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Tenet Healthcare Corp  (NYSE:THC)
Q4 2018 Earnings Conference Call
Feb. 26, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day and welcome to the Tenet Healthcare 4Q '18 Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Brendan Strong, Vice President of Investor Relations. Please go ahead.

Brendan Strong -- VP, Investor Relations

Hi, good morning. Thanks Amanda. The slides referred to in today's call are posted on the Company's website. Please note the cautionary statement on forward-looking information included in the slides.

In addition, please note that certain statements made during our discussion today constitute forward-looking statements. These statements relate to future events including, but not limited to, statements with respect to our business outlook and forecasts, our future earnings and financial position. These forward-looking statements represent management's current expectations, based on currently available information, as to the outcome and timing of future events but, by their nature, address matters that are uncertain. Actual results and plans could differ materially from those expressed in any forward-looking statement. For more information, please refer to the Risk Factors discussed in Tenet's most recent Form 10-K and subsequent SEC filings. Tenet assumes no obligation to update any forward-looking statements or other information that speak as of their respective dates, and you are cautioned not to put undue reliance on these forward-looking statements.

And I'll now turn the call over to Ron Rittenmeyer, Tenet's Executive Chairman and Chief Executive Officer. Ron?

Ronald A. Rittenmeyer -- Executive Chairman and Chief Executive Officer

Thanks, Brendan and good morning. As we posted last evening in our release, Tenet delivered strong financial performance in 2018. Revenue, EBITDA and EPS, were all above consensus. EBITDA was in the upper half of our outlook range, up 4.7% and up 9% on a normalized basis. We also more than doubled in EPS in 2018 to $1.86, which was above the high end of our outlook range. Each of our businesses rounded out 2018 with solid results. USPI delivered adjusted EBITDA less facility-level NCI growth of nearly 13%, after normalizing for the divestiture of Aspen. USPI's case growth was 3.4%, including strong performance in both our surgical and nonsurgical businesses.

Conifer had a great year with adjusted EBITDA up nearly 35% on a normalized basis. They also improved margins by 330 basis points in the fourth quarter alone. Their performance throughout the year was a result of diligence and execution and a more pointed approach to cost management. Our hospitals delivered normalized EBITDA growth of 2%. Volume performance was below our expectations but we do expect improvements throughout 2019 with our new leadership and new focus. And to that point, we are actually addressing gaps in performance with new leadership teams in specific hospitals and markets and with increased oversight and thoughtful direction from Saum Sutaria, our new Chief Operating Officer. One of Saum's highest areas of focus in 2019 will be to lead the continued restructuring of our platform for organic growth in our hospitals.

With that overview. I'd now like to take a few minutes and speak to some of the specifics in 2018. Clearly, it was a year of significant change; change in the way we think, change in the way we operate, change in the way we lead, and engage our teams and change in the way we conduct outreach in our communities. We made measurable changes to our culture and we'll continue to make significant moves throughout 2019. We believe it is correct and fair to say by any measure we are a different Company than we were in 2017. We are much healthier, more focused and more aligned across businesses.

As you can see on Slide 3, we delivered on many of the plans we laid out at this time last year. Broadly speaking, these plans were centered on core areas; performance, which we just discussed, portfolio enhancements, efficiencies and importantly, people. There is an inseparable link among all of these elements, because while individually important, they follow different paths. They also very -- they are very intertwined creating a foundation for sustainable growth. I believe that we will be more successful with our teams energized around a common mission and sustainable drive for consistency and execution, our performance in quality, service and delivering the mission efficiently.

This is something I and the teams have been working on since, I arrived; revisiting and restructuring core strategies, aligning operations around the problem not the person, hiring the best talent possible, integrating functions, removing unnecessary processes and as a team focusing on the core of what we do and how to do it better for the long-term growth and returns. So let me provide a quick rundown of some of the key steps forward from last year that speak to those points.

In addition to delivering solid performance, we also divested non-core operations, including 17 hospitals and facilities in 2018 and another three hospitals just last month. These divestitures generated proceeds of over $1 billion, including cash and the elimination of capital lease debt. We did this while continuing to expand our Ambulatory portfolio and complete the buy up of USPI. We invested $240 million in Ambulatory M&A including adding 27 facilities and seven new health system partners. This was a great year for acquisitions and de novos and we will continue to pursue these opportunities aggressively.

We exited 2018 with $250 million in run rate savings, and today, we're announcing a new $200 million initiative. We expect to be on the $200 million run rate, as we exit 2019, bringing the total cost savings to $450 million in a little more than two years. I'm really proud of the progress the team has made here and believe that our teams have adopted a mindset that we can always do things more efficiently and effectively without compromising the quality of our work and service to our patients.

We've reshaped leadership ranks across the organization, tapping the best talent internally and externally, to help define the culture of accountability, we need ingrained in our teams. In addition to these achievements much of what we did last year was to identify areas that were lacking the appropriate level of attention and strategic direction like marketing, physician recruiting and scheduling, just to name a few examples. We identified these and other areas across the business and continue to make changes to put us on better footing for the future.

Much of the transformation taking place is happening because we have new or different leaders in place; some of whom have been in their positions for the better part of 2018, but many of whom are recently appointed are promoted, so they just have started scratching the surface. When I think about 2018 as a year of change, I think about 2019 as a building year. I'm pleased with what we've achieved in 2018, but we have a lot, we need to improve upon going forward, including volume growth in our hospitals, a stronger sales pipeline for Conifer, patient satisfaction, physician recruiting and better coordination of hospitals and ambulatory platforms.

At the highest levels we remain largely focused on the same things; growth and operational excellence and everything that supports that to a stronger team of people and a more unified culture. Our priorities for 2019 are summarized on Slide 4. As it relates to growth, we are focused on earning patient loyalty. Growth in our hospitals and at USPI is dependent on building and sustaining greater loyalty from our patients. This is about how we handle arrival to departure and everything in between. What we do impacts new and returning patients and our objective is to be seen and known as the location desired for quality care.

