Hello and welcome to the Tenet Healthcare Corporation's Third Quarter 2020 Earnings Conference Call. I'd now turn the call over to Regina Nethery, Vice President of Investor Relations for Tenet.

Thank you. We're pleased to have you join us for a discussion of Tenet's third quarter 2020 results, including an update on the impact of the COVID-19 pandemic. Tenet's senior management participating in today's call will be Ron Rittenmeyer, Executive Chairman and Chief Executive Officer; Saum Sutaria, President and Chief Operating Officer; and Dan Cancelmi, Executive Vice President and Chief Financial Officer. Our webcast this morning includes an accompanying slide presentation, which has been posted to the Investor Relations section of our website, tenethealth.com. Listeners to this call are advised that certain statements made during our discussion today are forward-looking and represent Tenet management's expectations based on currently available information. Actual results and plans could differ materially. Tenet is under no obligation to update any forward-looking statements based on subsequent information. Investors should take note of the cautionary statement slide included in today's presentation as well as the risk factors discussed in our most recent Form 10-K, subsequent Form 10-Q filings, and other filings with the Securities and Exchange Commission. With that, I'll turn the call over to Ron.

Thank you, Regina, and thanks everybody for joining us today. Our third quarter results I believe underscore the operational discipline that we put into action on an ongoing basis. As the pandemic has continued to evolve in various ways, we have successfully met each sharp turn with a carefully coordinated and active response; every step we've taken remains anchored by our commitment to the highest standards of quality and safety. We're very pleased with the performance of each of our business segments during the quarter, despite the COVID-19 case surge which was above 60% in late to high in August compared to the second quarter; across our system, we delivered a solid performance in every part of our business. While we experienced the surge, we safely managed caring for COVID and non-COVID patients. Notably, our performance overall for the quarter was strong in delivering EBITDA at $621 million without grant income. Additionally, our free cash flow was 26% above 2019 before grant and Medicare advance dollars were considered due, in part, to significant improvements from our Conifer operation. However, due to the new guidance issued by HHS in September, which was markedly different than the original guidance we had in June, we had to reverse $70 million from Q2 in grant dollars, thus lowering our reported Q3 EBITDA to $551 million. We strongly believe this guidance from HHS does not recognize the structural differences across complex networks involving multiple hospitals, including mixed differences in reimbursement levels in the different service areas, capital investments made in 2019 and early 2020 to effectively improve patient access and quality, as well as the incredible loss of experience during the shutdown that needed to be recovered to ensure sustainable operations. We continue to discuss these details with HHS in hopes of a more balanced outcome. Regardless, we remain optimistic about our performance and our ability to continue to improve. What should be more evident is that the operational enhancements we've highlighted on past earnings calls have played a major role in continuing to provide benefits across the enterprise. Our continued performance should substantiate that these are not one-time events, but sustainable and critical foundational improvements. For example, enhanced analytical tools and pull-through real-time data which we continue to refine and develop with deeper insights. Value sharing from COVID learnings is shared in real time across the companies summarized and transmitted in technical and operational schedule calls that have resulted in improved response to patient needs and an average staff infection rate of approximately 3.75% versus the national average of approximately 13.4%. That focus ensures that we remain open to both COVID and non-COVID cases safely and effectively even while dealing with isolated market surges such as in the third quarter. We've also demonstrated solid sustainable controls which include responsive workforce adjustments and tightly controlled labor management. Continued development of our IT platform is focused on delivering a streamlined set of tools, utilization of cloud-based infrastructure, and a much-improved cyber platform. Better purchasing and contracting methodologies, tighter capital controls, and allocations based on the findings by markets have been key in our operational strategy. We've also added highly qualified physician groups based on community need, tighter controls in the tenant physician resource group, and consistent improvements to ensure physicians have efficient and effective methodologies to assist in their ability to support patients. Finally, the continued expansion of our very capable and effective global business center in Manila has been an important enhancement to our 24x7 support model. Hospital volumes for the quarter ending close to 90% of pre-COVID levels. This demonstrates a solid recovery during the time period and remains very positive. Our operators across our markets have responded very effectively given the complexities of the pandemic and we continue to perform tightly aligned to the volumes presented. We've experienced historically high growth in net patient revenue per adjusted admission, driven in part by a higher mix of more complex procedures and a stronger commercial mix, coupled with the sustained efficiencies we've gained operationally. Importantly, this set of improvements has represented both in the hospitals and at USPI, further emphasizing the critical nature of how hospitals and USPI play an integral role with each other, including sharing best practices. We realize and operate every day with the assumption that COVID spikes will be part of what we face until a vaccine becomes widely deployed. We've learned how to effectively deal with these spikes. We also are aware the pandemic remains a threat and our focus on staff and facility safety will continue to be paramount in our daily approach. We continue to utilize resources internally and externally, including contract labor to support our operations if needed. We remain engaged in securing and ensuring we have adequate coverage of PPE, supplies, and medications. Most importantly, we also realize that agility, speed to respond, and the need for clear, precise communications coupled with a strong and responsive real-time analytical platform throughout our system is