Q3 2019 Earnings Call
Ladies and gentlemen.
Hold for this Radnet Inc. third quarter 2019 financial results call at this time assembling today's audience and plan to be underway.
We appreciate your patience and please remain on the line.
Good day, and welcome to the Radnet Inc. third quarter.
Actual results to.
Today's conference is being recorded.
I would like to turn the conference.
Mark Stolper Executive Vice President and Chief Financial Officer Radnet, Inc. Please go ahead Sir.
Thank you.
Good morning, ladies and gentlemen, thank you for joining Dr., Howard Berger and me today to discuss Radnets third quarter 2019 financial results.
Before we begin today, we'd like to remind everyone of the safe Harbor statement under the private Securities Litigation Reform Act of 1995.
This presentation contains forward looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995.
Specifically statements concerning anticipated future financial and operating performance Radnets ability to content you continue to grow the business by generating patient referrals and contracts with radiology practices recruiting and retaining technologists, receiving third party reimbursed.
I mean for diagnostic imaging services successfully integrating acquired operations generating revenue and adjusted EBITDA for the acquired operations as estimated among others are forward looking statements within the meaning of the safe Harbor.
Forward looking statements are based on management's current preliminary expectations and are subject to risks and uncertainties, which may cause radnets actual results may differ materially from the statements contained herein.
These risks and uncertainties include those risks set forth in Radnets reports filed from the assay with the FCC from time to time, including Radnets Annual report on Form 10-K for the year ended December 31st 2018 at Radnets quarterly report on Form 10-Q to be filed.
Shortly.
Undue reliance should not be placed on forward looking statements, especially guidance on future financial performance, which speaks only as of the date. It is made.
Radnet undertakes no obligation to update publicly any forward looking statements to reflect new information events or circumstances. After that date. They were made where were to reflect the occurrence of unanticipated events.
And with that I'd like to turn the call over to Dr. Berger [noise].
Thank you Mark good morning, everyone and thank you for joining us today.
Today's call Mark and I plan to provide you with highlights from our third quarter 2019 resolves gives you more insight into factors, which affected this performance and discuss our future strategy.
After our prepared remarks, we will open the call to your questions I'd like to things all of you for your interest in our company and for dedicating a portion of your day to participate in our conference call. This morning.
Principal operating and financial metrics improved during this quarter relative to last year's third quarter.
Revenues increased 20.9%, our adjusted EBITDA increased 7.7%.
Aggregate procedural volumes increased 13% and same store volumes increased 4.7%. This is indicative of the steady quarter to quarter improvement we've demonstrated throughout 2019.
During the quarter, we continued our operational focus on further implementing the emblemhealth HCP capitation contracts that we commenced in the fourth quarter last year and the integration of two of our most recent significant acquisitions.
We now is completed the replacement or upgrade as much as the equipment in the 26 HCP locations and continue to make progress in the spring more of the HCP membership into redness freestanding facilities.
We continue to aggressively meet with HCP physicians and educate them on the benefits of utilizing the radnet facilities. As a result, we believed that the economics of this contract will improve throughout the coming quarters.
Concurrent with commencing operations of the HCP contracts, we acquired medical ours imaging in long Island, New York effective October Onest of last year.
The 10 medical centers, where our first centers in Nassau and Suffolk counties and provided us with important locations to service both the Emblemhealth HCP lives as well as other patients in long Island.
The integration of the centers into Radnet networks is substantially complete.
The centers are fully operation operational on our IP solutions revenue cycle procedures and clinical protocols. During this quarter. We also continued our integration of current radiology, which we acquired which we acquired in April of this year.
Current was our largest competitor in the greater Bakersfield, California and surrounding areas.
We have now substantially completed the merger of our two area radiology practices and had been working and optimizing sales and marketing schedule Preauthorization clinical operations and revenue opportunities.
With respect to our other areas of focus during the quarter, we made progress in our joint venture business towards expanding existing relationships and establishing joint ventures with new partners today over 85 of our 340 facilities or 25% are held in Jvs with health system part.
Yes.
These relationships have been quite successful virtually all our health system partnerships or hospital partners have been effective in driving patient volumes into our jointly owned centers. Many of these hospitals owner managed physician practices that become important referral sources for our centers.
In general we have seen that health systems are becoming more interested in purchasing or affiliating with physician practices, whether or not they owned or managed physician groups directly all of our health systems have relationships with doctors in their communities.
Physicians become well referral sources to our jointly owned imaging centers. In addition to assisting us in driving volume our health system partners provide us with negotiating strength in reimbursement discussions with private pay yours. Most of our hospital partners have significant leverage in their markets because of their importance in providing the more acute.
And expensive necessary services to insured populations our goal over the next several years is to grow our joint venture business to incorporate 50% or more of our total imaging centers.
