Q4 2019 Earnings Call
As a reminder, this conference is being recorded.
I would now like to turn the conference over to your host Mr., Tom Cowie, Chief Financial Officer for surgery partners. Thank you you may begin.
Good morning, and welcome to surgery partners fourth quarter and year end 2019 earnings call. This is Tom Kelly Chief Financial Officer. Joining me today are waiting to bite surgery partners Executive Chairman and Eric Evans Surgery Partners, Chief Executive Officer.
As a reminder, during this call we will make forward looking statements risk factors that may impact those statements and could cause actual future results to differ materially from currently projected results are described in this mornings press releases and the reports we filed with the FTC. The company does not undertake any duty to update such forward looking statements.
Additionally, during today's call the company will discuss certain non-GAAP measures, which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP a.
A reconciliation of these measures can be found in our earnings release, which is posted on our website at surgery partners Dot Com and our most recent annual report when filed with that I'll turn the call over to wait wait.
Thank you Tom Good morning, and thank you all for joining us today.
We bought the cover this morning regarding our fourth quarter result.
Our 2020 expectations.
Well, we begin I would like to highlight the two year journey, we've been on as a company and how we're positioned surgery partners for sustainable double digit adjusted EBITDA growth for the long term.
This journey began in 2018, we assembled a new team developed both our near term and longer term strategic goals and key initiative.
In 2018, we initially focused on building the foundation for growth, which included realigning our portfolio and eliminating noncore assets.
Integrating corporate operations to achieve economies of scale.
Directing investments to the highest growth specialties with the strongest return on capital.
Building, a pipeline of acquisition opportunities, along with our hydro specialties and targeted geographies.
De risking the balance sheet and settling a legacy matter to eliminate distraction.
And finally, establishing a culture of execution based on data driven decision, making and accountability for results.
For 2018 in the early part of 2019. These initiatives drove our actions and established a foundational poor that we believe is critical to becoming the partner of choice for the operation or short stay surgical facilities.
In 2019, we leveraged our foundation and increased our focus in investments into four key areas that we believe would differentiate us as the partner of choice.
These areas included.
Physician recruiting.
Essentially investing in our ability to attract more doctors to perform more surgeries in our center.
Managed care.
Ensuring our position partners and facilities are probably paid for the value we provide to the health care system.
Procurement delivering the highest quality items are the best possible value to our centers.
And finally revenue cycle management.
Ensuring that our facilities are accurately and rapidly collecting what we are old for the services we provide.
By focusing on these key areas and remaining prudent stewards of our capital. We believe we could differentiate ourselves as the operator choice. While also achieving above market same facility growth and double digit adjusted EBITDA growth.
Our full year 2019 results published this morning confirmed that we achieved these goals with nearly 8% year over year same facility revenue growth and double digit adjusted EBITDA growth.
We expect similar success in 2020 and continue to believe that we can grow adjusted EBITDA by double digit rates for both the immediate and long term.
Our intentional focus and execution over the past two years has afforded surgery partners expanded opportunities for partnerships with physicians providers and payers.
As many of you are aware earlier this year I stepped into a new role at surgery partners as executive Chairman and I'll be focusing my time on execution of our long term strategy and business development efforts.
Well 2019 growth was primarily driven by organic performance, we continue to monitor and attractive pipeline of tuck in acquisitions, particularly because we are off in the partner of choice for entrepreneurial independent minor physicians looking for the benefits of scale partner.
As we enter 2020, we see increased opportunity for acquisitions at attractive multiples, which are both strategic and Delevering.
I'm very excited about continuing to partner with this talented leadership team as I focus my efforts on these expanded opportunities.
I am confident and we have the right team and the right leader and Eric to continue to drive results like the ones. We've released this morning with that let me turn the call over to Eric to talk about the company's operations Eric.
Thank you Wayne and good morning, everyone.
This morning, I'd like to review highlights of our most recent results and then provide an update on the strategic initiatives that contributed to these results and that will continue to drive sustainable double digit long term adjusted EBITDA growth.
Tom will then close our opening remarks with greater detail on 2019 financial results as well as our 2020 outlook before we take questions.
I'm pleased to report we achieved our targeted double digit full year growth in earnings this year reporting full year, adjusted EBITDA of 258.6 million representing growth of 10.1% over 2018.