a critical part of remaining in control of these changes and surges. There is no perfect equation, but we believe our learnings from each spike improves our responsiveness, our planning, and furthers our effectiveness. At USPI, the quarter was very strong; demonstrated first and foremost by solid performance, but also carried by excellent quality and service recognition, service line expansion, and the growth of our medical staff. Excluding grant income, USPI had a significant EBITDA growth of 10% over the prior year. As you can see on the volume charts, surgical cases remained relatively steady month-to-month, ending with September growth at 96% of the same period last year. Even with the impact of various shutdowns and the cessation of nearly all elective care that began in the first quarter, the USPI team has remained diligent about energizing various operational programs to enhance facility offerings and expand our network. This includes adding service lines and complex procedures that benefit patients and physicians alike. Despite the pandemic and its disruption, we have successfully expanded our offerings at existing facilities with 54 new service line starts year-to-date, including 24 musculoskeletal programs and outpatient joint growth of 51% year-over-year. Another remarkable statistic that underscores our reputation in the market is that we've added 1,100 new surgeons who've joined our USPI medical team during the first nine months of the year. USPI facilities also continue to earn high marks for patient experience, including Press Ganey awards last month for delivering incredible patient-centric care. Additionally, 23 of 24 eligible USPI surgical hospitals earned a four- or five-star rating in the July 2020 HCAHPS Star Rating as administered by CMS. Particularly during COVID, we have adhered to the highest quality and safety standards. Out of more than 688,000 USPI surgical cases performed from mid-March through September, we have not had a single confirmed case of COVID as a result of performing a surgical procedure at our facilities. On the development front, we closed on the acquisition of an ASC in Washington and a new surgical hospital in ASC in Central Valley of California in July together with local physicians and two of our existing health system partners. Fresno's Surgical Hospital is well known in the community, with a rich history and a strong reputation for quality and patient experience. In fact, years ago, the hospital became one of the first facilities in the country to provide elective surgery and post-surgical care in a non-hospital setting. Going forward, our pipeline remains active with opportunities to strategically add to our network in Q4 and next year. We're very enthusiastic about continuing our stated strategy to put muscle behind USPI to grow the platform and provide physicians and patients with more convenient options for care as we continue to evaluate our hospital portfolio for fit and make adjustments as deemed appropriate. Conifer continues to execute very well. Despite the pandemic, it is providing value to its clients with its traditional end-to-end solution and its newer point of service solution. Conifer has remained focused on client satisfaction, performance, and liquidity. I want to highlight a few metrics to speak to certain improvements. First, cash collections are significantly up compared to the third quarter of last year. Second, Conifer AR days or Tenet AR days are significantly down versus the prior period. Third, client satisfaction continues to improve, maintaining a very strong positive trend, and fourth, expense controls remain solid, contributing to an EBITDA margin improvement of 270 basis points versus the prior year. These steps forward are particularly notable given the extreme challenges created by the pandemic for Conifer. The Conifer spin remains ongoing in terms of the pre-work already discussed. Our view is the same as last quarter regarding the spin and we continue to maintain focus on the previous schedule. We have filed the appropriate paperwork on schedule with the IRS, so that important step is now underway. Beyond that, we continue to search for a new CEO and have made several meetings with several viable candidates in this process. The team overall, though, is performing very well and we're pleased with the performance of the business overall. Before turning the call to Dan to provide an overview of our financials, I'll speak briefly about the critical support we've received from the federal government related to the pandemic. The Medicare advance payments have been a critical source of liquidity allowing us to focus on caregiving. Recently, the repayment terms for these advances were amended, allowing for an elongated capture period by CMS as well as a more reasonable interest rate on the balance outstanding at the end of the recapture period. We expect to make the repayments within the allocated recapture timeframe and greatly appreciate this flexibility provided by CMS and HHS. The CARES grant stimulus fund has also been extraordinarily helpful. As I mentioned, HHS recently issued new guidance for the recognition of revenue associated with the stimulus funding which has had a major impact on our results this quarter due to the reversal from the second quarter. While the change in methodology will reduce our flexibility, we're taking steps to ensure the change does not negatively affect us over time. Our system, as I mentioned, has incurred a larger number of COVID cases in general, and we feel that we've managed it effectively, although the change in methodology will place additional pressure on us and the recovery over time relative to the COVID cases. However, we also believe we will continue to recover these CARES grant stimulus funds, it will just be over a longer period of time than we thought based on the June guidance. So again, we're not concerned that it will harm us over time; we just think it is unfortunate that we had to make the change. So as I turn the call over to Dan, I want to note how pleased we are that we're able to take advantage of the capital markets to position us even more favorably in terms of both debt maturities and interest rates, while we do have many more hurdles yet to overcome. The performance of the team across the entire Tenet portfolio remains excellent. Our performance in safety, quality, and financially, despite the pandemic, is very positive, and while we can sit here and dissect various points and speculate on the unknown, factually we have consistently delivered results at or ahead of expectations before and during the pandemic. I'm very proud of our caregivers and our support staff for their continued excellence. So, with those comments, I'll turn it over to Dan for a discussion of the financials.

