Tenet Healthcare Corp (THC) Q3 2026 Earnings Call Transcript

Good morning. Welcome to Tenant Healthcare's third quarter, 2026 earnings conference call. After the speaker remarks, there will be a question and answer session for industry analysts. If you would like to ask a question, please press star 1 on your telephone keypad. You may press star 2 to remove yourself from the queue. If a participant is using speaker equipment, it may be necessary to pick up the handset before pressing these star keys. Tenant respectfully asks that analysts limit themselves to one question each. I'll now turn the call over to your host, Mr. Will McDowell, Vice President of Investor Relations. Mr. McDowell, you may begin.

Good morning, everyone, and thank you for joining today's call. I am Will McDowell, Vice President of Investor Relations. We're pleased to have you join us for a discussion of Tenant's third quarter 2026 results, as well as a discussion of our financial outlook. Tenant Senior Management participating in today's call will be Dr. Sam Satoria, Chairman and Chief Executive Officer, And Sun Park, Executive Vice President and Chief Financial Officer. Our webcast this morning includes a slide presentation, which has been posted to the Investor Relations section of our website, TenantHealth.com. Listeners to this call are advised that certain statements made during a discussion today are forward-looking and represent management's expectations based on currently available information. Actual results and plans could differ materially. Tenant is under no obligation to update any forward-looking statements

Thank you, Will, and good morning, everyone. Third quarter net operating revenues were $5.6 billion, and consolidated adjusted EBITDA was $1.355 billion. Adjusted diluted earnings per share increased 80 percent to $6 billion per year, which is $6 billion per year. The report is about $1.64 in the third quarter of 2026 compared to the prior year. More importantly, after adjusting for one-time items related to contract transitions that generated adjusted EBITDA of $147 million that was not reflected in our previous guidance, the core business continued its strong growth trajectory in 2026 with an adjusted EBITDA with a market margin of 21.8 percent and 10 percent growth in adjusted EBITDA over third-quarter 2025. We continue to manage through payer mix shifts and enrollment declines in the exchanges and execute on our technology-enabled growth and expense management plans that support our margin strength. Our strong performance is driving significant free cash flow that we continue to deploy for the benefit of shareholders. Year to date, we have deployed over $1.6 billion for share repurchases. Now, turning to our segments, USPI generated $537 million in adjusted EBITDA, which represents 9 percent growth over third quarter 2025. Same facility revenues grew 4.5 percent as our high-acuity strategy continues to yield benefits and is highlighted by our strongest quarterly performance this year with 12.8 percent same-store growth in total joint replacements in the ASCs Good morning, everybody. Thank you. Thank you very much, thank you. Thank you Micheal. And I appreciate this, educators, us to make sure you thank our speakers, We are pleased with our performance in both operating segments, which continue to generate Thank you. The guidance increase is supported by our continued expectations for strong fundamental performance, as well as the one-time items in the back half of the year. Notably, over 40% of our total guidance increase for this year is from fundamental outperformance. I'd like to now spend a few minutes discussing some early thoughts on 2027. After excluding the impact of the transition activities at Conifer, we expect our enterprise to deliver overall adjusted EBITDA growth in 2027. This assumes the current known regulatory frameworks. The value of our diversified business mix support our belief in this outcome for 2027. We're still conducting business planning, so details will come after the fourth quarter As usual, we're sizing further potential exchange headwinds and the estimated impact of Medicaid work requirements. USPIs should not be materially impacted by these, and we expect same-store revenue growth, consistent margins, and further expansion of the asset portfolio in our ambulatory business. In the hospital segment, we currently see healthy patient demand that would support same-store volume growth and a stable operating environment supported by disciplined cost controls in We are pleased with the results of this highly attractive contribution in 2027. To help you bridge the years, we now expect various transition activities at Conifer to total $450 million of adjusted EBITDA in 2026. We do not expect these contributions to recur in 2027, and I will reiterate that this is an estimate depending on how the transitions proceed operationally. We will provide an update following our fourth quarter results. We are pleased with the results of this highly attractive conifer transaction, as the total value generated from the contract sale will now increase to approximately 15 times 2025 adjusted EBITDA minus NCI. In summary, we have a transformed portfolio of businesses with strong underlying fundamentals, disciplined operations, and a business mix which is diversified for many of the reimbursement headwinds that are affecting the industry. Finally, I will again reiterate our commitment to returning free cash flow to shareholders via repurchases, especially at our attractive valuation multiple in light of recent comparable multiples for combination ASC hospital platforms. For more details on our results, I will now turn it over to Sam.

