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Tenet Healthcare Corp (NYSE:THC)
Q4 2019 Earnings Call
Feb 25, 2020, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the Tenet Healthcare Corporation Fourth Quarter 2019 Conference Call. [Operator Instructions] It is now my pleasure to introduce your host, Regina Nethery, Vice President-Investor Relations. Please go ahead.

Regina Nethery -- Vice President Of Investor Relations

Thank you. We're pleased to have you join us for a discussion of Tenet's fourth quarter and full year 2019 results, as well as the Company's outlook for 2020. Participating in today's prepared remarks will be Ron Rittenmeyer, Executive Chairman and Chief Executive Officer; and Dan Cancelmi, Executive Vice President and Chief Financial Officer. Saum Sutaria, President and Chief Operating Officer, will also be joining Ron and Dan for the question-and-answer portion of today's call. Our webcast this morning includes an accompanying slide presentation, which has been posted to the Investor Relations section of our website, tenethealth.com. Our fourth quarter earnings press release and the new supplemental financial disclosures document have also been posted to our website.

Listeners to this call are advised that certain statements made during our discussion today are forward-looking and represent Tenant 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.

Now, I'll turn the call over to Ron.

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

Thank you, Regina. Good morning, everyone. I would like to take a few minutes to recap 2019 and focus on our 2020 priorities before Dan discusses the quarter and the year in greater detail. Slide 4 captures our results for the fourth quarter and all of 2019. We view the fourth quarter as a solid performance across the enterprise. We were very aware of the skepticism of our guidance at the third quarter call, and we realize there were some concerns as to our ability to make the end of the year as we have projected. This result represents the energy and dedication of our team, demonstrating the sustainable changes we are making, the rigor of our discipline and the consistent follow-through on our commitments.

Enterprise performance was very strong with several key financial metrics up significantly year-over-year. Adjusted EBITDA by segment was up over 15% in our hospitals, over 20% in our ambulatory centers and over 8% at Conifer with a 490 basis point improvement at Conifer's EBITDA margin. The uptick in patient volumes at our care delivery platform was particularly notable. Across admissions, adjusted admissions and ambulatory surgical cases, we produced an increase of roughly 2% to 3.5%. This was a solid result in line with our expectations and a continuation of the changes we've made over the last two years. Combined with the well maintained cost and other activities to drive performance on the bottom line, we had a really solid quarter for Tenet overall. Consolidated adjusted EBITDA grew more than 17%, which was above the midpoint of the outlook we provided roughly 12 months ago.

Slide 5 has a quick snapshot of the key elements that when taken together, all work to support sustainable performance and build a solid foundation for the continuous improvement we established as our objectives. The bullet points highlighted our 2019 accomplishments reflecting the top priorities we outlined at the outset of the year. I have spoken many times over the course of my time as CEO about the changes in Tenet in terms of culture, accountability, ownership and analytical rigor, and the importance of embedding change as part of our fabric to usher in a new performance trajectory. We have and we will continue to implement change, aligned with our general goals to focus on our patients, our people, our portfolio and our performance. We remain consistent and true to our objectives, as we have in the past and will into the future. We will affect change to operationalize the business, measuring ourselves more methodically, quantitatively and empirically. It's how we will meet our objectives and how we will stay accountable.

Volume performance was strong in each quarter of 2019 and also broad based across our care delivery platform. We've worked hard to maintain quality environments for our caregivers to practice medicine and in turn, enhance the patient experience. We improved overall hospital scores for publicly reported CMS quality measures, and our increased internal measures also demonstrated improvements in quality and experience. Our ambulatory business had a strong patient experience score and our HCAH results for our surgical hospitals were very good, with all but one of those facilities, achieving a 5 or 4-star rating. The real-time data we recently spoke about is particularly important on these topics of quality, service and volume performance. We have seen a meaningful difference in the ability to course correct quickly and to take action immediately when there's an issue to solve for.

And I want to point out it's not just about addressing problems, but identifying patterns and trends that can help us to capture opportunities earlier than we had previously done. The decision to support and pursue a tax-free spin-off of Conifer was announced in late July, a transaction that we believe will both enhance shareholder value and reduce the level of debt on Tenet to a tax-free debt-for-debt exchange.

In terms of the timeline to spend, last year, we initiated various work streams to achieve related milestones between now and the expected completion date of the first half of 2021. We remain on track with those plans, one of which was to identify a new CEO to lead the Company through the spin and post completion. Last month, following the national search of highly qualified candidates, we announced Joe Eazor, has been named President and CEO of Conifer. Joe has decades of experience working in customer-facing and leadership roles at public and private companies, and he has a well-rounded skill set that's been strategy, customer service and support, product development and global sales. With Joe leading the Company, we remain steadfast in our efforts to continue to build upon operational improvements and it has enhanced product offerings, which we believe will help with client acquisition initiatives.

