Title

Presentation

Tenet Healthcare Corporation beats earnings expectations. Reported EPS is $4.82, expectations were $4.21.

Operator: Good morning, and welcome to Tenet Healthcare’s First Quarter 2026 Earnings Conference Call. [Operator Instructions] I’ll now turn the call over to your host, Mr. Will McDowell, Vice President of Investor Relations. Mr. McDowell, you may begin.

William McDowell: 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 Tenet’s first quarter 2026 results as well as a discussion of our financial outlook. Tenet’s senior management participating in today’s call will be Dr. Saum Sutaria, 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, tenethealth.com. Listeners to this call are advised that certain statements made during our discussion today are forward-looking and represent 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. And with that, I’ll turn the call over to Saum.

Saumya Sutaria: All right. Thank you, Will, and good morning, everyone. In the first quarter, we reported net operating revenues of $5.4 billion and consolidated adjusted EBITDA of $1.16 billion, which represents an adjusted EBITDA margin of 21.6%. We are pleased with the start to the year, performing above our previously provided expectations. As anticipated towards the end of last year, the operating environment is dynamic. There are payer mix shifts, seasonal effects and insurance enrollment uncertainty in the exchanges and Medicaid that impact demand. Despite these challenges, we delivered a clean quarter characterized by disciplined operations, benefits from execution on our previously described expense opportunities, stable volumes despite headwinds and as a result, significant free cash flow generation.

USPI generated $484 million in adjusted EBITDA, which represents 6% growth over the first quarter of 2025 and a robust 22% of our full year 2026 adjusted EBITDA guidance. We are pleased with USPI’s start to the year as we set an aggressive EBITDA target as a percent of the full year for the first quarter that we were able to exceed. We have seen a pattern over the last few years with a modest shift towards an increased distribution of cases and, therefore, earnings into the first quarter. Given our focus on acuity, same-facility revenues grew 5.3% at USPI, highlighted by double-digit same-store volume growth in total joint replacements in the ASCs over prior year. Our operations in the first quarter were somewhat impacted by two major winter storms and uncertainty from vendor cyber attacks, however, our operating teams managed through them and were able to reschedule many of the procedures lessening the overall impact in the quarter.

We have a robust pipeline of assets interested in joining USPI this year. As such, we’ve had a particularly strong start to the year investing $125 million in the first quarter to acquire 7 ASCs. Additionally, we have commenced patient care at 3 de novo centers. This represents half of our targeted full year spend already completed in the first quarter. Turning to our Hospital segment. First quarter 2026 adjusted EBITDA was $678 million, which was nicely above our expectations and represented 27.5% of our full year 2026 adjusted EBITDA guidance. We reported 16.7% EBITDA margins in the quarter, which were driven by disciplined expense management and growth initiatives, which offset the expected impacts of unfavorable payer mix and reductions in exchange enrollment.

The results in the quarter reflect no significant changes in supplemental Medicaid program revenues compared to our original expectations. We have seen declines in exchange coverage with same-store exchange admissions down about 10% compared to first quarter 2025, but not yet at the level we assumed as the average for the full year. We continue to assess the overall environment for effectuation rates and the impact on future exchange volumes, but we believe we have the tools to manage this impact under a variety of scenarios. We continue to make investments in technology to enable growth and streamline operations. We are executing on the expense initiatives that we discussed on our fourth quarter 2025 earnings call and are recognizing the benefits.

These initiatives include engagement tools, which are improving recruitment and retention efforts, process automation to address length of stay and capacity controls, which improve our clinical throughput. Among these things, we are executing on AI-related capabilities in our hospitals, physician practices and the global business center to drive further efficiencies, most of which have been useful for supporting extending the productivity metrics of our team. Importantly, we have learned that while all of these tools will not work in a pilot state, setting up a governance that either green lights for rapid scaling up or red lights for shutdown help us remain focused. We have included third-party EMR integrated solutions with — which will increase our clinician productivity, decrease administrative burden and improve patient access through programs such as ambient scribe, automated discharge summaries and autonomous professional fee coding in various pilot programs.