Driving further improvement in quality and service is core to these efforts and something, Dr. Ernest Franklin, our new CMO, is working very closely on across the enterprise. Dr. Franklin joined us in January and his proven track record in clinical leadership and his tenure as a physician and operational leader will be incredibly beneficial as we work to improve patient experience. We're also working to strengthen our network and physicians. We are focusing on earning more business from independent physicians and improving scheduling, providing the best place for quality care to be delivered. We've also restructured physician recruiting focusing by service line on the groups that make a difference in meeting the needs of our communities and patients. We are focused on adding new physicians on an ongoing basis throughout 2019, bolstering our clinical skills and depth across our business units.

Another major part of our growth plan is the direct community-focused marketing approach that we discussed previously. Integrating our marketing programs and communications teams, similar to what we're doing with other departments, will ensure we use the same same umbrella campaign across the country and tailor it locally to the service lines that fit the needs of that specific community. We continue to brand local hospital systems reflecting the local heritage and name recognition that resonates within the community and engaging our teams locally to be the face and voice of that message.

Our message is now built on the tag line, A Community Built On Care and every aspect of our multiple systems, hospitals, surgery centers in Tenet markets, urgent cares, freestanding EDs, all will carry this message with their local brand. Whether it's the DMC in Detroit, The Hospitals of Providence in El Paso, The Desert Care Network in California and so on, we will deliver the same unified message in print, radio, video and through community influencers. All of these messages are using our employees, doctors and staff, not actors and are produced internally. They serve as a lynchpin to changing the culture, starting in the field and flowing back to headquarters with the clarity of the message and purpose being stated by our employees, doctors and teams. We will continue to build on developing our brand image through 2019 and going forward.

I already spoke about our efforts to continue expanding our Ambulatory platform, which remains a top priority given the strong growth fundamentals and solid returns generated by these opportunities over time. We have a very healthy pipeline of acquisitions and de novos and prospective health system partners. This will remain a key to our future growth.

Conifer, has had an excellent year in executing their mission; increased efficiency, improved quality and overall top quartile results with a year-over-year improvement of $74 million in EBITDA. We delivered nearly as much EBITDA growth at Conifer in 2018 in incremental dollars as Conifer delivered over the prior three years. Sales growth has lagged and we are focused on reengineering the sales process and teams. We expect to add a new Head of Commercial Sales shortly and rebuild the sales team. We've identified targets and are continuing to be engaged in new potential business. Our results from last year will improve our competitiveness in the market and we expect to see this develop over the year.

With respect to Conifer, we've said on a number of occasions that a range of alternatives are being evaluated and that we would close out the process only when the right decision is reached for Conifer and for Tenet shareholders. We have recently entered into exclusivity with one of the parties that has been engaging with us. While there could be no assurance that this negotiations will result in a transaction, we are very pleased with this progress and we will continue toward delivering the best transaction for Conifer and our shareholders.

As you would expect we have confidentiality terms in place as part of this exclusivity and due to that will not offer specifics or answer any other questions at this time other than to say, it is really, really good progress on what's been a very thorough and active process and I will provide -- we will provide an update at the appropriate time. That brings me to our remaining priorities of operational excellence and talent and culture. We need to continue to enhance our agility, continue developing a culture of consistency and execution and results and build on our efforts to drive further cost containment. Operational excellence will also come from deeper integration, better coordination of our business platforms and further standardization of processes where we can leverage best practices in the right way.

For talent and culture, we will develop the energy and attention required toward team development, focusing on the best and the brightest, including coaching, challenging and further developing our people and adding new high talented individuals, having the right teams in place where we create the right environment to build long-term sustainable growth for our business.

Before I turn it over to Dan, I want to briefly comment on our outlook for 2019. Our results in 2018 was strong across each of our businesses and we anticipate further development and improvement in 2019, resulting in adjusted EBITDA growth of 47%. In our hospital business we anticipate delivering EBITDA of roughly 3% in 2019. Rebuilding volume growth is one of our biggest areas of focus in 2019 and we expect it will take most of 2019 to put us back solidly on the path to deliver sustainable long-term volume growth in our hospitals.

I am optimistic that volumes will respond to the changes in restructuring we are making across the country. At USPI, we anticipate delivering another 10% to 12% growth in adjusted EBITDA less facility NCI. And for Conifer, we're targeting normalized EBITDA growth of roughly 25% once you adjust for the impact on Conifer from our divestiture program, as well as hospital divestitures that were completed by some of Conifer's other customers. Growth and new growth will remain a key focus of this team.

So with that, Dan will now provide additional details on our results and the outlook for 2019. Dan?

Daniel Cancelmi -- Chief Financial Officer

Thanks, Ron and good morning everyone.

We generated $684 million of adjusted EBITDA in the quarter, above the midpoint of our outlook range and up 7.4% year-over-year on a normalized basis. Adjusted EPS was $0.51, which was above the high end of our range for the quarter. Our Hospital segment generated $352 million of EBITDA, approximately $10 million ahead of our expectations for the quarter and up 0.3% after we normalize for the items listed on Slide 8. Ambulatory EBITDA was $245 million, which was 12.4% higher year-over-year and EBITDA less facility-level NCI was $151 million, up 7.1% after adjusting for Aspen which we divested in August. Conifer's EBITDA rose 10.1% to $87 million with margins up 330 basis points and adjusted free cash flow was $600 million in 2018.

Turning to Hospital volumes, which are summarized on Slide 9. Adjusted admissions were flat excluding Chicago and planned service line closures in certain hospitals, which lowered adjusted admissions by 30 basis points and 50 basis points, respectively. We divested our last three Chicago hospitals in January. So these will no longer impact our same hospital metrics starting in the first quarter. Revenue per adjusted admission was very strong this quarter, up 5.4% after you adjust for California Provider Fee revenue and expense management was favorable again this quarter with cost per adjusted admission up 3.5% with excellent results in SW&B, Supplies and Corporate overhead, which we reduced by 28% in 2018. For the full year, our Hospital segment produced 2.4% EBITDA growth after you normalize for the items listed on Slide 8.