In terms of changes and additions to our care delivery platform, we acquired nine surgical centers, one surgical hospital. We opened five de novo centers, and we added five urgent care clinics. It took on the management responsibility for four imaging centers. We also added six new health partners -- health system partners. While the 2019 calendar year acquisition of de novo spend was lighter than in previous years, we still plan to deploy roughly $152 million to $175 million of capital on an annual basis. As you may recall, we spent well above that in 2018 and around $240 million because of the quality and the size of the available ambulatory opportunities. We are very deliberate about the transactions we elect to pursue and the related diligence process as we continue to build out our offerings. We're pleased with the robust pipeline ahead as well as our progress so far in the first quarter of 2020, which includes the completion of several transactions.

We also announced divestiture of our Memphis-based hospitals and operations to a local health system, which we believe will continue the excellent stewardship we've had of these facilities. These are really great facilities with a significant potential and a terrific team. And we're working with the buyer to affect the seamless transfer of ownership upon completion of the transaction.

We will continue to optimize and evaluate our care delivery platform, and this process will continue to come in different forms, including regular reviews of our assets, service lines, etc., to ensure we are best positioned to meet the community needs. As I noted earlier, costs were well managed Companywide. Our operators continue to apply more stringent controls, and we also introduced new policies and procedures to more appropriately align team members under one cohesive effort. We achieved $300 million in savings by the end of 2019, delivering on our cost savings initiatives and staying true to our commitment to ramp up efficiency efforts as part of Tenant's ongoing transformation. Our Global Business Center at Manila is a significant part of that plan, while supporting our efforts to provide a 24/7 support system to our care facilities.

Investing in our leaders remains support of our organization. We added or promoted several individuals to new roles to round out our talent bench at the executive level. We've also named two multi-talented and experienced directors to the Board. Our commitment to fresh perspectives and a new way of thinking is now much more a part of our go-forward mentality. And as it relates to culture, we recently moved to our new corporate offices. We brought together teams from across the enterprise into a single headquarters location and for the first time our associates from various functions at Tenet and USVI are sitting on the same floor working together. The corporate team at Conifer also just recently joined the building last week. Beyond eliminating duplication, it increases communication, reduces time from decision to action and builds a stronger, more focused team to support the field operations.

The guiding principle behind all of these strategies and the execution supporting them will result in solid performance and a good trajectory for continued growth. We believe Slide 6 is an example of how we're taking these priorities and immerse them into our business to deliver results over the last few years. On the left, adjusted EBITDA has steadily increased from 2017 forward with 2018 and 2019 strong performance and ultimately, resulting in our 2020 guidance of roughly $2.8 billion, $3.5 billion or just under 5% at the midpoint. The path of adjusted EPS since 2017 is also important to highlight and in particular, the three-year compounded annual growth rate of 55% at the midpoint.

Slide 7 is our view of where we've come in the last three-plus years with stronger hospital admissions, improving from a negative 1.2% to a positive 1.9% in 2019. Our target for 2020 is 1.5% to 2.5%, and we will narrow that as we get past the first six months with our intention to press it over 2% in 2020. Our ambulatory surgical growth, we have moved this on a consistent trend from a negative 0.5% to a positive 3.3% in 2019 setting the range for 2020 to a positive 3% to 3.5% with the same emphasis on continued improvement. Finally, Conifer continues to have solid margin performance at 28.1% in 2019, representing growth of around 1,000 basis points in the last two years. We plan to maintain that and press for an improvement, but are quite satisfied with this level given the changes in play.

Our goals for this year are outlined on Slide 8 and then continue to embrace the significant enablers of future performance enabled on changes driven by taking advantage of opportunity and not waiting, a portfolio of core operations that is well positioned to meet community needs and flexible when necessary to just direction in size, thoughtful decisive actions at real-time with the mindset for efficiency and quality, alignment of strategy and execution coupled with transparency and the facts, and finally a commitment to a high performance culture valuing our patients' associates, suppliers, shareholders, debt holders and others by prioritizing our actions to drive the best of the best in our approach every day with accountability.

So with those comments, I'd now like to turn it over to Dan. Dan?

Daniel Cancelmi -- Executive Vice President & Chief Financial Officer

Thanks, Ron and good morning everyone. As Ron mentioned in his remarks, we produced a strong quarter. Slide 10 provides several highlights. On a consolidated basis, our fourth quarter adjusted EBITDA was up nearly 18%. This was primarily driven by double-digit growth in both the hospital and ambulatory segments with our Hospital segment up nearly 16% and the Ambulatory segment up about 24%. Conifer also performed well, growing adjusted EBITDA by 8% and increasing its margins by 490 basis points year-over-year. A key factor driving the results for both the hospital and ambulatory businesses was the continuation of our patient volume growth and solid pricing and revenue yield. Our Hospital adjusted admissions grew 1.9%, which is the fourth straight quarter of growth in this metric. USPI produced strong surgical volume growth of 3.4% and USPI's total volumes, including imaging and urgent care cases, grew 5.7%, which is the nine straight quarter of total case growth in our Ambulatory business.

Conifer continues to drive its growth through cost efficiencies. The incorporation of real-time data into our decision-making in 2019, a continued focus on the basics and our culture of accountability and cohesiveness are all working together to help ensure our patients and physicians are pleased with our Tenet experience, furthering our prospects for additional growth.