Our objective is to become the outpatient alternative to hospital inpatient radiology departments offering fair pricing high quality service and easy access for large patient populations.
Two of our largest joint ventures.
New Jersey imaging network in New Jersey, with our partner, our WJ Barnabas Health and Beach imaging in Orange County, California, with our partner Memorial care have recently expanded through the acquisition of additional Stan centers and there remains further growth opportunities with each as well as many of our other joint venture partners.
On the acquisition front the environment for M&A continues to present us with tuck in acquisition opportunities, where we can if centers into our existing regional operations at attractive multiples of between four and five times EBITDA.
While we have seen multiples expand to higher levels for acquisitions of larger regional platforms outside our core markets targets in our markets generally do not have many options. When it comes to alternative buyers. We will remain committed to a measured and disciplined approach whereby targets Miss further our strategic direction. This.
It means that targets must have characteristics, such as a multimodality offering attractive locations and the addition of scaling capacity there furthers our goal is being the largest outpatient operator in all the markets in which we operate.
To the extent these opportunities continue to exist, we will pursue them under these parameters otherwise, we intend to accumulate cash and deleverage our balance sheet.
Our intention is to keep our leverage below four times EBITDA, where we are today and move towards 3.5 times EBITDA in the near future.
Many of you may have seen last week, the announcement of our multifaceted partnership with White Rabbit.
Using artificial intelligence and other technologies and operational protocols to address solutions for breast cancer imaging.
We recently completed a pilot program in Radnets, Delaware in Florida markets, which combined to use of machine learning and patient outreach to bring women into the radnet facilities for this screening mammograms. The trial substantially increased paid patient compliance improved operational protocols.
And drove a level of customer service more similar to other consumer facing industries.
Based on mix assesses the pilot program, we have license the white rabbit technology and back in operational platform. During the pilot, which began in July our mammography volumes exceeded our budget by over 20% in these two test markets.
We saw this trend continue throughout October and are optimistic about the impact it will have on our financial results in Delaware and Florida for the fourth quarter.
As a result of this success together with right rabid <unk>, we have begun to deploy the platform to all other radnet markets, which we anticipate completion by the end of the second quarter of 2020.
While we cannot necessarily extrapolate the same success, we're having in Delaware in Florida to New York, New Jersey, Maryland in California, any material improvement or Mammographies volumes represents significant upside to our 2020 budget.
Mcafee comprises almost 15% of our net revenue and we expect to complete almost 1.5 million mammograms in 29 team.
In addition to the system wide rollout and platform licensing arrangement, we made an equity investment in white revenue and we'll work with white rabbit to develop future solutions, including personal computer and mobile phone applications and artificial intelligence ELP algorithms to automate.
The interpretation of democracy images.
Also as a result of the relationship with right rabbit and in anticipation of the system wide rollout, we increased our capital spend on demography machines during the third quarter in conjunction with this and additional anticipated spend in the fourth quarter, we've increased our capital expenditure guidance levels to reflect our pursuit.
This opportunity.
During this quarter. This additional spend also unpick impacted our depreciation expense, which in turn lowered our net income and EPS for the quarter. We believe these expenditures. We we are making will pay dividends in the fourth quarter and throughout 2020.
The relationship with white rabbits, reiterates, our commitment to position read it with leading edge technology solutions that we believe will transform our industry in the coming years, we expect that machine learning big data applications and automation algorithms will help us to deliver our services more cost effectively.
Efficiently and accurately while enhancing the patient experience.
Our industry lends itself more than almost any other area of health services to being impacted from technology Radnet has always been able to stay on the leading edge of the technology curve.
Throughout a 30 year history, we were early adopters of high Madness Strange MRI scanners, multi slice CTG scanners pets, C.T. modality digital X Ray digital mammography, Threed mammography, RIS and Pacs, we have consistently demonstrate our commitment to digital technologies that approach.
Moving to make our business more efficient and profitable.
And most importantly, they have substantially improve patient experience.
I believe we are now at an inflection point for an entirely new set of digital opportunities as it relates to artificial intelligence and maturing machine learning.
These are technologies that have the promise to make our business processes more efficient and cost effective and can potentially increase the accuracy and delivery speed of the radiology interpretation of the exams we perform.
In pursuit of these opportunities ran it will continue to partner with those companies. We identified at the end the leading edge in developing solutions for our industry, we will adopt new solutions invest our capital in some of these companies and utilize our imaging centers as laboratories to test and refine the effectiveness of promising technology.
She's I'm certain I will have more much more to say on this topic in the near future.
But at this time I'd like to turn the call back over to Mark to discuss some of the highlights of our third quarter 2019 performance. When he is finished I will make some closing remarks.
[noise]. Thank you Howard.
I'm now going to briefly review, our third quarter 2019 performance and attempt to highlight what I believed to be some material items.
I will also give some further explanation of certain items in our financial statements as well as provide some insight into some of the metrics that drove our third quarter performance.
