Trevor Fetter - President, Chief Executive Officer & Director Daniel J. Cancelmi - Chief Financial Officer Keith B. Pitts - Vice Chairman Stephen M. Mooney - President & Chief Executive Officer, Conifer Health Solutions LLC Britt T. Reynolds - President-Hospital Operations.

Ralph Giacobbe - Credit Suisse Securities (USA) LLC (Broker) Joshua R. Raskin - Barclays Capital, Inc. A.J. Rice - UBS Securities LLC Andrew Schenker - Morgan Stanley & Co. LLC Sheryl R. Skolnick - Mizuho Securities USA, Inc. Matthew Richard Borsch - Goldman Sachs & Co. Joshua Kalenderian - Deutsche Bank Securities, Inc.

Brian Gil Tanquilut - Jefferies LLC Frank G. Morgan - RBC Capital Markets LLC Ryan K. Halsted - Wells Fargo Securities LLC Ana A. Gupte - Leerink Partners LLC Joanna S. Gajuk - Merrill Lynch, Pierce, Fenner & Smith, Inc..

Ladies and gentlemen, welcome to the First Quarter 2015 Tenet Healthcare Earnings Conference Call. My name is Dana and I'll 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 referred 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. I will now turn the call over to Trevor Fetter, Tenet's President and CEO. Mr. Fetter, please go ahead, sir..

Thank you, operator, and good morning everyone. During the first quarter, we made great progress advancing our long-term strategy and strengthening our position in the evolving healthcare landscape.

The transformative agreement we announced with Welsh Carson in March creates a joint venture between Tenet and United Surgical Partners International that will establish us as the leader in the ambulatory surgery market.

This further aligns Tenet with the major trends impacting the delivery of healthcare and shifts the balance of our business toward faster growing, more profitable, and less capital intensive businesses. Also in March, we announced a joint venture with Baylor Scott & White Health.

This transaction is the latest example of how we're able to partner with leading not-for-profit healthcare providers to enhance our market presence without the risk and capital required for full-fledged acquisitions. I'll discuss these in a few minutes, but I'll first give you some highlights of our financial results for the quarter.

We achieved adjusted EBITDA of $529 million during the quarter, which was slightly above the high end of our guidance and represented an increase of 37% over the same period last year. Our strong volume performance in the second half of last year continued into 2015, and that growth extended across most of our markets.

There were a number of factors that contributed to this lift, including growth in admissions, outpatient visits, surgeries and emergency department visits.

While we continue to benefit from additional volume from newly insured patients, we estimate that roughly two-thirds of our growth was related to targeted investments in service line development and quality improvements.

Beyond our hospitals and outpatient centers, Conifer had an exceptional quarter, with revenue and EBITDA growth that exceeded our expectations. This performance underscores the strength of Conifer's core business, and we remain very excited about its near-term and long-term prospects.

We continue to focus on building leading positions for our hospital operations, including broadening our networks in existing markets and expanding to new geographies where we see a clear path to establish a meaningful and relevant presence.

The success of our acute care hospitals rests on having scale within a market to deploy integrated care strategies, assume risk, improve outcomes and offer differentiated services. I'll walk you through just a few of the important actions that we've taken in recent months to improve our portfolio.

As I've noted before, we believe the building such a position through partnering with not-for-profit health systems can be a much better alternative than traditional acquisitions.

Our Vice Chairman, Keith Pitts, has done an incredible job leading this effort and helping us form relationships with prominent organization that share our commitment to care delivery that is patient centric, high quality and cost effective.

In March, we announced plans to form the joint venture with Baylor Scott & White Health, which is the largest not-for-profit system in Texas. We have great respect for Baylor and its leadership and believe the partnership is a strategic opportunity for both organizations to advance population health and coordinate top quality care.

The joint venture will include Tenet's four hospitals in North Texas, as well as one Baylor hospital in a suburb of Dallas. As we've noted in the past, there are markets where we don't see a path either by acquisition or partnership to develop the scale we believe will be necessary as healthcare delivery continues to evolve.

In those markets, we believe our hospitals would be better positioned under another operator. For example, we continue to pursue strategic alternatives for our hospitals in Georgia and North Carolina and expect this process will likely result in sales of these facilities.

We also reached a definitive agreement on a long-term lease under which Tenet will operate Hi-Desert Medical Center in Joshua Tree, California. This transaction builds on our strong presence and years of experience in the neighboring Coachella Valley where we have successfully operated Desert Regional Medical Center in Palm Springs for two decades.