Thank you, Sam, and good morning, everyone. We again delivered strong performance in the third quarter of 2026, generating total net operating revenues of $5.6 billion and consolidated adjusted EBITDA of $1.355 billion. Third quarter adjusted EBITDA margins were driven by strong revenue performance and disciplined operating expense management, with continued progress on the efficiency initiatives that We have outlined at the beginning of the year as well as favorable transition items as described in the earnings release. I would now like to highlight some key items for both of our segments beginning with USPI. In the third quarter, USPI adjusted EBITDA grew 9.1% over third quarter 2025 at $537 million with adjusted EBITDA margins at 39.2%. The same facility system-wide revenues increased 4.5% with net revenue per case up 6.1% and same facility case volumes down 1.5% reflective of our high acuity focus. Turning to our hospital segment, same hospital adjusted admissions rose 3.2% in the quarter as demand remained healthy. We have a great day. Revenue per adjusted admission increased 0.2% year-over-year in the quarter, primarily due to strength in commercial employer revenues, offset by the impact of reduced exchange volumes. Exchange admissions and revenues declined 18% from third quarter of 2025 and represented about 5.5% of consolidated net operating revenues in third quarter of 2026. We recognized $32 million of out-of-period supplemental Medicaid revenues in the quarter. This compares to $38 million of out-of-period supplemental Medicaid revenues that we had in the third quarter of 2025. I would note that year-to-date, there is $124 million of favorable out-of-period supplemental Medicaid revenues related to prior years. Finally, we recognized This amount is comprised of two items. First, our net operating revenues increased by $97 million due to revenue recognition timing. It is important to note that this is simply a timing shift between the third and fourth quarters and, as such, does not impact our full-year 2026 revenue. Thank you very much, everyone. Second, we recognized the $50 million of EBITDA from various transition activities, including expense reductions that took place earlier than we had originally anticipated. All in all, our operating discipline and strategic focus enabled us to deliver another strong quarter despite the patient coverage challenges that the industry is facing. Next, we will discuss our cash flow balance sheet and capital structure. We generated $1.1 billion of adjusted free cash flow in the third quarter, which brings us to $2.5 billion of adjusted free cash flow year-to-date. As of September 30, 2026, we had $2.67 billion of cash on hand, with no borrowings outstanding under our line of credit facility. As previously announced, we issued $2 billion of senior unsecured notes that mature in 2034. We used the proceeds from the notes to retire $2 billion of notes that would have been due in 2027 and 2028. We now have no significant debt maturities until 2028. And finally, during the third quarter, we repurchased 970,000 shares of our stock for $255 million. Year-to-date, we have repurchased 8 million shares of our stock for $1.615 billion. Our leverage ratio as of The final result of September 30, 2026 was 2.11 times EBITDA or 2.58 times EBITDA less NCI, driven by our strong operational performance and financial discipline. We remain committed to maintaining a deleverage balance sheet and believe that we have significant financial flexibility to support our capital deployment priorities and continue to drive shareholder value. Let me now turn to our outlook for 2026. For 2026, we now expect consolidated net operating revenues in the range of $22.05 to $22.45 billion, an increase of $50 million at the midpoint of the range over prior expectations. As Somnette mentioned, we are raising our 2026 adjusted EBITDA outlook range by $195 million at the midpoint to $5.05 to $5.2 billion, reflecting the increased EBITDA expectations associated with our transition activities, As well as the additional out-of-period supplemental Medicaid revenues that we recognized in the quarter. Turning to our cash flows for 2026, we now expect adjusted free cash flow after NCI in the range of $1.925 to $2.155 billion, an increase of $100 million at the midpoint from our previous guidance range. This range includes the payment of about $150 million in tax payments this year for the conifer transaction. Excluding these tax payments, this would represent $2.2 billion of adjusted free cash flow after NCI at the midpoint of our 26 outlook. Our businesses continue to deliver strong free cash flow conversion from our EBITDA performance while we continue to invest in high priority areas to support future growth. Turning to our capital deployment priorities, we are well positioned to create value for shareholders through the effective deployment of free cash flow. First, we will continue to prioritize capital investments to grow USTI through M&A. Second, we expect to continue investing in key hospital growth opportunities to fuel organic growth, including our focus on higher acuity service offerings. Third, we'll continue to be active in share purchases. We continue to see significant opportunity at our current valuation, continued operating performance, and strong leverage position. And finally, we will continue Thank you.