This performance was driven by strong growth in adjusted revenue, which grew 2.8% on reported basis and 7.6% on a same facility basis.
The strategic initiatives, we've been focusing on have started to bear fruit this year, expanding our adjusted EBITDA margins 90 basis points to 13.9%.
In the fourth quarter 2019, adjusted revenues grew 4.2% to 520.7 million and adjusted EBITDA grew an impressive 15.1% to 84.4 million.
As we look deeper into the quarter days adjusted same facility revenue increased by 7.9% from the prior year quarter, driven by strong net revenue per case and volume growth.
This continued the trend of consecutive quarterly same facility revenue growth now at six quarters.
As we begin 2020, we remain enthusiastic about the underlying growth dynamics of our surgical facilities and the strategic initiatives that will continue to provide meaningful growth.
These initiatives include our key areas previously mentioned by Wayne in his opening remarks, along with a focus on managing corporate overhead as well as they continued foundational focused on providing exceptional quality and patient experience.
As we discussed on our third quarter call. We've been working for some time to enhance our physician recruiting efforts arming our facility leadership and partners with highly relevant data and corporate resources to help recruit and retain key positions in our markets.
The success of these programs continues to manifest in our numbers.
We added a similar number of physicians in 2019 as we did in 2018 driving another strong year up revenue and contribution margin growth from newly recruited physicians as evidenced by our strong same facility growth numbers.
Our data driven focus to grow at our targeted specialties, including our total joint programs has yielded meaningful improvements in higher acuity cases.
In 2019, approximately 1300 total joint procedures were performed in our ambulatory surgery centers, which is almost double the total performed in 2018.
Currently approximately 25% of our inventory surgery centers performed total joint procedures, and we expect that percentage to increase into the mid to high 30% range by the end of 2020 as we continue to invest in expanding the capabilities of our multi specialty centers.
As you can see by these results we continue to be pleased with our team's effort and making surgery partners surgical facilities, a destination of choice for both physicians and patients.
We are equally pleased with the positive momentum we are building with payers.
Our health plan partners increasingly understand and value the benefits a vibrant independent short stay surgical facility operator like surgery partners can provide to them and their members.
Recently completed all cycle rate negotiations in multiple markets are a testament to this momentum.
In these markets, we achieved double digit commercial rate increases that contributed to our fourth quarter net revenue per case growth and adjusted EBITDA growth.
As previously shared we are actively engaged in this dialogue with many payers across the country.
We are confident we can continue to build on the strong foundation constructed over the last eight quarters.
Our model for growth remains consistent.
We believe that our base business can grow in a long term sustainable rate of 2% to 3% on volume and 2% to 3% on rate, yielding 4% to 6% same facility revenue growth.
As we looked at 2020, we reiterate this guidance with a bias towards the higher end of the range.
Results to date are proof that if we focused on bringing in the right doctors to our facilities doing procedures in our targeted specialties and focused on getting appropriate payment for the value we bring to the system. We can achieve at least this level of growth.
On top of this baseline.
For growth, we expect an additional 3% to 5% of growth in support of our double digit adjusted EBIT growth goals by focusing our team on key areas of value.
These areas include procurement.
Revenue cycle and DNA leverage.
We continue to plant season, each of these areas and we're confident they will there further fruit in 2020 and beyond.
We have built new leadership teams in these functions over the past 18 month and they continue to scale these initiatives across our broad portfolio.
In procurement, we are optimizing the impact of our GPO and are making progress achieving greater discounts and rebates on implants and other medical supply purchases.
Recent improvements in our revenue cycle efforts have improved collections in aggregated information on payment denials is helping identify front end opportunities during the early stages of our billing process that we can address to reduce such denials.
These distinctive initiatives on top of our base growth give us confidence in our double digit trajectory.
Finally, I'd like to talk briefly about my recent promotion to CEO.
Since joining surgery partners in early 2019 I've been impressed by the transformation Wayne has led over the last two years and the exceptional leadership team has developed.
I look forward to building on these operational achievements.
I spent much of my early tenure here first as Chief operating officer, and now as the CEO touring our surgical facilities and meeting our physician partners and administrative support teams.