We believe this transaction will be completed by the end of the third quarter. We delivered strong results in our outpatient business during the quarter, increasing visits by 7.6%. Approximately, 90% of this growth was organic.

Our outpatient team has done an outstanding job building this business, creating tremendous value and putting us in a position to pursue additional growth prospects to realize its potential.

The innovative USPI joint venture will significantly accelerate our outpatient strategy and create the market leader in short-stay surgeries, with the largest footprint and scale in the ambulatory surgery industry. It also provides the foundation for a new services platform where we can offer strategic ambulatory solutions for health systems.

As you can see, we're positioning Tenet through Conifer, USPI, and our JV strategy to be the partner and service provider of choice for leading not-for-profit healthcare systems. USPI has now spoken with each of their 50 health system partners about our relationship and the overall feedback has been positive.

Our expectation is that each of these partnerships will remain in place and that the JV will continue to form new relationships. In terms of next steps, the regulatory reviews are in process and we believe that we're still on track to close by the third quarter and possibly sooner.

Leveraging the strong culture of integration we established when we acquired Vanguard, I'm confident that we'll have a seamless transition following the close. Our acquisition of Aspen Healthcare creates an entry into the attractive UK private healthcare market.

Aspen has nine high-quality, well capitalized private facilities, and we expect strong growth from this portfolio. Aspen will be managed under USPI. In summary, we made great progress on the execution of our strategy, delivered results that exceeded our outlook for the quarter and remain on track to deliver our goals in 2015.

We believe that we have the right strategies in place to become even stronger and more competitive. We're making tangible progress, strengthening our business, positioning Tenet to capture benefits from the powerful trends that are shaping healthcare and enhancing our ability to deliver value creation for our shareholders over the long-term.

And with that, let me turn it over to Dan Cancelmi, for more specifics on our performance in the first quarter.

Dan?.

Thank you, Trevor and good morning everyone. As Trevor noted, we are pleased with our results for the quarter. Our inpatient volumes continued to grow due to our service line development initiatives, targeted capital investments and increasing numbers of patients with insurance coverage.

EBITDA was $529 million in the quarter, above the high end of our outlook. We generated EBITDA growth of $142 million or 37% compared to last year's first quarter. This performance was driven by continued strong volume trends, favorable commercial pricing and the recognition of $46 million of revenues under the California Provider Fee program.

As a reminder, we recognize all the California Provider Fee revenue for 2014 in the fourth quarter since the current program was not approved until December. If we assume an apples-to- apples comparison and exclude the $46 million from the first quarter of 2015, we generated EBITDA growth of $96 million or 25%.

We had some other puts and takes in the quarter, including a $25 million increase in malpractice expense related to recent settlements, but this was substantially offset by $23 million of incremental prior period Texas Medicaid DSH revenue based on the recently finalized 2014 funding determination.

Slide four summarizes some of the highlights of the quarter. We generated strong volume growth achieving a 4.9% increase in same hospital admissions and a 5.9% increase in adjusted admissions. This continues the strong growth we drove over the prior three quarters.

Our volume trends were broad based, as we generated adjusted admissions growth in 13 of the 14 states in which we operate hospitals. About two-thirds of our volume growth was core growth and roughly one-third related to newly insured patients. Our surgical growth remained strong increasing 7.1% on a same-hospital basis.

Inpatient surgeries increased 2.4% and outpatient surgeries increased 9.3%. We grew ER visits 7.2%, reflecting our focus on building our emergency room volumes. The combination of strong volumes, favorable commercial rate increases, and the California Provider Fee revenue resulted in robust revenue growth.

We generated a $502 million increase in total net operating revenues after bad debt, an increase of 13%.

Our revenue growth was driven by a 5.9% increase in same-hospital adjusted admissions, a 2.7% increase in same-hospital revenue per adjusted admission, and a $37 million increase in Conifer's revenue from non-Tenet hospitals, representing a growth rate of 26%.

Bad debt expense was 7.6% of revenue, down 120 basis points from last year's first quarter as a result of the benefits we're realizing from growth in newly insured patients and Conifer's billing and collection efforts.

The bad debt expense that we reported on the income statement was a little higher than we expected this quarter, although our total uncompensated care trends were in line with our expectations. Slide five contains new disclosures that we are providing to help you better understand our uncompensated care trends.

When we add charity care write-offs to bad debt expense, our aggregate uncompensated care was 10.8% of revenue in the first quarter, down from 13.3% in last year's first quarter and 11.3% in Q4.

As you can see on the slide, some dollars shifted from charity into bad debt expense this quarter, which impacts the reported bad debt expense on the income statement, but has minimal impact on EBITDA. Turning back to slide four, total company selected operating expenses increased just 1.5% on a per adjusted admission basis.

