Tenet Healthcare Corporation (THC) Earnings Call Transcript & Summary

Welcome to the Tenet Healthcare Business Update call. I'll now turn the call over to Regina Nethery, Vice President of Investor Relations for Tenet.

Thank you. We're pleased to have you join us for a discussion of Tenet's expanding ambulatory surgery portfolio. Tenet's senior management participating in today's call will be Ron Rittenmeyer, Executive Chairman and Chief Executive Officer; Saum Sutaria, President and Chief Operating Officer; Dan Cancelmi, Executive Vice President and Chief Financial Officer; and Brett Brodnax, President and CEO of USPI. Our webcast this morning includes an accompanying slide presentation, which has been posted to the Investor Relations section of our website, tenethealth.com. Listeners to this call are advised that certain statements made during our discussion today are forward-looking and represent Tenet management's expectations based on currently available information. Actual results and plans could differ materially. Tenet is under no obligation to update any forward-looking statements based on subsequent information. Investors should take note of the cautionary statement slide included in today's presentation as well as the risk factors discussed in our most recent Form 10-K, subsequent Form 10-Q filings and other filings with the Securities and Exchange Commission. With that, I'll turn the call over to Ron.

Thank you, Regina, and thanks, everyone, for joining us this morning on such short notice. We're really excited today to provide details on our perspective on what is a transformative and value-enhancing transaction for the entire Tenet enterprise. As we outlined for the materials posted to our website this morning, we are acquiring up to 45 ASCs, of which we have already closed the majority of these centers as of today from SurgCenter Development for approximately $1.1 billion in cash. We expect to complete the transaction by the end of December, and as we sign up the remaining individual centers, finalize documentation and obtain some remaining state approvals. The transaction is aligned with our stated strategy, which is to continue to expand our ambulatory platform, focusing on delivering excellent, more affordable care in an efficient manner while improving our hospital operations to be as efficient and effective as possible. This transformation to a broader enterprise offering where our hospital business is not the primary driver and is effectively balanced with a robust and growing ambulatory platform, provides a unique and effective partnership in patient services. Our care model embraces both the acute care settings so vital to our communities and the more affordable ambulatory setting to provide excellent care in these specialized areas. At Conifer, it continues for now to be part of the enterprise platform, providing needed services, including billing collections, hospital support and other related services. The SCD centers are premier locations in a fast-growing segment of the ambulatory surgery market as the large majority of cases come from the higher acuity musculoskeletal procedures. The MSK market continues to develop in the ambulatory space, with more of these types of surgeries shifting to outpatient settings. This transaction ensures Tenet will essentially double down and further deepen our concentration in these high-growth areas of the future. The centers similar to USPI have performed extremely well, especially during the pandemic. We have seen how patients continue to seek surgical care in ambulatory facilities given their safe profile and consumer-friendly format. Of course, these settings of care are more capital-efficient and cash flow generating, in addition to the important benefit of lowering the overall cost of care of patients for patients and the health care system as a whole. On Slide 3, you can see some of the impressive stats that demonstrate how the portfolio is a growth vehicle with strong annual revenues and profitability metrics. This obviously presents a compelling look forward for the Tenet enterprise as we fortify our expertise in high acuity surgeries across the care continuum. It offers an attractive financial profile, both through the attributes of the SCD portfolio as well as how it fits so nicely within Tenet and USPI. With our hospitals continuing to provide critical services as community anchors, this truly rounds out our care delivery platform across inpatient and outpatient services. The terms of the transaction, which Dan will speak to later in this call, underscores our belief that this is a great use of capital given the returns we expect to produce and the leadership position it will cement us -- for us in this high-performing segment of health care. So now let me turn it over to Saum for his comments. Saum?

