the remainder of the year. Turning to slide 4, it’s important to note that a number of favorable items in last year’s second quarter created a challenging year-over-year comparison.

Making the appropriate adjustments to normalize for these items, we drove a $65 million or 13% increase in EBITDA. The largest item was $66 million of revenue, we recognized last year related to the California Provider Fee program.

Since a new program, which started on January 1st has yet to be approved by CMS, we did not recognize any revenue from the program in this year’s second quarter. By the way of background, the State of California submitted its Medicaid plan amendment for the new three-year program to CMS on March 28th.

Generally, a state plan amendment is approved within 90 days. However, the approval process can be extended if CMS request additional information. Not surprising, given the complexity created by California's expansion of Medicaid, CMS has in fact requested additional information.

Although we cannot predict with precision when CMS will approve the program, we are confident that the plan will be approved and our fourth quarter outlook includes $140 million of revenue on the assumption that approval will come before the end of this year.

The next normalizing item was Vanguard's recognition of $15 million gain last year related to the sale of lab assets. There was $13 million earnings decline in our health plan business compared to last year, primarily related to the non-renewal of the Arizona Medicaid contract with uncapped lives.

We incurred $8 million of additional expense in the second quarter of this year related to pre-opening costs at our new hospital in New Braunfels, Texas, which opened in June. Next we normalized for the $58 million of HIT incentives in the quarter that reflect our continuing success in achieving the required meaningful use criteria.

This was a $17 million favorable variance compared to last year’s second quarter. And finally, we faced an $11 million headwind from the impact of lower interest rates that increase the balances of our discounted malpractice and workers’ compensation liability.

As you can see on Slide 5 and 6, the impact of health care reform on our volume and payer mix was pronounced. In our five states that expanded Medicaid in 2014, we benefited from a significant migration of patients from uninsured into Medicaid with a 54% decline in uninsured admissions and a 27% decline in uninsured outpatient visits.

Including the states in which we operate that have not expanded the Medicaid programs, we achieved a 22% decline in uninsured admissions and drove a 13% decline in uninsured outpatient visits.

Because we only assumed a 15% decline in total company uninsured volume in our initial outlook for 2014, this favorable variance was a key driver behind our refined assumptions of a positive impact from the Affordable Care Act that we expect to realize this year.

The incremental impact from Michigan expanding its Medicaid program effective April 1st, as shown on slide seven, also exceeded our initial expectations.

While it is tempting to extrapolate the great volumes impairment of the second quarter into future quarters, we want to evaluate our growth in this new environment for a few more quarters before incorporating more bullish views into the outlook. Slide eight shows how we refined a number of full year outlook assumption.

We raised our midpoint estimate for the impact from the ACA before Medicare cuts from $75 million to $100 million. We also raised the midpoint estimate of synergies from Vanguard integration from $75 million to $85 million.

Turning to the third quarter, our EBITDA outlook range is $400 million to $450 million, the look forward from $469 million of EBITDA in Q2 to our third quarter outlook is provided on slide nine. As you can see we have not assumed any revenue from the California Provider Fee program in the third quarter outlook.

We have our, however, reflected the growing contribution we expect from Vanguard Synergies, our performance excellence program and the ACA. We expect to recognize only $5 million of HIT incentives in the third quarter, a sequential decline of $53 million.

This decline nearly reflects the timing of a large number of our hospitals achieving meaningful use Criteria in the second quarter. Recently signed managed-care contracts and escalators in existing contracts are also expected to contribute to sequential EBITDA growth.

The last items I want to point out on slide nine, is that we’re assuming a volume decline compared to the second quarter. The third quarter is typically a weaker seasonal quarter as many physicians and patients take vacation. This is the one reason for the negative $22 million shown on line item nine.

Slide 10 provides several key earnings variances when comparing our third quarter outlook to last year's third quarter. After adjusting for the items on slide 10, we anticipate producing normalized EBITDA growth of 19%.

Since we provided about the third quarter and a full year 2014 outlook, the arithmetic is fairly straight-forward to compute our implied Q4 EBITDA outlook. Slide 11 presents the key drivers of growth to walk forward our Q3 to Q4 EBITDA.

As you can see on slide 12, we are projecting solid year-over-year normalized EBITDA growth in the high teens in the fourth quarter. In summary, our growth strategies are working.

We reported a very strong second quarter and we have implemented business strategies, their building momentum, generating attractive growth and our expected to be increasingly visible in the second half of the year. I'll now ask the Operator to assemble the queue for Q&A session.

