Welcome to Tenet Healthcare Corporation's fourth quarter 2020 earnings conference call. I will 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 fourth quarter 2020 results, as well as a discussion of our financial outlook for 2021. Tenet senior management participating in today's call will be Ron Rittenmeyer, Executive Chairman and Chief Executive Officer, Saum Sutaria, President and Chief Operating Officer, and Dan Cancelmi, Executive Vice President and Chief Financial Officer. 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, pardon me, 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 thank you all for joining us this morning. I would like to briefly highlight the results of the fourth quarter and then take a few minutes to discuss our current broad thinking on the business units, our plans for 2021, and establish the basis for how we see the continuing transformation of the Tenet enterprise continuing in 2021 and forward. Dan will spend time on the details of the fourth quarter in a few minutes. I did want to highlight a few points worth mentioning as outlined on slide three. Our overall results for the fourth quarter adjusted EBITDA of $832 million, which excludes grant income and has a $19 million gain from a sale leaseback of a medical office building, was notable, better than forecast.
This performance was achieved while we remained under a COVID surge that started around Thanksgiving and remains, although trending down, with us today. We closed the year with approximately 2,700 cases that are active, inpatient, and today we're at approximately 1,900 active inpatient cases across our system. Having peaked in January at about 3,000 cases, which was actually greater than our July surge. The hospital segment achieved its budget in the fourth quarter, excluding grant income. The grant income we received covered losses throughout the pandemic, not just the fourth quarter, and we remain with an overall loss of hospital revenue of approximately $500 million, which is not covered, and which to date we have absorbed.
We are very appreciative of the grants, which have helped mitigate the losses to our system due to COVID, allowing us to remain stable and focused on patient needs. While admissions remain below 2019, driven in large part by the COVID spike continuing and the reluctance of patients to seek care by delaying it or simply ignoring it, acuity remains very strong. We also benefited from the improvements we've made in managing the segment, utilizing database predictive analytics, the addition of new service offerings, ongoing strong cost controls, and the additional specialists we've added throughout our hospital system. Ambulatory equally had a very strong quarter. Although cases were down due to the pandemic by 5.5%, our revenue per case improved by 5%, driven by improved acuity. USPI business performance has recovered in earnings and is pressing beyond the 2019 levels.
As lower acuity cases return, should grow earnings even further. The cost controls, as well as the revenue per case improvements, more than offset the case loss, and we expect the transition to lower acuity cases to follow the pattern set by the vaccine distributions. We do expect the current activity to remain higher than in the past. Overall, the combination of solid continued performance with the core of USPI and the addition of the SCD facilities, which have performed very well, have continued to make the ambulatory segment a very strong performer. Conifer also had another excellent quarter, with increased revenues by 33.6%. Additionally, revenue from third-party clients increased 5.2% from the fourth quarter of 2019. The year-to-date revenues remain slightly below 2019 due to divestitures of hospitals by Tenet and other clients and the pandemic impact across all clients. Conifer's EBITDA performance for 2020 was very strong.
While down 4.9% or approximately $19 million, their margin in 2020 was 28.1%, which is the same as 2019. The cash collection process very well executed, as were the services provided to our clients. The amount of disruption from the pandemic and the management changes made this a difficult year for managing Conifer. We are very pleased with their resiliency and their commitment to the entire client base. Altogether, as you can see on slide four, we delivered $399 million in net income in 2020, and $3.1 billion in consolidated adjusted EBITDA. What's impressive is the steady improvements we've been making over time, and how this has translated to our continued growth, particularly as it relates to EBITDA. Taking a look at some of the key elements of our balance sheet, as outlined on slide five, we've made significant improvements.
Today, we have approximately $2.9 billion of secured capacity, which is a significant improvement from the last few years. We ensured our liquidity was solid during the pandemic, and we issued some additional notes, as well as expanded our revolver. We actively reduced our capital budget across the entire system, and we benefited from the focus on free cash flow, delivering excellent results. Conifer's focus on cash collections was a significant driver of our free cash flow. This clearly tied to our decision on the cash acquisition of the 45 ambulatory centers from SCD in December. It has also strengthened our financial profile, and we have announced the retirement of approximately $478 million in debt.
It's important to realize we're very engaged in determining our debt strategy, its relationship to our acquisition and divestiture strategy, and deciding what actions are best for our shareholders and for the long-term stability of the company. Today, our leverage ratio for the quarter is 4.7x , and we expect to finish 2021 below 5x , despite paying back a large portion of the Medicare advance funds. These are important milestones in our transformation. This does not imply that we are satisfied, as we will continue to actively evaluate every mechanism possible to improve these measures.
It does mean we are in a different place than we were at the end of 2017, and our decisions are based on the best possible set of actions driven by data and a deeper understanding that we believe, with our board, provides the best outcome long-term for our investors, suppliers, employees, communities we serve, and most of all, our patients. Our debt trading levels remain very strong and speak to the financial strength that the debt markets have on our business. As I mentioned recently at the JP Morgan conference, and as you can see on slide six, over the next three years, we expect the portfolio mix of our hospital segment to move from 53% of the portfolio mix of EBITDA to 35%.
We also expect the segment to continue to provide higher quality of earnings from the higher acuity cases we expect based on our expansion of specific specialty service lines and our focus on the chronically ill patient. We are continuing our strategy of trimming the hospital portfolio of assets that we believe do not fit our strategy. Memphis, as an example, was an opportunity, and we decided not to press back on the FTC's decision. Given the potential of Memphis, we're equally pleased to have it in our portfolio. There are others, however, that we should consider and will continue to act accordingly. When we make these decisions, we do so thoughtfully and within the transformational envelope we have created. It's a very active part of our strategic platform and process.
