Good morning. Welcome to Tenet Healthcare's Fourth Quarter 2021 Earnings Conference Call. After the speaker remarks, there will be a question-and-answer session for industry analysts. Tenet respectfully asks that analysts limit themselves to one question each. I'll now turn the call over to your host, Mr. Dan Cancelmi, Executive Vice President and Chief Financial Officer for Tenet. Mr. Cancelmi, you may begin.

Thank you, Operator. Good morning. We're pleased to have everyone join us this morning. Tenet's senior management with me on today's call include Ron Rittenmeyer, our Executive Chairman; and Dr. Saum Sutaria, our Chief Executive Officer. Our webcast this morning includes a 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 and other filings with the Securities and Exchange Commission. With that, I'll turn the call over to Ron.

Good morning. Thank you, Dan. And thank all of you for joining us today regarding our fourth quarter earnings, and also all of 2021. Before I turn this over to Saum and Dan, briefly I would like to touch on a few aspects of 2021 and highlight what we believe are fundamental and sustainable changes we've made over the last several years that will continue to carry us forward. As I stated in my comments in the earnings release, the fourth quarter delivered strong, consistent results with adjusted EBITDA of approximately $1 billion for the quarter and very strong cash flows, both ending 2021 above guidance. We closed the significant SCD transaction on another 86 centers, established an exclusive development relationship with their team for the next five years, and acquired their ASC service group to further strengthen the USPI organization. Additionally, our internal development team also added more than 20 centers. This further solidifies USPI as the market leader and we are projecting approximately 50% of our earnings to come from this sector of the business by the end of 2023. Hospital performance, except for Massachusetts due to the strike which is now settled, performed above expectations across the board, while dealing with a continued COVID surge. And Conifer continues positive delivery of consistent results, while expanding its offerings and gaining additional point solution opportunities in the marketplace. When you reflect on the overall Tenet business, it clearly has made a paradigm shift since the end of 2017. The fundamentals built on an analytical data-based approach, coupled with detailed and disciplined expense management in every aspect of our business, have proven our ability to handle volatility effectively. Every hospital group has now achieved positive contributions consistently. USPI should continue to represent a larger and more impactful portion of our earnings, and Conifer has improved its margins by over 1,000 basis points in the last four years. Coupled with consistent strong core growth, detailed and objective portfolio management as represented by the number of divestitures in ambulatory acquisitions we've successfully accomplished, we are supported by a stronger and well-designed balance sheet. The Tenet Enterprise is now positioned to be an organization with multiple consistent sources of revenue, free cash flow, and EBITDA growth quarter after quarter, looking forward and then year after year. Having said this, I just have to comment, it is somewhat difficult to understand why Tenet remains classified mostly as a hospital company. The recognition of USPI's growing contribution, and Conifer's cash flow generation, for some reasons seem lost in the broader question of Tenet being recognized as more than a hospital company, with corresponding dialogues and/or multiples remaining caught in this time lapse. It appears that the transition of what Tenet has become and the de-leveraging we've accomplished are not fully recognized in the valuation of the company. We believe it's a point of view worthy of consideration. So with those comments now, I would like to turn it over to Saum.

