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Executives

Trevor Fetter - President and Chief Executive Officer

Stephen L. Newman M.D. - Chief Operating Officer, Interim Chief Medical Officer

Biggs C. Porter - Chief Financial Officer

Analysts

Adam Feinstein - Barclays Capital

Darren Lehrich - Deutsche Bank Securities

Sheryl Skolnick - CRT Capital Group

Henry Rakoff - Deutsche Bank Securities

Robert Hawkins - Stifel Nicolaus & Company, Inc.

Miles [Hystree] of Credit Suisse

Gary Taylor - Citigroup

David Bachman - Longbow Research

Whit Mayo - Robert W. Baird & Co., Inc

Shelly Gnall - Goldman Sachs

Ralph Jacob - Credit Suisse

Tenet Healthcare Corporation (THC) Q4 2008 Earnings Call February 24, 2009 10:00 AM ET

Operator

Good morning ladies and gentlemen and welcome to the Tenet Healthcare’s Fourth Quarter, ended December 31, 2008, Earnings Results Conference Call. (Operator Instructions) A set pf slides has been posted to the Tenet website, to which management will refer during this call. Tenet’s management will be making forward-looking statements on this call. These statements are based on management’s current expectations and are subject to risks and uncertainties that may cause those forward-looking statements to be materially incorrect.

Management cautions you not to rely on and makes no promises to update any of the forward- looking statements. Management will be referring to certain financial measures, including adjusted EBITDA, which are calculated in accordance with Generally Accepted Accounting Principles or GAAP. Management recommends that you focus on the GAAP numbers as the best indicator of financial performance.

During the question-and-answer portion of the call callers are requested to limit themselves to one question and one follow up question.

At this time, I would like to turn the call over to Trevor Fetter, President, and Chief Executive Officer. Mr. Fetter, please proceed.

Trevor Fetter

Thank you, operator and good morning. Because our headline results for the fourth quarter were first made public more than a month ago, I would like to direct my comments to broader trends and observations about the quarter that were not in the pre-release.

Our operating results for the quarter were among the strongest that we’ve achieved in years. We improved same hospital paying admissions, paying out patient visits and surgeries, as well as same hospital commercial managed care revenues, adjusted EBITDA, and free cash flow.

The full year 2008 was the first year of positive same hospital admissions growth since 2003 and we had our best performance ever in many important non-financial metrics.

Despite this strong operating performance our stock price plummeted in the fourth quarter. As recently as September 26, Tenet has closed about $6.00 per share, up roughly 20% for the year-to-date. But, by mid-November it was trading near $1.00 and since then we’ve taken important actions to turn this situation around.

Despite all the uncertainty that is created by the economy, I think our business is remarkably solid and I am actually quite optimistic because of the progress we’ve made in a number of critically important areas:

First, our physician relationship and recruitment programs are proving to be highly effective and help us build solid momentum on inpatient volume growth.

Second, we stabilized the outpatient business, which was quite negative as recently as 2007.

Third, our targeted growth initiative strategy has successfully directed volume growth to our most attractive and profitable service lines.

Fourth, our achievements in quality have created as stronger value proposition for our hospitals as well as wide spread recognition. This includes our numerous centers of excellence designations and the bonus payments for quality that we’re receiving from some of the largest commercial payers, and the significant reduction in our malpractice costs is one of the tangible returns on our quality investment.

In addition to the financial metrics we report every quarter, we carefully measure and assess our progress in several non-financial areas that also drive value in our business. The first of these three non-financial metrics focuses on measuring progress in clinical quality.

In Q4 we hit all time highs in our quality statistics. For internal evaluation and incentive purposes, we measure our adherence to evidence based medicine protocols, infection rates, and compliance with standards for appropriateness of admissions.

The next non-financial set of metrics is service. Our scores improved here as well, with physician satisfaction increasing 2.9% over the prior year and patient satisfaction increasing 1.1%.

To give you an idea of the progress we’ve made in physician satisfaction, since October 2005 the average score went from 72% to 81%.

Third, we measure our progress in satisfaction of our employees. Total employee turnover improved by 20% in 2008 and voluntary hospital CEO turnover was negligible, demonstrating dramatic improvement from the 20% turnover among our hospital CEO’s that we experienced a few years ago.

These are just a few of the reasons that I’m optimistic about our fundamentals.

Let me now turn to the current economic environment and tenet strategic response to the challenges before us. The macro environment presents us with many challenges, but I think three are worth highlighting.

The first issue is the extent to which growing unemployment will cause commercially insured patients to lose their insurance or to put off treatment all together.

The second issue is the extent to which declining household incomes and wealth, irrespective of employment status, suppress consumption of medical care, or put at further risk our collection rates from both insured and uninsured patients.

The third issue is the tremendous uncertainty in the capital markets and the effect it has on a company that is relatively dependent on access to credit and the cost of credit.

On the first two issues, the growth of the uninsured and the risk in collection rates, we are doing what we can to mitigate this using the strategies that we’ve employed for some time in the revenue cycle such as stepping up our capabilities and providing financial counseling to uninsured patients, improving customer billing generally, and point of service collections specifically. We also have continued with our strategies to build commercial admissions by recruiting physicians with commercial patients and targeting service lines with the greatest prospects for growth and profitability.

On the third issue, relating to the unsettled capital markets, our most recent action to reduce the risk of our balance sheet is the note exchange, set to close next week. We felt it was a good time to reduce the risk profile of our balance sheet by largely removing the debt maturities that were scheduled to occur in 2011 and 2012. We are undertaking this refinancing between one and two years earlier than we would have in a more stable market environment. With $1.4 billion of the current notes tendered as of the early tender date of February 18 and assuming stable rates over the next year or so, cash interest expense will increase by $43 million on an annual basis.

While we have confidence in our strategies, the operating environment in the next two years is uncertain and access to the capital markets is even less predictable. We felt that a window had recently opened for this exchange, and that it was prudent to take the opportunity to reduce balance sheet risk.

Given the weakness in the economy, I am pleased how well our business performed in Q4. Let me give you some additional highlights.

Paying volumes were reasonably stable, with paying admissions eking out a 0.1% increase and paying out patient visits up a more robust 0.9%.

Managed care admissions were up 2.5% from last years fourth quarter. Although that metric is commonly used by this industry, it includes a shift from traditional government programs to managed government programs, so we don’t consider it to be terribly relevant. The relevant metric is for commercial managed care admissions and that metric was somewhat improved from the third quarter with a year-over-year decline of 3.0%.

Commercial volumes in our targeted growth initiative service lines were up a very strong 2.3%.

We had solid performance in pricing, consistent with the strong growth that we’ve demonstrated for a number of quarters now. We expect continued pricing growth to remain a significant driver of earnings growth in 2009.