We will now be conducting a question and answer session. Again, if you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 to remove yourself from the queue. And again, for Participants using speaker equipment. It may be necessary to pick up the handset before pressing the star keys. Our first question comes from the line of Jason Carsola with Guggenheim. Please proceed with your question.

Great. Thanks. Good morning. I wanted to ask about commercial pricing. It's an error you've called out a couple times or at least the past couple quarters. Maybe can you just unpack what you're realizing on the commercial rate side, how you're working with payers as a partner to increase revenue yields, reduce emissions, Administrative costs and the like, and how you're thinking about the sustainability of this commercial pricing favorability as you look out into the future.

Thanks.

Hey, Jason. Good morning. It's Son. Yeah, I think our relationship with our commercial payers and commercial pricing overall hasn't changed very much at all from our prior commentary, right? We still are seeing good renewals, you know, a lot of them at the 3% to 5% range. You know, we're obviously fully contracted for this year and are basically, you know, over 90 percent contracted for next year as well. So, we have good visibility. You know, the only other thing I would note is from a net revenue per just emissions rate, you know, we said 0.2 percent this year, or this quarter, excuse me. A lot of that is driven by, as expected, good pricing mix across our categories, And then, obviously, offset by exchange headwinds. The exchange headwinds represented about 1.8 percent headwind on our net revenue stat. And then, from an operational basis, look, I mean, we try to have a win-win relationship with all our payers. You know, we obviously have to be very diligent from our conifer business operations on our revenue yield as we respond to different requests and, you know, candidly denial activity Thank you. Thank you for your question.

Thank you. And, again, as a reminder, we ask that everyone I want to please limit themselves to only one question. Our next question comes from the line of Ryan Langston with TD Cowan. Please proceed with your question.

This is Bill on for Ryan. I just have a quick question on the state-directed payments. So you disclosed a number in your filings about Medicaid supplemental payments. I was wondering if you could ballpark what percentage of those will not be subject to reductions under H.R. 1?

Hey, thanks for your question. Yeah, we do, we disclose our overall state-directed, supplemental Medicaid payments, excuse me, and for this quarter, you'll see in our 10Q, it'll be $356 million total of supplemental payments. That being said, we don't disclose the proportion of which would be subject to, you know, HR1 activity going forward.

Fair enough. If I could just ask a quick follow-up then on just work requirements and thinking about that for next year. When you think about your total adjusted admissions, what percentage come from Medicaid expansion individuals?

You know, when you look at our admissions, I would say there's about 60% of our admissions that are from expansion states. You know, I think that's about it. I think you realize, you know that we have, you know, markets like Michigan where there's a lot of activity and we're important providers in that expansion state. That's an example. So, it's about 60%.

Thank you. Our next question comes from the line of Kevin Fitchback with Bank of America. You may proceed with your question.

Great. Thanks. Just one clarification before I ask the question. When you said that you think you're going to be able to grow EBITDA next year ex-conifer, is that the only adjustment to 450, or do we also have to take out the prior year Medicaid supplemental payments? And then I guess the real question is just about your view on surgeries broadly. You know, there's been a lot of talk about a weaker surgery backdrop, and, you know, we'd like to hear what you're seeing on that respect. Thanks.

