Edgar Filing: TENET HEALTHCARE CORP

Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-Q

x Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the quarterly period ended March 31, 2013

o Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the transition period from to

Commission File Number 1-7293

TENET HEALTHCARE CORPORATION

(Exact name of Registrant as specified in its charter)

Nevada

(State of Incorporation)

95-2557091

(IRS Employer Identification No.)

1445 Ross Avenue, Suite 1400

Dallas, TX 75202

(Address of principal executive offices, including zip code)

(469) 893-2200

(Registrant’s telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the
past 90 days. Yes x No o

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company (as defined in Exchange Act Rule 12b-2).

Large accelerated filer x		Accelerated filer o

Non-accelerated filer o		Smaller reporting company o

Indicate by check mark whether the Registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes o No x

As of April 25, 2013, there were 103,501,059 shares of the Registrant’s common stock, $0.05 par value, outstanding.

Table of Contents

TENET HEALTHCARE CORPORATION

TABLE OF CONTENTS

		Page
PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)

	Condensed Consolidated Financial Statements	1

	Notes to Condensed Consolidated Financial Statements	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	42

Item 4.	Controls and Procedures	42

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	43

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	43

Item 6.	Exhibits	43

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TENET HEALTHCARE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

Dollars in Millions

(Unaudited)

	March 31,			December 31,
	2013			2012
ASSETS
Current assets:
Cash and cash equivalents	$	95		$	364
Accounts receivable, less allowance for doubtful accounts ($407 at March 31, 2013 and $401 at December 31, 2012)	1,383			1,345
Inventories of supplies, at cost	152			153
Income tax receivable	4			7
Current portion of deferred income taxes	354			354
Other current assets	455			458
Total current assets	2,443			2,681
Investments and other assets	163			162
Deferred income taxes, net of current portion	395			342
Property and equipment, at cost, less accumulated depreciation and amortization ($3,580 at March 31, 2013 and $3,494 at December 31, 2012)	4,296			4,293
Goodwill	948			916
Other intangible assets, at cost, less accumulated amortization ($447 at March 31, 2013 and $426 at December 31, 2012)	670			650
Total assets	$	8,915		$	9,044

LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt	$	52		$	94
Accounts payable	625			722
Accrued compensation and benefits	373			415
Professional and general liability reserves	49			64
Accrued interest payable	99			125
Other current liabilities	351			343
Total current liabilities	1,549			1,763
Long-term debt, net of current portion	5,375			5,158
Professional and general liability reserves	298			292
Other long-term liabilities	611			597
Total liabilities	7,833			7,810
Commitments and contingencies
Redeemable noncontrolling interests in equity of consolidated subsidiaries	36			16
Equity:
Shareholders’ equity:
Common stock, $0.05 par value; authorized 262,500,000 shares; 143,597,960 shares issued at March 31, 2013 and 142,363,915 shares issued at December 31, 2012	7			7
Additional paid-in capital	4,484			4,471
Accumulated other comprehensive loss	(68		)	(68		)
Accumulated deficit	(1,376		)	(1,288		)
Common stock in treasury, at cost, 40,172,225 shares at March 31, 2013 and 37,730,431 shares at December 31, 2012	(2,078		)	(1,979		)
Total shareholders’ equity	969			1,143
Noncontrolling interests	77			75
Total equity	1,046			1,218
Total liabilities and equity	$	8,915		$	9,044

See accompanying Notes to Condensed Consolidated Financial Statements.

Table of Contents

TENET HEALTHCARE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Dollars in Millions, Except Per-Share Amounts

(Unaudited)

	Three Months Ended March 31,
	2013			2012
Net operating revenues:
Net operating revenues before provision for doubtful accounts	$	2,594		$	2,491
Less: Provision for doubtful accounts	207			189
Net operating revenues	2,387			2,302
Operating expenses:
Salaries, wages and benefits	1,161			1,062
Supplies	384			399
Other operating expenses, net	568			531
Depreciation and amortization	114			100
Impairment and restructuring charges, and acquisition-related costs	14			3
Litigation and investigation costs	0			2
Operating income	146			205
Interest expense	(103		)	(98		)
Loss from early extinguishment of debt	(177		)	0
Investment earnings	0			1
Income (loss) from continuing operations, before income taxes	(134		)	108
Income tax benefit (expense)	53			(42		)
Income (loss) from continuing operations, before discontinued operations	(81		)	66
Discontinued operations:
Income (loss) from operations	(3		)	2
Income tax benefit (expense)	1			(1		)
Income (loss) from discontinued operations	(2		)	1
Net income (loss)	(83		)	67
Less: Preferred stock dividends	0			6
Less: Net income attributable to noncontrolling interests	5			3
Net income (loss) attributable to Tenet Healthcare Corporation common shareholders	$	(88	)	$	58
Amounts attributable to Tenet Healthcare Corporation common shareholders
Income (loss) from continuing operations, net of tax	$	(86	)	$	57
Income (loss) from discontinued operations, net of tax	(2		)	1
Net income (loss) attributable to Tenet Healthcare Corporation common shareholders	$	(88	)	$	58
Earnings (loss) per share attributable to Tenet Healthcare Corporation common shareholders:
Basic
Continuing operations	$	(0.83	)	$	0.55
Discontinued operations	(0.02		)	0.01
	$	(0.85	)	$	0.56
Diluted
Continuing operations	$	(0.83	)	$	0.52
Discontinued operations	(0.02		)	0.01
	$	(0.85	)	$	0.53
Weighted average shares and dilutive securities outstanding (in thousands):
Basic	104,103			102,843
Diluted	104,103			121,218

See accompanying Notes to Condensed Consolidated Financial Statements.

Table of Contents

TENET HEALTHCARE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME

Dollars in Millions

(Unaudited)

	Three Months Ended
	March 31,
	2013			2012
Net income (loss)	$	(83	)	$	67
Other comprehensive income:
Adjustments for supplemental executive retirement plans	0			3
Other comprehensive income before income taxes	0			3
Income tax expense related to items of other comprehensive income	0			0
Total other comprehensive income, net of tax	0			3
Comprehensive income (loss)	(83		)	70
Less: Preferred stock dividends	0			6
Less: Comprehensive income attributable to noncontrolling interests	5			3
Comprehensive income (loss) attributable to Tenet Healthcare Corporation common shareholders	$	(88	)	$	61

See accompanying Notes to Condensed Consolidated Financial Statements.

Table of Contents

TENET HEALTHCARE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Dollars in Millions

(Unaudited)

	Three Months Ended March 31,
	2013			2012
Net income (loss)	$	(83	)	$	67
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization	114			100
Provision for doubtful accounts	207			189
Deferred income tax expense (benefit)	(55		)	38
Stock-based compensation expense	11			8
Impairment and restructuring charges, and acquisition-related costs	14			3
Litigation and investigation costs	0			2
Loss from early extinguishment of debt	177			0
Amortization of debt discount and debt issuance costs	5			5
Pre-tax (income) loss from discontinued operations	3			(2		)
Other items, net	(10		)	(3		)
Changes in cash from operating assets and liabilities:
Accounts receivable	(251		)	(324		)
Inventories and other current assets	(44		)	(8		)
Income taxes	3			3
Accounts payable, accrued expenses and other current liabilities	(138		)	(109		)
Other long-term liabilities	27			16
Payments for restructuring charges, acquisition-related costs, and litigation costs and settlements	(7		)	(11		)
Net cash used in operating activities from discontinued operations, excluding income taxes	(5		)	(16		)
Net cash used in operating activities	(32		)	(42		)
Cash flows from investing activities:
Purchases of property and equipment — continuing operations	(133		)	(136		)
Purchases of businesses or joint venture interests	(5		)	(3		)
Proceeds from sales of marketable securities, long-term investments and other assets	3			3
Other long-term assets	29			(2		)
Other items, net	2			2
Net cash used in investing activities	(104		)	(136		)
Cash flows from financing activities:
Repayments of borrowings under credit facility	(200		)	(455		)
Proceeds from borrowing under credit facility	220			658
Repayments of other borrowings	(899		)	(4		)
Proceeds from other borrowings	850			0
Repurchases of common stock	(100		)	(26		)
Cash dividends on preferred stock	0			(6		)
Deferred debt issuance costs	(15		)	0
Distributions paid to noncontrolling interests	(6		)	(3		)
Proceeds from exercise of stock options	15			2
Other items, net	2			3
Net cash provided by (used in) financing activities	(133		)	169
Net decrease in cash and cash equivalents	(269		)	(9		)
Cash and cash equivalents at beginning of period	364			113
Cash and cash equivalents at end of period	$	95		$	104
Supplemental disclosures:
Interest paid, net of capitalized interest	$	(125	)	$	(102	)
Income tax refunds (payments), net	$	3		$	(2	)

See accompanying Notes to Condensed Consolidated Financial Statements.

