Tenet Healthcare Q2 2026 Earnings Call - Raised 2026 EBITDA Guidance by $295M Amidst Exchange Headwinds and Margin Expansion

Operator, Conference Call Operator, Tenet Healthcare: Welcome to Tenet Healthcare’s second quarter 2026 earnings conference call. After the speaker’s remarks, there’ll be a question and answer session for industry analysts. To enter the queue, please press star one on your telephone keypad at any time. Tenet respectfully ask 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.

Will McDowell, Vice President of Investor Relations, Tenet Healthcare: Good morning, everyone. 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 second quarter 2026 results, as well as a discussion of our financial outlook. Tenet 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. With that, I’ll turn the call over to Saum.

Dr. Saum Sutaria, Chairman and Chief Executive Officer, Tenet Healthcare: Thank you, Will. Good morning, everyone. We continue to deliver results exceeding our goals based on the fundamental performance of our business. Hospital volumes and same-store revenue growth in both segments are strong, reflecting our commitment to higher acuity and value for payers. Margin strength is supported by timely execution on our technology-enabled expense management plans that we described at the very start of the year. Second quarter net operating revenues were $5.6 billion, and consolidated adjusted EBITDA was $1.304 billion, which represented an adjusted EBITDA margin of 23.2%. Consolidated adjusted EBITDA grew 16.3% over prior year. Year to date, our fundamental outperformance totals approximately $97 million across both segments. Adjusted diluted earnings per share increased 52% to $6.12 in the second quarter of 2026 compared to prior year.

As we noted last year, we are operating in a dynamic environment characterized by payer mix shifts and insurance enrollment uncertainty in both the exchanges and Medicaid. Despite these challenges, the growth and expense initiatives that we had planned and have implemented and continue to focus on enabled us to deliver a clean quarter. We are optimistic about the rest of the year and are increasing our revenue, adjusted EBITDA, and cash flow guidance for 2026. USPI generated $542 million in adjusted EBITDA, which represents 9% growth over second quarter 2025 and 25% of our full year 2026 adjusted EBITDA guidance for USPI. We are pleased with USPI’s continued outperformance, as we set an aggressive EBITDA target as a percent of the full year for the second quarter that we were able to exceed.

Same-facility revenues grew 5%, as our high acuity strategy continues to yield benefits and is highlighted by 10% same-store volume growth in total joint replacements in the ASCs over prior year. We have a robust pipeline of partnerships interested in joining USPI this year. USPI is the premier ambulatory surgical asset in the space and the leading provider of low-cost, high-quality care that benefits all stakeholders across the healthcare ecosystem. Turning to our hospital segment, second quarter 2026 adjusted EBITDA was $762 million, which was well above our expectations and represented 22% growth over second quarter 2025. We reported 18% adjusted EBITDA margins in the quarter, which were driven by strong volume growth, disciplined expense management, benefits from growth initiatives, which were partially offset by the expected impact of reductions in exchange enrollment.

These drivers were ahead of our core assumptions and contributed meaningfully to our outperformance in the quarter. Importantly, we continue to see attractive growth in our commercial managed care revenues. Regarding the exchange marketplace, exchange revenues have declined a significant 17% compared to second quarter of 2025. We are seeing highest impact in states like Florida, Arizona, Michigan, South Carolina, and Texas. In light of the challenges that the decline in exchange enrollment presents, we are flexing our cost base and building an appropriate baseline on which to grow in the future with a focus on continued margin strength. Our consistent results are driven by a transformed portfolio of businesses, continued strategic focus on higher acuity specialty services, strong leadership at the local level, and an ability to effectively manage through the current dynamic environment.

It’s important to note that year-to-date Conifer results are in line with our prior expectations, and we continue to manage through the conclusion of a third-party contract. We have also capitalized on our compelling valuation and deployed $1.36 billion to repurchase 7 million shares in the first half of 2026 with 5.7 million of those shares repurchased in the second quarter. The positive impact on EPS is significant as we look forward to the rest of the year. As we did note in our press release, the board of directors has authorized a $2 billion increase in our share repurchase program. We expect to continue to be active in share repurchase over the balance of the year.

Turning to 2026, the guidance that we established at the beginning of the year was robust, given the dynamics the industry was facing, but so were our plans for realizing results from our recent growth investments and our expense and AI initiatives. At this point in the year, we are raising our full year 2026 adjusted EBITDA guidance to a range of $4.83 billion-$5.03 billion, which represents an increase of $295 million or 6% at the midpoint of the range over our prior guidance. The guidance increase is differentiated and primarily supported by fundamental strength in our businesses and our expectations for continued growth into the second half of the year.

As we note in our adjusted EBITDA bridge in the investor deck, our guidance raise is supported by approximately $100 million of fundamental outperformance in the first half of the year and an additional $60 million through a continuation of those fundamental drivers into the second half of the year. Additionally, based on the ambulatory surgical acquisitions that we have made so far this year and the robust pipeline of deals that we see ahead, we now expect to exceed $300 million in full year M&A spend in 2026. We are confident in our ability to achieve our increased guidance as it is powered by continued strengths in our core business drivers, same store revenue growth, effective expense management, and strong free cash flow. For more details on our results in the quarter and our guidance looking ahead, I now turn it over to Sun.