Lastly, I will refer reaffirmed 2019 guidance levels.
In my discussion I will use the term adjusted EBITDA, which is a non-GAAP financial measure the company defines adjusted EBITDA as earnings before interest taxes, depreciation and amortization and excludes losses or gains on the disposal of equipment other income or loss loss on debt extinguished.
Vince bargain purchase gains transaction costs, and non equity noncash equity compensation.
Adjusted EBITDA includes equity earnings in unconsolidated operations and subtract allocations of earnings to non controlling interests in subsidiaries and is adjusted for noncash or extraordinary and one time events taking place during the period.
A full quantitative reconciliation of adjusted EBITDA to net income or loss attributable to Radnet Inc. common shareholders is included in our earnings release.
With that said I'd now like to review, our third quarter 2019 results.
For the three months ended September Thirtyth, 2019, Radnet reported revenue of $292.7 million and adjusted EBITDA of $41 million.
Revenue increased $50.5 million or 20.9% over the prior year same quarter.
And adjusted EBITDA increased $2.9 billion or 7.7% over the prior year same corridor.
For the third quarter of 2019 as compared with the prior years third quarter Emory high volume increased 11.8%.
See t. volume increased 14.9% and pet C.T. volume increased 8.5%.
Overall volume taking into account routine imaging exams inclusive of X Ray ultrasound mammography and all other exams increased 13% over the prior years third quarter.
In the third quarter of 2019, we performed 2 million 55390 total procedures.
The procedures were consistent with our Multimodality approach in the third quarter, whereby 75.1% of all the work we did by volume was from routine imaging.
Our procedures in the third quarter of 2019 were as follows.
283221, m. arise as compared with 253231 m. arise in the third quarter of 2018.
217296, Cts as compared with 189155 Cts in the third quarter of 2018.
10847, pet Cts as compared with 9994 petty teas in the third quarter of 2018.
And 1 million 544026 routine imaging exams, which include nuclear medicine, ultrasound mammography X Ray and all other exams as compared with 1.366 million 433 of all these exams in third quarter of 2018.
On a same center basis, including only those centers, which were part of Radnet for both the three quarters of 2019 and 2018.
M. or I volume increased 5.3%.
See t. volume increased 6.5% and pet C.T. volume decreased 0.1%.
Overall same center volume taking into account routine imaging exams.
<unk> increased 4.7 per cent compared with the prior years same quarter.
Net income was $3.2 million during the quarter, a decrease of $1.8 million over the third quarter of 2018.
Per share net income for the third quarter was six cents compared to a per share net income for the third quarter 2018.
10 cents based upon weighted average number of diluted shares of 50.4 million in 2019 at 48.6 million in 2018.
Adjusting for the tax affected impact of $1.2 million of legal settlements in the quarter adjusted net income for the quarter was eight cents per share.
[noise] affecting net income in the third quarter of 2019 were certain noncash expenses or nonrecurring items, including the falling.
$1.4 million of noncash employee stock compensation expense, resulting from the vesting of certain options and restricted stock.
$52000, a severance paid in connection with head count reductions related to cost savings initiatives.
917000 dollar loss on the sale or disposal of certain capital equipment.
$1.2 million in legal settlements.
And $1.1 million of amortization of deferred financing costs.
Either noncash interest and loan discounts related to our credit facilities.
Overall GAAP interest expense for the third quarter of 2019 was $11.9 million. This compares with GAAP interest expense in the third quarter of 2018 of $10.7 million.
Cash paid for interest during the quarter, which excludes noncash deferred financing expenses and accrued interest was $12.8 million as compared with $9.6 million in the third quarter last year.
So.
Member Thirtyth 2018, adjusting for the par value of our term loan we had $687.3 million up net debt, which is our total debt at par value less our cash balance.
Note that this value includes the engine and net debt a $47.4 million for which Radnet is neither a borrower nor a guarantor.
At September Thirtyth 2019, we were Undrawn on our 137.5 million dollar revolving line of credit and had a cash balance of $37.7 million.
During the quarter, we repaid $11.9 million of notes is notes and lease is payable and had cash capital expenditures net of asset dispositions of $17.9 million.
Since December 30, Onest 2018 accounts receivable increased approximately $1.8 million and our net days sales outstanding or Dsos were 44.6 days a decrease of approximately six days since year end 2018.
At this time I'd like to reaffirm our 2019 fiscal year guidance levels, which we released in conjunction with our fourth quarter and year end 2018 years financial results and amended after reporting or second quarter results.
For total net revenue.
Guidance range remains at $1.1 billion to widen 0.1 $5 billion.
For adjusted EBITDA, our guidance remains at $158 million to $168 million.
For free cash flow, our guidance remains at $45 million to $55 million and for cash interest expense.
Our guidance level remains at 43 million to $48 million.