Hi, thank you, Ron, and good morning, everybody. I'd like to start off with a personal thank you to our physicians, nurses and staff; their resolve to deliver high-quality care through the recent surge of Omicron has been nothing short of excellent. Turning to our release, as you saw in the report posted yesterday, we ended the year with strong results. In Q4, we delivered adjusted EBITDA of more than $1 billion and $877 million excluding Cares Act funds. This is higher than the midpoint of our outlook and higher than consensus. We also drove a strong companywide EBITDA margin of 18.1% in the quarter. We continue to manage effectively through COVID. In Q4, COVID admissions were approximately 7% of the total. While the highly transmissible nature of Omicron had a greater impact on staffing, our operators continue to effectively balance resources and maintain strong COVID safety protocols. In addition, we remain focused on quality and safety across the portfolio. Serious safety events and hospital-acquired infections declined in the fourth quarter despite the COVID surge. Average length of stay in our emergency departments was reduced given our focus on better patient service and easier access. And finally, USPI's surgical hospitals had zero hospital-acquired infections in the fourth quarter. Our accomplishments in the quarter and the year reflect a commitment to executing our strategy and a continued positive trajectory for Tenet. At USPI, we acquired interest in or opened approximately 160 facilities since December of 2020. This included the SCD acquisitions, the acquisition of Compass, buy-ups in multiple surgical hospitals, in addition to tuck-in acquisitions and de-novos. I want to reiterate a few points about the SCD acquisitions. We anticipate the portfolio of 135 centers from the two SCD transactions will have approximately $540 million in EBITDA and $360 million in EBITDA minus NCI at run rate. This is expected to deliver more earnings at a much stronger EBITDA margin as a small portion of the total USPI enterprise than other available surgery comps. USPI operations continue to perform at a high level during the quarter. Due to the continued COVID surges, patient scheduling, cancellations, and physician and staff availability were all affected. Despite this, USPI delivered sequential month-over-month growth through the fourth quarter. USPI had a 4.4% year-over-year increase in the same facility system-wide surgical cases and a 3.2% net revenue increase per case, resulting in a strong 7.7% year-over-year net revenue growth. The segment ended the year with a quarterly EBITDA margin of 46% excluding grants, up from 44.7% in the fourth quarter of 2020. Our Hospital segment outperformed again in Q4, with nearly all markets exceeding our expectations. This was supported by high patient acuity from continued investment in clinical technology and service line enhancements. In Q4, as an example to demonstrate the resilience of our business, our non-COVID medical and surgical discharges increased 3% over prior year. Our operators maintained active cost management making real-time adjustments using our analytics platform to optimize staffing, length of stay, and capacity utilization. This once again helped us maintain good performance in our labor costs, while maintaining the high standards of quality I described before. Conifer also had strong performance and another quarter of margin enhancements. We continue to modernize Conifer's technology offering and globalize Conifer's operating model to deliver results. We also signed new clients and renewals for revenue cycle management and value-based care services. Our 2021 results reflect the commitment to continuous improvement developed over the past several years. We raised guidance three times and outperformed the midpoint of our guidance and midpoint of consensus. We've deployed over $2.5 billion in capital investment at USPI since December of 2020, scaling USPI to be the leading ambulatory surgery platform. We also welcomed over 3,400 physicians to USPI's medical staff and started approximately 90 new high-acuity service lines. We anticipate strong returns from the high-caliber investments we've made. We also increased investments to expand high-acuity care at our hospital markets. We're expanding capacity in Palm Beach and El Paso and we remain on track to open our hospital in South Carolina in the summer of 2022. We also announced two exciting new developments in San Antonio and one in Phoenix to meet the growing healthcare needs of those communities. Additionally, we continue to foster an ecosystem of high-quality physicians supporting advancements in neurosciences, cardiovascular, and surgical services. Looking ahead, we expect continued growth in 2022, with adjusted EBITDA outlook midpoint of $3.475 billion. This represents a 6% increase from 2021 excluding grant income. Let me outline a few key priorities in our 2022 plan. Year-over-year core growth in USPI's adjusted EBITDA, excluding grant income, and excluding the SCD acquisition is projected to be a healthy 11.8%. This reflects our optimism that as the Omicron wave subsides, we will be able to return to normal demand at USPI as we've demonstrated after previous COVID surges. We're continuing to integrate the SCD portfolio and complete physician buy-ups. These are on track to proceed throughout 2022 and we guide to approximately $140 million in adjusted EBITDA for the year as an estimate on the current portfolio of 86 centers closed and the timing of buy-ups for the portfolio acquired in December of 2021. There is no change in our run rate estimates despite the six centers excluded from what we provided at deal closing. These new centers are performing very well. We have integration management capabilities in place to successfully realize the anticipated synergies. Year-over-year core growth in the Hospital segment adjusted EBITDA is projected to be 3.3%. As COVID subsides, we expect returning to a more normal but not completely normal operations in the labor market. Our teams will remain focused on recapturing postponed care and continuing to advance our high-acuity service lines. We will continue to deploy capital and execute strategic investments across our business segments. This is supported by a well-balanced offensive capital plan with a focus on accelerating clinical technology enhancements across our hospital markets. We have a robust portfolio of external spend reduction initiatives that will improve our supply and purchase services spend over the next few years, while we also continue to actively focus on labor management. Conifer's adjusted EBITDA growth is projected to be 2.8% for 2022. We plan to continue to automate offshore activities to realize further efficiencies in our operations. As Ron discussed, Conifer's margins have improved over 1,000 basis points over the last four years, and it continues to be a productive part of Tenet. We continue to evaluate market conditions, opportunities for growth, the impact of COVID on the business, and the interest rate environment as it relates to Conifer's overall positioning as a part of our total enterprise. It is a topic we review frequently with our board of directors. Finally, I will reiterate the resiliency we are building in Tenet's business. Our balance sheet is in better shape, our secured debt capacity, and line of credit insulate us from a somewhat more volatile high-yield market, and we continue to improve our free cash flow generation, which our diversification into the Ambulatory Surgery segment will continue to support over time. Underpinning this, we will continue to build an environment focused on motivated talent, analytics-based insights, and strong ethics and compliance with the goal of maintaining a positive trajectory for Tenet. I'll now turn it over to Dan for a more detailed look at our financial results and our 2022 outlook.