This amazing and committed group of colleagues performed outstanding work to support the surgeons using our facilities, providing some of the highest clinical quality outcomes for patients.
It's our job as leaders of this company to provide exceptional support to this group to enable and build on their continued success in.
In future calls I will detail some of the objectives on challenging our leadership team with as we further mature our operating system.
With that I will turn the call over to Tom who will provide additional color on our financial results. Tom. Thanks, Eric today ill spend a few minutes on our fourth quarter and year end 2019 financial performance starting with some of our key revenue drivers then moving onto adjusted EBITDA cash flows and our 2020 outlook starting with the topline surgical.
Cases increased to approximately 138000 in the quarter and we ended the year at approximately 525000 cases importantly, as Eric noted this growth included higher acuity cases, which drive higher net revenue and earnings.
Our case growth also benefited from targeted managed care read improvements yielding strong revenue growth in the fourth quarter of 2019, we reported 521 million of adjusted revenues, 4.2% higher than the same period last year.
Full year adjusted revenues rose to 1.86 billion representing year over year growth of nearly 3% overcoming the loss of nearly 80 million of prior year revenue from closer divested facilities.
Removing the impact of the closed or divested facilities adjusted revenue growth would've been approximately 7.6%.
On a same facility basis total revenue grew 7.9% in the fourth quarter and 7.6% for the full year higher acuity cases, and improved reimbursement rates contributed 5.9% to this growth.
In the fourth quarter and 5.5% for the year with the balance coming from case growth.
Turning to operating earnings our fourth quarter 2019, adjusted EBITDA was 84.4 million a 15.1% increase over the comparable period in 2018, bringing our full year result to 258.6 million achieving our full year guidance of double digit adjusted EBITDA growth.
The primary driver of the increase over the prior period prior year quarter with strong operational performance, but it is worth noting that just over a quarter of our growth in the period came from two strategic actions that we have discussed previously the absence of operating losses from two surgical hospitals that we chose to exit at the tail end of 2018.
And benefits from our 2019 health insurance plan consolidation.
Our fourth quarter, adjusted EBITDA margin improved to 16.2% from 14.7% in the prior year period and on a full year basis. Our adjusted EBITDA margin also increased by 90 basis points at 13.9%.
During the quarter, we recorded 19.3 million of transaction integration and acquisition costs, bringing our year to date totaled 36.1 million.
Of note fourth quarter 2019 transaction integration and acquisition costs included approximately 11.1 million of costs associated with our de Novo Hospital in Idaho Falls, which opened in November 2019.
As I've noted before we expect to report results from this facility separately throughout 2020, our guidance also excludes the impact of this new hospital in 2020.
Net revenues and adjusted EBITDA in our ancillary in optical segments were down slightly in 2019, consistent with our stated expectations for these businesses.
Turning to liquidity metrics, we ended the year, where the cash balance of approximately 93 million with no borrowings on our revolving credit facility.
During 2019, we deployed over 37 million of capital enhancing our portfolio at highly attractive multiple of 5.4 times trailing adjusted EBITDA.
In addition, we made substantial investments in facilities in existing markets, where we operate the most significant of which was the construction of a new hospital in Idaho Falls.
The Idaho-falls community Hospital opened its doors in November 2019, and received licensure on December 29 team ahead of our initial projections.
This successful opening was the culmination of a multiyear investment and we would like to thank the teams that worked tirelessly to make this possible.
The new acute care hospital complements our existing surgical hospital and expands our capabilities in this very important market.
We're excited to be able to better serve the this community with a brand new facility and we expect to this to be a material contributor to our adjusted EBITDA in years to come.
More broadly our idaho-falls effort demonstrates our willingness to making make strategic investments across our portfolio to achieve long term sustainable growth.
We are building surgery partners everyday to be positioned to consistently and predictably achieved near term medium term and long term growth goals.
For the year operating cash flows of 129.5 million exceeded distributions to noncontrolling instruments interest by $8.3 million for the fourth quarter distributions exceeded operating cash flows by $6.3 million.
We ended 2019 with the ratio of total net debt to EBITDA of 7.2 times as calculated under the company's credit agreement.