Additionally, we have increased back-office AI automation, which is improving productivity and consolidating third-party spend to reduce costs. For example, we have almost doubled or more the productivity of our Conifer analytics team. As we look forward, we are actively identifying and piloting agentic workflows to transform further business processes. So far, our work has enabled us to more than offset the expected and unexpected headwinds that arose in the quarter. Regarding full year 2026 guidance, as in prior years, at this time, we are not addressing the underlying outperformance in our business units during the first quarter. We’re pleased with our year-to-date performance, we’re reaffirming our full year guidance, and we’ll address our expectations for the full year in the future.

As a reminder, after normalizing for the non-recurring items that were reported in 2025 in the first quarter of ’26 and excluding the headwind from the expiration of the premium tax credits, our 2026 adjusted EBITDA is expected to grow at 10% at the midpoint of our range. And finally, we continue to see significant opportunity to utilize share repurchase at our current valuations. We repurchased 1.35 million shares for $318 million in the first quarter of 2026 and expect to continue to deploy capital for share repurchase over the balance of the year. In conclusion, we adapt to the environment, focus on strong clinical quality recommit to helping our doctors have an easier environment to operate in and focus on delivering reliable earnings in this transitionary period.

Our balance sheet is strong, and our diversified asset mix with a focus on ambulatory care gives us a significant strategic advantage in the market as we look ahead. And with that, I will turn it over to Sun for more details. Sun?

Sun Park: Thank you, Saum, and good morning, everyone. We had a nice start to the year in the first quarter of 2026, generating total net operating revenues of $5.4 billion and consolidated adjusted EBITDA of $1.162 billion. First quarter adjusted EBITDA margin was 21.6%, driven by disciplined operating expense management, including good progress on the expense initiatives that we outlined last quarter. I would now like to highlight some key items for both of our segments, beginning with USPI. In the first quarter, USPI’s adjusted EBITDA was $484 million, with adjusted EBITDA margin at 36.7%. USPI delivered a 5.3% increase in same-facility system-wide revenues with net revenue per case up 5.6%, and same facility case volumes down 0.3%.

As Saum noted, volumes were impacted by the winter storms early in the quarter, and while we were able to reschedule many of the procedures, there was an overall impact. Turning to our Hospital segment. First quarter 2026 adjusted EBITDA was $678 million, resulting in an adjusted EBITDA margin of 16.7%. This represents 27.5% of our expected full year ’26 adjusted EBITDA. Same-hospital inpatient adjusted admissions rose 0.6% in the quarter and were impacted by a decline in respiratory admissions of 41% compared to first quarter ’25. This driver represented a 90 basis point reduction in admissions growth in the quarter. Revenue per adjusted admissions declined 1.5% year-over-year in the first quarter ’26 due to the impact of reduced exchange volumes within our overall payer mix and the year-over-year impact of the $40 million favorable out-of-period supplemental Medicaid revenues that we reported in the first quarter of 2025.

Exchange revenues represented about 6% of consolidated revenues in the first quarter of ’26, a 9% decline from first quarter of ’25. Our consolidated salary, wages and benefits was 40.5% of net revenues in the quarter, consistent with our performance from the prior year despite the net revenue headwinds, demonstrating our ability to flex our operating model. Overall, operating expenses per adjusted admissions were also favorable to our expectations, which contributed to our outperformance in the quarter. In the first quarter of ’26, we recognized a onetime approximate $40 million favorable revenue adjustment as a result of the completed Conifer transaction. This amount was included in our original guidance. And I would also note that this adjustment is not included in our revenue per adjusted admission calculations.

We recorded supplemental Medicaid revenues of $304 million in the first quarter of ’26, consistent with what we assumed in our guidance. Importantly, we did not benefit from out-of-period supplemental Medicaid revenues related to prior years in this quarter. We’re pleased with our ability to manage through the various dynamics throughout our first quarter and feel we have the ability to deliver on our commitments over the balance of the year. Next, we will discuss our cash flow, balance sheet and capital structure. We generated $978 million of adjusted free cash flow in the first quarter. And as of March 31, 2026, we had $2.97 billion of cash on hand with no borrowings outstanding under our line of credit facility. Additionally, we have no significant debt maturities until late 2027.

And finally, during the first quarter, we repurchased 1.35 million shares of our stock for $318 million. Our leverage ratio as of March 31, ’26, was 2.24x EBITDA or 2.83x EBITDA less NCI, driven by our strong operational performance and financial discipline. We remain committed to maintaining a deleveraged balance sheet and believe that we have significant financial flexibility to support our capital deployment priorities and drive shareholder value. Let me now turn to our outlook for 2026. As Saum noted, we are not making any adjustments to our full year 2016 outlook at this time. While we had strong fundamental outperformance in the first quarter, have continued confidence in our ability to achieve our full year targets, it is early in the year, and we will plan to revisit our full year guidance as needed in subsequent quarters.