Again, we're clear, we're not on a selling campaign, but we remain active in selection and decision based on several attributes tied to alignment of our markets to our overall goals. We also expect USPI to continue to expand its footprint. We plan to continue with de novo placements, tuck-in acquisitions, as well as considering large actions that are available and justified. We have successfully completed the recent SCD buy, and to date, remain extremely pleased with performance and the opportunities these units have added to our portfolio. We also added over 3,500 new physicians on staff across USPI and included 73 new service line starts in 2020. We expect the portfolio EBITDA mix of this segment to increase from 33% to 50% or greater going forward.
These are the stats and the progression of a business we are investing in and plan to continue to ensure it remains a leader in its category. Our presence in the Global Business Center has also proven to be very successful. We developed this additional business unit during the pandemic and staff trained and deployed most of the associates during the lockdown in the Philippines. The design remains to provide 24/7 support to the entire organization, and we have been successfully growing and operating it since February 2020. The support has proven invaluable across our system as we can process and react in shorter time frames with quicker response, providing our field teams with efficient and effective information that ensures they can execute their roles successfully.
The JP Morgan presentation, we noted the plan to double the number of associates to 3,000 by the end of 2021 and to 5,000 by the end of 2023. These individuals perform many revenue cycle tasks for Conifer across all of their portfolio offerings. They perform many Tenet tasks like payroll, accounting, audit support, and marketing. We will expand these offerings and others in the coming months, and we see a path to potentially provide these services to other clients since we've proven they are effective and the value of a 24-hour operation in providing support is truly significant. Before I hand this over to Dan to focus on the quarter guidance and other important areas, I'd like to discuss Conifer. Move to slide seven. The decision on the future of Conifer was a debate long before I took over as Chairman and CEO.
When I first spoke at JP Morgan in January 2018, I clearly stated we're going to initiate a process to determine the viability to sell Conifer. We spent the greater part of a year engaged with potential buyers whose offers were at the low end of our expectations, and frankly, were not a reasonable return for our shareholders. Throughout 2018, we remained true to our commitment and spent significant time focused on the best pathway. At the same time, realizing the value contained in Conifer had not yet been realized, we made significant improvements, not distracted by a potential sale or another alternative. We ran Conifer to succeed and not to be taken by another party at a loss to Tenet and thus to our shareholders. The results were a $74 million improvement in EBITDA in 2018 and a margin that went from 17.7% to 23.3%.
In every case, not a single party was interested in paying for the improvements or even acknowledging they were sustainable. We researched potential merger candidates, which proved not effective, and determined the best potential course of action was a tax-free spin. We announced the tax-free spin in July 2019 and set a timetable of late second quarter 2021. Our plan was use the time to address what we believe were gaps necessary to close before spin would be successful. Our plan included new leadership, assessment of the Tenet contract that needed to be renewed, determination of how we could reignite the growth trajectory that had really been stagnant for a couple of years, and a clearer assessment of the overall technology, including the current use of outsourcing.
Conifer ended 2019 with an improved EBITDA of approximately $386 million and a 28.1% margin, which substantiated our improvements were sustainable and our decision was correct not to accept that buyers would not include these improvements to be valued in a potential sale. We entered 2020 with a strong start in Conifer, and we believed it was a clear path forward. We also initiated startup of the Global Business Center, began to place approximately 600 new associates in the center, which covered Conifer and Tenet activities that we began to relocate. By late February, we entered the pandemic. Conifer was forced to trim its teams and began to move call center personnel to home where possible. Our entire focus turned to cash collection and maintaining the various administrative services they provided to ensure hospitals continued to function properly.
The Philippines also went into a lockdown, but we were able to hire, train, and initiate work with 1,000 new associates in and around Manila. They were up to speed quickly and provided much needed support during these very hectic days. We are proud of how quickly and effectively the whole Conifer team reacted to support our hospitals and other clients and ensure our patients received the attention they needed. We also hired a new CEO for Conifer in December 2020, and we're fortunate to find someone who had a solid background, a clear vision on growth and performance. He understands the business and is engaging in developing a pathway for growth and service to our clients. From summer of 2020, we also added a new COO and a COO of client services.
Both individuals bring experience in their respective areas and are going to be additive to our new CEO. Muscle building the leadership during COVID was difficult, but our results have been excellent and we're really excited about these additions. We are aligning our priorities to develop credible point solutions that are ready to take to market. We realize the development of the GBC also offers the opportunity to potentially create another offering for Conifer that could be taken to selected clients focused on their administrative areas that are fully functional in the GBC, supporting Tenet's field operations and expanding as a live case study. These new offerings will be a strong addition over time to Conifer's portfolio as we develop and implement them using the Tenet experience as a roadmap.
As we return attention to the expired Tenet contract, we've also determined there were opportunities to potentially move Tenet's mid-cycle business support to Conifer during 2021. The Tenet contract is close to being finalized. It's an arm's length and fully negotiated commercial agreement designed to be between two fully independent companies. Previously, I stated we remain on track for the spin in late Q2, early Q3. While we continue to make solid progress on this front, the reality is after we reviewed the number of open issues we must complete, many driven by delays in COVID, we realized the rush to spin the business in the next few months was simply not the right decision. We have work remaining on the growth plan, including the launching of the point solutions, potential movement of the other Tenet business to Conifer, as well as the new agreement being in place.
Continued discussions to further develop new opportunities and cement existing opportunities with CommonSpirit. Scaling up the GBC, which is a critical linchpin, and settling the new management into a cadence that would allow us to make this move seamlessly. We know there are opportunities in new third-party contracts and growth, new lines of business in financial outsourcing, and the GBC expansion. We also know the areas we are not fully closed due to the distraction and delays of COVID. As such, we believe it is prudent to take an additional 12 months from Q2 2021 to prepare Conifer for a highly successful and sustainable spin. We have proven for the last three years that Conifer is a very valuable asset and is adding value to our shareholders every day.
