Tenet Healthcare Q3 2026 Earnings Call Transcript

Tenet Healthcare (NYSE:THC) reported third-quarter financial results on Thursday. The transcript from the company’s third-quarter earnings call has been provided below.

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Summary

Tenet Healthcare reported third-quarter 2026 net operating revenues of $5.6 billion and adjusted EBITDA of $1.355 billion, with an 80% increase in adjusted diluted EPS to $6.64.

The company raised its full-year 2026 adjusted EBITDA guidance to a range of $5.05 to $5.2 billion, driven by strong fundamental performance and one-time items.

USPI segment showed 9% EBITDA growth with strong same-store revenue growth, particularly in high-acuity areas like total joint replacements.

Hospital segment saw 3.2% adjusted admissions growth and continued margin improvements through expense management.

Tenet is focused on strategic growth through M&A in the USPI segment and continued investment in high-acuity hospital services.

Free cash flow generation remains strong, with over $1.6 billion deployed for share repurchases year to date.

The company anticipates 2027 EBITDA growth, excluding certain transition activities at Conifer, supported by a diversified business mix.

Tenet plans to continue leveraging technology and cost control measures to sustain margin improvements and operational efficiency.

Full Transcript

OPERATOR

Good morning. Welcome to Tenet Healthcare’s third quarter 2026 earnings conference call. After the speaker remarks, there will be a question-and-answer session for industry analysts. If you would like to ask a question, please press star one on your telephone keypad. You may press star two to remove yourself from the queue. If participants use speaker equipment, it may be necessary to pick up the handset before pressing these star keys. Tenet respectfully asks that analysts limit themselves to one question each.

I’ll now turn the call over to your host, Will McDowell, Vice President of Investor Relations. Mr. McDowell, you may begin.

Will McDowell (Vice President of Investor Relations)

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 third 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, 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.

Saum Sutaria (Chief Executive Officer)

Thank you, Will, and good morning, everyone. Third quarter net operating revenues were $5.6 billion and consolidated adjusted EBITDA was $1.355 billion. Adjusted diluted earnings per share increased 80% to $6.64 in the third quarter of 2026 compared to the prior year. More importantly, after adjusting for one-time items related to contract transitions that generated adjusted EBITDA of $147 million that was not reflected in our previous guidance. The core business continued its strong growth trajectory in 2026 with an adjusted EBITDA margin of 21.8% and 10% growth in adjusted EBITDA over third quarter 2025.

We continue to manage through payer mix shifts and enrollment declines in the exchanges and execute on our technology-enabled growth and expense management plans that support our margin strength. Our strong performance is driving significant free cash flow that we continue to deploy for the benefit of shareholders. Year to date we have deployed over $1.6 billion for share repurchases. Now turning to our segments, USPI generated $537 million in adjusted EBITDA, which represents 9% growth over third quarter 2025. Same-facility revenues grew 4.5% as our high-acuity strategy continues to yield benefits and is highlighted by our strongest quarterly performance this year with 12.8% same-store growth in total joint replacements in the ASCs over prior year. USPI also had a very successful quarter in development with over $100 million of investments in the third quarter alone.

We remain the preferred acquirer of assets in this space and continue to have an attractive pipeline of partnerships interested in joining USPI. Additionally, we have commenced patient care at four de novo centers to date. Turning to our hospital segment, our performance in the quarter was driven by 3.2% adjusted admissions growth and strong margin performance from sustained expense efficiencies. The investments that we have made in support of our high-acuity strategy continue to pay dividends and drive incremental growth. Excluding the contract transition benefits that I mentioned, adjusted EBITDA grew a very attractive 11% over third quarter 2025, again producing results ahead of our expectations.

We are pleased with our performance in both operating segments which continue to generate strong same-store revenue growth, attractive margins, and robust free cash flows. Turning to guidance for the rest of 2026, we began the year with attractive growth expectations and delivered an outsized and competitively differentiated increase to our guidance when we reported our second quarter results. At this point in the year, we are raising our full-year 2026 adjusted EBITDA guidance to a range of $5.05 to $5.2 billion, which represents an increase of $195 million, or 4% at the midpoint of the range, over our increased guidance after the second quarter.