Operator?.

Thank you. (Operator Instructions) Our first question comes from A.J. Rice from UBS. Please go ahead..

Thanks. Hello, everybody. Congratulations on a great quarter.

Maybe just ask about the volume growth, when you look at the pick up you've seen and you're attributing some of that to ACA-related pick up? Can you -- is there any way to parse out whether you're getting market share gains or whether you're actually seeing people consume more services now because they have coverage and if it's the latter, what services are they consuming if you have any view on that.

Yeah. Sure. A.J. thank you and thanks for the comment about the quarter. I am going to ask Britt Reynolds to cover that question. You can imagine some of the market share debtors hard to get on a real-time basis.

But we are attributing the statement that we believe we gain market share to the fact that we're not seeing volume growth this nature for many of our local market competitors, so, Britt..

Absolutely, thanks A.J. When we take a look at our market share, again as Trevor caveated there.

We’re saying about 60% of our key markets -- the 30 key markets that we are at number one, number two position and with market share gains, so we are seeing movement in key service lines of course there and the vast majority of the balance of that is really a flat so no degradation with rare exception in an isolated case and maybe an isolated state.

And the other and not a specific statement there about a problem just more about market dynamic. I would tell you our focus to your later question is demand and we are really seeing good volume growth across all of previously discussed TGI initiatives.

So when you look in types of services, they are following those TGI service lines that we mentioned previously, open heart services, orthopedic surgeries, neurosurgical services, neurology medicine, vascular surgery, as well as the basic medicine services. So a lot of work in ‘13 and lot of continued work on growing these service lines.

So, the combination of both like can’t delay..

Okay.

And maybe if I get little bit of follow-up on your managed-care we contract, it came in a year with some big contracts, obviously, the last one E9 to get done, often when you contracted or when providers are re-contracting, they are actually looking at maybe some pressure on pricing, but it seems like you guys are actually looking for increases in the back half, I am really walk forward, right? Can you give us some color there? Are you actually coming out of these contracts assuming that almost immediately you are getting some benefit from, is that right?.

That is right. I’ll ask Clint Hailey who runs managed-care for us to comment and A.J. keep in mind one thing with respect to managed-care is that, our starting position continues to be a value play relative to our local market competitor.

So as Clint enters these negotiations, he’s starting from a position of strength in terms of value plus the integration of Vanguard. I may have stolen some of your thunder there, Clint. But go ahead and make -- give some color to with a process we've been going through this year..

Thanks. Thank you for the question. That’s exactly right. We are -- the big contracts that we've done this year integrating the Vanguard facilities into those contracts have been all about getting prices up more towards market. If you will, we had some facilities that were quite low and needed to -- needed some market adjustment.

So we've achieved that in those negotiations..

Okay. Great..

Our next question comes from Josh Raskin from Barclays. Please go ahead..

Hi. Thanks. The question relates to your commercial managed care volumes.

I’m wondering if you could give us an update on what the actual same-store growth commercial admits was and then if you had a comparable number for the first quarter that’d be helpful as well?.

Well, Josh, we haven’t been disclosing the actual members for long time. This was the best rate of improvement in over 10 years, commercial X the exchanges had been negative for a long time. And so that was abating and we also had the exchange in our business coming in.

So, sorry to disappoint and not quoting the statistic, but it is far in a way the best that we've seen in over 10 years..

Right, Dan, sort of what I was trying to drill in.

I guess excluding may be I can ask you a different way, Trevor, excluding the, I think, it was 2700 admits for the exchanges with the commercial -- commercial admission, would they have been up on a year-over-year basis excluding the exchange?.

Yeah, they would have been down but a lot, by much narrower larger, much closer to flat than had been the case in over 10 years. We still have in pure commercial excluding exchanges. You still have a bit of problem of a shrinking pie. And that you well know because you follow the managed care industry and see the enrollment stats there.

But anyway we’re very pleased with the way that total commercial book has shaped up and the exchanges are an important part of that..

Okay. And then just follow-up the guidance say, I understand the seasonality of volume being a drag as going to 3Q, but obviously that should pick up in 4Q. But it looks like the guidance for just admissions is implying a pretty noticeable reduction in sort of that same-store growth on a year-over-year basis.

So is this curious, what is this just sort of healthy level of conservativism, not exactly sure what drove the all of the upside in the second quarter, and may be some of se exchange members lose coverage, or is there something more to it that would create sort of difficult where it had been a worse comps in second half than what we saw in second quarter..

