Participants

Will McDowell; Vice President of Investor Relations; Tenet Healthcare Corp

Saumya Sutaria; Chairman of the Board, Chief Executive Officer; Tenet Healthcare Corp

Sun Park; Chief Financial Officer, Executive Vice President; Tenet Healthcare Corp

Stephen Baxter; Analyst; Wells Fargo Securities

Craig Hettenbach; Analyst; Morgan Stanley Investment

Joanna Gajuk; Analyst; Bank of America

Ryan Langston; Analyst; TD Cowen

Meghan Holtz; Analyst; Jefferies

Justin Blake; Analyst; Wolfe Research, LLC

Pito Chickering; Analyst; Deutsche Bank

Ben Hendrix; Analyst; RBC Capital Markets

Whit Mayo; Analyst; Leerink Partners

Ann Hynes; Analyst; Mizuho Securities

Benjamin Rossi; Analyst; JP Morgan Chase

A.J. Rice; Analyst; UBS

Andrew Mok; Analyst; Barclays

Joshua Raskin; Analyst; Nephron Research, LLC

Presentation

Operator

Good morning, and welcome to Tenet Healthcare's first-quarter 2025 earnings conference call. (Operator Instructions)
I'll now turn the call over to your host, Mr. Will McDowell, Vice President of Investor Relations. Mr. McDowell, you may begin.

Will McDowell

Good morning, everyone, and thank you for joining today's call. I am Will McDowell, Vice President of Investor Relations. We're pleased to have you join us for a discussion of Tenet's first-quarter 2025 results as well as a discussion of our financial outlook.
Tenet senior management participating in today's call will be Dr. Saumya Sutaria, Chairman and Chief Executive Officer; and Sun Park, Executive Vice President and Chief Financial Officer.
Our webcast this morning includes a slide presentation, which has been posted to the Investor Relations section of our website, tenethealth.com. Listeners to this call are advised that certain statements made during our discussion today are forward-looking and represent management's expectations based on currently available information. Actual results and plans could differ materially.
Tenet is under no obligation to update any forward-looking statements based on subsequent information. Investors should take note of the cautionary statement slide included in today's presentation as well as the risk factors discussed in our most recently formed -- filed Form 10-K and other filings with the Securities and Exchange Commission.
And with that, I'll turn the call over to Saum.

Saumya Sutaria

Thank you, Will, and good morning, everyone. We reported first-quarter 2025 net operating revenues of $5.2 billion and consolidated adjusted EBITDA of $1.163 billion, which represents growth of 14% over 2024. [Adjusted EBITDA margin of 22.3%] in first quarter 2025, a 320 basis point improvement over the prior year, demonstrates our strong growth and continued operating discipline.
USPI had a nice start to the year as we generated $456 million in adjusted EBITDA, which represents 16% growth over first quarter 2024. Same-facility revenues grew 6.8% in the first quarter and were highlighted by a 12% growth in total joint replacements in the ASCs over the prior year.
Turning to our Hospital Segment, adjusted EBITDA grew 12% to $707 million in the first quarter of 2025. Same-store hospital admissions were up 4.4% as we continue to open up capacity to respond to the strong utilization environment. Acuity and payer mix remained strong, with first quarter 2025 revenue per adjusted admission up 2.8% over the prior year.
In all, our first quarter results were above our expectations, driven by fundamental outperformance, continued strength in the same-store revenue growth due to customer demand, high acuity and effective cost management.
Regarding our 2025 full-year guidance, we are not addressing the underlying outperformance in our business units during the first quarter. We're early in the year, and while we are very pleased with both our fundamental outperformance and the continued demand for our services and momentum we carry into the balance of the year, we'll address our full year expectations in the future.
Turning to capital deployment, we are well positioned to create value for shareholders through effective capital deployment of the cash flows that our portfolio of business generates. We've demonstrated an ability to flex our operations during challenging times, and our transformed portfolio is better positioned to handle economic stresses.
We continue to see significant opportunity for M&A in the Ambulatory space and intend to invest a baseline of approximately $250 million towards this opportunity each year. During the quarter, we added six new centers, including a strategic partnership with Choice Care Surgery Center in Midland, Texas. Choice Care is a 16,000 square foot state-of-the-art multi-specialty surgery center with a focus on orthopedic surgery and urology, among other service lines.
Our cash flows have enabled us to make incremental investments in capital expenditures to fuel organic growth, such as our expanded L&D department at our Abrazo West Campus in Arizona. Our top-tier medical professionals and latest medical technology reflect our commitment to delivering exceptional care to women and their families in one of the fast-growing communities in the United States.
We have significantly deleveraged our balance sheet with a net debt to EBITDA minus NCI ratio of 3:1 as of March 31, 2025, competitive with our leading peers. We remain committed to a deleveraged balance sheet as it provides us the flexibility to actively deploy capital to create value.
We believe that our current valuation is disjointed relative to our growth prospects, strong operating capabilities and transformed portfolio of businesses. We see this as an opportunity that we can capitalize on via share repurchase.
We repurchased 2.6 million shares in the first quarter of 2025 for $348 million. And going forward, we plan to be active repurchasers of our shares, particularly at our current valuation multiple, leveraging the significant cash flow generation of our business.
In summary, we've had a strong start to the year based on fundamental growth and cost management. We are executing effectively on our growth strategy with an intense focus on serving our patients and delivering value with our physician partners.
Importantly, we are not altering our business strategy because of health care policy uncertainty that the industry is currently facing. We will steadily execute on our growth strategies with consistent capital investments and continued demonstration of our strong operating capabilities.
We see significant opportunity for growth, which we believe translates into attractive free cash flow generation that we can deploy across our discussed priorities to generate value for shareholders.
And with that, Sun will provide a more detailed review of our financial results. Sun?