Thanks, Saum and good morning, everyone. To echo Ron and Saum's comments, I'm very pleased with how we finished the year with fourth-quarter adjusted EBITDA coming in well above our expectations. Our outperformance was particularly notable given the many challenges we faced, including the spike in COVID cases due to the Omicron variant and the continuing inflationary wage and labor availability pressures providers across the industry are facing. For the fourth quarter, we generated consolidated adjusted EBITDA of $1.017 billion, which was $183 million or 22% better than the midpoint of our Q4 guidance. Even excluding the $140 million of grant income we earned in the quarter, our consolidated adjusted EBITDA was $877 million or $43 million higher than the midpoint of our guidance. For the full year of 2021, we produced consolidated adjusted EBITDA of $3.483 billion, an 11% increase over 2020, and a beat of $183 million compared to the midpoint of our most recent guidance. As a reminder, we raised our guidance three times during 2021 based on our outperformance each quarter, and we outperformed again in Q4. Our strong results for the year were driven by high patient acuity, a favorable payer mix, as well as very effective cost control. In fact, our consolidated SW&B costs in Q4 as a percentage of revenue was lower than Q4 2020, about 45% in Q4 2021 compared to 45.3% in Q4 2020. Also, our consolidated EBITDA margin for 2021 was 17.9%, an improvement of 510 basis points compared to our 2017 margin of 12.8%. I'd also like to highlight a few key items for each segment beginning with USPI. USPI delivered a solid 3.2% increase in surgical revenue per case in the quarter and surgical cases were 4.4% higher than Q4 2020. Q4 cases were 100% of pre-pandemic levels despite the impact of COVID. And USPI's adjusted EBITDA margin excluding grant income continues to be very strong at 46.2% for the quarter, which was 150 basis points higher than Q4 2020. Turning to our Hospital business, our hospitals delivered another very good quarter. Our labor management continues to be extremely effective. Our case mix index remains strong as we continue our strategic focus on investments in higher acuity higher margin service lines. Our non-COVID admissions were up 1.7% compared to Q4 2020, and our hospital adjusted EBITDA margin, excluding grant income for Q4 improved about 200 basis points compared to full-year 2019 before the pandemic. It really was a great year of performance for our hospitals as substantially all of our markets significantly outperformed our expectations. Turning to Conifer, they also had another good quarter and produced $355 million of adjusted EBITDA for the full year and a strong margin of 28%. Moving to Slide 11, our cash flow, balance sheet and capital structure position us very well to continue our growth momentum. Our cash flow generation in 2021 was strong even as we began repaying Medicare cash advances and made the first installment payment of the deferred company payroll taxes from 2020. We generated free cash flow of $910 million in the year or $1.550 billion excluding the repayment of $640 million of Medicare advances and deferred payroll taxes. We continue to maintain more than sufficient cash resources and available liquidity under our line of credit. At year-end, we had about $2.4 billion of cash on hand and no borrowings outstanding under our revolver. Also, our year-end leverage ratio was about 4x EBITDA compared to about 6x EBITDA at the end of 2017. Let me now turn to our outlook for 2022. Slide 14 in our presentation provides a walk forward of our adjusted EBITDA from 2021 to our projections for 2022 on a consolidated basis, and by business segment. Our projected consolidated adjusted EBITDA for 2022 is $3.475 billion at the midpoint of the range. This outlook represents year-over-year core consolidated growth of 6.2% as described on the slide, including almost 12% core growth in our USPI surgery center business. Let me mention a few other assumptions related to our 2022 outlook. We are not assuming we earn any grant income this year. We expect to achieve future annual cash interest savings of approximately $53 million once we retire our 7.5% $700 million of senior secured notes in Q1 that we announced in our release. Our 2022 adjusted EPS is approximately $6.46 per share at the midpoint of the range. As we mentioned in our release, our EPS this year includes a headwind of about $0.50 per share related to a change in the IRS interest expense limitation regulations. As many of you are aware, certain Texas Medicaid supplemental funding has not yet been approved by CMS. The state is working with CMS to resolve this, and our outlook assumes the funding is approved this year. However, we have not included any of this funding revenue in the first quarter as we're assuming it is approved in the second quarter or later in the year, which is when we would recognize the revenue. This funding for us is approximately $75 million annually. As you'll see on Page 11 of our release, compared to 2021 we're assuming that 2022 hospital admissions are flat to up 2%. Hospital adjusted admissions increased 2% to 4% and USPI surgical cases increased 3% to 4%, and USPI net revenue per case increases 2.5% to 3.5%. Again, those are growth increases compared to 2021, not 2020 as we received a few questions about that disclosure in the release last night. I also want to mention our outlook for the first quarter of this year assumes consolidated adjusted EBITDA will be $750 million at the midpoint of the range as disclosed in the release. This guidance reflects an assumption of the impact of the increase in COVID cases so far this year due to Omicron and the unknown timing of when certain elective cases will be scheduled or rescheduled. Also, as I mentioned earlier, we are not assuming any of the Texas Medicaid supplemental funding is recorded in Q1. From a cash flow perspective, we are targeting another strong year of free cash flow generation of $1.558 billion at the midpoint excluding the repayment of Medicare advances and the deferred payroll taxes. I did want to point out that we anticipate our income tax payments this year will be about $150 million higher than 2021 due in part to the change in interest expense limitation rules that I mentioned, and the fact we expect to fully utilize the remainder of our federal net operating loss carry-forwards this year. Our cash flow generation has improved substantially over the past several years. And the final repayment from about $1 billion in aggregate for the Medicare advances and deferred payroll taxes will be made this year. Assuming about $1.5 billion of free cash flow as a foundation to build upon in 2023 and beyond, we believe this, and our capital structure, including about $3 billion of currently available secured debt capacity and no borrowings outstanding under our line, provide us a lot of flexibility as we think about future capital deployment options. We plan to continue allocating capital to grow our surgery center business, enhance our hospital growth opportunities, including the continued focus on higher acuity service offerings, evaluate opportunities to retire and refinance debt depending on market conditions, and possibly, in 2023 or beyond evaluating share repurchases, depending on market conditions and other investment opportunities. And with that, we're ready to begin the Q&A.