Our full year guidance for this metric is growth of 1.5% to 2.5%, so our cost management remains on target. Turning to cash flows, we remain on track to achieve our adjusted free cash flow guidance for the full year of $150 million to $350 million. Our adjusted free cash flow improved $52 million compared to last year's first quarter.

It should be noted that we reduced our capital expenditures by $97 million compared to last year. This was partially offset by certain working capital items including the timing of cash receipts related to California and Texas supplemental Medicaid funding.

Also I'd like to remind you that we typically use more cash in the first quarter due to the timing of our annual employee 401K, matching contributions, annual incentive compensation payments, and the resetting of payroll taxes.

Moving to our services business, Conifer had another great quarter, producing EBITDA of $82 million, up from $48 million in the first quarter of last year and $64 million in the fourth quarter. Roughly $10 million of Conifer's EBITDA this quarter was driven by performance incentives that we do not expect to repeat every quarter.

At this point, we expect Conifer to deliver at least $260 million of EBITDA for the full year, up from our earlier outlook of $240 million. Slide six contains the key components of our outlook for 2015, which remain unchanged from the outlook that we provided in February.

Assuming we close on our joint venture with USPI before the end of July, we plan on incorporating the impact of the transaction into our outlook when we report our second quarter results in August.

Also, we're getting closer to announcing definitive agreements to sell several of our hospitals, and we expect at least one announcement, if not more, between now and our next earnings call. We expect these divestitures, if completed, to generate substantial cash proceeds that we can redeploy elsewhere in the business.

Moving to our view on the second quarter, we expect to deliver adjusted EBITDA in a range of $500 million to $550 million. This includes $35 million of high-tech incentives that we expect to recognize in Q2, which is consistent with our outlook at the start of the year.

As a reminder, we anticipate recognizing about $65 million of high-tech incentives this year. In summary, we are pleased with our solid start to the year.

We continue to take steps to position the company to generate faster growth, higher margins and greater amounts of free cash flow and are looking forward to completing our USPI joint venture and working with both current and future health system partners. I'll now ask the operator to assemble the queue for our Q&A session.

Operator?.

Thank you. We will now begin the question and answer session. And we'll go first today to Ralph Giacobbe, with Credit Suisse.

Thanks. Good morning. Obviously a strong 1Q and the 2Q guidance came in ahead of consensus numbers. So maybe just talk about the dynamics and the context of keeping guidance at the same at this point in the year..

Good morning, Ralph. How are you? We're off to certainly a solid start. We're pleased with our performance in the quarter. Right now we think the guidance that we have out there is appropriate at this time.

Obviously it's early in the year, and depending on the timing of the transactions related to some of our divestiture initiatives as well the USPI transaction, the earliest that we'll likely update our guidance is on the August earnings call..

Okay. All right.

And then, is there a change in how you're considering classifying bad debt versus charity care? Are you running more through sort of the bad debt through the P&L in the hope of collection versus sort of the write up of up front on the charity? Is that the way to think about it?.

No, not at all. It's just there's movement typically between quarter-to-quarter. So we just wanted to highlight the trends for both bad debts and charity care. And to give total picture of our uncompensated care trends which have been coming down nicely..

Okay. Thank you..

And we'll take our next question from Josh Raskin, with Barclays..

Hi. Thanks. Question around the USPI strategy, where USPI has one of their 50 relationships in a market that overlaps with one of the Tenet acute care facilities and maybe any thoughts on that..

We have a handful of those markets, some of which we already have relationships in place, Josh, with the hospitals that were there, coincidentally before the USPI deal. So, we see very little issue with that. In fact, USPI has actually just talked to virtually all their partners now with a very positive reaction.

So I think we feel like there's not really any conflict and if there was a potential conflict, we've already solved those conflicts..

Okay. And it sounded like you've already had those conversations and I think Trevor mentioned in the beginning, that you'd expect all 50 of those relationship to remain in place..

Yes..

Okay. And then, just a second question on the exchange members, you guys gave some data in the press release. Any reason you think that the exchange lives are using – you're seeing less growth, I guess, on the outpatient side, which I don't know if that – I guess that's a little surprising than inpatient.

Is that just sort of pent up demand for inpatient services or why do you think they're not using outpatient services at the same sort of velocity as the inpatient?.

Josh, this is Dan. In terms of our exchange, our book of business, we were pleased with the growth in the quarter sequentially. It's actually exceeded our expectations. In terms of the mix between inpatient and outpatient, we don't see any specific trends there that need to call out at this point in time. We continue to build our book of business.