This ratio represents a 40 basis point decrease from the third quarter of 2019, primarily resulting from the inclusion of our new facility in Idaho falls as well as higher trailing 12 month adjusted EBITDA.
Specific to Idaho-falls, we've added approximately 145 million of new debt between the financing lease obligations and equipment financing and an added approximately 25 million to our credit agreement EBITDA, reflecting our projected performance of this facility in 2022.
This adjustment brings credit agreement EBITDA for the period ended December 30, Onest 2000, $19 million to $327 million.
As we've noted before the company has an appropriately flexible capital structure with no financial covenant on the term loan or our senior unsecured notes. We continue to project that the company's total net debt to EBITDA ratio should decline naturally overtime as our business continues to grow but may fluctuate quarterly based on timing of cash flows.
Moving onto our 2020 outlook, we are excited by our progress this quarter on a variety of fronts and remain committed to high single digit revenue growth and double digit adjusted EBITDA growth as compared to the 2019 baseline.
We expect to report our 2920 adjusted metrics, excluding the impacts at both the top and bottom line from our New hospital in Idaho Falls and our guidance reflects that exclusion.
While topline growth appears until really higher than last year, we remind investors that repositioning the portfolio in 2018 removed approximately 100 million of annualized revenues from the baseline and depressed headline 2019 revenue growth.
We expect 2020 revenue growth to reflect continued strong same facility revenue growth, including the impact of our previously mentioned rate negotiations.
Adjusted EBITDA growth is expected to benefit from continued volume growth, particularly in higher acuity procedures and strong net revenue per case growth.
Our efforts in procurement revenue cycle in gene a containment are also expected to continue to pay dividends.
In summary, we believe our 2019 results continue to demonstrate our ability to achieve our targets.
We're pleased to see strong same facility revenue growth with continued margin expansion as our strategic initiatives take hold.
We continue to invest to expand existing facilities and enter new markets that will support organic growth as we begin to reap some of the benefits of the new Medicare procedures in our facilities.
With that we will open the call for QNX operator.
Thank you at this time will be conducting a question answer session. If you'd like to ask a question. Please press star one under telephone keypad, a confirmation Tom will indicate your line is in the question Q.
You may prestart too if you'd like to remove your question from the Q for participants you think speaker equipment and may be necessary to pick up or handset before pressing the star keys.
To allow for as many questions as possible. Please ask one question and one follow up each.
Our first question comes from the line of Ralph Jacoby with Citigroup. Please proceed with your question.
Thanks, Good morning.
I guess I'll start obviously, a lot on Carl the virus and the headlines.
Yes, any sense, if you've seen any impact in fourth quarter and just how you think about framing.
Potential impact behavioral impacts et cetera.
Folks potentially differing procedures.
Ralph Good morning. This is Eric not surprise, we're getting this question obviously, it's something it's on everyone's mind I'd start with just saying obviously, our first priority is the safety of our of our colleagues our patients in our physician partners that we take that very seriously to date, we have not seen an impact.
So from a scheduling standpoint from a same store standpoint as the year of started off we haven't seen that impact, but we are clearly taking steps.
To make sure that we.
Our all over our our trios policies in the and the hospitals that are in our SCS, making sure we appropriately screen patients.
Our business is less E are dependent and there's probably less access points in most places that we feel like in general.
Our ability to manage this is pretty strong but it is clearly something I don't know that any of us can predict as far as the overall impact I wouldn't want to preferred prognosticate, but I would say that to date, we have not seen an impact.
Okay.
And I guess, just the follow up question.
The cash flow number was a little bit light in the quarter anything to call out there on sort of why the weakness or maybe if you can just help us.
Sort of operating cash flow expectations for 2020 in expected capex spend as well thanks.
Sure Hey, Ralph it's Tom So as you think about the cash flows and just make you think about the year, you've got higher earnings, which obviously helps to translate.
But we have higher interest expense because of some of the transactions that we've done.
We took a some operating cash flow losses in the quarter end in the year associated with the startup costs for Idaho Falls community Hospital.
And as you think about the tax receivable agreement as well the payments on that went up this year and they'll go up again next year and those are fourth quarter payments and so the tax receivable agreement combined with the eye of CHF opening and also just your higher level of interest as compared to last year or your three primary dry.