Thank you. At this time, we'll be conducting a question-and-answer session. Our first question comes from Kevin Fischbeck with Bank of America. Please proceed with your question.

Okay, great. Thanks. I wanted to go to a comment I guess that Saum made about the outlook for labor. Saum, I think you talked about labor returning back towards normal, but not being normal as COVID recedes. Can you talk a little about where you expect, I guess what you're seeing right now as far as labor growth or wage growth and kind of where you expect that to shape up and stabilize? How should we think about that heading into 2022 and 2023?

Yes. Thanks for the question. I think that we're still in the throes of this current COVID surge. And so labor rates are higher than you would otherwise like them to be, in particular for contract labor. And then the shortages of staff that Omicron has created just exacerbates things. And that's a pretty unique issue compared to what we saw with Delta or other COVID waves. And so I think what we anticipate is that by the end of the first quarter, assuming that there are no more COVID surges that come up, with new therapies available and other factors affecting hospitals, substantially, we ought to see the labor market start to normalize a bit. It's a combination of both the rates and the stability of the staff that we're really looking for. I mean, during the surges, the rates become the biggest issue. As the surge goes away, and we refocus our energies on building the business back and managing to capture things that may have been deferred or delayed. Obviously, the availability of staff becomes the paramount issue at that point, and being able to get that staff in and retain them at that point. So that's kind of how it looks. I think it'll be the end of the first quarter before we have a real read on what the impact will be for the rest of the year.

The next question is from Pito Chickering with Deutsche Bank. Please proceed with your question.

Hey good morning, guys. Thanks for taking my questions. If you could give us a bit more color on the first quarter guidance; what are you seeing at this point on surgeries rebounding back as COVID cases decline? As you look at your OR scheduling for February are we seeing a similar rebound to what we saw during the first quarter of 2021?

Hey, it's Saum. I think it's a bit early to make predictions. The COVID surge is decreasing, with new cases on the decline, but we are still experiencing high numbers, about four times the inpatient count compared to before this surge. I'm cautious about making forward projections. Some states, like Massachusetts, still have restrictions on elective surgeries. While some have suggested we might take a conservative approach with our Q1 guidance, there's a lot happening right now, both from regulatory and Omicron-related angles. That said, we are prioritizing staff allocation to crucial service areas to ensure access remains open. In our acute care hospital setting, we are focusing on staffing for operating rooms, ICU, and other essential areas. We're feeling positive about our outpatient surgery volumes in the hospitals at this point, mainly due to our staffing strategy. Let me ask Brett to provide more insight on USPI.