The guidance increase is supported by our continued expectations for strong fundamental performance as well as the one-time items in the back half of the year. Notably, over 40% of our total guidance increase for this year is from fundamental outperformance. I’d like to now spend a few minutes discussing some early thoughts on 2027. After excluding the impact of the transition activities at Conifer, we expect our enterprise to deliver overall adjusted EBITDA growth in 2027. This assumes the current known regulatory frameworks. The value of our diversified business mix supports our belief in this outcome for 2027. We’re still conducting business planning, so details will come after the fourth quarter.

As usual, we’re sizing further potential exchange headwinds and the estimated impact of Medicaid work requirements. USPI should not be materially impacted by these, and we expect same-store revenue growth, consistent margins, and further expansion of the asset portfolio in our ambulatory business. In the hospital segment, we currently see healthy patient demand that would support same-store volume growth and a stable operating environment supported by disciplined cost controls in 2027.

To help you bridge the years, we now expect various transition activities at Conifer to total $450 million of adjusted EBITDA in 2026. We do not expect these contributions to recur in ’27, and I will reiterate that this is an estimate depending on how the transitions proceed operationally. We will provide an update following our fourth quarter results. We are pleased with the results of this highly attractive Conifer transaction as the total value generated from the contract sale will now increase to approximately 15 times 2025 adjusted EBITDA minus NCI.

In summary, we have a transformed portfolio of businesses with strong underlying fundamentals, disciplined operations, and a business mix which is diversified from many of the reimbursement headwinds that are affecting the industry. Finally, I will again reiterate our commitment to returning free cash flow to shareholders via repurchases, especially at our attractive valuation multiple in light of recent comparable multiples for combination ASC-hospital platforms.

For more details on our results, I will now turn it over to Sun.

Sun P. (Chief Financial Officer)

Thank you, Saum, and good morning everyone. We again delivered strong performance in the third quarter of 2026, generating total net operating revenues of $5.6 billion and consolidated adjusted EBITDA of $1.355 billion. Third quarter adjusted EBITDA margins were driven by strong revenue performance and disciplined operating expense management with continued progress on the efficiency initiatives that we outlined at the beginning of the year, as well as favorable transition items as described in the earnings release.

I would now like to highlight some key items for both of our segments, beginning with USPI in the third quarter. USPI adjusted EBITDA grew 9.1% over third quarter 2025 to $537 million with adjusted EBITDA margins at 39.2%. Same-facility systemwide revenues increased 4.5% with net revenue per case up 6.1% and same-facility case volumes down 1.5%, reflective of our high-acuity focus. Turning to our hospital segment, same-hospital adjusted admissions rose 3.2% in the quarter as demand remained healthy. Revenue per adjusted admission increased 0.2% year over year in the quarter, primarily due to strength in commercial employer revenues offset by the impact of reduced exchange volumes. Exchange admissions and revenues declined 18% from third quarter 2025 and represented about 5.5% of consolidated net operating revenues in third quarter 2026.

We recognized $32 million of out-of-period supplemental Medicaid revenues in the quarter. This compares to $38 million of out-of-period supplemental Medicaid revenues that we had in the third quarter of 2025. I would note that year to date there is $124 million of favorable out-of-period supplemental Medicaid revenues related to prior years. Finally, we recognized the net benefit of $147 million associated with the timing of revenue recognition and various transition activities related to Conifer in the third quarter of 2026. This amount is comprised of two items. First, our net operating revenues increased by $97 million due to revenue recognition timing. It is important to note that this is simply a timing shift between the third and fourth quarters and, as such, does not impact our full year 2026 revenues associated with the transitioning contract.

Second, we recognized $50 million of EBITDA from various transition activities, including expense reductions that took place earlier than we had originally anticipated. All in all, our operating discipline and strategic focus enabled us to deliver another strong quarter despite the patient coverage challenges that the industry is facing. Next we will discuss our cash flow, balance sheet and capital structure. We generated $1.1 billion of adjusted free cash flow in the third quarter, which brings us to $2.5 billion of adjusted free cash flow year to date. As of September 30, 2026, we had $2.67 billion of cash on hand with no borrowings outstanding under our line of credit facility.

As previously announced, we issued $2 billion of senior unsecured notes that mature in 2034. We used the proceeds from the notes to retire $2 billion of notes that would have been due in 2027 and 2028. We now have no significant debt maturities until 2028. And finally, during the third quarter, we repurchased 970,000 shares of our stock for $255 million. Year to date, we have repurchased 8 million shares of our stock for $1.615 billion. Our leverage ratio as of September 30, 2026 was 2.11 times EBITDA, or 2.58 times EBITDA less NCI, driven by our strong operational performance and financial discipline.