Sun Park

Thank you, Saum, and good morning, everyone. We're pleased to report another strong quarter to start off our fiscal 2025. We generated total net operating revenues of $5.2 billion and consolidated adjusted EBITDA of $1.163 billion, a 14% increase over first quarter 2024. Our first quarter adjusted EBITDA margin was 22.3% a 320 basis points improvement over last year.
Adjusted EBITDA was well above the high end of our guidance range, driven by strong fundamentals, including same-store revenue growth, continued high patient acuity, favorable payer mix and effective cost controls.
I would now like to highlight some key items for each of our segments, beginning with USPI, which again delivered strong operating results.
In the first quarter, USPI's adjusted EBITDA grew 16% over last year, with adjusted EBITDA margin at 38%. USPI delivered a 6.8% increase in same-facility system-wide revenues, with net revenue per case up 9.1% and case volumes down 2.1%, reflecting our continued disciplined shift toward higher acuity services.
Turning to our Hospital segment. First quarter 2025 adjusted EBITDA was $707 million, with margins up 310 basis points over last year at 17.5%. Excluding the hospitals divested in 2024, our adjusted EBITDA grew 23% over the first quarter of 2024. Same-hospital inpatient admissions increased 4.4%, and revenue per adjusted admissions grew 2.8%.
Our consolidated salary, wages and benefits in first quarter was 40.6% of our net revenues, a 260 basis point improvement from prior year. And our consolidated contract labor expense was 2% of SW&B.
In the first quarter of '25, we recognized a $40 million favorable pre-tax impact for additional Medicaid supplemental revenues related to prior years. As a reminder, First quarter 2024 results included a $44 million favorable pre-tax impact for additional Medicaid revenues related to the prior year.
Next, we will discuss our cash flow, balance sheet and capital structure. We generated $642 million of free cash flow in the first quarter. And as of March 31, 2025, we had $3 billion of cash on hand, with no borrowings outstanding under our $1.5 billion line of credit facility. Additionally, we have no significant debt maturities until 2027. And finally, we repurchased 2.6 million shares of our stock for $348 million in the first quarter.
Our leverage ratio as of quarter end was 2.46x EBITDA or 3.14x EBITDA less NCI, driven by our outstanding operational performance and continued focus on financial discipline. We are very pleased with our ongoing cash flow generation capabilities and have a commitment to a deleveraged balance sheet. We believe we have significant financial flexibility to support our capital allocation priorities and drive shareholder value.
Let me now turn to our outlook for 2025. As Saum noted, we are not making any adjustments to our full-year '25 outlook at this time. While we had strong fundamental outperformance in the first quarter and have continued confidence in our ability to achieve our full-year targets, it is early in the year and we will revisit our full-year guidance as needed in subsequent quarters. As such, we are reaffirming the full year '25 guidance that we initially provided in February.
A few items of note. Our outlook continues to assume $35 million of net revenues associated with the Tennessee supplemental Medicaid programs. which have not yet been fully approved. As such, we did not record any revenues associated with these programs in the first quarter of '25. We expect second quarter consolidated adjusted EBITDA and to be in the range of 24% to 25% of our full-year consolidated adjusted EBITDA at the midpoint.
We expect USPI's EBITDA in the second quarter to be in the range of $24.2 million to 25.25% of our full year USPI adjusted EBITDA at the midpoint.
Turning to our cash flow for '25, we continue to expect free cash flows in the range of $1.8 billion to $2.05 billion, distributions to NCI in the range of $750 million to $800 million, resulting in free cash flow after NCI in the range of $1.05 billion to $1.25 billion, all consistent with our initial 2025 guidance.
And finally, as a reminder, our capital deployment priorities have not changed. First, we will continue to prioritize capital investments to grow USPI through M&A. Second, we expect to continue to invest in key hospital growth opportunities, including our focus on higher-acuity service offerings. Third, we will evaluate opportunities to retire and to refinance debt.
And finally, we'll have a balanced approach to share repurchases, depending on market conditions and other investment opportunities. Given our attractive free cash flow profile and current valuations, we plan to continue to be active repurchasers of our stock in 2025.
We're pleased with our strong start to the year and are confident in our ability to deliver on our outlook for '25 as we continue to provide high-quality care for those and the communities we serve.
And with that, we're ready to begin the Q&A.
Operator?