Yes, thanks, Saum. No, on the USPI side of things very consistent with what Saum shared. Obviously, in January, we did see the impact of Omicron in terms of volume and staffing, but we are starting to see that subside a little bit going into February and starting to see the schedule fill up at the end of February and going into March.

Okay. And then a follow-up question on the margin side. Excluding sequestration, you're guiding hospital margins to be increasing year-over-year, despite a very strong comp from COVID in 2021. I guess, besides being able to deliver dynamic how should we think about margins as it relates to the favorable commercial mix you've had with a high acuity mix today, as you know, it's an expensive more into government and the lower acuity settings? Thanks so much.

Hey Peter, it's Dan. We are pleased with our margin improvement in our hospitals over the last several years, with an increase of about 200 basis points. We will continue to concentrate on enhancing our margins. This year, the sequestration will affect our year-over-year results, but we remain committed to expanding our higher acuity, higher margin services. This has been a key focus for us and we plan to allocate capital in this area, which we believe will be very beneficial. In addition, we have implemented various cost management initiatives over the past several years, including efforts in our supply chain and operating expenses, where we have been renegotiating and terminating contracts that do not meet our terms. There is still more work to be done in these areas. We are also transitioning roles to our global business center in Manila, and that process is progressing well. Furthermore, we believe we are in a strong position regarding our contracts, both in supply chain and with insurance plans.

Our next question comes from Sarah James with Barclays. Please proceed with your question.

Thank you. So just kind of following up on the questions and the moving pieces. You guys gave us a lot of detail around the bridge from 2021 to 2022, and there's different portions of it that are under your control, like what you guys are doing with supply expensing and your strategy on labor. So I'm wondering if you can give us some insight on how you think about the seasonality first half versus second half compared to a normal year compared to last year. Just how you see some of the moving pieces that are under your control seasonal?

Hey Sarah, it's Dan. I think I caught everything; it was sort of hard to hear. But I think your question relates to how we view seasonality this year, maybe versus other years. Certainly starting the year off, obviously, as we mentioned, we have seen an increase in COVID cases so far this year, even compared to the end of December, and there was an elevated case count in December as well. So we've taken that into consideration. I mean, there's some math related to some items that we won't be able to recognize in all likelihood in Q1, the Texas funding I pointed out, but we're assuming that that comes back, and it gets approved, and we'll recognize that later in the year. So that will impact the timing of the earnings as we move through the year depending on when it ultimately gets approved. But as COVID cases wane and assuming we don't have another big spike, we think as we move through the year, there will be growing earnings in the second, third, and fourth quarters. Now, the third quarter is typically, seasonally, somewhat softer than the other quarters, so you need to take that into consideration, but also we've fully expect the fourth quarter to be very robust. That's typically the strongest quarter for our ambulatory business. And so that's how we're viewing this year from a sequential basis.

Great. And in your negotiations with the payers, do you think any recognition of the current labor environment comes into play as you think about price escalators and in future years?

We I don't think we want to get into specific negotiations with payers. The only thing I would say is there haven't been any material changes in terms of negotiations.

Our next question comes from Justin Lake with Wolfe Research. Please proceed with your question.

Thanks. Good morning. I wanted to follow-up on a couple of the moving parts for 2022. Specifically, you gave us a lot of detail on sequestration. I'm curious about the benefit you saw you had in 2021 from the extra COVID bump that 20% plus HRSA payments, and how you're thinking about those and what's built in for 2022 assumptions?

Hey, Justin, it's Dan. Let me address that. For our guidance this year regarding COVID cases, we are assuming that the total cases will be around 5% or less for the whole year; the first quarter might be slightly higher, depending on how things turn out. We're anticipating a level of COVID cases that is not as high as in 2021, which was about 8%, and definitely not like 2020. Again, we expect 5% or fewer of total admissions. Regarding funding, as I mentioned earlier, we are not including any grant income in our guidance. If there is any additional funding, we'll need to assess whether we can recognize it. But for now, we are not factoring that in. About the Medicare add-on, it's important to note that with that funding come increased costs, not just for patient care but also due to longer hospital stays and higher expenses. If the number of cases decreases, it's likely that related expenses will also decrease. So, that summarizes our outlook for the year from that angle.