Thanks Ron, and good morning, everyone. I also want to thank our frontline caregivers and employees across the company for their incredible efforts and exceptional execution during these very difficult times. I begin my remarks with Slide 5. As you can see there, we produced a very strong quarter from several perspectives. Our adjusted EBITDA of $621 million before the $70 million grant income reversal due to the new government guidance was substantially above our expectations for the quarter, despite the surge in COVID in many of our markets. Also, the EBITDA was above consensus estimates when we exclude the grant numbers that were included in the consensus numbers. We generated very strong net revenue per case growth in the hospital and ambulatory businesses due to a mix of higher acuity cases and a more favorable commercial mix. Our continued tight control of cost mitigated the impact of incremental expenses from the pandemic, including higher temporary labor and premium pay and PPE costs. We also generated solid free cash flow in the quarter of $331 million, or 26% growth, even if you exclude stimulus monies. We were pleased to be able to timely access the capital markets and eliminate any significant debt maturities until June 2023 while also reducing future annual cash interest payments by about $50 million. While we typically do not comment on consensus, we realize that the level of stimulus grant income in the consensus is not always readily apparent to everyone. We estimate the third quarter consensus estimate reflects an average EBITDA benefit to grant income of about $70 million, which compares to the $70 million negative reversal of grants we had to record this quarter due to the new guidance. Turning to our individual business unit, each segment continues to execute well, demonstrating the ability to operationalize the strategic direction of the company despite the day-to-day difficulties posed by the pandemic. Our hospital segment produced historically high net revenue for adjusted admission growth of about 17%, driven by a combination of higher patient acuity, more favorable commercial trends, as well as negotiated rate increases. This helps confirm the implemented labor and supply cost associated with the significant increase in COVID cases over the summer. Our COVID admissions during the third quarter were approximately 60% higher than what we experienced in the second quarter. Our USPI ambulatory business generated strong top line numbers with revenues for surgical cases up 13% on a same facility system-wide basis, which drove a surgical net revenue growth of 6.3% compared to last year. This growth was also attributable to higher patient acuity and growth in procedures from newer service lines. In terms of adjusted EBITDA, USPI delivered a year-over-year growth rate of 10%, excluding the $13 million grant income reversal, despite surgical volumes being about 6% lower than last year. USPI's adjusted EBITDA margin for the quarter, excluding the grant reversal, was 40.4% compared to 39.7% last year. Conifer also continues to exceed our expectations, especially its cash collection performance for our hospitals and its other clients. Conifer's adjusted EBITDA was 7% higher than last year, and one point added to margins increased by 270 basis points primarily due to various cost efficiency initiatives that they have been executing over the past several quarters. Let's turn to Slide 6 now and review our volume trends during the quarter. Despite the surge in COVID cases, hospital admissions, ER volumes, and surgeries held relatively steady compared with the month of June, while outpatient visits grew as patients became more comfortable with the safety of seeking elective care. Clearly, more complex and emerging procedures have recovered from the pandemic at a stronger pace than less critical, lower-acuity care. ER volumes are an example of more critical care recovery at a faster rate as ER in-patient volumes during the quarter were about 93% of last year's levels, while outpatient ER volumes were about 74% of last year's levels. As I mentioned earlier, the higher acuity, more margin mix drove very strong hospital net revenue per adjusted admission growth of 17% in the quarter. Our USPI surgical volume trends improved during the quarter compared to the month of June, recovering to about 96% of last year's levels in September and 94% for the entire quarter. Similar to our hospitals, USPI's more critical, higher-acuity cases have rebounded at a stronger rate than lower-acuity cases. This mix also drove USPI's very strong net revenue per case growth as well. Although not on the slide, if you look at the supplemental materials we posted, you'll also see on Page 6 that USPI's non-surgical visits grew by 8% in the quarter, driven by very strong growth at our urgent care centers. Let's now move to Slide 7, which reflects our EBITDA trending each month during the quarter with and without the stimulus grant funds. As we mentioned last year, we're providing this monthly information externally in the interest of full transparency given the unprecedented nature of the pandemic. As a reminder, the top section of the slide shows our monthly EBITDA in the quarter without the grants; the middle section of the slide highlights the grant income we recognized in July and August before the rules were changed; and then we also point out the amount we had to reverse in September due to the new guidance, and the bottom section of the slide summarizes our EBITDA including the grant activity. You'll see in the top section of the slide, even as COVID cases began to ramp back up again in July, our EBITDA in July excluding the grants was $220 million, which was consistent with the month of June. As COVID cases continued to accelerate, our August results did moderate, but our EBITDA in September grew sequentially as we continued to adapt operationally and COVID levels declined. An important point is that, before the grant reversal, our $220 million EBITDA performance in the month of September was above our original pre-COVID budget for the month, even though our volumes were about 5% to 25% lower than last year depending on which volume metric you look at. Overall, we were pleased with how our operators managed through these times and produced EBITDA for the quarter before the grant reversal that was substantially above our expectations despite the elevated COVID levels. Next, let's go to Slide 8 and review our liquidity. We currently have sufficient cash resources and available liquidity under our $1.9 billion line of credit facilities. As of Monday, we had approximately $3.3 billion of cash on hand and no borrowings outstanding under the line. Let me now provide an update on Medicare advances. As you may recall, we applied for and received approximately $1.5 billion of accelerated payments, substantially all of which we received in the second quarter. Originally, repayments of the advances were scheduled to begin in August; however, in the continuing resolution signed by the President on October 1, the repayment timeline for the advances was extended. The repayment period now begins next April, April 21, rather than this past August, and extends through September of 2022. Also, any balances not repaid by September 22 will be subject to a 4% interest rate rather than a 10.25% rate under the original repayment terms. We certainly appreciate this government support and the repayment period being extended as it alleviates substantial near-term cash outflow pressures providers are facing while confronting the challenges posed by the pandemic. Also, just an update on the amount of grant funds we received. We received additional stimulus grant funds of $178 million in the quarter, and to date we've received about $890 million of grant funds. Of this amount, $453 million has been earned so far and recognized as grant income. Given the new guidance and the uncertainty surrounding the level of future COVID cases and costs, it is difficult to predict with any precision how much of the remaining grant of about $437 million will be earned by us in future months. Before I wrap up my remarks, let's now turn to Slide 9 to discuss our noteworthy cash inflows and outflows during the quarter. You may recall last year that we discussed our objective was, despite the pandemic, to not burn through a material amount of cash in the second quarter, excluding stimulus funding and proceeds from the issuance of new notes. We accomplished that last quarter and we did so again this quarter. In fact, in Q3, we produced strong net cash flow growth excluding those items I mentioned of about $231 million. One additional item I wanted to point out is that we did accelerate $105 million of interest payments into the third quarter that normally would have been paid in October, and that was due to our early retiring of our notes that were scheduled to mature in 2022. We also continued to be very diligent and thoughtful about how we allocate capital, including CapEx. You'll recall that at the outset of the pandemic, to ensure we preserve sufficient liquidity, we dialed back our anticipated CapEx spend for 2020 by about 40% to $425 million from our original estimate, which was $725 million. Given the various actions we've taken over the past few quarters to enhance liquidity and our improved cash collection trends driven in large part by Conifer's strong performance, we now estimate that our 2020 CapEx spend will be about $525 million. These additional investments are primarily attributable to growth capital opportunities and necessary spending for COVID. With that, I'll end by saying again that we're incredibly grateful for the unwavering efforts of our patient caregivers and the employees during the pandemic. I'll now turn the call back over to Ron.