Moving to our Ambulatory business on Slides 10 and 11. USPI continues to perform well. For the full year they produced case growth of 3.4%, EBITDA growth of 15% and EBITDA less facility-level NCI growth of 12.7%. This quarter, we broke out Aspen's results on Slide 11 in order to help you better understand USPI's results. Conifer had another strong quarter too as shown on Slide 12. For the full year, Conifer's EBITDA increased 26.1% and its margins increased 560 basis points to 23.3%. Conifer's revenue was down this quarter but that was primarily related to hospital divestitures.

Now let's look at our 2019 outlook on Slide 13. Overall, we are targeting EBITDA growth of 4% to 7% this year. In our Hospital business, we anticipate EBITDA growth of 1% to 6%. If you normalize for divestitures and other items on Slide 8, hospital EBITDA will be essentially flat. Turning to USPI, we anticipate generating 10% to 12% EBITDA less facility-level NCI growth. For Conifer, we are targeting growth of 4% to 6% normalizing. For divestitures however, Conifer's EBITDA growth will be closer to 25%. Slide 14 contains additional details on our outlook. As Ron mentioned, we are working on a new $200 million cost reduction initiative. We anticipate realizing $50 million in 2019 and achieving $200 million of annualized run rate savings as we exit the year. This will increase the total annualized savings from our cost reduction initiatives to $450 million in a little over two years.

Slide 14, also points out that our outlook assumes approximately $260 million of revenue from the California Provider Fee program similar to the amount we recognized in 2018. As you may recall, the current program is scheduled to expire on June 30, 2019, so we will be recognizing $130 million of revenue in the first half of this year under the current program. We fully expect a new program beginning on July 1, will be approved but this will take some time. As a result, we do not anticipate recognizing any revenue under the new program in this year's third quarter.

In the fourth quarter, there are two potential outcomes; if the state and CMS, approve the new program before the end of 2019, then we will recognize the revenue associated with the second half of this year in the fourth quarter. We expect this will be around $130 million of revenue. If the approval does slip into next year then we would record $130 million next year plus a full year revenue from this program in 2020. Slides 14 and 15 contain additional details on our outlook and Slide 16 contains some of the larger moving parts to walk our EBITDA from 2018 to 2019.

Before I conclude, I would like to spend a few minutes on cash flows and leverage. Starting with leverage, we repaid $150 million of debt in 2018 through open market repurchases, and lowered our ratio of net debt to EBITDA to 5.6 times at the end of 2018. We expect to make additional progress in 2019 and we remain committed to reducing leverage and moving it below 5 times, primarily through EBITDA growth. Finally, in January, we announced a refinancing of $1.5 billion of our debt, which lowered our interest expense and extended maturities. We will continue to look for these kinds of opportunities.

In summary, we delivered solid results in the fourth quarter and calendar-year 2018. We improved margins 120 basis points in 2018 and we expect our margins to grow another 80 basis points this year, a 200 basis point improvement in two years. We expect to continue to strengthen our financial results this year with EBITDA growth of 4% to 7%, including the benefit of continued excellence and cost management and we have and will continue to make progress on reducing our leverage ratio.

Let me now turn the call back to Ron.

Ronald A. Rittenmeyer -- Executive Chairman and Chief Executive Officer

Thanks, Dan. I just want to close by saying we will enter 2019 with a renewed sense of urgency in volume growth, more effective execution and investing in our teams, while continuing to add external talent to our mix. We'll meet the headwinds and challenges openly and with a mindset geared to addressing each quickly and effectively.

So with that Brendan, I think we're ready to turn it over for questions.

Brendan Strong -- VP, Investor Relations

Great. Amanda, can you please start the queue.

Questions and Answers:

Operator

(Operator Instructions) At this time, I'd like to take our first question from A.J. Rice with Credit Suisse. Please go ahead.

A.J. Rice -- Credit Suisse -- Analyst

Thanks. Hello everybody. First, maybe just quickly ask about the Hospital portfolio. You saw some improvement, particularly on pricing, obviously in the quarter. When you break down, I know you've got a lot of different markets performing in different ways. Would you highlight any markets that did particularly well, any that are particularly challenging? I know last time you talked about Detroit a little bit. Can you just give us some flavor for what's happening underneath the aggregate numbers in the Hospital portfolio?

Daniel Cancelmi -- Chief Financial Officer

AJ, it's Dan, how are you. Yes, let me give a brief overview. Certainly, we were pleased with the Hospital results in the fourth quarter. As we mentioned in our prepared remarks, we came in about $10 million above where our expectations were at the outset of the quarter. So as you mentioned very strong revenue yield from acuity. We continue to focus on more complex service lines allocating capital to those type of service lines, as well as our negotiated contract rates. So certainly pricing was solid, costs continue to be well managed, across -- pretty much across the board. We certainly from a volume perspective, we're not where we want to be at this point, that's a key area focus of ours. We did call out a couple things in my script regarding Chicago, which we sold those hospitals, so that should be out of the numbers going forward. We did have some service line closures as well. We didn't call out Detroit this time, AJ. Detroit has not been an EBITDA problem and so we like our portfolio of hospital facilities and really looking forward to growing those markets and driving additional growth as we look into this year and beyond.

A.J. Rice -- Credit Suisse -- Analyst

Okay and then just maybe my other question would be around just so flushing out one aspect of the guidance in USPI in the Ambulatory business. This year -- past year you had about, I think in the prepared remarks, you mentioned $240 million de novos and acquisitions, looks like in the guidance, you've got a little more moderation $150 million to $175 million, is that just sort of your typical starting point and you may do better or is there some reason to think it won't be as robust as it was last year? What's the pipeline look like maybe some comments about that.