We believe the decision is in the company and shareholders' best interest to successfully spin Conifer, maximizing the value of the importance of this business unit. We expect 2021 will be a solid year for Conifer, and we expect the changes we outlined to improve the stability and scope of the business are truly value-enhancing and necessary. Remember, Conifer is a 28% margin business, which has demonstrated sustainable performance. Conifer is still positioned for a strong apples-to-apples EBITDA growth of 9%, excluding the projected $35 million recontracting with Tenet and the $9 million AR recovery in 2020. With that, let me turn this over to Dan, who can discuss more details in the quarter and our guidance, and then I'll have a few closing comments. Dan?
Thanks, Ron, good morning, everyone. I'll begin this morning with slide eight. Our net income in Q4 was $414 million, compared to a loss of $3 million last year. Our adjusted EBITDA in the quarter of $832 million, excluding grant income, was significantly better than our pandemic revised internal forecast, notwithstanding the surge in COVID in our markets. Our Q4 EBITDA, excluding grants, was better than the consensus estimate of $773 million at the time we previewed our Q4 results in January. Even if we exclude a $19 million gain from the sale of a medical office building and a $9 million bankruptcy bad debt recovery in Q4 that we disclosed. As you can see from the chart, our fourth quarter EBITDA has grown quite a bit over the past several years.
Q4 2020 EBITDA was 4% higher than last year and 20% higher than Q4 2018, even though volumes were substantially lower due to the pandemic. This strong performance was due to continuing solid cost management, investments in new service lines, and very high patient acuity cases, which contributed to historically high net revenue per case growth. Including grant income of $446 million, our fourth quarter EBITDA was $1.278 billion. In our third quarter Form 10-Q, we did disclose that we anticipated recognizing approximately $100 million of grant income in the fourth quarter. However, as we previewed in January, the additional grant income is primarily attributable to the revised guidance in the Consolidated Appropriations Act, enacted in December for determining lost revenues and the ability to transfer grant funds received among subsidiaries within a hospital system that are most impacted by the pandemic.
The grant income we recognized in 2020 was approximately $500 million less than the amount of lost revenues we incurred as a result of the pandemic. However, we appreciate the funding and the revised guidelines as they help healthcare providers partially mitigate the impact of the pandemic. From an earnings per share perspective, our U.S. GAAP, EPS in Q4 was $3.86, versus a loss of $0.03 in Q4 2019. Turning to slide nine, you'll see we produced $334 million of EBITDA in the month of December, excluding grants, compared to $259 million in November and $239 million in October, demonstrating strong sequential growth throughout the quarter. Particularly encouraging was the fact the month of December results, excluding grants, was about $15 million better than our pre-pandemic budget, despite substantially lower volumes due to COVID.
We are pleased with the performance of each of our business units during the quarter. Beginning with the hospital segment, although COVID cases surged in all of our markets, our hospital business achieved its original EBITDA budget for the quarter, even when you exclude grant income. This strong performance was primarily attributable to a commercial payer mix more favorable than aggregate volumes, very high patient acuity as our case mix index increased 11% year-over-year, and continuing effective cost management, which helped mitigate the impact of incremental expenses from the pandemic, such as higher temporary labor, premium pay, and PPE costs. Turning to our USPI platform, the ambulatory business continued to perform very well as USPI outperformed our expectations for the quarter.
Surgical volumes for the quarter were 95% of 2019 levels, despite a difficult year-over-year comp as we produced over 3% growth in Q4 2019. Our Conifer business also delivered a strong quarter, producing EBITDA of $111 million, compared to $94 million in Q4 2019, growth of 18%. Conifer's results exceeded their original budget, and its favorable performance was attributable to continuing cost efficiency actions, as well as the receipt of $9 million related to receivables we had to fully reserve in 2019 due to a client's bankruptcy. Let's turn to slide 10, where we present our monthly volume statistics during the quarter. Despite another surge in COVID cases, hospital volumes held steady compared to Q3. Our USPI surgical volume trends improved slightly, recovering to about 95% of 2019 levels.
As we've discussed in the past, more complex and emergent procedures have recovered from the pandemic at a stronger pace than less critical, lower acuity care. Our COVID inpatient cases were approximately 11% of our Q4 hospital admissions, compared to about 10% in the third quarter. Slide 11 summarizes the actions we've taken this past year to improve our financial position, including Conifer's improved cash collection performance, issuing $1.3 billion of notes to enhance our liquidity during the pandemic, refinancing $2.5 billion of debt that eliminated any significant debt maturities until June of 2023, and we increased our line of credit capacity by $400 million.
Also, the sale of medical office building for $60 million in December and the anticipated sale of our urgent care business by the end of the first quarter this year for about $80 million, provides us approximately $140 million of additional liquidity. We're also going to retire in the first quarter $478 million of 7% debt with cash on hand that will save us about $33 million of interest annually. Based on our performance during the year and the various actions we've taken, we've reduced our leverage to under 5 x adjusted EBITDA at year-end, coming in at 4.7 x compared to 5.3 x at December 2019.
Let's now turn to slide 12 and discuss cash flows during the quarter and the year. This slide is an analysis we've been presenting since the beginning of the pandemic to demonstrate we have not been burning through cash from operations. For the year, we generated approximately $1.2 billion of free cash flow when you exclude the Medicare advances we received and the deferred company payroll tax match under the stimulus legislation that will have to be repaid over the next two years.
