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

INTRODUCTION TO MANAGEMENT'S DISCUSSION AND ANALYSIS

The purpose of this section, Management's Discussion and Analysis of Financial Condition and Results of Operations, is to provide a narrative explanation of our financial statements that enables investors to better understand our business, to enhance our overall financial disclosures, to provide the context within which financial information may be analyzed, and to provide information about the quality of, and potential variability of, our results of operations and cash flows. Unless otherwise indicated, all financial and statistical information included herein relates to our continuing operations, with dollar amounts expressed in millions (except per-share amounts). This information should be read in conjunction with the accompanying Condensed Consolidated Financial Statements. It includes the following sections:

†          Executive Overview

†          Forward-Looking Statements

†          Sources of Revenue

†          Results of Operations

†          Liquidity and Capital Resources

†          Off-Balance Sheet Arrangements

†          Critical Accounting Estimates

EXECUTIVE OVERVIEW

KEY DEVELOPMENTS

During 2007, we plan to continue to focus on the execution of our turnaround strategies. While we have seen certain areas of improvement, we are still facing several industry and company-specific challenges that continue to negatively affect our progress. We are dedicated to improving our patients', shareholders' and other stakeholders' confidence in us. We still believe we will do that by providing quality care and generating positive growth and earnings at our hospitals.

Recent key developments include the following events:

† Sale of Lindy Boggs Medical Center - On May 3, 2007, we announced that we had completed the sale of the real estate of our former Lindy Boggs Medical Center, which sustained significant damage from Hurricane Katrina and has been closed since August 2005.

† Agreement to Sell Two Pennsylvania Hospitals - On April 20, 2007, we announced that we had signed a definitive agreement to sell Roxborough Memorial Hospital in Philadelphia and Warminster Hospital in Warminster, two of the 10 hospitals we identified for divestiture in June 2006. The sale is expected to be completed by June 30, 2007.

† Appointment of New Member to our Board of Directors - On April 12, 2007, we announced that John Ellis "Jeb" Bush, former Governor of the State of Florida, had been named to our board of directors. Mr. Bush has consented to stand for election as a director at our 2007 annual meeting of shareholders to be held on May 10, 2007 and to serve, if elected.

† Retirement of Our Chief Accounting Officer - On April 6, 2007, we announced that Timothy L. Pullen, former executive vice president and chief accounting officer, had decided to retire once we completed our financial reporting for the three months ended March 31, 2007. We also announced that, effective April 2, 2007, Daniel J. Cancelmi, vice president and controller, serves as our principal accounting officer.

† Civil Settlement Reached with the SEC - On April 2, 2007, we entered into a $10 million civil settlement with the Securities and Exchange Commission that concluded the SEC's investigation into the adequacy of our disclosures regarding Medicare outlier payments prior to November 2002 and the appropriateness of certain of our managed care contractual allowance reserves. In the three months ended December 31, 2006, we recorded an accrual of $10 million as an estimated liability to address the potential resolution of the SEC investigation.

† Sale of Graduate Hospital - On March 31, 2007, we announced the completion of the previously disclosed sale of Graduate Hospital in Philadelphia, Pennsylvania for pretax proceeds of approximately $16.5 million, which will be used for general corporate purposes.

† New Labor Accord Reached in California - On March 6, 2007, we announced that we reached an agreement with the United Nurses Associations of California on a new labor contract for nurses represented at four Tenet hospitals in California. The new agreement includes improvements in employee wages, work rules and benefits, and was reached after several months of negotiations and good-faith bargaining on the part of both parties.

SIGNIFICANT CHALLENGES

Our June 2006 global civil settlement with the federal government and other previously announced settlements have resolved several material threats to our company and should help us move forward in our turnaround strategy. However, there are still significant challenges, both company-specific and industry-wide, that will impact the timing of our turnaround. Below is a summary of these items.

Company-Specific Challenge

Volumes-We believe the reasons for declines in our patient volumes include, but are not limited to, decreases in the demand for invasive cardiac procedures, increased competition, physician attrition, managed care contract negotiations or terminations, a declining population in Florida, and the impact of our litigation and government investigations. We are taking a number of steps to address the problem of volume decline; however, due to the concentration of our hospitals in California, Florida and Texas, we may not be able to mitigate some factors contributing to volume declines. One of these initiatives is our Physician Sales and Service Program, which is centered around understanding the needs of physicians who admit patients both to our hospitals and to our competitors' hospitals and responding to those needs with changes and improvements in our hospitals and operations. We have accelerated capital spending in order to address specific needs or growth opportunities of our hospitals, which is expected to have a positive impact on their volumes. We are also completing clinical service line market demand analysis and profitability assessments to determine which services are highly valued that can be emphasized and marketed to improve results. This Targeted Growth Initiative has resulted in some reductions in unprofitable service lines in several locations, which have had a slightly negative impact on our volumes. However, the elimination of these unprofitable service lines will allow us to focus more resources on services that are highly valued and more profitable.