Yeah, let me start with the second question, and I'll pass this on. I think the surgical environment, you know, look, I mean, from an industry perspective, in terms of what we're seeing, we're pleased with our results. Obviously, there are two components, the hospital segment and the ASC segment, both of which I think are generally consistent or better than what we're seeing in the general industry. Remember, on the USPI side, as I noted, we're still so focused on our strategy of acuity that you have to take those results in light of that. But again, I think competitively differentiated results there as well, both on revenue and volume. So we're pleased with that. But, you know, and that said, I would not say this is a gangbusters surgical environment right now, right? So, you just have to take both of them together, and the importance of our strategy is probably the critical point here in terms of what's driving our confidence in the earnings growth going forward into 2027.

Yeah, and, Kevin, this is just on your clarification question. Yeah, we do believe we'll grow total EBITDA next year once you normalize for the $450 million of one-time transition items that we called out this year.

Thank you. Our next question comes from the line of Stephen Baxter with Wells Fargo. You may proceed with your question.

Hi, thanks. I was hoping you could update us a little bit on what you're seeing on compensated care trends. It looks like in the third quarter there was some uptick in both unpaid admissions and also I think a little bit more so unpaid outpatient visits. When compared to the second quarter, does that go beyond what you're seeing on the exchanges and any kind of update just on the exchange trajectory throughout the year? Thank you.

I mean, first of all, you know, the primary comment I would make is that largely Q3 is a stabilization message from Q2, right? I mean, if Q1 started with what would have been under Either the basic run rate of impact and Q2 accelerated, Q3 is a stabilization message, is our main takeaway there. And then you're right about the, you know, slight changes there. I don't know, Son, if you have any other comments, but that's how we're viewing it.

And nothing further to add, Tom, it's really exchange volume reductions that we discussed And the commensurate increase in, you know, uncompensated care numbers that you're seeing. I don't think there's anything beyond that.

Thank you. Our next question comes from the line of With Mayo with Lyrinc Partners. Please proceed with your question.

Thanks. Is there a revenue headwind that we should be aware of as we think about the hospital segment for the fourth quarter with Common Spirit now gone? And is the $450 million headwind next year, is that rattably across each of the quarters, or does it have a different slope to it? Thanks.

Yeah. Anyway, this is Son. The only revenue headwind we'll call out is the timing piece that we, you know, explicitly said, the $97 million that came into Q3 from a timing basis that otherwise would have been in Q4 instead. I think that's the only material one that would call out from a hospital segment perspective. For next year, the $450,000, I would say a big portion of that is, would be spread ratably throughout the year, and that is the, you know, the overall contribution of the common spirit contract that we saw this year. And then there is a portion, and we call that about $160 million total between Q3 and Q4, that is going to be more, obviously, second-half weighted, given that some of the efficiency Thank you.

Our next question comes from the line of Brian Tenquillet with Jeffries. You may proceed with your question.

Hey, good morning, guys. Maybe, Son, as I think about the salaries line, I see it down both sequentially and a year-over-year basis. Is this largely driven by the conifer transition, or is there anything to think about in terms of the efforts that you guys have put in on SWB, and is this the right baseline to basically adjust and build off of going forward? Thanks.

Yeah, I would actually say it's the other way around. I mean, most of the efficiency you're seeing in our SWB line is from all the things that we just talked about over the course of the year, where we obviously have spent a lot of time and energy and effort and have shown performance on cost controls, you know, in the face of HICS exchange reductions and other challenges. So, you know, there are a lot of moving pieces, obviously, in that line item, but a lot of majority of that is from our efficiency efforts. Now, and as you get into Q3 and Q4, as again said, there are some additional efficiency impact that we'll see as we transition activities. But by and large, SW is from our efficiency efforts overall across attended healthcare. Thank you.

Thank you. Our next question comes from the line of Peto Chickering with Deutsche Bank. You may proceed with your question.

You know, a question. Just looking at the ASC growth engine for the next few years, you know, ortho, you know, it's obviously been a big one, but, you know, should we be thinking about other areas like urology, you know, bringing in used DaVinci's, used XI's, you know, urology, I mean, kind of, you know, as you look past ortho, which, again, will continue for another couple of years, where's the next sort of big growth engine that we should be thinking about within ASCs?