Turning to EPS. Our full-year US GAAP loss was $2.35 per share. However, our adjusted EPS was income of $2.68 per share, which is earnings growth of 44%. The GAAP loss was primarily due to charges for our restructuring initiatives and early debt retirement costs related to our refinancings that locked in attractive interest rates, which reduced interest payments and cleared out any significant debt maturities until April 2022.

Turning to cash flows, we closed the year strong, and we were very pleased that our net cash provided by operations during the year grew about 18% and our adjusted free cash flow was up nearly 27% to $760 million, coming in $60 million above the midpoint of our outlook.

As we look at our outlook for this year on Slide 11. At the midpoint of the ranges, we expect to generate $2.835 billion of adjusted EBITDA and adjusted EPS of about $3 per share. This equates to year-over-year adjusted EBITDA growth of nearly 5% and adjusted EPS growth of close to 13%. These growth rates for 2020 are shaped by our continued views that we are confident in our ability to drive sustained organic volume growth in both our Hospital and Ambulatory platforms. We have very good visibility into pricing with 92% of our commercial book of business already under contract, the pipeline for Ambulatory acquisitions and de novos remained strong. And we expect our disciplined cost management to continue.

Slide 12 provides a more detailed view by segment. Again, we are projecting solid adjusted EBITDA growth rates across the operating segments with the highest growth expected to come from our Ambulatory segment.

Turning to Slide 13. Here, we illustrate how we will grow our adjusted EBITDA compared to last year. As you can see, volume growth and pricing strength will drive incremental earnings. Also, we expect our cost initiatives will yield approximately $150 million of additional efficiencies this year, which will bring our total program savings to $450 million since the beginning of 2018.

As we have discussed in the past, one of the headwinds we faced this year is the impact of DISH cuts mandated by the Affordable Care Act, and we will see other reductions in state Medicaid funding in certain states. However, despite these revenue reductions, we expect to grow our Hospital EBITDA 2.5% this year through volume growth, including higher acuity services, cost management and revenue pricing growth.

Turning to the Ambulatory segment. As I said earlier, we expect USPI to continue to produce very strong growth by the combination of organic growth through ongoing operating discipline and acquisition and de novo investments.

As for Conifer, as we continue to prepare for its spinoff next year, we are making certain investments this year in the sales force to drive future revenue growth and to prepare for the spinoff, but these investments should ultimately drive returns. Also Hospital divestitures by some of Conifer customers in prior periods will have a year-over-year impact on Conifer's earnings growth. However, additional cost efficiencies to be realized will offset these items. We are confident in our ability for each of our segments to take advantage of the opportunity before them and to deliver solid growth this year.

Lastly, let me highlight our projected cash flows this year as shown on Slide 14. We are expecting outlook at midpoint growth rates in the low to mid-teens for both net cash provided by operating activities and adjusted free cash flow. Net cash provided by operations is expected to be between $1.250 billion [Phonetic] and $1.25 billion [Phonetic] a two-year compounded growth rate of 15%. Adjusted free cash flow for this year is projected in the range of $775 million to $975 million a two-year compounded growth rate of about 20% or $275 million.

In summary, we delivered a strong finish to 2019 from a volume, earnings and cash flow perspective. And we believe our progress over the past few years positions us nicely for continued growth in 2020 and beyond.

With that, I'll turn the call back over to Ron.

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

Thanks, Dan. I would simply add that I agree with Dan, we did deliver a very solid quarter. We've taken steps to make our cost savings a reality. We're going to continue to improve and tighten our overhead, successfully execute a complex offshore strategy, which is well under way. We have improved quality in care delivery. We ratified 16 labor contracts successfully. We are planning and executing the Conifer spin on schedule, while continuing to deliver good results. And we combined our three functional headquarters into a single effective, efficient location. This was really all possible due to the culture changes that have taken hold, the willingness to seek new approaches and solutions and the overall team that leads this Company. While we have not declared victory, we are today an entirely different company and we are committed to continued success.

So with that, operator, I believe we will open for questions.

Questions and Answers:

Operator

Thank you. At this time, we'll be conducting a question-and-answer session. [Operator Instructions] Our first question comes from A.J. Rice with Credit Suisse. Please proceed with your question.

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

Thanks. Hi, everybody. First of all, obviously on Conifer since we last spoke, I guess you've announced the CEO addition there. That was a major milestone as you're thinking about moving toward the spin-off. Are there any other operational milestones that need to be checked or is the focus on just moving a pace toward getting the spin-off in place by mid next year. And with these initiatives that he is going to implement, how long before you think -- obviously, you've made good progress on the cost side, but maybe before the topline starts to show growth again.

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

This is Ron. Thanks for the question. I would just answer it this way. I mean, he's been on board 10 days. So I can't tell you exactly what is -- when our next -- when he will hit some of those issues. But we are very well aware of them, and he's very engaged in that stuff. So I'm just going to hold that for now because setting some arbitrary date that we're going to all of a sudden see growth signed contracts. We were already starting down that road. It's really up to him to build out a sales team and make sure that we continue to execute that, but I can't give you a precise date. When you asked about operational initiatives, obviously, growth is one of them and we see that is very important.