Okay. And anything on HRSA dollars, how much did you get in 2021? And what do you expect for 2022?

Well, it's the same thing there. That reimbursement is for patients who have COVID. And that funding, as that funding dissipates, presumably, those cases also would no longer be there. There is a question as to how long the funding will be there. Now, we've continued to receive funding at least so far this year. And we'll see where that ultimately lands this year. Again, it'll be depending on available funding as well as the level of cases obviously.

Our next question comes from Josh Raskin with Nephron Research. Please proceed with your question.

Great, thanks. Good morning. Trying to figure out sort of long-term, sort of days for earnings and sort of within the 2022 guidance, how you're thinking about the net impact of COVID, I've heard a couple of things. So I understand 5% of total volumes, etc. But I'm trying to weigh sort of those admissions and treatment against the typical pause that you've seen in utilization and sort of what the totality of the impact of COVID is on Tenet overall. And do you think that that pause in utilization that you tend to see with surges will be less impactful in the future as Tenet just continues to get better and better at managing through it?

Hey, it's Saum. Let me attempt to address that, which is projecting. I mean I'm cautious because it projects forward and an understanding of what types of variants may emerge, and that's where Omicron I think surprised us a bit relative to Delta in terms of the nature of its clinical course, right? It's been more of a broad infection not as severe, but based upon the number infected, it drove hospitalizations up again in a way that we might not have expected. So here are a few things I would say. One is the therapies that have become available to treat COVID even on an outpatient basis, if those drugs are available from a supply chain standpoint, that will probably reduce hospitalizations going forward. In my view, that's probably among the primary things, other than the vaccinations, which have been by far the most impactful things in reducing COVID hospitalizations and mortality. The new drugs are probably the second most impactful things that will reduce the impact of COVID in the hospital environment. So at some point, I think we're going to return to a world where COVID hospitalizations become like other respiratory illnesses that we end up seeing that affect hospitals probably to some extent, becoming seasonal as well, just like the flu from that standpoint. Dan's point that Dan makes is really important. The way we have set up ourselves and just kind of the hospital industry to take care of COVID has involved adding a lot of costs to do that, right? It's significant isolation expenses, etc. The question becomes when this becomes, can you take care of COVID as a more regular respiratory virus infection that ends up in the hospital without all of those extra costs over time? And that'll probably help manage the ongoing impact of the COVID expenses on the hospitals. I mean, that's really where we have to get to. The other big point I would make is COVID dissipates. There is an unknown about when utilization in the sector will return to normal, like pre-COVID levels. Is it going to spring back immediately? Or is it going to take some time for those cases to come back? We obviously are making an assumption into 2022 that those other non-COVID cases will spring back partially as a result of utilization and demand and partially as a result of our strategies. And that's why we're tracking those non-COVID volumes carefully as I described.

Okay, I understand it's an impossible question, I guess at this point. But just, it doesn't sound like COVID is necessarily a big impact one way or the other. It sounds like, yes, you see the increase in volumes and revenues. But there seems to be a lot of cost against that. Am I reading your comments right on that net-net COVID is not a big impact on the totality of $3.5 billion of EBITDA?

For 2022, it's not, I mean, it's not the cases are declining. Dan's guided to less than 5% is what we're assuming. And a lot of what it will take to deliver on the $3.475 billion is our strategies in the hospital segment and the ASC segment delivering the kind of growth that we've described and then the ongoing efficiency initiatives that we have at Conifer.

Our next question comes from A.J. Rice with Credit Suisse. Please proceed with your question.

Hello, Conifer sounds like that the base case is probably no longer a spend sometime this year; it sounds like it's an ongoing evaluation. I just wanted to see the clarify that a little more and what you're taking on maybe change in that direction slightly is. And then I'm sympathetic with Ron's comments at the very beginning, but you've created a lot of value seemingly in the USPI operation, the inventory business in the market has been slow to give you credit for it. I'm sure private equity guys and other investors are noticeable about the opportunities commensurate with your current valuation with that. And also even your leverage gains; is your view on that, if you're just going to let time pass and as you prove out the SCD transaction upside and so forth, that hopefully the market recognizes it or do you have any sense of urgency that maybe we need to figure out ways to unlock the value that we believe we've created more near-term?