As Dr. Berger discussed in his opening remarks, we're slightly increasing or 2019 guidance range for capital expenditures as follows.
Our initial guidance range was $63 million to $68 million, our revised guidance range is 60 $570 million.
I'll now take a few minutes to give you an update on 2020 reimbursement and discuss what we know with regards to 2020 anticipated Medicare rates.
With respect to 2020 Medicare reimbursement at the end of July we received a matrix for proposed rates by CPT code, which is typically part of the physician fee schedule proposal that there's are released about that time every year.
At that time, we completed an initial analysis and compare those rates to 2019 rates.
We volume weighted our analysis using expected 2020 procedural volumes by modality by CPT code.
Our initial analysis showed.
That our Medicare rates for 2020 would be essentially neutral relative to 2019 rates.
While there was a small negative impact from the proposed pricing our performance bonus under Mips, where the merit based incentive payment system in 2020 based upon our measurement year of 2018, which fully mitigate this negative impact.
For those of you who are less familiar with Mets CMS is required by law to implement a quality payment incentive program, which rewards value and outcomes.
Performance as measured in four areas quality.
Improvement activities.
Promoting inter operative ability and cost.
[noise] Radnets performance under Meps was excellent providing us a bonus for our 2020 reimbursement, whereas a poor performance could have resulted in a negative reimbursement impact.
Last week, we receive from CMS its final rule, which will govern next year's reimbursement.
We completed a simmer and similar analysis along the lines. We performed in July on the initial proposal.
We're pleased to report that like the initial proposal in July we anticipate neutral rates to Radnet for the next year when combined with our performance under Meps.
We're obviously pleased with this conclusion.
We will continue to be focused on lowering our cost structure through using our scale and ability to drive efficiencies in our organization as well as investing in technology.
We will continue to seek pricing increases in regions, where we are essential to the health care delivery system, recognizing that our prices remain significantly discounted as compared with hospital settings.
We will also continue to pursue partnership opportunities with health systems, where we think that these arrangements could result in increased volumes and long term stable pricing from private payers.
Lastly, we will continue to acquire strategic targets at four to five times EBITDA in our core geography is that further our strength in local markets and achieve efficiencies with their existing operations.
I'd now like to turn the call back to Dr. Berger, who.
We will make some closing remarks.
Thank you Mark.
Health care is rapidly changing in the United States.
Services in virtually every discipline is health care are migrating away from expensive hospitals in favor of lower cost ambulatory settings. Why we are experiencing this slow trend in diagnostic imaging. We're also seeing this movement with the growth of surgery centers urgent care facilities outpatient emergency rooms freestyle.
Any laboratories home health and the list goes on.
The healthcare landscape is changing private payers are more focused on value based care.
For example, private payers, such as anthem, and United Health care are beginning to be more aggressive in directing their members to outpatient facilities.
Forward thinking health systems and community hospitals are more interested day in partnering with us to own imaging facilities in joint ventures.
Patients with high deductible plans are beginning to understand the pricing differences between freestanding diagnostic imaging settings and hospitals.
Health plans and third party companies are creating transparency tools to inform patients of pricing differentiation among facilities.
We continue to believe that Radnet is well positioned to benefit from all these trends.
More recently, we are making aggressive moves into artificial intelligence and machine learning.
The announcement was right rabbit, which we discussed earlier on this call is an example of such a move focused on mammography.
We we believe we perform approximately 4% of all the mammograms that take place in the United States.
And we believe we can grow this to 5% within existing facilities with the white Rabbit solutions platform.
Our phase one rollout, which we are now.
Underway with is targeting women, who have had mammograms in the past that are currently noncompliant.
Phase two will target the 25% to 35% of eligible women, who simply do not have annual or by annual mammograms as allowed in their health plans.
Beyond mammograms, we will be pursuing new technologies aimed at screening tools for prostate Colin and lung cancer as well as risk assessment solutions and other areas of preventative medicine.
We look forward to discussing some of these initiatives in more detail as they unfold in the coming quarters.
Operator, we're now ready for the question and answer portion of the cool.
Thank you, ladies and gentlemen, if you wish to ask a question we signaled by pressing star one on your telephone keypad. If you all using a speakerphone. Please make sure function is turned off to allow your signal.
<unk>.
Once again press star one to ask a question.
I'll take off first question from.
Dan Quayle <unk> of Jefferies. Please go ahead.
Hey, good morning, guys. Congrats on a strong quarter I guess the point My first question for Mark or Howard How did you guys feel about the quarter in terms of the <unk> you guys track.
Obviously same store was strong, but just wanted to get a feel of where the quarter shook out versus your internal expectations.
Good morning, Brian .
We're pleased with the results of third quarter is traditionally one where we get impacted by.
Some events, which are not always easily anticipated for example, where the two major holidays fall out July 4th and Labor day, as well as just seasonal issues related to vacations and other personal.