Table of Contents

TENET HEALTHCARE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. BASIS OF PRESENTATION

Description of Business

Tenet Healthcare Corporation (together with our subsidiaries, referred to herein as “Tenet,” the “Company,” “we” or “us”) is an investor-owned health care services company whose subsidiaries and affiliates as of March 31, 2013 primarily operated 49 hospitals with a total of 13,180 licensed beds, 122 outpatient centers and Conifer Health Solutions (“Conifer”), which provides business process solutions to more than 600 hospital and other clients nationwide.

Basis of Presentation

This quarterly report supplements our Annual Report on Form 10-K for the year ended December 31, 2012 (“Annual Report”). As permitted by the Securities and Exchange Commission (“SEC”) for interim reporting, we have omitted certain notes and disclosures that substantially duplicate those in our Annual Report. For further information, refer to the audited Consolidated Financial Statements and notes included in our Annual Report. Unless otherwise indicated, all financial and statistical data included in these notes to our Condensed Consolidated Financial Statements relate to our continuing operations, with dollar amounts expressed in millions (except per-share amounts). All amounts related to shares, share prices and earnings per share have been restated to give retrospective presentation for the reverse stock split described in Note 2 of our Annual Report. Certain balances in the accompanying Condensed Consolidated Financial Statements and these notes have been reclassified to give retrospective presentation for the discontinued operations described in Note 3. Furthermore, certain prior-year amounts have been reclassified to conform to the current-year presentation.

Although the Condensed Consolidated Financial Statements and related notes within this document are unaudited, we believe all adjustments considered necessary for a fair presentation have been included and are of a normal recurring nature. In preparing our financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”), we must use estimates and assumptions that affect the amounts reported in our Condensed Consolidated Financial Statements and these accompanying notes. We regularly evaluate the accounting policies and estimates we use. In general, we base the estimates on historical experience and on assumptions that we believe to be reasonable given the particular circumstances in which we operate. Actual results may vary from those estimates. Financial and statistical information we report to other regulatory agencies may be prepared on a basis other than GAAP or using different assumptions or reporting periods and, therefore, may vary from amounts presented herein. Although we make every effort to ensure that the information we report to those agencies is accurate, complete and consistent with applicable reporting guidelines, we cannot be responsible for the accuracy of the information they make available to the public.

Operating results for the three month period ended March 31, 2013 are not necessarily indicative of the results that may be expected for the full year. Reasons for this include, but are not limited to: overall revenue and cost trends, particularly the timing and magnitude of price changes; fluctuations in contractual allowances and cost report settlements and valuation allowances; managed care contract negotiations, settlements or terminations and payer consolidations; changes in Medicare and Medicaid regulations; Medicaid funding levels set by the states in which we operate; the timing of approval by the Centers for Medicare and Medicaid Services (“CMS”) of Medicaid provider fee revenue programs; trends in patient accounts receivable collectability and associated provisions for doubtful accounts; fluctuations in interest rates; levels of malpractice insurance expense and settlement trends; the timing of when we meet the criteria to recognize electronic health record incentives; impairment of long-lived assets and goodwill; restructuring charges; acquisition-related costs; losses, costs and insurance recoveries related to natural disasters; litigation and investigation costs; acquisitions and dispositions of facilities and other assets; income tax rates and deferred tax asset valuation allowance activity; changes in estimates of accruals for annual incentive compensation; the timing and amounts of stock option and restricted stock unit grants to employees and directors; gains or losses from early extinguishment of debt; and changes in occupancy levels and patient volumes. Factors that affect patient volumes and, thereby, the results of operations at our hospitals and related health care facilities include, but are not limited to: the business environment, economic conditions and demographics of local communities; the number of uninsured and underinsured individuals in local communities treated at our hospitals; seasonal cycles of illness; climate and weather conditions; physician recruitment, retention and attrition; advances in technology and treatments that reduce length of stay; local health care competitors; managed care contract negotiations or terminations; any unfavorable publicity about us, which impacts our relationships with physicians and patients; changes in health care regulations and the participation of individual states in federal programs; and the timing of elective procedures. These considerations apply to year-to-year comparisons as well.

Table of Contents

Net Operating Revenues Before Provision for Doubtful Accounts

We recognize net operating revenues before provision for doubtful accounts in the period in which our services are performed. Net operating revenues before provision for doubtful accounts primarily consist of net patient service revenues that are recorded based on established billing rates (i.e., gross charges), less estimated discounts for contractual and other allowances, principally for patients covered by Medicare, Medicaid, managed care and other health plans, as well as certain uninsured patients under our Compact with Uninsured Patients (“Compact”).

The table below shows the sources of net operating revenues before provision for doubtful accounts:

	Three Months Ended March 31,
	2013		2012
General Hospitals:
Medicare	$	540	$	629
Medicaid	188		177
Managed care	1,361		1,326
Indemnity, self-pay and other	260		241
Acute care hospitals — other revenue	28		24
Other:
Other operations	217		94
Net operating revenues before provision for doubtful accounts	$	2,594	$	2,491

Cash and Cash Equivalents

We treat highly liquid investments with original maturities of three months or less as cash equivalents. Cash and cash equivalents were approximately $95 million and $364 million at March 31, 2013 and December 31, 2012, respectively. As of March 31, 2013 and December 31, 2012, our book overdrafts were approximately $198 million and $232 million, respectively, which were classified as accounts payable.

At March 31, 2013 and December 31, 2012, approximately $78 million and $65 million, respectively, of total cash and cash equivalents in the accompanying Condensed Consolidated Balance Sheets were intended for the operations of our captive insurance subsidiaries.

Also at March 31, 2013 and December 31, 2012, we had $51 million and $98 million, respectively, of property and equipment purchases accrued for items received but not yet paid. Of these amounts, $39 million and $93 million, respectively, were included in accounts payable.

During the three months ended March 31, 2013 and 2012, we entered into non-cancellable capital leases of approximately $31 million and $17 million, respectively, primarily for equipment.

Other Intangible Assets

The following table provides information regarding other intangible assets, which are included in the accompanying Condensed Consolidated Balance Sheets as of March 31, 2013 and December 31, 2012:

	Gross Carrying Amount		Accumulated Amortization			Net Book Value
March 31, 2013:
Capitalized software costs	$	950	$	(418	)	$	532
Long-term debt issuance costs	109		(25		)	84
Other	58		(4		)	54
Total	$	1,117	$	(447	)	$	670

December 31, 2012:
Capitalized software costs	$	927	$	(399	)	$	528
Long-term debt issuance costs	106		(25		)	81
Other	43		(2		)	41
Total	$	1,076	$	(426	)	$	650

Table of Contents

Estimated future amortization of intangibles with finite useful lives as of March 31, 2013 is as follows:

			Years Ending December 31,										Later
	Total		2013		2014		2015		2016		2017		Years
Amortization of intangible assets	$	670	$	86	$	94	$	78	$	71	$	57	$	284

NOTE 2. ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

The principal components of accounts receivable are shown in the table below:

	March 31,			December 31,
	2013			2012
Continuing operations:
Patient accounts receivable	$	1,733		$	1,668
Allowance for doubtful accounts	(406		)	(396		)
Estimated future recoveries from accounts assigned to our Conifer subsidiary	91			88
Net cost reports and settlements payable and valuation allowances	(39		)	(24		)
	1,379			1,336
Discontinued operations:
Patient accounts receivable	5			11
Allowance for doubtful accounts	(1		)	(5		)
Estimated future recoveries from accounts assigned to our Conifer subsidiary	1			2
Net cost reports and settlements receivable (payable) and valuation allowances	(1		)	1
	4			9
Accounts receivable, net	$	1,383		$	1,345

Our self-pay collection rate, which is the blended collection rate for uninsured and balance after insurance accounts receivable, was approximately 28.8% and 28.9% as of March 31, 2013 and December 31, 2012, respectively. These self-pay collection rates include payments made by patients, including co-payments and deductibles paid by patients with insurance. Our estimated collection rate from managed care payers was approximately 98.1% and 98.0% at March 31, 2013 and December 31, 2012, respectively. As of March 31, 2013 and December 31, 2012, our allowance for doubtful accounts for self-pay uninsured accounts was 88.3% and 87.3%, respectively, of our self-pay uninsured patient accounts receivable. As of March 31, 2013 and December 31, 2012, our allowance for doubtful accounts for self-pay balance after insurance accounts was 55.4% and 54.5%, respectively, of our self-pay balance after insurance patient accounts receivable, consisting primarily of co-payments and deductibles owed by patients with insurance. Our self-pay write-offs, including uninsured and balance after insurance accounts, decreased approximately $9 million from $227 million in the three months ended March 31, 2012 to $218 million in the three months ended March 31, 2013 primarily due to a decrease in patient account assignments to our Conifer subsidiary. The increase in provision for doubtful accounts primarily related to the increase in uninsured patient revenues and higher insurance co-payments and deductibles in the three months ended March 31, 2013 compared to the three months ended March 31, 2012, partially offset by the impact of a 90 basis point improvement in our collection rate on self-pay accounts. As of both March 31, 2013 and December 31, 2012, our allowance for doubtful accounts for managed care accounts was 9.4% of our managed care patient accounts receivable.