Yeah, thanks, Peto. For sure, you know, orthopedics and the expansion of orthopedics cases beyond the current case mix is an important driver. But in addition for us, you know, as you know, we have been pursuing growth in urology, in general surgery, in advanced body robotics, in spine. I mean, there are a number of areas, um, standing up some new cardiac centers, you know, as I've always said, slower process, but still opportunity. So the, the diversification into higher acuity areas while maintaining and growing, uh, our base are both important drivers of, of that future. And, and really, you know, the combination of that strategy with the regulatory framework and, and support for moving surgical care into safe, lower-cost settings are both things that I think will benefit us over a multiyear period. In this environment, and look, the regulatory environment is somewhat known and somewhat uncertain based upon what happens from an election standpoint, but I would say and reiterate what I noted in my comments, which is having Having the diversified platform at the scale we have it is a really important driver of our ongoing ability to build and grow this business, you know, at an enterprise level.

Great. And then a follow-up here, you know, like you raised the core EBITDA growth by sort of 3 million versus the last quarter. I assume there's a lot of moving pieces within that 3 million. So can you start talking about the good guys and bad guys within that, as it seems pretty solid considering the volatility we're seeing in the markets today?

Yeah, I mean, I think, as we kind of said in our prepared comments, the change in our estimates and guidance ranges was pretty mechanical this quarter, where it was virtually all to do with the one-time items, as well as the revenue recognition piece that we already mentioned, plus the out of period Medicaid. Without those, I would say, you know, from a core fundamental performance basis, we had a very significant raise last quarter, both So, I would say those are probably the moving pieces that I would point out.

Yeah, I mean, we're reiterating the belief in the strength of the business today and also our ability to manage that into the fourth quarter at the elevated levels that we've provided, and we think we have the foundation in place and the tactics for the fourth quarter in place.

Thank you. Again, as a reminder, Tenet respectfully asks that analysts limit themselves to only one question each. Our next question comes from the line of AJ Rice with UBS. You may proceed with your question.

Hi, everybody. You know, we've had now with the announcement of the last week, two major deals where nonprofit health systems are buying surgery center assets, paying, you know, significantly higher premiums than what your business is being valued in the market. And you, historically, I think USPI has generally been viewed in the industry as probably the premium surgery center asset. I wonder, with that backdrop, can you comment on, is this having any impact in the market on deals, the smaller deals, in terms of how people are thinking about pricing? Is it changing the competition for ASC assets in any way? That maybe these guys are out of the market because they're in the process of selling, or maybe the nonprofit systems are gearing up to be more active acquirers? And does it do anything to make you think about being more proactive and trying to get recognition for the value that's obviously there at USPI but doesn't seem to be recognized by the market?

Thanks, A.J. I mean, let's start with the last part of it. I mean, again, as I commented at the end, I think from a practical perspective, the two things that we can do are continue to deliver differentiated earnings growth. I believe that USPI has delivered differentiated earnings growth versus any other ASC platform in the industry, both recently and over a long period of time. I think the facts would support that pretty easily. And the second thing is It's with our free cash flow generation recognizing the attractive valuation of our equity relative to, you know, relative to what are some reasonable valuations of, in this case, more recently, ASC hospital combination platforms, as I noted. So, those are the two practical things. Like, we believe in continuing to build this business and do it on a differentiated manner. In terms of the M&A market, look at the third quarter again, right? A very successful third quarter in acquisitions, the vast majority of which were not competitive processes, but came exclusively to USPI in those processes, and we have a terrific pipeline looking ahead. I know we keep saying that, but the reality is our acquisitions every year continue to confirm that that pipeline translates to actual acquisition activity and successful ramp-up of our ability to deliver synergies into those assets. At the same time, you know, our strategy is diversifying We're getting more and more inclusive of more rapid pace of de novo development, new tools in the toolkit about how we think about those de novo developments, a heavier focus of those de novo developments into some of the higher acuity service lines where we've built a differentiated reputation in the marketplace with physician and physician groups and MSOs that are investing in those, investing in those. So I think that's another important feature of what we are able to do looking forward. And then finally, you know, because of the value that we are providing health plans in the ASC sector and the government, candidly, you know, our ability to move into new markets and new states with our contracting platform and move surgical care into lower-cost settings So thinking about having to build more acute care hospitals is another important differentiator in what we are able to do with respect to expanding USPIs scope and activity. So, again, as you can imagine, we spend a lot of time on this and how we remain competitively differentiated going forward, not just where we are today. And hopefully that gives you a little bit of a flavor of it. Look, in terms of the two recent ASC acquisitions, you know, I've personally extended my congratulations to both new owners. This is an important part of the market, and we have a lot of work to do together from an advocacy perspective in order to support and build the growing interest in ambulatory surgery, Maintain high quality and safety, and also ensure that regulators understand the benefits that this portion of the surgical sector is providing to the cost of healthcare going forward, and so I look forward to those collaborations with those leaders.