Our Commitment to Quality initiative, which we launched in 2003, is further helping position us to competitively meet the volume challenge. We are working with physicians to implement the most current evidence-based techniques to improve the way we provide care. Our hospitals have improved substantially in quality metrics reported by the government and have been recognized by several managed care companies for their quality of care. We believe that quality of care improvements will continue to have the effect of increasing physician and patient satisfaction, potentially improving our volumes as a result.

Significant Industry Trends

Bad Debt-Like other organizations in the health care industry, we continue to provide services to a high volume of uninsured patients and more patients than in prior years with an increased burden of co-payments and deductibles as a result of changes in their health care plans. Although the discounting components of our Compact with Uninsured Patients ("Compact") have reduced our provision for doubtful accounts recorded in our Condensed Consolidated Financial Statements, they are not expected to mitigate the net economic effects of treating uninsured or underinsured patients. Although the growth rate of uninsured patients did not increase this quarter, we continue to experience a high level of uncollectible accounts. Our collection efforts have improved, and we continue to focus, where applicable, on placement of patients in various government programs such as Medicaid. However, unless our business mix shifts toward a greater number of insured patients or the trend of higher co-payments and deductibles reverses, we anticipate this high level of uncollectible accounts to continue.

Cost Pressures-Labor and supply costs remain a significant cost pressure facing us as well as the industry in general. We have slowed the rates of increase in both labor and supply costs and have been able to contain our unit cost growth below the rate of medical inflation. Maintaining this level of cost control in an environment of declining patient volumes and increasing labor union activities will continue to be a challenge.

RESULTS OF OPERATIONS-OVERVIEW

Our results of operations for the three months ended March 31, 2007 compared to the same period in the prior year reflect the progress we have made in restructuring our operations to focus on a smaller group of general hospitals. Our turnaround timeframe has been and continues to be influenced by industry trends, such as bad debt levels, and by company-specific challenges, such as decreasing volumes and demand for inpatient cardiac procedures, that continue to negatively affect our revenue growth and operating expenses. Our future profitability will be achieved through volume growth, appropriate reimbursement levels and cost control across our hospitals, as none of our individual hospitals represented more than 5% of our net operating revenues or more than 5% of our total assets, excluding goodwill. Below are some of the financial highlights for the three months ended March 31, 2007 compared to the three months ended March 31, 2006:

† Net inpatient revenue per patient day and per admission increased by 3.6% and 2.0%, respectively, due primarily to the effect of newly negotiated levels of reimbursement from our managed care contracts despite a decrease in overall volumes.

† Net outpatient revenue per visit increased 11.0%, while outpatient visits declined 2.4%. The increase in revenue per visit is due primarily to the effect of newly negotiated levels of reimbursement under our managed care contracts and a shift in patient service mix.

† Favorable net adjustments for prior-year cost reports and related valuation allowances, related primarily to Medicare and Medicaid, of $12 million in the current period decreased compared to favorable net adjustments of $27 million in the prior-year period.

† Earnings per diluted share from continuing operations were $0.20 in the current period and breakeven in the prior-year period.

The table below shows the pretax and after-tax impact on continuing operations for the three months ended March 31, 2007 and 2006 of the following items:

                                                                    Three Months Ended
                                                                        March 31,
                                                                   2007          2006
                                                                     (Expense) Income
Impairment of long lived assets and goodwill, and
restructuring charges                                            $      (3 )  $       (29 )
Costs of litigation and investigations                                   1            (16 )
Hurricane insurance recoveries, net of costs                             -             (3 )
Pretax impact                                                    $      (2 )  $       (48 )
Deferred tax asset valuation allowance                           $       2    $         1
Reduction in reserve for uncertain tax positions                 $      93    $         -
Total after-tax impact                                           $      93    $       (29 )
Diluted per-share impact of above items                          $    0.20    $     (0.06 )
Diluted earnings per share, including above items                $    0.20    $         -

LIQUIDITY AND CAPITAL RESOURCES-OVERVIEW

Net cash used in operating activities was $154 million in the three months ended March 31, 2007 compared to $321 million in the three months ended March 31, 2006. The principal reason for the change was lower payments for restructuring and litigation costs and settlements.

Cash flows from operating activities in the first quarter of any year is usually lower than in subsequent quarters during the year, primarily due to the timing of working capital requirements during the first quarter, including our annual 401(k) matching contributions and annual incentive compensation payments.

Purchases of property and equipment were $111 million and $117 million during the three months ended March 31, 2007 and 2006, respectively. Proceeds from the sales of facilities during the three months ended March 31, 2007 aggregated $38 million. During the three months ended March 31, 2006, there were no proceeds from the sales of facilities.

In November 2006, we entered into a five-year, $800 million senior secured revolving credit facility that replaced our $250 million letter of credit facility. The revolving credit facility is collateralized by patient accounts receivable at our acute care and specialty hospitals, and bears interest at our option based on the London Interbank Offered Rate ("LIBOR") plus 175 basis points or Citigroup's base rate, as defined in the credit agreement, plus 75 basis points. After six months from the start of the credit agreement, the interest spread over LIBOR and Citigroup's base rate may be reduced by 25 basis points if our leverage ratio, as defined in the credit agreement, is below the defined threshold. The letters of credit outstanding under our previous letter of credit facility were transferred into the revolving credit facility, which reduced the amount available for cash borrowings, but eliminated a restriction on $263 million of cash pledged under the letter of credit facility. At March 31, 2007, there were no borrowings under the revolving credit facility.

We are currently in compliance with all covenants and conditions in our revolving credit agreement and the indentures governing our senior notes. (See Note 5 to the Condensed Consolidated Financial Statements.)

At March 31, 2007, we had approximately $184 million of letters of credit outstanding under our revolving credit facility. In addition, we had $584 million of cash and cash equivalents on hand and borrowing capacity of $616 million under our revolving credit facility as of March 31, 2007.

FORWARD-LOOKING STATEMENTS

The information in this report includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of historical or present facts, that address activities, events, outcomes, business strategies and other matters that we plan, expect, intend, assume, believe, budget, predict, forecast, project, estimate or anticipate (and other similar expressions) will, should or may occur in the future are forward-looking statements. These forward-looking statements represent management's current belief, based on currently available information, as to the outcome and timing of future events. They involve known and unknown risks, uncertainties and other factors-many of which we are unable to predict or control-that may cause our actual results, performance or achievements, or health care industry results, to be materially different from those expressed or implied by forward-looking statements. Such factors include, but are not limited to, the following risks, many of which are described in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2006 ("Annual Report"):

† A reduction in the payments we receive from managed care payers as reimbursement for the health care services we provide and difficulties we may encounter collecting amounts owed from managed care payers;

† Changes in the Medicare and Medicaid programs or other government health care programs, including modifications to patient eligibility requirements, funding levels or the method of calculating payments or reimbursements;

† The volume of uninsured and underinsured patients, and our ability to satisfactorily and timely collect our patient accounts receivable;

†          Competition;

†          The ultimate resolution of claims, lawsuits and investigations;

†          Our ability to attract and retain employees, physicians and other

†          The geographic concentration of our licensed hospital beds;

†          Changes in, or our ability to comply with, laws and government
regulations;

†          The cost and future availability of insurance, as well as the effects
of insurance policy limits;

†          Our ability to execute our turnaround strategy and the impact of
other factors on our turnaround timeframe;

†          Trends affecting our actual or anticipated results that lead to
charges adversely affecting our results of operations;

†          Our relative leverage and the amount and terms of our indebtedness;

†          Our ability to identify and execute on measures designed to save or

                          TENET HEALTHCARE CORPORATION
   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                                   OPERATIONS

†          The availability and terms of debt and equity financing sources to
fund the requirements of our businesses;

†          Changes in our business strategies or development plans;

†          The impact of natural disasters, including our ability to reopen
facilities affected by such disasters;

†          Technological and pharmaceutical improvements that increase the cost
of providing, or reduce the demand for, health care services;

†          Various factors that may increase the cost of supplies;

†          National, regional and local economic and business conditions;

†          Demographic changes; and

†          Other factors and risk factors referenced in this report and our

When considering forward-looking statements, a reader should keep in mind the risk factors and other cautionary statements in our Annual Report. Should one or more of the risks and uncertainties described above, elsewhere in this report or in Item 1A, Risk Factors, of our Annual Report occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements. We specifically disclaim all responsibility to publicly update any information contained in a forward-looking statement or any forward-looking statement in its entirety and, therefore, disclaim any resulting liability for potentially related damages.

All forward-looking statements attributable to us are expressly qualified in their entirety by this cautionary statement.

SOURCES OF REVENUE

We receive revenues for patient services from a variety of sources, primarily managed care payers (including preferred provider organizations and health maintenance organizations) and the federal Medicare program, as well as state Medicaid programs, indemnity-based health insurance companies and self-pay patients (patients who do not have health insurance and are not covered by some other form of third-party arrangement).

The table below shows the sources of net patient revenues for our general hospitals, expressed as percentages of net patient revenues from all sources:

                                     Three Months Ended March 31,
                                                        Increase
Net Patient Revenues from:        2007     2006      (Decrease)(1)
Medicare                           27.2 %   28.3 %              (1.1 )%
Medicaid                            6.9 %    8.2 %              (1.3 )%
Managed care - governmental        12.8 %   10.5 %               2.3 %
Managed care - commercial          41.6 %   41.1 %               0.5 %
Indemnity, self-pay and other      11.5 %   11.9 %              (0.4 )%

Our payer mix on an admissions basis for our general hospitals, expressed as a percentage of total admissions from all sources, is shown below:

                                     Three Months Ended March 31,
                                                        Increase
Admissions from:                  2007     2006      (Decrease)(1)
Medicare                           33.0 %   33.9 %              (0.9 )%
Medicaid                           11.6 %   12.6 %              (1.0 )%
Managed care - governmental        18.6 %   16.5 %               2.1 %
Managed care - commercial          28.2 %   28.7 %              (0.5 )%
Indemnity, self-pay and other       8.6 %    8.3 %               0.3 %

GOVERNMENT PROGRAMS

The Medicare program, the nation's largest health insurance program, is administered by the Centers for Medicare and Medicaid Services ("CMS") of the U.S. Department of Health and Human Services. Medicare is a health insurance program primarily for individuals 65 years of age and older, certain younger people with disabilities, and people with end-stage renal disease, and is provided without regard to income or assets. Medicaid is a program that pays for medical assistance for certain individuals and families with low incomes and resources, and is jointly funded by the federal government and state governments. Medicaid is the largest source of funding for medical and health-related services for the nation's poorest and most vulnerable populations.

These government programs are subject to statutory and regulatory changes, administrative rulings, interpretations and determinations, requirements for utilization review, and federal and state funding restrictions, all of which could materially increase or decrease payments from these government programs in the future, as well as affect the cost of providing services to our patients and the timing of payments to our facilities. We are unable to predict the effect of future government health care funding policy changes on our operations. If the rates paid by governmental payers are reduced, if the scope of services covered by governmental payers is limited, or if we or one or more of our subsidiaries' hospitals are excluded from participation in the Medicare or Medicaid program or any other government health care program, there could be a material adverse effect on our business, financial condition, results of operations or cash flows.

Medicare

Medicare offers beneficiaries different ways to obtain their medical benefits. One option, the Original Medicare Plan, is a fee-for-service payment system. The other option, called Medicare Advantage, includes managed care, preferred provider organization, private fee-for-service and specialty plans. The major components of our net patient revenues for services provided to patients enrolled in the Original Medicare Plan for the three months ended March 31, 2007 and 2006 are set forth in the table below:

                                                                                    Three Months Ended
                                                                                        March 31,
Revenue Descriptions                                                                2007         2006
Diagnosis-related group - operating                                               $     358    $     347
Diagnosis-related group - capital                                                        33           34
Outlier                                                                                  21           22
Outpatient                                                                               99           94
Disproportionate share                                                                   55           54
Direct Graduate and Indirect Medical Education                                           28           26
Psychiatric, rehabilitation and skilled nursing facilities and other(1)                   4           16
Adjustments for prior year cost reports and related valuation allowances                 11           24
Total Medicare net patient revenues                                               $     609    $     617

Medicaid

Medicaid programs are funded by both the federal government and state governments. These programs and the reimbursement methodologies are administered by the states and vary from state to state and from year to year.

Estimated payments under various state Medicaid programs, excluding state-funded managed care programs, constituted approximately 6.9% and 8.2% of net patient revenues for the three months ended March 31, 2007 and 2006, respectively. These payments are typically based on fixed rates determined by the individual states. We also receive disproportionate share payments under various state Medicaid programs. For the three months ended March 31, 2007 and 2006, our revenue attributable to disproportionate share payments and other supplemental payments was approximately $40 million and $24 million, respectively. The increase in revenue from disproportionate share payments and other supplemental payments is primarily attributable to additional funding provided by certain states, which was made available in part by additional annual state provider taxes on certain . . .