And then, there's just several other things that we believe are important operationally internally to keep doing, which includes continuing to really evaluate whether or not we've got all the right people in the right roles. We're going to go deep and long on that, as you would expect a new leader to do and that was part of the plan. And then beyond that, we're going to continue down the path of some of the deals that are in play, see if we can get those closed and then we've got some other things that we're working on that really is more of a competitive conversation that I need to stay internal for now. But look, I'm very excited about having a CEO on board. I think this was -- I think hiring Joe was probably one of the most important things we had on the list to get done and it is done. And so, now we've just got to let it play out accordingly, but the rest of the stuff we have is a timeline and schedule are pretty well buttoned up. We have work streams. We meet on them frequently. We have a cadence to it. All of the various things you could ever think are happening. We have teams dedicated to doing it. So I'm pretty comfortable that we are well within the sites of getting this done as planned. So I don't see any road bumps.

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

Okay. All right, great. Maybe one follow-up would be on the cash flow commentary, obviously as you move toward solidly generating meaningful free cash flow. When you think about the level of capital spending on the Hospital side, you think about the opportunities for de novo and acquisition tuck-ins on the USPI's side. What we see an increase in spending level on either of those areas or does that increase free cash flow mainly go to pay down debt?

Daniel Cancelmi -- Executive Vice President & Chief Financial Officer

Hi, A.J. This is Dan. Good morning. Certainly, we continue to drive additional free cash flow. We will certainly look and I would say, the two key priorities are investments in our ambulatory assets. The pipeline, as we mentioned, is incredibly strong. So we think there's a lot of good opportunities there. Paying down debt also is very important. And so, as we generate free cash flow and as we've announced that we will be selling our Memphis facilities' proceeds of around $350 million. So certainly, looking at reducing debt, there is certainly a priority of the Company in terms of reducing absolute dollar amount of debt as well as reducing the leverage ratio, which obviously as we continue to drive earnings growth will help there as well. Now that doesn't mean we won't make any investments in the Hospital business. We're making very strategic investments to grow certain service lines. And I think it's what you're saying is starting to yield some returns in terms of volume growth that we saw this year. So we will continue to look for opportunities to allocate capital where we think we're going to generate the highest returns.

Operator

Okay. Thanks. Our next question comes from Pito Chickering with Deutsche Bank. Please proceed with your question.

Pito Chickering -- Deutsche Bank -- Analyst

Good morning, guys. Thanks for taking my questions here. If you would see here on the acute business, same-store revenues here continue to grow quite well. Looks like the exchange admission growth was very high this quarter. Can you sort of walk us through surgeries for 2020 versus 2019 and exchange admission growth in 2020 versus 2019, how that's baked into adjusted admission guidance?

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

Hi, Pito. It's Ron. A couple of points. First of all, the exchange enrollment in 2020 is strong, especially in maybe the states in which we operate and you probably have seen some of the strongest numbers being in California. Our strategy has been consistent with Dan talks about with respect to our contracting. In overall managed care, we have also had a very successful strategy over the years of being in network in many of the exchange programs, and we continue to pursue those strategies. We think the exchange business is one that we can serve well in our acute care and ambulatory facilities. And so, we expect to continue to perform in the exchange business going forward.

I would say that on the second part of your question with respect to surgeries and frankly, procedural based care, as you know, over the past year, we've been focused in virtually all of our markets on shifting some of our strategic focus and deployment of clinical technology capital to be able to expand our surgical and procedure-based services, including in an environment where some of that business is moving into the outpatient setting. We want the hospitals in the acute care setting to remain competitive, and we continue -- we will continue to make those investments and make surgical care priority in the hospitals in 2020.

Pito Chickering -- Deutsche Bank -- Analyst

Great. And then for a follow-up, you mapped out a leverage target for 2020 and I know that there is a lot of moving pieces like divestitures that can occur this year and can move that around. But assuming that Memphis hospital sell, can you give us a range of where we should expect leverage to be at end of 2020 versus the end of 2019. Thanks so much.

Daniel Cancelmi -- Executive Vice President & Chief Financial Officer

Pito, it's Dan. Good morning. Certainly as we -- again as I mentioned to A.J., as we have available free cash flow or proceeds from divestitures, reducing debt is very important for us and there -- we have various tranches, notes that become callable this year at reasonable premium. So we have flexibility and optionality in terms of reducing some debt this year, either from free cash flow or asset sales.

In terms of leverage target, obviously, we want to get it below 5, and we've talked about that. We haven't set a specific target for the end of this year. But certainly, as we grow our cash flow generation and we have proceeds that certainly, one of the first areas we're looking at is reducing debt. And again, it all depends on opportunities out there from investment perspective, whether that's ambulatory opportunities or any investments in the hospital side.

Operator

Our next question comes from Ralph Giacobbe with Citigroup. Please proceed with your question.