Sun Park, Executive Vice President and Chief Financial Officer, Tenet Healthcare: Thank you, Som, and good morning, everyone. We delivered strong performance in the second quarter of 2026, generating total net operating revenues of $5.6 billion and consolidated adjusted EBITDA of $1.304 billion. Second quarter adjusted EBITDA margin was 23.2%, driven by strong revenue performance and disciplined operating expense management, with continued progress on the growth and cost efficiency initiatives that we outlined at the beginning of the year. I would now like to highlight some key items for both our segments, beginning with USPI. In the second quarter, USPI’s adjusted EBITDA grew 8.8% over second quarter of 2025 at $542 million, with adjusted EBITDA margin at 39%. USPI delivered a 5% increase in same facility system-wide revenues, with net revenue per case up 6.3% and same facility case volumes down 1.2%, reflecting our high acuity focus.

Turning to our hospital segment, second quarter 2026 adjusted EBITDA grew 22% to $762 million, resulting in an adjusted EBITDA margin of 18%. Same hospital inpatient adjusted admissions rose 2.6% in the quarter, a sequential improvement from first quarter and further validation that the demand environment remains healthy as we expected. Revenue per adjusted admissions increased 3.3% year-over-year in Q2, reflecting the work we do to grow acuity, as well as an increase in supplemental Medicaid revenues, partially offset by the impact of reduced exchange volumes. Exchange revenues declined 17% from second quarter 2025 and represented about 5.5% of consolidated net operating revenues in second quarter of 2026. Finally, we recognized $92 million of favorable out-of-period supplemental Medicaid revenues related to prior years in the second quarter. In the second quarter of 2025, we had $70 million of favorable impact related to prior years.

We had not assumed any of this favorability in our initial guidance for 2026. I would note that we had a clean beat in the quarter even without these incremental Medicaid revenues. We continue to demonstrate our ability to manage through a dynamic period for providers, delivering strong results despite the headwinds that the industry faces. We will discuss our cash flow, balance sheet and capital structure. We generated $444 million of adjusted free cash flow in the second quarter, which brings us to $1.422 billion of adjusted free cash flow year to date. As of June 30, 2026, we had $2.17 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. Finally, during the second quarter, we repurchased 5.7 million shares of our stock for $1.04 billion.

Year to date, we have repurchased almost 7 million shares of our stock for $1.36 billion. As Som noted, the board of directors has authorized a $2 billion increase in share purchase authorization, again, reflecting confidence in our strategy and our ability to execute over the long term. Our leverage ratio as of June 30, 2026, was 2.33 times EBITDA, or 2.9 times 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 continue to drive shareholder value. Let me now turn to our outlook for 2026. For fiscal 2026, we now expect consolidated net operating revenues in the range of $21.9 billion-$22.5 billion, an increase of $300 million at the midpoint of the range over prior expectations.

As Som mentioned, we are raising our 2026 adjusted EBITDA outlook range by $295 million at the midpoint to $4.83 billion-$5.03 billion, reflecting the strong fundamental performance of our businesses. At USPI, we are now expecting 2026 adjusted EBITDA of $2.16 billion-$2.22 billion. In hospitals, we are raising our 2026 adjusted EBITDA outlook range by $285 million at the midpoint to $2.67 billion-$2.81 billion. This increase is driven by fundamental improvements in our operations that benefited our results in the first half of the year, and that we expect to continue into the back half of the year. In addition, we now expect a contribution of $140 million from recently approved increases in certain supplemental Medicaid programs, plus the out-of-period revenues from prior year that I already mentioned. Of this $140 million, about $20 million is expected in the second half of our fiscal year.

Finally, we expect third quarter 2026 consolidated adjusted EBITDA to be in the range of 23%-24% of our full-year consolidated adjusted EBITDA at the midpoint. We expect third quarter 2026 USPI EBITDA to be in the range of 24%-25% of our full-year USPI adjusted EBITDA at the midpoint. Turning to our cash flows for 2026, we now expect adjusted free cash flow after NCI in the range of $1.825 billion-$2.055 billion, an increase of $225 million at the midpoint from our previous guidance range. This guidance range includes the payment of about $150 million in tax payments this year from the Conifer transaction. Excluding these tax payments, this would represent $2.1 billion of adjusted free cash flow after NCI at the midpoint of our 2026 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. As Som noted, we have made good progress so far this year and have a number of future opportunities to support our expectations for USPI M&A in 2026. Second, we expect to continue investing in key hospital growth opportunities to fuel organic growth, including our focus on the higher acuity service offerings. Third, we’ll continue to be active in share repurchases as we continue to see significant opportunities. Finally, we will continue to evaluate opportunities to retire and/or refinance debt.