The estimated costs (based on selected operating expenses, which include salaries, wages and benefits, supplies and other operating expenses) of caring for our self-pay patients for the three months ended March 31, 2013 and 2012 were approximately $104 million and $105 million, respectively. Our estimated costs (based on the selected operating expenses described above) of caring for charity care patients for the three months ended March 31, 2013 and 2012 were $32 million and $31 million, respectively. Most states include an estimate of the cost of charity care in the determination of a hospital’s eligibility for Medicaid disproportionate share hospital (“DSH”) payments. Revenues attributable to DSH payments and other state-funded subsidy payments for the three months ended March 31, 2013 and 2012 were approximately $67 million and $45 million, respectively. These payments are intended to mitigate our cost of uncompensated care, as well as reduced Medicaid funding levels.

Table of Contents

NOTE 3. DISCONTINUED OPERATIONS

In the three months ended June 30, 2012, our Creighton University Medical Center hospital (“CUMC”) in Nebraska was reclassified into discontinued operations based on the guidance in the Financial Accounting Standards Board’s Accounting Standards Codification (“ASC”) 360, “Property, Plant and Equipment,” as a result of our plan to sell CUMC, which sale was completed in August 2012. In May 2012, we completed the sale of Diagnostic Imaging Services, Inc. (“DIS”), our former diagnostic imaging center business in Louisiana. As a result of the sale, DIS was reclassified into discontinued operations in the three months ended June 30, 2012.

Net operating revenues and income (loss) before income taxes reported in discontinued operations are as follows:

	Three Months Ended March 31,
	2013			2012
Net operating revenues	$	3		$	56
Income (loss) before income taxes	(3		)	2

Should we dispose of additional hospitals or other assets in the future, we may incur additional asset impairment and restructuring charges in future periods.

NOTE 4. IMPAIRMENT AND RESTRUCTURING CHARGES, AND ACQUISITION-RELATED COSTS

During the three months ended March 31, 2013, we recorded impairment and restructuring charges and acquisition-related costs of $14 million, consisting of $7 million of restructuring costs, $2 million of employee severance costs, $1 million of lease termination costs, and $4 million in acquisition-related costs.

During the three months ended March 31, 2012, we recorded impairment and restructuring charges and acquisition-related costs of $3 million relating to the impairment of obsolete assets.

Our impairment tests presume stable, improving or, in some cases, declining results in our hospitals, which are based on programs and initiatives being implemented that are designed to achieve the hospital’s most recent projections. If these projections are not met, or if in the future negative trends occur that impact our future outlook, impairments of long-lived assets and goodwill may occur, and we may incur additional restructuring charges, which could be material.

As of March 31, 2013, our continuing operations consisted of two operating segments, our Conifer subsidiary and our hospital and other operations. Our hospital and other operations are structured as follows:

· Our California region included all of our hospitals in California;

· Our Central region included all of our hospitals in Missouri, Tennessee and Texas;

· Our Florida region included all of our hospitals in Florida; and

· Our Southern States region included all of our hospitals in Alabama, Georgia, North Carolina, Pennsylvania and South Carolina.

These regions are reporting units used to perform our goodwill impairment analysis and are one level below our hospital operations reportable business segment level.

The tables below are reconciliations of beginning and ending liability balances in connection with restructuring charges recorded during the three months ended March 31, 2013 and 2012 in continuing and discontinued operations:

	Balances at Beginning of Period		Restructuring Charges, Net		Cash Payments			Other			Balances at End of Period
Three Months Ended March 31, 2013
Continuing operations:
Lease and other costs, and employee severance-related costs in connection with hospital cost-control programs and general overhead-reduction plans	$	8	$	10	$	(6	)	$	(2	)	$	10
Discontinued operations:
Employee severance-related costs, and other estimated costs associated with the sale or closure of hospitals and other facilities	4		0		0			0			4
	$	12	$	10	$	(6	)	$	(2	)	$	14

Table of Contents

	Balances at Beginning of Period		Restructuring Charges, Net		Cash Payments			Other			Balances at End of Period
Three Months Ended March 31, 2012
Continuing operations:
Lease and other costs, and employee severance-related costs in connection with hospital cost-control programs and general overhead-reduction plans	$	6	$	0	$	(1	)	$	(0	)	$	5
Discontinued operations:
Employee severance-related costs, and other estimated costs associated with the sale or closure of hospitals and other facilities	5		0		0			0			5
	$	11	$	0	$	(1	)	$	(0	)	$	10

The above liability balances at March 31, 2013 are included in other current liabilities and other long-term liabilities in the accompanying Condensed Consolidated Balance Sheets. Cash payments to be applied against these accruals at March 31, 2013 are expected to be approximately $9 million in 2013 and $5 million thereafter. The column labeled “Other” above represents charges recorded in restructuring expense that are not recorded in the liability account, such as the acceleration of stock-based compensation expense related to severance agreements.

NOTE 5. LONG-TERM DEBT AND LEASE OBLIGATIONS

The table below shows our long-term debt as of March 31, 2013 and December 31, 2012:

	March 31,			December 31,
	2013			2012
Senior notes:
73¤8%, due 2013	$	0		$	55
97¤8%, due 2014	60			60
91¤4%, due 2015	474			474
63¤4%, due 2020	300			300
8%, due 2020	750			750
67¤8%, due 2031	430			430
Senior secured notes:
61¤4%, due 2018	1,041			1,041
10%, due 2018	0			714
87/8%, due 2019	925			925
43/4%, due 2020	500			500
41/2%, due 2021	850			0
Credit facility due 2016	20			0
Capital leases and mortgage notes	140			119
Unamortized note discounts and premium	(63		)	(116		)
Total long-term debt	5,427			5,252
Less current portion	52			94
Long-term debt, net of current portion	$	5,375		$	5,158

Credit Agreement

We have a senior secured revolving credit facility, as amended November 29, 2011 (“Credit Agreement”), that provides, subject to borrowing availability, for revolving loans in an aggregate principal amount of up to $800 million, with a $300 million subfacility for standby letters of credit. The Credit Agreement has a scheduled maturity date of November 29, 2016, subject to our repayment or refinancing on or before December 3, 2014 of approximately $238 million of the aggregate outstanding principal amount of our 91/4% senior notes due 2015 (approximately $474 million of which was outstanding at March 31, 2013). If such repayment or refinancing does not occur, borrowings under the Credit Agreement will be due December 3, 2014. The revolving credit facility is collateralized by patient accounts receivable of all of our wholly owned acute care and specialty hospitals. In addition, borrowings under the Credit Agreement are guaranteed by our wholly owned hospital subsidiaries. Outstanding revolving loans accrued interest during a six-month initial period that ended in May 2012 at the rate of either (i) a base rate plus a margin of 1.25% or (ii) the London Interbank Offered Rate (“LIBOR”) plus a

Table of Contents

margin of 2.25% per annum. Outstanding revolving loans now accrue interest at a base rate plus a margin ranging from 1.00% to 1.50% or LIBOR plus a margin ranging from 2.00% to 2.50% per annum based on available credit. An unused commitment fee was payable on the undrawn portion of the revolving loans at a six-month initial rate that ended in May 2012 of 0.438% per annum. The unused commitment fee now ranges from 0.375% to 0.500% per annum based on available credit. Our borrowing availability is based on a specified percentage of eligible accounts receivable, including self-pay accounts. At March 31, 2013, we had $20 million of cash borrowings outstanding under the revolving credit facility subject to an interest rate of 2.18%, and we had approximately $152 million of standby letters of credit outstanding. Based on our eligible receivables, approximately $628 million was available for borrowing under the revolving credit facility at March 31, 2013.

Senior Secured Notes

In February 2013, we sold $850 million aggregate principal amount of 41¤2% senior secured notes, which will mature on April 1, 2021. We will pay interest on the 41¤2% senior secured notes semi-annually in arrears on April 1 and October 1 of each year, commencing on October 1, 2013. We used a portion of the proceeds from the sale of the notes to purchase approximately $645 million aggregate principal amount outstanding of our 10% senior secured notes due 2018 in a tender offer and to call approximately $69 million of the remaining aggregate principal amount outstanding of those notes. In connection with the purchase, we recorded a loss from early extinguishment of debt of $177 million, primarily related to the difference between the purchase prices and the par values of the purchased notes, as well as the write-off of unamortized note discounts and issuance costs. The remaining net proceeds were used for general corporate purposes, including the repayment of borrowings under our senior secured revolving credit facility.

NOTE 6. GUARANTEES

At March 31, 2013, the maximum potential amount of future payments under our income guarantees to certain physicians who agree to relocate and revenue collection guarantees to hospital-based physician groups providing certain services at our hospitals was $109 million. We had a liability of $74 million recorded for these guarantees included in other current liabilities at March 31, 2013.