Ralph Giacobbe -- Citigroup -- Analyst

Thanks. Good morning. I was hoping you could talk a little bit more about the margin opportunity in the Hospital segment. You had the 100 basis point sort of expansion in the fourth quarter. I know you're flat for 2019. At the midpoint of guidance, it actually looks flattish, maybe even down a tad. So hoping you can discuss that a little bit more and do you have margin target, and what's the trajectory to get there. Thanks.

Daniel Cancelmi -- Executive Vice President & Chief Financial Officer

Hey, Ralph. It's Dan. Good morning. In terms of the Hospital margins, they did improve nicely in the fourth quarter year-over-year. When we look at 2020, as you see on our walk from 2019 to 2020, the Hospital margins are essentially flat, down about 10 bps, but there is a couple of things there that really had an impact on that. And that we called it out on our bridge in terms of some of the DISH reductions that are flowing through.

Listen, we are obviously focused on continuing to improve our margins in our Hospital business. As we continue to grow volumes, we will be able to take advantage of our operating leverage. We have available capacity and in most of our facilities. So we can add incremental business and be able to spread fixed costs out over larger book of business. So it's certainly what we're targeting in terms of as we move forward. We got certainly very good visibility and the pricing moving forward, not only this year, but into 2021. We continue to believe we'll be able to continue to manage costs very well, and it comes down to -- can we continue to drive volume growth in the Hospital business, closed out the year strong. And we're obviously looking forward to continuing to deliver this year.

Saum Sutaria -- President & Chief Operating Officer

Yeah. Hey, Ralph, this Saum. Yeah, the only thing I would say in addition to that is, obviously, we're very focused on accretive rather than dilutive growth. And so, we've got a lot to step over in 2020 from the standpoint of the payment cuts that are described in the supplementary materials. But the reality is that this is the year as we've reestablished acute care growth in the business. We've also got more focus on profitable acute care growth or -- and/or service line prioritization with a little bit more depth that will hopefully yield more margin expansion. We're very focused on it.

Ralph Giacobbe -- Citigroup -- Analyst

Okay. That's helpful and then just follow-up. I was hoping you can talk a little bit more about the commercial volume trend in the quarter, maybe how it compared to sort of the second and third quarter. And then on top of that, just any flu impact in the fourth quarter and if you will, and discuss sort of first quarter, what you're seeing both in terms of flu and obviously a lot of headlines around coronavirus. Thanks.

Daniel Cancelmi -- Executive Vice President & Chief Financial Officer

Sure. Let me take that in reverse order. Obviously, we're monitoring the coronavirus situation very carefully. We -- there hasn't been any significant impact on the business or even clinical impact yet, but we're very well prepared across all of our facilities between USPI, the hospitals, the physician clinics and even our Global Business Center. We've put a lot of effort into making sure that we're prepared to handle whatever may come obviously with a degree of uncertainty around how that may expand in the United States. So we'll see -- the flu has really not been a material driver in the fourth quarter of inpatient activity. I'm sure that lower acuity visits with the flu in the urgent care platform have been helpful in terms of our attractive non-surgical Ambulatory numbers, but that's pretty much. That's pretty much where we've seen the impact of the flu so far within the portfolio.

Look, on the commercial volume side, obviously, we're very focused on measuring our ability to attract commercial patients and our physicians ability to attract commercial patients to the services that we're able to offer both elective and emergent services, and we're pleased with the fact that the prior multiyear trends of significant commercial volume declines have stemmed at this point in a commercial market that's not necessarily growing. It's a testament to the work that the operators are doing in their markets to make our assets more accessible, more attractive and provide the services they are looking for. So we remain very optimistic about our success on the commercial volume front in 2019 and carrying that into 2020.

Regina Nethery -- Vice President Of Investor Relations

Next question please.

Operator

Our next question is from Kevin Fischbeck with Bank of America/Merrill Lynch. Please proceed with your question.

Kevin Fischbeck -- Bank of America/Merrill Lynch -- Analyst

Great. Thanks. A question on the cost growth. The guidance that you guys gave on the cost growth. Is that net on the Hospital side, net of the $110 million of cost savings. And I guess really what's driving that cost curve?

Daniel Cancelmi -- Executive Vice President & Chief Financial Officer

Kevin, good morning. It's Dan. It is net of the cost efficiencies that we will capture this year as we close out various actions that we talked about as part of our $450 million program. In terms of the overall cost growth, manage costs very well. The past several years, we expect that to continue. Certainly, as we continue to make certain investments to grow the business, that's part of when we think about our cost structure for this year and beyond. So we're making certain investments to grow the business and we think it's already begun to yield results, and we'll continue to look for those types of opportunities. So yes, those cost initiatives are baked into our cost growth outlook.

Kevin Fischbeck -- Bank of America/Merrill Lynch -- Analyst

Okay. You outlined a few rate cuts that were kind of headwinds to growth this year. But I guess, even if we added those back, you're still talking about cost growth that's above pricing growth. So I guess, as we think about in the future, how do we get to a point where your pricing growth is at least your cost growth is at about improving pricing outlook or is it about improving the cost side or is it -- you just need to grow volumes and that's really the solve. Thank you.

