John Ransom: Hey, good afternoon. On the hot topic in your sector but not for you, professional fees, could you just, in plain and simple English, tell us what professional fee expense looks like for calendar 2023 in your guidance versus calendar 2022?
Daniel Cancelmi: Hey John, it’s Dan. In terms of our medical fee costs so far this year, they’re up around 15% compared to last year. And that’s generally — that’s in line with what our expectations were this year. And basically, as we said a couple of times, we do anticipate some additional costs sequentially in Q4.
John Ransom: Dan, is that the same number kind of two or three quarters up 15% or are you expecting it to be higher in the fourth quarter so making it higher for the year?
Daniel Cancelmi: It would be — we wouldn’t anticipate going up from 15% in Q3 — or sorry, Q4.
Operator: Thank you. Next question is coming from Ben Hendrix from RBC Capital Markets. Your line is now live.
Ben Hendrix: Thank you very much. And apologies if I missed this earlier, but I was wondering if you could provide some commentary on growth, specifically within some of the USPI specialties, musculoskeletal, and hips and knees, in particular, how that grew? And then all of the other specialties, I know you’ve made some investments in urology recently, just how those — if those areas are growing in line with your expectations? Thanks.
Saum Sutaria: Yes, hips and knees grew in the mid-teens over prior year year-over-year and our collaboration and work with United Urology Group is growing faster than our expectations in terms of when the deal was done. And we continue to have attractive recovery in other areas like GI and ENT. So the growth is broad-based but the fastest growth is coming in joint surgeries.
Operator: Thank you. Next question is coming from Jason Cassorla from Citigroup. Your line is now live.
Jason Cassorla: Great. Thanks. I just wanted to ask about the updated USPI guidance. Just curious on the margins. You have the ranges out there, but the midpoint would suggest slightly lower margins versus where you previously were, stronger revenue than EBITDA dollars. I guess can you give us an idea on how you’re seeing margin progression from the newer de novos and M&A you’ve done over the past 12 months, maybe against the margin headwinds but bigger gross profit dollars that come with higher-acuity cases as you focus growth there? Just any help there would be great. Would appreciate it.
Saum Sutaria: Well, yes, let me make a couple of comments just contextually. I mean, one is we work to maintain our USPI margins based upon longer term business decisions we make around service lines that we choose to be in, what we think the mix will be with the physicians that we work with, et cetera. But make no mistake about it, there are many things that we could do to grow the business within that range that may move the margins up or sometimes down a bit, but they’re still highly accretive to the business, given the types of post-synergy multiples that we deliver. So, I just want to provide that backdrop because we focus on a range that we want to be in for the ROIs that we want to have. Now, specifically to your question around service lines, remember, the government mix in different service lines can be different.
And obviously, the government mix will have a lower margin. That doesn’t necessarily mean that avoiding the service lines that have a little bit more government mix, like for example, joint replacements or other orthopedic-type procedures is the right answer because they add net revenue intensity. But when those service lines scale up to their full potential, they meet USPI’s margins, right? So, when you’re scaling up a new service line and you’re running at subscale in 60, 70 centers as you introduce ortho into those centers, of course, the margins will be lower until you get them up to scale. And you’re finally correct to point out that as we increase the number of de novos, obviously, those are operating expenses that are, in our environment, not contributing to the revenue and margin profile of existing centers.
And as we’ve moved from having a handful three or four de novos to 30, we are obviously cognizant of the fact that we need to overcome those operating expenses to maintain the margins that we’ve outlined in our range. And the good news is we’re doing that. We don’t talk about it much because it has not been an issue.
Daniel Cancelmi: Yes, Jason, the USPI’s full year margin for this year is roughly 40%, 39.8%. That’s where we’re guiding to. In the fourth quarter, we’re assuming the margin is close to 43%, 42.8%. So, the margins are incredibly strong at USPI and the business is performing well.
Operator: Thank you. Next question is coming from Brian Tanquilut from Jefferies. Your line is now live.
Brian Tanquilut: Hey, good afternoon. Dan, thanks again for all the help over the years. I guess my question, as I think about your comment about medical fees being up sequentially, is that just conservatism or expectations for higher volume? And then maybe for Saum, maybe take a step back, how do you think or judge to make that decision to in-source certain physician groups versus keeping them third-party? Thanks.
Saum Sutaria: Hey just on the first point, I’m not sure I would characterize — look, the way I would characterize it is what I’ve said all along this year, which is we are interested in seeing what a fourth quarter looks like post-pandemic for the first time in many years. You can interpret that as how you want to from your question around conservatism or whatnot. We’re being thoughtful in our view about the services that we want to offer and maintain access to as we move into the fourth quarter, and we’re doing it in a way in which we would like to maintain strong margins. Now, I’ll point out again, I did it in the very first couple of lines of my statement at the beginning of the earnings call. It’s notable that we are reaching the point where we’re almost at a 17% EBITDA margin company-wide.
We believe in the strategy we’re pursuing around acuity, capital efficiency, thoughtful management of our capacity for the services we offer, and obviously, the expansion and growth of USPI. And that margin is notable for Tenet as an entity, which I don’t think we’ve seen for a very long time, if ever. So, that’s really the pathway we’re down. There was a second part of your question which I didn’t take down.