As such, we are reaffirming the full year ’26 guidance that we initially provided in February. Our outlook continues to exclude any contributions from potential increases in supplemental Medicaid programs that have not yet been approved and finalized by CMS. For second quarter ’26, we expect consolidated adjusted EBITDA to be 24% to 25% of our full year consolidated adjusted EBITDA at the midpoint. We expect that USPI’s EBITDA in the second quarter will also be 24% to 25% of our full year ’26 USPI EBITDA at the midpoint. Turning to our cash flows for ’26, we continue to expect adjusted free cash flow after NCI in the range of $1.6 billion to $1.83 billion. This range includes the payment of about $150 million in tax payments for the Conifer transaction this year.

Excluding these tax payments, this would represent $1.865 billion of adjusted free cash flow after NCI at the midpoint of our ’26 outlook. We remain focused on strong free cash flow conversion from our EBITDA performance, including the continued outstanding cash collection performance of Conifer, while continuing to invest in high-priority areas of our businesses. 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 USPI through M&A. And as Saum noted, we have had a strong start to the year and have a number of future opportunities to support our $250 million annual target for USPI 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 repurchases. We continue to see significant opportunity at our currently compressed valuation multiple. And finally, we will continue to evaluate opportunities to retire and/or refinance debt. We are pleased with our strong start to the year and remain confident in our ability to deliver on our outlook for 2026. We continue to execute our strategy across our transformed portfolio of businesses resulting in a more predictable, more capital-efficient company that is well positioned to drive value through effective capital deployment. And with that, we’re ready to begin the Q&A.

Operator?

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Operator: [Operator Instructions] Our first question comes from Ryan Langston with TD Cowen.

Ryan Langston: Payer denials this year appear to be broadly accelerating across the industry. Are you seeing this activity increase in your business? And maybe is it more MA versus commercial? And is the rise in uninsured — or uncompensated care you’re seeing primarily related to the exchange subsidy expiration, or is there anything else you could call out there?

Saumya Sutaria: Yes. Thanks for the question. Payer — I mean, denials, I would say, payer disputes, many of which can result in denials and back and forth are are high. They have been high, as I’ve said before, they’re too high for what is appropriate, especially when comparing back to kind of pre-pandemic periods just as a marker. I don’t think that in our business, we have seen a net impact of disputes and denials changing in this quarter relative to before, so meaning last year. So look, they’re high, they have been too high, but we don’t see a meaningful trend this quarter that’s different. We can only guess obviously with the slight increase in uncompensated care that some of it has to do with the expiration of the exchange subsidies.

Operator: Our next question comes from A.J. Rice with UBS.

Albert Rice: If I look at the last number of quarters, there’s been consistency of outperformance in the hospital segment overall. I wonder if you could talk maybe broadly because we haven’t talked about markets in a general sense. Is there — are there some markets where you’ve implemented strategies that you’d call out that have been particularly successful. And as you look across the portfolio, maybe discuss some markets that still have an opportunity for significant improvement as you deploy new strategies to improve their performance.

Saumya Sutaria: Thanks, A.J., and I appreciate you calling out the strength of the hospital business over the last few years. We have been focused on a broad strategy of obviously increasing acuity focusing on our ability to succeed with our transfer centers, adding new surgical programs and increasing our emergency-related services, especially trauma programs and other things. And in a combined sense, that is a — it’s a global strategy. I mean, implemented locally, but we have opportunities and are implementing in every market that we have. As you’re aware, based upon the portfolio shifts that we made, we remained in markets in which we thought the execution of our overall strategy would be successful. No, look, there are things like, for example, enrollment in the exchanges that differ state to state and what the impact will be.

So there are some differences there in terms of what’s happening, in terms of throughput and other things that it may impact even the uninsured piece. But if you step back and now sort of with my commentary today, which is that we’re in this transitionary period, where there’s some coverage changes that are occurring. We’ll see how all that settles out. But when you look at the opportunity to find efficiencies, you look at the support services for the hospitals, and you look at some of the automation opportunities that I described. Once again, those are available in each market. Of course, some markets are bigger than other markets. So at a dollar level, you might get more impact in one market than another, but they’re scaled appropriately and are available in each of the markets.