The $1.2 billion of free cash flow compares to $563 million in 2019, which is growth of over $600 million. The strong cash collection performance by our Conifer team was a key contributor to the significant year-over-year increase in our free cash flow. We currently have sufficient cash resources and available liquidity under our $1.9 billion line of credit. At year-end, we had over $2.4 billion of cash on hand and no borrowings outstanding under our line. Turning now to our 2021 guidance. Slide 13 provides a walk forward of our 2020 EBITDA to the midpoints of our expectations for this year.
Although there are various uncertainties as to how the pandemic will impact us this year, we believe we have sufficient visibility and confidence as to how our business will perform during the ebbs and flows of the pandemic to enable us to provide investors an outlook of our projected results this year. On the slide, we point out various EBITDA puts and takes in 2021 compared to last year. USPI's acquisition and de novo development activity will add approximately $240 million of EBITDA, including the SCD centers acquired, and we anticipate a year-over-year growth in hospital admissions and USPI surgical cases compared to last year of about 5% and 18% respectively, will also be a key driver of EBITDA growth in 2021, as well as continued cost actions.
Compared to volumes in 2019, we are projecting hospital admissions and USPI surgical cases will be about 93% and 101% of 2019 volumes. While we are encouraged by the recent decline in COVID cases and the distributions of vaccines across the country, our volume estimates incorporate the possibility that variant strains of the virus could result in the volume recovery not necessarily being linear during the year. Although we would expect that as more vaccines are provided, our volumes and results could strengthen as we move through the year. Other important points about our guidance include our hospital net revenue per adjusted admission and per surgical case will moderate this year as lower acuity procedures continue to recover.
We anticipate $45 million of additional revenues related to the Arizona Medicaid program. As we discussed on our third quarter call, Medicaid funding for providers throughout the state increased over 30% as a result of the new supplemental program that went into effect on October 1st last year. We will have a few headwinds this year. The Medicare sequestration 2% revenue reductions are scheduled to be restored effective April 1st, which will result in a revenue decline of about $46 million. Also, we recognize a $19 million gain from the sale of the medical office building in December that obviously won't repeat this year. The other item I want to mention on the slide is that we are revising the pricing and scope of services under a new revenue cycle contract to be finalized between Conifer and our hospitals.
The new contract, once finalized, is anticipated to result in a $35 million EBITDA reduction for Conifer this year. The previous contract between Conifer and our hospitals was implemented many years ago, and these revisions appropriately reset the rates and scope of services going forward, which will continue to be on a commercially reasonable arm's length basis. On slide 14, we provide our 2021 EBITDA outlook for our three business segments compared to 2019. The portion of our EBITDA mix from our USPI business is expected to be over 40% of the total enterprise, compared to about 33% in 2019. Before the USPI acquisition in 2015, our ambulatory business represented less than 5% of enterprise-wide EBITDA. It's a phenomenal growth story. Conifer's expected to generate growth of 9%, excluding the Tenet contract adjustment and the bad debt recovery I mentioned earlier.
As for cash flows in this year, we anticipate generating free cash flow of about $1.2 billion and adjusted free cash flow of $1.325 billion this year before taking into consideration the repayments we will make in 2021 of approximately $700 million for the Medicare advances and the deferred company payroll tax match. Our anticipated free cash flow of $1.2 billion minus expected cash NCI payments of $470 million results in positive cash flows of $730 million approximately, or about $7 per share. While we will have to repay the $700 million in Medicare advances and deferred payroll taxes this year, we already have sufficiently reserved for that amount in our balance sheet cash.
The recurring underlying free cash flow generation of our business has significantly improved over the past several years, and we have sufficient liquidity to continue to support growth initiatives, such as continuing to invest in the core business, in addition to supporting growth initiatives in our faster growth, higher margin ambulatory business. With respect to the Medicare advance payments we received in 2020 in our hospital segment, we anticipate that over $500 million will be repaid by us throughout 2021 via claim payment offsets beginning in April. We are exploring the possibility of early paying $500 million in a lump sum payment prior to April, rather than repaying the amount over the last nine months of the year through claims payment offsets. This will require the approval of HHS. We'll keep you posted on this.
In summary, we're very proud of everything that our employees were able to accomplish in 2021 amid an extremely difficult environment. We believe the numerous actions taken over the past several years position us well to continue successful growth this year and beyond. With that, I'll end by saying that our strong performance is due to the steadfast dedication of our patient caregivers and employees throughout the enterprise. I'll now turn the call back over to Ron.
Thanks, Dan. In summary, I guess I just hit a couple points. We had a solid Q4 in 2020. I think we responded incredibly effectively in the quarter to the spikes we had and generally to the overall pandemic. Our performance improvements are sustainable. We've proven that, and we believe they will carry us forward. Hospital segment is performing very well across all major areas. USPI continues to provide sustainable and positive trends with greater opportunity to expand further, and that's where our focus is. Conifer remains a very strong performer, and we have an opportunity to now, as hopefully the pandemic winds down, really get aggressive about the growth portfolio and develop a stronger team overall. The spin is viable. It is still going to occur.
Slight delay of a year, but in the scheme of things, that is not a big delay, because it will give us an opportunity to get past COVID and be prepared to do this in a much more effective manner. Net, we're pleased with the results we've delivered, and we're very proud of the teams throughout this entire company that have performed, and its performance has simply been outstanding. With that, operator, we'll turn it over to open for questions.
Thank you. The Tenet Management team is now ready to take your questions. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. Tenet asks that you please limit yourself to one question. One moment, please, while we poll for questions. Our first question comes from Kevin Fischbeck with Bank of America. Please proceed with your question.
Thanks, Kevin.