Daniel Cancelmi -- Chief Financial Officer

Pipeline looks really good. I would say I would agree with you the $150 million to $175 million, that is our starting point. We spend a little -- invested a little more than that in 2018 based on the attractive opportunities that were there and pipeline is very robust. So I'll turn it over to Brett to --.

Brett Brodnax -- President & Chief Executive Officer, USPI

Thanks, Dan. Hey AJ, it's Brett Brodnax. First of all, yeah, we were very pleased with 2018 results from a development perspective as Ron mentioned. We invested $240 million for the year. We added seven new health system partners and we added 27 new facilities for the year. So it is one of the better years that we had as a Company from a development perspective. As we look at 2019, as Dan mentioned, our pipeline continues to be robust. We have guided $150 million to $175 million, but look if we continue to find high-quality acquisitions it could be, it could be a little bit higher than that. And then on the Hospital front, our health system pipeline continues to be very robust. We'll add as many health system partners in 2018 as we did -- I'm sorry in 2019 as we did in 2018, which will bode well for our future growth from both M&A and (technical difficulty).

A.J. Rice -- Credit Suisse -- Analyst

Okay, great, thanks a lot.

Operator

We'll take our next question from Ralph Giacobbe from Citi.

Ralph Giacobbe -- Citi -- Analyst

Thanks, good morning. I certainly understand the sensitivity, but just wanted to be clear on Conifer, well, on the exclusivity with a partner, is that just a straight up sale or is it some sort of JV or other alternatives, because I know you had mentioned other potential alternatives in the past. Just wanted to be clear on that?

Operator

Please standby. Brendan are you there?

Brendan Strong -- VP, Investor Relations

We are here. Did something happen? Did the line drop (multiple speakers)

Operator

Yes, we can hear you now.

Brendan Strong -- VP, Investor Relations

Okay. All right. So please go ahead with the next question, Amanda.

Operator

I believe Ralph was still asking his question. Are you still there Ralph?

Ralph Giacobbe -- Citi -- Analyst

Yes, I'm here -- I'm here thanks. I don't know if you heard the question or not.

Ronald A. Rittenmeyer -- Executive Chairman and Chief Executive Officer

Yes, we didn't hear it all, sorry.

Ralph Giacobbe -- Citi -- Analyst

Okay, no, no worries. So it was basically, certainly understand kind of the sensitivity, but I just want to be clear on Conifer, the exclusivity that you mentioned with a partner, is that a straight up sale or is it some sort of JV or other alternatives? I know you mentioned in the past potential alternatives, so just want to be clear on that.

Ronald A. Rittenmeyer -- Executive Chairman and Chief Executive Officer

Well, unfortunately, I can't answer that question. As I said to you, I'm really bound by very tight confidentiality agreement that we signed. That's why I tried to put that in my text, I appreciate your question and I understand why you want to know, but I -- this won't be that long of a process and I'm sure, we'll be able to answer that down the road, but right now, I'm really bound by this and all I can say is, it's one of the partners we've been speaking to and I can't get any -- that we've been looking at and I can't go any further than that what I said in the statement. I'm sorry.

Ralph Giacobbe -- Citi -- Analyst

Okay. No worries. Fair enough.

Ronald A. Rittenmeyer -- Executive Chairman and Chief Executive Officer

By the way, it is good news, so for the record. Go ahead.

Ralph Giacobbe -- Citi -- Analyst

Okay, fair enough, I will wait for that. So you had previously targeted 3% to 5% EBITDA growth for 2019. Maybe just help us on the drivers of what changed to give you a confidence to kind of raise it to that 4% to 7% range, maybe above and beyond, kind of the incremental cost saves that you -- that you saw. Thanks.

Daniel Cancelmi -- Chief Financial Officer

Sure. Good morning Ralph, it's Dan. Certainly, as we fine-tuned our outlook and modeling for this year, certainly one of the key factors of those -- cost efficiencies that we're going to execute on the new $200 million cost reduction initiative. So that's part of it. Certainly, as we examined each market with Saum coming on board in his role and diving deeper into each market looking at the opportunities there, we -- and the trends we saw in the fourth quarter as well, played a part in that as well. So we increased (inaudible). It was nice to see the hospitals perform better than we expected in the fourth quarter and looking forward to continuing to deliver those type of results on the hospital side.

Ralph Giacobbe -- Citi -- Analyst

Okay, thank you.

Operator

Our next question will come from Pito Chickering with Deutsche Bank.

Pito Chickering -- Deutsche Bank -- Analyst

Good morning, guys, thanks for taking my questions. On the USPI business, same-store revenues grew by 5% in 2018 and margin improved by 120 basis points, is that the right ratio going forward in terms of same-store revenue versus margin improvement? Or are we at a level where margin improvement becomes challenging and as because if I look at your same-store guidance for the ASC, is about 46% and back out about $10 million to $15 million of incremental EBITDA from acquisitions. I don't see a big margin improvement in your 10% to 12% guidance.

Ronald A. Rittenmeyer -- Executive Chairman and Chief Executive Officer

Okay. Well, obviously, as we, as we continue to grow the margin improvement is more of a challenge on the bigger base. We do have some facility-level margin improvement built into our guidance next year and I would say we had a facility-level not focusing on reported margins, we are still at 30% facility-level margins and we try to improve that a little bit each year.

Pito Chickering -- Deutsche Bank -- Analyst

Okay and turn up (multiple speakers).

Daniel Cancelmi -- Chief Financial Officer

Pito, it's Dan. The other thing I want to point out was that USPI has been performing incredibly well. We are very optimistic that that's going to continue. Organically just to remind you, we look at it as 2% to 3% case growth going forward, as well as 2% to 3% pricing growth and EBITDA growth -- EBITDA less NCI growth 8% to 10% on a long-term basis, we're going to do a little bit better than that this year, but -- and then when you think about the pipeline, we feel obviously, really good about the business.