So if you look at our earnings in the first quarter this year, they were driven by consistency across our markets in terms of the efficiency opportunities. Look, the other thing I would point out is just good old fashion discipline around flexing our cost structure. We kind of knew early in the year by the time we had given guidance that one of the winter storms that already come through, and we were able to maintain our SWB as a percentage of our top line by flexing even though the revenues were going to be a little bit more challenged. So some of this is just continuing to maintain the old-fashioned — “old fashion” discipline of anticipating and flexing intraorder, which, of course, is also an opportunity available in all markets. I hope that helps.

Operator: Our next question comes from Jason Cassorla with Guggenheim Partners.

Jason Cassorla: I wanted to go back to your prepared remarks around your efforts around length of stay and throughput improvements you’re clearly seeing the benefits there given length of stay has been down about 3% in each of the past 6 quarters by our math, but that improvement is coming despite your high acuity service line focus, which would naturally carry a higher length of stay. I guess could you just double a little bit more on the length of stay opportunity for you and what that run rate looks like as you move through the rest of the year and beyond?

Saumya Sutaria: Yes. No, I appreciate the question. And you’re right that the two are actually coupled in an interesting way, which is in order to maintain available capacity to always service the high acuity needs that arise in the community, whether from direct arrival at our hospitals or for outlying hospitals that might need help or support, which we always try to say yes to you have to make sure that your throughput and capacity management is good enough to have the availability of beds to be able to say yes, for those things. And so we see the two being very intricately linked in terms of a requirement to succeed in the high acuity strategy. Now look, you’re right that as the acuity goes up, there’s a length of stay headwind that does come with it because the cases are more complex and and longer.

But look, we’re pleased with the fact that we are managing that overall length of stay to something better than even breakeven in terms of our reported length of stay because that’s creating capacity in our hospitals. And I would remind everybody that part of the strategy, of course, is capital avoidance on additional capacity that’s really not necessary when you can improve productivity that way. So again, for us, all these things are intricately linked and look, we’re pleased that some of these new tools that we’re trying out are helping to add to our more traditional length of stay management that we’ve talked about over the last 4 or 5 years.

Operator: Our next question comes from Brian Tanquilut with Jefferies.

Brian Tanquilut: This is a tough quarter, so congrats on beating that [indiscernible] line. Maybe just on the Medicaid side. A lot of your peers have spoken about Medicaid trends, whether that’s immigrants not land paperwork. And just curious, what are you seeing in the Medicaid book? And as we’ve seen uncompensated care step up here, which was across the space, right? How much of that is Medicaid versus maybe exchange members versus other dynamics?

Saumya Sutaria: Yes. No, I appreciate it. And obviously, it’s somewhat speculation. But I guess we sort of speculate based on our markets. So I’ll be a little bit careful of how sure I am in my answers, but I would say that, look, Medicaid is down a little bit, and we see a little bit more of that in places like California, that does suggest that some of what’s happened is either disenrollment or lack of renewal of enrollment with populations that may not have been qualified to begin with based upon at least federal regulations, so that’s one fact point that we see. The second question that has been out there, especially because we are in a lot of important border communities where we do a lot of work for the broader communities that are there.

Look, we do see a little bit of hesitation at times with those populations. We partner a lot with the important FQHCs in those markets. And there’s just kind of this tone of hesitation. The impact at the end of the day has been on the hospitals minimal because obviously, we’re there taking care of people who are sick and have needs. But on the outpatient side, for people who are doing more primary care and other things in the community, we’re hearing about a little bit more impact and certainly hesitation from coming into consumer care.

Operator: Our next question comes from Scott Fidel with Goldman Sachs.

Scott Fidel: I think my question probably ties to the last two. But I wanted to ask it from just the — from the acuity and case mix perspective, overall for the — for both the hospital and the USPI, how those rates look year-over-year? And maybe you could layer in on the tailwind side, the proactive service line expansions and investments that you’ve made on higher acuity and then on the headwind side, obviously, some of these dynamics or dynamics relating to the dynamic environment that we saw in some of the end markets in the first quarter.