Okay. Thanks a lot.

Thank you. Our next question comes from the line of Justin Lake with Wolf Research. Please proceed with your question.

Thanks. Good morning. You guys have done an incredible job of managing costs and improving margins at the hospital segment in particular. Wanted to see if you can give us any color on where you see yourself in terms of the life cycle of that margin trajectory. Effectively asking whether you still see meaningful opportunity here, or should we expect core growth going forward in the hospital business to look more like top-line growth, X items like CPP exchanges, work requirements that are going to be transitioning.

Hey, Justin. Thanks for the question. And we have spent a lot of time and energy making sure that our total business, including hospitals, as you noted, is running efficiently and we're finding cost opportunities wherever we can. And that's been a longstanding campaign for Tenet, obviously. This year, as we've talked about several times, we accelerated those efforts, including adoption of different technologies and AI tools for obvious reasons in the face of some headwinds that we had in exchange as well as other dynamics. You know, going forward, it's tough to say, you know, we're in the lifecycle we are, right? You know, I think it's reasonable to assume that we will have access to, you know, even more improved technologies and other solutions as we go that we may not be aware of today, but that we can adopt as we go in the future. And I think Tenet's shown the ability to do that. From a more operational basis, you know, the operating environment, I think, is pretty stable, right, as we've said many times. From a labor standpoint, from our ability to manage our suppliers And, um, and other medical professional providers, you know, I think, you know, there remains opportunity and we will continue to work on those, but I think we've managed that pretty significantly. So, listen, I think, um, tenant's been shown the ability to kind of dial up, dial down, um, as the situation, um, requires. We'll see as we get through our planning for 27, what, um, all of the headwinds and tailwinds are, and obviously, uh, managing our operating expenses will be a, a big part of how we, uh, deliver our commitments. So, hopefully that answers the question. Thanks, Ruth.

Thanks very much. The only thing I'd add is that our commentary about 2027 is probably a reflection of how positively we feel about our controllable activities looking forward into the coming year.

Yeah. Agreed. Great. Thanks. Thank you.

Thank you. Our next question comes from the line of Andrew Malk with Barclays. You may I proceed with your question.

Total jointly accelerated at USPI this quarter. Is there anything to call out to write?

Yes. I mean, I think when you say, is that share coming from hospitals, I think it's coming from migration of cases from probably an HOPD to a freestanding outpatient setting. I think the driver of that is the continued efforts that we make in helping surgeons realize that they have a service-differentiated site of care that as they get comfortable with it, they can continue to grow their activity in that environment, right? It's more convenient for them. It's more convenient for their patients. One of the important things that we have, I think I've talked about before, is the ability to help these surgeons who are pretty smart about, you know, opportunity and risk with their patients to use frameworks we've established to give them more predictability in terms of which cases are safe in the ASC environment, likely to be successful, in which conditions they may want to think about that would drive them to continue. Continue for patient, you know, success and safety standpoint in the hospital. And those protocols, I think, are very helpful to growing the confidence in the surgical community of what they can achieve in a USPI ASC, and that's helping to drive the organic growth, you know. And it's a matter of really expanding the access to those protocols, which is really about how many surgeons trial an environment in the USPI setting. One of the things we do in this service line is give surgeons an opportunity to trial USPI centers without having to be joint venture partners or equity owners or other things. So that's a really important feature of what we create capacity to do in our environment, because those could be future partners in perhaps new, de novo, and other centers.