We are pleased with our continued effective execution and remain confident in our ability to deliver on our increased outlook for 2026. Our transformed portfolio of businesses is delivering more predictable results, and our capital efficiency is enabling us to create shareholder value through effective capital deployment. With that, we’re ready to begin the Q&A. Operator?

Operator, Conference Call Operator, Tenet Healthcare: Thank you. At this time, we’ll be conducting a question and answer session. If you’d like to ask a question, please press star 1 on your telephone keypad. Confirmation tone will indicate your line is in the question queue. Star 2, if you’d like to remove your question from the queue. As a reminder, Tenet respectfully asks that analysts limit themselves to one question each. One moment while we poll for questions. Our first question comes from Craig Hettenbach with Morgan Stanley. Your line is now live.

Craig Hettenbach, Analyst, Morgan Stanley: Yes, thank you. Som, I wanted to dig into the work that you’ve done on the cost structure that’s driving this margin expansion, despite some of the industry headwinds, including the exchange. If you can just provide some examples of some of the things that are kind of playing out in the margins, that would be great.

Sun Park, Executive Vice President and Chief Financial Officer, Tenet Healthcare: Sure. Thanks, Craig. I think there’s three or four things that are probably important to consider here. One is just traditional search for efficiencies that one would imagine, including our more traditional productivity strategies, contract renegotiations on purchase services, supply standardization, right? Things that are part of our toolkit that we’re doing all the time, that, as I indicated at the start of the year, about a year ago, June, July of last year, we began planning so that we could hit the ground running, executing on January 1 of this year. The second category is what I would describe as more clinical operations, cost improvement, we really didn’t feel that category one would be adequate to sustain us through the next few years.

We put increased effort into length of stay management, service level management, for example, in the emergency department, throughput in the hospital.

Dr. Saum Sutaria, Chairman and Chief Executive Officer, Tenet Healthcare: Scheduling efficiencies and better utilization of our operating room and cath lab assets, both in the hospitals and the ASC business, as an additional initiative. More complex, frankly, requires more behavior change and process redesign, but very important to what we’re doing. The secondary benefit of that work, of course, is that it supported the service levels for patients and physicians, especially in the important emergency department area, so that it’s easier for them to gain access. The third area is more what I would describe as the technology-driven, both automation, AI-type work, combined with what we are doing in our global business center. The deployment of these technologies has been both domestic and in the global business center. It helps to improve productivity. It, in some cases, can literally automate or replace work.

Over time, we are seeing the benefit in our core cost structure in those areas, not just in the payments arena, but also in some of our support overhead structures at the facility or the corporate level. Really, all three of those areas were things that we had planned or spent time planning last year. I think the benefit we’re seeing is we were just able to hit the ground running on execution in January. It has accrued into the business over these first two quarters.

Craig Hettenbach, Analyst, Morgan Stanley: Helpful color. Thank you.

Dr. Saum Sutaria, Chairman and Chief Executive Officer, Tenet Healthcare: Thanks.

Operator, Conference Call Operator, Tenet Healthcare: Our next question comes from Benjamin Rossi with J.P. Morgan. Your line is now live.

Benjamin Rossi, Analyst, J.P. Morgan: Great. Thanks for taking my question. I just wanted to turn to the ambulatory segment for a moment. Given the strength across revenue per case to start the year, I appreciate some of the moving pieces in your 3%-6% top-line growth expectation. I know the press release cited acuity and service mix, could you just walk us through puts and takes going into expectations for that segment? How are you thinking about service line expansion opportunities this year and some of the more promising specialty areas on your radar? With the inpatient-only list, are you seeing any lift to start the year across either volumes or pricing from this first tranche of MSK procedures rolling off? Thanks.

Dr. Saum Sutaria, Chairman and Chief Executive Officer, Tenet Healthcare: I think from a service line standpoint, we continue to focus on pushing the envelope of clinical appropriateness in the ambulatory surgery setting and doing it safely. Orthopedics, but expanding the range of orthopedics, that is obviously supported by some of the changes in the inpatient-only list. Those programs continue to scale. As we’ve indicated, we have seen success with our physician partners in urology. Our robotics program continues to expand significantly. When I say robotics here, I’m not just referring at all to orthopedics. I’m talking about core general surgical-type robotics work that we see as important. We see increased activity in bariatrics, as we have indicated over time, just kind of a steady, slow but steady march into the cardiovascular space, which will take some time.

The other thing that we have done after really studying the spaces over the last couple of years is started to increase the acuity in some of the more core legacy service lines. In particular, GI and ophthalmology, we’ve started to push further into higher acuity procedures, right? Duodenal endoscopy and associated procedures and biopsies, retinal work or retinal specialization in the ambulatory surgery center. Things that begin to improve or increase the acuity and expand the array of services in some of those core service lines, in addition to what I described as more of the surgical frontier service lines that have a lot of growth in front of them.

Operator, Conference Call Operator, Tenet Healthcare: Our next question comes from Matthew Gilmore with KeyBanc Capital Markets. Your line is now live.