We remain committed to maintaining a 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 2026, we now expect consolidated net operating revenues in the range of $22.05 to $22.45 billion, an increase of $50 million at the midpoint of the range over prior expectations. As Saum mentioned, we are raising our 2026 adjusted EBITDA outlook range by $195 million at the midpoint to $5.05 to $5.2 billion, reflecting the increased EBITDA expectations associated with our transition activities as well as the additional out-of-period supplemental Medicaid revenues that we recognized in the quarter.

Turning to our cash flows for 2026, we now expect adjusted free cash flow after NCI in the range of $1.925 to $2.155 billion, an increase of $100 million at the midpoint from our previous guidance range. This range includes about $150 million in tax payments this year for the Conifer transaction. Excluding these tax payments, this would represent $2.2 billion of adjusted free cash flow after NCI. At the midpoint of our ’26 outlook, our businesses continue to deliver strong free cash flow conversion from our EBITDA performance while we continue to invest in high-priority areas to support future growth.

Turning to our capital deployment priorities, we are well positioned to create value for shareholders through the effective deployment of free cash flow. First, we will continue to prioritize capital investments to grow USPI through M&A. Second, we expect to continue investing in key hospital growth opportunities to fuel organic growth, including our focus on higher-acuity service offerings. Third, we’ll continue to be active in share repurchases.

We continue to see significant opportunity at our current valuation, continued operating performance and strong leverage position. And 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 our increased outlook for 2026. And with that, we’re ready to begin the Q&A.

OPERATOR

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

Please proceed with your question.

Jason Carsola (Analyst at Guggenheim)

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

Sun P. (Chief Financial Officer)

Hey, Jason, good morning. It’s Sun. Yeah, I think our relationship with our commercial payers and commercial pricing overall hasn’t changed very much at all from our prior commentary, right? We still are seeing good renewals, you know, a lot of them at the 3% to 5% range. You know, we’re obviously fully contracted for this year and are basically, you know, over 90% contracted for next year as well. So we have good visibility. You know, the only other thing I would note is from a net revenue per adjusted admissions rate, you know, we said 0.2% this quarter.

Excuse me. A lot of that is driven by, as expected, good pricing mix across our categories and then obviously offset by exchange headwinds. The exchange headwinds represented about a 1.8% headwind on our net revenue stat. And then from an operational basis, look, I mean we try to have a win-win relationship with all our payers. You know, we obviously have to be very diligent from our Conifer business operations on our revenue yield as we respond to different requests and, you know, candidly denial activity from the payers. And we performed very well, I think, from a revenue-yield basis. And that really hasn’t changed over the last several years in our commentary. And we think, given Conifer’s capabilities and investments we continue to make in technology and Conifer overall, that we’ll be able to sustain that.

So I’m wondering if you have any other comments on that. Thank you for your question.

OPERATOR

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

Will (Analyst at TD Cowen)

This is Will on for Ryan. I just have a quick question on the state-directed payments. So you disclose a number in your filings about Medicaid supplemental payments. Just wondering if you could ballpark what percentage of those will not be subject to reductions under HR1. Thanks.

Sun P. (Chief Financial Officer)

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

Will (Analyst at TD Cowen)

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

Sun P. (Chief Financial Officer)

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

OPERATOR

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

Kevin Fischback (Analyst at Bank of America)

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

Saum Sutaria (Chief Executive Officer)

Yeah. Let me start with the second question. I’ll pass to Sun. I think the surgical environment, you know, look, I mean, from an industry perspective, in terms of what we’re seeing, we’re pleased with our results. Obviously there are two components, the hospital segment and the ASC segment, both of which I think are generally, you know, generally consistent or better than we’re seeing in the general industry. Remember, on the USPI side, as I noted, we’re still so focused on our strategy of acuity that you have to take those results in light of that.

But again, I think competitively differentiated results there as well, both on revenue and volume. So we’re pleased with that. And that said, I would not say this is a gangbusters surgical environment right now, right. So you just have to take both of them together. And the importance of our strategy is probably the critical point here in terms of what’s driving our confidence in the earnings growth going forward into 2027.