Thanks, Dan. I have no other comments to add; I think we've covered everything. I think it would be smart if we get into questions. So we've got about half an hour designated to cover questions. Operator?

Our first question today is coming from A.J. Rice from Crédit Suisse. Your line is now live.

It seems you have been working on assessing market data analytics across various hotspots and possess a unique portfolio. Some markets faced significant challenges early on, while others have developed hotspots later. Could you elaborate on how you predict where the next hotspots might emerge? What insights have you gained from managing through a hotspot, as well as understanding how communities have navigated these situations and eventually resumed deferred procedures?

Okay, long question there. Saum, you want to handle it?

Sure, A.J. thanks for the question. In terms of predicting where the hotspots are going to be, I mean we obviously follow very carefully a lot of the public health information that's available with respect to new testing, positive testing, incident rates, and you can really track the spread of the virus that way pretty quickly. Obviously by the time these cases are hitting our urgent care centers or emergency departments, it becomes quite obvious there's going to be a surge. I mean what we've learned is generally speaking there is somewhere between a four to six-week cycle that you'll go through in a market where there is a COVID surge. Usually, there's a couple of weeks of ramping up, you end up spending about four weeks at a high-level plateau that includes both med surge and ICU patients, and then it sort of ramps its way down. Our priority during that phase obviously is maintaining very good throughput and operations within our environment, separating COVID from non-COVID care. Our focus on having adequate PPE and testing has allowed us to ensure that we can process those patients adequately while also keeping our staff safe. We've not had, especially in recent surges, any need to shut down procedures or elective surgeries; that's a very important point because we want to maintain access for the community. As those cases ramp back down, we can ramp back up very quickly; that's probably the most important thing I focus on, which is that by the end of that six-week period, that recovery work is a playbook that we've got down from having had a number of markets go through surges, and our September results are very much a reflection of that. If you look at the COVID activity in the quarter, it was very much spiking in the first part of the quarter. By the end of the quarter, those cases have ramped back down. We are very capable of getting back to normal business, getting anything that was deferred on the schedule, and most importantly, working with our community and doctors to ensure that patients in the communities realize that they can come back into the hospital for necessary care. That really is why, when you look at September, the results reflect basically our ability to get back to business as usual from patient care and from an earnings standpoint.

Okay, great. Thanks.

Thank you. Your next question today is coming from Josh Raskin from Nephron Research. Your line is now live.