Matthew Gilmore, Analyst, KeyBanc Capital Markets: Hey, thanks for the question. I wanted to ask about the exchange performance. I appreciate you didn’t change the guide. I was curious how things played out relative to your expectations in terms of the decline in the revenues and the volumes, patients shifting over to commercial coverage or becoming uninsured. Any commentary there will be great. Thanks.

Dr. Saum Sutaria, Chairman and Chief Executive Officer, Tenet Healthcare: Yeah, go ahead, Sun. Do you want to-

Sun Park, Executive Vice President and Chief Financial Officer, Tenet Healthcare: Hey, Matthew, it’s Sun. First of all, just on resetting on the metrics, I may have said in my prepared remarks about exchange volume, I meant exchange revenues in the quarter were down about 17%. Exchange volume admissions down about 13.5%. I would say both of these metrics were roughly in line with our expectations, both for the quarter. As we exited Q1 into Q2, we expected, after the grace periods, for exchange erosion to increase, obviously from Q1 to Q2. We expect the overall market trends that we saw in Q2 to roughly continue into Q3 and Q4 rest of the year, which is why we didn’t change our guidance.

This all resulted in about a $65 million revenue headwind on exchanges in our Q2 numbers, which we were able to pivot, both from an OpEx standpoint as well as other growth initiatives and deliver results. The only other thing I would add is, I think we are roughly seeing a pretty consistent conversion from exchange patient volume into uninsured on a pretty much one-to-one basis. We did see a proportionately equal increase in uninsured volumes in our Q2 as well, and we expect that to continue as well into second half.

Matthew Gilmore, Analyst, KeyBanc Capital Markets: Great. Thank you.

Operator, Conference Call Operator, Tenet Healthcare: Our next question comes from Stephen Baxter with Wells Fargo. Your line is now live.

Stephen Baxter, Analyst, Wells Fargo: Hi. Thanks. I wanted to ask about the revenue per adjusted admission trend in the second quarter. It improved a lot from where it was in the first quarter, the softer number that you posted then. Can you help us unpack the factors that are driving the improvement? In the release, you cited strength in the commercial book as a call-out. Is there something happening there above and beyond the normal price rate increases we’ve come to expect in that part of the business? Thanks.

Dr. Saum Sutaria, Chairman and Chief Executive Officer, Tenet Healthcare: Go ahead, Sun. I don’t think there’s anything abnormal there.

Sun Park, Executive Vice President and Chief Financial Officer, Tenet Healthcare: Hey, Stephen. On the NRAA, we did see softness in Q1, which at that point we said we thought it was a temporary Q1 artifact and that we thought our long-term acuity strategy would play out. I think in Q2 it did. I think the only moving pieces we would highlight in our NRAA stat is two things. One is we did have out-of-period supplemental payments, like I said, of $92 million, but we had $70 million in the prior Q2 of 2025, so relatively small net impact. Probably the largest headwind in our NRAA was obviously the exchange revenue movement, and that represented almost 2% of NRAA headwind in the quarter. We were very pleased with our overall acuity. It goes right in line with the commercial volume increases.

As Sun mentioned, I don’t know that there’s anything special to call out there. Thanks for your question.

Operator, Conference Call Operator, Tenet Healthcare: Our next question comes from Pito Chickering with Deutsche Bank. Your line is now live.

Pito Chickering, Analyst, Deutsche Bank: Good morning, guys, and thanks for taking my question. Looking at the ASC volume weakness this quarter, how much is tied to HIX and slower elective versus your focus on higher acuity procedures? Did you see any geographical differences in electives across your portfolio depending upon the HIX exchanges? The overall demand sort of still there across your portfolio, as you think about your broad base? Last part of this multi-part question here, looking at your inpatient surgeries, how much of that did you capture in your ASCs versus weakness in inpatient?

Dr. Saum Sutaria, Chairman and Chief Executive Officer, Tenet Healthcare: Well, from our perspective, the ASC volumes were strong because we’re focused on the growth that we see in our high acuity service line priorities, just like I highlighted in joint replacements. 10% year-over-year growth, given how large our portfolio has become, is outstanding growth from my perspective. The vast majority of the impact there continues to be a migration of lower acuity, quick pain procedures and other things into the office space setting or just deliberate migration of those sorts of cases. We’re very pleased that we continue to be able to deliver strong revenue growth, 5% quarter-over-quarter, in this environment, consistent with our strategy. I couldn’t tell if the question on geography was for the ambulatory surgery business or just surgeries overall. I will answer the latter.

I would say that surgical business overall, at least where we saw pressure on the elective side, primarily in the hospitals, tracked with some of the states that I described in my prepared remarks about where we’re seeing the highest impact from the exchange enrollment declines. Look, we had strong emergency department volume, strong emergency department inpatient surgeries. Our elective surgery book was under more pressure on the inpatient side, but elective outpatient surgeries in the hospital or hospital outpatient-based department were actually quite strong. That I attribute largely to the fact that over the past couple of years in these hospitals, especially as we’ve been doing more work at USPI, we have been investing in hospital-based outpatient surgical programs, and I think that’s probably the driver of why the elective outpatient surgeries continue to look strong in this current environment.