Burst and the partial offset there is just obviously that we grew earnings in the period by 15% over the prior year period.
Do you think about next year, you will have some of the same dynamic showed a little bit of annualization of the interest rate in the fourth quarter associated with a 2027 notes on but you'll have higher income because we expect to grow double digit much as we did this year and then you're you will have additional losses at Idaho falls.
As you look at the EBITDA impact this year, we've taken full year, probably low teens.
In terms of losses at that hospital and excluded them on which we reported every quarter I would expect of the EBITDA impact in 2020 would be similar to that number perhaps a little bit better.
And but the cash flow drain from that will be probably more than two acts that we're fully anticipating that we will fund that in our outlook.
Okay. Thank you.
Thank you. Our next question comes from the line of Kevin Fischbeck with Bank of America. Please proceed with your question.
Great. Thanks.
Just wanted to ask about deals I guess, when you kind of said that you're.
Positioning within your within your role to focus more on that side of the equation should we I know your guidance does not include deals like this is for us to confirm that.
Beyond that which should we expect deals to to show up in a bigger wave. This year or is this the beginning of and initiative and it's really not until next year and beyond that we suspect that.
Actually see that the deal slow through a bigger way.
Hi, Kevin appreciate the question and good morning.
Yes, let me put in perspective, a few things let me first just start with.
When we think about our annual guidance, we view all levers as being available to that now obviously right now we have not baked in outright M&A, but I would also tell you. We still have some assets that we are planning to prune.
Throughout the next year and so there'll be some kind of re shifting the few assets at our court that are not core to FCS and be replenished with they have sees that being said.
We have a very robust M&A pipeline right now and we have up many transactions under LOI that started late last year. The actual process started early last year, but got to elevate late last year and now we're at a place where hopefully we can get these over the finish line in the first half of this year.
And we've made a number of proposals the number of entities.
I highlight this though to say that.
Teen because our focus was pruning the asset and redeploying that capital back into our growth initiatives.
That was that was kind of goal number one and goal number two was then establishing a foundational core and proving that we could get the effective returns through these acquisitions.
And then of course last year, we started doing that on a smaller scale, but during the plug and play into the infrastructure, we built and actually seeing it has a proof points. So.
So the long and short to your question Kevin is.
So the pipeline is robust I would expect us to announce a lot more transactions. This year than we did last year I would expect some of these knock on wood will be we'll be announcing at either at the end of Q1 or into early Q2 that we got some of these over the finish line and then how those play into our double digit earnings growth is really a reflection of.
The items were looking at divesting, several which are under LOI as well and whether they will just replenished the short term EBITDA that we've divested or whether there will be additive to our EBITDA I do think for the year, though will be at an additive physician.
Okay, great. Thanks, and then I guess the last couple quarters, you spent a lot of time talking about the ramp up of.
Positions that you recruited.
Can you give any color about what your guidance assumes this year as far as this has recruited this year relative to the last couple of years and then.
How you're seeing.
The ramp up of volumes of risk reduction.
Sure. This is Eric a couple of things on that we've talked a lot about our are really data focused approach to this in recruiting over the past couple of years and we've been pleased with those results.
This year, we have added a chief growth officer, and some additional resources to that goal and we do expect probably a slightly better number of our positions recruitment number this year than last year. We were pleased with this year's number in particular, we're pleased with the focus specialties and the docs that we're keying in on.
The big difference this year that we can say is that the the doctors we had were significantly.
Bigger impact on our financials, both earnings and revenue and so we are seeing the acuity growth. We expect we as you know there's a lot of opportunities opened up for us with the CMS additions to what can be done today as season, we're taking full advantage of that so we actually expect that number to continue to grow as far as this has recruited this year, we've definitely invested in that area and it will come to.
I need to be a huge focus.
Tom if you want to add anything to that no I mean, I think we've gotten a lot smarter every year as we think about how it is that we want to invest and how we get our ROI and I'm confident with the folks that we have added in terms of additional focus in this area that we're going to take a very good.
Result, in 2019 and really accelerated in the 2020.
Great. Thanks to squeeze one last clarification and related to routes earlier question about kroner virus. So you're not seeing an impact now does your guidance assume that there will be an impact or is it kind of you're not seeing it so you're not.