We're well positioned from a contracting strategy that we focused on early on and we're capturing our fair share of that business..

I guess, Dan, specific, I was just talking about in the press release where you talked about exchange admissions up 17.6% and outpatient visits up 11.2%, and I was just wondering if there was any difference in services. I don't know.

I would have guessed that outpatient would have been a stronger growth than inpatient but I guess maybe it's just it's a small book. It's not that big a difference..

No, nothing unusually. On the Medicaid business, the outpatient volumes are up as well, tracking with the growth in the inpatient too. So we're pleased with the benefits that we're realizing from additional patients with insurance and it's tracking with our expectations..

Okay. Thanks..

And we'll take our next question from A.J. Rice with UBS. Please check your mute button. We're unable to hear you..

Thanks. Hi everybody. First on the expense, you guys highlighted that your control overall (20:21) expenses were up 1.5% relative to admissions and that's the low end of your targeted range.

Is that mostly the leverage you're getting from the better volume, or are there anything to call out on the expense side that's worth highlighting?.

Good morning, A.J. This is Dan. It's certainly a part of our leverage. As we're growing our volume, we're able to spread certainly fixed costs over the additional volume.

But we've been working on a number of different initiatives from also related to premium pay practices, contract labor management, our mix of fixed versus variable staffing, implementation of refined and enhanced labor standards. We're utilizing and building additional market labor pools.

And then when you go into some of our other operating expense categories, we've been certainly renegotiating various contracts in terms of integrating the two organizations. An example, food and nutrition, environmental contracts, dialysis, security and driving substantial cost savings in those areas.

As we looked at the various vendors across the two organizations, we've been rationalizing some of those vendors and having conversations, building in additional performance incentives to drive performance on their part. So it's just a broad package of various initiatives that we've been focusing on to appropriately manage our costs..

Okay. And maybe as the follow-up question to switch gears, I think Trevor, in your comments you mentioned the two portfolio restructuring, Georgia and North Carolina and it sounds like they're now moving to sale as opposed to any kind of JV structure. And then you've got, I think, from the Baylor JV, you're going to be getting cash out of that.

I know you might not want to talk each specific transaction, how much cash you're going to get.

Can you give us some order of magnitude in terms of the total amount of cash and maybe even a range or something that the company is likely to see in the back half of the year? And will that be targeted for debt pay down or – give us a little more flavor of what you're going to do with that cash..

Thanks, A.J., it's a great question. I think it's a little early to give that flavor because we're in a process in Georgia and North Carolina, and with respect to the Baylor transaction, the terms weren't disclosed. But – and I wish I could give you a range or an estimate to help with your modeling. But it's enough cash that it will be meaningful.

We do have some debt maturities coming up here in the near-term and the opportunity to do some calls, and that's the most likely application of the proceeds..

Okay. All right. Thanks a lot..

And we'll go next to Andrew Schenker with Morgan Stanley..

Hey, good morning. So I just want to talk about – your managed care mission's obviously very strong year-over-year as a percentage of your mix, went up I think 420 basis points. By my math, exchanges may have contributed roughly about a percent of that.

Maybe if you could just talk about really the strength you're seeing in managed care and how those trends have developed following on last year where you kept citing the strongest commercial volumes you'd seen in a decade. Thanks..

Yeah, sure. And they are very strong and I'm glad you're pointing it out. And I would just like to say again and thank our managed care team, who helped us implement a strategy beginning more than two years ago to make sure that we were really well positioned in these exchange networks.

And so, we were an early adopter of the exchanges, we entered into contracts with – and you've heard us quote this statistic all last year, with a very high percentage of the plans that were offered in all of our markets. And that is what is really driving that business.

So we've been first movers, we have a competitive advantage due to the pricing that we have and the level of clinical quality and reputation of our hospitals in these markets, and that's what's really driving that business. The numbers will move around little bit, because you did start with a very small base, and it's growing very rapidly.

But it's a great story for us with a new market that's substantial, it's profitable, and we're providing good service to people who are utilizing our hospitals within those..

Okay. And then maybe just a follow-up on that a little bit.

Are you seeing any changes in collection rates amongst the MCOs? I mean, the high deductible plans are obviously increasing or so maybe could some of those problems you saw, or concerns you saw around bad debt in the first quarter be related to lower collection rates on bad debt for those with insurance? Thanks..

I'm glad – okay. So, on that question we heard that that was asked to another company that expressed some concern about it. Steve Mooney, our CEO of Conifer, which obviously handles the revenue cycle for all of our business including the exchange business this year.