It was an offset to what impact you might have seen from the exchanges, right? The investments we made there. That’s the way I would think about it.

Pito Chickering, Analyst, Deutsche Bank: Great. Thanks so much.

Operator, Conference Call Operator, Tenet Healthcare: Our next question comes from Whit Mayo with Leerink Partners. Your line is now live.

Whit Mayo, Analyst, Leerink Partners: Hey, thanks. You guys are going to have a lot of cash in the next few years. The leverage is pretty low. You’ve upped the buyback. Just any comments around targets for buybacks this year, other areas for capital deployment that we should expect, and maybe thoughts on where your head is around a potential dividend?

Dr. Saum Sutaria, Chairman and Chief Executive Officer, Tenet Healthcare: Yeah, thanks, Whit. It’s just at a high level, I’ll reinforce the commentary that Sun made. We do think at compelling valuations, multiple valuations that given our growth prospects into the future, given the continued expansion of our USPI portfolio, that share buybacks are an attractive use of our free cash flow generation, which, as we indicated, is also improving for this year. Our hospital business, we continue to see good returns, as you can see, from both our margin improvements and our volumes in our strategic growth initiatives. We will continue down that path. I think the only thing we’ve said there is that, we’re a bit more cautious on large-scale hospital builds until we understand market environment and expansion opportunities there.

We’ve kind of been focused on one to two per year, as you know, recently, and we’re a little bit more cautious on that to just make sure that the market conditions are right. Otherwise, our investments in the segment continue to be strong. Obviously, the deployment and increase in our guidance for deployment of capital into the USPI segment this year. Sun, I don’t know if there’s anything you want to add to that here.

Sun Park, Executive Vice President and Chief Financial Officer, Tenet Healthcare: No, I don’t think so. I would maybe add two things. One is, as we look forward into our debt position, I think it’s very well managed. We have maturities spread over the next several years that I think are well within our ability to either refinance and/or pay down. We’re very comfortable there. Whit, you mentioned our free cash flow generation. Even if when we look at ourselves on a free cash flow yield metric, we feel our shares are still very well discounted based on the free cash flow yield. I would just point that out. Thanks for your question.

Dr. Saum Sutaria, Chairman and Chief Executive Officer, Tenet Healthcare: Yeah, thanks.

Operator, Conference Call Operator, Tenet Healthcare: Our next question comes from A.J. Rice with UBS. Your line is now live.

A.J. Rice, Analyst, UBS: Thanks. Hi, everybody. Maybe two things real quick. I appreciate the bridge and the slide deck. It’s helpful. There’s a lot of focus on core growth. If I’m looking at the slide that has the normalized performance for 2025 at about $2.39 billion, you’ve got a line growth and cost efficiencies of $388 million, that looks like you’re seeing about 16% year-to-year growth on that area. Is there anything you’d call out as unusual cost efficiencies? What would you say is the sort of underlying core growth? If I might slip in one thing, Saum, you mentioned the states where you’ve had the unusual hits hit, Florida, Arizona, Michigan, South Carolina, and Texas. I don’t think we’re surprised by Florida and Texas, but I am a little surprised by the expansion states, Arizona and Michigan, that they are seeing big disenrollment. Any thoughts about that?

I think the feeling has been that most of this would be targeted at non-expansion states, there’s a big drop-off there, too. Any thoughts on that?

Dr. Saum Sutaria, Chairman and Chief Executive Officer, Tenet Healthcare: Well, why don’t I start there, then for the last question, I’ll pass it back to Sun for the first question. Yeah, it’s interesting. You can see the enrollment numbers publicly have been impacted in those states. Unfortunately, these states, which are swing states really, must have had a lot of members with needing the support of premium tax credits in order to continue to acquire product. We haven’t dug into it deeply enough to understand if the issue is that there just isn’t enough coverage from a bronze metal product standpoint that’s attractive enough versus other states, or if the issue has been that eligibility for Medicaid for those at the lowest levels of income who would have required the highest premium support, they’re just not qualifying for that Medicaid. You can see it in our numbers, the exchange admissions are down, uninsured is up.

It’s not quite one-to-one, but it’s certainly in that 80%-100% of that range. You can see that is happening, and it’s bigger in numbers in those states that I called out.

A.J. Rice, Analyst, UBS: Okay.

Dr. Saum Sutaria, Chairman and Chief Executive Officer, Tenet Healthcare: Sun?

Sun Park, Executive Vice President and Chief Financial Officer, Tenet Healthcare: Yeah.

Dr. Saum Sutaria, Chairman and Chief Executive Officer, Tenet Healthcare: The first part of the question on the-

Sun Park, Executive Vice President and Chief Financial Officer, Tenet Healthcare: Yeah

Dr. Saum Sutaria, Chairman and Chief Executive Officer, Tenet Healthcare: bridge.