Saumya Sutaria: Sure. Well, let’s start with USPI. I mean there’s no question there about the increase in acuity. I mean, I called out — I mean, we’ve had — we obviously are on the outpatient side, probably the largest single provider of outpatient joint replacements when you collectively look at almost 570 assets at USPI, many of which do orthopedics. And we’re still posting double-digit growth in total joint replacement surgeries within the ASCs and off of a pretty high base. So it just suggests that demand is out there, right? If you create the right operating environment for these surgeons and give them an efficient safe way to do the work, the demand is out there. And so we continue pushing in our high acuity strategy.

I mean you can see it in the revenues, and when you add to that as you asked for other service lines, the types of things we’re doing in urology, the types of things we’re doing in robotics, we’re probably up to over 150 robotic surgery programs in the ASCs that are general surgery based. Those types of things are growing quickly. I mean the only services that are declining are the high-volume, low acuity areas, which is, as we’ve said, we’re less focused on in this diversification path. So again, in summary, on the USPI side, the acuity is growing. The case mix is improving in the direction we want to. We have a good number of service line starts and physician additions. The assets that we’re acquiring are also supportive more of the service line strategies that we’re interested in.

And our de novos that we open will also have the opportunity to do this type of higher acuity work. So I would say that, that looks very good. On the hospital side, the journey that we’ve been on is obviously — I mean, we made this decision in the very early part of the pandemic. It’s been 5 years that we’ve been really pushing this high acuity strategy. And you see it in the CMI, the margins, the net revenue per case, all of that. This quarter obviously has some differences that Sun can go into in terms of the comp to the first quarter last time with a bunch of onetime items. And look, the CMI for the first time, was down a little bit, but this is temporary, right? We had some weather-related issues. We had some — we certainly had a decline in the intensity and volume of the respiratory business.

But as I said, we made up for that significantly by flexing and also by focusing more on some of our other type of work in the hospitals. And I think the quarter ended up fine. Like I don’t think anything changes going forward just because there was one quarter with significant respiratory impact.

Operator: Our next question comes from Craig Hettenbach with Morgan Stanley.

Craig Hettenbach: On the back of the $125 million invested in USPI in Q1, really strong starts to the year. Saum, can you just talk about the M&A engine what’s working and also just context of why a tenant might be a preferred acquirer of choice out there in the marketplace?

Saumya Sutaria: Yes. Well, I mean, I think what’s working fundamentally what’s working is that USPI has just got a multiyear track record of acquiring assets, adding value to them, both clinically our quality performance is consistent. Our ability to bring these facilities in network and do well is consistent our broad-based an ongoing supply chain and purchased services agenda helps to reduce costs and create efficiencies. And then our business development team is terrific in helping these centers oftentimes go from single specialty to multispecialty or help them design their OR operations if they’re already multi-specialty to be able to do those more efficiently, as I’ve always talked about, right, the ability to do kind of “dirty and clean surgery” in the same center with the right protocols and the right scheduling.

I mean all of these things are things that we work on consistently, but we’re just ahead in the market when it comes to executing on these things. And I think physicians know that, I think many of the MSOs that we partner with know that, the health systems that we partner with not only know that, but because of the expertise of some of these health systems, they contribute actively to our quality improvement agenda and other things, I mean Baylor, Memorial Herman. I mean these guys are experts in many of these areas, and they contribute actively to the partnership in USPI to make those improvements. So look, I think all of those things has created a nice virtuous cycle of reputation enhancement as we do these things, and we deliver on what we say we’re going to do.

So we’re still very selective. Our diligence processes are robust. We still say no to more centers than we say yes to. And that’s fine because we still think that the opportunity for high-quality ASCs supports USPI’s growth algorithm.

Operator: Our next question is from Justin Lake with Wolfe Research.

Justin Lake: Just a couple of numbers questions for me. First, your guidance assumes $250 million of exchange impact for the year. I apologize if I missed it, but do you have a number for the quarter maybe relative to what we would have thought maybe is a $60 million, $65 million run rate? And then on DPP, in your slides, you talked about $22 million to the DPP down $22 million for the year. I’m curious, does this include the $40 million decline because of that period so that you were actually up [ $18 ] million excess.

Saumya Sutaria: Good question. Sun, do you want to take those maybe in reverse order.