Sun P. (Chief Financial Officer)

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

OPERATOR

Thank you. Our next question comes from the line of Steven Baxter with Wells Fargo. You may proceed with your question. Hi, thanks.

Steven Baxter (Analyst at Wells Fargo)

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

Saum Sutaria (Chief Executive Officer)

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

Sun P. (Chief Financial Officer)

Nothing further to add, Saum. It’s really exchange volume reductions that we discussed and the commensurate increase in, you know, uncompensated care numbers that you’re seeing. I don’t think there’s anything beyond that, Steven.

OPERATOR

Thank you. Our next question comes from the line of Whit Mayo with Leerink Partners. Please proceed with your question. Thanks.

Whit Mayo (Analyst at Leerink Partners)

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

Sun P. (Chief Financial Officer)

Yeah. Hey Whit, this is Sun. The only revenue headwind we’ll call out is the timing piece that we, you know, explicitly said—the $97 million that came into Q3 from a timing basis that otherwise would have been in Q4 instead. I think that’s the only material one that we’d call out from a hospital perspective. For next year, the $450 million, I would say a big portion of that would be spread ratably throughout the year. And that is the, you know, the overall contribution of the CommonSpirit contract that we saw this year. And then there is a portion—and we called out about $160 million total between Q3 and Q4—that is going to be more obviously second-half weighted given that some of the efficiency and transition activities took place in the second half of the year versus the first half.

So I think those are the major moving pieces. Okay, thanks.

OPERATOR

Thank you. Our next question comes from the line of Brian Tanquillet with Jefferies. You may proceed with your question.

Brian Tanquillet (Analyst at Jefferies)

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

Sun P. (Chief Financial Officer)

Yeah, I would actually say it’s the other way around. I mean, most of the efficiency you’re seeing in our SWB line is from all the things that we just talked about over the course of the year where we obviously have spent a lot of time and energy and effort and have shown performance on cost controls in the face of HICC’s exchange reductions and other challenges. So, you know, there are a lot of moving pieces obviously in that line item, but a large majority of that is from our efficiency efforts.

Now as you get into Q3 and Q4, as, again, said, there are some additional efficiency impacts that we’ll see as we transition activities, but by and large SWB is from our efficiency efforts overall across Tenet Healthcare.

OPERATOR

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

Peter Chickering (Analyst at Deutsche Bank)

Hey, good morning guys. Thanks for taking my questions. Just looking at the ASC growth engine for the next few years, you know, ortho, you know, it’s obviously been a big one, but, you know, should we be thinking about other areas like urology, you know, bringing in used DaVinci, use XIS, urology—I mean, kind of, you know, as you look past ortho, which again will continue for another couple years, where’s the next sort of big growth engine that we should be thinking about within ASCs?

Saum Sutaria (Chief Executive Officer)

Yeah, thanks Peter. For sure. You know, orthopedics and the expansion of orthopedics cases beyond the current case mix is an important driver. But in addition for us, you know, as you know, we have been pursuing growth in urology, in general surgery, in advanced body robotics, in spine. I mean, there are a number of areas—standing up some new cardiac centers, you know, as I’ve always said, slower process but still opportunity. So the diversification into higher-acuity areas while maintaining and growing our base are both important drivers of that future.

And really the combination of that strategy with the regulatory framework and support for moving surgical care into safe, lower-cost settings are both things that I think will benefit us over a multi-year period in this environment. And look, the regulatory environment is somewhat known and somewhat uncertain based upon what happens from an election standpoint. But I would say and reiterate what I noted in my comments, which is having the diversified platform at the scale we have it is a really important driver of our ongoing ability to build and grow this business, you know, at an enterprise level.

Peter Chickering (Analyst at Deutsche Bank)

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

Sun P. (Chief Financial Officer)

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

And I think we think we obviously delivered to our increased expectations in Q3. So I would say those are probably the moving pieces I would point out.

Saum Sutaria (Chief Executive Officer)

Yeah, I mean we’re reiterating the belief in the strength of the business today and also our ability to manage that into the fourth quarter at the elevated levels that we’ve provided. And we think we have the foundation in place and the tactics for the fourth quarter in place, given the demand we’re seeing right now, for a successful end to the year.

Peter Chickering (Analyst at Deutsche Bank)

Great. Thanks so much. Appreciate it.