Hey, thanks. I guess I wanted to dig into your guidance on hospital volumes. It's kind of interesting to me that from the outpatient visit perspective, your guidance going into Q4 at the low end doesn't really seem to be assuming a lot of ramp or improvement there. Even the inpatient number doesn't seem to be assuming improvement, I guess. Are you thinking about volumes getting back to normal? Even if we just straight lined it, seemed like your volume guidance would be a little bit low, much less if there was pent-up demand, particularly since we're talking about 2019, where you think years of population growth demand might actually overall be higher. Is there anything to think about there as far as your view?
You can provide a little bit of color on timing of volumes, but anything you're thinking about there or the economy impacting volumes or, I don't know, it just seems like it's a conservative outlook.
Yeah, good question. Saum?
Hey, Kevin. It's Saum. There's a few things impacting it. First of all, we are still in the middle of a winter COVID surge at this point across the country, and obviously, it's affecting a number of our markets. As you know, throughout the pandemic, we've put a lot of effort into ensuring we have adequate capacity so that we could simultaneously maintain access for patients to surgical and other procedural care they need, given all the other chronic illnesses people have, as well as accommodate the COVID-related volumes. As we look forward, we had a few thoughts in mind. First of all, in the midst of this uncertainty, we've guided towards improved volumes in 2021, relative to what we look back at as a 2019 year. There's still a range of uncertainty around that, because we don't know exactly how the COVID situation will evolve.
We don't yet know if the COVID vaccines will be effective all the way into next winter. We really don't know the answer to many of those questions. We're obviously pushing appropriately to continue our strategy of expanding services for patients with chronic illness, and in particular, the higher acuity strategies that we have been pursuing all along. In the fourth quarter alone, we opened up and expanded a significant cardiac surgery program at our children's hospital in Michigan. We expanded robotics programs in three or four markets. We received stroke certification at three hospitals. As you know, that's a very important designation going forward in terms of how stroke care will be administered based upon EMS runs. We are continuing to progress on those strategies.
We are careful right now because of the COVID activity about what that volume picture could look like for the whole year. From an outpatient perspective, the biggest factor driving, again, our guide upwards, but not a return to 2019 type of volumes, is really the emergency department outpatient visits, which have slowed. We've talked about this before. If schools and sports and other things open up, the categories that have had the most decline in demand, the types of sports injuries, kids' needs for either respiratory illness or other things that begin to come back, that'll make a big difference.
Again, we just don't have any way to predict right now into the middle and the end of the year what'll happen. We have not made any major adjustments to our volume projections on the basis of predictions around the macroeconomy, and/or enrollment status. Again, a lot of detail there, just so that you have a sense of where we are. We've been thoughtful and conservative about these projections. Most important to note, by the way, is we are bullish on our ability to generate earnings even with those volumes, because of our cost control and focus on high acuity.
That's helpful. Thanks.
Our next question comes from Pito Chickering with Deutsche Bank. Please proceed with your question.
Good morning, guys. Question here on capital deployment. CapEx as a percent of revenue is trending a tad higher than the last few years. Are you guys finding better ROI for CapEx investments, or does the cash flow generation simply provide more ability to invest? Also on capital deployment, with the retirement of the 7% notes, most of your debt is pretty reasonably priced. How should we think about free cash flows going forward to M&A versus debt reductions? As we delever in the next few years, is this primarily through EBITDA growth? Thanks so much.
Hey, Pito. It's Saum again. I'll start off and then pass it to Dan. In line with the comments that I just made, we continue to be thoughtful about the capital investments in the service lines in the hospitals that we think have growth potential based upon the underlying demographics and opportunity to create better and more profitable service lines for the community in those markets. Our strategy that began two or three years ago to move towards that range of services has played out pretty well, and we have more confidence now being able to look back at which investments worked and which investments maybe didn't work, where we can deploy that capital into which service lines with higher returns. We do have a greater degree of confidence in that.
It has also, obviously, generated a set of opportunities for us at the intersection of our ambulatory and hospital business in terms of high return capital deployment. As you know, beyond the SCD-type transactions, Brett and the team have a very robust development pipeline, and the activities and opportunities there will only grow given our ability to manage these centers in a best-in-class way. What I would say is that as we find those opportunities in our priority markets that have a higher return, we have been deliberate about making more investments that will strengthen our portfolio and have the discipline of delivering high returns.
Hey, Pito. It's Dan. Good morning. In terms of overall capital allocation, and leverage, obviously your earnings growth will continue to be a key driver of the strategy to de-lever, as well as reducing outstanding debt in totality. We took a step forward last night when we announced that we have sufficient liquidity, 7% notes. We think it makes all the sense in the world to retire that. It saves us interest, over $30 million, improves free cash flow. We do have other tranches that are out there that we could retire. The rates aren't bad, but they are callable at reasonable prices. We also have a 7.5% note tranche that next spring we can take out at a reasonable rate. We're looking at a lot of various options in terms of how to deploy capital from a standpoint of reducing our debt.
Listen, we're going to continue to allocate capital to, obviously, the USPI ambulatory business. The guidance we have in here assumes $150 million, $200 million of M&A type of activity. As we demonstrated with the SCD transaction, if there's the right opportunity out there, we'll invest more capital in that side of the business. We're also investing capital very diligently with very good returns, with returns that we think are appropriately risk adjusted, in the hospital business on growing higher acuity type of services in various markets.
Conifer. Also in Conifer.
Conifer.
Looking at these point solutions and some of the other things. I think we're doing it thoughtfully and appropriately and very focused on data to support the decision-making.
To your other point about free cash flow growth, this year it'll be about $1.3 billion, before we pay back some of the stimulus monies. Even when you back out the cash NCI payments, that creates a lot of excess free cash flow. We would expect that to continue to grow as we move beyond 2021.