I wanted to ask about the increase in revenue per adjusted admission. I'm just trying to break out the buckets there. How much of that is coming from actual COVID patients? It sounds like that was a bigger impact than I had expected. How much of it is mix specifically commercial and how much of it is actual acuity? And then within that, how are you and your physician partners prioritizing the patients and the procedures that come back? At first, it sounds like you’re getting more of the high acuity and more of the commercial back, and I assume that's similar in ASC.

Josh, it's Dan. I'll start off; Saum can address the last point. The 17% growth in the revenue per case on the hospital side, all three of those components have some element to it. The predominant factor driving the growth in the net revenue per adjusted mix is due to the higher acuity cases. Now listen, COVID is part of that, right? But that's not the primary driver of it. You have the mix of higher acuity cases, a stronger commercial mix compared to our overall volume trends, which makes sense to a large degree because Medicare patients are probably a little more reluctant to seek care unless it's necessary. So the commercial trends are more favorable than the overall trends. There's also the growth in the revenue yield due to our contracting physician relationships. We've been very clear about that over time. Our growth from negotiated rates, depending on the facility and the payer, can be 3%, 4%, or 5% or so. So they've all played a part. I would say, in terms of COVID and the revenue yield from that, before I turn it over to Saum, yes, in aggregate, the net revenue for COVID cases is higher than the overall net revenue per admit. But you have to keep in mind you have to case mix adjust that, right? There is obviously incremental cost carrying for those types of patients, and when you case mix adjust that correctly, it’s very similar to our overall net per admission. One other thing I’d point out in terms of the mix of the COVID patients: COVID patients related to commercial payers is roughly 20% of the total COVID cases; the other 80% is either CARES, Medicaid, or uninsured. As you all know, obviously, the commercial reimbursement would be a more favorable than the other payers, but again, it’s very important to consider the fact that you case mix adjust the particular type of services and consider the incremental cost associated with them, and the profitability isn’t necessarily there a lot of people think it is. I don't know if there's anything else you want to add, Saum.

I want to emphasize a few key points regarding the nature of our recovery. At the start of the quarter, we observed a decline in COVID cases by the end of the quarter, and we managed to sustain and rebuild our business at about 10% below last year’s levels. Importantly, our commercial admissions performed better than that figure, aligning with our long-term strategy to enhance services for higher acuity procedures. The numbers for our commercial surgeries appear more promising, as they improved by the end of the quarter compared to averages earlier in the period. In this COVID environment, traditional surgery metrics hold less relevance, so we focused on long-term strategies that enhanced performance in several markets, especially in commercial surgeries. Over the past few months, and particularly in the last quarter, we initiated two new trauma programs and expanded our neurosurgical and spine services across various hospitals in South Florida. We have also made significant strides in surgical oncology and built a network in San Antonio. Our aim has been to enhance surgical services in the community to aid in managing the recovery while recognizing that some lower acuity cases, such as very low acuity ER visits, may take longer to return. Instead of replicating the 2019 mix, we are keenly aware of market trends and adjusting accordingly for our recovery. Unsurprisingly, USPI is following a similar trajectory. Our focus on high acuity specialties within our physician staff has resulted in significant growth in orthopedic programs and cases, as we cater to existing demand rather than trying to recreate the past. This approach should serve us well in the long run, rather than hoping for a full return of low acuity cases to hospitals. We will observe how this develops in the coming years. Additionally, it's clear that telemedicine will fall short in addressing many injuries that contribute to low acuity ER visits. The demand will shift somewhere; we’re just uncertain about how much will return to hospitals. Does this clarify things?

Perfect, thanks.

Thank you. Your next question today is coming from Eugene Kim from Wolfe Research. Your line is now live.

This is Eugene on for Justin. Thank you for the question. As a follow-up to Josh's question earlier, are you able to quantify the number of COVID-related admissions during the quarter? I think you said, COVID mainly impacted July and August. Can you comment on how your admission volume and acuity were tracking towards the end of September and possibly early October? Thank you.

This is Dan. Let me address a couple of those points. The COVID inpatient census in the third quarter was about 15,000 cases, and as we pointed out in our remarks, it's roughly 60% higher than the second quarter. One thing that's important to keep in mind with the previous conversations we were just having: the sequential change in earnings from August to September was not due to the mere growth in overall cases. In fact, our admissions were actually about 1% lower in September compared to August, so you see the impact of the COVID cases on earnings. In August, when the COVID cases were higher than September, it had an impact on earnings; that sequential growth in EBITDA from August to September was not just due to while cases were higher. Normally, that happens. Our aggregate volumes in September were roughly down 1% compared to August, but you see the growth in the earnings from August to September because the COVID cases declined.

Thank you. Your next question today is coming from Phil Chickering from Deutsche Bank. Your line is now live.

I'll sort of ask the same question in a different way. There's obviously a pretty big debate in the investment community regarding the sustainability of hospital EBITDA observed during Q3. So a multi-part question: any chance you can give us a sense of how much of your EBITDA in Q3 came from COVID, and more specifically, how much you saw in September? I understand it doesn't give a whole picture or at least help understand how that works. And more importantly, can you give us color on your October trends, what you're seeing, and whether you're seeing changes in November OR scheduling blocks of times? Then walk us through sort of headwinds and tailwinds to help us think about revenues and margins over the next few months.