Thanks, Ron. For starters, we've been working on rebalancing the Tenet portfolio to improve returns on capital for the last few years. As you know, we've exited businesses that were no longer core to our strategy or did not offer us the opportunity to build into a #1 or #2 position in that market. We've acquired and integrated the USPI platform, delivering synergies in excess of our original estimates while continuing to deploy capital to expand the surgical portfolio further. And we have improved our earnings and margins in all of our business segments through our focus on analytics-powered business discipline. Today's acquisition continues to invest, this time at scale, into our high margin, high-growth ambulatory segment. It is transformative in that we will become the leading national musculoskeletal surgical platform surpassing others in the sector. The SCD assets are a unique portfolio that have earned distinction for many of their attractive characteristics. These centers are well-known for delivering top-quality musculoskeletal procedures and other services, which are a nice complement to the investments in this high-growth service line we have been making in the USPI network. The new centers generate high margins. They have minimal debt. They are extremely efficient, and they are just primed for growth under USPI management. Their reputation for excellent patient care and high patient satisfaction will fit into a similar profile of USPI centers very nicely. The transaction provides us attractive returns. At mid-8x EBITDA minus NCI multiple and an effective 5x EBITDA multiple, Tenet will realize a double-digit ROIC and meaningful EPS accretion as we expect to realize $40 million to $50 million in annual run rate synergies by year 3. Arriving at today was enabled in part by a strong rebound from the pandemic at USPI because of the safety and convenience of these centers for necessary patient care. As we have mentioned in the past, surgical volumes have recovered to 94% of prior year in the third quarter, and we continue to have strong trends into December. Similarly, the SCD centers have recovered at the same or even better level, which is a testament to the quality of that portfolio. We will fund this transaction with cash on our balance sheet following prudent and careful balance sheet management. Dan will speak to this shortly. Moving on to Slide 5. Stepping back, I would like to remind everybody about the success and scale at USPI today and why it is poised for growth. Today, over 10,000 physicians practice at USPI centers, and we have over 4,000 invested physician partners. The model of 3-way partnerships with leading health systems around the country, in addition to Tenet's hospitals, continues to grow and develop our leadership position in many of these markets. USPI, working with Tenet, delivers strong margins, a joint platform for revenue and cost synergies, and a development program that is very effective at expanding service lines and replenishing physician partners. This results in strong growth rates, upwards of 6% annually on a same-store basis. Even during the pandemic, as we have noted, over 1,100 physicians have tried working in a USPI center for the very first time. We believe we will continue to see that demand increase over time as regulatory and reimbursement frameworks improve for these lower cost patient-friendly settings. In terms of development activity, thoughtful portfolio expansion has long been a cornerstone of the company's strategy with USPI, with a notable investment of $315 million in acquisition spend in de novo developments since 2018. In the simplest terms, USPI knows how to acquire, integrate and successfully grow surgical facilities, and we believe the portfolio is primed for continued growth. We expect to integrate the SCD facilities seamlessly and make this leap forward in scale given the track record we have developed. With that, I will pass it over to Brett for a closer look at SCD and our combination.