Because our earnings are growing. As we make the shift into ambulatory, et cetera, they're growing. We've changed the profile of the quality of earnings. Anyway, thanks for the question.
Our next question comes from Justin Lake with Wolfe Research. Please proceed with your question.
Thanks. Good morning. Wanted to follow up on, you mentioned some comments that you've seen COVID volumes moderate a little bit in January. Wanted to see if you could give us any color there. I think there's a debate out there in terms of how quickly the deferred care might come back as COVID obviously seems to be moderating pretty significantly across the country. Would love to hear any commentary you can give us on January, and then just bigger picture, how do you see that? Do you think there's a delay before some of that ER comes back? How much do you think is structural? Thanks.
Yeah. Hey, Justin, it's Saum. Couple things. As we noted, our COVID volumes in January exceeded, on a given day, 3,000 inpatients, which is higher than where we were in July, and it was a sustained increase over the month of January. It has started to come down and come down rapidly. It's down by at least 1/3 of that peak at this point, which obviously for us, has put us in a situation where there might have been some capacity constraints in January. We're free of those capacity constraints in all of our markets at this point and actively engaged in the same recovery playbook that we've used twice before very successfully in bringing patients back.
That, by the way, includes the approaches that we've taken to really quickly managing access for doctors and patients for deferred care, including the monitoring of cases that were deferred and re-engaging with their offices to get those scheduled very quickly. In addition, because we've been able to open up our operating rooms quickly, we've been offering capacity there to physicians that may not be utilizers of our hospitals full time. They're looking for places to bring their patients, and we've been able to offer them the opportunity to come back in earlier. From a procedural standpoint, we're moving very quickly to address the deferred care that patients need. One of the unique things about the December, January timeframe was that some states did have softer executive order type things that slowed down surgical care a little bit. Those have all been lifted at this point.
The deferred ER care, I would point out a couple of things. One is that the admissions through the ER have been strong, continue to be strong through January on a non-COVID basis, and are strong going into February. What's really slower are the lower acuity visits that patients have been a little bit nervous about coming back to the hospitals. I think as COVID dissipates, we'll do the work to begin to convince the community that the hospital is a safe setting for those lower acuity cases. While we're on the COVID topic, I'll make one other point about the cost management and COVID management that we've put into place.
Last quarter, I mentioned that we had noted that both for a contract labor perspective and a patient day capacity perspective, that length of stay in the COVID patient environment had increased because of the acuity and illness there. One of the things that drove the fourth quarter results from a cost containment standpoint is we successfully, from that period of time forward, managed our length of stay very well on the COVID side, and we maintained our performance on the non-COVID side. That helped to create capacity, alleviate some of the staffing challenges, and also get patients healthier further. We're getting better at the management of the COVID care, even as we look into this quarter with all the COVID that we have. I think it's a pretty important cost management point from a COVID standpoint that is important to address.
Thanks.
Our next question comes from Jamie Perse with Goldman Sachs. Please proceed with your question.
Hey, good morning, guys. I wanted to follow up a little bit on the volume assumptions you're making. You're assuming a lower revenue per adjusted admission this year, 3%-5% lower is your range. I just wanted to tie that back to how you're thinking about volumes. I assume there's lower acuity care in your model coming back, but it doesn't seem like the pressure you're assuming for revenue per adjusted admission is commensurate with the volume or slight volume increases you're seeing. Maybe just talk about those two variables and how you're thinking about both.
Hey, Jamie, it's Dan. Good morning. In terms of pricing, let me say a couple things. First, the overall metric that you mentioned, the 3%-5% decline in net rev per adjusted admission, it's a function of the fact that there's going to be lower acuity volume coming back. That's our expectation at this point. I would tell you, but the core base rates, let's go through by payer. From a commercial perspective, we have very good visibility into commercial pricing. We have over 90% of our commercial book business under contract this year. We've talked in the past, and it continues to be the same. We expect rate increases 3%, 4%, 5%. It depends on acuity as well. Medicare pricing on the inpatient side is about almost 2% year-over-year increase. On the outpatient side, Medicare is actually about 3.5%.
From a USPI perspective, the Medicare rate updates are about a little over 2% as well. The aggregate pricing is the negotiated rate basis or with government payers is very solid. We got strong visibility into that, and we feel very good about it. The metric, it's being impacted. We are assuming that lower acuity business does come back, and it's a math exercise. It does have an impact on the overall metric, but we feel really good about the pricing, and not only in aggregate, but by service line, by market, et cetera.
Okay, great. Thanks for the color.
Our next question comes from Frank Morgan with RBC Capital Markets. Please proceed with your question.
Thank you, and good morning. I guess I'll ask more of a higher-level question here. I'm curious, your guidance includes the runoff of the sequester and some of the other programs under the previous stimulus bill. I'm just curious, what are you hearing or seeing out of the Biden administration and their COVID relief bill? Is it your belief that any of these existing programs like sequester relief, DRG payment add-ons, any of those, have a possibility of actually being extended under this legislation? Then just back to the cash flow question. I'm curious, if you do factor in the cash flow from ops and the CapEx and the NCI, I think you said $600 million or $700 million, but you also said you called out Conifer several times as being a big contributor to that.
I'm just curious of that net number, that $600 million or $700 million number, would you attribute half that to Conifer? A quarter of that? Any kind of color there, I would appreciate. Thank you.
All right, there's two questions there. On the administration, look, I don't think we have the crystal ball to answer all your questions that you just asked about the administration. If we did, we'd be in much better mindset than we are. We just don't know. We obviously spend a lot of time trying to sort through the messages that are coming out, I think there's currently just a lot of cloud cover by the vaccine distribution, what's going to happen in COVID, how fast the changes that are being made seemingly every week in terms of the plan, in terms of how they're going to deal with it. These other noise points, I don't think have totally surfaced yet enough for us to get a really clear fix.