The behavior issues that might influence a those decisions you know, particularly a in the New York area. HM. So while these are somewhat built into our modeling.
We're pretty close to where we anticipated to be a at this point not only in the third quarter, but year to date, so using the metrics of the first three quarters of this year, which of course include the third quarter.
We're highly confident that we will as mark Reish reaffirmed our guidance levels for the whole year and by implication what the fourth quarter presents itself with again.
There was a lot of activity in the third quarter related to investment opportunities, both a externally with issues like white rabid and are continuing rollout of our Emblemhealth HCP relationship.
As well as a initiatives as we went into some detailed disgusting discussing white rabbit and that new roll out if you will have opportunities in mammography and breast screening.
I'd like to amplify on that for a moment and that's why we focus on our metrics related to screening mammograms see it should be noted that about 20% of the women who have screening them out with the need to go on to diagnostic mammography, which.
Then leads to other procedures that we do.
In relationship to rest ultrasound MRI of the breast biopsies and other procedures. So we expect as the volume continues to increase as a result of these white rabbit initiatives.
We will see that additional procedural volume filter through the organization and most importantly at the magnitude of what we are capable of doing and Mamograms fee.
Our business or that could have additional significant impacts, which we expect to see more in the fourth quarter here as we expand that rollout. So I do you have to summarize by being a pleased with the third quarter results, but more.
As a launching and a platform for the rollout of our fourth quarter, and then EUR 2020 expectations that we'll be announcing at the.
Close call a in March.
Howard just a follow up on that so as we think about the you know the volume opportunity. It sounds like you think that you got to gain at least 100 basis points of market share in biographies. So how are you thinking about the flow through that in terms of same store. I mean are you expecting a little early to think about guidance, but are you thinking that same store should.
Accelerate next year as all these initiatives with technology and white rabbits, sorry, yielding results.
Yes, Brian again, we do about 4% of all the Mamograms fee in the United States, which is a really a a reflection of the overall.
Radnet strategy of being focused in you know the five major markets that we primarily oh.
Operating and <unk> and so.
Yes, as we anticipate and with what we've seen in our pilot testing of the what Rabbit program the possibility of 20% increase in our overall volume.
HM that translates into a substantial amount of additional mammography as well as the other procedures that are.
You know roll well from that but I think I'd be remiss in and just focusing on.
Mammography in breast cancer screening, we are actively pursuing other business models that we believe much like a rest mammographies breast screening our attention is gonna be heavily focused on prostate.
Over the coming quarters, which we believe a much like breast screening should become routine.
For for men.
Almost beginning a in their very early ages. So oh, we expect to see those kind of drivers in the business that I think will be reflected in our 2020 results, but which are very much a reflection of the overall radnet business strategy being multimodality.
And concentrated densely in highly populated.
Markets I'm so.
What we're seeing now which may have hurt our margins slightly are a lot of investments in personnel as well as equipment and facilities to begin to capture these kinds of opportunities along with the more corporate functions of managing the overall.
Non imaging on site facility responsibilities that we have whether it be accounting HR.
And most importantly revenue cycle management to better prepare ourselves for not only increased volumes of better results I was particularly pleased as mark pointed out a significant reduction our and our dsos by six days, which we are.
Fortunately seeing reflected in a improved cash flow and build of cash as we demonstrated a in this quarter's results. So if we look at the big picture and use the third quarter as a barometer for.
For both what we're doing without investing and with our strong performance, particularly at the center level with the is slightly less than 5% same store center growth.
I have to say I'm very pleased with the results overall.
Got it and then I guess my follow up on that so.
It seems like you're expecting same store to be to remain strong going forward, how should we be thinking about the flow through of margin into next year as you know.
Push you if you factor in all the puts and takes on the investments you're making sure.
Should we expect the margins to flow through next year, I guess I, yeah as Dr. Berger said, we did.
We did spend or.
More aggressively in this quarter on infrastructure.
I think positions us better next year for flow through and there's a good opportunity for our margins to improve a assuming we have continued strong same center performance you know I've always said in this business that we could assume in a normalized you know in virus.
Meant to normalized economy kind of a 1% to 3% same center growth.
Growth, we've achieved that and then some this year and we've used that as an opportunity to <unk> to make these investments.
In our people in our processes in our technology to position ourselves.
For that type of flow through going forward. So I think we're all feeling very optimistic.
About a yeah, you know next year and the opportunity for for margin expansion.
We're also.
One other point I'll make also you know we we also have you know are in the process of digesting a couple of you know a substantial acquisitions you know at least you know the size that that that we do and I'm talking mostly about current medical Arts also the HCP integration and.
I spent a fair bit of money in investing in those those integrations and those.
Assets and are not yet optimized.