Well, that's three questions. We'll do our best. So Dan, do you want to start?

Phil, it's Dan. Let me try to address it; Ron or Saum can fill in. In terms of we obviously have provided EBITDA by service line. But again, I'll go back to when COVID levels were much higher in August, it had an impact on our earnings. In August, you can see the sequential change from August to September. Again, our aggregate volumes from August to September were roughly flat or down about 1%. Let's just call it flat. But earnings increased, and a large part that was due to COVID cases leveling off and coming down. The COVID cases substantially carry more cost associated with them, particularly as patients end up in the ICU. As I said earlier, yes, the revenue per COVID case that we've experienced is higher than our aggregate per admit, but again, the CMI or the acuity level of those cases is higher, and that brings with it incremental costs. That's why I said when you case mix adjust it, it’s pretty close to what our average net per admission is. Saum, I don't know if you have anything else you'd like to add.

Yes, there are a few points to consider. It's essential to understand the nature and mix of our COVID activity, especially in the urban centers where we operate, which are not very diverse. In fact, in relation to our average, the mix is slightly below our commercial average. We are mainly focused on managing Medicare, Medicaid, and uninsured patients regarding COVID care. The lower activity in our system is a result of the specific markets we serve. When we analyze September, I can only illustrate what we're doing to foster recovery. Besides what I mentioned earlier, we've expanded many of our surgical service lines in line with our strategy from the past couple of years. We have developed robotics in El Paso, expanded rehab facilities in South Carolina, and significantly grown our CT surgery program in parts of Texas. Our goal has been to continue to enhance surgical services for the community as a means to prepare for recovery over time, understanding that it may take a while for some lower-acuity hospital services—like very low-acuity ER visits—to return. We’re not trying to recreate the mix from 2019. Instead, we're focusing on the current market trends to inform our recovery efforts. Ron's earlier comments about USPI align with this approach. The growth of our physician staff there has primarily targeted higher-acuity specialties, with a notable increase in orthopedic programs and cases. We’re being guided by demand rather than striving to duplicate the conditions of 2019. This strategy should benefit us in the long run rather than hoping for a full return of the low-acuity business in hospitals. We’ll assess how this evolves over the next year or two. Importantly, telemedicine may not effectively address many injuries that typically lead to low-acuity ER visits, so while some services may shift, it remains uncertain how much will return to hospitals. I hope this clarifies things.

Any color on the October or November trends or schedule impacts? Thanks.

We don't show any signs of a shift from the strength that we saw in our September recovery. As I look forward and look at any metric, whether it be our scheduling of cases at USPI or the hospitals from a surgical standpoint or high acuity service standpoint that we're looking at this point in time at all.

Thank you. Your next question today is coming from Whit Mayo from UBS. Your line is now live.

I wanted to change the subject a bit and return to USPI, possibly for Saum or Brett. Regarding the 1,100 new doctors, could you provide some context related to your current base? I believe I heard Saum mention specialties, with orthopedics being a notable advantage. Are we bringing more equity to these doctors, or are they simply shifting their business? I'm trying to understand how sustainable the volume from the new doctors is.

How's it going, Whit? So just to back up a little bit: we've certainly seen an increase in the number of physicians that are interested in operating in the ASC setting, that's without question. As Ron mentioned, we've added over 1,100 physicians to our medical staff just this year; and that's partly as a result of COVID, but I think the increase is more related to our ongoing business development and service line expansion activities. There's no question that physicians are moving more of their business to ASCs as a result of patient preference related to COVID, but others are simply continuing to find a more efficient side of care for their surgical patient. If you go back to your question related to how much of an improvement that is over our base, you think we have about 4,000 physician partners across the portfolio and about 10,000 physicians on our medical staff. So this represents a nine-month period of over a 10% improvement in the number of physicians on our medical staff overall. I don't have a specific breakdown in terms of how many of those are partners versus non-partners; as you know, most physicians join our medical staff to ensure it’s a good fit for them, a good fit for the patients, and a good fit for the overall partnership. At some point down the road, they may exercise the opportunity to actually buy into a partnership. But that's not our focus day one; our focus is making sure that we bring in the right high-quality physicians to our medical staffs, that they're happy with the service that we're delivering to them and their patients, and then over time we add those physicians potentially as partners to our facility. So I think the number and the amount of physicians that we've added to our medical staffs over the first nine months is clearly better than we have seen in historical years and, again, primarily I think a result of our business development activities and our service line expansion activities and to a minimal degree a result of the COVID-related activity.

Perfect. Thanks a lot.

Thank you. Your next question today is coming from Brian from Jefferies. Your line is now live.

I guess I'll follow-up in those comments from Brett and Saum's comments earlier to a few questions. So you've got to think there's a structural change that's happening. That's actually not a bad thing; we're either pushing more procedures or visits either to the ASC whether it's joint replacements or ER visits that are low acuity going to urgent care. How do you think, if that's the case, what should be the margin outlook going forward?