Sun Park, Executive Vice President and Chief Financial Officer, Tenet Healthcare: Yeah. A.J., I don’t know that there’s anything unique or abnormal that I would point out, right? It’s a aggregation of a lot of the themes that we mentioned, our acuity focus, the growth investments that we’ve made to help grow the acuity and the volumes in our hospitals. Obviously, OpEx management, both from a kind of a planned, looking ahead standpoint that we did last year into this year. As well as being nimble on a site-by-site, facility-by-facility basis, just depending on how things are going. Commercial rates, as we’ve talked about, have been as expected this year.

Dr. Saum Sutaria, Chairman and Chief Executive Officer, Tenet Healthcare: We’ve managed through some of the operating expense pressures around professional fees. It has grown about 10% since last year, which was per our expectations, and we’ve managed it. We’ve also called out separately the supplemental Medicaid revenues that were either out of period or not in our original guidance from a change standpoint. Yeah, I think those are the only things I would call out.

A.J. Rice, Analyst, UBS: Okay. All right, thanks a lot.

Dr. Saum Sutaria, Chairman and Chief Executive Officer, Tenet Healthcare: Thanks.

Operator, Conference Call Operator, Tenet Healthcare: Our next question comes from Justin Lake with Wolfe Research. Your line is now live.

Justin Lake, Analyst, Wolfe Research: Thanks. I wanted to dig in on your strong year-over-year revenue growth in the quarter. From your disclosures, it looks like it’s being driven by just commercial and Medicaid. Maybe you could tell us what your commercial employer group revenue growth looked like in the quarter, give us some idea there. On Medicaid, your revenue was up about $125 million year-over-year. I know you had this $90 million of out-of-period, but last quarter, the second quarter of 2025, you had $70 million. Really that’s only $20 million of the $125 million year-over-year increase. I’m curious what drove the other $100 million-plus in Medicaid revenue growth year-over-year, and how we should think about that going forward. Thanks.

Dr. Saum Sutaria, Chairman and Chief Executive Officer, Tenet Healthcare: Okay. Let me address some of the Medicaid piece, and then, Sun, if you want to go back on the commercial part of the question, the first half of the question. We’ll go in reverse order again. I think two things here around Medicaid. First of all, we are very much committed in our markets, and as you know, we have some very large markets and multiple trauma centers in environments with a heavy Medicaid population. It’s not just Southeast Michigan, where we’ve been very committed to that mission for a long time, but it’s certainly in other states, Memphis and Tennessee, the central part of California, the desert part of California, where there’s significant need for high-acuity Medicaid-related services. We have been focused on growing those service lines, and of course, we receive all patients from that standpoint.

In addition, Justin, our continued efforts to be a trauma receiving center for outlying hospitals that simply can’t take care of the sickness level of the patients they’re seeing extends to all payers as well. We accept all payers in the community when we’re providing those services. Of course, those types of cases, combined with our investments in our neonatal intensive care unit business, drive revenue growth. That’s largely what it is.

Look, I’ve said this all along, this whole notion that somehow state-directed payment program monies, assuming you accept the construct, are not monies that are earned, doesn’t make a lot of sense to me because you really do have to put in place the services, make capital investments, work with physicians or attract them to build some of these sophisticated service lines for the sickest of Medicaid patients who also deserve access to good quality healthcare. We do that, and we consider that some of those payments that help support those investments are things that we earn and should be part of our core as opposed to not. Nevertheless, we sort of describe what’s happening in the core separate from SDPs, given the way we talk about things today.

Make no mistake, we will continue to invest and grow and build those services for all payers in the hospitals. In terms of forecasting out what that implication is for Medicaid revenue growth going forward, I’ll be honest, I’m not going to do that today, only because I haven’t looked at that in the way that you asked the question, so I’m not sure I could provide a very well-informed answer. Conceptually, the reasons for it are what I described, in addition to the state-directed payment program portion that you called out from Q2 of last year to this year. Sun, you want to take the commercial portion of the question? Yeah. I think when you look at our disclosures, you’ll see our managed care category down about 2.7% in terms of mix of proportion of revenues that represents.

Sun Park, Executive Vice President and Chief Financial Officer, Tenet Healthcare: Obviously, that downward trend is driven by exchange, as we talked about. If we look at outside of exchange, other commercial payer classes, I can tell you both from a volume and a patient revenue standpoint, it’s up low single digits quarter-over-quarter. I think we’re pleased with that. Justin, just the only other bridge I would give you in terms of the Medicaid delta. You’re right. Quarter-over-quarter, 2025 into 2026, our supplemental payments are up. The out-of-period numbers explain roughly $22 million-$25 million of that. There are two other components that are sort of mechanical in nature. One is additional programs that were outside of our guidance for this fiscal year, and the increase in Florida program would be a good example of that versus our original guidance.