So I think that theres, some possible benefit that we'll see to our margins next year as a as as we optimize those operations. The one thing I will also say on margin expansion. We are suffering something from something that where were seeing throughout health care and really through the.
Our economy, which is some wage inflation at this point I'm you know the economy has been incredibly robust.
Unemployment has been at record lows historic lows and we are seeing some wage inflation that we have to keep up with and to to retain you know our employees and to attracting them place and I'm hearing that from other health care, Cfos with whom I'm friends.
With and and a we think that it's temporary and hopefully that trends ultimately reverses when the economy slows down at some point it will slowdown.
Last question for me Mark how are you thinking about M&A Oh, just in terms of.
And what's your pipeline like are you got like in the process of adjusting for that and slowing down a little bit.
Sure well, we are focused on integrating the acquisitions that we've done in the last in the last 12 to 18 months I'm, we always have an active pipeline.
Mostly filled with a small tuck in deals in our five major markets.
We have looked recently at some more sizable acquisitions potentially planting new flags in other areas of the country.
For a variety of reasons, mostly price and return on invested capital we've chosen not to pursue those transactions because they were at multiples that far exceeded the multiples that we have to pay on assets in our existing markets and when when you.
We'll go into a new area, the U.S. and other than some corporate GE at Ace synergies that we might have really there are no center level or regional operational synergies. So we've always found that we could get a better return on invested capital by continuing to invest in our five core markets and then growing from.
In those markets contiguously like like we've demonstrated particularly in the in the New York Tri State area. So I think in the next 12 months, you'll see us be active on the small tuck in transactions.
And you'll also see us expanding existing joint ventures, and entering into new joint ventures with health systems as Howard said in his remarks currently 25% of our centers are held within a joint ventures with large health systems and community hospitals, and we see an opportunity to.
Grow that business substantially over the next few years potentially to up to 50% of our centers.
Awesome. Thanks, Congrats again.
Thanks, Brian .
Thank you ladies and gentlemen, if you find that your question has to be Nancy.
So from the Q at any time things.
And as a reminder question it is.
One well know next question.
Some of Raymond James Please go ahead.
Hey, good morning.
I I know, you're Brandon something market likes us that's your.
Your rates are a lot lower than hospitals on us, but when you do one of these joint ventures. So you put a freestanding center.
Not in the hospital, but as part of a hospital affiliation.
Do you notice a a change in their rate from managed care that you otherwise would have gotten just because the hospital has better contracts.
Good morning, John .
We do not use hospital rates for the outpatient billing centers that are in joint ventures with hospitals, what we have been able to do successfully and which we are continuing to pursue is that in all of our markets whether we have.
Our centers with joint venture partners or whether we all know centers wholly ourselves is negotiate separate fee schedules with those pay or is that are reflective of what we believe our the fair and sustainable reimbursement rates. So.
Even though 25% of our joint ventures are currently.
It should any of our centers are currently in joint ventures, none of those centers are using hospital rate billings, but generally almost all of those joint ventures as rates are better than what we can negotiate by ourselves.
Can you give just some idea of the order of magnitude of that.
HM perhaps the best example of that is in New Jersey, with our hospital partner, a Barnabas health system.
I would say that our fee schedule, which is a.
Separate radnet or.
By definition, the joint ventures name their New Jersey imaging network is probably somewhere in the 10 to.
15%, depending upon the pay or better than what the freestanding imaging centers in that state.
Would get and that is something similar to what we're looking.
To achieve in other markets, if not already at those levels now.
Well just doing the simple math them, if you want to go from 25% to 50%.
Take your commercial mix.
Hey, maybe there's a 10% left.
And that mix, that's a that's a useful long term way to think about the opportunity.
I think so I think so I think oh, okay, well there whether we're looking at our joint venture.
Relationships or whether whether you're looking at our hundred percent owned centers. We're constantly in discussions with all of the pay wars regarding reimbursement rates and so well I think the joint ventures give us additional leverage with the hospital partners I think.
Bulking up and becoming even more important to the delivery systems in the markets that were in by controlling more and more access and in fact, producing the kind of quality from a technology standpoint and.
Patient experience.
As much of a driver in those discussions as it would be is if those centers were in joint ventures with hospitals.
Okay.
And just a question for Mark why such a wide range for Fourq.
[noise] why such a wide range for what.
Well, if you look at forgotten something that's a pretty wide range for implied Fourq you one out tighten it up a little bit.
I didn't hear that what did you say for Q I'm, sorry, yeah, yeah, the fourth quarter implied Oh pretty wide, so I want to tighten those up.
Oh, you know typically typically we haven't we haven't.
Tightened up ranges in the past, we've set a range and left it but I I.
We don't think that there's going to be tremendous variability but.
Ah. So we just do we just as a practice havent haven't tightened up ranges as the as the years gone by we usually have a $5 million to $10 million EBITDA range anywhere close to about a 50 million dollar revenue range and we just kind of leave them.
There's no magic.
Okay, and then I'm going.
Going to the more interesting topic of some of your strategic initiatives and prostate and breast.
How do you have solved the last mile problem of giving.
Consumers to act in a more I mean, we saw for example, a big uptick years ago, when Katie Couric and Colosky piece, and then that sort of died down and certainly you know, there's a lot of and advertising investment for cologuard and that sort of thought but how do you get.
How do you get higher level of consumer engagement and some of the screening screening tests that frankly aren't very pleasant for people and you know the utilization rates haven't really changed a whole lot over the years.
Hi, John I'll take that question and I think it's a great question and I think it goes very much to some of my closing remarks, what we have found.
And somewhat limited trial here is that the only way to really change behavior used to be more aggressive about trying to educate and contact patients.
That either have not in accessing the system or don't access it with the level of frequency that's necessary and I think the driver in that will be much like we talked about with white rabbit and using those kind of a deep learning and ultimately.
Social.
Media or social applications, but also what we're looking at is getting into more risk assessment questionnaires with some of our existing patients that help focus their attention.
On not only what are they may know about the need to do things, but give them some guidance with.
Regards to their own a history as well is perhaps genetic testing that would indicate why they are at higher risk and should seek out a these kind of screening tools.
And I need to also frame that against perhaps the most important part and that is trying to get the cost benefit of doing the screening tools down to something that is either very affordable by the average consumer.
Or something that becomes recognized by the pay or much like they have with Mamograms C of the need to do it on a mass screening basis. That's one of the reasons why I mentioned.
Our focus on prostate cancer, what we have seen now with the newer tools, both from an equipment standpoint, meaning MRI scanners as well as artificial intelligence substantially enhanced ability to rapidly.
Again, and identify a prostate cancer and if we can get the cost of that down to something similar to the range of what.
<unk> cost for screening them either free we believe the pay yours will step in and <unk>.
Beginning to utilize this more on a population health and mass screening basis to better reduce cost and extend a more to mortality the.
The.
Number of prostate cancers that we see a rather substantial and in fact I think if.
Most men live to ripe old age, we're all going to get prostate cancer, whether we like it or not it becomes really a question of how really the detected and how clinically significant it really is but the faster. The matter is that a lot of money is spent on tools like PS eight testing and other things which are.
We're really not very good in terms of being bettered directing of clinical care.
In regards and one of my main focus is John I'm glad you mentioned about Kt, Kirk and and colon ask if the if you wanted is mass screen the population for.
Colon cancer using flexible Colin I'll skippy.
I would say the chances of you changing.
You know that amount of detection of colon cancers is slim to none simply because the cost and the.
The cost both from what a patient pays out as well as having essentially to give up a day of of work or other activities is almost prohibitive, what I believe as possible and what I think will hopefully see within the next three to five years is a in advance using.
In artificial intelligence for CTP colon, asking fee, which is probably a.
Less than a five minute procedure.
Should be able to be done without any preparation and which the cost could again be down.
At the same level of what we see with breast mammography screening. So if you start focusing on what the.
Tools that are necessary to really get patients better engage it's both education as well as cost effectiveness and I think you know in the spectrum of health care tools nothing can have more of an impact on this then.
Agnostic imaging, so I think that's where you're going to see a lot about focus and why we not only started licensing the white rabbit technology, but invested in the company also because I think companies like white, rather than others that we're talking too as well as activities that we will be.
And are doing currently ourselves a inside of Radnet can have a significant impact in the delivery of health care and particularly as it relates to cancer.
Great Great answer.
Mark maybe I missed that's because I jumped on a like did you quantify in Threeq you the additional spending.
We didn't we didn't if I had to just estimated off the top of our.
At top of my had the additional investments we've made in.
Personnel in scheduling and in Preauthorization revenue cycle, probably million to $2 million.
Okay.
I mean, yeah 'cause versus our model you certainly beat our revenue forecast with a little bit of a margin give back so I suspect that's probably what it was the spending.
And just Howard what one last thing I mean, that's more of an editorial than anything else, but up but the other thing. We are seeing as you know you've got a third of the Americans and high deductible plans.
But in some cases, they're finally starting to.
Reduce the out of pocket for certain screening procedures, you know so even though you might have a $2000 Kobe. So for example for colon off the cuff they might be zero. So just simple plan design changes I think are something that we're also seeing but I'm just I don't have a real systematic way of knowing how widespread that is but I know that's something that's starting to be.
Looked at.
I I think you're spot on again John .
As you may know or not though at this point there is no out of pocket expense for screening them auger fee in most states a it is a requirement by the department of health in those states that right screening them, obviously be offered and that the patient not pay anything out of.
Pocket for that.
You can call that plan design, but you can also call. It good business I think that the future will have similar kinds of models for other things like I mentioned with prostate screening of Colin screening and lung screening for cancer and if you aggregate.