That's a good question. Let me clarify my earlier statement. We are focused on understanding current demand and ensuring we are effectively addressing that demand by concentrating on areas where we observe increased activity. Specifically, we are seeing stronger performance in higher acuity surgeries and higher acuity emergency department visits. We closely monitor our emergency department visits by acuity level, and at the higher acuity levels, we are performing better than in previous years. Although there is some lag in the data, we believe we may be gaining market share in our high acuity ER business. However, I want to clarify that I am not ready to assert that there is a permanent shift in demand patterns due to COVID, especially in lower acuity areas. Lower acuity areas, particularly pediatric visits, have seen a significant decline, and this is largely because schools and sports programs for children are not fully operational. I don’t believe this indicates a shift from ER to urgent care; rather, demand is down due to reduced activity from ongoing partial stay-at-home orders in several markets. This trend is consistent across various activities that lead to ER visits, and some injuries, such as broken bones, cannot be treated at urgent care centers in the long term. I believe that some of this demand will return as communities and schools reopen, but it may take time. My point is that focusing on that aspect currently doesn’t seem very logical. Again, I am not committed to the idea that demand for hospitals has disappeared permanently. We will see how this develops over the next year or two. It's also clear that telemedicine cannot address many injuries that lead to low acuity ER visits. That demand will go somewhere; the question is how much will come back to hospitals. Does that help?

Yes, no, that's exactly what I was hoping for. Thank you, appreciate that.

Thank you. Your next question today is coming from Kevin Fischbeck from Bank of America. Your line is now live.

I wanted to get a sense of how you're thinking about the incremental profitability of volumes returning back to normal. I guess, obviously, usually you're thinking about volumes coming with nice fixed cost leverage. If we're talking about lower acuity volumes coming in, how should we think about that? And then I guess incrementally you've been able to manage labor; does that get more difficult as long as it's coming back? I'm just trying to think about the interplay of low acuity and potentially labor cost pressure as volumes come back and how we might think about incremental margin post-normalized growth. Thanks.

Yes, I can start, and Dan, you can maybe add on. It’s a good question because, as you move to a higher acuity mix, obviously, you're going to need more support and staff, especially in ICU and critical care units and other things. Thus far, we have not seen a tremendous amount of pressure related to the work that we're doing more strategically in expanding those areas. I would point out, again, as COVID surges come through, we've had the use of fairly significant amounts of contract labor in the quarter, especially in the first couple of months in the quarter that affected our cost. We've been very, very disciplined about using the question that was asked earlier, I think by A.J., about the predictability of these COVID surges and declines. We've basically gotten pretty good at estimating how much contract labor we're going to need for how many weeks and then shutting it off, sometimes in advance of the surge disappearing because we know what the curve is going to look like, and that really is reflected in our September results from the standpoint of managing margins. The other thing I would say is there is no question that the foundation we’ve laid over the last couple of years to have a more data-driven management process in our not just labor productivity but labor mix that we're utilizing for patient care has served us well and probably has accelerated some of our recovery. We’ve no intention of changing from that approach to management even if the COVID activity dissipates or goes away more permanently with the vaccine. We know it's our responsibility to continue to drive efficiency in that setting. Probably the more important opportunity looking forward for us is also in the area of services, which are labor-based. Many of the services that we have either partnered with outsourcers or others where we're really working on managing the productivity of that staff at the same time, and that will result in incremental opportunities for savings as we right-size effectively to the portfolio of cases that we're seeing in hospitals these days.

I'll just add to that that it also spills all the way through the whole concept that Saum has talked about. It spills through all the way back through our overhead operations. Our global business center will continue to play a major role in a better allocation of overhead and support. Since that's a 24x7 type operation, it's staffed accordingly, and it can be a very responsive and it's done a great job through the pandemic. We've actually more than doubled the size of it through the pandemic even while it was going on; so that has proven to us to be a great source of balancing workload and balancing in the right places with really good talent. But at the same time, being able to be much more responsive on a 24x7 basis to our facilities.

Dan, do you have anything else you want to add?

Probably the only thing I would add, Kevin, is you'll recall before the pandemic occurred that we've been focused over the past several years on realizing about $450 million of cost efficiencies since we've started this back in 2018, and we're fully on track for that for this year. As we talked about last quarter too, as a result of the pandemic, we've dug deeper and had identified even more efficiencies that we've been realizing or will realize into the future, and it's really across all the cost elements of our cost structure—whether it's labor management, supplies, or other operating expenses. Saum's point about some providers that were in other operating expenses, we've been renegotiating contracts and improving SLA or service level requirements, and it’s had an impact. We'll also, from time to time, take action to terminate a contract even if it'll cost a little bit of money to get out of it, if in the long-term the return is going to be better. We’ll obviously keep working on this and we feel very good about our ability to continue to manage costs well.

The last point I would add to Kevin is that we've added a significant amount of analytics and we look now in a much more database-driven finite level where we add people, what are they doing, what's the impact of that? Is there a better way to do it? Where do we automate? Where don't we automate? We approach all of this, I think, with a much clearer vision, and the pandemic, to Dan's point, has enhanced and pushed us to question just about everything. I think we have become much more effective at this, and over the next year, we'll continue going deeper. So I hope that answers your questions.