Pito Chickering -- Deutsche Bank -- Analyst

Yeah, I mean, it's been performing outstanding. I guess, actually on that same topic. Minority interest expenses guiding to grow I think double the rate of ASC EBITDA guidance, does that mean that some of the growth is coming from selling more shares to doctors or just something else is incurring in the minority interest line?

Brett Brodnax -- President & Chief Executive Officer, USPI

Yes, no, I was going to say, I think that's -- this is Brett. I think that's primarily driven by the fact that we did a couple of large acquisitions in 2018 that we acquired a minority position and it was a result of a health system partnership deal in one of our key markets around the country. So that's a large part of what's driving the higher equity in earnings.

Pito Chickering -- Deutsche Bank -- Analyst

Okay. And is there the possibility for buying back some of that MI in the next year or two?

Brett Brodnax -- President & Chief Executive Officer, USPI

We can -- we always continue to look for opportunities to buy ownership in existing facilities that we know well, obviously we don't have the due diligence risk related to buying ownership in facilities that we already own and operate, so we continue to look for opportunities within the portfolio to be there.

Ronald A. Rittenmeyer -- Executive Chairman and Chief Executive Officer

And Peter, just to remind you, during '18 we increased our ownership interest in USPI from 80% to 95% where we are very -- require purchased the remaining Welsh Carson interest.

Pito Chickering -- Deutsche Bank -- Analyst

Yeah, OK, thanks guys. Nice quarter.

Operator

Our next question from Ana Gupte with SVB Leerink. Please go ahead.

Ana Gupte -- SVB Leerink -- Analyst

Thanks for taking my question. Good morning. The question firstly was on the the pricing growth where you saw, at least in the fourth quarter 5% plus ex the California Provider Fee you've successfully renegotiated contracts with Anthem, Cigna, and perhaps Humana. Can you talk about the sustainability of this, you're baking 2.5% to 3.5% I think into revenue per admission for '19 and how that plays out?

Daniel Cancelmi -- Chief Financial Officer

Ana, it's Dan. Well, certainly we were pleased to see the revenue yield in the fourth quarter of a little over 5%; for the full year, it was 3.6%. So again, that -- it is being driven by our focus in allocation of capital to higher acuity service lines and certainly our commercial book of business as well. So when we think about this year, obviously, you see the guidance here, assuming that it's going to be 2.5% to 3.5%, but we feel good about where we're at. From a contracting perspective, we're about 90% contracted for this year and little less than and half for 2020. So good visibility into pricing on the commercial side and we know where Medicare is going to be, Medicare about 2% growth year-over-year, so we feel good about pricing. And then cost management, obviously, we feel really strong about that in terms of what we've already executed on and what we think we can continue to execute on and capture additional cost efficiencies.

Ana Gupte -- SVB Leerink -- Analyst

Thanks for that and then on the USPI, just to follow up on the M&A landscape and the competitive dynamics there in terms of the availability of assets, surgeons, the multiples and what types of players are looking to buy here.

Brett Brodnax -- President & Chief Executive Officer, USPI

Yeah, hi Ana, this is a Brett Brodnax again. So in terms of competition, the primary competition that we continue to see is related to other surgery center companies that are playing in the space. We're also seeing a little bit of a resurgence of competition from health systems around the country who are trying to figure out how they accelerate the ambulatory growth. Now, many of those health systems are looking to organizations like us to partner with, helping to do so. But there are health systems around the country who are deciding to go it alone and we deal those as obviously competitors. And I guess the third dynamic that we were seeing that would have been at this point it's large physician groups who are seeking private equity partners to consider a roll-up strategy. Now, some people would view that as competition; quite honestly, we see that as an opportunity, if we can work with some of these PE firms to help leverage our infrastructure as opposed to them having to replicate the infrastructure then. We think there is opportunity to partner with these PE firms to help them grow their footprint and scale out their business at a much more expeditious pace. In terms of the multiples -- I'm sorry, go ahead.

Ana Gupte -- SVB Leerink -- Analyst

No, sorry.

Brett Brodnax -- President & Chief Executive Officer, USPI

Yeah, in terms of the of the multiples -- go ahead.

Ana Gupte -- SVB Leerink -- Analyst

Yeah, please go ahead, sorry. No, no, I'm sorry about that. Go ahead.

Brett Brodnax -- President & Chief Executive Officer, USPI

Okay. In terms of the, in terms of the multiples, they're pretty -- they have been pretty consistent over the last year, year and a half; we're seeing multiples anywhere from 7 times to 8 times which has been pretty consistent with what we've seen in the recent past. We don't see that changing anytime soon and we think the market is pretty well stabilized. From a multiple perspective, I will say that the market is doing a better job in terms of discounting the risk associated with some of the assets around the country. But at the same time are paying a premium for the high-quality assets, but overall, the averages are pretty consistent.

Ana Gupte -- SVB Leerink -- Analyst

Very helpful, thank you.

Brendan Strong -- VP, Investor Relations

Thanks Ana.

Operator

We'll take our next question from Kevin Fischbeck with Bank of America. Please go ahead.

Kevin Fischbeck -- Bank of America -- Analyst

Great, thanks. Just wanted to go back to the volume commentary since -- obviously appreciate all the things you're doing, operationally try and improve things, but just wanted to understand, the economy is doing pretty well, is there anything though that's like a counter act to 2019 where you're not going to see better volume growth this year? You mentioned of course, not EBITDA drag, but is Detroit still a drag or is there some other issue that's kind of holding you back this year that make it easier for us to have visibility into that improvement in 2020 and beyond?

