Key Management Quotes
Site neutrality commentary: our ASCs operate with freestanding ASC rates which insulates that important part of our business from potential changes in site neutrality rules.
On the outpatient migration and opportunity in cardiology procedures: the opportunity in a wide variety of cardiovascular procedures is there. I've always been clear that I think that, that opportunity will proceed more slowly than people anticipate because of important patient safety considerations and payer mix considerations and also the CapEx required to build a cardiac center is very different than building other types of ASCs given the equipment that you have to have in there. So the upfront investment for the physician partners and other things is much higher with potentially lower margin assets. And so from economic reasons and patient safety reasons, I think this market will evolve, but I think it will evolve slower than people like to think.
On building de novo’s vs acquiring: consistent with our move into more high acuity ambulatory surgical work, de novos also represent a significant value shift in markets, right? Because usually what you're doing is you're building from the ground up, you're moving things into a lower-cost setting it's value for the consumers and payers in the markets to be focused on de novos in addition to everything else that we may be doing to grow the portfolio and expand the high acuity services. So that -- it's part of our value strategy.
On de novo’s as more attractive, higher return on capital: The building costs are low. It's a shorter time frame once the partnership is syndicated, there's work upfront in syndicating the partnership that takes time, but that's not a capital-intensive activity. Look, I think at the start of this, Pito pointed out one of the big changes in the organization around the generation of free cash flow. We also focus on measuring and following our overall return on invested capital within the organization. And obviously, the more we shift into this ambulatory segment, the more that gets better.
On Tenet’s portfolio sales: This was an important year for Tenet as we transformed our portfolio businesses through the multiple -- high multiple sales of 14 hospitals and related operations, generating $5 billion in gross proceeds and enabling significant balance sheet deleveraging.
On capital allocation strategy: First, we'll prioritize capital investments to grow USPI through M&A. Second, we expect to continue to invest in key hospital growth opportunities, including our focus on higher acuity service offerings. Third, we will evaluate opportunities to retire and/or refinance debt. And finally, we'll have a balanced approach to share repurchases, depending on market conditions and other investment opportunities.
On 2025 volume expectations: I mean the coverage environment looks good. The employment environment looks good. Demographics, both in terms of areas where, at least our portfolio is now positioned relative to where it was, has attractive demographics. And as we've noted, we've had opportunity to expand capacity and take on that capacity without excessive cost to do so, and we're doing it in a deliberate way.
On a continued focus on higher acuity cases: And part of what we're signaling for '25 is it's definitely our plan to continue the shift to higher acuity procedures. I started to point out some of the factors driving that in terms of the revenue intensity of some of these cases, how efficiently we're able to do them in our operating rooms now and generate margin, how we are scaling those programs into more centers. We now have robots in almost 150 of our programs around the country. This is the direction in which we're taking the organization.
On commercial rate escalators: we are continuing to see commercial rates increases in the 3% to 5% range and some of the contracts have been at or slightly above the high end of that range as respect to the inflationary pressures that you've mentioned. So I think the overall situation there is pretty consistent.
On demand patterns in Tenet markets: the majority of that [breakdown between market growth and capacity] is the market level demand that we're seeing versus the selective markets in which there's still capacity that we're bringing online. But it is a contributor, which is why I called it out before. We haven't quantified what that looks like between the 2 numbers, but it is both and the majority of it is market-based demand across the Board. Some of this is also related to the service line choices which have highlighted, the things that we're doing that are taking care of people with multiple chronic illnesses that continue to grow in prevalence are continuing to create more demand than perhaps certain types of lower acuity work, which may be coming out of hospitals in our environment.
On cost savings initiatives and how centralization has played a key role: Our global business center has contributed significantly to our cost savings. If you think about the last 4, 5 years, the journey we've been on, of course, there's obvious unit cost savings that you see on an immediate basis. But there's a lot of cash flow that goes into actually restructuring and building and scaling that enterprise. And what might have started with kind of commodity work in certain areas of finance, or accounts receivable has expanded to 10, 12 different service lines that we are now running effectively in the global business center clinical areas, clinical analytics physician credentialing a variety of things. And that's an important part of our efficiency agenda as we look forward as well.
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