Question and Answer Session

Operator

Thank you. At this time, we'll be conducting a question and answer session.
(Operator Instructions)
Stephen Baxter, Wells Fargo.

Stephen Baxter

Hey, good morning. Just a couple of quick ones here. I just wanted to ask you, specifically to understand the posture you're adopting on guidance. But I guess as we think about the first quarter itself, is there anything that you would kind of call out maybe the size of the $40 million of incremental Medicaid supplemental that you frame as potentially as an out-of-period item, that we should think about bridging from Q1 to Q2?
And then just on USPI, revenue per case growth, the highest we've seen for quite some time in a normal operating environment, despite the total joint case growth being a little bit lower than it was this time last year. Anything you kind of call out there is the driver of sort of the higher acuity, higher revenue intensity and potentially backfilling the total joint growth?
Thank you.

Saumya Sutaria

Hi, Steve, Saum here. Thanks for the question -- or questions. Number -- on the first point, no, there's nothing else. I mean we're just not addressing guidance this early in the year. We recognize the fundamental outperformance.
So there are no other items there. On the USPI side, from a revenue per case growth standpoint, three factors, obviously, our contracting platform, acuity, and we continue to take strategic opportunities, in particular, accelerating some of what we've been working on for the last year or two on low-acuity work.
And I mean, look, the growth rates on joints and things like that, I mean as the platform gets bigger and bigger, obviously, on a percentage basis, the growth rates will come down a bit. But we're pleased with the joint -- the growth, the continued ongoing march forward in moving the joints into the outpatient setting. As we've said, we think that's a big opportunity this decade.

Operator

Craig Hettenbach, Morgan Stanley Investment.

Craig Hettenbach

Thank you. For USPI, can you just talk about the pipeline of potential acquisitions and just your confidence of being able to deploy the $250 million in investment?

Saumya Sutaria

Yeah. The pipeline looks good. I mean, $250 million is always kind of a goal range that we put. Obviously, we have been -- well, we've certainly been spending on average, a lot more than that, almost double that because of some of the platforms over the past five, six years.
But yes, that's still our goal, and the pipeline looks healthy. The number of de novos look healthy in terms of syndicated centers that will stand up from the ground up. Corollary question that often comes is the multiples aren't really changing very much from where they've been.
Obviously, our focus is a little bit more on some centers that have the potential for USPI to deploy its service-line diversification capabilities and add things like ortho and whatnot that may not be necessarily part of those centers.
But yeah, we feel pretty good. I mean the USPI environment looks great. And again, I'm sure it will come up. But I'll remind you that we don't have as much exposure in that environment to certainly Medicaid. And while the exchanges are certainly relevant there, they're less relevant than the Hospital segment.