Good morning, Josh. This is Dan. How are you? And let me try to address that. In terms of our volume that we saw and generate in the second quarter compared to the third quarter. Obviously, we’re very pleased with what we’re able to drive to in the second quarter.

When we look out into the second half of the year, we are optimistic with the volume trends that we’re seeing. We’ll continue to hold. In fact, when we look at our in-patient volume in the month of July, it’s consistent with our second quarter volume.

But listen, this is a new environment we’re operating in and as we look into down the road, we think it’s appropriate to get some more experience under our belt. Before we incorporate more positive or optimistic assumptions about volume growth into the second half of the year.

But obviously very poised and we’re obviously driving toward -- continuing to maintain that volume level that we saw in the second quarter..

Got it. Thanks..

Our next question comes from Brian Zimmerman from Goldman Sachs. Please go ahead..

Hi, thanks. Good morning. Just to follow-up with a volume question on.

Can you give us any idea on how volumes progressed throughout the quarter and you mentioned July seems to be somewhat consistent both for the commercial business and may be on the exchanges?.

Hi Brian, this is Dan. I’ll just have one. As we move through the quarter, the volume improved sequentially from month-to-month. In terms of our aggregate volume, so April was solid growth, a little bit better in May and June was even a little bit more.

So even after it normalized for the extra day, between May and June, exchange volume tracked pretty much the same except in June. It leveled off in terms of compared to the month of May, but there was incremental growth from March to April and April to May.

So obviously as we moved into July as I mentioned, the volume in the month of July were relatively consistent with the quarter. So the trend looks pretty good..

Okay. That’s helpful.

And then you’ve mentioned in your prepared remarks briefly just a significant growth that you’ve seen in ASCs and urgent care centers and then -- I was hoping to get a bit more granularity into what trends you’re seeing there and any comments you could make on the med post urgent care development we’re seeing?.

Sure. The strategy to invest in variety of types of outpatient centers has been a real cornerstone of our transformation because we started at a point where we were underrepresented in outpatient and we’re trying to seek a point where we are probably overrepresented in outpatient. It's a higher return on capital business. It’s higher margins.

It's less complex. It's a great way of building channels in the local market into the hospital. So that's why you heard me talk about all those different types of outpatient centers. And we’re having great success with different models whether it’s urgent care or the freestanding emergency department.

And we’re going to continue to make that real point of emphasis. And specifically, on the urgent care business, after a lot of consideration, it was our conclusion that it would be best to operate that business, kind of, as a separate line of businesses, separate brand identity and so that's what -- med post label.

And urgent cares to some extent are acting as a substitute for physician offices. They're certainly a substitute for emergency services but they’re very effective in a community in building attachment to the hospitals. And so just one small anecdotal piece of evidence but I mentioned, the opening of our Resolute Hospital in New Braunfels.

By the time the hospital opened, the first patient to arrive in the hospital who was in an emergency situation being brought there in an ambulance was somebody who had visited the urgent care that we’d opened in the same market earlier. And so they had records on that patient.

He was in the EMR that were used for the whole network and so it was an example of that -- the benefit of that channel strategy..

Our next question comes from Kevin Fischbeck from Bank of America Merrill Lynch. Please go ahead..

Good morning. This is actually Joanna Gajuk filling in for Kevin today.

So in terms of what you gave on your revised guidance for reform benefit, which you said that now you expect reduction and it showed to be higher, but is there any other change in your view for the full year around the reform? And specifically, can you also comment about acuity of this newly insured population that you’re seeing? Is that higher than expected? Any comment you can make around that will be helpful? Thank you..

Sure. This is Dan, I will address that. Let me hit the acuity question first. In term of what we’re seeing in so far this year. From a Medicaid perspective and Medicaid volume, we’re seeing is, the acuity is higher than the traditional Medicaid volume that we typically treated.

From an exchange perspective, the exchange patients that we’re saying, the acuity there is, it’s about 8% higher than the -- we’ll call it our traditional, commercial book of business. So acuity is up a little bit. We, so far, what we’re seeing from an exchange perspective.

In terms of the overall revisions and upward revision to our overall reform guidance for the year, what we see in terms of the conversion and migration of individuals who were previously uninsured are either into coverage under a state Medicaid program or under an exchange product is tracking a little bit better than what we had anticipated at the beginning of the year.

And the exchange volume grew nicely in the second quarter, especially compared to the first quarter, which was an entirely unexpected given how the enrollment ramped up as the first quarter progress. So, all in, we’re more optimistic, based on what we’ve seen so far in our facilities from the ACI and so accordingly we made the adjustments..