This is Ron. I want to address Conifer specifically. We believe we have already realized value from our performance and returns. We're not currently seeking new opportunities or options. The company is doing well, and we believe there’s still more to achieve. Our main focus is on how to maintain the evaluation process despite consistent performance metrics over time, which clearly support our claims. At some point, the perspective needs to shift, especially when other surgery centers are valued significantly higher, while our figures do not reflect that. It doesn't add up. Regarding Conifer, we won’t disclose our plans today. We've invested considerable effort into this. I refer back to 2018 when we initially decided to move forward because we didn’t want to overlook the demand. Today, we continue to prioritize the Conifer asset; many companies would be pleased with a 1,000 basis point improvement, particularly for a company of Conifer's size. However, COVID has hindered our progress on the goals we set for Conifer, in part because our ability to market effectively has been limited. We’ve made substantial advancements in IT development. Management has been changed several times as we seek the right leadership mix, and we’ve also relocated a significant portion of the organization offshore, a step that should have been taken earlier. Conifer is a solid business, and we have discussed the possibility of spinning it off. However, we are considering the implications of such a move for the company and its shareholders against the potential for greater asset value in the future. This is a complex issue, especially with current market conditions and rising interest rates that we must factor into our decision-making. Ultimately, this is a decision for the board, not one that can be made during an earnings call. Our advisors and board are examining this closely, and we have a board meeting scheduled for the end of the month. We will need to reach a conclusion soon about what we believe is best, but I want to emphasize that no final decision has been made yet. There are still unresolved matters and discussions that need to take place. Our analytical capability has improved significantly in the past four years; while it wasn’t very strong before, we now have a robust analytical team working alongside our advisors. We are confident in arriving at the right conclusion for the future. As a public company, I’ve said nothing is permanent—everything can be sold, and we will continue our current efforts.

Our next question comes from Jason Cassorla with Citi. Please proceed with your question.

Great, thanks. Good morning, guys. Most of my questions have been asked already. But maybe could you delve into trends around payer mix in the quarter and how sustainable those trends are going forward? And maybe what the puts and takes out of payer mix as we think about 2022. Just to that point, does 2022 guidance assume any consideration around the resumption of Medicaid determinations at this point? Thanks.

Hey, Jason, it's Dan. The payer mix in the quarter was pretty consistent with what we've seen pretty much throughout the entire year. Commercial trends were more favorable than our overall aggregate trends. And some of that makes sense given the concern of certain individuals to seek care unless it's necessary. So, no major change in payer trends in the quarter compared to what we were seeing throughout the year and really the back half of 2020 as well. And then that sort of position, we took that into consideration when we were developing our guidance for this year, although, we do anticipate some of the lower acuity cases recovering stronger than they have so far. So, that'll have some impact on the mix. But the trends in the quarter were not surprising, and they were pretty much consistent with our expectations.

Our next question comes from Brian Tanquilut with Jefferies. Please proceed with your question.

Hey, good morning, guys. I guess my question is for Brett. As I think about total joint performance across USPI, both in the legacy businesses and SCD assets. How should we think about the opportunity to embed the SCD skillset so to speak into USPI's ASCs? We have heard one of the commercial payers flagged a 55% shift in joint replacements to outpatient. So just trying to figure out how you can harness that opportunity and expand it across the portfolio and how you think, how much opportunity you see? Thanks.

Hey Brian, thanks for the question. This is Brett. And look I mean, we have continued to experience significant growth in our total joint business. I mean, if you think about it for the year, and as Saum mentioned, we added 89 new service lines across the portfolio in 2021 and a significant number of those related to total joints. Just to put that into context with some numbers, total joints in Q4 showed significant improvement, growing 146% over prior-year, and 130% year-over-year growth for 2021. And so, I think in any context those are pretty significant growth rates. Obviously, SCD does a great job; has historically done a great job in expanding their total joint footprint. And of course, we're going to continue to learn from them and vice versa in terms of how we expand not only in total joints but across a wide variety of higher acuity specialties including spine and cardiac. So we'll continue to learn from one another as we integrate their business into ours. And obviously, with our five-year partnership with SCD, we will continue to work together as they build out their portfolio and partner together on a go-forward basis with essentially everything they do from a development perspective over the next five years.

Hey Brian, let me just add one other point to that which is that just remember the strategy of working with SCD in orthopedics was very deliberate. USPI's core platform in orthopedics was already the leader in the Ambulatory Surgery space. So our ability with Brett and team to build and grow in orthopedics, bone, and joint pain and other related spaces is not limited to the portfolio of centers that we've recently partnered with in SCD; it's the whole portfolio. And that's why we think this aspiration that we had of being the unquestionable leader in outpatient orthopedic surgery, including innovating and adding new procedures in the USPI environment has been very important strategically to where USPI is headed.