Thank you. Our next question comes from the line of Sarah James with Cancer Fitzgerald. You may proceed with your question.

Thank you. You guys have talked positively about surgical results versus the industry. Are you gaining surgical share in 2026, and is it on the hospital, USPI, or both? And how are you thinking about the surgical versus medical mix heading into 27?

Yeah, so two things. I mean, I would reiterate our strategic focus, right? We're primarily focused on growing and succeeding in share capture in our higher acuity surgical areas and continuing to build more access points in some of the more foundational ambulatory surgery center environments, which is effectively share capture. By growing the number of surgeons or number of doctors affiliated with USPI, in the high acuity areas, we're doing that, plus we are seeing growth that's based upon the question that we just answered around the migration from higher cost to lower cost settings. It's a combination of the two, which is why you see higher growth rates. The summary from both of those is that we are increasing the proportional share that's happening in the lower-cost ASC setting. You know, in the acute care business, as I noted, this year has tilted a bit more towards both significant emergent and medical care on balance than surgical care, though both have been important drivers of our strategy. Remember, for us, again, the focus on that higher acuity segment is very important in terms of what we're doing. So that's what supports our revenue growth and case mix index growth and the ongoing opportunities for expense management we have with our length of stay platform and the things we're doing there. So, the mix of business gives us an opportunity to both grow revenue intensity and improve our expense management, which is why you see the margin strength that we're able to deliver.

Thank you.

Thank you. Our next question comes from the line of Anne Haines with Mizzou Ho Securities. You may proceed with your question.

Good morning. Thank you so much. Thank you very much. Thanks on the visibility for being able to grow in 2027. Do you have any targets, meaning do you have a long-term target for each segment? And if you do, do you think you'll be able to grow within those long-term targets for each segment? Thank you.

Yeah, and we have not indicated any kind of long-term targets in the segments other than what we sort of repeat year over year when we give guidance until there's full clarity about what's going to happen vis-a-vis HR1, which we believe is very highly subject to modification based upon election outcomes over the next few years.

Thank you. Our next question comes from the line of Craig Hettenbach with Morgan Stanley. Please proceed with your question.

Yes, thank you. Sam, in the hospital segment, the transfer program has been an important driver of higher acuity growth and margin performance. Can you just touch on the strategy behind that and the durability of that strategy?

Yes, thanks, Craig. So, look, I think it's very important in this environment, coming out of COVID, this is more of a long-term strategy, that urban and, you know, sort of larger suburban hospitals have an important role to play in providing access to more smaller suburban and certainly more rural communities where the funding just hasn't been necessarily fully available. to refresh capital, physician specialty capacity, and other things coming out of the COVID crisis. And at the same time, there's still people that live there, need access, get very sick, and go to their hospitals. And, you know, we have a very important to us transfer program strategy that is willing and able to receive all patients from these outlying locations when there are needs, and importantly, return them to their home communities as appropriate as early as possible as well. And our ability operationally to have built these successful partnerships have been sustainable, we've found, over a number of years. I mean, in the end, if you're a good partner to more rural and smaller suburban communities, they remember that, and you're reliable, and you take their patients when they need it, and you return their patients to them when appropriate. They remember that. And those relationships that have been built through the back end of COVID and all the way into today are an important part of our strategy. And look, we also have built a better expertise than the market in taking care of high-acuity patients and transfers because it's the heart of our strategy. We save intensive care unit capacity for these types of patients. We're very good at stepping people down out of the intensive care unit when their care is safe in that manner in order to create that capacity, and we also have emergency department contracts and physicians that understand we take this obligation to these communities very seriously, and therefore we create and save capacity for those patients in the emergency environment as well. So it's a comprehensive approach that we don't think is very easy to replicate in terms of what we have put in place. And, yes, it's an important driver of our, in the end, to simplify our high-acuity strategy.

Helpful context. Thank you.

Thank you. Our next question comes from the line of Ben Hendricks with RBC. You may proceed with your question.