Our next question comes from Andrew Schenker from Morgan Stanley. Please go ahead..

Just a follow-up on some volumes here. If I look at your Medicaid volumes specifically on the outpatient side, it’s almost three times the decline you saw in management charity care.

In addition on my math it’s about two thirds the total increase in outpatient that it came from the Medicaid side when you account for uninsured charity and grant to that, and you attribute about 85% as to organic growth.

Maybe if you could just talk about some of the dynamics that we’re really driving that Medicaid volume growth above and beyond the declines in uninsured charity care.

So are these average -- historic Medicaid patient using more, is it previously uninsured using more and maybe just talk about that dynamic a little bit more?.

Sure. We have obviously limited insights into why they’re coming to the hospitals. We know who is coming to the hospital. So I'll ask Britt to comment a little bit on the Medicaid population and what we think, we know in relation to what’s driving it..

Sure. Thank you. Good morning, Andrew. As far as the Medicaid population goes, you know that the steps are correctly in terms of the percentage of volume growth. What we’re seeing on inpatient and outpatient utilization, you focused a lot of that on the outpatient question.

We’re seeing those folks as I mentioned earlier from a service lines standpoint be heavy utilizes on the inpatient side of those key high acuity service lines neurosurgery, trauma, open heart, orthopedic cases, so whatever is still related to the driver of that.

We do know that they are utilizing now that they are on the insurance roles through the ACA, utilizing high acuity services, I think implied some degree of pent-up demand. On the outpatient side, I think it’s just a further into our continued investment in that strategy. We are physically in more places. We are integrated in our market approach.

And we have higher access and better price points. I think that just a place that they are naturally going to go, especially if they are entering the newly insured market..

I just like to go back to something I said in the opening comment. We actively welcomed the newly insured and the newly enrolled in Medicaid. We undertook this very serious campaign to attract these patients to our hospitals and have them understand that we were in a trusted sources of information about how to enroll.

So it does not surprise me that they’re using us in such a high percentages and in our outpatient centers because those are the most accessible points of access..

Our next question comes from Darren Lehrich from Deutsche Bank. Please go ahead..

Thanks. Nice job in the quarter guys..

Thank you, Darren..

I want to first ask about M&A, you’ve cut a lot going on. Obviously, there is been a number of news items out of Connecticut and you mentioned the Tucson opportunity.

I guess just maybe stepping back Trevor, maybe Keith, can you help us think about in the next year or two what you think the developments in Connecticut might look like with that network, looks like how it fits in.

And then wasn’t fully clear to us just relative to the Ascension JV as how your broader Arizona and Phoenix presence fits into that announcement. So maybe if you would mind just giving us some color on that? Thanks..

Yeah. Sure. Keith is here and he will cover that..

Hi. Darren, there are couple of things. Well, Connecticut obviously, the regulatory issues there, which had been mostly at the state level or not, certainly in the communities have been very welcoming to us in Connecticut. We’ve been on the ground there for a while.

What we see there is really a network forming together with the Yale New Haven Health System to create a value based care, if you will, network that covers frankly the state and the sort of bordering areas as you may know, our Wooster hospital is 45 minutes or 50 minutes from the eastern most hospital i.e. four quarter that we have under contracts.

So we really -- it’s sort of a natural extension in New England. We think ultimately because we have in many cases of taking Wooster as an example. Our employees, they live in five states. So it’s really a pretty small geographic region.

So its just part of -- go in network and other part is really the partnership strategy that Trevor mentioned earlier in his comments, which we see a lot of opportunities in our existing markets as well as potentially new markets to partner with others to be able to create pretty strong networks that we can offer to purchasers of care, which kind of gets me to Arizona a little bit.

So you may have read that Banner, the largest player in Arizona, recently assigned a deal to buy the university system in Tucson. And so our ACN partnership, which is the Arizona Care Network. There’s a partnership between us and Dignity Health in Phoenix.

We see the need we desire kind of also be in the other large population center which is Tucson to be able to compete on more of a state wide basis with the Banner network and that was one of the drivers for us, putting together as partnership, which we were originally going to have as an 80-20 partnership.

And then of the Ascension who currently sponsors that organization is going to remain at partnership -- a partner at about that same level as Dignity in the market for some kind of annuity purposes. So we see again along the same line, its kind of moving to more of a statewide network over time in Arizona..

Our next question comes from Ralph Giacobbe from Credit Suisse. Please go ahead..