The next question is from Ben Hendrix with RBC Capital Markets. Please proceed with your question.

Hi, good morning. Thank you for taking my question. Just had a quick one to follow-up on Justin's earlier question. Is it possible for you to quantify kind of what you had received in 2021 in total from the COVID-related subsidies, 20% add-on, the sequester relief, and HRSA, and then kind of what do you have baked into guidance, at least from a magnitude perspective and directionally for 2022? Thanks.

Hey Ben, it's Dan. We haven't put a specific number out there for the Medicare add-on or HRSA. I would; here's the thing, the funding yes it has been very helpful, let's take HRSA for example, very helpful for patients who otherwise would be uninsured. But it's Medicare reimbursement for patients that we're providing care for. And again, the cost profile for caring for those type of patients is higher than a typical admission. So, yes, the funding is there, but also the costs are there. So it's not necessarily a matter of all the funding goes away, and but the cases are still there. We certainly hope that's not the case. But we'll have to wait and see in terms of where the funding ultimately lands. So I would tell you that we get the question a lot. The HRSA funding is, approximately for 2021, was about $75 million. But again, there's costs or you just, you can't assume that okay, the revenue goes away, and that's a massive headwind. We certainly hope that's not the case.

Our next question comes from Whit Mayo with SVB Leerink. Please proceed with your question.

Okay. Two really quick ones. First, just a clarification on the SCD disclosures. What's the difference in the old guidance of $175 million and the $140 million that you're getting to now? I wasn't clear and then if you could give us an update on the Baylor put call, thanks.

Hey Whit, it's Dan. In terms of the difference between the $175 million and the latest estimate of $140 million, keep in mind when we announced the deal in November, we were targeting 92 centers. Based on subsequent due diligence, we made a determination not to invest in six of those centers. So that's a fairly large portion of the difference. And then the other factor, too, is based on, as we learned further information on the timing of buy-ups that also was a factor in updating the estimate. More importantly, is the fact that our overall fully ramped consolidated EBITDA estimate from the portfolio, which is six centers smaller than originally planned is 86 versus 92; we still feel very comfortable with our overall fully ramped estimate of $275 million fully ramped. So even though six centers aren't there, we think long-term, years three to four, we will still achieve $275 million. In terms of your other question about the Baylor USPI call put, we'll obviously when we get to the point of finalizing that, we will disclose that. So there's nothing really to add at this point.

Our next question comes from John Ransom with Raymond James. Please proceed with your question.

Hey, good morning. How many ASCs do you think you end up consolidating this year through buy-out versus unconsolidated at the start of the year?

John, just to clarify, are you asking vis-à-vis the latest SCD transaction?

Yes, how many centers do you think to buy-out this year to get the majority position?

So John, we've accomplished well over 16 year-to-date. And we expect to do another 30 plus this year.

Does that get to your end goal, or are there more to do after the end of this year?

It gets us to our estimate, our expectations. I think over time, if you go past 2022, we'll end up consolidating more of the portfolio then that as you know there's a total of 86 facilities, but quite a few of those facilities that are part of the 86 are less than a year old and some of them are still under development. So when you go into 2023, 2024 we will consolidate, we will end up consolidating more of the portfolio as those centers mature.

Our next question comes from Andrew Mok with UBS. Please proceed with your question.

Hi, good morning. CapEx in the quarter accelerated meaningfully to $200 million. Can you help us understand where you allocated the growth CapEx in the quarter? And how do you view the runway to expand higher acuity service lines within your hospital portfolio?

The runway for our long-term strategy remains strong. We have not wavered in our approach, which includes multiple aspects such as capital and infrastructure expansion, all done with careful consideration. Clinical technology is central to our efforts, and we aim to ensure we have the right mix of caregivers to provide high-acuity services in community hospital settings. There is significant potential for growth in this area. The cardiovascular and neurosciences surgical procedures are expanding, and that growth is also evident at USPI. We are vigilant about innovations in ambulatory care and strive to create a safe environment for these advancements. We believe there is ample opportunity to evolve our technology and services in the high-acuity space. It's important to remember that high acuity encompasses not just surgical cases, but also medical cases, making it primarily a focus for hospital settings.

Okay, operator, we're going to have to end it now. Thanks. Thank you so much everyone for joining us today.

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.