Cost control was outstanding as well with unit controllable costs rising by less than 1% on a same hospital basis. We expect a similar level of cost efficiency going forward, as we anticipate capturing approximately $150 million from the cost cuts that we are already implementing.

Macro economic pressures, presumably, drove a modest softening of our collection ratios in the quarter and related increase in bad debt expense, but our multi year efforts to address the bad debt issue again generated results. Our same hospital bad debt expense was 7.5% for the fourth quarter, actually a slight improvement relative to the third quarter and up only 110 basis points versus the fourth quarter a year ago.

Taken together these factors enabled us to generate an adjusted EBITDA margin of 9.1%, an increase of 160 basis points relative to the prior years fourth quarter.

For the full year, adjusted EBITDA was $732 million, a little below the range that we had expected a year ago, but towards the upper end of the revised range that we laid out farther into the year, and up 11.4% over 2007.

Growth in same hospital EBITDA was even stronger, up 14% year-over-year.

Turning to capital expenditures, we spent less than expected in the fourth quarter with CapEx in continuing operations of $130 million. We will continue to take a cautious approach to capital expenditures in 2009, which should contribute to our progress in moving towards positive free cash flow. That said we will honor the promises for capital improvements that we’ve made to our physicians. We have worked too hard to rebuild our relationships with physicians to jeopardize that progress in 2009. Fortunately the competitive arms race for CapEx in the hospital industry has subsided for the time being.

Turning to 2009, we are looking at more than the usual set of challenges with significant uncertainties in terms of volume growth, payer and patient mix, and bad debt expense; it is hard to offer a precise outlook for 2009. But, our outlook for 2009 adjusted EBITDA is a range of $735 to $800 million which is between flat to a 9% increase over our 2008 performance.

With that as an overview, let me turn the call over to Tenet’s Chief Operating Officer Dr.

Stephen Newman M.D.

Thank you, Trevor, and good morning everyone. I want to begin by reviewing the relationship between our fourth quarter volumes and our growth strategies by service line.

While total paying inpatient and outpatient volumes held up quite well in the fourth quarter, our commercial managed care admissions declined by 3.0%. This is a slight improvement relative to the 3.4% decline in the third quarter, but clearly not where we want to be. As we have discussed in prior quarters, our de-emphasis of the OB service line accounts for the majority of the decline in commercial admission: in fact, 58% of our fourth quarter decline can be attributed to OB and since OB typically is not a TGI service line at most of our hospitals, a significant portion of this lost commercial volume should be viewed primarily as part of our operating strategy and not as a critical shortfall relative to our growth objectives.

Rather than illustrating our commercial admissions declines in non-TGI service lines like OB, Slides 14 and 15 compare a commercial and total paying admissions growth in our seven TGI service lines. These graphs show the delta between growth and TGI versus non-TGI service lines. The difference is real and it’s growing.

Slide 14 provides an isolated look at only commercial admissions, while Slide 15 illustrates all paying admissions. You can see on Slide 14 that in Q4 commercial admissions in our seven TGI service lines grew 690 basis points faster than our commercial admissions in non-TGI service lines.

On Slide 15 the focus shifts to total paying admissions where there is a 300 basis point difference separating the growth rates in our TGI service lines compared to growth rates in our non-TGI service lines.

The key take away here is that we have consistently demonstrated an ability to grow commercial and aggregate paying volumes in our TGI service lines, precisely where we’ve concentrated the focus of our growth strategy. As we’ve selected our TGI service lines based on profitability, local market needs and attractive projected demand growth, our success in achieving disproportionately strong growth in these services should prove to be quite powerful in driving future financial performance.

Before leaving the discussion on volume growth, let me bring you up to speed on our first quarter volumes. As you know, we don’t always give this sort of interim update, because short-term volume trends can be volatile. But, since we’re already close to two full months into the quarter, I’ll give you an early look.

Through last Wednesday, February 18, a period representing the same number of week days and weekend days is last year, our total admissions were down 0.8%, total paying admissions were down 0.7%, outpatient visits were up 0.5% and commercial managed care admissions were down 3.1%. While these results are softener than we’d like, we are encouraged by the fact that they’re not radically different from the trends we saw in the fourth quarter.

I believe our success in sustaining reasonable volume performance in the face of the weakening economy is due in large part to our success expanding our active physician staff. Let me briefly review the methodology we use to track our progress.

The total medical staff at our 50 hospitals at the end of Q4 was slightly less than 23,000 physicians. Because many of these physicians make only a small number of referrals to our hospitals, we focus our analysis on a subset of this aggregate number, which we refer to as our active medical staff. To qualify as an active medical staff member, a physician must either admit 10 patients or perform an equal number of outpatient procedures annually.

You will recall that last year at this time we established a growth target of 1,000 net new physicians for 2008. This target indicated our intent to repeat the strong growth we had achieved in 2007. I’m excited to tell you that we actually our 2008 objective with net growth of 1,122 physicians for the year or an increase of 9.0%. This brought out total active medical staff at the end of 2008 to 13,571 physicians and represented a growth of 17% since January 1, 2007. The details of this growth are shown on Slide 16.

To demonstrate the significance of this growth, let’s look at the 2008 performance of the physicians who joined the staff of Tenet Hospitals in 2007. These physicians, whom we refer to as the class of 2007, were responsible for more than 45,000 admissions and 275,000 outpatient visits in 2008. On average, this translates to 26 admissions and 158 outpatient visits per member of the class and represents a more rapid ramp up than we had anticipated. These increased volumes were partially offset by volumes lost as a result of attrition within our existing physician base.

Early indications from the class of 2008 are very encouraging. In fact, this class appears to be ramping up even faster than the class of 2007 during their first few months with Tenet.

As our physician relationship program has matured, we’ve refined our linkage between targeted physicians, their books of commercial business and our TGI service lines. We believe the early superior growth from the class of 2008 reflects these refinements.

Switching gears to incremental pay for performance revenue, you may recall that we mentioned at last summer’s Investor Day that we had negotiated the potential to receive up to $35 to $40 million in pay for performance revenues from several of our commercial managed care payers for the period between 2009 and 2011. We have just completed our first adjudication of these payments reflecting our performance against the relative quality measures in 2008 and I am pleased to tell you that we will be receiving quality incentive payments of approximately $7 million or 70% of the 2009 opportunity.

While the current level of these premium payments is attractive, the truly important point is the precedent we’re setting with these commercial payers who have decided that rewarding our hospitals for superior clinical quality is an important part of their business proposition.

Turning to costs, the fourth quarter provided powerful evidence of the improving cost discipline by our hospital managers. In the quarter we were able to limit SWB for adjusted patient day to an increase of only 0.8% compared to the fourth quarter of 2007. The effectiveness of our labor management has been enhanced by the online tools we’ve developed under our PMI or performance management and innovation group. These productivity tools address a critical challenge in our industry, namely the efficient management of staffing in the context of rapidly fluctuating demands. Getting this right can often be the difference between attractive profitability and unacceptable performance.

One of the most important metrics we use to track staffing productivity is paid FTEs per adjusted average daily census. We saw an improvement of 0.7% in performance of this metric in Q4 ’08. These kinds of savings are the result of our investments to provide real time actionable information to front line management.

Our PMI team has developed an internet based staffing grid which matches staffing levels by skill mix to the immediate requirements of our current patient census. These staffing tools are also forward-looking assisting us in the management of open positions and driving our hiring objectives and staff flexing. These tools also assist us by minimizing the use of contract labor, which we were able to decrease by $6 million compared to Q4 ’07. All of these tools are linked to daily reporting systems providing real time productivity monitoring and assuring that our performance targets are being met.

Managing our staffing on this hour by hour basis has helped us to avoid disruptive personnel actions, including unplanned reductions in force. This improves our bottom line and support sour objective of improving employee satisfaction.

With that I will turn the floor over to Biggs Porter, our CFO.

Biggs Porter

Thank you Steve and good morning everyone. Before I talk to the quarter, let me make a couple of broad comments on 2008.

Our improvement embedded in our 2008 results may have, at times, become obscured by changes in state funding and in our hospital portfolio. As you can see from our earnings release, after all of the discontinued operations reclassifications last year, our adjusted EBITDA grew from $650 million in 2007 to $732 million in 2008, an increase of 11%. However, this is despite having lost approximately $54 million in Georgia, Florida, and North Carolina Medicaid funding. If you normalize for the Medicaid funding loss, there would have been an underlying operating improvement of $129 million or 20%.

Some analysts were concerned that we weren’t growing margin on volume growth in 2008 due to adverse mix shift. This, in fact, is not the case. Even in the third quarter, which became such a focal point, is you consider the Medicaid reductions we had to offset. Mix shifts certainly hurt our result and remain a significant risk going into 2009, but it did not eliminate all the benefits of volume and our other efforts.

Since I have touched on the subject of Medicaid I will comment that we see the stimulus bill as a risk mitigator of the budget pressures being experienced by several of the states in which we operate. The effects of enhanced SHIP and COBRA coverage should beneficial, but the effects cannot be reasonably estimated.

As both Steve and Trevor have discussed, despite the dramatic collapse in discretionary consumer spending experienced in most sectors of the economy, Tenet’s volumes held up well in the fourth quarter. As our pricing remains strong, these volumes resulted in solid revenue growth of 4.9%. This growth included a 6.6% increase in net patient revenue from commercial managed care.

As a minor footnote to this increase and what of the items which drew investor attention in our pre-release, our fourth quarter revenues included $8 million from what is effectively the partial reversal of the $17 million charge taken in the second quarter of 2008. This charge related to graduate medical education reimbursement at one of our California hospitals. This $8 million reversal does not reflect a successful protest of the issue at this point, but rather confirmation of the arrangement that we have with the county to be reimbursed for 50% of any losses we incur related to the residency program.

In terms of normalizing its impact, the $8 million clearly made a one time contribution to our fourth quarter results, but should be noted against the earlier $17 million charge when assessing the full year. You should also note that the $8 million was recorded in other revenue and so it had not impact on our pricing statistics in the fourth quarter.

Turning to costs, we had a very strong quarter in terms of operating efficiency. The increase in total controllable cost per adjusted patient day was held at just 0.8%. The bulk of this accomplishment was achieved in restraint on the salaries, wages, and benefits line, where the increase was also held at just 0.85. This SW&B results was aided by a 16.7% decline in contract labor expense.

On the other operating expense line we saw a 50% decline in malpractice expense in the fourth quarter falling from $36 million in the fourth quarter of 2007 to $18 million in the fourth quarter of 2008. A few analysts viewed this $18 million decline as a unique event which D&B backed out of our results and their assessment of our fourth quarter earnings power. I would argue that backing this out is far too harsh an action. By backing this out analysts are failing to ascribe proper value to what Tenet accomplished through our investments in clinical quality. It is our belief that one of the many ways these investments have generated returns is through these declines in malpractice expense.

Let me offer some perspectives on how our malpractice expense in the fourth quarter could be viewed. Stepping back to look at the full year decline, malpractice expense in 2008 was $128 million down $35 million or 22% from $163 million in 2007. However, even this is net of $15 million in charges related to declines in the discount rate used in the calculation. Without that, the year-over-year decline would have been $50 million. So, while the fourth quarter’s decline was somewhat larger, the decline through 2008 was also significant. This suggests that the fourth quarter’s decline is highly consistent with recent performance and it forms a legitimate part of our sustainable earnings power.

Before leaving the topic of cost efficiency, I will comment on the very strong performance achieved in our adjusted fourth quarter sets as a stage for a favorable, yet highly credible, assumptions with regard to cost efficiency in our 2009 outlook, with unevenness of volumes between hospitals and periods remaining the greatest potential variable.

Turning to bad debt expense, the high level story is mixed. We reported a same hospital bad debt expense ratio of 7.5% in the fourth quarter, slightly better than the 7.6% ratio reported in our third quarter, but up 110 basis points over the prior year.

The good news on the bad debt front was a continuing decline in uninsured volumes, with uninsured admissions falling by 5.9% in the quarter and uninsured outpatient visits falling by an even greater 10.8%. We also made progress on our front end collections which increased to 37% of total patient collections, up markedly from 29% in the fourth quarter of 2007.

The offset to these sources of good news was deterioration in our collection rates on a year-over-year basis both from the uninsured and balance after. As disclosed in our 10-K we have updated our collection rates for the last two quarters to reflect the effect of discontinued operations, or alternatively stated, to exclude collections on those hospitals which we have moved to disc option the last year. On that basis, our estimated weighted average collection rate from the uninsured to balance after was 33% in the fourth quarter of 2008, compared to 35% in the fourth quarter of 2007. There as an 80 basis point decline between the third and fourth quarter, or about half of the decline experienced over the last year.

Bad debt expense was also adversely affected by pricing increases and improved charge captured on emergency departments. It is important, however, that investors understand these pricing strategies have a net positive impact on our profitability. You will also find in our 10-K some new disclosure on estimated costs of providing care from the uninsured and charity. I will emphasize that these are estimates and are fully burdened.

For 2008 these are $362 million or $6,935 per adjusted admission for uninsured and $113 million or $10, 298 per adjusted admission for charity. Since these are fully burdened numbers, you would need to reduce them by about 40% to get to variable incremental cash costs of providing care before fixed cost absorption.

To get the net effect of an uninsured admit, you would reduce the cost by approximately $0.10 to $0.12 on the dollar we collect on average from the uninsured. This brings a rough estimate of net pre-tax P&L effect down to approximately $2,500 per uninsured adjusted admission.

As there is so much focus on the risk in 2009 of increasing uninsured, we think these disclosures help put that risk into perspective. What this points out is that although there may be a risk of increasing bad debt expense from the uninsured the real bottom line effect is much less.

The real economic risk is the loss of a commercial managed care patient although that effect is exacerbated when the formerly commercial patient receives care as an uninsured.

Turning to cash and cash flow, we ended the year with $507 million in cash, somewhat higher than the $375 to $475 million we have projected in our 2008 outlook. Our cash position benefited from the lower than anticipated capital expenditures which came in at $130 million; the receipt of $34 million from the reserve yield plus fund; and $10 million from our cash initiatives.

I also wanted to make a few comments on our recent note exchange which is expected to close next week.

As you know the exchange addressed the $1.6 billion maturing in late 2011 and mid 2010. Our strategy was to eliminate as much of the near-term maturities as we could at an acceptable price, while retaining long-term flexibility. This was not out of concern for our performance, but rather as a mitigator of capital market risk, particularly in view of the volume of refinancing which replaces the market by others over the next couple of years.

Although the exchange remains open, the results of the early tender period are that 915 million of the 11’s and 484 million of the 12’s have elected to participate. The notes offered in exchange have maturities in 2015 and 2018 at coupons of 9% and 10% respectively. They also allow us to issue secured debt at the greater of $3.2 billion or four times EBITDA exclusive of our credit agreement, but have no performance tests. This is not a solicitation, but it is necessary to explain the financial statement feature financing implications. Based on this we anticipate a gain in the retirement of existing notes of approximately $170 t0 $190 million, although this will fluctuate with the market up to the time of close. There will be a corresponding discount recorded on the new notes, which will be amortized interest expense over the term of the notes.

We currently estimate 2009 interest payments to increase by $22 million as a result of the exchange and total interest expense to increase by $50 to $60 million when accrued interest and the discount amortization is included. To the extent we retire additional debt in the future, or engage in interest rate swaps, we may mitigate some of this increase.

While we are on the topic of liquidity, let me anticipate a popular question regarding our proposed medical office building sales.

We still have interested buyers and at this time have broken the portfolio into at least two pieces: A 21 MOB group for which a buyer is seeking financing and a 10 MOB group which we were discussing with potential buyers for sale as a group or individually.

Slide 24 on the web updates the status of our various balance sheet initiatives. For the remainder of 2009 these include the USC sale, the effects of the sale of PHN, our Medicare HMO subsidiary, and a number of other items we’ve been working on. For conservatism at this time we are not projecting MOB sales in our cash estimates for this year, although as I said above, it is still a work in process.

Let me now turn to our outlook for 2009.

We provided a fair amount of detail on our 2009 outlook in both the press release and slides we posted to the Tenet website this morning. The headline is that we expect adjusted EBITDA to be in the range of $735 million to $800 million. The fact is there are a number of variables related primarily to commercial and uninsured volumes, collectability and state funding, which create a potentially broader set of outcomes.

You can see from a line item standpoint we have communicated a fairly broad set of ranges. We have presumed that neither everything bad, nor everything good happens in setting adjusted EBITDA range. We have considered a fair amount of adverse mix shift away from commercial and higher bad debt expense in EBIT in the upper end of the range.

While this outlook is based on projected admissions growth of flat to 1%, we are considerably more cautious on commercial volume growth. While we will still drive for a commercial volume growth, due to the current economic environment the upper end of the EBITDA ranges assumes commercial year-over-year declines consistent with 2008.

The upper end of the range also assumes growth in the bad debt rate from Q4 2008 of almost 90 basis points or $110 million, which would be a rate of approximately 8.5%. This would accommodate lower collection rates, increasing balance after percentages, and/or less mitigation from the collection of older accounts.

The lower end of the range, all other things equal, could accommodate greater commercial volume declines, increases in the uninsured, and/or additional declines in the collectability of self pay and balance after accounts.

Offsetting the pressure on commercial volume and bad debt, we have budgeted cost reduction initiatives of $150 million in 2009 at the corporate, administrative, and hospital level. We also continue to work additional initiatives in the areas of cost, charge capture, and pricing, which are beyond those included in the range of outcomes.

Slide 23 shows a current walk forward of our adjusted EBITDA from 2008 actual to the range we have given for 2009. The biggest change on this chart is the starting point. With 2008 now known, we entered 2009 building on a base of $732 million and prior year adjusted EBITDA. At the upper end of the range we expect the effects of volume of mix to largely offset, because the pressures we expect will continue on commercial managed care volumes. Having said that, we continue to expect lift for managed care pricing, including rate parity adjustments and pay for performance, as shown in line 5 of the slide.

The primary driver of the cost increase on line 6 of the slide is inflation or other cost increases we expect before consideration of our cost reduction efforts.

Our expected 2009 cost efficiencies are evident in line 7, which shows the expected impact of our latest round of cost initiatives launched in late 2008. This figure of $150 million indicates our expectation for a markedly larger contribution and significantly exceeds last summer’s projection of $29 million.

The walk forward is completed on line 9 with an estimate of $27 million in contributed EBITDA growth from growth at year-over-year performance anticipated in our newest hospitals, Sierra Providence East in El Paso and Coastal Carolina.

The walk forward subtotals on line 10 the 10 to the upper end of the range of $800 million. We then show the $65 million for risk on line 11, which brings us to the $735 million bottom of the range for adjusted EBITDA.

Slide 25 summarizes the range of on cash flow and our projected year-end cash balance. It is important to remind everyone that there are two cash uses in 2009 which will not recur over the longer term. First, there is the estimated $75 million use of cash for the settlement of two California wage and hour cases. Second there is a $24 million quarterly use of cash for our DOJ settlement which is fully retired in the third quarter of 2010.

By now, hopefully, I have communicated how we’ve applied some conservatism in our outlook ranges for 2009 to accommodate the uncertainties of the current economy and the corresponding effects on commercially insured volumes, collectability, and uncompensated care. This, along with a lower starting point, alone explains our 2009 outlook today compared to what we expressed a year ago. Underneath that conservatism, however, remains the same set of aggressive actions to drive paying volumes, including commercial; achieving continuing and increasing yield from our managed care negotiations and reduce costs on a continuous improvement basis.

Although 2009 at this point remains a difficult year in which to establish firm expectations, regardless of the variations we may experience, we believe our actions will enable us to do well in a difficult environment.

As one final note, we would like to announce June 2 as the date of our 2009 Investor Day.

With that, I will ask the operator to open the floor for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Adam Feinstein of Barclays Capital.

Adam Feinstein - Barclays Capital

You provide some disclosure in the press release about the Florida and Central region reported strong growth whereas the California and some of the state regions reported weaker growth. I was just curious if you could comment a little bit more, so we have a better understanding of what’s going on in the different geographies and if there are any extraordinary factors that would have driven to the difference in those markets.

Secondly, I wanted to ask you about working capital improvements. At your Investor Day you had outlined some opportunities and certainly a lot of things have changed since then, but I was just curious about your thoughts in terms of additional working capital improvements in the future.

Stephen Newman M.D.

With respect to volume variation, I think this is probably the fourth quarter that we’ve mentioned some weakness in our southern states region performance. We’ve taken a number of actions to again turn that around and those are somewhat mitigated by the activities of our new leadership in the hospital. We’ve also expanded our physician recruitment activities in the southern states region and added physician relationship program representatives there.

I think that we’re seeing significant spikes in unemployment in some of those micro markets in the southern states region. For example, in the Carolina’s we’re seeing isolated unemployment rates that are approaching 10% and remember, we operate in very small markets in the Carolina’s where this can be a significant deterrent to overall volume as well as commercial managed care volume. We’ve also seen some softening in our Atlanta market recently as the economic downturn has begun to hit that metropolitan area.

California is a different story and as you know, it has been the epicenter of the real estate foreclosure issue and in some of those markets where the foreclosure rate is up, along with unemployment, we’ve seen a decrease in elective utilization of hospital services.

I would say that nothing was radically different in the fourth quarter with respect to our volume distributions and we continue to believe that we’ll make progress in all of those regions and will aggregate toward increasing volumes quarter-over-quarter this year with respect to admissions as well as outpatient procedures.

Biggs Porter

With regards to your question on working capital, as you know, we have focused on collecting more cash up front, on patient collections. We have focused on driving down the discharge, not final build metrics, so bills go out faster, and we have also focused on our collection processes after billing. All of those things did enable us to achieve a two day reduction in accounts receivable that we’re targeting for 2008, so we’re clearly pleased that we are able to accomplish that in what seems to be a difficult, or more challenging, environment economically.

For 2009 we will continue all those areas of focus, however at this point in time, given the potential pressures that may be there on collectability, or on getting patients to pay as timely, or in the amounts that they did before, we have not forecasted an additional improvement in accounts receivable in the ranges that we gave this morning for 2009 working capital. Once again, that is not to say we are not going to go target all of those same areas, but the outlook does not incorporate them at this point in time.

There are a couple of other things happening with respect to working capital in 2009, which caused the projected use on the web slide for the cash walk forward to be slightly higher than it would otherwise in the operating assets and liabilities caption and that is that some of the cost reductions that we have made, the cash reduction of that won’t show up in 2009, but would show up in 2010. That is because by example we have reduced the 401-K match for our employees. That does not affect the payment that we make in the first quarter of 2009, it affects the payment we make in the first quarter of 2010. So, if you will, the non-cash accrual declines in 2009, but the actual cash benefit doesn’t show up until 2010; so there has effectively been a pay down of that liability occurring this year.

Then there are some other items like that, that are benefit related, so that number of $170 to $105 million of use of cash on operating assets in 2009 in the walk forward is higher as a result of those items.

Operator

Your next question comes from Darren Lehrich of Deutsche Bank Securities.

Darren Lehrich - Deutsche Bank Securities

I wanted to start on the cost side, you’ve done a very good job of expense management and I wanted to just get a little bit of color from you as to the cost cutting actions you have taken at year end. If you cold also just talk a little bit more about some of the expense reductions that roll in to 2009. As I understand it you’ve reduced your 401-K match, that’s part of the cost cutting action. So, if you could just comment a little bit on those kinds of things and if it’s true about the 401-K, how you expect turnover to trend in ’09.

Biggs Porter

Sure. The cost reductions of $150 million were $50 million at the hospital level and about $100 million in overhead benefit and other expense categories. If you look at it separately from a P&L standpoint, there is about $75 million in salaries, wages and benefits, about $25 million in overhead non-SGB related and than OCE and supplies reductions of about $50 million. So, it’s really very much across the board. Some of it is benefit related. Some of it is headcount related both at the corporate, administrative, and the hospital level and some of it is in the expense side for purchase services as well as expenses related to malpractice by example relative to what we would expect it otherwise.

So it is pretty broad based. It will come in over the course of the year. In the first quarter we would expect not to be at the full run rate, but to have it grow over time. But, the $150 is the full year affect.

Darren Lehrich - Deutsche Bank Securities

Okay and as it relates to the bad debt commentary you’re giving us and what you’ve built into the guidance, this is probably a discussion you had from a few years ago you had at an Investor Day, but I think you noted that California bad debt was among the lowest in your portfolio at that time. I just want to revisit where you are with regard to California bad debt and if you could give us some comments specific to that given the housing issues in that state.

Biggs Porter

California has been increasing. There has been increased unemployment in California, although it is a mixed bag. We do have some areas where there is very high unemployment rate driving up bad debt expense, but also in at least one of those areas commercial volumes are going up at the same time. So, it is very difficult to say that there is a real absolute correlation between the economy and our results. But, if you are looking at California bad debt it has been increasing.

Darren Lehrich - Deutsche Bank Securities

My last question relates to your guidance and the line item in your walk forward with regard to adverse mix shift. I think you’re assigning a $43 million or so impact there relative to mix shift. Could you, in broad terms, describe what’s embedded in your thinking there? And, if your mix was X in terms of self-pay and Medicaid at year end what do you expect it to be embedded in that guidance at the end of ’09?

Biggs Porter

The two big drivers in there are, as I said, we assume commercial volumes declined in 2009 in determining that adverse mixed shift and that’s at about a -3% year-over-year decline in commercial volumes. Then on the uninsured we assumed that that went up by about 6%. Now we haven’t been experiencing that. We have been experiencing uninsured declines, but nonetheless with all the pressures out there we thought it was prudent to forecast some amount of increase in uninsured volumes.

Darren Lehrich - Deutsche Bank Securities

Then how is growth in Medicaid factor into that? I would assume that’s a lower margin source as well.

Biggs Porter

Well from a volume standpoint, I think that the government programs, broadly speaking, are increasing.

Operator

Your next question comes from Sheryl Skolnick of CRT Capital Group.

Sheryl Skolnick - CRT Capital Group

I have one broader question about the guidance and then maybe a couple of details underneath that if I could.

If I understand the top of your guidance range, because assuming that everyone will do the same thing we’ve done before and that is focus on the $800 million. I assume you focus on the $800 million and what that says. That says that your managed care volumes go down 3%, your bad debt goes up 100 basis points or $110 million, and your volumes are up 1% overall? Is that what is says?

Biggs Porter

If you look the detail on the slide, inpatient is up 0.8% and visits are up 0.5% in that volume line item on the walk forward.

Sheryl Skolnick - CRT Capital Group

All right and then that assumes that you do get, not the full $150 million of the cost savings, b ut the run rate equivalent of it?

Biggs Porter

No. It’s the full $150 million. By the time you get to the fourth quarter the run rates would be higher.

Sheryl Skolnick - CRT Capital Group

That’s helpful, thank you very much. Then I do have a couple of other questions.

I need to understand a couple of things about your volumes and your mix. In particular whether we’re seeing the impact of the economy in El Paso and on Coastal Carolina whether you’ve considered the fact that you had flu last year in the fourth quarter and first quarter you don’t this year. Can you give us a sense of what the impact of the respiratory volumes might have been? If I remember correctly your January volumes were up 2% year-over-year last year, but that was before you took out USC and a couple of other things.

Three, I’d like to understand whether or not our guidance going forward on a cash assumes further debt reductions as in additional repurchases and my fourth question is can you elaborate a little bit on the DOJ probe of the self reported admissions issues you found in South Fulton?

Biggs Porter

I may not have counted all of your questions adequately, so let’s see if I skipped one. You asked about flu and how that might be affecting our volumes and we don’t believe we have the same level of flu activity this year as last year, although putting a precise number on it is not possible through a 49 day period, that Steve mentioned earlier, because we don’t have 49 day flu stats year-over-year at our fingertips. But, it is down, or at least it appears to be down at this point in time.

In terms of debt reduction in the guidance, we have not forecasted any debt reduction in the outlook for cash or interest expense or any other element. As I said on my script, to the extent we engage in interest rate swaps or retire debt, meaning taking cash and retiring debt, than that number can be mitigated downward, either this year or next year.

Sheryl Skolnick - CRT Capital Group

Okay, can I just follow up on that? So that when you looked at the use of proceeds, say from USC, and I’m assuming that’s still on track to close, at one point you thought you were going to use that to buy back some bonds in the open market to potentially reduce debt in that way. Is it now that you might need it to have a cash cushion to fund working capital because the economy is more difficult?

Biggs Porter

I think that we’ll make that decision as we go through time. We obviously need to get the transaction closed. We want to see our other cash initiatives we’re doing. As I said, we don’t add the MOB proceeds in this year, but we’re still working it. So I think it’s too early to conclude as to what we will do with the proceeds of any/or all of those things until we get it closed and get a little bit further into the year.

Sheryl Skolnick - CRT Capital Group

Okay and then the next series of questions which related to volumes was the impact of the economy in particular on either El Paso or Coastal, which contributes over and above the same store performance in the guidance and also presumably to the fourth quarter.

Stephen Newman M.D.

This is Steve. With respect to El Paso, we have not seen a significantly negative impact on our inpatient and outpatient volumes in El Paso related to the employment level. On the contrary, with the base realignment program and expansion of Fort Bliss, we’ve seen a significant growth, especially in the northeast quadrant of the city with civilians there to support the activities at Fort Bliss. That has really helped us ramp up the east side new hospital in terms of its volume. We have completed the specialty medical staff there; although we are continuing to recruit primary care and we’re pleased with that performance as well as the overall performance of the market. We’ve made some intricate changes in the market, not at the CEO level, but in the A teams, and expanded our physician recruitment and physician relationship program staff, so we’re feeling a very positive momentum now with our El Paso market.

With respect to Coastal, Coastal as you know is a small hospital that has a very concentrated small, active medical staff. We’ve had some physicians move out of the area, our of state and we’re in the process of recruiting to back fill that, but clearly its collaboration with our Hilton Head Hospital is increasing. We have Hilton Head physicians covering the Coastal Carolina significant services like general surgery and orthopedic surgery now, and we have signed some letters of intent with specialists in those two areas for them to relocate to the Coastal Carolina, Hardeeville area shortly.

With respect to unemployment around the country, as Biggs said, we’ve got a mixed picture and some of our markets with the highest unemployment rate we’re continuing to grow volume and grow commercial volume in comparison to Q4 ’07. In other we see a more significant delay in elective surgical procedures.

It is sort of interesting, as you look around the country, our ER visits I the quarter were down compared to Q4 ’07. On the other hand, our admissions that come through the ER are actually increasing. So, what we’re seeing is that less seriously ill patients are not coming to the emergency room. Now we can speculate on why that’s happening, but one thing is those that were previously commercially insured may elect to find care when they need the sort of less serious care at other clinics, or even at private doctors’ offices, rather than coming into the ER.

As Biggs said, we’re following the situation closely, we’re ramping up our efforts to take market share in all of the markets, especially in our TGI priorities, as well as our commercial managed care area, we’re expanding our business to business activities in terms of growing that commercial business and we’re optimistic we’re going to make progress in 2009.

Trevor Fetter

And Sheryl, this is Trevor; I think the last of your five-part question was on the inpatient rehab issue. There is really not much to say other than what’s in the 10-K, but essentially we identified an issue through our own compliance programs. We reported it to the OIG under a program that they set up for self disclosure of these kinds of issues. The question really is whether Medicare would pay for patients to be cared for in a rehab facility, a skilled nursing facility, or home health, or expect them to have been kept in the hospital longer. I think, as you well know, those rules changed over time, so the question is really how closely did our inpatient rehab facility adhere to the rules as they were changing.

Sheryl Skolnick - CRT Capital Group

Okay great, terrific job on the fourth quarter and the year and congratulations on all those stocks and all the improvement, really great job on that.

Operator

Your next question comes from Henry Rakoff at Deutsche Bank. Deutsche Bank Securities

Henry Rakoff - Deutsche Bank Securities

My first question, circling back on the $150 million in cost saves, I think you guys mentioned that $75 million would come from SW&V. Then you also mentioned that in part you weren’t going to continue the match from the 401-K. Is the 401-K most of the savings in the SWV or is it just a sizable headcount, because $75 million is a fairly large number. Can you give us a little more detail on a refinement on that $75 million?

Trevor Fetter

The 401-K would be about a third of it. There are other benefit changes, which may be taking up to about half, if you will, being related to benefits and then the other half being related to levels of staffing at the various levels of the company.

Just one note on the 401-k because I think it was asked earlier, this 401-K five years ago or six years ago, had a match of 5%. We took that down to 3% in about 2004 or so and it had remained at 3%. We’ve taken it to 1 ½%. We’ve described to our employees that it’s temporary while we navigate through these uncertain periods, but we have not eliminated the program. So, we still believe we offer a competitive benefits package and it’s important to us to continue to drive to reduce turnover and increase retention, which are two things we did in 2008.

Henry Rakoff - Deutsche Bank Securities

My last question is kind of an industry question. With the Medicare Advantage, some of the reductions in that, for a Medicare patient who shows up either as a fee for service Medicare patient or a Medicare Advantage patient, is there a difference in profitability to you, or payment from those two different patients on Medicare generally?

Biggs Porter

The pricing on a managed Medicare patient is slightly less, but not significantly different.

Henry Rakoff - Deutsche Bank Securities

So if that was reduced a lot it would almost be a positive for you guys, since fee for service is a little bit more?

Biggs Porter

Well there is also a utilization impact, so the managed Medicare patients tend to stay in the hospital less than the fee for service. It actually helps us to the extent that Medicare Advantage is less attractive to the providers of that.

Operator

Your next question comes from Robert Hawkins of Stifel Nicolaus & Company, Inc.

Robert Hawkins - Stifel Nicolaus & Company, Inc.

Can you guys give a couple of details on where the MOB sale stands and some of the pricing? Is this the entire group of MOBs or are you doing it in, kind of, different parcels?

Biggs Porter

There were 31 MOBs that we put up for sale. Not every MOB that we own, some of which we occupy significantly, so we did not put those up for sale, or they had some other strategic purpose causing us to retain them. But, of the 31 that we put up for sale, we have broken them in to two buckets, as I said; 21 which there is a buyer trying to find financing for and then 10 which there are buyers interested in all, or just individually, elements of those 10.

From a pricing standpoint, the 21 are probably more valuable than the other 10. That is one reason for breaking them up. Broadly speaking there is some amount of capital that needs to be deployed, and so as a part of this arrangement, when we sell the MOBs we are also requiring the buyer to put in capital so that, of course, it improves the facilities and improves them for our positions, but it also diminishes the proceeds somewhat.

Robert Hawkins - Stifel Nicolaus & Company, Inc

Okay. So the guidance has, I guess, a full sale anticipation?

Biggs Porter

No, the guidance in 2009 does not have the MOB sale in it at all.

Robert Hawkins - Stifel Nicolaus & Company, Inc

No, but I mean, I guess what I’m saying is on Slide 24 the estimate, I’m sorry. The cash initiatives and divestitures page, I’m sorry, I misspoke on guidance.

Biggs Porter

The cash initiatives list, that is all 31.

Robert Hawkins - Stifel Nicolaus & Company, Inc

How do you break up your bad debt guidance between what’s charge master, what’s unemployment and are there other components that we should be thinking about? Because, it seems like they’re pretty significant jump.

Biggs Porter

Yes, this will not be completely precise, but I’ll give you a little bit of break down in this way. On the slide we have $110 million of bad debt increase year-over-year. About $30 million of that would be just taking the full year 2008 up to the Q4 run rate, with also the Q4 bad debt rate being higher than the average. So, as a starting point you would raise it $30 million just to take it to the fourth quarter run rate. Then of the remaining $80 million break it down into collection rate, deterioration potential, $20 to $30 million on pricing and an additional $10 to $20 million increasing balance after due to cost shifting $15 to $30 million and then less mitigation for the collection of older accounts as aging is improved. As you know we’ve done a good job of improving the aging, so that would be $10 to $15 million. So those ranges, if you will, work their way into that $80 million.

Robert Hawkins - Stifel Nicolaus & Company, Inc

Okay and so the, I guess, the unemployment rate side of that would be the cost shifting the collection?

Biggs Porter

The collection rate piece, right, the uninsured affect is up on a different line of the walk forward up there in the mix shift. So there is some bad debt pieces on the chart, not solely in that bad debt line, but also in the pricing line and in the mixed shift line and in the volume line.

Operator

Your next question comes from Miles [Hystree] of Credit Suisse.

Miles [Hystree] - Credit Suisse

I think you said this, but I just want to be clear. Just on the med mal again, as we’re kind of looking forward and modeling this, does that run out going forward looking more like an 18 per quarter type number or more like a 36 per quarter type number?

Biggs Porter

You’re referring to the expense of what the reported gross expense will be?

Miles [Hystree] - Credit Suisse

Yes.

Biggs Porter

I’m not going to give a line item estimate for malpractice expense for 2009, but clearly we think that the kind of reduction we experienced in 2008 was real and in the fourth quarter of course it grew some. We think that those reductions are sustainable. We think that in 2009 we can continue to benefit from our initiative and, is you will, have malpractice expense at a rate which is lower than what inflation would take it to, our normal cost increases would take it to. But, I don’t want to get to the point of giving specific line item guidance.

Miles [Hystree] - Credit Suisse

That’s great, that’s what I was looking for. Thank you.

Operator

Your next question comes from Gary Taylor of Citigroup.

Gary Taylor - Citigroup

Congrats on how the Tender offer is going. It sounds like that’s proceeding very well. Can you remind us what security you’re giving in that exchange to those new bond holders?

Biggs Porter

It’s secured by the stock of subsidiaries, so it gives them security, basically, to those subsidiaries which hold our hospital assets.

Gary Taylor - Citigroup

So you don’t have any first mortgages anywhere on your debt right?

Biggs Porter

No.

Gary Taylor - Citigroup

Am I correct that the revolver is the piece of debt that has the security provision protecting what’s defined as the principle properties?

Biggs Porter

No, that is in the unsecured debt covenants are indentured.

Gary Taylor - Citigroup

Okay, that applies to the bulk of the unsecured bonds that are out there?

Biggs Porter

Yes.

Gary Taylor - Citigroup

And then I have a question on the med mal as well. The full year ’08 is $120 million, so it’s down $35 million. Do you think that reduction is sustainable? Then the last comment you had made was you had thought the expense grows at a rate less than the rate of inflation in ’09?

Biggs Porter

Yes and the $35 million is net of $15 million of charges associated with reducing the discount rate over 2009. So, gross if you will, of the change in discount rate the reductions we experienced were $50 million.

Gary Taylor - Citigroup

Did you take the $15 for the discount rate? Was that in the 4Q of investment performance or was that earlier in the year?

Biggs Porter

There was a slight change in the fourth quarter, but there were changes earlier in the year as well.

Gary Taylor - Citigroup

Okay and then my last question, I seem to recall there were some tax changes a couple years back related to either executive pension or just executive retirement plans and so forth. Is there still anything in place that we’ve got that risk of that discount rate change that you still may have to take a mark on looking forward?

Trevor Fetter

There is still a relatively small retirement plan, but there is some limited risk from a discount rate change on it. It’s not anything that’s been substantial in the past.

Biggs Porter

There is no explicit tax concern, but yes there is always some under preserve valuing that goes on.

Gary Taylor - Citigroup

But not very material it sounds like? Not large enough to be?

Biggs Porter

No.

Gary Taylor - Citigroup

Okay, thank you.

Operator

Your next question comes from David Bachman of Longbow Research.

David Bachman - Longbow Research

On the expense side, did the formation of Conifer have any impact on expenses in the quarter?

As far as formation from a structural standpoint no: we have been investing in our service capabilities over the last several quarters, but not significant enough to require us to have pointed them amount as significant one time items.

David Bachman - Longbow Research

Okay and just the existence in the quarter didn’t change anything from a reporting?

Biggs Porter

No.

David Bachman - Longbow Research

It’s a wholly owned subsidiary, correct?

Biggs Porter

Correct.

David Bachman - Longbow Research

Can you clarify on the non patient revenue what the composition of that is now? Kind of what’s in there, so we can better think about that moving forward?

Biggs Porter

Non patient revenue would include all of he ancillary income at the hospitals. It would also include rent on office buildings. In the case of the equity earnings, the subsidiaries, physician revenues, it also included, I think, the $8 million Modesto credit in the fourth quarter.

David Bachman - Longbow Research

So no one item in there really overwhelms the category?

Biggs Porter

I don’t think so.

David Bachman - Longbow Research

Okay and then you talked about stimulus, SCHIP and COBRA against the back drop of challenging fundamentals. Am I reading you correctly that as you look at the puts and takes there that those sort of net out? Is that how you’re thinking about the impact of those for 2009 at this point?

Biggs Porter

Well I think the SCHIP expansion and the COBRA, to the extent that they occur, should be upsides, all other things equal. We should have more covered lives as a result of both of them; however trying to forecast exactly what that is, is really problematic. It goes, probably, beyond what we’re actuarially capable of doing with any kind of fidelity. So, we just have said that we don’t know what they’re cooperating for. It may be a small amount, it may be significant. They seem to be net positive, though, one way or the other.

On the stimulus bill, we think that that just continues to support what the states otherwise would have planned or funded last year. So, we think that that neutralizes, if you will, risk with respect to state funding. Although there certainly could be risk out there, we think that the stimulus bill should substantially neutralize it.

David Bachman - Longbow Research

Okay that’s helpful color, thanks.

Operator

Your next question comes from Whit Mayo of Robert W. Baird.

Whit Mayo - Robert W. Baird & Co., Inc

Can we get a spot number for what you think your seismic cost or expense will be in 2009? I know you’ve benefited a little along the way from some small reprieves, so are there any additional changes to think about there?

Biggs Porter

I’m not going to give you a spot number for 2009, among other things it’s still under evaluation. We gave the $147 million in the 10-K for the total requirement. But, we still have some appeal processes, some discussions underway, to reduce that number and that could have an affect not just on the total number, but what we would spend in 2009. So, I don’t think it makes any sense to give a spot estimate at this point.

Whit Mayo - Robert W. Baird & Co., Inc

Okay, that’s all I have, thanks.

Operator

Your next question comes from Shelly Gnall of Goldman Sachs.

Shelly Gnall - Goldman Sachs

I have a question on the more conservative CapEx strategy. I’m just trying to understand the motivations there. Understanding that certainly part of it is to minimize cash burn, or as Sheryl was mentioning, to build up your cash balance. But, what about the opportunity here to more aggressively go after market share in some of your more challenging, more competitive markets. I guess I would love to hear an update on changes in your capital strategy. What kind of projects are going to get priority in this environment?

Trevor Fetter

Shelly, thanks. I believe you are our last question as we wanted to finish in time that people could then take a break and tune in to the HMA conference call coming up in 10 minutes. So just briefly, part of it is we’re being cautious because of a cautious or an uncertain economic environment. That’s a big motivator. We also, as you know, have spent heavily in the last 2 ½ years, including the Tenet’s capital stimulus that we put in place following the government settlement in mid 2006. So, we feel as though our hospitals are competitive and we are able to do this and remain competitive. As I mentioned, the arms race has diminished competitively and so we’re really focusing much more on execution in 2009.

Shelly Gnall - Goldman Sachs

Okay, thanks for the color.

Operator

Your last question comes from Ralph Jacob of Credit Suisse.

Ralph Jacob of Credit Suisse

I just want to go back to the uninsured volume. I think in 3Q uninsured volume was up 4.95 and this quarter it looks like it’s down 5.9. That is a huge swing. Is there anything specific that drove that?

Trevor Fetter

Generally speaking our uninsured volumes have been trimming lower as we’ve gone through the last couple of years. There are a couple of reasons. One is our Medicaid evaluation program where we really assist the individuals in the emergency room. We have people on staff to counsel and determine eligibility with patients as they come in, so we are getting more people qualified for Medicaid.

Secondly, the right care, right place initiative, which has tried to get people to more efficient forms of care as opposed to the emergency room when they really don’t have a critical need.

Ralph Jacob of Credit Suisse

Okay and then just to be clear, next year the assumption is for the uninsured, though, to be up about 6%, is that right?

Trevor Fetter

Yes. That’s what I said was in the upper end number. One other thing that we’re doing, back to the uninsured, is on the elective side, before we take an elective uninsured patient it gets signed off on by the CFO of the hospital or an equivalent level individual, so that we reduce the risk of non-paying uninsured elective procedures.

Ralph Jacob of Credit Suisse

Okay and did you give a recruiting goal for 2009? And then, could you talk about the strategy around employing doctors and any trends there?

Trevor Fetter

Once again, for 2009 we’re setting an ambitious target of 1,000 active medical staff net of attrition. That would be our third consecutive year of setting those, I think, lofty goals, having hit them in ’07 and ’08. We’re continuing to ramp up our physician recruitment and redirection activities. Again, as we’ve said before, over 70% of the new physicians joining staff are those that are in the contiguous market area that previously didn’t use our inpatient and outpatient facilities: the smaller parts being the employed positions and smaller being relocation agreements where we bring physicians from geographically distant areas. So, we’re happy about what we’re doing, we’re expanding it, we’re improving our knowledge of targeting and I think it will provide us good results going forward.

Ralph Jacob of Credit Suisse

In terms of employing doctors though?

Trevor Fetter

We continue to gradually expand that in a very strategic and selective way, where, generally speaking, we can’t have an adequate primary care base to serve the needs that we have and occasionally, for example in Florida where we can’t get emergency department coverage from sub specialists, we employ sub specialists.

Ralph Jacob of Credit Suisse

Okay, thank you.

Operator

Thank you. This concludes today’s conference call.

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Source: Tenet Healthcare Corporation Q4 2008 Earnings Call Transcript
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