OPERATOR

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

AJ Rice (Analyst at UBS)

Hi everybody. You know, we’ve had now, with the announcement of the last week, two major deals where nonprofit health systems are buying surgery center assets, paying, you know, significantly higher premiums than what your business is being valued in the market. And you historically, I think, USPI has generally been viewed in the industry as probably the premium surgery center asset. I wonder, with that backdrop, can you comment on—is this having any impact in the market on deals, the smaller deals, in terms of how people are thinking about pricing?

Is it changing the competition for ASC assets in any way—that maybe these guys are out of the market because they’re in the process of selling, or maybe the nonprofit systems are gearing up to be more active acquirers? And does it do anything to make you think about being more proactive and trying to get recognition for the value that’s obviously there at USPI, but doesn’t seem to be recognized by the market?

Saum Sutaria (Chief Executive Officer)

Well, thanks, A.J. I mean, let’s start with the last part of it. I mean, again, as I commented at the end, I think from a practical perspective, the two things that we can do are continue to deliver differentiated earnings growth. I believe that USPI has delivered differentiated earnings growth versus any other ASC platform in the industry both recently and over a long period of time. I think the facts would support that pretty easily. And the second thing is, with our free cash flow generation, recognizing the attractive valuation of our equity relative to, you know, relative to what are some reasonable valuations of, in this case more recently, ASC–hospital combination platforms, as I noted. So those are the two practical things—like, we believe in continuing to build this business and do it in a differentiated manner.

In terms of the M&A market, look at the third quarter again, right? A very successful third quarter in acquisitions, the vast majority of which were not competitive processes, but came exclusively to USPI in those processes. And we have a terrific pipeline looking ahead. I know we keep saying that, but the reality is our acquisitions every year continue to confirm that that pipeline translates to actual acquisition activity and successful ramp-up of our ability to deliver synergies into those assets.

At the same time, you know, our strategy is diversifying more and more, inclusive of a more rapid pace of de novo development, new tools in the toolkit about how we think about those de novo developments, a heavier focus of those de novo developments into some of the higher-acuity service lines where we’ve built a differentiated reputation in the marketplace with physicians and physician groups and MSOs that are investing in those specialties. So I think that’s another important feature of what we are able to do looking forward.

And then finally, you know, because of the value that we are providing health plans in the ASC sector and the government, candidly, our ability to move into new markets and new states with our contracting platform and move surgical care into lower-cost settings without having to own more acute care hospitals is another important differentiator in what we are able to do with respect to expanding USPI’s scope and activity. So again, as you can imagine, we spend a lot of time on this and how we remain competitively differentiated going forward, not just where we are today.

And hopefully that gives you a little bit of a flavor of it. Look, in terms of the two recent ASC acquisitions, you know, I personally extended my congratulations to both new owners. This is an important part of the market and we have a lot of work to do together from an advocacy perspective in order to support and build the growing interest in ambulatory surgery, maintain high quality and safety, and also ensure that regulators understand the benefits that this portion of the surgical sector is providing to the cost of health care going forward.

And so I look forward to those collaborations with those leaders. Okay, thanks a lot.

OPERATOR

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

Justin Lake (Analyst at Wolfe Research)

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

Saum Sutaria (Chief Executive Officer)

Hey, Justin, thanks for the question. And we have spent a lot of time and energy making sure that our total business, including hospitals, as you noted, is running efficiently and we’re finding cost opportunities wherever we can. And that’s been a long-standing campaign for Tenet. Obviously, this year, as we’ve talked about several times, we accelerated those efforts, including adoption of different technologies and AI tools for obvious reasons, in the face of some headwinds that we had in exchange as well as other dynamics.

You know, going forward, it’s tough to say, you know, where in the life cycle we are. Right. You know, I think it’s reasonable to assume that we will have access to even more improved technologies and other solutions as we go that we may not be aware of today, but that we can adopt as we go in the future. And I think Tenet’s shown the ability to do that from a more operational basis. The operating environment, I think, is pretty stable, as we’ve said many times, from a labor standpoint, from our ability to manage our suppliers and other medical professional providers.

You know, I think there remains opportunity and we will continue to work on those, but I think we’ve managed that pretty significantly. So listen, I think Tenet’s been showing the ability to kind of dial up, dial down as the situation requires. We’ll see as we get through our planning for 27 what all of the headwinds and tailwinds are. And obviously managing our operating expenses will be a big part of how we deliver our commitments. So hopefully that answered the question.