Daniel Cancelmi -- Chief Financial Officer

Kevin, this is Dan. Thanks for the question. I'm pleased with the underlying foundation that we have in all of the remaining markets and we have opportunity across the market in our ability to improve patient access, scheduling, some of the things that Ron described in the beginning, that are just operationally going to allow us to serve those communities better and then obviously, we are focused on, but it takes time accelerating the pace at which we add high quality caregivers to our network. And then finally, if you think about the discussion that we've been having around the strengths of the USPI platform across the country, that applies very, very much to the markets in which Tenet has hospitals and so the integration with the Ambulatory platform across the different vehicles, ambulatory surgery, urgent care, imaging, all of those remain growth opportunities for us in the Tenet hospital markets which we will pursue over the coming year.

Kevin Fischbeck -- Bank of America -- Analyst

Okay and then just a question on the cost saves. Can you break out how much is coming from Conifer so just so that we know that if you end up do divesting Conifer, how much of that cost you still be thinking about as you look to the ongoing business versus the divested business?

Daniel Cancelmi -- Chief Financial Officer

Kevin, it's Dan. So on the bridge, you can see the walk from 2018 to 2019. We broke that down between the three business units that the will realize this year. The full $200 million we'll provide more visibility in terms of these specific dollar amounts about business units little bit down the road, but in terms of, I would tell you that there are additional cost efficiencies opportunities at Conifer as well as all the other two business units and that's where we're going to be executing on, but at least for now refer to Slide 16, that at least gives you the pieces for 2019.

Kevin Fischbeck -- Bank of America -- Analyst

Okay, thanks.

Operator

Okay. We'll take our next question from Josh Raskin with Nephron Research. Please go ahead.

Ronald A. Rittenmeyer -- Executive Chairman and Chief Executive Officer

We don't hear -- we can't hear anything.

Daniel Cancelmi -- Chief Financial Officer

Actually (multiple speakers). Are you on the line.

Ronald A. Rittenmeyer -- Executive Chairman and Chief Executive Officer

We can't hear anything.

Unidentified Participant -- -- Analyst

Yeah, I'm here.

Daniel Cancelmi -- Chief Financial Officer

Go ahead(ph)Whitt .

Unidentified Participant -- -- Analyst

Okay, awesome. Maybe just first on Conifer, I'm trying to reconcile two things that I presume are interrelated; first, the implied decline in the non-Tenet revenues seems a little steep this year, and I'm just wondering of the hospital divestitures, how many terminated the contracts with Conifer? And then second, looking at the $40 million headwind from the divestitures in the bridge, it seems to suggest maybe $160 million of lost Conifer revenue if we assume maybe a 25% margin or maybe $4.5 billion of managed revenue. So I'm just trying to reconcile this. It just seems to imply a larger number than I would have expected?

Jason Cagle -- Chief Financial Officer, USPI

Hey Whitt, it's Jason, the $40 million or the $30 million number that you've seen on Slide 16, I think that's what you're referring to. Yeah, there was obviously few pieces in there and let me try to hit a few of them and then I'll turn it over to Steve in terms of, broader overview, but that -- the $30 million of growth, some of that is attributable to contracts we have with customers where we have price escalators in there or rate escalators that we'll certainly we anticipate drop straight to the bottom line. So certain contracts we have to be the escalators to be based on(ph)CPI or another metric. So, that's fair size of amount in that line. Certainly as Tenet grows its business there's additional revenue that Conifer realizes and we don't believe we would need to add any additional resources either, so there's a little bit of that in there. And then the mix of business, it's important as we think about the types of services we're providing to all customers certain point solutions, depending on the mix of those point solutions, the margins can be much more attractive. We've also and in certain cases decided to exit some business that wasn't necessarily the most attractive and may have had smaller margins or maybe actually slightly dilutive margins. So a whole list of items that go into that in terms of what drives that $30 million. Steve, do you want to address the broader --.

Stephen M. Mooney -- President & Chief Executive Officer, Conifer Health Solutions

Yes, Dan, I think, the comment you made (inaudible) is on Slide 15, you mentioned $150 million in revenue decline, as we move it from say was a Tenet hospital and it gets divested and then moves into commercial. I mean, what happens is, we typically have a two-year transition service agreement as a result of that, and so those accounts now are starting to as you come off the portfolio, lot of cases as you know they were required by some organizations had internal operations, you know something happened obviously as last year and that's happening again in 2019. So it's kind of part of the process, as we continue to go. So and Dan mentioned, something is result of that and another part is result of contracts, we just did not feel we want to continue with as they're coming up for renewal, they're profitability in our things like that. So it's a kind of where it's at.

Unidentified Participant -- -- Analyst

So of the four just to be clear, the $40 million headwind, how much of that is coming exclusively from divestitures. How much is coming exclusively from may be terminated contracts or how much is coming from business that you intentionally walked away from and presumably it wouldn't be much of an EBITDA tailwind if it was financially attractive?

Stephen M. Mooney -- President & Chief Executive Officer, Conifer Health Solutions

The vast majority of that number is coming from the divestitures.

Unidentified Participant -- -- Analyst

Okay, perfect and one last once, since I heard Jason earlier. Looking at the $45 million of acquired EBITDA in the Ambulatory division this year, can you break out how much of that is expected to flow through unconsolidated versus the consolidated? And I guess the corollary there is that the equity earnings growth and implied margin improvement looks really high this year. So I'm just trying to flush out where all that growth is coming from. Thanks.

Jason Cagle -- Chief Financial Officer, USPI

Hey Whitt, it's Jason. How are you?

Unidentified Participant -- -- Analyst

Good.

Jason Cagle -- Chief Financial Officer, USPI

Good. I can't tell you how much of our unidentified M&A is going to be unconsolidated versus consolidated. We go after the deals that they present themselves and we've never been effectively able to guide to that. I will say, to your point on equity and earnings, the vast majority of that is what Brett mentioned earlier that we had a couple large acquisitions right at the end of the year that really don't impact '18 but are coming through the equity line in '19.

Unidentified Participant -- -- Analyst

Okay. Thanks guys.