Adjusting your guidance.
There is no there's no. There's no plans that are visiting our guidance related to credit virus I would say, obviously look I don't think anyone's in a position Divnich diapers procrastinate.
Make a prediction as to what's going to happen, but I with our business so far.
We have not seen an impact and again ours, a very elective business.
We don't have the same type of kind of acute infrastructure most of our facilities very few he ours and to date, we feel like the impact has been very Matt actually we haven't had one so but again, it's a moving target and we get new information everyday on this I think our biggest focus here is to make sure we do our part.
To keep our patients.
Colleagues and physician safe and and we think we're well positioned to do that.
Great. Thanks.
Thank you. Our next question comes from lines as Chad Vanacore with Stifel. Please proceed with your question.
Thanks.
I actually just want to follow up on Kevin and Ralph's question I missed what did you say about expected startup losses for Idaho falls in in 2020.
Sure. So if you add up all the pieces for this year.
The EBITDA losses that we have excluded.
Our kind of low teens in terms of an EBITDA impact.
And I would expect that this year will be excluding something similar we've got a lot of fixed costs. We did receive licensure. So we are expecting that we will start to have revenue to offset that so the losses will not be as bad.
And but we think that over the full year.
They won't be as concentrated as what you saw in the fourth quarter and so we think that that number is slightly better.
In 2020 versus what it was in 2019 and very concentrated in the fourth quarter, but as you look at what the cash flow impact of that is because of the way that we financed the building and other things Youre really looking at kind of a two X impact in terms of a cash flow impact for this year.
And we've we've fully contemplated that as we think about our guidance and we think about our liquidity in availability to ensure that we've got the appropriate capital set aside to fund that loss on which we then hope is going to start to turn in 2021, and really then accelerate in terms of growth in 2022, Yes, I would add one thing that just for contact.
Having opened a number of hospitals over the years. This market is a market, where we know it well, we're well positioned from a value standpoint, we're well positioned with our reputation our physician relationships and this is one of those hospitals, while all hospitals will incur losses as they start up the turn on this hospital will be as fast as any I've seen and we feel really really positive.
About where the topicals going in the coming years.
Alright, and then just on the M&A question.
You said you plan to prune some assets.
The pipeline is robust in the past you guided us to somewhere between 3% to 5% external growth on revenues via acquisitions should we be thinking that growth is really flat in 2020.
Not necessarily not necessarily I think the one thing I would highlight is it's always about timing. So as you know it's you don't have a deal done until the deals done and so one of the things we have going is.
We've got a couple assets that were proving that our clearly not core to what we do as an entity.
And that will become clear and and the timing on those were anticipating probably closing those sometimes in to Q.
We are hopeful to get a few of these otherwise done in early Q1, and then the pipeline is robust enough that if we can come to some terms on a couple other acquisitions. We're looking at this could actually be positive net positive this year, meaning we replenished the EBITDA that we lose and we actually start growing EBITDA through M&A again, so right now I would I would bias towards.
Positive growth from M&A after new even after neutralizing those that we divest.
Alright and.
And then just one other thing you had mentioned that in knee replacement started picking up in the fourth quarter and I think third quarter. We asked about this you thought it was tough to quantify that initial impact. So now you've got a quarter under your belt, where do you see these knee replacement is going to you.
Yes, so I'm not going to give to direct guidance on this as far as exactly how fast the other day shutdown. The hospitals I will say, we're seeing an increasing comfort level among stocks in many regions of the country.
With moving.
These out of acute care hospitals today as season to different the appropriate care setting I also will say that one of the big health. We've talked about this in the past we've been doing needs in our assets for a while commercial needs. The now that we can do Medicare it's a big advantage from a scheduling standpoint physicians don't have to split up schedules were seeing that that advantage and we expect that to continue.
To grow I mean, there's this theres predictions out there that within the next five years up to half of the total joints can be done an assay is I've seen that I don't think its unreasonable, but that timing is always tough you as an example.
We think about the stuff. It's been added this year for cardiology. So as you guys know the PCI than stenting was added to the seamless. This year. If you think about that and just relative terms. It was 10 years ago, maybe more when they first started allowing pciethree done in hospitals without open heart backup which in theory that should have been the moment. They were allowed to asses. This stuff takes time its.