We have also guaranteed minimum rent revenue to certain landlords who built medical office buildings on or near our hospital campuses. The maximum potential amount of future payments under these guarantees at March 31, 2013 was $4 million. We had a liability of $2 million recorded for these guarantees at March 31, 2013, of which $1 million was included in other current liabilities and $1 million was included in other long-term liabilities.

NOTE 7. EMPLOYEE BENEFIT PLANS

At March 31, 2013, approximately 2.6 million shares of common stock were available under our 2008 Stock Incentive Plan for future stock option grants and other incentive awards, including restricted stock units. Options have an exercise price equal to the fair market value of the shares on the date of grant and generally expire 10 years from the date of grant. A restricted stock unit is a contractual right to receive one share of our common stock or the equivalent value in cash in the future. Options and restricted stock units typically vest one-third on each of the first three anniversary dates of the grant; however, from time to time, we grant (i) options and stock units with different time-based vesting terms, and (ii) performance-based options and restricted stock units that vest subject to the achievement of specified performance goals within a specified timeframe.

Our income from continuing operations for the three months ended March 31, 2013 and 2012 includes $13 million and $8 million, respectively, of pre-tax compensation costs related to our stock-based compensation arrangements.

Stock Options

The following table summarizes stock option activity during the three months ended March 31, 2013:

	Options		Weighted Average Exercise Price Per Share		Aggregate Intrinsic Value		Weighted Average Remaining Life
					(In Millions)
Outstanding as of December 31, 2012	4,289,192		$	30.49
Granted	295,639		39.31
Exercised	(654,264	)	23.36
Forfeited/Expired	(94,749	)	64.82
Outstanding as of March 31, 2013	3,835,818		$	31.53	$	64	3.9 years
Vested and expected to vest at March 31, 2013	3,814,640		$	31.51	$	64	3.9 years
Exercisable as of March 31, 2013	3,247,003		$	31.60	$	54	3.4 years

Table of Contents

There were 654,264 stock options exercised during the three months ended March 31, 2013 with an $11 million aggregate intrinsic value, and 602,495 stock options exercised during the same period in 2012 with a $9 million aggregate intrinsic value.

As of March 31, 2013, there were $7 million of total unrecognized compensation costs related to stock options. These costs are expected to be recognized over a weighted average period of 2.4 years.

In the three months ended March 31, 2013, we granted an aggregate of 295,639 stock options under our 2008 Stock Incentive Plan to certain of our senior officers. These stock options will all vest on the third anniversary of the grant date, subject to the terms of the Plan, and will expire on the fifth anniversary of the grant date. In the three months ended March 31, 2012, we granted an aggregate of 440,000 stock options under our 2008 Stock Incentive Plan to certain of our senior officers. Half of these stock options are subject to time-vesting and the remainder were granted subject to performance-based vesting. Because all conditions were met, the performance-based options will vest and be settled ratably over a three-year period from the grant date.

The weighted average estimated fair value of stock options we granted in the three months ended March 31, 2013 was $14.46 per share. The weighted average estimated fair value of stock options we granted in the three months ended March 31, 2012 was $11.96 per share. These fair values were calculated based on each grant date, using a binomial lattice model with the following assumptions:

	Three Months Ended March 31,
	2013	2012
Expected volatility	50%	52%
Expected dividend yield	0%	0%
Expected life	3.6 years	6.9 years
Expected forfeiture rate	6%	2%
Risk-free interest rate	0.48%	1.41%
Early exercise threshold	100% gain	70% gain
Early exercise rate	50% per year	20% per year

The expected volatility used in the binomial lattice model incorporated historical and implied share-price volatility and was based on an analysis of historical prices of our stock and open-market exchanged options. The expected volatility reflects the historical volatility for a duration consistent with the contractual life of the options, and the volatility implied by the trading of options to purchase our stock on open-market exchanges. The historical share-price volatility excludes the movements in our stock price on two dates (one in 2010 and one in 2011) with unusual volatility due to an unsolicited acquisition proposal. The expected life of options granted is derived from the output of the binomial lattice model and represents the period of time that the options are expected to be outstanding. This model incorporates an early exercise assumption in the event of a significant increase in stock price. The risk-free interest rates are based on zero-coupon United States Treasury yields in effect at the date of grant consistent with the expected exercise timeframes.

The following table summarizes information about our outstanding stock options at March 31, 2013:

	Options Outstanding				Options Exercisable
		Weighted Average
	Number of	Remaining	Weighted Average		Number of	Weighted Average
Range of Exercise Prices	Options	Contractual Life	Exercise Price		Options	Exercise Price
$ 0.00 to $4.569	463,467	5.9 years	$	4.56	463,467	$	4.56
$ 4.57 to $25.089	1,060,965	6.7 years	20.87		767,789	20.08
$ 25.09 to $32.569	543,959	3.3 years	29.74		543,959	29.74
$ 32.57 to $42.529	933,376	2.8 years	41.25		637,737	42.15
$ 42.53 to $55.129	698,801	0.9 years	48.44		698,801	48.44
$ 55.13 to $70.249	135,250	0.5 years	60.47		135,250	60.47
	3,835,818	3.9 years	$	31.53	3,247,003	$	31.60

Table of Contents

Restricted Stock Units

The following table summarizes restricted stock unit activity during the three months ended March 31, 2013:

	Restricted Stock Units		Weighted Average Grant Date Fair Value Per Unit
Unvested as of December 31, 2012	2,295,942		$	23.40
Granted	976,612		39.31
Vested	(864,174	)	23.37
Forfeited	(9,888	)	23.71
Unvested as of March 31, 2013	2,398,492		$	29.89

In the three months ended March 31, 2013, we granted 770,554 restricted stock units subject to time-vesting, of which 690,421 will vest and be settled ratably over a three-year period from the date of the grant and 80,133 will vest 100% on the fifth anniversary of the grant date. In addition, we granted 206,058 performance-based restricted stock units to certain of our senior officers. If all conditions are met, the performance-based restricted stock units will vest and be settled ratably over a three-year period from the grant date. In the three months ended March 31, 2012, we granted 1,164,375 restricted units subject to time-vesting. In addition, we granted 116,250 performance-based restricted stock units to certain of our senior officers. Because all conditions were met, the performance-based restricted stock units will vest and be settled ratably over a three-year period from the grant date.

As of March 31, 2013, there were $61 million of total unrecognized compensation costs related to restricted stock units. These costs are expected to be recognized over a weighted average period of 2.5 years.

NOTE 8. EQUITY

Mandatory Convertible Preferred Stock

In April 2012, we repurchased and subsequently retired 298,700 shares of our 7% mandatory convertible preferred stock with a carrying value of $289 million. In a related private financing, we issued an additional $141 million aggregate principal amount of our 61/4% senior secured notes due 2018 at a premium for $142 million of cash proceeds and an additional $150 million aggregate principal amount of our 8% senior notes due 2020. On October 1, 2012, the remaining 46,300 shares outstanding of our mandatory convertible preferred stock automatically converted to 1,978,633 shares of our common stock.

Share Repurchase Program

In October 2012, we announced that our board of directors had authorized the repurchase of up to $500 million of our common stock through a share repurchase program expiring in December 2013. Under the program, shares may be purchased in the open market or through privately negotiated transactions in a manner consistent with applicable securities laws and regulations, including pursuant to a Rule 10b5-1 plan maintained by the Company. Shares will be repurchased at times and in amounts based on market conditions and other factors. Pursuant to the share repurchase program, we paid approximately $200 million to repurchase a total of 5,860,730 shares during the period from the commencement of the program through March 31, 2013.

Period	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Program	Maximum Dollar Value of Shares That May Yet Be Purchased Under the Program
	(In Thousands)			(In Thousands)	(In Millions)
November 1, 2012 through December 31, 2012	3,406	$	29.36	3,406	$	400
January 1, 2013 through January 31, 2013	531	37.13		531	380
February 1, 2013 through February 28, 2013	914	39.30		914	344
March 1, 2013 through March 31, 2013	1,010	43.95		1,010	300
Total	5,861	$	34.12	5,861	$	300

Repurchased shares are recorded based on settlement date and are held as treasury stock.