Operator

We'll take our next question from Josh Raskin with Nephron Research. Please go ahead.

Mary Shang -- Nephron Research -- Analyst

Hi, good morning. It's Mary on for Josh. My question is just round ASC seasonality, which didn't seem strong this year in the fourth quarter, is there anything to call out on the volumes there?

Ronald A. Rittenmeyer -- Executive Chairman and Chief Executive Officer

Hi, Mary, yes, this is Ron. First of all, if you look at the full year, we are pretty pleased with the overall volume growth of 3.4%. Now, if you look at Q4 specifically, you have to take into consideration that the Q4 in 2017 was at 4.6%. So we had a pretty significant comp that we dealing with and that's really the primary driver of results in Q4 of 2018.

Mary Shang -- Nephron Research -- Analyst

Okay, got it. That makes sense. And then just on the inpatient surgeries, this quarter were a little bit weaker than we were expecting, is this primarily delayed due to Detroit or the service line closures?

Daniel Cancelmi -- Chief Financial Officer

This is Dan. Certainly, when we think about the surgical volumes, we need to grow those, we are not necessarily pleased where our aggregate numbers are, but I would tell you that's obviously one of the areas when we think about allocation of capital and focusing on higher acuity service lines, that the strategy is to grow incremental surgical line, whether it's in the inpatient settings or outpatient setting.

Mary Shang -- Nephron Research -- Analyst

Okay, thanks.

Operator

Our next question will come from John Ransom with Raymond James.

John Ransom -- Raymond James -- Analyst

Hi, good morning. Last year you had some losses in the California capitation business that you called out in the third quarter, what's the comparison in your '19 guide versus what you experienced in '18?

Daniel Cancelmi -- Chief Financial Officer

Hi, John, it's Dan. 2019, the risk contracting business in Southern California, you should think about it in terms of roughly $15 million for the full year, probably a little more weighted into the first half. We've changed our management, we're getting our arms around the business and we'll get it solved and -- but it going to take a little bit more time.

John Ransom -- Raymond James -- Analyst

Okay. And then secondly, just going back to the Conifer business, not Conifer itself, but what is this market for revenue cycle hospitals, is it's still growing or we hit a maturity point in your opinion?

Stephen M. Mooney -- President & Chief Executive Officer, Conifer Health Solutions

I'll take that John, this is Steve. No, I don't think we hit maturity point. I mean, I think, as we're looking over the years, clearly, we had estimates on how we think markets are going to grow. I think in some cases, it hasn't -- as we thought early on, we are -- we are seeing a lot happening with all these EHRs going into hospitals, lot of focus on that for several years, they're kind of coming out of that now whether it's conversions to Epic or Cerner. They are now starting to focus on bottomline -- bottomline improvement, kind of reducing your overall cost structure average with(ph)Barnes . We're clearly one of those solutions across the portfolio, so lots of conversations happening in the market. I think we're seeing more -- the comp performance solutions or point solutions are areas around (inaudible) management for eligibility services (inaudible) self-pay, it's work around your coating, your clinical documentation work, a lot more uptick in that area right now. In the full outsourcing, are very strategic moves so there has been think few of those in the market in general. I don't think you're going to see still tons of those going forward. But you are seeing a lot of -- which areas -- a lot of these areas of specialty but everybody is moving toward outsourcing. Value outsourcing is done today, but typically looking for partner that can aggregate across portfolio and that's we think Conifer really differentiates ourselves coming to marketplace by coming in with a complete suite of solutions for the market. Now as you bring in technology enhancements whether it's around AI, RPA, touch process languaging, I mean, there is -- everybody is looking at calling today these one-offs. We have to breakout that into our entire suite to market.

John Ransom -- Raymond James -- Analyst

And last one for me. Dan, if we just look at M&A contribution and adjust for timing and let's assume you hit the midpoint of your guidance. What's the 2019 EBITDA lift from M&A and this will include stuff that you bought in '18 that you announced for the full year, plus what you plan on buying in '19. Can you kind of give us the total EBITDA lift year-over-year.

Daniel Cancelmi -- Chief Financial Officer

I would, John, going on Slide 16, we call that out and you know it's $45 million, that's a combination of deals that were done in '18, as well as some deals that were done that we anticipate will be executed on -- in 2019. You may ask question or what's the breakdown between prior year deals, what we anticipate related to investments, we'll make this year. It's probably roughly one-third of that $45 million would relate to investing to make in 2019, and the remaining related to prior year deals.

John Ransom -- Raymond James -- Analyst

Yes, that's what I was getting at. All right. Thanks so much.

Operator

Our next question will come from Brian Tanquilut with Jefferies.

Brian Tanquilut -- Jefferies -- Analyst

Hi, good morning, guys, and congrats on a good quarter. Ron, so you guys have done a really good job with the $250 million in cost cuts. So as we think about the next $200 million, do you mind walking us through some specifics and where do you think you can squeeze more and how much harder with extra(ph)$200 d to achieve.

Ronald A. Rittenmeyer -- Executive Chairman and Chief Executive Officer

Well, I think the(ph)$200 million the problem with cost cuts, it's always hard to achieve. But the reality is that we, I think we have a fairly good sense that there will be more as we do further integration. We are going to consolidate, for example, our office structure here in Dallas into one building, that may sound tight, but it actually will force a lot more integration quicker and we do need to do that. In the field Conifer is going to continue to look at locations and could do consolidations. In the hospitals, we're doing the same type of thing. We're always going through jobs and premium labor and contracting labor and why do we need that and should these be permanent jobs at a lower rate than UK for a premium contracted labor. So there's a lot of effort on a lot of fronts. There's no silver bullet to this. We've talked about offshoring which across the country, there will be -- that activity will begin to take shape this year and move at a reasonable pace. So to me, there's a lot of, there's people stuff, there's processed stuff. Paola Arbour, our IT person is sitting here, he is spending a lot of time, looking at upgrading systems and investing by eliminating some inefficient stuff and some things that have aged out to doing some new things, which will be an investment that we can almost cover just by the fact that the money, we'll save by the changes we'll make. So all of those things add up to I think a reasonable line of sight to the $200 million, but I would be kidding if I said I have it took totally defined down to the number, because we're not, we're not that good but throughout the year like we said last year as we kept increasing that there are places that we know we haven't finished yet in every one of the divisions, and in every part of the effort we've made to integrate. So kind of a long way to say that it's a broad program, but within that program it's very specific. So we are, we are doing it and we are very active in it and I would say it's engaged with my whole team and I think last year was a interesting year, in that people had to think about doing it, it wasn't something that was kind of normal. I think this year, we're already in the game and we understand it and I think the ability to address it is much more, much more ingrained in the organization than it was a year ago. So we'll see where it goes but that is my intent. I'm comfortable with the number. I'm probably the only guy in this room that's comfortable with the number, but I believe the number is realistic and we should be able to achieve it. So, I hope that answers.

Brian Tanquilut -- Jefferies -- Analyst

I appreciate that and then my follow-up for Dan, as we think about leverage. I mean, you talked about 5 times. And I think in the past you've mentioned a target of getting to 5 times leverage by end of '19, is that still the goal and then how do you bridge that given the guidance ranges that you provided for the year? Thank you.

Daniel Cancelmi -- Chief Financial Officer

Hi, Brian, it's Dan. Certainly, we remain committed to getting to 5 times or lower from a leverage perspective. Listen, you can do the math based on the guidance we have, we still have a little more work to do to get there and that's what we're focused on. Every time we make an investment decision, we are always thinking about the implications on our leverage. So I can assure you that. So all I say is we absolutely remain committed to getting to 5 times or lower.

Ronald A. Rittenmeyer -- Executive Chairman and Chief Executive Officer

This Ron, and I totally underscore that from the enterprise standpoint. And we continue to look at assets and evaluate assets relative to their fit and where that's going, we're not going to talk about anything specific. As I've said before we'll never pre-announce, but I mean, those things are ongoing and a very active part of our process, we're not married to anything and -- so anyway.

Brian Tanquilut -- Jefferies -- Analyst

I appreciate that. Thank you.

Operator

And we'll take our last question from Sarah James with Piper Jaffray.

Sarah James -- Piper Jaffray -- Analyst

Thank you. There's been an influx of investment in urgent care from many sources. How do you think about the risk of market over saturation and maintaining share during this influx?

Saumya Sutaria -- Chief Operating Officer

Sarah, this is Saum, thanks for the question. I agree with you that there's been an influx of investment broadly speaking in the urgent care space though the models are often it's not the same in certain different population in that market. Remember in many markets, including some of ours there's shortages in primary care as well that are being fulfilled from a demand perspective by urgent care centers as they develop and then of course, you have the retail clinics within big box retail that serve perhaps a different purpose in different population. I think one of the things that you're seeing is that urgent care centers are increasingly providing slightly higher acuity care as well and taking on patients that may have some more chronic illness as well. So when I add that up at this point, it's not surprising to me that we're seeing more investments come in, they're different models, they're not all the same. And it's not entirely obvious which models will sustain over the long term, but I don't see yet a major problem of over saturation across the country.

Sarah James -- Piper Jaffray -- Analyst

Thanks. And follow up here. What you guys are doing on marketing and sales strategy is really innovative. I'm wondering if you're seeing it move the needle yet on volume or if it's having any impact on your strategy of what specialties and what mix you want to have.

Ronald A. Rittenmeyer -- Executive Chairman and Chief Executive Officer

I don't know if it's that finite. I would tell you that it's clearly moving the needle on energizing our people in the field and energizing our teams around the country. They walk into a hospital, they can see their picture on the advertisements in the lobby and they see their stuff on bus wraps as they go by me, it's an energizing experience to feel your part of the community and you are making a difference. I believe and we believe from at least initial reads that it's having a very positive impact and I think over this is -- marketing is an effort, it takes time and it's how do you build a foundation in community and that's what we're doing. So we feel good about it. We think that the initial response at least the visual initial responses are supportive. The real question will be how the numbers tumble and how the service lines fallout. But we're a little early for that, considering we just really kicked this off toward the end of last year or so. And I think that's it. Brendan?

Operator

Thank you. At this time, I'd like to turn the call back over to our presenters for any additional or closing remarks.

Brendan Strong -- VP, Investor Relations

Great, thanks a lot Amanda. We thank everyone for joining us today. Our next event will be the Barclays Global Healthcare Conference on March 12th, so we look to meeting you there and if you have any additional follow-up questions you can reach me at 469-893-6992. Thanks.

Ronald A. Rittenmeyer -- Executive Chairman and Chief Executive Officer

Okay.

Operator

This concludes today's call. Thank for your participation, you may now disconnect.

Duration: 63 minutes

Call participants:

Brendan Strong -- VP, Investor Relations

Ronald A. Rittenmeyer -- Executive Chairman and Chief Executive Officer

Daniel Cancelmi -- Chief Financial Officer

A.J. Rice -- Credit Suisse -- Analyst

Brett Brodnax -- President & Chief Executive Officer, USPI

Ralph Giacobbe -- Citi -- Analyst

Pito Chickering -- Deutsche Bank -- Analyst

Ana Gupte -- SVB Leerink -- Analyst

Kevin Fischbeck -- Bank of America -- Analyst

Unidentified Participant -- -- Analyst

Jason Cagle -- Chief Financial Officer, USPI

Stephen M. Mooney -- President & Chief Executive Officer, Conifer Health Solutions

Mary Shang -- Nephron Research -- Analyst

John Ransom -- Raymond James -- Analyst

Brian Tanquilut -- Jefferies -- Analyst

Sarah James -- Piper Jaffray -- Analyst

Saumya Sutaria -- Chief Operating Officer

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