Based on regulatory but it's also based on physician comfort level. So across the country. We have some states where physicians are bringing all their joints and feel extremely comfortable and are having great results and other parts of the country. It is just beginning and physicians are still getting used to this concept. So I would say the maturation levels are quite different across the country. We expect that trajectory to continue to be at really.
It's positive for us.
But it's hard to predict the exact kind of movement timing, Hey, Chad one other thing I just want to clarify so the fourth quarter print does not include any Medicare teekay because those procedures are eligible starting in the first quarter and so the numbers that we've talked about earlier are really all commercial right. So we've had a focus over the last.
A couple of years in.
During our seems to be able to do total joints for commercial populations in anticipation of being able to potentially start doing Medicare knees, and hopefully hips and a couple of years in those same facilities and so about a quarter of our SCS today have the capability to do a total joints and we're going to add probably about 10 to.
Abilities to that list this year and really as we continue to expand our ability to service that population across our footprint.
Alright, Thanks, a lot.
Thank you. Our next question comes from the line of Brian Tanquilut with Jefferies. Please proceed with your question.
Hey, Good morning, guys I guess my first question is for Wayne as we think about.
Joint ventures and.
M&A outlook. It seems like there is interest increasing interest from hospitals to outsourcing JV. This so.
What are you seeing on that front and then I guess the second part of that is historically surgery partners of the company focused mostly on the two a joint partnership strategy. So.
No my just walking us through the thinking on.
Potentially partnering with hospitals and what that does to your model in the economics of the business.
Hey, good morning, Brian. Thanks for the question, Yes, I think an important point you raises its not just about M&A, it's really about these jvs.
And the value creation that comes through them as a reminder, today about 5% of our businesses in these three way jvs and it's generally been isolated to some academic institutions that we've got good relationships with say Vanderbilt here in Tennessee, or you CLA in southern California.
But as we look at that and if you compare that just historically, what some of our previous competitors had in terms of three way Jvs. We are we are less than 25% of where they were at on these three way jvs on a percentage of total book basis, and so as we've been evaluating those I would tell you and I've said this in the last couple of calls that's my optimism on entering into.
More partnerships with hospitals that need a partner to run in AOCI strategy for them is high I would tell you that we are having ongoing and regular dialogue with not only local systems, but regional and national systems right now.
And we are in the process of doing some black box work and a number of our facilities to understand what does the mutual value creation. We can bring to them was our ability to run a very efficient operation coupled with the fact that they've got large ecosystem footprints and how they can drive volume to these facilities and so.
That work is well underway to the point that I wouldn't be surprised if we announce some JV opportunities and ventures this year.
And so.
And those to me or just another tool in the toolbox that give us our confidence in our 10% plus growth model that we've laid out and I think that's why we continue to just say double digit where that lands remains to be seen but I think for us.
We like we like the way, we're approaching it and I do think that a couple of years of solid execution really opens up a lot of people's eyes around what we can do to manage their platform.
So.
Very bullish on this on this opportunity for us not only on the M&A, but but I would say probably even more bullish on the JV is right now.
The only thing I would add to that and I think when when covered it very well is that because of our historic.
Position of not having a lot of freeway jvs that also opens up opportunities for us to partner with health plans and so we're we're on both sides that depending on the region.
We clearly one of make sure that we remain a value player.
And we believe we create that in every one of our markets and in there are cases, where we are much better off working with the health plans and being that large independent operator in a region, but there are other times, where clearly makes sense to partner with like minded health system. I think that is a the optionality. We have given our industry structure is a really big piece of value for us.
I got to fall so that last what Eric.
Being a value player and marrying that with what you guys have been doing in terms of trying to bring your rates to market how much juice do you see left in terms of.
What is the percentage of contracts, where you're still below market or the ability to ratchet up again.
What he calls inflation increases going forward on those contracts if you've already renegotiated.
So I will say, it's significant we still have a number of markets, where just based on market data. We have a significant opportunity just to be at the market of the value playing industry, where ends so we still see upside there clearly what we would prefer to do is find a way to move that up in partnership where we're also collaborating on how we actually move business to the right place do so it's a it's a volume.
Well you trade, but we have lots of opportunities in several markets, we have a lot of negotiations underway.