Clearly our government affairs team, which is very good, is spending time on that and working with the federation, et cetera. I think all I can say, Frank, honestly, is more to follow. I don't want to venture a guess to that type of thing. Dan, do you want to talk about the free cash flow questions that.
Hey, Frank. In terms of, as mentioned in my remarks, even when you consider the cash NCI payments to our minority partners, predominantly in our ambulatory business, we're going to generate free cash flow of about $700 million, which provides, again, a lot of optionality. I would tell you, the key drivers of it, that's the aggregate net cash generation anticipated by the business. Conifer is a big part of that. They did a great job in 2020, really driving improved cash collection performance in the midst of the pandemic, in midst of incredible hurdles and obstacles. We expect that to continue. Very impressed with how the year closed out from a cash perspective. We got to do better. We know that. We're going to continue to drive on that.
Yeah, Conifer will be a big part of that in terms of helping us to continue to enhance our free cash flow generation.
Okay, thank you.
Our next question comes from Whit Mayo with UBS. Please proceed with your question.
Thanks. Just have two quick ones here. Looking at the portfolio mix that you outlined for 2023 on slide six, does the 35% coming from acute contemplate additional divestitures? Does the 50% from USPI contemplate any larger than normal acquisitions? The last question I have is, I think you have one last put call outstanding on USPI with Baylor. Is that something that we should be considering for 2021? Thanks.
Hey, Whit, it's Dan. Good morning. In terms of the mix, in driving the ambulatory portfolio to 50% of the enterprise-wide earnings. We will continue to invest appropriately in that business. Whether it's $200 million a year or if the right opportunities are there, we will invest more than the $200 million. I'm not going to say there's one specific transaction we said, "that's going to happen," and that's what's embedded in there. We believe that the pipeline is robust, and we're going to continue to pursue opportunities that make sense economically. I would say, generally speaking, and Ron mentioned in his remarks, we'll continue to look at the hospital portfolio. You could see some instances where it may make sense to redeploy some hospital capital into the ambulatory business. That'll be part of the equation.
Yeah. I'll just add to that. Look, obviously, we're not going to get specific. It's not good business. I think Tenet had a history of getting specific and then getting killed, especially on the hospital side. If we reach definitive agreements and there's things that need to be announced, we'll announce them. We are active. We are actively looking at everything. We've said that for the last couple of years, and I think we've proven that we're doing it. We're actively looking at hospitals that make sense. Do they fit? Do they not fit? How long would they fit? We have people that spend a lot of time on this. The same on the USPI side, which I think Brett, who's sitting here, would comment on, that we are very engaged in looking at everything.
You've got to look at price, you've got to look at the market, you've got to look at what you think is going to happen next. As we get to the point of closing in on something, then we'll announce it. Other than that, I think you just got to look at our track record and realize that we are not limited by capital in terms of making decisions relative to USPI, if it makes sense. At the same time, we're not married to any of our systems. Our systems have to stand on their own and have to provide us with the returns, et cetera, that we think. We also aren't against adding things to our systems. I think Rock Hill, I think is a great example of that. San Antonio market, we're looking at things.
Where there's things to do, Fort Mill, not Rock Hill, Fort Mill, I guess, which is right there. We're building that hospital, that small hospital. Those are valuable additions to a very strong portfolio on the hospital side. We are going to continue to be thoughtful about that. Same in Conifer, by the way. If there's something we want to add to Conifer that makes sense, we'll do it even before it spins. Our goal is to strengthen and muscle strengthen all of our portfolios. I think you had a question, Brett, that you were going to deal with.
Hey, Whit. Hope all is well. This is Brett. As we discussed, related to the Baylor put/call in the past, and I think we disclosed this in the SEC filing, the first tranche of the put/call option with Baylor becomes effective in April of this year, and of course, we'll be discussing that with Baylor and keep the investors updated at the appropriate time. Our assumptions in 2021 assumes the status quo on Baylor's ownership in USPI.
Yeah, they're a great partner, and we're very satisfied with the relationship.
Absolutely.
Okay, thanks.
Our next question comes from Josh Raskin with Nephron Research. Please proceed with your question.
Thanks. Sticking with the ASC side, does the recent SCD acquisition change the trajectory of either development or de novo or M&A in the next year or so? Meaning, does this increase your pipeline, potentially accelerate new centers, or are you more concentrated on the integration? Last part would be, can you just remind us your strategy and where that's evolved around working with other non-Tenet health systems to develop their ASC footprint?
Go ahead. I was just going to say that our strategy is the strategy we've talked about.
Yeah, let me make a couple of high-level comments, Josh. This is Saum, and then I'm going to pass it to Brett. First of all, personally, I would step back and say it's the track record that USPI has developed with physicians and building successful partnerships with physicians that actually enabled the SCD transaction. Therefore, the success of that transaction and what we do with it, and it's performing very well so far, will only strengthen what I think has been USPI's distinctiveness for the better part of a decade or more in terms of its ability to have those kinds of relationships with physicians that are very successful.