Thanks. Good morning. I was wondering if you could help us in terms of what percentage did the exchange book was previously uninsured, sort of, as far as you can tell.

And then maybe more broadly sort of on the exchange, sort of, how good is the data around capturing sort of the reform benefit, again specifically on the exchange?.

Good morning, Ralph. This is Dan. We estimate that the exchange book of business hat we’re seeing that roughly 37% of that was previously uninsured and so the remaining 60%, 65% either had commercial coverage or some other form of coverage whether it was Medicaid or some other payers.

So we can’t -- I would tell you we can’t validate that for every single exchange patient because we may not have seen an exchange patient in previous years, but we have pretty good visibility and that’s -- we believe a pretty good estimate of the portion of the exchange business that was previously uninsured..

Our next question comes from Gary Lieberman from Wells Fargo. Please go ahead..

Good morning. Thanks for taking the question.

I guess, maybe to talk about the continuation of the outreach? Are you continuing to do more that or has that sort of subsided and up again going into next year?.

Yes. Let me ask Dan Waldman, our Head of Public Affairs to comment on that. He is running this program..

U=Yeah. Thanks. I -- we -- as Trevor mentioned, we have kept the pathtohealth website going.

We are continuing to work with Conifer which through their patient communication enrolment eligibility personnel continued to provide counseling and information to collect leads patient who are do not enroll during the last period but who are interested in enrolling in the next year.

So we are actually looking at re-engaging as we get into the fall, as you would probably know the enrolment period is starting a little bit later this year in November.

So we are going to start gearing up with our hospitals and along the same lines that we did last year, really using trusted community groups that we formed partnerships with more than 350 of them in our key markets to get education out and then holding enrolment events in our hospitals using Conifer personnel to make sure that we can get as many people as enroll possible.

We actually have a lot of high hope for next year because we think a lot of problems that we incurred that we experienced last year with the various websites are going to be smooth down this year..

Our next question comes from the Frank Morgan from RBC Capital Market..

Good morning.

Two questions, I was curious if you have any commentary around the actual growth in the surgical volume by service line and can you attribute much of this in the new insured population? And then secondly, you referred the Dish payments in the 1115 waivers? Was there any prior period catch-up included in your result as result of Texas Dish and if so, how much?.

Yeah. Let’s have Dan Cancelmi that 1115 and dish question first and then Britt will fill in on the surgery volumes..

Good morning, Frank. It’s Dan. Yeah. In terms of the 1115 waiver adjustments, it was negligible. It was actually little less than $2 million. So we do not have any significant adjustment in the second quarter..

Good morning, Frank. It’s Britt. On the surgical volumes, let me give you a couple of points here.

In a year-over-year basis, the surgery growth has been in the vast majority of our surgical area, thoracic surgery, trauma, orthopedics, open-heart which we would count as surgery, general surgery, cardiovascular medicine, all those are showing growth, not only overall, but in our expanded coverage areas, particularly on the exchange, which is a high point for really I think for us in terms of what we are seeing in the exchange patient.

It’s really in the high activity arena. I will step just away for a quick second because you didn’t -- you asked specifically about surgery, we are also seeing other high activities areas like NICU as well in growth in that exchange population.

And then another, I think, positive telling story is a sequential growth look from Q1 to Q2 on the surgical side of the equation and quite candidly, we saw growth in surgery Q1 to Q2, which is a little counter intuitive from the seasonality standpoint, but we saw growth Q1 to Q2 in every surgical category with the exception of thoracic surgery.

So we see that's a positive..

Our next question comes from Gary Taylor from Citi. Please go ahead..

Hi. Good morning. A couple of questions. First, maybe for Trevor or for Clint.

We have just been trying to track through the quarter the last couple of months all of the health plan, contract renewals and expansion that you have been highlighting? It has been little difficult to discern which ones are significantly expanding potential patient populations, which ones are renewals? Are there any of those large ones, you announced United, Humana, Cigna, Aetna, any of those that are particularly expanded with the potential to bring material new patient population into the Tenet facility?.

Clint, do you want to address that?.

Yeah. Sure. Thanks for the question.

In terms of the major commercial contracts we have done, all of the facilities we are in, all of those networks, as components or sub-components of some of those renewables, though we did have exchange networks that we were not in, that we joined in some cases and we try to highlight some of those, some of the more significant ones.

But that’s really the only incremental areas. We do have some things in the works on that front for other smaller contracts, but the major national plans we renewed..