Craig Hettenbach

Got it, appreciate the call.

Saumya Sutaria

Thanks.

Operator

Joanna Gajuk, Bank of America.

Joanna Gajuk

Hi, good morning. Thanks so much for taking the question. So maybe I guess I want to follow up actually the first question around just the strength in the quarter. I understand that you want to be conservative and you don't want to [update] all the elements early in the year.
But just walk us through because the Hospital Segment, where in particular, those margins were much better. And even if you exclude the exclude the $40 million call-out period. So is there something else in that segment that came in much better than internal expectations? Thank you.

Saumya Sutaria

It's Saum again, and Sun can comment just so that we're both consistent on this. I mean we had a good quarter. I mean we had a bunch of things in motion from last year regarding expense management. You can -- maybe you can review some of those statistics. Obviously, as we started to think about various policy changes and other things that could be out there or could be part of the discussion, we were thinking about expense management very carefully coming into 2025.
The growth environment has been good. We've been able to accommodate volume without adding a lot of contract labor, where we have been expanding capacity. Our recruiting of staff and nursing has been good. Our retention rates have improved.
Yeah, I don't -- I mean, I know -- I understand the question, is there something else in there? But there's not. It's just we put together three or four good things together in the same quarter, and it ended up generating better results than we might have expected.
Sun?

Sun Park

Yeah. I'll just add. Look, the $40 million of out-of-period you mentioned, obviously, that's balanced with about the same amount, $44 million of out-of-period adjustments we had in Q1 of last year. So that's kind of even.
And then as Saum said, I think it really was operational strength. Our acuity, our payer mix remains strong. Our net revenue per adjusted admissions of 2.8% compares very favorably to our OpEx per adjusted admissions of about 50 bps, I believe, it was.
And then as Saum said, we are very focused on operating discipline, especially labor. We had an over 200 basis point improvement in SWB in the Hospital segment between Q1 of last year and Q1 of this year. That reflects not only the contract labor discipline, but just a stable wage environment overall as well as other operating discipline from our field force.
And then I would say, finally, we remain very focused on our other lines as well. If you look at our supplies, if you look at our other OpEx line items, we've demonstrated some incremental improvement there as well, not just this quarter versus Q1 of last year, but if you look at results, we've been working hard at this quarter-by-quarter making some incremental improvements. So I think all those things have contributed to a very strong Q1.

Joanna Gajuk

No, great, thank you.

Operator

Ryan Langston, TD Cowen.

Ryan Langston

Great. Thanks. Good morning. Yeah, You mentioned a couple of times, obviously, in the first quarter, we saw really tight labor management. I guess, how much more room do you think you can actually improve that labor performance? And then maybe just give us a sense on what types of initiatives you guys have put in place and/or are working on to kind of keep up that level of performance.

Saumya Sutaria

Well, if I improve we're referring specifically to the narrow issue of the percentage of contract labor, I'm not sure that necessarily decreasing that further is an improvement, right, because, obviously, there are times where you would utilize contract labor in order to open up capacity for things that you may be doing, which are accretive.
So I think what we've said all along was that our strategy was to reduce contract labor, have our full-time employees that provide good care, leverage all the nursing school and other relationships, techs and other things that we built during COVID in order to help train graduates that they might choose to stay within our system and positively impact our retention rates because there's a degree of familiarity there.
And of course, the net consequence of all that is that we can return to following our overall SWB inflation rather than just being focused on the narrow topic of contract labor expenses. So that's kind of the journey that we've been on, as you can imagine and appreciate from our comments over the past couple of years.
So I think, look, the important in the next year or two is really on recruiting and retention of the staff necessary to build and grow the business. I think the contract labor is fine where it is.

Operator

Brian Tanquilut, Jefferies.

Meghan Holtz

Good morning guys. This is Meghan Holtz on for Brian. And congrats on the quarter. I guess just picking off Joanna's question on the Hospital business, can you provide some color in the acuity, the payer mix? What drove that revenue per adjusted admission? Some of your peers have spoken to exchange volume growth.
Are you seeing the same growth? And can you quantify that growth?