Dr. Saum Sutaria, Chairman and Chief Executive Officer, Tenet Healthcare: As Tom said, the rest of it is through the care we provide, the volume growth, some program adjustments, and some timing items. Hopefully that helps.

Operator, Conference Call Operator, Tenet Healthcare: Our next question comes from Sarah James with Cantor Fitzgerald. Your line is live.

Sarah James, Analyst, Cantor Fitzgerald: Thank you. I want to isolate the growth, not the efficiency aspect, but the growth on the hospital segment earnings guide bridge. Earlier, you listed off some contributors. They all sounded sustainable around rate negotiations and other aspects, the guide sounds like you’re assuming the second half benefit is just over about half of what you recognize in first half, when I take the $100 million versus the $60 million as a proxy, even though I know that’s total company and I’m focusing on hospital here. Is that delta just conservatism, or is there a good portion of the year-to-date hospital segment non-efficiency growth drivers that’s transitory?

Dr. Saum Sutaria, Chairman and Chief Executive Officer, Tenet Healthcare: I think it’s more that we’re prudent about the fact that from Q1 to Q2, obviously, the exchange or HIX impact accelerated significantly. It’s very possible that even though the rate of growth in the negative impact won’t be the same as it was from Q1 to Q2, it could get a little bit worse, right? We’re not blind to the trends, and as I indicated, the most important thing is we were prepared for them and continue to be prepared for them. I think it’s very consistent with our overall guide. Sun, I don’t know if you want to add to that.

Sun Park, Executive Vice President and Chief Financial Officer, Tenet Healthcare: I would just say, Tom, listen, if you look at our full year 2025 versus 2026 growth on a normalized basis, it’s very heady. It’s about 14%, if you look at our IR deck. We did have a difference in growth factors just driven off of a 2025 baseline difference in Q1 versus Q2 of our first half. As we get into the second half, I think we’re projecting, if my math is roughly correct, about 11% growth in the second half versus last year, while overcoming the expected exchange headwinds. We feel that’s still very much in line with our original, fairly aggressive guidance into this environment. We feel all good about it.

Sarah James, Analyst, Cantor Fitzgerald: Thank you.

Operator, Conference Call Operator, Tenet Healthcare: Our next question comes from Scott Fidel with Goldman Sachs. Your line is now live.

Scott Fidel, Analyst, Goldman Sachs: Hi, thanks. Good afternoon or noon, I guess. I was hoping you could maybe talk about the HOPPS proposal and walk through some of the more significant, I guess, sort of reform elements to 340B that they proposed in terms of the increase in the facility reimbursement, while cutting the drug reimbursement. Ultimately, I was hoping how that sort of translates or transmits from hospital outpatient to ASC and ultimately how you think that proposal, what the key effects could be for the ASC business from a pricing, from a volume, and from a sort of a margin perspective. Thanks.

Dr. Saum Sutaria, Chairman and Chief Executive Officer, Tenet Healthcare: Yeah. Obviously, the outpatient proposed rule, at this point, it had a few curveballs in it and was a little bit different than in the past. We’re obviously still studying that. The 340B reallocation could be material. At the same time, they accelerated the recruitment, which fundamentally we’re not even sure the legal basis of. There’s a lot of moving pieces here that we’re still looking at, and I think as we move ahead into the year, at the right time, we’ll have synthesized those various moving pieces into what we think the math looks like and share that when we talk about the following year.

Operator, Conference Call Operator, Tenet Healthcare: Our next question comes from Kevin Fischbeck with Bank of America. Your line is now live.

Kevin Fischbeck, Analyst, Bank of America: Great. Thanks. I guess, when I look at that guidance assumption that the exchanges are going to be relatively similar in Q3 and Q4 relative to Q1, I guess historically, we’ve kind of seen exchange enrollment drop off year-over-year, and last year it didn’t happen as much. I would’ve thought that that number would ramp a little bit more in the back half. Just curious on your thoughts about that and then kind of how to think about exchange as a potential headwind into next year. Should it be something similar to what you’re seeing this year, less? Thoughts there. Thanks.

Dr. Saum Sutaria, Chairman and Chief Executive Officer, Tenet Healthcare: Yeah. I really don’t want to guess about exchange enrollment in the following year without the data points of seeing what happens in the next two quarters. As I indicated a few moments ago, we have thought about the fact that, in our view, our estimates were about right. We knew that from Q1 to Q2 would be the big data point about how much it increased. It did in fact increase substantially, and we planned for that to really moderate into Q3 and Q4, based upon what we would imagine the trend line would look like, and we’ve built that into our guidance. This is not a game of perfect forecasting.

It’s a game of using the available data, which often lags a little bit, and what we’re seeing in our business and what we’re seeing with Conifer doing enrollment work in terms of how much of that enrollment work is related to patients who are prior on exchanges versus Medicaid or something like that. It’s been mostly exchanges becoming uninsured. That’s how we’ve made our forecast looking forward.