Those four cancers together, you're talking about over 80% of the cancers that cause death in the United States. So.
You know if we get to that place, which I think now because of technology not because of a you know anything special with plan design, but as technology allows these tools to be further and further rolled out on a mass population health screening basis I believe we could.
She rapid adoption of this and the overall impact to the health care system long term could be so substantial that it will change the entire thought process much like some of the conversation you're seeing on value based medicine. I think this is a cornerstone for.
Or how we how we turned the corner to get to that place.
Thank you great. That's it for me like you.
Thanks, John .
Thank you, ladies and gentlemen, once again.
So one to ask a question.
Next question from.
All of US Sidoti. Please go ahead.
Yes, I yeah. Good morning, again really solid numbers on same store family I see T. have just wondering if anything particular striving that aside from the in total investments you've been making.
Well good morning, Mitra, Yeah, I think it's just really a combination of both the investments that we're making a continuing to become even more.
Important in the various markets that we are as we expand our footprint or and I think the.
Slow turning of a big shift of patients moving from hospital based pricing to outpatient pricing I.
I think the recognition of how important it is particularly with high deductible plans, both by the pay yours as well as hospital systems.
Is really creating opportunity in the outpatient market in particularly for Radnet that is just creeping up every.
Quarter for us. So if you take all that along with I think the inevitable increase that imaging itself will experience.
As a result of an aging population and a growing population I saw statistic today that you know 10000, you know Americans every day.
Reach eligibility for Medicare benefits and in our experience the incidence of imaging utilization for the senior population versus what we call. The commercial population in other words, everybody under 65 is anywhere from two and a half.
Three times as much so putting all those factors together.
I think it's prudent for us to expect you know.
The 1% to 3% same store sale growth that Mark is.
Built into our models and perhaps with some of the new initiatives that we're undertaking.
Might see that growth, even greater which would reflect the up almost 5% same store sale growth that we ended the third quarter.
Okay. No think that's very helpful and I'm just want to capitation business. That's also growing really nice the obviously helped by the emblem contract I'm. Just wondering how we should think about that more longer term in terms of the kind of growth, we should expect from that piece of business.
Very good question Mitra I think there's two aspects of that for us to.
Talk about firstly or capitation business is is a hidden gem inside.
Radnet virtually nobody else does capitation at the scale that we that we do and within there there are benefits in <unk> in other forms of business that we get by these close relationships and it's what we call sticky business we.
Generally have had these contracts for.
Years, if not decades. So we we have that reliability of the volume and cash flow that comes from them.
The other side is that is in a much like we look at on the.
Commercial side of it or a private payers. We are reviewing constantly all of our cap allocation contracts and looking at opportunities for resetting. These rates that are reflective of growing utilization and growing needs. So.
I think they're our revenue enhancement opportunities for us a that we hopefully will be.
Able to more.
Accurately or.
Expect an expanded conversations start talking about next year, but all of these represent the business opportunities that benefit all parties and where are the need for reimbursement to not always be thought of this something that people are looking to force down but rather.
There you know paying sustainable affordable rates that allow us to continue to invest in our equipment or personnel and as we've talked about today artificial intelligence and other tools to manage.
The patient population better so we were very.
Happy with our capitation business and look at it with opportunity for the future not just as a a static part of our business.
Okay. Thanks for that and then final question Mark on the guidance obviously, it's on change I'm, assuming fires in California have not really had a material impact on operations for you.
Yeah.
I don't depends upon of course, how you define the word material.
We did lose some business a.
Fortunately not extended but both in northern California, which was not interestingly or not hit as badly this year as it was last year, but in southern California, particularly here in the greater Los Angeles area.
And in our San Fernando Valley and.
Let's see Angeles markets, where the fires.
Became.
Pretty intense and extensive we did have a perhaps one and a half to two days on average of overall downtime in portions of our markets, but mentioning that because the San Fernando Valley as one of our busiest markets in the Los Angeles area. So.
On the one hand, it was not material relative to the size of the company, but Uh huh.
A day or two loss the loss of business.
You know does hurt a but knock on wood it could have been much worse in the we're all thankful here to the firefighters and and other.
Other support teams here in California that.
Prevented us from being far worse.
Yeah, no hopefully it though it ends so and then again, thanks again for taking the questions.
Thank you Mitra.
Thank you ladies and gents.
Ladies and gentlemen, this was it for the question answer session.
To the speakers for any additional remarks. Thank you.
Thank you operator, again I would like to take this opportunity. Thank all of our shareholders for their continued support and the employs a read that for their dedication and hard work management will continue its endeavor to be a market leader that provides great services with an appropriate return on investment for all stakeholders thing.
Thank you for your time today, I look forward to or next call.
Ladies and gentlemen, this concludes today's call. Thank you for your participation you may now disconnect.