Sun Park

Meghan, thanks for the question. Yes, I think a couple of pieces. I'll repeat our statement that we saw continued acuity strength as well as a strong payer mix. I think if you look at our stats in terms of total managed care as a percent of our net patient revenues, it remains around 70%, very consistent with kind of what we had last year. And then our acuity strategy is, again, very consistent with last year.
On the exchange growth, we agreed that was a continued strength for us. In Q1 of '25, we saw a 35% increase in exchange admissions. And at this point, our revenues from exchange is about 7% of total consolidated revenues. So a little higher, I think, than fiscal -- where we ended in fiscal '24. And we'll see for the rest of the year, we think the environment continues to be strong across our different payer areas.
And we'll update our guidance as we go.

Operator

Justin Blake. Wolf Research.

Justin Blake

Thanks, good morning. Just wanted to follow up on the SWB discussion. It certainly kind of jumped off the page on the Hospital side. Is -- beyond the contract labor, is there anything else special going on in the quarter? And if not, is this a reasonable kind of run rate to be thinking about, whether it's SWB per adjusted admission or the ratio itself?
And just to follow up on that, like if it is, what would have to go wrong for you not to materially outperform? I mean it certainly seems like -- I guess the question would be, if you're -- is this ratio what you embedded in your Hospital EBITDA guidance? Or is it running materially better? Thanks.

Saumya Sutaria

Justin, I mean a couple of things. I mean, we're not really updating guidance, right? I mean there's a few things. Obviously, the more we diversify the business into the Ambulatory side, that helps in terms of the USPI component and in particular, the impact on salary, wages and benefits.
So look, I think, without some discontinuity in the environment, we feel pretty good about the various aspects of labor management that we are undertaking in this environment.
And at the same time, again, I can't emphasize enough from my perspective, the importance of having our own workforce that knows our physicians and knows our environment. And doing better and better on retention of that staff is a really important part of our strategic goal to expand capacity in a high-quality way. And that's kind of the balance that we're looking for right now.

Operator

Pito Chickering, Deutsche Bank.

Pito Chickering

Hey guys, Great job this quarter. I guess you're going to see a trend here. I'm going to hit the SMB leverage maybe a slightly different way here. Your average length of stay was down sort of 2.3 days -- percent on a same-store basis. Is that due to flu?
Or is that just better productivity? As you think about where average length of stay can trend, where do you think we can exit the year?
Or is this leverage due to uncompensated care, which looks to be down this quarter, despite revenues going up? It looks like this is due to implicit price concessions and charity write-offs down. So any thoughts around uncompensated care reductions down this year and how that impacts your margins? Thanks.

Saumya Sutaria

Well, let's go in reverse order. The uncompensated care piece is not same store, right? I mean, remember, we divested a bunch of assets in many cases that were in markets with less favorable payer mix. So I don't think you can look at that decline necessarily on a same-store type of basis if that helps. Yeah.
Sun, you want to take the other--

Sun Park

Yeah. So on some of your other questions, look, I mean, on the length of stay, yes, there probably was some flu impact. But I think overall, again, it comes back down to operating discipline and trying to make sure we balance the right patient care as well as our workflows and efficiency, right? So we're working hard on that.
And then I think your general question around kind of sustainable -- sustainment of kind of the pieces. Look, I think it all comes back on to two things that we mentioned. It's a stable external environment in terms of wages and fees. And then we focused a lot on our operating discipline, which is showing up in our metrics.
One final kind of footnote to Saum's answer on the uncompensated care number. I think you're absolutely -- I think Saum's right, it's not same store, so I think that distorts the comparison.
And then I think, obviously, if you look at the individual line items, while some are going up and some are going down versus '24, you kind of have to take that all together. And if you look at the total uncompensated care percentage as revenues, we've been pretty consistent, '24 to '25. So I don't think that's driving the margins.

Operator

Ben Hendrix, RBC Capital Markets.