Operator, Conference Call Operator, Tenet Healthcare: Our next question comes from Ann Hynes with Mizuho. Please proceed with your question.

Ann Hynes, Analyst, Mizuho: Great, thanks. I just want to focus on the surgery center. I don’t think we’ve gotten a breakout of service line or procedures by modality in a while. Can you let us know how that’s trending? Like how many of your procedures are orthopedic versus gastro? Maybe how is that trending versus the past three years and maybe the growth rate within each modality? That would be great. Thank you.

Dr. Saum Sutaria, Chairman and Chief Executive Officer, Tenet Healthcare: Yeah, I think that we generally have published that once a year in terms of the overall proportion, I guess we can do that again at the end of the year. I would tell you that the primary migration, if you will, or change, is just a continuation of growth in the higher acuity service lines so that they continue to become a bigger and bigger proportion of the revenue in the business. The case counts, again, as we’ve talked, the case counts are sometimes so skewed by high volume, low acuity cases, and unfortunately, other than what we’re doing, there isn’t really a good measure to compare a single orthopedic surgery versus seven procedures that are done in 15 minutes each in the same timeframe in the way that case counts work.

We obviously focus on the revenues, focus on the growth rates of the important higher acuity frontier kind of service lines that we’re adept at working on. As I indicated today, we have started work a couple of years ago on looking for opportunities that are now starting to get built into the business of newer type of procedures in both GI and ophthalmology to see about moving them from the hospital setting to the ASC setting. We’ll see how that goes.

Operator, Conference Call Operator, Tenet Healthcare: Our last question comes from Brian Tanquilut with Jefferies. Your line is now live.

Brian Tanquilut, Analyst, Jefferies: Hey, good morning, and thanks for squeezing me in. Congrats on the quarter. Sam, maybe.

Dr. Saum Sutaria, Chairman and Chief Executive Officer, Tenet Healthcare: Thanks.

Brian Tanquilut, Analyst, Jefferies: Yeah, just all the comments prior to your release here, all these KOL calls pointing to weakness in volumes. It obviously doesn’t sound like you’re facing that. Is this a share gain situation? Maybe more broadly speaking, you and I in the past have talked about your view that volumes are going to remain strong because of demographic trends and whatnot. Just curious where your mind is now in terms of volumes and what you’re seeing in terms of share at the local level for your assets. Thanks.

Dr. Saum Sutaria, Chairman and Chief Executive Officer, Tenet Healthcare: Let me start, first of all, I’ll sort of move from what I’m most sure about to less sure about. What I mean by that is when we look at our business, we have obviously migrated our hospital portfolio to markets that we thought we had better growth opportunities in and better return on invested capital opportunities in. We’ve stepped up our capital expenditure in those markets the last couple of years on growth initiatives, and we’re seeing results from that. If you go back a couple of years, I think people would have asked the question: Can Tenet step up capital investments in hospital markets and see returns either from a growth or margin perspective?

That was an open question, and our job was to test that post all the divestitures and demonstrate that what we did with the portfolio restructuring would in fact add value for our shareholders over time. We’re seeing evidence of that, which I’m pleased about because it means that our work is paying dividends in those areas. I think what we’re seeing, at least in our volume environment, is a good background environment coupled with the benefits of the returns on the investments that we’ve made, and then when you add on top of that the fact that we had planned so actively out of concern for what would happen with the exchanges in 2027, that we were able to hit the ground running in January on our expense initiatives.

The combination of those things have supported earnings and happened to have supported earnings ahead of our expectations that we created. Now, if I just step back, because I went through this exercise just reflecting on the past couple of weeks, at where our volumes look like and some of the reports that are out there about overall volumes. This is not an environment to be pessimistic about with respect to the acute care industry. The fact is that these 2+%, 2.5+% type of volume numbers that we’re seeing published from others in the industry and including us, when you look back over a few years or you go back pre-COVID, those are healthy years. You see as many quarters or years where it’s above that as it is below that. This is not an environment that one would describe as negative.

I do think some of that is general demographic trends, aging, chronic disease burden, and things of that nature. It’s also a reasonable environment. I generally am more optimistic. In our business, we’re not seeing some kind of consumer pullback occurring right now. Where we have pluses and minuses in the ASC business for the quarter, I would say it’s more geographically based or exchange related after you get past the stuff that we’re doing to get rid of low acuity in that setting, more than it is some systematic view that consumers are now deferring care. I don’t see that yet in the results that we have there. I think we should continue to be optimistic that if we work on access, if we make it easy for doctors and patients to get in, if the service levels improve, I think the demand is there.

That’s the assumption we’re making with our guidance increase into the balance of the year, that we will be able to manage that and deliver that based upon what we have achieved in the first half of the year.

Brian Tanquilut, Analyst, Jefferies: Thank you, Saum.

Dr. Saum Sutaria, Chairman and Chief Executive Officer, Tenet Healthcare: Appreciate it.

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

Dr. Saum Sutaria, Chairman and Chief Executive Officer, Tenet Healthcare: Thank you, everyone.