Do you want to comment, Steve, on the trends you're seeing?.

Sure. Hey, Andrew, it's Steve.

When we first saw the exchange volume come on board, we saw some degradation in some of the rates from both the self-pay side as well as the administrative side of the actual plans, and that was more due to a process when we found out in the phone calls, that it was their kind of a lack of expectation at the volume levels.

That has tapered off significantly. We're seeing that now reimburse at the same levels we're seeing our typical managed care volume. We're also seeing the self-pay portion perform as we see the rest of the portfolios. So we're seeing a lot of consistency across the population.

As you mentioned, though, we're obviously seeing a larger volume of high deductible plans globally. So that's obviously an area that we keep an awful close eye on. But as you know, we put a lot of process in place around our automation, around our segmentation modeling that has driven what we believe is the right returns..

Thanks..

And we'll take our next question from – I'm sorry, go ahead..

No, please, next question. Thank you..

Thank you. We'll go next to Sheryl Skolnick with Mizuho..

Thank you very much. This was a fabulous job, guys. Congratulations to everyone..

Thank you, Sheryl..

You're welcome. Took an awful lot of work to not only deal with all those demands, but to then put it on the margin line as well as into the business the way you did. So, forgive me if I pick a couple of nits here, but I am curious about a couple of things.

The first thing is when you say you have organic growth driving the majority of the growth in the quarter, it sounds like a simple question, but it may have more subtlety to it. Could you please define what you mean by organic? Do you mean....

Sure.

Dan, you want to? Yeah, Dan, why don't you explain how we make that determination?.

Good morning, Sheryl.

How are you?.

Fine. Thank you..

Yeah. So, when we think about our volume trends in the quarter, we look across our inpatient book of business that we were able to generate.

When we look at, in terms of the drivers from our core initiatives, whether that's targeted service line development or targeted capital investments, we have very good visibility by service line in terms of the incremental volume that we're driving.

We spend a lot of time analyzing what we believe the incremental volume is related to the newly insured. It's not 100% accurate, but we think it's pretty close to what the aggregate trends are from the additional uninsured – or the additional insured individuals. We look at Medicaid book of business very closely, compared to historical trends.

And then the exchange business, where we have visibility in terms of their previous insurance status, we're estimating roughly a third were previously uninsured. And so, we take those factors into consideration when we're estimating and when we're coming up with this two-thirds that we believe relates to our core growth.

We don't have visibility into all the exchange patients, because we may not have seen all of them in the past. But, our experience seems to be consistent with some other studies on that as well. So we feel pretty good about our split between organic so to speak and the growth due to the newly insured..

Okay. That's what I was getting at, that it was, the core may also include some service line expansions and the like in your markets. But you're really, when you're saying core organic, it's really trying to give us the sense of what is due to the ACA. So that's very helpful. Thank you..

Yeah. We just trying to – we're trying to isolate the ACA out..

Yeah. Okay. Good. Because it could also be organic versus acquisitions and you're going to have a lot of acquisitions coming in.

So I don't want the terminology to get too confusing here, because there's going to be lots of new growth from these other opportunities you have versus the core versus the ACA, and it's a high class problem, but I want to make sure I understand what the pockets of growth that you talk about are. That's why I asked the question. And I appreciate it..

And admittedly, it'll become very difficult to continue to split this out in this way as the portfolio changes..

one, within the markets that improved, where you saw geographic strength.

Did it have to do with population growth, employment growth, shifts in population from north to south and did it continue beyond the March 31 date?.

Okay. Britt, why don't you speak to the trend throughout the quarter? And Sheryl, if you were suggesting that the one market not growing was in the Northeast where they had snow, you're right. That's what drove it..

Yeah, that's exactly right, Sheryl. Morning. Our volume trends, Sheryl, did grow consecutively. To your question regarding geography, we have really strong growth in Florida.

That continues, that's been on a, actually a multiyear run now and we're seeing that primarily due to our service line investments as well as initiatives there and just couldn't be prouder of what we're doing there. And so we're seeing that in Florida.

Detroit's making good market share gains progress and that's very pleasing to us, when we looked to our competitors there. And then in a significant portion of California market, we're seeing good market share shift as well there. So we're pleased that there's a dispersion across geographies..

Okay, great. And then the final question is, you got a lot on your plate. Obviously you're going to have financing needs. You addressed that in A.J.'s question. Thank you for that, as well as you could right now.

I'll ask the question a different way which is, from a people and management perspective, given that I suspect that Keith probably has a list that's very broad and very deep and very rich of new deals that he wants to get done, how many more can you realistically take on and be confident that you can execute well?.