Sun Park: Yes. Justin, it’s Sun. Yes, you’re right on the DPP question. That includes the $40 million. So if you normalize for that for ’25 out of period, then it would be a slight increase. So you’re correct. On the [ HICS, ] we mentioned that exchange revenues in Q1 were about 6% of our consolidated revenues as a comparator in Q1 of ’25, it was about 6.5% of our consolidated revenues. So if you kind of do the [indiscernible] a 9% to 10% decrease in revenues versus Q1. So I would say it’s roughly at half of kind of the overall 1 year kind of 20% reduction in volumes that we kind of talked about in February. And we do expect with all the dynamics around kind of the first quarter and the grace period with some of the enrollees or re-enrollees that I think our guidance range of kind of 20% reduction and $250 million overall impact is still pretty consistent.

Operator: Our next question comes from Kevin Fischbeck with Bank of America.

Kevin Fischbeck: Yes. I guess two questions. One, maybe following up on that one. So the Q1 impact is lower. Is that how — is it lower but in line with what you thought Q1 would be because you always assumed it would ramp? Or was that potential area of the outperformance? And then you talked a little bit earlier about flu. I know one of your competitors had a pretty high margin decremental margin on lost volume in Q1. It sounds like you did a better job flexing costs. Any way to kind of size what you think the EBITDA impact was to both USPI and the hospitals from the flu and the weather disruption.

Saumya Sutaria: Yes, it’s Saum. I can take the latter part of it. I mean I don’t know about flu specifically, but just I mean we look at respiratory ER traffic, admissions and other things. And similar to what we’ve heard, for example, respiratory admissions were down like 40% in the quarter. and it had an earlier effect. I mean, if I look at the quarter, January to February to March, things improved steadily month-over-month, week-over-week almost. So that by the time we were in March, in the early to middle part of March, we had a keen sense that the revenue and admission and volume intensity was increasing, but because we had kind of anticipated the impact early in the quarter, we had already done some of our cost flexing.

And then, of course, as we talked about, previewed on our fourth quarter call, we had developed a more systematic type of cost agenda in the second half of 2025 that we executed that added to our savings. And so just — it created a situation in which the anticipation of the need to flex plus other cost improvements plus the month-over-month improvement during the quarter, allowed us to outperform in the hospital segment, what our expectations were despite some of these headwinds. I — in terms of what our expectations were. I mean we had sort of made a simple linear assumption. I would say that the outperformance in the quarter in the segment is a combination of the two things, one being the cost management and efficiencies; and two, being that the first quarter exchange impact was probably a little bit less than at least a simple linear assumption for the full year.

Operator: Our next question comes from Ann Hynes with Mizuho.

Ann Hynes: Maybe we can shift to the Washington outlook. Is there anything that you’re paying attention to on the regulatory and legislative outlook, especially on the regulatory with the upcoming outpatient rule. Is there anything that we — that is on your radar screen that we should be aware of?

Saumya Sutaria: Sure. I mean, obviously, the — we’re keenly awaiting the outpatient rule, especially given the type of policy commentary that’s been coming out of CMS, HHS, broadly and CMS supporting care in lower cost settings. And one of the ways to help that, of course, is to provide robust or more robust outpatient rate support relative to what was sort of as expected, but nothing incredibly positive on the IPPS side. So we’re looking forward to seeing that. I would tell you, other than the commentary they’re making, I don’t have any proprietary insight to share. We, of course, have been following all of the discussion and commentary about the various parts of the sector. And look, from our perspective, we’re just trying to stay on the right side of the value equation, having efficient health systems being accessible at all times, efficient in what we’re doing and obviously providing surgical care at scale at half the cost sometimes of what it is to do the same work in a hospital.

So with USPI, I mean. So look, I think all of those things we feel like we’re well positioned as we look ahead. I mean I — if you really look at USPI, and I know this question was asked maybe as a sub-question earlier by Kevin, USPI had an even cleaner quarter despite all the noise because it’s the weather impact was there, but you don’t really see that much of an impact from the exchanges or Medicaid in that business, as we’ve pointed out before.

Operator: Our next question comes from Pito Chickering with Deutsche Bank.

Pito Chickering: Looking at — back to hospitals at your first quarter, I understand that there’s $22 million of loan payments, offset by recoveries of $40 million this quarter. But when we normalize sort of the margins, sort of get to, I guess, the 15% range is generally where your guidance is. And if I think about margins for hospitals, generally, they the year is better than just the first quarter because of the strong fourth quarter. So I guess, can you just walk me through how we should think about the hospital margins with 1Q, excluding the $40 million as a bridge into the rest of the year?