We also had networks so tiers that we were not in that we became in as a result of a, so, I mean, you are right, Gary, it’s hard from the outside to discern that because there are often be special networks and it might be something that they were just setting up or there is a particular employer that the network is formed around.

But I think it’s safe to say, Clint, that in any every case of these major national negotiations that the new contract offer access to an expanded population compared to the prior contract.

It might be small in some cases or it might be larger but we have not ever renewed any of them where we have gone backwards in terms of the accessible patient population..

Yes. It’s definitely fair to say that, yes..

Our next question comes from John Ransom from Raymond James. Please go ahead..

Hi.

I am sorry, if I missed this, but could you reset what the revenue differential is for you between incremental new Medicaid patients and incremental new commercial patients coming of exchange?.

John, this is Dan. Good morning..

Good morning..

In terms of, when you think about the pricing difference for commercial versus Medicaid patient and in particular this relates to an exchange, like I said the acuity was slightly higher on the Medicaid side.

So when you think about a Medicaid incremental admission, depending on the service, depending on the area, you could be 6,000 to 7,000 a case and commercial, obviously, is probably depending again on the service about three times of that give or take..

Okay.

And then my second question is as you approach the exchanges for 2015, what might you do the same, what might you do differently and what were the biggest surprises kind of positive and negatives with your experience this year?.

Sure.

Clint, do you want to take that?.

Yeah. Sure. The biggest surprise for me was probably Humana, frankly. They were very aggressively priced in many of our markets and were a pleasant surprise, frankly, in my opinion, because I think they are having attractive premiums on exchanges is important to the success of the exchanges.

Beyond that in terms of things that I would have expected that we saw, the Blues were priced very aggressively and to try to retain their membership and they were very successful capturing on that obviously. I think you will see that again in 2015.

I think the Blues will continue to be aggressive based on the little bit of information we have been able to see so far. There are some new entrance and so that’s kind of exciting. I have been very pleased to see Centene be positioned, improving their positioning, Molina as well.

So, I think all that is good to ensure the competitive environment we saw..

Our final question comes from Whit Mayo from Robert Baird. Please go ahead..

Hey, Whit, you would got to ask something about Conifer?.

Okay.

Would you like to discuss Conifer, Trevor?.

Certainly, I mean, you can ask more than one question because you are the final question but at least one has to be about Conifer..

Okay. Let me first start with my original question.

Just wanted to get it an update on the Phoenix health plan, just any new development on the cap contract or general thoughts going forward?.

Yeah. Steve Mooney is here with and I will ask him to address that, Steve..

As far as new development, we continue to be actively engaged with the state that there is no new news but continuing to keep the dialogue open with the state, be responsible partner to those Medicaid members, our patient quality scores, our consumer satisfaction scores continue to be very high.

And we are dedicated to taking care of that population and demonstrating to the state that we won’t be a responsible member out there..

And then what is that you wanted to know about Conifer?.

Sorry, may be just an update on the Catholic Health integration how that’s playing out at this point?.

Good. So glad you asked. Steve Mooney is here to address that..

Thanks Whit. I will wrap it out by previous question. So it’s going well. I think its good to know about CHI and that arrangement which is turning out to be, I think, even better than probably originally expected is to understand and how that organization has grown.

So it’s clearly really important for us not going to get contracts together with the winners in the marketplace. They are clearly emerging as one of those. So, just from stat perspective, so when we redid the deal and where we’re at now, they have because of all of their acquisitions have grown their portfolio and it’s under management by about 70%.

So whatever they did, they were about 170% of the size they originally were, of which we have only taken in from that standpoint so far. We are under contract included original core amount. And then we have added another 30% to that original core amount. It’s under contract and there is still another 40% that's under the original amount to go.

And that's because we are doing, we’re going through due diligence on those assets, we’re understanding what the rolling schedule would be. CHI constantly, whenever they are trying to make an acquisition, moves their schedule around, they might see an opportunity with a particular asset from the new acquisitions that they did have before.

So they will move that further up into the schedule, so a lot going on there. Clearly, things are going great from the implementation standpoint.

The clients are incredibly cooperative across all the IT platforms and then original deal was really based around revenue cycle management and now because of other four service around value-based care and patient communication engagement we are now rolling out applications on the VBC side of the fence including up and with their other ACOs and on the PCNE side moving some services around scheduling activities to help our consumer engagement and those types of activities.

So lots going on with CHI, going well and lot more to come and we don’t think that's trend is stopping..

Okay, thanks Steve, thanks for that. And I understand there are no more questions to queue. So thanks everybody for listening in today. We will see again in another three months..

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