We noted at the time that we presented the transaction to the marketplace that this also expanded, again, an existing strategy, but expanded a strategy of two-way partnerships, in addition to what has historically been a very, very strong foundation of three-way partnerships with other not-for-profit, non-Tenet-based health systems with really the most distinctive health system brand names around the country. That work continues. It doesn't change in terms of the expansion in those partnerships and even new partners that continue to come to the table. I do think that increasing the option pool for USPI in two-way partnerships and the robust pipeline of de novos that the team has built based upon the integration work that we've done with Tenet, creates a platform for future growth that is much, much more attractive than perhaps a few years ago. Brett, I don't know if you
No, Saum. Well said. The only other thing, Josh, I would add, and I think your point was, are we going to get distracted based on the integration of the SCD facilities when we think about our M&A for 2021? The reality is that we did a significant amount of pre-integration planning prior to closing. As a result of that, the integration is going very smoothly, and we continue to hit key milestones from an integration perspective. I don't think that's going to be a distraction. That workstream is moving very well and very smoothly. Now, obviously, during Q4, we spent a lot of time on the SCD transaction. At the same time, we continued to focus on building our pipeline going into 2021, so it's robust for both acquisitions and de novos.
As a result of that, I think we're well positioned to have a strong year from an M&A perspective in 2021. Of course, we'll be building the pipeline for 2022 as well throughout the year.
Yeah, I think it's important that we realize our development focus, our integration focus, our operating focus, they're not mutually exclusive, right?
Sure.
We are operating, and we are integrating without regard to slowing down or changing our development focus, which is a machine on its own.
Correct.
One more? Two more? Okay.
Our next question comes from A.J. Rice with Credit Suisse. Please proceed with your question.
Thanks. Hi, everybody. May go back to just a couple things on Conifer real quick. Part of their revenue is tied to claims processing and revenue of the underlying hospital customers, including yourselves. To the extent that volumes are down year-to-year because of the COVID crisis and the deferrals and so forth, there could be a potential snapback just as we return to normal. To what extent, if at all, have you factored that into the Conifer outlook, or does that sort of sit up there as upside potentially if that does play out?
The broader question on Conifer, going back to Ron's prepared comments, you said that when you embarked on the spin-off, you guys went out and tested the waters from an acquisition or a divestiture standpoint, and people weren't willing to pay you for what you saw as the potential for margin improvement and cost savings. Obviously, it's two years later almost at this point, or 18 months later, and you've still got another 12- 18 months. I wonder, are you laser focused on the spin-off? Now that you've actually realized some of that upside, is it worth it? Would you be open to testing the waters again and seeing if people pay you for now, what you've actually accomplished?
Hey, A.J., this is Saum. Let me get started, then I'll offer Ron and Dan a chance to comment in addition. Your question on the revenues and how that impacts Conifer is a very good one. Not all of our contracts at Conifer are revenue sensitive. Yes, there is some impact there. It is factored into our guidance. Remember, because the services are end-to-end, the activity that Conifer pursues in the front and mid-cycle, have a substantial effect in return for our clients, including Tenet. Again, many of those are less revenue sensitive than others. To answer your question directly, what revenue sensitivity there is factored into the 2020 guidance. Before I pass it off, the one thing I would say is, we're laser focused on creating value in Conifer.
We see significant opportunity to expand our services, our point solution business, for example, in the eligibility or small balance AR space has already hit the market. We have new clients and new expansion that we are in the midst of confirming right now. We believe that that has a fair amount of runway. I would just think about what we're laser focused on in this period of time is expanding our Global Business Center, expanding our growth trajectory, taking those point solutions to market, and managing our relationship with our largest customers where there may be expansion opportunities as they expand their portfolios.
I would just add that, look, we're a public company. If somebody shows up with a credible offer that's at the level that we think is appropriate as compared to the levels we saw in the past, realizing that we've proven that the company has more growth, which we also still believe that's true, then obviously we'd consider You have to consider whatever comes forward. I can't sit here and say we wouldn't consider things. We will. That's just the nature of the business. I'm not out looking to do that. As Saum said, we're out trying to stay focused on getting out of the pandemic, getting things back where there's some reliability in what's happening, and going ahead and furthering the growth at Conifer and doing the things that I mentioned in my remarks. I hope that helps clarify the answer.
Yeah. That's good. Thanks a lot.
Sure, A.J. One more?
Yeah, one more.
The last question comes from Ralph Giacobbe at Citi. Please proceed with your question.
Hey, Ralph.
Thanks. Hey, thanks for getting me in. Can you maybe just discuss the labor line? It looks like you managed it pretty well in the fourth quarter. There's been more questions, I think, of late, around higher wages as well as turnover and burnout. Maybe just want to understand how you've managed it, and maybe what's embedded in guidance for 2021. Thanks.
Hey, Ralph. It's Dan. I'll start and then turn it over to Saum. When Saum was talking before about the improvement in contract labor costs, he was being modest. Our contract labor costs came down quite a bit in the fourth quarter due to him and his team really managing it appropriately. That was a key driver in terms of our labor management in the quarter.
Ralph, the only thing I would add is, as I said before, we really took note of the fact that as the COVID surges happened in both April and July and August timeframe, we stepped back with our operational and our clinical team and identified what were the things that really weren't patient care related that were causing us delays in being able to get patients back home or into other care settings that were more appropriate for them.
You can imagine there's a myriad of things there. How rapidly we got patients safely out of the ICU, our strengthening our relationship with our post-acute providers, strengthening up some of the things that we needed to do in the home health environment to get patients home if that was more appropriate. Those things, in addition to other things, they were just an area of focus for us, obviously for the right reasons, patient care. The collateral benefit of that is that we provided a bit of relief from the really tight nursing market. Our nurses have done an incredible amount of work, day and night, heroic. I can't say that we took all the stress off the situation, given how high the COVID environment had gotten.
We did our best to alleviate some of that pressure in the markets given the work that they were doing. It worked. I think it shows up in the line items that you're looking at. We have to keep that focus going forward if there are other COVID spikes.
All right. Thank you.
Okay. All right, operator, thank you very much. I think that concludes our time.
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