Hey, thanks. I'll start off with Slide 6, which is a very good illustration of how our combined portfolio and platform comes together to create a deeper national footprint as it highlights our strategy of creating density in the markets that we choose to enter across the country. Once we complete the transaction, which we expect to happen before the end of the year, we'll have up to 310 ASCs and 24 surgical hospitals across 33 states, and that's in addition to our other ambulatory assets. The states in green show the locations of the additions to the portfolio. You can see some of the centers are located in important existing markets, such as Arizona and Florida and Texas, while others give us entry at scale in new states, such as Maryland and Wisconsin. Turning to Slide 7. SCD is a company we know well. We've had a long successful history of collaboration. We have a tremendous amount of respect for the manner in which SCD has led the development of this portfolio and their company for the last 3 decades, in partnership with high-quality physicians and patient-centered staff from around the country. The centers are incredibly high-performing with strong EBITDA margins and very good free cash flow conversion. In terms of the case mix, approximately 80% will come from ortho spine and pain management, which further enhances our focus on the MSK space. In aggregate, the portfolio has a medical staff of over 800 physicians as well as a talented roster of operators and other team members. Together, they have an excellent track record of delivering high-quality care with great patient outcomes. As Saum noted, the facilities have minimal debt and are relatively young with a solid infrastructure in place. And with our similar cultures and commitment to quality, I'm confident that they're going to fit very well within USPI. This conviction also comes from our history of working with SCD over the years. We acquired our first centers from the company roughly 15 years ago when we partnered in a number of facilities of theirs in Missouri. Since then, we've continued to acquire additional facilities from SCD, and we've always been impressed with their business model, their industry-leading de novo development expertise and their ability to organize very talented and well-trained physicians. And as importantly as anything else, when you're putting together a transaction of this nature, it very much helps that we respect and we trust the SCD leadership. Turning to Slide 8. It's a nice snapshot of a few of the centers and the different types of market opportunities that we'll have in front of us with this acquisition. On the left, we have a picture of SurgCenter of Palm Beach Gardens, which was established in 2014. The facility specializes in ortho and total joints, pain management and ENT. We're actually adding 10 centers in Florida, where we already have a very strong presence from both an acute care side as well as within USPI. In the middle, we have White Fence Surgical Suites, which is located in Ohio, near Columbus, and this facility recently passed a major milestone in performing over 10,000 total joints, which is really amazing to think about. And on the right side, we have a picture of Munster Specialty Surgery Center in Indiana, which is a multi-specialty center with a heavy emphasis on MSK. Currently, Indiana is a small market for us with 2 ASCs, but we'll have immediate scale by adding 7 additional centers in the state after this transaction. Before I turn it over to Dan, I'd like to share that we've had the opportunity to meet and get to know the physicians and administrative leadership at all the SCD facilities over the last several months. And we've been very impressed with the people and their commitment to their patients and to the teams at their facilities. And all said, we're really very honored to be partnering with them and welcoming them into the USPI family. So with that, I'll turn it over to Dan.

Thanks, Brett, and good morning, everyone. Let's turn to Slide 9 and go through some of the financial metrics. As we've disclosed, the purchase price for the SCD portfolio is expected to total approximately $1.1 billion with the acquisition of all the individual centers anticipated to be completed by the end of this month. Importantly, the addition of the SCD portfolio to our USPI ambulatory platform will further augment the strong growth in our surgical business over the past 5 years. Prior to our acquisition of USPI in 2015, EBITDA from our ambulatory business in relation to the entire enterprise was just 4%. With the addition of these SCD centers, EBITDA from our ambulatory business will be about 40% of company-wide EBITDA. This transaction will continue the diversification of the company portfolio becoming significantly more weighted to the ambulatory business, which are lower cost of care settings, consumer-friendly, higher margin, faster-growing, less capital-intensive and stronger cash flow generating assets. The SCD centers being acquired generate approximately $430 million of annual revenue, $210 million of EBITDA and EBITDA margin in the mid-40s, and $130 million of EBITDA minus NCI expense. Our majority ownership interest in each center will be up to 60% with physician partners owning the rest. We will consolidate the financial results of each center, except for 2 centers in which we will own them under a minority interest. These 2 centers will be majority-owned by an existing joint venture we have with a health system partner that we have a minority interest in. We anticipate generating annual run rate synergies of $40 million to $50 million by the end of year 3. We have a strong track record of executing on these type of synergies, and we are very optimistic we'll continue to do so. Also, this transaction is expected to be essentially leverage-neutral initially, and should help reduce leverage in the future as these centers continue to grow, and we realize anticipated synergies. Also, we do not anticipate the need for significant CapEx as the centers are fairly new and well equipped. Let's turn to Slide 10 to review the impact of the SCD portfolio on other financial metrics. The initial EBITDA minus NCI transaction multiple will be about 8.5x, and we anticipate the multiple will decline to the high 6s by year 3. And since we will be consolidating all but 2 of the centers, the initial effective EBITDA multiple will be about 5x, which will decline over time as the centers grow, and we execute on realizing synergies. We also anticipate a return on invested capital of about 10% by year 3, and we anticipate this transaction will be roughly 28% accretive from an EPS perspective in the first year. Moving to Slide 11. The diversification of our portfolio mix weighted towards the attractive ambulatory business is clearly outlined on this slide. As I mentioned earlier, before our acquisition of USPI in 2015, our ambulatory business EBITDA was just 4%. After adding USPI to our portfolio in 2015, ambulatory EBITDA accounted for about 25% of our company-wide EBITDA in 2016 and grew to 33% last year. Although we have not yet provided guidance for next year, with the anticipated growth in our USPI platform coupled with this transaction, directionally, we anticipate our ambulatory care settings will represent over 40% of our total EBITDA next year. I'll now turn the call back over to Saum.