Great. Thank you very much. I just wanted to follow up on some of the joint procedure momentum discussion, and I realize that the strength you're seeing reflects the high acuity focus, service line initiatives, share capture, et cetera. We're just hoping to get a sense of some of the underlying demand trends in your market. So I think one of your peers had talked about a lull in high acuity ortho with clinic and imaging volume, not necessarily converting to procedures. I wanted to see kind of what degree you're seeing delays build and if that's informing your growth expectations for 27. Thanks.

Yeah, I mean, obviously, we've thought a lot about this this year and, you know, in various forums have kind of made comments about it. You know, again, I think what I said today was like it's not a gangbusters environment. On a differentiated basis, we're performing well, and I think that's good. And I think secondarily, as I said, the commitment we have at USPI is to build and grow the revenues and earnings of the business and to be strategic rather than just kind of catchers of what's in the market. And I think being strategic has consistently helped us over the last few years in terms of how we've built the business. And so, look, we anticipate continuing to do both. I think as the coverage environment settles, you know, maybe this demand environment will, when I say settle, it'll at least become more predictable as we look ahead. And, you know, hopefully that in combination with settling some of the uncertainty around the election will also help settle 2027. And from our standpoint, as we've gone through our planning process to date, we couldn't see anything visible that suggested that we shouldn't be able to deliver another, you know, as I called it, consistent year ahead at USPI. And then on top of that, our, you know, I think I indicated our M&A environment is tracking towards the raised guidance for this year that we gave earlier this year in terms of our ability to have more affiliates, more affiliated centers at USPI. So we're looking forward to 2027 from the perspective of ambulatory surgery.

Thank you. Thank you. And our last question comes from the line of Benjamin Rossi with JPMorgan. You may proceed with your question.

Great. Thanks for squeezing me in here. I guess I'll descend with following up on some of the surgical comments. So, Sam, you've discussed OR productivity a good deal when framing your high acuity strategy. Just with surgical growth and negative territory across segments due to date, can you give us an update on how OR dynamics and throughput are working, how clinics are managing through anesthesia coverage, and how you're approaching things like OR scheduling and physician recruitment as you take on these longer duration cases. Thanks.

Yeah, well, I think I've indicated before, I mean, one of the sort of just simple operational benefits of longer case times in higher acuity surgery is, you know, productive OR capacity utilization. Like anything else, it's a fixed asset, and in the case of ambulatory surgery centers, it's a fixed asset that's only open for a certain number of hours. And so, the importance of that ORI utilization as a driver of our revenue growth is something that we track very, very carefully, and to the point I think you're making, the improvements in those areas are helpful to us. Look, they're still operationally areas that we're working on improving. Some of the new tools that we're working with trialing in the ORIs are doing. Um, patient outreach, um, including agentic solutions, uh, with respect to improving case cancellations and reminders, you know, could be important drivers over time. Um, some of the analytics that we're learning from with some of these new tools that help us think about how to organize better operating room schedules to maximize the utilization, short cases versus Long cases, turnover times, you know, what generates efficiency. I mean, some of these things in the past, you would have to rely on the intuition of center leaders who've just been so experienced doing it. Now, with the availability of analytics tools, you can actually put a lot of that retrospective data into algorithms that will help you decide better how to manage your OR scheduling even from that perspective. So we're trying all of that stuff in the spirit of being better ASC operators and the way in which this organization embraces the use of many of these AI-based technologies. And, you know, we'll see what works looking forward. But I hope that those things, in partnership with our doctors, continue to help us improve the efficiency and accuracy with which we run our operating rooms. You know, the other things that happen in that environment, of course, are all of the things related to accurately capturing charges, you know, preparing preauthorization. I mean, all of those areas have opportunity for technology to benefit the way that we're doing those things. I think your last question or part of your question in there that I'll wrap with here is on the anesthesia side. You know, I think largely that market, which hasn't been a favorable line item from an expenditure standpoint, has somewhat stabilized. And, you know, I think it's well known in the industry that we focus our work with a preference on in-network anesthesia, and, you know, we do our best to make that clear across the board.

And, ladies and gentlemen, we have reached the end of the question and answer session, and this also concludes today's conference, and you may disconnect your lines at this time. We thank you for your participation. Have a great day.