Well, two points to that. Let's look at the experience we had with Vanguard and I'd say compared to mergers I've seen, experienced and that are taking place in other industries, we've done exceptionally well in having a very rapid and pretty seamless integration.

I mean if you were to visit hospitals that were formally part of the Vanguard portfolio or the Tenet portfolio today, you would see evidence of techniques and strategies from both predecessor companies that work in those companies and people talk about this as one company today.

So we have that, but part of that strategy was also to retain great people in the target organization. In fact, to do a merger in that case with an organization that had outstanding people to begin with and then to attempt to retain them.

So, as you know, we were successful in retaining I think all but one of the regional leads in Vanguard and in the case of USBI, we're retaining the entire management team. And you start with a company that has outstanding management and they're staying and that makes the integration job that much easier. So I think, Sheryl, let's make a distension.

We're not acquiring assets that are really troubled with bad management and require total turnarounds. It's quite the opposite. Outstanding companies, great management, not requiring a turnaround and so what we're working on is really integration, retention and putting cultures together as opposed to any sort of other type of activity.

And that's so much easier to do, so much more successful and can be done so much faster..

And we'll take our next question from Matthew Borsch with Goldman Sachs..

Yes. Hi. Good morning. Maybe if I could just come back to the volume question and just a little better understand when you talk about organic growth and two-thirds of your volume growth related to investments in service line development and targeted capital investment. I mean, I guess, so, correct me if I'm wrong here.

I sort of hear you guys saying that the volume, two-thirds of the volume growth is related to things that you have done as opposed to the environment.

And my issue with that, even though I recognize that even compared to the other hospital company results, yours are a notch better, they're still in the same directional ballpark as what we're seeing from the others.

So, it just seems hard to understand that everybody's volumes are going up that much because of things that they are doing company specific..

Yeah. So, let me – I think it's best explained by way of example. So, first of all, I would suggest the experience so far in the invest around sector is not all the same.

It's very differentiated between the two companies, and it's also quite likely that the companies that are performing very well in building volumes are doing some of these same things in order to drive it. We also, within the invest around sector are outperforming the public sector than the not-for-profits in terms of volume growth.

So, you got to remember that the industry that's five times as big as the companies that everybody pays so much attention to. That'd be my first point.

Second point is, the answer as to where the volume growth is coming from and what we really mean when we're talking about service lines and so forth, it's market specific and I'll contrast two different markets. Detroit, for example. Detroit has been a fast growing market; we talked about it all last year. It's a very capital driven strategy.

It goes back to Vanguard's original acquisition of Detroit and the capital investments they made. But those capital investments that were made over a period of years that we are now in the process of continuing and completing are generating volume growth in that market's been very successful. A different example is Florida.

Our historic Florida market, which is generating volume growth through service line development and specifically Britt alluded to this, but they decided to focus on four particular service lines, surgical, oncology, cardiovascular disease including surgery and interventional neurology and neurosurgery by recruiting and building service lines around specific physicians who had very distinguished backgrounds and programs in this, who then in turn built those services within the hospital network.

Not so capital intensive, much more people focused, obviously assisted by the intense investment we've made in advanced clinical systems. But that's really the example of what we're talking about when we're talking about organic growth unrelated to the ACA involving service lines et cetera. And I hope those examples help illustrate..

Yeah. That's very helpful. Thank you for that. And if I could just switch topics and maybe this is not a fair one to lob at you, but Tenet stock's down 2% today and still down somewhat for the year. I mean, this clearly was a very strong, high quality quarter.

What do you think investors are reacting to here? Is that revenue per unit concern, and what do you think people are missing or is it something else?.

Well, I would start by saying you have to ask your own clients that.

I'm the wrong person to ask because just on the fundamentals, this is the latest in a string of very solid quarters where we have exceeded expectations, driven organic growth, driven it in the right way which is with increase in the number of customers we are serving and good metrics, solid metrics on pricing and cost control.

And so to my way of thinking about it, we are creating value in the enterprise that should be reflected in the market. But I've also learned over time to keep doing what we do and what's within our control and not become too obsessed with short term fluctuations in the share price..

Do you think the revenue per unit, I mean that that is something that's not a concern that we raise particularly, but that's in the backdrop there.

What do you think that people are overly apprehensive about there relative to what you're doing?.

I wouldn't be apprehensive or concerned about it. We've been signaling for a long time that the pricing environment within the hospital sector for managed care would be more challenging beginning last year through this year, et cetera. That's playing out very much in line with our expectations.