Saumya Sutaria: Well, I’ll start on, if you want to add that. I mean, look, I think that if you come back, step back to our guidance for the year, which is in the Hospital segment, a 10% normalized year-over-year growth which there was obviously some discussion and dialogue about when we put it out there. We feel very confident that we’re on track to that. Now some of that’s going to be margin improvement. Some of that is because we had visibility from our work in the second half of 2025, which was going to be expense management, execution of expense management initiatives that we were designing this year that we would see benefit this year from and obviously a enhancing. So I don’t know that the algorithm is exactly like it would be in a normal year.

The respiratory volume impact in Q1 is a headwind to margins because those tend to be capacity filling and margin accretive, we overcame that, and as we sort of return to normal operations, plus have a year where we are executing on a broader efficiency strategy. I would say that we think that this year’s performance will support margin growth in the Hospital segment. I don’t know if you want to add to that. But like we feel very confident about the balance of the year.

Sun Park: Yes, I think that’s right. The only thing I would add, Pito, is if you kind of just look at our Q1 hospital margin of 16.7%, you’re right, we should normalize for the onetime [indiscernible] for $40 million. And then the only other thing I would mention is, like we said, the exchange impact likely sort of grows over the rest of the year from what we had in Q1. So that probably damps down margin a little bit on a run rate basis. But when it’s all said and done, as Saum said, kind of a year guidance, of sort of 15% implied margins, I think that’s still right on our expectations.

Pito Chickering: I mean on the impact, I get the guidance that you’ve given virtual in the first quarter, but the uninsured payer mix declined year-over-year in the first quarter, I thought that would have been increasing. So I guess, how does that fit within that [ HICS ] guidance you guys have provided.

Saumya Sutaria: Well, I mean, look, I think we should watch and wait, right? I mean effectuation rates and other things are important to track the first quarter often is a relief valve for payment premiums and other things. So I would say we watch and wait. From our perspective, the way we think about this year is anticipate that the challenge could increase and plan accordingly in a disciplined way to manage to the earnings guidance that we have given. I mean, if — obviously, if the impact is less or if the uninsured impact doesn’t increase as much. Those are all opportunities for outperformance for us. I mean, I would just reiterate, we’re not spending a lot of time thinking about downside risks right now. We’re spending our time thinking about how the strategy in both segments plus our expense opportunities plus how this exchange uninsured Medicaid market plays out could create upside opportunities for us. That’s where our mindset is right now after this quarter.

Operator: Our next question comes from Whit Mayo with Leerink Partners.

Benjamin Mayo: I just wanted to hear more about the reserving and revenue recognition for the exchange patients, what the underlying estimates are for attrition and maybe what the exit rate on the decline in volumes was within March.

Sun Park: Hey, it’s Sun. Listen, I think on a — on your first question, we obviously pay through Conifer, very close attention, patient by patient, if we can, on their ex coverage status, premium payment status, all those details that you would imagine. And I think, again, we’ll review this as the year develops and we get more data. But I think we’re very appropriately reserved on our overall patient population, right, including [ HICS. ] And that sort of speaks to kind of the numbers that we shared in Q1, where admissions were down, as we said, 9% and if you do the algebra, I think revenues from [ HICS ] is down probably 9% to 10% as well. So it’s sort of 1:1 is where we’re sitting. So I think we’re in a very reasonable situation there.

And then like we said, we’ll continue to observe the sales go. From a month-over-month trend perspective, I mean, our overall volumes, not just fix but overall, improved through the course of Q1 coming into March, which, again, I think, gives us some confidence into our rest of your guidance. On [ HICS, ] I don’t know that there’s any trends that we would point out. I think in January being sort of a great period for a lot of the enrollees, I mean I think that did help January numbers somewhat. But again, I think it’s too early to kind of have any trend discussions.

Operator: Our next question comes from Stephen Baxter with Wells Fargo.

Stephen Baxter: I wanted to ask about the same-store revenue per admission decline of 1.5 points in the first quarter. I guess we do have a lot of moving parts with some of the Medicaid changes you discussed and also the exchanges. But on the other hand, you also have less flu, which I think would trend to push up some of those metrics. I hope to just get a better sense of some of the moving parts that impacted that metric? And then maybe a direct comment on what you’re seeing on commercial and whether that’s a headwind in the quarter that assume gets better through the balance of the year.