Sun P. (Chief Financial Officer)

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

Justin Lake (Analyst at Wolfe Research)

Yeah, agree. Great. Thanks.

OPERATOR

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

Andrew Mock (Analyst at Barclays)

Hi, good morning. Total joints have been a strong category for quite some time, but it looks like that category re-accelerated at USPI this quarter. Is there anything to call out driving that reacceleration of total joint growth? And do you believe that share is still coming from hospitals? Thanks.

Saum Sutaria (Chief Executive Officer)

Yes. I mean, I think when you say is that share coming from hospitals? I think it’s coming from migration of cases from probably an HOPD to a freestanding outpatient setting. I think the driver of that is the continued efforts that we make in helping surgeons realize that they have a service-differentiated site of care, that as they get comfortable with it, they can continue to grow their activity in that environment. Right. It’s more convenient for them.

It’s more convenient for their patients. They have, you know, one of the important things that we have, I think I’ve talked about before, is the ability to help these surgeons who are pretty smart about opportunity and risk with their patients to use frameworks we’ve established to give them more predictability in terms of which cases are safe in the ASC environment likely to be successful, and which conditions they may want to think about that would drive them to continue, from a patient success and safety standpoint, in the hospital.

And those protocols I think are very helpful to growing the confidence in the surgical community of what they can achieve in a USPI ASC. And that’s helping to drive the organic growth. And it’s a matter of really expanding the access to those protocols, which is really about how many surgeons trial an environment in the USPI setting. One of the things we do in this service line is give surgeons an opportunity to trial USPI centers without having to be joint venture partners or equity owners or other things.

That’s a really important feature of what we create capacity to do in our environment because those could be future partners in perhaps new de novo and other centers.

OPERATOR

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

Sarah James (Analyst at Cantor Fitzgerald)

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

Saum Sutaria (Chief Executive Officer)

Yeah, so two things. I mean, I would reiterate our strategic focus. Right. We’re primarily focused on growing and succeeding in share capture in our higher acuity surgical areas and continuing to build more access points in some of the more foundational ambulatory surgery center environments, which is effectively share capture by growing the number of surgeons or number of doctors affiliated with USPI. In the high-acuity areas, we’re doing that. Plus we are seeing growth.

That’s based upon the question that we just answered around the migration from higher cost to lower cost settings. It’s a combination of the two, which is why you see higher growth rates. The summary from both of those is that we are increasing the proportional share that’s happening in the lower-cost ASC setting. You know, in the acute care business, as I noted, this year has tilted a bit more towards both significant emergent and medical care on balance than surgical care, though both have been important drivers of our strategy. Remember for us again, the focus on that higher acuity segment is very important in terms of what we’re doing.

So that’s what supports our revenue growth and case mix index growth and the ongoing opportunities for expense management we have with our length-of-stay platform and the things we’re doing there. So the mix of business gives us an opportunity to both grow revenue intensity and improve our expense management, which is why you see the margin strength that we’re able to deliver.

OPERATOR

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

Anne (Analyst at Mizuho Securities)

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

Saum Sutaria (Chief Executive Officer)

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

OPERATOR

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

Craig Hettenbach (Analyst at Morgan Stanley)

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

Saum Sutaria (Chief Executive Officer)

Yes, thanks, Craig. So look, I think it’s very important in this environment coming out of COVID—this is more of a long-term strategy—that urban and, you know, sort of larger suburban hospitals have an important role to play in providing access to more smaller suburban and more certainly more rural communities where the funding just hasn’t been necessarily fully available to refresh capital, physician specialty capacity and other things coming out of the COVID crisis.

And at the same time there’s still people that live there, need access, get very sick and go to their hospitals. And we have a very important transfer program strategy that is willing and able to receive all patients from these outlying locations when there are needs and, importantly, return them to their home communities as appropriate, as early as possible as well. And our ability operationally to have built these successful partnerships have been sustainable, we found, over a number of years. I mean, in the end, if you’re a good partner to more rural and smaller suburban communities, they remember that, and you’re reliable and you take their patients when they need it and you return their patients to them when appropriate, they remember that. And those relationships that have been built through the back end of COVID and all the way into today are an important part of our strategy.

And look, we also have built a better expertise than the market in taking care of high-acuity patients and transfers because it’s the heart of our strategy. We save intensive care unit capacity for these types of patients. We’re very good at stepping people down out of the intensive care unit when their care is safe in that manner in order to create that capacity. And we also have emergency department contracts and physicians that understand we take this obligation to these communities very seriously, and therefore we create and save capacity for those patients in the emergency environment as well.