And there are changes going on within the mix of business that we are – and services we're providing to patients both the existing patients and newly insured patients.

But when you're reporting kind of growth in patient volumes that we are, that are by any kind of historical basis above the high end of historical trends, that's a very high-class problem to have..

And we'll take our next question from Darren Lehrich with Deutsche Bank..

Good morning, everybody. This is Josh Kalenderian for Darren. I just wanted to ask you a little bit about Detroit and what you're seeing in that market.

You've made a lot of capital investments there and I'm just wondering how much of the original Vanguard commitment is left?.

Keith, do you know off hand, how much of the original commitment is left?.

Well, the routine capital commitment will be through this year in 2015 and we'll have probably about $100 million, low to mid $100 million left on the extended last big of the $500 million of projects and so virtually everything is open. The last large project is the Children's, the major Children's downtown renovation.

As you may recall, we also have a Children's free standing ED and a large ambulatory center opening in Oakland County in Troy at the end of this calendar year. So, the only thing that won't be left open at the end of 2015 is the inpatient high acuity expansion of the children's hospital downtown.

However, you should note that the renovations of the old space as well as the ambulatory space has been open for a while. So Children's had a lot of – some improvements, but it'll be a couple of more years before that project is completed.

So, and we've been very pleased with the response and the reaction the projects have generated, volumes in excess, as they've opened, in excess of what we originally expected. So we've seen nice gains in market share in the Detroit market over the last few years.

It's one of the few markets where we have – as you know, when you have organic growth, some of it can be market share, some of it can be the environment i.e. what's in the market overall already up for other reasons, whether it's a flu outbreak, or whether it's some other reason that the market might be up.

And we have good visibility in Detroit early on based on data reporting in that state. So we know that we have been successful over the last few years in moving market share which was the whole reason for the capital investment..

And we'll take our next question from Brian Tanquilut, with Jefferies..

Hey, good morning guys. Trevor, just a follow-up to Matt Borsch's question on the drivers of the growth. So, if you don't mind just giving us some views on how much runway you have left.

As you look throughout the portfolio, what inning are we in in terms of the service line expansions and capital deployment on putting the growth initiatives in place?.

Well, unfortunately you've got 30 markets and 30 stories and one of the them is negative and it involves an epic snowfall. So it's different across every market. In California they're doing innovative strategies with physician groups; in Florida it's the service lines I mentioned. I mean, it's just really different.

And that, by definition, tells you you're not in any particular inning, because it's not one game. And so I think, this is a core job of management is to continually come up with strategies. And Britt and out regional leaders are fond of saying as long as there are any patients being served by a competing hospital, there's opportunity for growth..

Got it, and then last – second question from me. As we think about Conifer, obviously you've had really good success with CHI.

So as you look at the pipeline, it's growing quite strong, but how would you characterize the hospitals that are in the pipeline today? And are we expecting to see some big systems come online, let's just say the next 12 months?.

Steve Mooney, you want to address the – by the way, he cannot answer the question. So, but give some color as to what the pipeline looks like..

Thanks, Trevor. Hey, Brian. The marketing revenue cycle outsourcing space is still pretty nascent. I mean, you can see kind of who our competitors are out there, you can see what transaction being done on an annual basis. And they're still pretty far and few between and pretty lumpy.

But I will tell you in the conversations over the course of the last several years, there's a lot more of them. The pipeline is growing stronger by quarter. I believe we've got contracts right now that we are in final negotiation with.

So you'll see I think this year, in 2015, additional hospital systems sign up for outsourcing and definitely under the Conifer banner. And so it's a marketplace that is evolving, it's growing.

And we believe, and that's why we're in the business, that we think ultimately that hospitals are going to realize that their core is to provide quality care in the communities they serve and their strategy need to do around driving value based care, and it's our strategy to deal with the revenue cycle portion of their business.

And more and more we're realizing they have gotten management bandwidths. It's not where they should be spending their time and attention. So we believe it's a market that's going to continue to expand and we're going to be there to capture it and we're continuing to develop internal capabilities to make sure we stay best in breed in the marketplace..

And we'll take our next question from Frank Morgan with RBC Capital Markets..

Good morning. Couple random ones here. You mentioned on Joshua Tree, that acquisition, that you'd be walking into a lease or assuming a lease there. I'm curious, I get asked this question a lot by investors about why don't hospitals lease more assets.

So if you could just tell us a little bit about your strategy around financing and particularly lease financing.

Is it something you would consider in the future or is this sort of a one-off?.