Table of Contents

Changes in Shareholders’ Equity

The following table shows the changes in consolidated equity during the three months ended March 31, 2013 and 2012 (dollars in millions, share amounts in thousands):

	Tenet Healthcare Corporation Shareholders’ Equity
											Accumulated
	Preferred Stock			Common Stock				Additional			Other
	Shares	Issued		Shares		Issued Par		Paid-in			Comprehensive			Accumulated			Treasury			Noncontrolling			Total
	Outstanding	Amount		Outstanding		Amount		Capital			Loss			Deficit			Stock			Interests			Equity
Balances at December 31, 2012	0	$	0	104,633		$	7	$	4,471		$	(68	)	$	(1,288	)	$	(1,979	)	$	75		$	1,218
Net income (loss)	0	0		0		0		0			0			(88		)	0			5			(83		)
Distributions paid to noncontrolling interests	0	0		0		0		0			0			0			0			(6		)	(6		)
Purchase of businesses or joint venture interests	0	0		0		0		0			0			0			0			3			3
Repurchase of common stock	0	0		(2,455	)	0		0			0			0			(100		)	0			(100		)
Stock-based compensation expense and issuance of common stock	0	0		1,248		0		13			0			0			1			0			14
Balances at March 31, 2013	0	$	0	103,426		$	7	$	4,484		$	(68	)	$	(1,376	)	$	(2,078	)	$	77		$	1,046

Balances at December 31, 2011	345,000	$	334	103,756		$	7	$	4,427		$	(52	)	$	(1,440	)	$	(1,853	)	$	69		$	1,492
Net income	0	0		0		0		0			0			64			0			3			67
Distributions paid to noncontrolling interests	0	0		0		0		0			0			0			0			(3		)	(3		)
Contribution from noncontrolling interests	0	0		0		0		0			0			0			0			2			2
Other comprehensive income	0	0		0		0		0			3			0			0			0			3
Preferred stock dividends	0	0		0		0		(6		)	0			0			0			0			(6		)
Repurchase of common stock	0	0		(1,327	)	0		0			0			0			(26		)	0			(26		)
Stock-based compensation expense and issuance of common stock	0	0		954		0		2			0			0			0			0			2
Balances at March 31, 2012	345,000	$	334	103,383		$	7	$	4,423		$	(49	)	$	(1,376	)	$	(1,879	)	$	71		$	1,531

NOTE 9. PROPERTY AND PROFESSIONAL AND GENERAL LIABILITY INSURANCE

Property Insurance

We have property, business interruption and related insurance coverage to mitigate the financial impact of catastrophic events or perils that is subject to deductible provisions based on the terms of the policies. These policies are on an occurrence basis. For the annual policy periods April 1, 2010 through March 31, 2014, we have coverage totaling $600 million per occurrence, after deductibles and exclusions, with annual aggregate sub-limits of $100 million each for floods and earthquakes and a per-occurrence sub-limit of $100 million for windstorms with no annual aggregate. With respect to fires and other perils, excluding floods, earthquakes and windstorms, the total $600 million limit of coverage per occurrence applies. Deductibles are 5% of insured values up to a maximum of $25 million for floods, California earthquakes and wind-related claims, and 2% of insured values for New Madrid fault earthquakes, with a maximum per claim deductible of $25 million. Other covered losses, including fires and other perils, have a minimum deductible of $1 million.

Professional and General Liability Insurance

At March 31, 2013 and December 31, 2012, the aggregate current and long-term professional and general liability reserves in our accompanying Condensed Consolidated Balance Sheets were approximately $347 million and $356 million, respectively. These reserves include the reserves recorded by our captive insurance subsidiaries and our self-insured retention reserves recorded based on actuarial estimates for the portion of our professional and general liability risks, including incurred

Table of Contents

but not reported claims, for which we do not have insurance coverage. We estimated the reserves for losses and related expenses using expected loss-reporting patterns discounted to their present value under a risk-free rate approach using a Federal Reserve seven-year maturity rate of 1.24% and 1.18% at March 31, 2013 and December 31, 2012, respectively.

For the policy period June 1, 2012 through May 31, 2013, our hospitals generally have a self-insurance retention of $5 million per occurrence for all claims incurred. Our captive insurance company, The Healthcare Insurance Corporation (“THINC”), retains $10 million per occurrence coverage above our hospitals’ $5 million self-insurance retention level. The next $10 million of claims in excess of these aggregate self-insurance retentions of $15 million per occurrence are 80% reinsured by THINC with independent reinsurance companies, with THINC retaining 20% or a maximum of $2 million. Claims in excess of $25 million are covered by our excess professional and general liability insurance policies with major independent insurance companies, on a claims-made basis, subject to an aggregate limit of $175 million.

If the aggregate limit of any of our excess professional and general liability policies is exhausted, in whole or in part, it could deplete or reduce the excess limits available to pay any other material claims applicable to that policy period.

Included in other operating expenses, net, in the accompanying Condensed Consolidated Statements of Operations is malpractice expense of $26 million and $28 million for the three months ended March 31, 2013 and 2012, respectively.

NOTE 10. CLAIMS AND LAWSUITS

We operate in a highly regulated and litigious industry. As a result, various lawsuits, claims, and legal and regulatory proceedings have been and can be expected to continue to be instituted or asserted against us. The resolution of any of these matters could have a material adverse effect on our results of operations, financial condition or cash flows in a given period.

In accordance with ASC 450, “Contingencies,” and related guidance, we record accruals for estimated losses relating to claims and lawsuits when available information indicates that a loss is probable and the amount of the loss, or range of loss, can be reasonably estimated. Where a loss on a material matter is reasonably possible and estimable, we disclose an estimate of the loss or a range of loss. In cases where we have not disclosed an estimate, we have concluded that the loss is either not reasonably possible or the loss, or a range of loss, is not reasonably estimable, based on available information.

1. Governmental Reviews—Health care companies are subject to numerous investigations by various governmental agencies. Further, private parties have the right to bring qui tam or “whistleblower” lawsuits against companies that allegedly submit false claims for payments to, or improperly retain overpayments from, the government and, in some states, private payers. Certain of our individual facilities have received inquiries from government agencies, and our facilities may receive such inquiries in future periods. The following material governmental reviews are currently pending.

· Review of Billing Practices for Kyphoplasty Procedures. The U.S. Department of Justice (“DOJ”), in coordination with the Office of Inspector General (“OIG”) of the U.S. Department of Health and Human Services has contacted a number of hospitals nationwide requesting information regarding their billing practices in connection with kyphoplasty procedures. More specifically, the government is investigating the appropriateness of Medicare patients receiving kyphoplasty — which is a minimally invasive spinal procedure used to treat vertebral compression fractures — on an inpatient as opposed to an outpatient basis. In March 2009, one of our hospitals received an information request from the DOJ regarding these procedures and, in July 2010, we were notified that six additional hospitals were also under review. Following a chart review by our external clinical expert and non-binding discussions with the government, we entered into an agreement with the DOJ in January 2013 for approximately $900,000 (which was previously reserved) to settle claims relating to the first hospital to receive an information request. In September 2012, we reached agreement with the DOJ on the appropriate methodology to review the billing practices of a second hospital, and our expert has completed the chart review for that hospital. As a result, in the three months ended December 31, 2012, management established a reserve, as described below, to reflect the current estimate of probable liability for that second hospital. We are unable to calculate an estimate of loss or range of loss with respect to the five remaining hospitals under review because (i) our external clinical expert has not completed its review of the billing practices of three of those hospitals and (ii) we have not reached agreement with the DOJ on the appropriate review methodology with respect to the remaining two hospitals.

· Review of Billing Practices for Cardiac Defibrillator Implantation Procedures. The DOJ has contacted a number of hospitals nationwide requesting information regarding their Medicare billing practices in connection with the implantation of cardiac defibrillators. As previously reported, in March 2010, the DOJ issued a civil investigative demand to one of our hospitals pursuant to the federal False Claims Act seeking information to determine if procedures to implant cardiac defibrillators at that hospital from 2002 to 2010 were performed in accordance with Medicare coverage requirements. Also as previously reported, in

Table of Contents

September 2010, the DOJ notified us that its review may extend to billing procedures at 32 of our other hospitals in addition to the hospital that received the original information request. The number of hospitals under review may increase or decrease depending on the timeframe of the government’s examination. The parties are currently engaged in discussions regarding a resolution of any potential liability associated with claims submitted to Medicare for the implantation of cardiac defibrillators during the relevant period, but it is impossible at this time to predict the outcome of those discussions or the amount of any potential resolution.

· Review of Arrangements with Local Service Provider. We received a subpoena from the OIG in Atlanta seeking documents from January 2004 through May 2012 related to the relationship that Atlanta Medical Center, North Fulton Regional Hospital, South Fulton Medical Center (now known as Atlanta Medical Center — South Campus) and Spalding Regional Hospital (all located in Georgia) and Hilton Head Hospital (located in South Carolina) had with Hispanic Medical Management, Inc. (“HMM”). HMM is an unaffiliated entity that owns and operates clinics that provide, among other things, prenatal care predominantly to Hispanic women. The hospitals contracted with HMM for translation, marketing and Medicaid eligibility determination services. The investigation, which is being conducted by the U.S. Attorney’s Office for the Middle District of Georgia, the U.S. Attorney’s Office for the Northern District of Georgia and the DOJ, relates to HMM’s relationships with various hospitals. We understand the government’s review focuses on whether the arrangements violated the federal Anti-kickback Statute and False Claims Act. We have produced documents and information responsive to the subpoena and are cooperating with the government’s review. At this time, we are unable to determine the potential impact, if any, that will result from the final resolution of this investigation.