Ben Hendrix

Great, thank you very much. Just a quick question back to Ambulatory rate growth, the strong 9.1% growth. I appreciate the commentary about the continued mix shift in the M&A towards higher acuity specialties. But just I noticed that one of your ASC peers have started to see in the last couple of quarters a more balanced mix of rate and volume growth overall in the Ambulatory. I'm just wondering, just based on your M&A plans and based on the shift you're seeing towards higher acuity, how persistent do you think this rate momentum is over the next couple of years? Thanks.

Saumya Sutaria

Well, I mean, projecting out over the next couple of years on ASC rates is a little bit tough. I mean, I think that if you think about what we have been doing, and it's a fair criticism, by the way, if that's what it is, that our rate guidance has been under what we have been actually achieving for a couple of years, that's fair; our guidance obviously is much more long term in terms of the revenue growth, combination of volume and rate.
Our near-term impact is driven a lot by what we have been doing around not only growing higher acuity, but at the same time, working actively to create capacity to re-syndicate some of our partnerships and other things with certain low acuity business moving out of the ASC environment. And it took us a while to get that balance right. But I think we've got that balance a lot better.
And then when you add on top of that the fact that most of what we're doing in the ASC costs 30% to 50% less than the same acute care setting, our contracting strategies have been helpful because there is a desire by all stakeholders to move things into a lower-cost setting, including providing fair rates in the ASC environment, which we've been able to achieve.
So when you put all that together, I don't disagree with the premise at all that we should see momentum on the net revenue per case in the ASC environment for some time to come, and that's a good thing. And that's -- and the ASC should be the leading edge of innovation of getting appropriate higher acuity care into a lower-cost setting.

Operator

Whit Mayo, Leerink Partners.

Whit Mayo

Hey, thanks. Saum, when you talked about opening up capacity on the acute care side, just any numbers around this to frame maybe what the year-over-year increase was from those initiatives?

Saumya Sutaria

Well, I think the numbers -- what I was referring to is specifically the same-store hospital growth numbers, included capacity expansion as one of the reasons that they were so robust. I mean, we haven't quantified -- if you're asking how many beds or something like that, we haven't quantified that. Although, to be honest with you, I'm not even sure I can tell you sitting here right now exactly how many beds we opened up.

Whit Mayo

Right. Maybe just another question just around USPI and the commentary around physician additions, recruiting efforts. You talked about re-syndication efforts as well. Just wondering if there's anything there share about what those numbers mean in terms of a year-over-year increase versus maybe history?

Saumya Sutaria

I would say that the physician activity is, on a numbers basis, gross numbers basis; very similar to in the past. I mean the ASC environment is an environment where you have to be constantly engaged in renewing, refreshing and re-syndicating partnerships.
What I was referring to before on the re-syndication piece directly tied to the commentary about net revenue per case is that sometimes, that's a specialty shift, right? I mean, in many ASCs, you're renewing, refreshing, et cetera, the same specialties. But if you're making service line shifts and transitions towards higher acuity, you may be re-syndicating with different specialists than were in the ASCs before, and that's what I was referring to.
And that obviously takes a lot more work to get done. You have to identify new individuals, perhaps new practices that join an existing ASC versus simply working with your existing practices to add doctors when they may have retirements or departures or whatever the case may be.
So it's -- the service line transition work that we've undertaken in the last few years, it's a lot of work. And it's -- and again, as you know, we -- took us a while to get admittedly the balance right and how we've been doing it.
We feel much better about it now. It's been much more consistent for the last couple of years, and it's driving earnings growth above our expectations and above USPI's long-term trends, which is terrific because it's a momentum driver for that business.

Operator

Ann Hynes, Mizuho Securities.

Ann Hynes

Hi, good morning, thank you. Again, I want to focus on the Q1 beat because it was so meaningful. I know you said that it was better than your internal expectations. Can you just go through what was the main driver, what surprised you most about the quarter internally? And also, I get this question a lot. Just because the macroeconomic environment is very volatile, people are concerned about a recession.
Do you think there is any type of, like, front-loading of volumes if people are worried that they may lose their jobs? Thanks.

Saumya Sutaria

Do you want to take the first part and then--

Sun Park

Ann, I'll take the first part and then hand off to Saum. On the Q1 beat, listen, I mean, I think we've covered a lot of the dynamics that we talked about in terms of what we assumed in our guidance versus where we're showing up. I mean, obviously, we mentioned before the strength in exchange patients growing 35% admissions. We weren't quite sure how -- what that number would be in Q1. We figured it would be relatively strong. But again, compared to last year, we expect it to go down.
So we weren't quite sure how that would turn up, but we were very pleased to see that. And I think that's reflective of not only the coverage and payer environment, but also of our continued networking strategy of being brought access to the east exchange population. So I think we're pleased to see that. Other than that, I don't know that we have anything else that we haven't covered already.
So I'll hand off back to Saum on the other questions.

Saumya Sutaria

Yeah, I don't -- I mean, I don't know -- how can one tell honestly if there's a surge in demand that's coming? I mean we don't necessarily see in our, for example, our physician practice offices or other things. significant changes. Sometimes you see changes at USPI and cancellation rates and other things. We haven't really seen much of a difference there.
I don't know that there's anything I could point to, to affirmatively say that people are trying to utilize their coverage out of a fear of losing it. I don't -- we probably have to think a little bit more about how to track some things that might give us a sense that, that's happening.

Operator

Benjamin Rossi, JP Morgan Chase.

Benjamin Rossi

So I appreciate the unknown here. But regarding tariffs, we've been getting some commentary from your peers on framing exposure on finished goods supply spend, particularly outside of the US. Do you have any additional context on framing there? And maybe how much of your supply spend would be off-contract or direct manufacturers? And then beyond scope of supply, are there any differences in your procurement setup between Ambulatory and Hospital?

Saumya Sutaria

Yes. No. Thanks for the question. And I think just -- I mean, remember, we are active members of HealthTrust, and that's true not just on the Hospital business, but you can imagine at our scale where the anchor client on the ambulatory surgery side as well and well engaged with the other peers and partners, who also are in the ASC business.
So there is no separation between Tenet and USPI and our engagement with HealthTrust. And no, we don't have any commentary to add. I mean, the numbers that you have heard are -- in terms of the supply spend base, the location of where it's coming from, the pharmaceuticals points, all the same, no different.

Operator

A.J. Rice, UBS.

A.J. Rice

Hi everybody, thanks. I make, I understand that you don't want to sort of quantify things that are unknown, that are being discussed in Washington. But as I think about and see commentary from nonprofit peers, we see some nonprofits saying they're putting in hiring freeze, so they get clarity. Others are saying they're looking at their capital budgets.
I wondered if you could comment -- obviously, you've got the public exchange, the supplemental payment questions related to provider tax, even some discussion about site-neutral payments. Are there contingency plans that you make at this point? Do you sort of just have to sit back and see what happens? Or how do you guys think about getting in front of any of that? Or is it affecting in any way your business?
And then I will throw in there specifically in managed care contracting. Do you approach that differently? Do they approach it differently? I know you typically do three year deals. Is there any thought that maybe we should take a little more narrow focus until there's some clarity?
Any thoughts along those lines would be helpful.

Saumya Sutaria

Sure, A.J. Thanks for the question. So let's just -- I mean, I'll just say let's just step back, right? Our -- coming into this year, regardless of the policy uncertainty, I think the best way to frame the answer to this question is, have we changed our priorities or have we added to our priorities? And I would argue it's the latter.
And our number one priority going into this year was to build off of what was a strong utilization environment in 2024 with us having significant outperformance of our expectations and carrying that into 2025, both through our capital initiatives, our growth prospects and acquisitions at USPI and the capacity expansion in the markets where we thought we still had beds that we could open up as we could accommodate that without excessive contract labor. So that still remained priority 1, okay?
Priority 2 was the cost control. And in particular, it had to do with what I've talked about earlier, which is labor. And now, I would say, what we've added to that is a much tighter look and initiation of some actions on the supply side to tighten up our utilization, where it's possible to do so in advance of any theoretical tariff business or whatever may come to pass. And that's kind of priority number two.
Priority number 3 has been engaging as constructively as possible in the discussion in Washington, both through our various agencies that we work with, but more importantly, in my view, directly, as myself and selected other leaders have been doing in order to shape the dialogue about the potential impact of cuts.
I mean I've said this publicly before, and I'll do so a little bit more in the coming weeks, in other forums, the polling is very clear about how the public all over the country feels about the importance of the exchange tax subsidy extensions and Medicaid. And when I -- others are sharing it, I'll share it here in a couple of weeks, that what we found in our work, it's really important insight about how much support there is for these programs and for health care coverage for people. So that's been priority number three.
So priority number 4 has been contingency planning. We haven't really moved that up the list yet. Of course, we're contingency planning. Look, we did a good job during COVID, which was a shock to the system, and we'll do it again if we need to.
But we're not moving that up to priority number one, number two or number three right now because we still believe that our operating platform can receive and accept all patients that need care and do it in an accretive manner. And so the growth is still an important way to go. If there is some shock that comes out of Washington, obviously, priority 4 may move up in terms of our list, but it is not there right now.
On your other question about managed care, look, I think in -- it's -- the contract renewal cycles come up in various sequences. They tend to be, as you said, three year potential deals. I don't see a whole lot of reason if you're negotiating fair contracts and partnerships with the plans to be looking at different time frames to create a [bunch] of uncertainty every year from that perspective.