Thanks, Dan. If we turn our attention to Slide 12, I'll reiterate some of our key points related to our operating strategies for accelerating tenant's growth and enhancing our financial performance. So first of all, it should be evidenced by this transaction that we are continuing to grow our premier ambulatory business. In addition, we believe the pipeline for both M&A deals and de novo opportunities at attractive multiples is quite robust, and we anticipate staying strong in that market in 2021. The operating performance of our hospitals continues to improve, and we believe there are further opportunities to enhance our results through additional service line investments, patient and physician satisfaction initiatives, expanding our complement of leading high-quality physicians and ongoing cost efficiency discipline. Our hospitals have done an excellent job during this pandemic serving the public health needs 24 hours a day, 7 days a week. Our Conifer team continues to be a key contributor to performance. Conifer's margins have improved significantly since 2017 when the margins were in the mid- to high teens to now being in the mid- to high 20s. Last week, we announced the new CEO, Roger Davis, with great experience in this sector, and we look forward to working with him to advance our growth agenda. And finally, we continue to connect all elements across our enterprise to drive financial, operational and clinical performance. This is supported by a focus on data-driven processes to objectively evaluate trends, enhance accountability and make better decisions to manage our business. With that, I'll pass it back over to Ron to wrap us up.

Thanks, Saum and everyone, for being on the call. As discussed today, this announcement supports our long-stated strategy to reposition our portfolio with higher margin, faster-growing assets and strengthen our competitive edge as a leading provider of these types of services. It also reinforces our commitment to affiliate with leading physicians that naturally complements USPI's growing network with the addition of quality centers. And finally, it actually propels Tenet and USPI to a leadership position in a high performing, lower cost of care setting with a runway for continued growth. So with that, Regina, I'll turn it back to you, and we'll open it up, I believe, for questions.

Sorry, took me a minute to get off mute. We're ready for questions, Rob.

[Operator Instructions] Our first question is from the line of Ralph Giacobbe with Citigroup.

I guess I was hoping to get a little bit more around the deal process. It wasn't an open process. The multiples certainly seems pretty attractive. Any other considerations around the base business to consider in terms of sustainability of that $130 million of EBITDA less NCI versus perhaps some other baseline to consider sort of growing off of? And I guess along those lines, if you can give us a sense of how that business has performed during COVID.

Thanks, Ralph. Saum, do you want to?

Yes. Hey, Ralph. It's Saum. I'll get it started. No, this is not an open -- this was not an open process. As Brett mentioned, we've had a long-standing relationship with SCD and successful transition of many of its facilities into the USPI network over time, including very positive feedback from the physicians over the years about how that transition went, which is obviously very important. SCD is a terrific development organization building 2-way partnerships and de novo centers and scaling them up with high-quality physicians. But at the same time, they and we recognize the opportunity that with the ability to transition into a management model more like USPI, diversification of service lines, further ability to bring physician partners and practitioners into the environment, given our business development team. And then finally, all of the operating platform opportunities that exist in management of supplies and other things is a nice way to help the centers grow, thrive, and frankly, mature over time. The second thing I would say just in terms of your question, given that, we see opportunity for growth and development in these facilities. I mean, I think that these facilities perform extraordinarily well. Again, as Brett pointed out, there's some incredibly innovative leaders in this field. And the musculoskeletal space, in particular, in the ambulatory surgery world, is poised for a decade of growth similar to what you saw 15, 20 years ago in other areas like gastroenterology and other things. And so being at the leading edge of that is pretty critical, we think, to remain the leader. It's not just the number of facilities that we have that count, it's the nature of the portfolio that we were very attracted to. Brett, if you want to add to that?

No. Very good summary, Saum.

Thanks, Ralph. Next?

Our next question is from the line of Justin Lake with Wolfe Research.

Congrats on the deal. I wanted to ask a question on 2 things, if I could squeeze it in. One, the margins here are above what I normally see in a surgery center business. I know there's some 3-way JVs that do really well. But is there a significant amount of out-of-network here that we need to think about in terms of exposure? And the $60 million of synergies, is that mostly on pricing? And if so, would that include bringing those centers back into network?

Yes, Brett or Dan?

Hey, Justin. It's Brett Brodnax. No, I would -- the level of out-of-network business here is relatively low. Now USPI's out-of-network business is lower than SCD's, but our plan is to bring these facilities fully in network on our contracts. And we do expect some improvement in volume as a result of that. But no, there's not a significant amount of risk, not even a small amount of risk related to the out-of-network to in network transaction transition that you would normally see within out-of-network business.

And Justin, it's Dan. Good morning. In terms of the synergies, as you can imagine, it's really across the board. It's contracting synergies, whether it's supply chain, whether it's contracting from a payer perspective and other type of synergies that you would anticipate.

And just operationally, how we operate. I mean there's synergies that come with that, so.

Yes. A lot of that will come, Justin, from the fact that we'll be pursuing quite a few business development activities and service line expansion opportunities with these facilities. Again, they have a great portfolio of physicians, high-quality physicians, but we do believe that there's an opportunity to utilize our sales force to continue to add physicians to these facilities and grow them over time.

And We did a very thorough diligence process, quite extensive as well as we'll fold this into our compliance program immediately. So we're very comfortable with the process and the road map. Next.

Your next question is from the line of A.J. Rice with Crédit Suisse.

Just maybe on the due diligence. Obviously, we're all getting used to a virtual world here. I wonder if there was anything, given a multisite acquisition, that you would normally do on a transaction like this, maybe you've been working on it for a long time that you weren't able to do. And then the 2 3-way joint ventures, is that something -- I know USPI is known for that. Are you thinking that there's more opportunities to do 3-way joint ventures in there? Is that any component of synergy or otherwise?

So just let me make a comment on due diligence. The due diligence, I would tell you, was very thorough. We did not let the issue of not being able to do everything the way you would normally do it get in the way. If anything, I think we can even give it more attention because of that. Lots of Zoom calls, lots of follow-up, actual visits. We did things that we needed to do. And I would tell you that, if anything, I think it was incredibly detailed and with the right type of professionals involved. I mean we obviously use firms outside to support us both from an audit standpoint, et cetera, et cetera. So there was nothing we skipped and nothing that I feel that we, as an organization, believe that we missed. If anything, I'd say, we were -- it was very detailed and very tight, and the same goes for our integration plan. But I'll pass it to Brett to talk about the integration issue around the outside partners, et cetera.

Yes. No, thanks, Ron. No, I'll just -- and I'll echo what Ron said, I mean, this process has been going on quite a while, and we did a tremendous amount of due diligence, both virtually but as well as in person and had the opportunity to meet with the staff, all of the physicians at least once in person and sometimes -- a couple of different times. And so we did the normal level of due diligence from a facility perspective that we would normally do. And as Ron said, I would think we went overboard in terms of doing the other level of due diligence that you would do either virtually or the paper due diligence that you would normally see in a transaction like this.

Properly masked and social distance.

Of course, of course. And your other question related to health system partners, yes, there's going to be -- there's 2 that we've already identified that we'll be going into 1 of our larger JVs. Do we think there's opportunities to partner with existing or other new health system partners over time? The answer to that is yes. But we have not had extensive conversations with those health system partners about doing this. We obviously wanted to keep this confidential to avoid leaks. And for that reason, we have not had extended conversations with other organizations about potentially partnering in these facilities. But again, we do think there's opportunity to do so over time with both existing and potentially new health system partners across the country.

Next question is from the line of Kevin Fischbeck with Bank of America. .

Great. Just maybe one follow-up on that. I guess to the extent that you did add these into an existing JV, do you -- how economically do you put them in at the price that you purchased them here? Or is there potentially an ability to go get a better multiple as you fit that in and potentially reduce the effective purchase price if you add some of these to the joint ventures?

Yes. Hey, Kevin, it's Brett again. No, the way these would always go into the JV is at fair market value if we choose to do so. Obviously, we would do that in a very thoughtful way where there's going to be value created for all of the partners in these facilities. But in terms of pricing, it would be at fair market value, as you would expect.

Our next question is from the line of Josh Raskin with Nephron Research.

So the two questions, really, just back on the purchase price, ASC transactions recently have been noticeably higher than sort of that 8 multiple or 8.5 multiple on EBITDA less NCI. USPI was obviously done at a higher deal, I understand the scale. But is there something about the centers? I mean I look at the margins and the returns, et cetera, you would almost think that would auger for a higher price. So maybe what were the considerations and sort of the offsets? And then the second part, just on the MSK focus. When I look at the EBITDA per center, it's pretty comparable to USPI, maybe it's 15% higher. So is the mix similar? Or am I sort of missing something on the MSK focus and the mix versus your existing centers?

Yes, Saum?

Yes. Thanks. This is Saum. So a couple of things. Let me start with the first question, then I'll pass it to Dan -- the second question, and I'll pass it to Dan for the first part. Just on the margins and the mix, in particular, given the musculoskeletal focus, remember, there's -- I mean there's supply cost intensity here that comes with that service line. Now it's obviously rapidly growing, higher net revenue per case. And in this instance, given the payer mix, it can be quite profitable as you see from the margin profile that's there. But there are important agenda items, which again, relate to our synergies on management of a much more intense supply cost environment with these types of centers than what you would typically see.

Dan, you want to touch on the pricing question -- or Brett, either one of you?

Yes. No, I would say that, look, I mean, it's a great asset. It was a negotiated arm's length transaction. I think we feel good about the pricing. I think the sellers feel good about the pricing, and I'm not sure there's a whole lot more to say than that.

Your next question is from the line of Pito Chickering with Deutsche Bank.

Talking to a lot of people within, I think you rolled off for a few months. And it seems like the move into the ASC sort of post COVID has been very real and some speculation that this could remain growing post COVID. So I guess I'm curious what you're seeing from the payers trying to push orthopedics into ASCs. And how we should sort of view that from a long-term growth perspective? Should that 8% be more of a 10% range? Just sort of curious how you're seeing that. And then a quick follow-up just on the cost synergies. What's the breakout between revenue and cost savings within the synergy numbers? And should the cost synergies be realized in the first year?

Hey, this is Saum. Just commenting on the market, obviously, COVID, as we've talked about on our prior calls, has created more interest in physicians and patients going into a very different smaller, safer care setting. There's no question about that. I mean, I think in addition, the regulatory frameworks, the reimbursement frameworks that are out there, both in terms of the commercial payers and government payers, have been embracing this environment more actively. And we've seen that even in the last 7 to 10 days in terms of what CMS has been down the path of doing with respect to considering procedures and services that were exclusively hospital-based procedures. So yes, there's a -- there's no question about the fact that there's a tailwind here that's being driven. But I would say the other thing that's really important here in this space, as you know, when there's a rush into any area, you want to be thoughtful about doing it with physicians that have a track record or high quality, set a standard of innovation in the way that it's done that you're moving down that path, but you're also safeguarding not only the assets, the investment, but also what you're doing from a patient care standpoint. That's one of the things we feel very good about here. USPI had a very substantial and growing musculoskeletal platform already. So we have a framework in which to work together with the SCD assets and physicians in order to grow and succeed from that standpoint. On your second question, we're not going to say a whole lot. I mean, I can -- Dan can comment further. We're not going to say a whole lot about the exact mix of what the sources of synergy are. But we're confident that, that $40 million to $50 million is a reasonable starting point.

Yes. And Peter, I mean, we do this with every transaction we do with USPI. And we're pretty good at it, and we feel we have a clear line of sight in terms of the synergies. And it's really across the board, as you probably would imagine, whether it's how the centers are managed on a day-to-day basis, the contracting synergies, whether from a supply chain or otherwise, cost efficiencies, et cetera. So we feel good about it, and it's not just focused on one particular aspect of normal synergy type of analysis. It's across the board.

Next question is from the line of Sarah James with Piper Sandler.

I want to keep on that train of thought of the synergies. Is there anything that you can share with us around the pacing? So like you just mentioned, you've done this a number of times, and I'm wondering how long does it take to roll out some of your recent initiatives on labor management or supply contracting? So how should we think about the pacing to reaching peak? And then is there anything that you can learn from this acquired asset that you think would be valuable applying to the rest of your USPI business?

Yes. Sarah, it's Brett again. Yes, in terms of the pacing of the synergies, as Dan alluded to, it's across a number of different dimensions. And some of them, obviously, we're going to capture very early in the integration process, and some of them are going to take some time. So I would think these integration or synergies will occur over a 2 to 3-year period of time before they're fully baked, depending on the dimension in which the synergy actually occurs. As it relates to your second question, there's absolutely things that we will learn from the SCD portfolio. I mean, as I alluded to earlier, we have acquired other SCD facilities in the past. We learned from those acquisitions. And based on everything we know about this portfolio, we're certainly going to learn from these centers as well, especially as it relates to their heavy emphasis on the musculoskeletal space. And quite honestly, their industry-leading expertise as it relates to performing total joints in an outpatient setting. As I mentioned, as we were talking through the slides, they have one facility that has already done 10,000 total joints in its history. And that's just an unbelievable number when you think about a lot of the surgery centers around the country just started doing outpatient total joints. And others have not even started doing so. So it's just an amazing accomplishment. And I would say that there's many other facilities within the SCD portfolio that are equally as accomplished as it relates to doing the higher acuity orthopedic procedures and spine procedures in an outpatient setting. So I think the SCD portfolio will learn things from us and vice versa. So again, the combination of the 2 organizations, I think, is going to translate into an even much stronger USPI over time.

Next question is from the line of Gary Taylor with JPMorgan.

Congrats on the deal. Two quick questions. The first one, just sort of piggybacking a little bit on Ralph's original. So SCD has 200 centers, you're buying 45. Is there any more color at all on why these 45? Were you allowed to kind of go through and pick which ones were most synergistic to Tenet? Was this a package they already had together?

Yes. This is Brett again. First of all, they have less than 200. It's probably in the -- it's actually less than 150 surgery centers. Of course, they always have centers under development, and so that number continuously changes. As it relates to the portfolio itself, we looked at a lot of their mature, what I'll call, mature facilities that have been opened several years. And between us and the sellers, we came to agreement on which ones made sense to bring into the portfolio. And it was a combination of a number of different factors from both sides, from both perspectives.

Okay. My second one, just quickly, is you cite 80% ortho pain and spine. I mean it seems like ortho is really primed to grow. I think spine's then huge growth that seems to have slowed, and I'm not sure pain is doing much. Are those sort of rough assessments right just environmentally? And is there any further sort of detail you can give on how that 80% breaks down across those three?

Yes. What I would say related to -- yes, MSK, the MSK business, we expect to continue to grow and, in fact, pretty nicely over the next couple of years, especially with the ability to do total hips in the surgery center starting next year. That's going to create a nice tailwind for us. As it relates to spine, I wouldn't agree that, that has slowed or stymied. We continue to see some of the higher acuity spine procedures continue to migrate to the ASC setting. So I think there is still quite a bit of upside there. In pain, I would agree, has leveled off. I don't think it's necessarily going backwards, but there is a little bit of a headwind in terms of some pain physicians moving some of their procedures, less acute procedures or lower complexity cases into the office setting. In terms of the mix, again, most of it, the combination of ortho pain and spine and podiatry makes up about 80% with a large majority of that or a majority of the 80% specifically in the orthopedic service line.

Next question is from the line of Brian Tanquilut with Jefferies.

Congrats and also to Dr. Berner and his partners, congratulations. So I guess, Brett, my question for you. This asset, obviously, a good asset, but it's been known to be mostly physician majority owned. So the 45 that you're buying, is there a risk indication that you have to do with these assets? And then how are you thinking about being a very physician-centric and independently run model? Like is there a cultural shift that will have to happen at these centers? And how are you thinking about approaching that?

Yes, Brian. No, the way the transaction is playing out is SCD generally owns about 35% of the facility. So we're essentially buying SCD out, and then we're buying anywhere from 25% to 1/3 of what the physicians own to get up to a maximum of 50%. Some facilities we're buying less than 50%, some 60%, and some facilities we're buying right at the 60% level. So a resyndication is definitely not necessary to do in order to get to a certain level of ownership. Now will we actually want to bring in additional physicians over time? Absolutely. But that will be in coordination with the existing medical staffs, identifying top talent, top physician talent, within the community that they're comfortable with, bringing it into the facility and adding to the medical staff and to the partnership. So we will add doctors over time, but there is no syndication that's going to be necessary for us to achieve the pro forma that -- or the synergies that we described earlier.

Yes. The final question today is coming from the line of Whit Mayo with UBS.

A lot covered, but I didn't hear an LTM EBITDA less NCI number. I don't know if there's a way to think about sort of the annualized earnings contribution just as a jumping off point. Any way to maybe frame the average same-store case growth profile of the portfolio?

Hey, Whit, it's Dan. In terms of the -- from an LTM basis, the numbers we disclosed, the $210 million and $130 million, is essentially the last 12 months. We looked at it a number of different ways. We did have to, of course, normalized it for the COVID months, particularly there in the spring. But when we look at their earnings before the pandemic and then subsequent to the pandemic, adjusting for several months when the facilities would have -- the volumes would have been significantly lower. It's roughly the same number. So the numbers we disclosed, they are the equivalent of the last 12 months.

Okay. And then the same-store growth profile of the business? And I really had one more question. Maybe this is a silly one for Brett. But is there any opportunity to leverage USPI's edge clinical platform to improve the performance in these assets?

Yes. Hey, Whit. As it relates to the case growth, I think you can view that very similarly to the USPI case growth. In 2019, for example, they had case growth of about 2.5%. And so it's very comparable to what you see in the USPI business. As it relates to edge, no, you're absolutely right. And thanks for bringing that up because, as you know, that's fundamental to our business. It is the way that we think about operating the facilities from a clinical perspective and overall benchmarking perspective. So we will -- we've already talked to the physicians and administrative leadership at the facilities about edge and all the feedback so far is that they're very excited about having access to that technology and to that platform so that we can continue to improve the performance of those facilities together over time.

There are no additional questions at this time. I'd like to turn the floor back to management for closing comments.

All right. Well, thank you, operator, and thanks, everybody, for joining us. We're obviously available for any follow-up that's needed. And as we said, we're very excited about this. This is, we think, a really important acquisition for us, and we feel very good about where we are and where we're going with it. And again, it follows what the strategic road map that we've been talking about for the last couple of years. And we believe we're continuing to build against that. So with that, we'll end the call. And again, thanks, everybody, for joining us.

Thank you. This will conclude today's conference. You may disconnect your lines at this time. We thank you for your participation.