Except with respect to the recently settled matter involving one hospital discussed above, our analysis of these pending reviews is still ongoing, and we are unable to predict with any certainty the progress or final outcome of any discussions with government agencies at this time. Based on currently available information, as of March 31, 2013, we had recorded reserves of approximately $3 million in the aggregate with respect to three hospitals under review in the foregoing governmental proceedings. Changes in the reserves may be required in the future as additional information becomes available. We cannot predict the ultimate resolution of any governmental review, and the final amounts paid in settlement or otherwise, if any, could differ materially from our currently recorded reserves.

2. Hospital-Related Tort Claim—As previously reported, in May 2012, the Superior Court in Los Angeles County, California reduced punitive damages awarded in connection with an alleged April 2006 assault at Tarzana Regional Medical Center (a hospital we divested in 2008) from $65 million to $5 million. (The plaintiff was also previously awarded compensatory damages of approximately $2.4 million in the lawsuit — which is captioned Rosenberg v. Encino-Tarzana Regional Medical Center and Tenet Healthcare Corporation.) The plaintiff subsequently filed a motion seeking attorneys’ fees in the amount of $6 million; however, the judge instead awarded attorneys’ fees of $1.5 million. Both parties have filed notices appealing all aspects of the final judgment and have also agreed to attempt to resolve this matter through non-binding mediation, which we expect will take place during the three months ending September 30, 2013.

In the three months ended December 31, 2011, the Company recorded a reserve of approximately $6 million in discontinued operations for this matter. For purposes of computing the reserve, management estimated that the probable range of loss would be between approximately $6 million and $25 million (including approximately $1 million in attorneys’ fees) based on our expectation, after analysis of relevant case law, that a California court would apply U.S. Supreme Court opinions that generally limit, as a matter of constitutional law, the amount of a punitive award to be no more than a multiple of nine times the compensatory award and, in the case of a substantial compensatory award, to be no more than a multiple of one times that award. At that time, management concluded that no amount within this range is any more likely than any other; therefore, in accordance with ASC 450, the accrual was recorded at the low end of the estimated range.

Although we are unable to predict the ultimate resolution of this lawsuit at this time, we continue to believe that the current reserve, recorded at the low end of the estimated range, reflects our probable liability. We intend to continue to vigorously defend ourselves in this matter.

3. Ordinary Course Matters—Also, as previously reported, we are defendants in a class action lawsuit in which the plaintiffs claim that in April 1996 patient identifying records from a psychiatric hospital that we closed in 1995 were temporarily placed in an unsecure location while the hospital was undergoing renovations. The lawsuit, Doe, et al. v. Jo Ellen Smith Medical Foundation, was filed in the Civil District Court for the Parish of Orleans in Louisiana in March 1997 and is currently pending. The plaintiffs’ claims include allegations of tortious invasion of privacy and negligent infliction of emotional distress. The plaintiffs contend that the class consists of over 5,000 persons; however, only eight individuals have been identified to date in the class certification process. The plaintiffs have asserted each

Table of Contents

member of the class is entitled to common damages under a theory of presumed “common damage” regardless of whether or not any members of the class were actually harmed or even aware of the incident. We believe there is no authority for an award of common damages under Louisiana law. In addition, we believe that there is no basis for the certification of this proceeding as a class action under applicable federal and Louisiana law precedents. However, the trial court has denied our motions for summary judgment and our motion to decertify the class. In March 2012, the Louisiana Supreme Court denied our interlocutory appeal of the trial court’s decision on summary judgment based on procedural grounds, noting that we retain an adequate remedy to appeal any adverse judgment that might be rendered by the trial court. In April 2012, we filed a notice of appeal of the trial court’s denial of our motion to decertify the proceeding as a class action. The notice of appeal was granted, and the trial was stayed pending the outcome of the appeal. On April 24, 2013, the court of appeal affirmed the trial court’s denial of our motion to decertify the proceeding as a class action. We intend to seek review of the court of appeal’s decision by the Louisiana Supreme Court. The trial remains stayed. At this time, we are not able to estimate the reasonably possible loss or reasonably possible range of loss given: the small number of class members that have been identified or otherwise responded to the class certification process; the novel theories asserted by plaintiffs, including their assertion that a theory of presumed common damage exists under Louisiana law; uncertainties as to the timing and outcome of the appeals process; and the failure of the plaintiffs to provide any evidence of damages. We intend to vigorously contest the plaintiffs’ claims.

In addition to the matters described above, our hospitals are subject to investigations, claims and legal proceedings in the ordinary course of our business. Most of these matters involve allegations of medical malpractice or other injuries suffered at our hospitals. We are also party in the normal course of business to regulatory proceedings and private litigation concerning the terms of our union agreements and the application of various federal and state labor laws, rules and regulations governing, among other things, a variety of workplace wage and hour issues. Furthermore, our hospitals are routinely subject to sales and use tax audits and personal property tax audits by the state and local government jurisdictions in which they do business. The results of the audits are frequently disputed, and such disputes are ordinarily resolved by administrative appeals or litigation. It is management’s opinion that the ultimate resolution of these ordinary course investigations, claims and legal proceedings will not have a material adverse effect on our business, financial condition, results of operations or cash flows.

New claims or inquiries may be initiated against us from time to time. These matters could (1) require us to pay substantial damages or amounts in judgments or settlements, which individually or in the aggregate could exceed amounts, if any, that may be recovered under our insurance policies where coverage applies and is available, (2) cause us to incur substantial expenses, (3) require significant time and attention from our management, and (4) cause us to close or sell hospitals or otherwise modify the way we conduct business.

The table below presents reconciliations of the beginning and ending liability balances in connection with legal settlements and related costs recorded during the three months ended March 31, 2013 and 2012:

	Balances at Beginning of Period		Litigation and Investigation Costs		Cash Payments			Balances at End of Period
Three Months Ended March 31, 2013
Continuing operations	$	5	$	0	$	(1	)	$	4
Discontinued operations	5		0		0			5
	$	10	$	0	$	(1	)	$	9

Three Months Ended March 31, 2012
Continuing operations	$	49	$	2	$	(10	)	$	41
Discontinued operations	17		0		0			17
	$	66	$	2	$	(10	)	$	58

For the three months ended March 31, 2012, we recorded net litigation and investigation costs of $2 million, primarily related to costs associated with various legal proceedings and governmental reviews.

NOTE 11. INCOME TAXES

Income tax expense in the three months ended March 31, 2013 included expense of $0.3 million related to continuing operations attributable to an increase in our estimated liabilities for uncertain tax positions, net of related deferred tax effects. The total amount of unrecognized tax benefits as of March 31, 2013 was $32 million ($31 million related to continuing operations and $1 million related to discontinued operations), which, if recognized, would impact our effective tax rate and income tax expense (benefit) from continuing and discontinued operations.

Table of Contents

Our practice is to recognize interest and penalties related to income tax matters in income tax expense in our consolidated statements of operations. Approximately $0.2 million of interest and penalties related to accrued liabilities for uncertain tax positions related to continuing operations are included in the accompanying Condensed Consolidated Statement of Operations for the three months ended March 31, 2013. Total accrued interest and penalties on unrecognized tax benefits as of March 31, 2013 were $8 million, all of which related to continuing operations.

As of March 31, 2013, approximately $8 million of unrecognized federal and state tax benefits, as well as reserves for interest and penalties, may decrease in the next 12 months as a result of the settlement of audits, the filing of amended tax returns or the expiration of statutes of limitations.

NOTE 12. EARNINGS PER COMMON SHARE

The table below is a reconciliation of the numerators and denominators of our basic and diluted earnings per common share calculations for income from continuing operations for the three months ended March 31, 2013 and 2012. Income is expressed in millions and weighted average shares are expressed in thousands.

	Income (Numerator)			Weighted Average Shares (Denominator)	Per-Share Amount
Three Months Ended March 31, 2013
Loss to Tenet Healthcare Corporation common shareholders for basic earnings per share	$	(86	)	104,103	$	(0.83	)
Effect of dilutive stock options and restricted stock units	0			0	0
Loss to Tenet Healthcare Corporation common shareholders for diluted earnings per share	$	(86	)	104,103	$	(0.83	)

Three Months Ended March 31, 2012
Income available to Tenet Healthcare Corporation common shareholders for basic earnings per share	$	57		102,843	$	0.55
Effect of dilutive stock options, restricted stock units and mandatory convertible preferred stock	6			18,375	(0.03		)
Income available to Tenet Healthcare Corporation common shareholders for diluted earnings per share	$	63		121,218	$	0.52

Stock options (in thousands) whose exercise price exceeded the average market price of our common stock and, therefore, were not included in the computation of diluted shares for the three months ended March 31, 2013 and 2012 were 1,472 and 3,829 shares, respectively.

NOTE 13. FAIR VALUE MEASUREMENTS

Our financial assets and liabilities recorded at fair value on a recurring basis primarily relate to investments in available-for-sale securities held by our captive insurance subsidiaries. The following tables present information about our assets and liabilities that are measured at fair value on a recurring basis as of March 31, 2013 and December 31, 2012. The following tables also indicate the fair value hierarchy of the valuation techniques we utilized to determine such fair values. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities. We consider a security that trades at least weekly to have an active market. Fair values determined by Level 2 inputs utilize data points that are observable, such as quoted prices, interest rates and yield curves. Fair values determined by Level 3 inputs are unobservable data points for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.

	March 31, 2013		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Investments:
Marketable securities — current	$	4	$	4	$	0	$	0
Investments in Reserve Yield Plus Fund	2		0		2		0
Marketable debt securities — noncurrent	13		0		12		1
	$	19	$	4	$	14	$	1

Table of Contents

Investments:	December 31, 2012		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Marketable securities — current	$	4	$	4	$	0	$	0
Investments in Reserve Yield Plus Fund	2		0		2		0
Marketable debt securities — noncurrent	14		2		11		1
	$	20	$	6	$	13	$	1

There was no change in the fair value of our auction rate securities valued using significant unobservable inputs during the three months ended March 31, 2013.

At March 31, 2013, one of our captive insurance subsidiaries held $1 million of preferred stock and other securities that were distributed from auction rate securities whose auctions have failed due to sell orders exceeding buy orders. We were not required to record an other-than-temporary impairment of these securities during the three months ended March 31, 2013 or 2012.

The fair value of our long-term debt is based on quoted market prices (Level 1). At March 31, 2013 and December 31, 2012, the estimated fair value of our long-term debt was approximately 106.7% and 108.2%, respectively, of the carrying value of the debt.

NOTE 14. ACQUISITIONS

During the three months ended March 31, 2013, we acquired three ambulatory surgery centers (in one of which we had previously held a noncontrolling interest) and various physician practice entities. The fair value of the consideration conveyed in the acquisitions (the “purchase price”) was $5 million.

We are required to allocate the purchase prices of the acquired businesses to assets acquired or liabilities assumed and, if applicable, noncontrolling interests based on their fair values. The excess of the purchase price allocation over those fair values is recorded as goodwill. We are in process of finalizing the purchase price allocations, including valuations of the acquired property and equipment, for several of the recently acquired outpatient centers; therefore, the purchase price allocations for those centers are subject to adjustment once the valuations are completed.

Purchase price allocations for the acquisitions made during the three months ended March 31, 2013 are as follows:

Current assets	$	1
Property and equipment	3
Goodwill	27
Current liabilities	(2		)
Long-term liabilities	(1		)
Redeemable noncontrolling interests in equity of consolidated subsidiaries	(10		)
Noncontrolling interests	(3		)
Net assets acquired	15
Total consideration paid	5
Gain on business combination	$	10

The goodwill generated from these transactions, the majority of which will not be deductible for income tax purposes, can be attributed to the benefits that we expect to realize from operating efficiencies and increased reimbursement. Approximately $4 million in acquisition-related costs for prospective and closed acquisitions were expensed during the three months ended March 31, 2013 and are included in impairment and restructuring charges, and acquisition-related costs in the Condensed Consolidated Statement of Operations.

Included in equity earnings of unconsolidated affiliates is $10 million of earnings associated with stepping up our basis in a previously held investment in an ambulatory surgery center in which we acquired a controlling interest and are now consolidating.

NOTE 15. SEGMENT INFORMATION

Our core business is Hospital Operations and other, which is focused on owning and operating acute care hospitals and outpatient facilities. We also own various related health care businesses. At March 31, 2013, our subsidiaries operated 49 hospitals with a total of 13,180 licensed beds, primarily serving urban and suburban communities, as well as 122 outpatient centers.

Table of Contents

We operate revenue cycle management and patient communications services businesses under our Conifer subsidiary. In addition, Conifer operates a management services business that supports value-based performance through clinical integration, financial risk management and population health management. At March 31, 2013, Conifer provided services to more than 600 Tenet and non-Tenet hospital and other clients nationwide.

The following table includes amounts for each of our reportable segments and the reconciling items necessary to agree to amounts reported in the accompanying Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Operations:

	March 31,		December 31,
	2013		2012
Assets:
Hospital Operations and other	$	8,683	$	8,825
Conifer	232		219
Total	$	8,915	$	9,044

	Three Months Ended
	March 31,
	2013			2012
Capital expenditures:
Hospital Operations and other	$	131		$	133
Conifer	2			3
Total	$	133		$	136

Net operating revenues:
Hospital Operations and other	$	2,268		$	2,285
Conifer
Tenet	92			90
Other customers	119			17
	2,479			2,392
Intercompany eliminations	(92		)	(90		)
Total	$	2,387		$	2,302

Adjusted EBITDA:
Hospital Operations and other	$	242		$	285
Conifer	32			25
Total	$	274		$	310

Depreciation and amortization:
Hospital Operations and other	$	110		$	98
Conifer	4			2
Total	$	114		$	100

Adjusted EBITDA	$	274		$	310
Depreciation and amortization	(114		)	(100		)
Impairment and restructuring charges, and acquisition-related costs	(14		)	(3		)
Litigation and investigation costs	0			(2		)
Interest expense	(103		)	(98		)
Loss from early extinguishment of debt	(177		)	0
Investment earnings	0			1
Income (loss) from continuing operations before income taxes	$	(134	)	$	108

Table of Contents

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

INTRODUCTION TO MANAGEMENT’S DISCUSSION AND ANALYSIS

The purpose of this section, Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), is to provide a narrative explanation of our financial statements that enables investors to better understand our business, to enhance our overall financial disclosures, to provide the context within which our financial information may be analyzed, and to provide information about the quality of, and potential variability of, our financial condition, results of operations and cash flows. Unless otherwise indicated, all financial and statistical information included herein relates to our continuing operations, with dollar amounts expressed in millions (except per share, per admission, per adjusted admission, per patient day, per adjusted patient day and per visit amounts). All current and prior period amounts related to shares, share prices and earnings per share have been restated to give retrospective presentation for the reverse stock split described in Note 2 to the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2012 (“Annual Report”). In the three months ended June 30, 2012, we began reporting Conifer Health Solutions (“Conifer”) as a separate reportable business segment. Our core business is Hospital Operations and other, which is focused on owning and operating acute care hospitals and outpatient facilities. We also operate revenue cycle management, patient communications services and management services businesses under our Conifer subsidiary. MD&A, which should be read in conjunction with the accompanying Condensed Consolidated Financial Statements, includes the following sections:

· Management Overview

· Forward-Looking Statements

· Sources of Revenue

· Results of Operations

· Liquidity and Capital Resources

· Off-Balance Sheet Arrangements

· Critical Accounting Estimates

MANAGEMENT OVERVIEW

STRATEGY AND TRENDS

We are committed to providing the communities our hospitals, outpatient centers and other health care facilities serve with high quality, cost-effective health care while growing our business, increasing our profitability and creating long-term value for our shareholders. We believe that our success in increasing our profitability depends in part on our success in executing the strategies and managing the trends discussed below.

Core Business Strategy—Our business is focused on providing high quality care to patients through our hospitals and outpatient centers, and providing business process solutions for health care providers through our Conifer business. With respect to our hospitals and outpatient facilities, we seek to offer superior quality and patient services to meet community needs, to make capital and other investments in our facilities and technology to remain competitive, to recruit and retain physicians, to expand our outpatient business, and to negotiate favorable contracts with managed care and other commercial payers. With respect to business process services, we provide comprehensive operational management for revenue cycle functions, including patient access, health information management, revenue integrity and patient financial services. We also offer patient communications solutions to optimize the relationship between providers and patients. In addition, our management services offerings have expanded to support value-based performance through clinical integration, financial risk management and population health management.

Development Strategies—We remain focused on opportunities to increase our hospital and outpatient revenues through organic growth and acquisitions, and to expand our Conifer business.

From time to time, we build new hospitals, make strategic acquisitions of hospitals and enter into joint venture arrangements or affiliations with health care businesses — in each case in markets where we believe our operating strategies can

Table of Contents

improve performance and create shareholder value. We recently signed a definitive agreement to acquire Emanuel Medical Center in Turlock, California. In addition, we are creating a joint venture partnership with John Muir Health, a not-for-profit integrated system of doctors, hospitals and other health care services in the San Francisco Bay area, through which John Muir Health will invest approximately $100 million to acquire a 49% ownership interest in our San Ramon Regional Medical Center.

Historically, our outpatient services have generated significantly higher margins for us than inpatient services. During the three months ended March 31, 2013, we derived approximately 35% of our net patient revenues from outpatient services. By expanding our outpatient business, we expect to increase our profitability over time. We believe that growth by strategic acquisitions, when and if opportunities are available, can supplement the growth we believe we can generate organically in our existing markets. We continually evaluate collaboration opportunities with outpatient facilities, health care providers, physician groups and others in our markets to maximize effectiveness, reduce costs and build clinically integrated networks that provide quality service across the care continuum.

We intend to continue expanding Conifer’s revenue cycle management, patient communications services and management services businesses by marketing these services to non-Tenet hospitals and other health care-related entities. Conifer provides services to more than 600 Tenet and non-Tenet hospital and other clients nationwide. We believe this business has the potential over time to generate high margins and improve our results of operations. In May 2012, Conifer entered into a 10-year agreement with Catholic Health Initiatives (“CHI”) to provide revenue cycle services for over 50 of CHI’s hospitals. As part of this agreement, CHI received a minority ownership interest in Conifer. In addition, in October and November 2012, Conifer acquired an information management and services company and a hospital revenue cycle management business, respectively. Conifer’s service offerings have also recently expanded to support value-based performance through clinical integration, financial risk management and population health management, which are integral parts of the health care industry’s movement toward accountable care organizations (“ACOs”) and similar risk-based or capitated contract models. In addition to hospitals, other clients for these services include health plans, self-insured employees and other entities.

Commitment to Quality—We have made significant investments in the last decade in equipment, technology, education and operational strategies designed to improve clinical quality at our hospitals and outpatient centers. As a result of our efforts, our CMS Hospital Compare Core Measures scores have consistently exceeded the national average since the end of 2005, and the major national commercial payers have also recognized our achievements relative to quality. These designations are expected to become increasingly important as the commercial market moves to narrow networks and other methods designed to encourage covered individuals to use certain facilities over others. Through our Commitment to Quality and Medicare Performance Improvement (recently renamed Performance Excellence Program) initiatives, we continually work with physicians to implement the most current evidence-based medicine techniques to improve the way we provide care, while using labor management tools and supply chain initiatives to reduce variable costs. We believe the use of these practices will promote the most effective and efficient utilization of resources and result in shorter lengths of stay, as well as reductions in redundant ancillary services and readmissions for hospitalized patients. In general, we believe that quality of care improvements may have the effect of reducing costs, increasing payments from Medicare and certain managed care payers for our services, and increasing physician and patient satisfaction, which may improve our volumes.

Realizing HIT Incentive Payments and Other Benefits—Beginning in the year ended December 31, 2011, we achieved compliance with certain of the health information technology (“HIT”) requirements under the American Recovery and Reinvestment Act of 2009 (“ARRA”); as a result, we recognized electronic health record (“EHR”) incentives related to Medicaid ARRA HIT in 2011 and 2012. These incentives partially offset the operating expenses we have incurred and continue to incur to invest in HIT systems. We expect to recognize additional incentives in the future. Furthermore, we believe that the operational benefits of HIT, including improved clinical outcomes and increased operating efficiencies, will contribute to our long-term ability to grow our business.

General Economic Conditions—We believe that high unemployment rates and other adverse economic conditions are continuing to have a negative impact on our bad debt expense levels and patient volumes. However, as the economy recovers, we expect to experience improvements in these metrics relative to current levels.

Improving Operating Leverage—We believe our focus on physician alignment and satisfaction, targeted capital spending on critical growth opportunities for our hospitals, emphasis on higher demand clinical service lines (including outpatient lines), focus on expanding our outpatient business, implementation of new payer contracting strategies, and improved quality metrics at our hospitals will improve our adjusted patient admissions. Increases in patient volumes have been constrained by the slow pace of the current economic recovery, increased competition, utilization pressure by managed care organizations, the effects of higher patient co-payments and deductibles, and demographic trends. We continue to pursue integrated contracting models that maximize our system-wide skills and capabilities in conjunction with our strong market positions to accommodate new payment models. We are also committed to a clinical alignment strategy, which includes an emphasis on physician employment and on innovative arrangements with payers, physicians and other providers. For example, during 2012, we successfully completed our first year of operation of an ACO in Northern California with roughly 7,000 Blue Shield members as

Table of Contents

part of an integrated health care delivery system designed to compete with offerings from other providers in the local market. In several other markets, we have formed clinical integration organizations, which are collaborations with independent physicians and hospitals to develop ongoing clinical initiatives designed to control costs and improve the quality of care delivered to patients. These achievements provide a foundation for negotiating with plans under an ACO structure or other risk-sharing model.

Impact of Affordable Care Act—We anticipate that we will benefit over time from the provisions of the Patient Protection and Affordable Care Act as amended by the Health Care and Education Reconciliation Act of 2010 (“Affordable Care Act”) that will extend insurance coverage through Medicaid or private insurance to a broader segment of the U.S. population. Although we are unable to predict the precise impact of the Affordable Care Act on our future results of operations, and while there have been and will continue to be some reductions in reimbursement rates, we anticipate, based on the current timetable for implementing the law, that we should begin to receive reimbursement for caring for uninsured and underinsured patients as early as 2014.

Our ability to execute on these strategies and manage these trends is subject to a number of risks and uncertainties that may cause actual results to be materially different from expectations. For information about these risks and uncertainties, see the Forward-Looking Statements and Risk Factors sections in Part I of our Annual Report.

RESULTS OF OPERATIONS—OVERVIEW

Our results of operations have been and continue to be influenced by industry-wide and company-specific challenges, including constrained volume growth, lower patient acuity levels for certain patient service lines, and high levels of bad debt, that have affected our revenue growth and operating expenses. We believe our results of operations for our most recent fiscal quarter best reflect recent trends we are experiencing with respect to volumes, revenues and expenses; therefore, we have provided below information about these metrics for the three months ended March 31, 2013 and 2012 for all of our continuing operations hospitals, excluding the results of our Creighton University Medical Center, which was reclassified to discontinued operations in 2012.

	Three Months Ended March 31,
Admissions, Patient Days and Surgeries	2013		2012		Increase (Decrease)
Total admissions	125,929		131,190		(4.0	)%
Adjusted patient admissions(1)	197,665		202,799		(2.5	)%
Paying admissions (excludes charity and uninsured)	117,326		122,343		(4.1	)%
Charity and uninsured admissions	8,603		8,847		(2.8	)%
Admissions through emergency department	80,208		81,216		(1.2	)%
Paying admissions as a percentage of total admissions	93.2	%	93.3	%	(0.1	)%(2)
Charity and uninsured admissions as a percentage of total admissions	6.8	%	6.7	%	0.1	%(2)
Emergency department admissions as a percentage of total admissions	63.7	%	61.9	%	1.8	%(2)
Surgeries — inpatient	33,204		36,237		(8.4	)%
Surgeries — outpatient	68,209		56,991		19.7	%
Total surgeries	101,413		93,228		8.8	%
Patient days — total	603,285		617,459		(2.3	)%
Adjusted patient days(1)	939,840		947,154		(0.8	)%
Average length of stay (days)	4.79		4.71		1.7	%
Number of acute care hospitals (at end of period)	49		49		—
Licensed beds (at end of period)	13,180		13,175		—	%
Average licensed beds	13,180		13,138		0.3	%
Utilization of licensed beds(3)	50.9	%	51.6	%	(0.7	)%(2)

(1) Adjusted patient admissions/days represents actual patient admissions/days adjusted to include outpatient services by multiplying actual patient admissions/days by the sum of gross inpatient revenues and outpatient revenues and dividing the results by gross inpatient revenues.

(2) The change is the difference between the amounts shown for the three months ended March 31, 2013 compared to the three months ended March 31, 2012.

(3) Utilization of licensed beds represents patient days divided by number of days in the period divided by average licensed beds.

Total admissions decreased by 5,261, or 4.0%, in the three months ended March 31, 2013 compared to the three months ended March 31, 2012. Admissions growth was adversely impacted by the loss of a weekday compared to the 2012 leap year and the timing of religious holidays in the 2013 period compared to 2012, as well as certain service line closures. Total surgeries increased by 8.8% in the three months ended March 31, 2013 compared to the same period in 2012, comprised of a 19.7% increase in outpatient surgeries partially offset by an 8.4% decrease in inpatient surgeries. Our emergency department admissions decreased 1.2% in the three months ended March 31, 2013 compared to the same period in the prior year. We

Table of Contents

believe the current economic conditions continue to have an adverse impact on the level of elective procedures performed at our hospitals, which contributed to the decrease in our total admissions. Charity and uninsured admissions decreased 2.8% in the three months ended March 31, 2013 compared to the three months ended March 31, 2012.

	Three Months Ended March 31,
Outpatient Visits	2013		2012		Increase (Decrease)
Total visits	1,054,789		1,031,611		2.2	%
Paying visits (excludes charity and uninsured)	944,549		926,474		2.0	%
Charity visits and uninsured visits	110,240		105,137		4.9	%
Emergency department visits	402,078		386,398		4.1	%
Surgery visits	68,209		56,991		19.7	%
Paying visits as a percentage of total visits	89.5	%	89.8	%	(0.3	)%(1)
Charity visits and uninsured visits as a percentage of total visits	10.5	%	10.2	%	0.3	%(1)