Saumya Sutaria: Yes. I mean, why don’t we should probably just start with the comp from the prior year and then the math because it’s — for us, it really wasn’t that worrisome so. I don’t know if you want to just walk through that perhaps.

Sun Park: Yes. I think just on a popular [indiscernible] basis, I mean, we said NRAA was down 1.5% in the Hospital segment. A lot of that between the $40 million of [indiscernible] Medicaid, we run out in Q1 that we didn’t have in Q1 of ’26, and then the reduction in [ HICS ] that, as we talked about, presumably moved volume into uncompensated or other payer classes. Those two combined, I think, was worth 2% to 2.5% of NRAA headwind. So once you normalize for that, we’re sort of at 50 bps to 1%. Then I think there are some other moving parts that we talked about. Tom, I don’t know if you want to comment directly on flu. But yes, I think flu impacted our emissions, but in the scheme of our total adjusted admissions base and our net revenue base, it’s a relatively small component. So whether or not flu was there not, I don’t know that impacts NRAA that much.

Saumya Sutaria: Yes. I mean the only other thing I would add is clarifying point, but also the onetime Conifer $40 million that we announced, even though it was part of the hospital segment, we excluded that in looking at the NRAA because that’s appropriate. It wasn’t related to the case volume. But just in case anybody is looking at the math that way. So I mean, in summary, look, I would say the biggest driver was the [indiscernible] period thing, and we had a very high NRAA in 2025 back to what my overall commentary. The acuity strategy is working very, very well, and we’re not worried about it. And obviously, it did not have an impact. In fact, it was the opposite, we outperformed on the earnings despite the revenue, which is just right now, a marker of the flexibility and operating discipline, I think, that’s required in this environment as things settle out.

I suspect in the coming months and when we talk again, we’ll probably have a lot more insight into how I sense that the desire for predictability, how the exchange market and uninsured at Medicaid will settle out for this year, which will give us a much better opportunity to kind of update our guidance for the year based upon the outperformance so far.

Operator: Our final question is from Andrew Mok with Barclays Bank.

Andrew Mok: You mentioned that 8 volumes were down 10%, and you had expected unfavorable payer mix. But when I look at the managed care mix disclosure, it actually looks relatively stable year-over-year. So can you help us understand what you saw on payer mix inside of that, including the moving parts on the government side.

Sun Park: Hey, Andrew, it’s Sun. — sorry, go ahead, Saum.

Saumya Sutaria: No, you go ahead, please. Sorry.

Sun Park: Yes. Sorry. I was going to say, Andrew, yes, we did see the 10% reduction as we talked about. But I think your question on the rest of managed care sorbent that. One reminder, when we report managed care, we also include managed Medicaid and managed Medicare in that component. So I think we saw a reasonable strength in so the payer mix is, to your point, it remains to be stable as a percent of total revenues. So I think that did offset the [ HICS ] impact a little bit. Again, we’ll see. I think Q1 in terms of payer mix trends, we were happy with, but I think there’s some more trending and data that we need to see into Q2 before we can make some more detailed comments.

Saumya Sutaria: And the only qualitative thing I was going to add there was just — look, I think that as people come off the exchanges, they find different employment and other things, especially those that need health care have family they need to cover. We do think there’s going to be some percentage of them that obviously pick up commercial coverage, and we’ve talked about that before. That’s good. And then we did have strength in Medicare. I mean, we do a lot of work on appropriate utilization, appropriate admission rates from the ER appropriateness of interfacing with these plans on Medicare Advantage. And we have strength in the Medicare side in addition, which, again, is consistent with our acuity strategy given what these patients need.

So I appreciate what you’re seeing in those metrics. It does look better than I would have expected based upon the theory of the case of what could have happened with the exchanges. And again, it’s just — for us, it just all goes to the point that the trend line in Q1 of the type of headwinds was more mitigated than the simple straight-line assumption for the year. And again, we’re pleased that it helped drive outperformance rather than a headwind we couldn’t catch up to.

Operator: We have reached the end of the question-and-answer session, and this concludes today’s conference. You may disconnect your lines at this time, and we thank you for your participation.

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