So it’s a comprehensive approach that we don’t think is very easy to replicate in terms of what we have put in place. And yes, it’s an important driver of our, in the end, to simplify, our high-acuity strategy.

Craig Hettenbach (Analyst at Morgan Stanley)

Helpful context. Thank you.

OPERATOR

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

Ben Hendricks (Analyst at RBC Capital Markets)

Great, thank you very much. Just wanted to follow up on some of the joint procedure momentum discussion. And I realize that the strength you’re seeing reflects the high-acuity focus, service line initiative, share capture, etc. We’re just hoping to get a sense of some of the underlying demand trends in your market. So I think one of your peers had talked about a lull in high-acuity ortho with clinic and imaging volume not necessarily converting to procedures.

Wanted to see kind of what degree you’re seeing delays build and if that’s informing your growth expectations for 27. Thanks.

Saum Sutaria (Chief Executive Officer)

Yeah, I mean, obviously we’ve thought a lot about this this year and, you know, in various forums have kind of made comments about it. You know, again, I think what I said today was like, it’s not a gangbusters environment. On a differentiated basis, we’re performing well and I think that’s good. And I think secondarily, as I said, the commitment we have at USPI is to build and grow the revenues and earnings of the business and to be strategic rather than just kind of catchers of what’s in the market.

And I think being strategic has consistently helped us over the last few years in terms of how we’ve built the business. And so look, we anticipate continuing to do both. I think as the coverage environment settles, you know, maybe this demand environment will—when I say settle, it’ll at least become more predictable as we look ahead. And, you know, hopefully that in combination with settling some of the uncertainty around the election will also help settle 2027. And from our standpoint, as we’ve gone through our planning process to date, we couldn’t see anything visible that suggested that we shouldn’t be able to deliver another, you know, as I called it, consistent year ahead at USPI.

And then on top of that, I think I indicated our M&A environment is tracking towards the raised guidance for this year that we gave earlier this year in terms of our ability to have more affiliates, more affiliated centers at USPI. So we’re looking forward to 2027 from the perspective of ambulatory surgery.

OPERATOR

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

Benjamin Rossi (Analyst at JP Morgan)

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

Saum Sutaria (Chief Executive Officer)

Yeah, well, I think I’ve indicated before, I mean, one of the sort of just simple operational benefits of longer case times in higher-acuity surgery is, you know, productive OR capacity utilization. Like anything else, it’s a fixed asset. And in the case of ambulatory surgery centers, it’s a fixed asset that’s only open for a certain number of hours every single day, or at least every weekday generally. And so the importance of that OR utilization as a driver of our revenue growth is something that we track very, very carefully.

And, you know, to the point I think you’re making, the improvements in those areas are helpful to us. Look, there are still, operationally, areas that we are working on improving. You know, some of the new tools that we’re working with, trialing in patient outreach, including Agentix solutions with respect to improving case cancellations and reminders, you know, could be important drivers over time. Some of the analytics that we’re learning from with some of these new tools that help us think about how to organize better operating room schedules to maximize the utilization—short cases versus long cases, turnover times, you know, what generates efficiency.

I mean, some of these things in the past you would have to rely on the intuition of center leaders who’ve just been so experienced doing it. Now, with the availability of analytics tools, you can actually put a lot of that retrospective data into algorithms that will help you decide better how to manage our OR scheduling even from that perspective. So we’re trying all of that stuff in the spirit of being better ASC operators and the way in which this organization embraces the use of many of these AI-based technologies, and, you know, we’ll see what works looking forward. But I hope that those things, in partnership with our doctors, can help us improve the efficiency and accuracy with which we run our operating rooms. You know, the other things that happen in that environment, of course, are all of the things related to accurately capturing charges, you know, preparing pre-authorization.

I mean, all of those areas have opportunity for technology to benefit the way that we’re doing those things. I think your last question, or part of your question in there that I’ll wrap with here, is on the anesthesia side. I think largely that market, which hasn’t been a favorable line item from an expenditure standpoint, has somewhat stabilized. And I think it’s well known in the industry that we focus our work with a preference on in-network anesthesia. And, you know, we do our best to make that clear across the board.

OPERATOR

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

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