I think this is a little bit of one-off, because it's a district hospital, it's consistent with most of the methods of which we've done district hospital deals in the past. But I'd say this is a little bit one-off. And I think the answer to the second part of the question is, it really depends on the nature of the facility and where it is.

And some facilities are more – are easier for us to look at, lease structures versus other facilities. MOB is your great example for that..

was your experience there similar and how do you view that going forward? Thanks..

I think DMC was actually, if you look at the charts and the independent report that was done, DMC was like in the top five, maybe number three depending on how you measure it in terms of savings generated. So, been very successful in both years that have been reported to date on Pioneer ACO..

And we'll take our next question from Gary Lieberman with Wells Fargo..

Thanks. Good morning. It's Ryan Halsted on for Gary. A question on the UK entry. Just curious, it sounded like you said you expect USPI to operate the facilities. I'm just curious why wouldn't you be operating them.

And what do you see in terms of growth opportunity there? Do you see that being an active acquisition environment?.

But, keep in mind, it was part of USPI until very recently. Bill Wilcox, the CEO of USPI, was the chairman of the board that holds the company there. And so, it's a natural thing to keep that reporting basically in place. It will be part of our whole company, but it, as a practical matter, will report into USPI.

And what's nice about the UK is that they are encouraging private hospitals and private capital to take some of the pressure off of the National Health Service. And so, we do see it not only as a great company with well-capitalized and fast-growing assets, but also as a platform for growth..

Okay. Thanks. On the – and just one more on your cash flow. You mentioned last quarter some holdup in receipts from California and Texas. Just any update on that. And you maintained your cash flow guidance.

How confident are you in being able to achieve that sort of in the next three quarters?.

Ryan, this is Dan. Yes, we are on track to achieve our cash flow guidance for the full year of $150 million to $350 million for adjusted free cash flow. Our cash flow performance in the quarter was consistent with our expectations, maybe actually slightly ahead.

The first quarter is typically our softest cash flow generation quarter, just due to the timing of various working capital items as I mentioned in my prepared remarks.

In terms of the receipts related to the California and Texas supplemental Medicaid funding, those receipts, net receipts will pick up as we move through the year and what we saw in the first quarter was consistent with our expectations..

And we'll take our next question from Ana Gupte with Leerink Partners..

Yes. Thanks. Good morning.

Just to back on the receivable from Texas for the 2Q, the $500 million to $550 million, is anything contemplated in that at all, on the Texas Medicaid payments?.

Good morning. Ana, this is Dan. Yes. In terms of as we move through the year, as I mentioned, we will start seeing incremental net cash flows from both the California Medicaid supplemental funding as well as the Texas supplemental funding as well..

So it is in the guidance then already, is what you're saying..

Yeah. There is....

Is it in full year, 2Q, full year? Okay..

No change in our outlook for the year..

Okay. And then on the Medicare admissions, one of the managed care companies which is pretty prominent has been talking about an uptick of low acuity admissions that are related to respiratory and blood disorders.

Anything that you're observing? They're saying that they are seeing this come through from a managed care perspective in claims in late March and early April. Your admissions in Medicaid look like, they've gone up..

This is Dan. We're not going to comment on some of the comments that the other company made..

And our last question of the day comes from Kevin Fischbeck with Bank of America..

Thank you. This is actually Joanna Gajuk filling in for Kevin. Thanks for taking the question here. In terms of the reform benefit that you quantified them to amount to about $35 million in the quarter, which is comparable to fourth quarter and I guess third quarter as well.

But, at the same time, the disclosure here in the press release says there was a 18% increase sequentially in exchange admissions and 11% in outpatient visits. And also, there seems to be – have been also a little bit fewer uninsured volumes versus Q4.

So, why you feel like sort of the benefit was same in Q4, while it seems like from these exchange numbers we saw and the self-paying volumes, there was – it should have been a little bit more of a lift Q1 versus Q4.

So any comment there?.

Good morning. This is Dan. Actually, the $35 million is the incremental lift over the first quarter of last year..

Okay..

So, we did see sequential improvement, as I mentioned in my remarks. We continue to capture incremental Medicaid business, and our exchange book of business is building as well..

So, can you remind me what was it in Q1 over last year? The benefit?.

$10 million..

$10 million..

Before the impact of the reimbursement right adjustment..

Okay. So, it's – so to think about it, it's $45 million versus $35 million in fourth quarter..

That's correct..

All right. Yep..

Thank you. And that concludes today's question-and-answer session. I'll turn the call back to the speakers for any additional or closing remarks..

Great. Thanks. We know everybody wants to get on the next call. So, thank you. We'll see you again in August..

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