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

So it's really both. The revenue reductions related to DISH, that's -- if you normalize for them, you have cost growth of pretty much in line with the revenue yield. So listen, there are some key investments that we began to make in 2019 and we will make some additional investments this year and that gets included into our cost assumptions. We, obviously, will be looking to do better. But right now, from where we sit, we think that this is a reasonable range at this point.

Regina Nethery -- Vice President Of Investor Relations

Next question please.

Operator

Our next question comes from Josh Raskin with Nephron Research. Please proceed with your question.

Josh Raskin -- Nephron Research -- Analyst

Hi, thanks, good morning. Wanted to ask on the ASC side or the USPI side overall. Looks like the center count actually fell and maybe I just don't have the numbers right there sequentially. That looked unusual for sort of a 4Q and I know you've made some comments of the pipeline. Just wondering if something specific happen there and then more broadly as you look at surgeries in markets where you've got a big ASC presence or a system partnership, etc., are you seeing a situation where you're capturing volumes that are moving out of Tenet hospitals or do you think you're actually taking share on the overall surgery volumes in those markets?

Brett Brodnax -- President & Chief Executive Officer, USPI

Hey, Josh, this is Brett. Quick question -- to answer your question, first, I'd say, related to the facility count in Q4, look, we always kind of go through a process of looking to optimize our portfolio. In Q4, we did eliminate a couple of facilities that were no longer strategic for us. And we essentially either sold or close those facilities. It's a normal part of our portfolio optimization process.

In terms of the pipeline overall, I mean we continue to have a very strong pipeline of acquisitions and de novos, and we had a number of deals that slipped from Q4 to Q1 since we hadn't completed due diligence and we won't close on those as you know, and so we are ready. As a result, we feel really good as Ron and Dan alluded to about achieving the $150 million in spend in 2020. In addition, although we only invested $50 million for the year, it was heavily weighted toward de novos. Therefore, the 2019 investment is projected to produce a comparable level of earnings once the de novos those ramp up to what would have occurred with a higher level of investment.

I would say, to answer your second question related to share, yes, I mean, when you look at the business development activity that we're pursuing across the portfolio, there is a heavy emphasis on attracting physicians that are not part of our facilities, not a part of our network and adding new facilities and new service lines to our portfolio. Just to give you an example in 2019, we added 70 distinct service lines to 70 [Phonetic] of our facilities across the portfolio primarily in the areas of spine, total joint, cardiac and robotic-assisted surgery. So when you do that, you not only obviously build additional business from your existing medical staff, but when you add those service lines, you're also attracting new physicians to your portfolio, which obviously translates into accretive growth.

Josh Raskin -- Nephron Research -- Analyst

Thank you.

Regina Nethery -- Vice President Of Investor Relations

Next question please.

Operator

The next question is from Matt Larew with William Blair. Please proceed with your question.

Matt Larew -- William Blair & Company -- Analyst

Hi, good morning. Wanted to ask quickly about capital allocation obviously. You've talked about the pipeline on the ASC side. But over the last several calls, you've also been talking about a pivot toward patients with chronic illnesses. Just wanted a sense for how you balance capital allocation here in 2020 and then what particular high acuity service line that you were targeting in terms of driving growth on the Hospital side in 2020.

Saum Sutaria -- President & Chief Operating Officer

Yeah. It's Saum. A couple of different things here. First of all, I -- the strategy of continuing to pursue a service portfolio that's best suited for people with multiple chronic illness, again whether it's acute emergent or elective care is still what we're focused on in 2020. Yeah, the balance of the capital investments across the portfolio, whether it'd be the Ambulatory segment, the acute care segment or even into specific service lines is really based upon, as Ron has described, a much more disciplined process of simply outlining market opportunity and return on investment that we expect from those investments. I mean, we look at all of them with a level of rigor now that gives us a sense of how we should prioritize those investments and at the same time, take into consideration the fact that in some markets we're making investments to really lead the market and in some markets, we're making investments to improve our competitive position, but we may not be in a leading position, and you've got to make both sets of investments in order to continue to grow the business and expand the margins.

In terms of the service lines, when you look at the patients who have chronic illness, especially those that are younger and with commercial insurance, you're really talking about a combination of broad-based bone and joint, the orthopedics and spine, cardiovascular and by that, it's a pretty broad definition of cardiovascular and increasingly, you're seeing more demand in the neurosciences area. The other thing to remember is the fundamentals of our acute care hospitals, which include trauma and general surgery continue to be growth opportunities in our markets and we continue to evaluate opportunities to expand an already large pool of trauma services that we offer in order to ensure that we're providing the right range of emergency services that often those patients require. So I would say that it's a pretty focused range. I mean, the things that are less acute and have moved into the outpatient setting and a really growing more in our Ambulatory facilities are less the area of focus from a capital standpoint in the acute care hospitals.

Regina Nethery -- Vice President Of Investor Relations

It's Regina. We're running a little tight on time. So if we could limit your questions to just one and we'll take the follow-ups if time allows. Thank you.

Operator

Our next question comes from Brian Tanquilut with Jefferies. Please proceed with your question.

Brian Tanquilut -- Jefferies -- Analyst

Hey, good morning guys. Congrats on a good Q4, so I guess just my question. As I look at the revenue per adjusted admission guidance for 2020, 1.5% to 2.5%. That's slightly lower than where you've been trending. So is there anything to call out there or is that just conservatism? And then what is assumption embedded in that on California Provider and timing? Thank you.

Daniel Cancelmi -- Executive Vice President & Chief Financial Officer

Brian, It's Dan. Good morning. The reductions in the disproportionate share revenue that I mentioned that we have on our bridge whether there is the Medicare DISH reductions or the Medicaid reductions, that's what's having an impact on our aggregate pricing growth. Our commercial book of business, as I mentioned, were almost fully contracted this year and the pricing yield there should be very consistent with what we've been generating over the past several years. So we feel really good about that, but there's just -- these reductions that kicked in related to the Affordable Care Act is really what is having an impact on that.

Brian Tanquilut -- Jefferies -- Analyst

Got it. Thanks, Dan.

Operator

Our next question comes from Whit Mayo with UBS. Please proceed with your question.

Whit Mayo -- UBS -- Analyst

Hey, thanks. Good morning. Maybe just for Dan or Brett, I'm still struggling a little bit with USPI's revenue growth in the quarter. Consolidated revenues were up over 14%, which is twice the rate of the same-store revenue growth in the quarter and the consolidated segment usually grows much slower than the systemwide number. So is there anything else that contributed to the strong top line growth? You mentioned acquisitions weren't really a factor, maybe there was some de novos. I'm just having a tough time reconciling the growth. Thanks.

Owen Morris -- Chief Financial Officer of USPI

Yeah. Hi, this is Owen Morris. This is CFO of USPI. We did see a strong organic growth in the quarter. If you see the 7.3% overall systemwide, it's reflective of the consolidated assets, performed really well. We also -- even though we had a smaller volume, the normal in 2020, we actually continue to grow significantly in the quarter. So that was also a strong contributor. So there is no real outliers in this Q4 to this year. So...

Whit Mayo -- UBS -- Analyst

What bridges the difference between the 14% growth and the 7.5% growth? I mean, presumably that's some level of inorganic acquisitions or de novos. I'm just struggling to figure out.

Owen Morris -- Chief Financial Officer of USPI

Yeah, exactly. We had really strong well -- the acquisitions that we did produce strong consolidated revenues for us. And that was a contributor.

Daniel Cancelmi -- Executive Vice President & Chief Financial Officer

As well as in the fourth quarter last year, we closed some deals, but we didn't necessarily have a full quarter of revenue last year.

Operator

Okay. Our next question comes from Sarah James with Piper Sandler. Please proceed with your question.

Sarah James -- Piper Sandler -- Analyst

Thank you. I was hoping you could give us a little bit more color on what the decision process looks like when you're deciding to do the service line expansion. So, what level of insight do you have on volume shifting sites of care, what type of data and analysis is available to you to inform your decisions on service line expansions? Thanks.

Saum Sutaria -- President & Chief Operating Officer

Yeah. This is Saum. I mean, that's a -- it's a broad question, and I'll try to address it this way, which is the types of things that we tend to look at are the underlying market growth, the demographics in the market. The utilization patterns that we see, the nature of the insurance coverage, the best site of care from the standpoint of cost, quality and service with respect to any particular clinical program and obviously, the ability to work with high-quality physicians that are able to provide those services in an effective and safe manner everywhere we go.

And then obviously, our own internal data helps us understand our ability to provide those services in a way that's margin accretive. And so, there is a combination of market data, demographic data, competitive data and obviously, internal cost accounting data that goes into helping us think about where and how and in which markets to make certain types of service line investments, but again I would emphasize there's a qualitative component to this as well, which is you've got to have good practitioners that are willing to sign up for the types of quality programs that you want to build who choose to affiliate with us. And so, it's a combination of analytics and also just the on-the-ground legwork, trying to find those providers that are willing to build with you in that way.

Sarah James -- Piper Sandler -- Analyst

Thank you.

Operator

Our next question comes from Justin Lake with Wolfe Research. Please proceed with your question.

Justin Lake -- Wolfe Research -- Analyst

Thanks, good morning. I wanted to follow up on Conifer, more around how should we think about the timing of the information flow on Conifer. Now that you have a CEO, I'm thinking about the financial structure in terms of the debt signs of the Conifer spin, SEC filings necessary for the spin and the length of the contract with Tenet, etc.

Daniel Cancelmi -- Executive Vice President & Chief Financial Officer

We have a schedule to do that. It's spread out over the next year. I mean, we're talking about June of 2021. So we're a little bit over a year out. So some of what you're asking for will not be really discussed until actually the beginning of 2021. We're not in a position today to pay with debt. We'll look at in terms of debt-for-debt exchange. We had the process in place. But we're not ready to get to that point. There'll be a lot that will happen between now and then relative to hopefully its own growth and the Company itself. It's obviously a large cash producer. So it's a very important consideration when we get to that point, but we're not prepared to do that.

So in terms of releasing of information, I think other than talking about the fact that we're on schedule and that we're finishing these lines, the addition of the CEO, other changes we will make to the infrastructure in announcing any deals we do, I don't see the technical things you're asking about really coming to bear until probably sometime right after the first of the year or certainly no earlier than the end of the year at this stage. I think that's pretty much what we're targeting at this point, because otherwise, we're going to debate certain points forever, and we're going to be putting out opinions, not facts. So I think we'll just -- we'll be doing that toward the end of the year. So I hope that answers your question.

Justin Lake -- Wolfe Research -- Analyst

Thanks for the color.

Gary Taylor -- JPMorgan Chase -- Analyst

Thank you. Our next question comes from Gary Taylor with JPMorgan Chase. Please proceed with your question. Hi, good morning. Wanted to ask a few questions about cash flow and certainly appreciate you ended up hitting your cash flow guidance for the year that looks maybe questionable to some even through the third quarter, but you stuck to your guidance and you hit it. So congrats on that. Couple of questions for next year, this will be sort of the fourth year in a row where there is a couple of hundred million of restructuring litigation. So wanted a little color. I presume the Oklahoma settlement is that -- isn't that wondered what else was in that. And then secondly, are we correct that if you hit your 2020 guidance, NOL -- federal NOLs will be exhausted and you become a cash -- anticipate becoming cash taxpayer in 2021?

Daniel Cancelmi -- Executive Vice President & Chief Financial Officer

Good morning, Gary. It's Dan. Let me address that. In terms of free cash flow this year, so adjusted free cash flow is $875 million. As we also disclosed in our guidance, we do have a projection for investments we will make or payments we will make related to either restructuring activities as we continue to transform the business or the legal matter that you mentioned. The legal matter that you mentioned, we disclosed that last quarter. That is in our projection for cash outflows for this year. So $875 million, there is roughly at the midpoint.

There is about $213 million of restructuring payments and litigation payments we will make. We get this question a lot. When -- the number of what's the anticipated level moving down the road, as we get -- as we continue to go through our transformation, we will continue to have some of those a level of payments. I'm not sure they ever entirely go away 100%, but certainly the legal matter that would be -- something that would be behind us after this year, and we anticipate those type of investments would move down as we go into 2021 and beyond.

Regina Nethery -- Vice President Of Investor Relations

Next question please.

Operator

Our next question comes from John Ransom with Raymond James. Please proceed with your question.

John Ransom -- Raymond James -- Analyst

Hi. Dan. I'm going to terrify you and attempt to do some math and just to make sure we are in the zip code. So, if we take the low-to-high cash flow guidance for 2020, we back out to $220 million to $225 million of litigation, $350 million to $370 million of NCI and then assume $150 million for USPI M&A, that's our estimate. And then we throw in $350 million for the Memphis asset sale, which I know it's not in your guidance. We're getting somewhere of $400 million to $600 million approximately of actual cash available to pay down debt. Is there something or anything you'd call out of that math that we're missing something.

Daniel Cancelmi -- Executive Vice President & Chief Financial Officer

No, that's right John. Again, I think you did the math right and you start again -- you start with $875 million of adjusted free cash flow, a little over $200 million for the restructuring and investments and litigation payments, the non-controlling interest payments to our partners and predominantly in our Ambulatory centers, which are doing incredibly well. That's about $360 million at the midpoint. And so -- and then if you take into consideration, we anticipate sales proceeds from sale of the Memphis facilities of around $350 million. We'll have some available cash generation to be able to really look hard at it reducing debt.

Absolutely, I mean it's -- yeah, I mean it's not like we're going to be selling every facility in the Company. We will -- and we've been very clear that we continue to look at the portfolio and if it makes sense, there may be some assets within the portfolio that we would divest and obviously, continue to refine the portfolio and look for those type of opportunities to redeploy that capital.

Operator

We have reached the end of the question-and-answer session. At this time, I'd like to turn the call back over to Tenet management team for closing comments.

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

Well, I don't know much more to add. This is Ron Rittenmeyer. I just want to say thank you for joining us today. And of course, follow-up is available through Regina and anything that's needed, we'll try to be responsive as timely as possible. So with that, thank you very much.

Operator

[Operator Closing Remarks]

Duration: 58 minutes

Call participants:

Regina Nethery -- Vice President Of Investor Relations

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

Daniel Cancelmi -- Executive Vice President & Chief Financial Officer

Saum Sutaria -- President & Chief Operating Officer

Brett Brodnax -- President & Chief Executive Officer, USPI

Owen Morris -- Chief Financial Officer of USPI

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

Pito Chickering -- Deutsche Bank -- Analyst

Ralph Giacobbe -- Citigroup -- Analyst

Kevin Fischbeck -- Bank of America/Merrill Lynch -- Analyst

Josh Raskin -- Nephron Research -- Analyst

Matt Larew -- William Blair & Company -- Analyst

Brian Tanquilut -- Jefferies -- Analyst

Whit Mayo -- UBS -- Analyst

Sarah James -- Piper Sandler -- Analyst

Justin Lake -- Wolfe Research -- Analyst

Gary Taylor -- JPMorgan Chase -- Analyst

John Ransom -- Raymond James -- Analyst

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