Operator

Andrew Mok, Barclays.

Andrew Mok

Hi, You delivered another quarter of double-digit same-store growth in total joints. I think you've done that almost every quarter since you started disclosing that a few years ago. Can you give us a sense for how that market has evolved over the last five years or so in terms of eligible population or penetration of total seniors? And where do you think those numbers can go? Thanks.

Saumya Sutaria

Yeah. Well, there's still a lot of HOPD work that goes on there, that isn't really due to comorbidities or other sorts of things, right? It's -- I mean there are people that have active HOPD strategies, and then they're just physicians that are less comfortable in a non-hospital environment. And then you have, of course, in some markets more than others; high quantities of employed orthopedic surgeons that aren't really allowed to invest in ambulatory surgery platform.
So there's still a lot of runway here to move these kinds of procedures into lower-cost settings. Obviously, combining that with getting trainees in orthopedics more exposed to same-day type of settings is an important piece of this. And obviously, the insurers creating incentives to do so is important from that perspective as well. And part of that incentive is you've got to compensate adequately for that outpatient care because it's so much lower cost than a hospital setting.
So I think when the issues move from all of these various things in the [milieu] to only the clinical care considerations, which is who's appropriate for what setting, we'll know that the shift is complete. We're not there yet right? We're kind of halfway through that process, and there's still runway to go.

Operator

Josh Raskin, Nephron Research.

Joshua Raskin

Thanks for fitting me in. I guess I want to take the margins from maybe a more optimistic view. So even excluding the $40 million retro payment, the Hospital margins were, call it, 17%; so do you think there's additional room for margin expansion there on the acute care side? I mean, you've seen almost a doubling over the last decade. And maybe what sort of volumes would you need to get there? And what areas do you still think there's operating leverage?

Saumya Sutaria

Yeah, Josh, thanks for the question. I mean look, we always operate with a mindset that there's margin expansion potential. The drivers of the margin expansion, obviously, in the Hospital segment as a whole entity are multifield, right? One is just we've instituted in Tenet and hardwired now significantly more operating discipline over the last few years than existed prior, that helps.
Our controls around utilization and other things are much, much more data driven. So while we started them top down during COVID, based upon that data-driven environment, just the operators have a chance to react much more quickly and nimbly.
Payer mix over the last few years has improved. You can't escape the fact that the exchanges have been a supportive environment. We didn't know what would happen with redetermination. It ended up being accretive to revenue and margins from that perspective. And of course, we've also had the benefit of portfolio transformation on the Hospital business, where on average, slightly lower-margin facilities were divested versus the remaining portfolio.
And then the operating leverage in the future comes from better cost structure in labor, better standardization of the supply environment. And as I've said all along for many years, we have had a focus on asset utilization, which continuing to build and grow the business to improve our asset utilization will continue to improve, hopefully, margins, all other things being equal. And so that's kind of what we focus on.
And again, that gets back to also, Josh, just to A.J.'s question around priorities. That's why our priorities right now are still in this environment to continue to build and grow the business rather than of any kind of retreat yet.

Joshua Raskin

That's perfect. Thanks.

Operator

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.