Thank you. Your next question is coming from Ralph Giacobbe from Citi. Your line is now live.

Just wanted to ask about the EBITDA trajectory. You've been running at a monthly level of about $220 million for, I think, the last four months, and then the dip in August. I guess the question is: typically, we see a seasonal ramp into the fourth quarter. Do you still expect that to be the case with a higher EBITDA run rate, or is that maybe unlikely to move from that $220 million just given the underlying circumstances?

Two questions. Dan, do you want to jump first?

Certainly. Three out of the last four quarters have been in that $220 million territory, as you've mentioned, as we talk about our August numbers were more moderate because of COVID. It's certainly we obviously haven't provided guidance. We're certainly working towards that and then some. The fourth quarter, as you know, is typically sequentially stronger particularly on the ambulatory side and the hospital side as patients have met their deductible in a given calendar year. Sometimes we have seen a little bit over the past couple of years; people have maybe managed to look at things a little differently than in the past. Last quarter in the fourth quarter was incredibly strong. We'll have to see; we don't know right now how it will play out. We're obviously working toward driving incremental volumes in the fourth quarter, and you've seen the trajectory with the ambulatory business. Some have improved nicely. Again, just putting COVID aside for a second because if there are significant spikes, obviously, you'll have some type of impact. But we're going to be working for sequential growth. I think the big variable is ultimately going to be two things: one, level of COVID, and two, the comfort and level of patients returning to facilities, whether they're hospitals or surgery centers, for elective care.

Okay, fair enough. Thank you.

Thank you. Your next question today is coming from Gary Taylor from JPMorgan. Your line is now live.

Just a quick one. As we're trying to look through all the COVID impacts on operating metrics, etc., just trying to get a sense of the underlying recovery in the commercial business that you've talked about. It's difficult to look at the revenue mix because that includes your much business; it also includes COVID. So is there any additional detail you could provide just on commercial adjusted admissions excluding COVID? Is that up, down, or flat year-over-year? I'm just trying to parse out the impact of the COVID.

Gary, it's Dan. As I pointed out earlier, our COVID cases related to commercial payers or exchange payers is roughly 20% of the total COVID cases. This represents a slight decline when you compare to our normal pure commercial mix. The other 80% is either uninsured, Medicare, or Medicaid. So, that's the mix of the volumes from a COVID perspective.

I'm sorry. I was saying if you would exclude COVID and we look at underlying commercial adjusted admission growth excluding COVID, is that up, down, or flat year-over-year? I'm just trying to parse out the impact of the COVID.

Again, as I said earlier, the commercial trends are more favorable than the overall trends for the hospitals. You see the monthly percent of recovery for the overall admissions, the overall visits, and surgeries. The commercial trends are more favorable than the overall trends.

The only additional point I would add there is that the point I made before, which is I look more at surgeries, because that's not really a COVID-related activity. The strength in surgeries in particular, and to Dan's point, the commercial recovering better in commercial surgeries, is the strongest marker I have when I look at a comparison across different lines of business there. And I feel very good about that.

And Saum, to that point, Gary wasn't specifically asking about USPI. We obviously had a very favorable payer mix with our commercial mix outpacing governmental; more specifically, Q3 commercial was up 34 basis points while Q3 governmental was down about 30 basis points, so overall a positive trend in that regard.

Are those revenue rates, right?

Correct.

Do you want to do one more?

Sure.

Let's do it one more, and then we'll wrap it. Operator, one more.

Certainly. Your final question today is coming from Frank Morgan from RBC Capital Markets. Your line is now live.

This one’s real quick. Dan, you called out your acceleration in your CapEx program, how you up those numbers. I think one of the things you called out was COVID-related CapEx? I’m just curious what that would be. Thanks.

This is Dan. So yes, the incremental investments that we're going to make is roughly $100 million; it's predominantly related to growth capital opportunities, let me be clear. But there is some additional spend that we believe is necessary to appropriately care for COVID patients. And Saum, is there anything else you want to add to that?

Yes, I mean examples of that would be there are just equipment and supplies and things—some of which are more capital-related. Think about some of the purchases of ventilators and other things that might be relevant in that space. There’s also a little bit of infrastructure spend in there just because, as we pointed out earlier, we've been so disciplined about making sure that we minimize our infections of our own staff, because that is again, probably the most important marker in my mind to being able to maintain support in the hospital for always continuing elective work. So we put infrastructure into some of our hospital separation of COVID from non-COVID care areas and things of that nature; so that it's more structural and again it's on the spirit of keeping that environment safe and also creating an important perception for those who are in and out of the hospital that they're not going to be exposed.

Thanks, that’s helpful.

I think that's it. We appreciate everybody joining. I'm sure there'll be some follow-ups, but we thank again. We feel we had a very good quarter, and we appreciate the time you gave us to ask your questions; hopefully, they're clarifying and straight as could be. So, with that, I'll guess, operator we’ll conclude the session.

Thank you. That does conclude today's teleconference and webinar. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.