And we see significant upside in our ability to capture more of the value, we're creating and be paid fairly while even at the same time and I will tell you in the negotiations that we have completed.
While we got significant increases we also at the same time have been have the payers collaborating with us to move business, because we're still a value player with those increases. So I think our job is to find the sweet spot of where do we create value and also remain that independent partner, where people want to move additional volume because where the right place for their patients.
Hey, Brian one last thing this is a tough one to really quantify although I will tell you we've done our own math and I don't want to put numbers out that.
That everybody wants to see us print, but what I would tell you is the opportunity is not millions, it's not even tens of millions, it's well north of that and I would simply just tell you that the key isn't about going and just capturing short term value creation, it's about capturing sustainable value creation. So when you ask about kind of where we're adding this journey I would say we have.
Barely scratched the surface on the delta between what we should be getting paid versus what the market is paying today versus what we actually get paid and so those are really three different levers you have to think about its where we stand versus where we want to be to be the value play versus where the markets actually paying today, which is even above that so.
A lot of runway for us as a company and that's what gives us our optimism over the long term around double digit growth.
That's very helpful. Thanks Wayne.
Thank you. Our final question comes from the line of Frank Morgan with RBC Capital markets. Please proceed with your question.
Good morning, I guess to stay on that total joint in terms of that timing going from 25 facilities that have that capability up to the.
Mid to high Thirtys.
Hello that staggered over the course of the year and what is the capital requirements for doing that.
Yes, Great question, Frank we we have a number of facilities already identified that have the space in the capabilities of doing joints quickly rights as a lot of these these centers that were adding our multi specialty centers, where we're adding total joint capability that doesnt require a lot of capital now there are also obviously examples where we have to expand ours, we have to add new rooms.
Capacity those get a lot more expensive, but the ones that we have identified that move us from the mid twentys to the mid Thirtys do not require much capital, it's simply a matter of getting docs comfortable giving that protocols in place.
And so we were were quite and we have a clear path to the soon as we put out there as far as more centers, adding total joints.
There are additional opportunities beyond that but some of those do require more capital.
Got you and so is this the spread of those is it kind of back end loaded so the impact in the current year is not that meaningful or is this kind of ratably spread.
I would say, it's relatively normal curve and we've guided we've got varying levels of of ready to go we had two two new centers in the first so far this year that has started joint program. So they've done their first joint so it'll be spread across the year end I don't expect it to be any kind of it it's not going to be pick it back loaded or front loaded.
Gotcha and just one question on the volume side I think you all called out last quarter, you something like seven 750 procedures may have been deferred because of some hurricane related issues just curious.
It Didnt I kind of thought maybe you could see more of a.
Impact of that in the fourth quarter number, but just any color around that thanks.
Yes, so I'd first I will say, we were pleased our for our fourth quarter growth, both acuity wise and positive volume growth. As you guys saw a couple percent case growth. It's always hard to know on procedures like that when it comes to a day loss in surgery I think Wayne mentioned this last time like de Los Yes. It spreads out you hope to get it back it's hard to always pin all those down I would assume some of that's in that.
Number, but I don't buy though that I made a huge impact and in total we were quite pleased with the with the growth we posted.
Okay. Thanks.
Yes, so with that I think that was the last call and before we conclude our call I just want to take a moment to join my surgery partner colleagues and say thank you to our over 10000 sows associates in over 4000 physicians, who make up our care system for their contributions.
Surgery partners collectively serves over 600000 patients each year in thousands of patients each day and what are often they're absolutely most vulnerable moments, we take that trust and faith that our physician partners and patients placed in us incredibly seriously and our privileged to make a positive difference in so many people's lives Im excited about and humbled by the opportunity to lead this company as we work to more fee.
Only deliver on our mission of enhancing patient quality of life through partnership in our efforts. We are clearly part of the solution to many of the challenges facing our nation's healthcare system and are extremely proud of the value. We are creating for all of our stakeholders as we execute against our goal to become the preferred partner for operating short stay surgical facilities across the US It is the daily.
Birds have each and every surgery partner colleague and position that will get us there. So I want it definitely say, thank you to them and thank you for during our call. This morning and have a great day.
Thank you. This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation.