Q3 2021 Surgery Partners Inc Earnings Call
Greetings welcome to surgery partners third quarter 2021 earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
Anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
Note. This conference is being recorded I will now turn the call over to your host Tom Koski. Please go ahead.
Good afternoon, and welcome to surgery partners third quarter 2021 earnings call. This is Comcast <unk> Chief Financial Officer. Joining me today are Wayne debate surgery Partners' Executive Chairman and Eric Evans Surgery Partners' Chief Executive Officer as a reminder, during this call we will make forward looking statements.
Factors that may impact those statements and could cause actual future results to differ materially from currently projected results are described in this afternoons press release and the reports we file with the SEC.
The company does not undertake any duty to update such forward looking statements. Additionally.
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 reconciliation of these measures can be found in our earnings release and in our most recent quarterly report when filed which will be available on our website at surgery Partners' Dot com.
With that I'll turn the call over to Wayne Wayne.
Thank you Tom Good afternoon, and thank you all for joining us today.
As we approach the end of 2021, we continue to be encouraged by the resiliency of our business model and the execution of our associates in these rapidly changing times.
The third quarter had many headwinds to navigate including surge in COVID-19 cases, labor shortages and inflation and a major hurricane in Louisiana that impacted a number of our facilities.
Despite these headwinds the strength of our value proposition combined with our organic and inorganic strategies.
<unk> and 10% year over year case growth and record breaking quarterly revenues of $559 million.
Our third quarter, adjusted EBITDA grew to $76 4 million, representing 25% growth over the prior year quarter.
While we continue to remain cautious as to the impact of the previously mentioned headwinds on our operations. We are pleased to be able to increase our full year 2021 outlook today to between $325 and $330 million of projected adjusted EBITDA.
Our growth continues to be driven by our relentless focus on and execution of our key strategic drivers.
Some highlights.
Our physician recruiting efforts continued to outpace last year's strong results. Our current active physician base, having added nearly 10% new physicians to our facilities. This year is now over 4400 strong and continuing to grow.
Total ASC joint replacement, which approximately doubled in 2020 compared to 2019 continue to grow in 2021, increasing approximately 108% on a year to date basis as compared to the prior year period.
This growth is led by Medicare total joints, which grew by approximately 300% year to date and now represents over one third of our ASC total joint procedures.
On a same facility basis, we continue to be pleased with our same facility revenue growth.
Which increased eight 3% in the quarter over a more normalized third quarter 2020 baseline.
Volume made up over 6% of this growth while net revenue per case increased by approximately 2% as the return of lower acuity cases, such as ophthalmology, and Gi, partially offset other rate and high acuity growth.
When compared to the 2019 pre COVID-19 baseline quarter to date same facility revenues are up nearly 17% as compared to 2019 with approximately three points attributed attributable to volume growth.
On the capital deployment front, we spent much of the year identifying and negotiating with potential targets, while maintaining a disciplined approach we.
We are pleased to announce that we have closed over $130 million of transactions. So far this year at an average adjusted EBITDA multiple of less than seven five times. The vast majority of which was deployed in three transactions that closed August of 2021, and then a syndication transaction that closed this week.
Our pipeline continues to expand driven by the persistent efforts of our business development teams.
Currently we have approximately $225 million of single site acquisitions under letter of intent at attractive multiples that are expected to close in the next three to six months subject to our typical due diligence procedures.
We continue to target deploying at least an additional $100 million in proceeds by the end of this year and at this stage. We believe we were highly likely to exceed our annual capital deployment goal of $200 million in 2021.
In summary, we are executing well on our growth plans we.
We remain a leader in an industry with significant tailwind and a total addressable market of 150 billion.
With high acuity muscular.
Skeletal surgical cases, and cardio procedures continuing to transition to our purpose built surgical facilities.
We are executing on our organic and inorganic strategies and plan to be a consolidator in this highly fragmented industry.
With the benefit of capital deployment and a continued strong pipeline of both organic and inorganic opportunities. We believe our business is capable of sustained mid teens adjusted EBITDA growth.
With that let me turn the call over to Eric to walk you through some of our recent accomplishments in greater detail.
Eric.
Thank you Wayne and good afternoon, everyone. Today I'll focus my comments on providing a few additional highlights on our third quarter results and some of our key strategic initiatives before covering our outlook.
We were very pleased with our third quarter results highlighted by adjusted EBITDA, They grew 25% as compared to the prior year quarter.
Total company revenue growth of nearly 13% led by a strong year over year revenue growth at our new hospital in Idaho falls, which achieved revenues over $21 million in the quarter and posted its first profitable quarter of EBITDA contribution.
Margin performance was also solid in the third quarter with adjusted EBITDA margins of approximately 14%.
Margins, which reflect our continued investments in our near and long term organic growth initiatives, along with headwinds associated with labor shortages and inflation are projected to increase in the fourth quarter of 2021, consistent with historical performance as seasonal commercial mix intensifies.
Our ability to drive industry, leading same facility growth is a direct result of our investments in physician recruiting targeted facility level and service line expansion and our data driven value based approach to managed care contracting.
We achieved these results while also overcoming substantial headwinds, including heightened COVID-19 centers in some of our larger surgical facilities and hurricane Ida, which disrupted several of our facilities, including our surgical hospital in Houma, Louisiana, which remains closed at this time due to the severity of damage is not expected to reopen until late in the fourth quarter.
We continue to see new and increased physician demand for our short stay surgical facilities and our targeted recruitment approach remains focused on attracting the highest quality physicians.
As we noted we are executing well in this area and our 2021, new physician class is 7% larger when compared to the new position class of 2020 at this stage in the year.
Another key component of our industry, leading same facility growth has been the investments we've made to become a national leader in outpatient total joint procedures in our ambulatory surgery centers.
Our current footprint now counts 39, asce's that perform outpatient joint procedures across 17 states, we have grown ASC joint volumes by 108% year to date after nearly doubling our volume in 2020.
Robotics cases are up 62% year to date on an installed base that has reached 14 of our ambulatory surgery centers with 34 total robots deployed across our surgical facilities.
While ASC total joint procedures still represent a small portion of our overall case mix. They are an important and fast growing part of our value proposition to consumers providers and payers.
Another focus for our team has been to position our business to capture the longer term opportunity in cardiology.
While cardiology has always been a focus at some of our surgical hospitals, including Lubbock cartons surgical hospital in Bakersfield Heart Hospital. We also have new our revitalized programs in 2021 at four of our inventory surgery centers and one additional surgical hospital with plans to expand to another six locations in 2022.
Our ASC focus to date is in cardiac rhythm management procedures, including pacemakers, ICD implants, and replacements and loop recorder implants, but we're also looking at expansions into higher acuity intervention to include <unk> as those procedures were approved by CMS for <unk> last year.
We look forward to continuing to update investors on our progress in this area over the coming years.
On the consolidation front, we are pleased to have closed the acquisition of three facilities during the third quarter deploy.
Deploying over $130 million of capital year to date.
As Wayne mentioned, our current pipeline remains robust with approximately $225 million of additional single site opportunities under letter of intent.
These acquisitions remain in our core specialties, and very appealing geographies and at attractive multiples that will improve over time as we bring our expertise and operational efficiency as well as recruiting managed care revenue cycle and procurement to bear.
We also continue to explore ways to enhance our unique position and independent structure and value based care arrangements, both through new product opportunities and partnerships and hope to announce details in the coming quarters.
Moving on to outlook for the remainder of 2021.
We continue to be optimistic about the trends as we enter the fourth quarter of 2021 with strong support from our year to date results improving national Covid hospitalizations and a full quarterly benefit from our recent acquisitions, we have raised our outlook guidance to $325 million to $330 million of adjusted EBITDA.
As we think about the longer term our goal is to grow adjusted EBITDA in the mid teens, driven by volume right in efficiency gains and with the benefit of $200 million of annual capital deployment.
At this stage, we have no reason to believe that 2022 will be an exception to our growth formula even with the headwinds our industry is facing.
To summarize we are excited by our progress so far this year and we remain confident that we can continue to build on this momentum.
With that I will turn the call over to Tom who will provide additional color on our financial results and outlook.
Tom.
Thanks, Eric first I'll spend a few minutes on our third quarter financial performance before moving on to liquidity and some considerations. We have as we move into the final quarter of 2021 and into 2022.
Starting with the top line surgical cases increased 10% in the third quarter to nearly 140000 cases, driven by recovering volumes in our ophthalmology and Gi business lines as well as acquisitions, partially offset by lower case volumes in our pain management business.
Revenues for the third quarter were $559 million, nearly 13% higher than the prior year period.
As Eric mentioned reported results included approximately $21 million of contribution from our new community Hospital in Idaho falls up 39% increase as compared to the prior year quarter.
On a same facility basis total revenue increased 8% in the third quarter looking.
Looking at the components of this increase our case volume was 6% higher than the prior year period and net revenue per case increased 2% driven by a return of lower acuity cases to pre pandemic mix levels turning to operating earnings our third quarter 2021, adjusted EBITDA was $76 4 million.
25% higher than the comparable period in 2020 or 15% higher than the comparable 2020 period when the impact of cares Act grant is excluded.
As a reminder, due to changing regulations, we reversed certain prior cares Act grant accruals in the third quarter of 2020, which ultimately were recognized in later periods.
No grant funds were recognized in the third quarter of 2021 at September 30, we have less than $1 million of grants deferred liability on our balance sheet.
During the quarter, we recorded $10 2 million of transaction integration and acquisition costs. The primary driver of this expense was onetime external spend on closed and pipeline acquisitions.
Of note third quarter 2021 transaction integration and acquisition costs did not include any losses associated with our de Novo Hospital in Idaho Falls for the first time since the hospital began operations, we do not expect to adjust for Idaho Falls community Hospital results in future periods.
Moving onto cash flow and liquidity.
We ended the quarter with a strong cash position of $330 million, which.
Which includes approximately $80 million of Medicare advance payments, we have held these advanced payments as deferred revenue in our financial statements Recoupment of these funds from future Medicare revenue commenced in the second quarter and is expected to continue into early 2022.
Moving back to the third quarter surgery partners had operating cash net inflows of $15 million, which included the CMS recruitment of approximately $20 million related to the Medicare advanced payment program in.
In the quarter, we deployed $102 million on acquisitions syndication activity and Capex investments.
Looking forward to the remainder of 2021 some of the other material uses of cash include a tax receivable agreement payment of $21 million in the fourth quarter.
<unk> funding for the Idaho Falls community Hospital.
Repayment of 50% of the deferred payroll taxes from 2020 of <unk> 8 million.
And over $30 million of projected additional repayments for the Medicare advanced payment program this calendar year.
Further we expect to deploy capital in acquisitions throughout the remainder of the year with a goal to close at least another $100 million of transactions by year end.
As we evaluate both our cash on hand, and our untapped revolver. We project, we will have sufficient liquidity to execute on the full $225 million pipeline that both Wayne and Eric discussed if prudent to do so.
The company's ratio of total net debt to EBITDA at the end of the third quarter as calculated under the Companys credit agreement was 625 times up slightly from the second quarter, primarily due to the deployment of cash at attractive multiples that were higher than our leverage ratio and also due to the repayment of Medicare advanced payment funds inside the quarter.
Normalizing for the impact of the remaining Medicare advanced payment funds. The total ratio of net debt to EBITDA would have been approximately <unk> two times higher.
Moving onto our outlook as we evaluate our full year revenue or momentum and closed acquisitions gives us confidence to now project that we will achieve between 19 and 21% revenue growth over our 2020 results implying revenues of approximately $2 two one to 225 billion.
Yeah.
Relative to adjusted EBITDA, Our primary profit metric, we project that we will achieve between $325 $330 million in 2021, implying between 100 $105 million of adjusted EBITDA in the fourth quarter.
This projection assumes continued COVID-19 impacts, including labor inflation and incorporates a small benefit from the recently completed syndication activity at one of our larger surgical hospitals mentioned earlier. We currently project that other pipeline acquisition activity is likely to transact late in the fourth quarter and the benefit of such activity.
Is likely to be modest but could represent further upside to this projection.
We are currently in the midst of our planning processes for 2022, but wanted to provide investors with some thoughts on headwinds and tailwind as we evaluate our 2022 growth goals.
These include the benefit of cares Act grants in 2021 that we are not projecting to recur in 2022.
And the likely return of sequestration.
These headwinds are offset by.
A continuing return of volumes and our COVID-19 impacted business lines and geographies.
Organic growth and efficiency initiatives the.
The annualized <unk> of our completed 2021 transactions and the impact of any additional 2021 or 2020 to acquisition activity.
As we evaluate these headwinds and tailwind at this early stage in our process. We project that we will achieve at least $370 million of adjusted EBITDA next year and look forward to updating and refining those estimates as we move through our processes and see how our acquisition pipeline continues to develop.
We've stated for years now that we believe we have a powerful business model that benefits from favorable organic trends demographics, and a fragmented marketplace that provides ample opportunity for consolidation.
Our 2020 run results speak to the strength of our operations and our business model and we believe that 2022 should continue to capitalize on that momentum.
With that I'd like to turn the call back over to the operator for questions operator.
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Please limit yourself to one question and one follow up.
And your first question comes from Kevin Fischbeck with Bank of America.
Okay, great. Thanks.
Just want to add.
Turning to your guidance for a second here.
Very helpful <unk>.
370.
But I guess one of the things in the process I Didnt hear you mentioned, that's kind of a headwind really was labor cost can you give a little bit of SaaS. It sounds like that might be a pressure into Q4, and how are you thinking about that.
Do you think about next year's guidance does that moderate or are you assuming some pressure in there as well.
Hey, Kevin Let me start and then I'll ask Tom to throw a little bit on there and I appreciate the question.
First and foremost I do want to remind folks that our business model is fairly unique in that most of our individuals that work for us are on a such schedule theyre not working necessarily weakens or extended over time.
And they've worked with these physician partners for a big part of their life and career and so.
I'm not saying that we are isolated in any way shape or form from the broader labor dynamics that are affecting the industry as a whole, but you really should know that.
We're somewhat insulated, though from the impacts that are as meaningful to others versus our own business and so with that being said, we clearly were impacted in the quarter.
But we feel we have the ability to kind of manage through them I think Eric you recently had looked at some data on those just kind of looking at our year over year comps back even the 19 and kind of our wages and labor versus today and how we how we rapid rapidly reduced our staffing, but then to build back up but maybe comment a little bit on some of those statistics as well sure. So I guess <unk>.
Reiterate Wayne's point, we certainly are not immune to this but just to put some perspective around and if you look at our labor as a percent of revenues SWM B, it's actually at a lower level than it was in 2019. So we clearly have markets, where we're feeling this impact and I guess I would add so big picture. If you think about that that we feel like it's been managed quite well in part.
The reason we've had such success there is a lot of the labor efficiency actions. We took during the pandemic have held and were able to have that number actually come in lower than it was in 2019, which we're pretty proud of.
Add to that just a little bit more about our business, we try to hold core staff and all of our facilities to meet the general demand and then we work with flex Flex staff as most facilities due to deal with the peaks and troughs that flex that has a lot of pressure right and we see that we're working through that the good news is our continued efforts around getting more.
And about how we scheduled cases, how we run our <unk>, we think that allows us to manage that appropriately and it's showing up that way so far yes.
Yes, I think Kevin to answer your specific question relative to the guidance as we think about headwinds and tailwind that's certainly one.
But we think that it's manageable as we think about some of the efficiencies that we still can get out of our operations and hopefully as we see a little bit of the COVID-19 hospitalization subside some of the demand for contract labor will subside as well and some of that pricing will normalize and so as we consider all of those factors.
We think that we've adequately reflected that in our preliminary outlook at this stage.
Okay. Thank you and then I guess the other comment on guidance.
You mentioned that the return of volumes normalization of volumes into next year is going to be why the tailwind can you just remind us.
Like you are saying in Q3 are kind of back to a normal mix as you might expect it but I guess the comment is more kind of a year to date can you remind us.
What areas are still kind of year to date below average in and how we should think about that volume versus price dynamic as we as we go into next year without assuming at the lower acuity specialties and how to think about that.
Yes.
That last point is a great one Kevin because I think some investors got a little confused by our second quarter print because the return of lower acuity cases had a dampening effect on some of the net revenue per case growth.
As we look at.
As we look at our business lines actually consistent with what we would have said in the second quarter with the place where we're probably feeling the most pension is still the pain management business and we still are materially below 2019 volumes.
We're actually probably about 10% off of what we would've seen in 2019 now some of that is portfolio reshuffling, but some of that is just those are those tend to be office visit based and those office visits haven't returned to the same pace that we might have hoped that they would have by this stage.
I would say, even as we look inside our orthopedics business, though one of the things. That's really interesting is as you do a double click there we are seeing growth in a lot of the higher acuity procedures, but some of the lower acuity orthopedics procedures that are really tied to sports medicine have not rebounded and are actually still depressed relative to some of those 2019 levels.
And then you look at other specialties, which are small percentages of volume like <unk> and <unk>.
They are in almost that pain management kind of category. They tend to be office visit follow through and so we haven't seen that rebound and so there's a couple of business lines that they are lower net revenue per case, but they're excellent profitability for us, especially when you think about putting incremental volume through existing shifts in capacity.
So we're hopeful that as we see some of that return that will help to offset some of the other headwinds that we're seeing from <unk> grants, which were not projecting or any impacts from sequestration to help us normalize some of that out.
Alright, great. Thanks.
Next question, Ralph <unk> with Citi.
Hi, Thanks. Good afternoon. This is Jason <unk> on for Ralph Jacobi I guess.
I would like to have for Q commentary with the and Youre expecting above $100 million EBITDA can you walk through what gives you what gives you the confidence of that number and maybe.
Maybe if I missed that can you help us parse out the benefit of acquisitions that are embedded in <unk>. Thanks.
Hey, Jason This is Wayne let me maybe start off with obviously, we have some insights to October results in terms of volumes at this point in time clearly too early for us to be closing our books since we're only two days since the month ended.
That being said, we also start getting early reads on what November scheduling looks like at this point so.
Still a lot of.
A lot to do in the quarter and December is always a very big month for us, but some of the confidence really just comes from what this team has done over the last three plus years and the ability to execute and find a way to get to where we need to get to.
You should recognize that.
We actually have some some confidence in underlying results that had been able to not only overcome some of the labor we talked about in some of the general inflation pressures, but it's important to recognize that we had a hospital that was fully shut down a surgical hospital and home, Louisiana for the entire month of September and we are anticipating that will not reopen until the end of the.
Quarter, and so we believe the core run rate looks strong we think it's.
Indicative of the fact that if we can come out of the third quarter with the elevated COVID-19 that we saw that there is a lot of reason for optimism going into the fourth quarter. So it's more really a function of.
We're data driven in how we evaluate our business.
We hold our executives accountable for execution and we would expect to continue to deliver and I would just point out on the Q4. When you look at that number I would also point out that it's really it matches our previous seasonality. So we're not we're not actually showing you a percentage in Q4 thats not matching up with what we've done over the last several years.
We do have of there are some acquisitions in there it's not a huge part of that number and certainly Idaho falls as we mentioned you can above the line this quarter it'll be a contributor to the fourth quarter, which it hasnt been historically, so we feel good about that number it matches up with historical performance and early indications are that that trend is.
Holding.
Yes, I would say the only other point.
Point out there is we've talked I don't think this has dramatically changed from kind of the updates that we gave folks after the second quarter.
But I'd also say maybe the one new thing here is the recently completed syndication transaction and I think that as we think about that relative to the hospital that we're not going to see any benefit from over the remainder of the year. Those two are pretty close to counteracting each other and so we think this is indicative of where kind of the run.
Right will be.
Got it okay, Thanks, and I guess just my.
A follow up just wanted to turn to capital deployment.
Your commentary around at least a $100 million offer the rough expected for the rest of the year and can you just maybe delve into that $225 million pipeline. It seems like it keeps increasing and what's driving this accelerated capital deployment outlook and then.
Just quickly can you just remind us what your criteria for acquisitions outright.
And if youre looking to build out any certain specialties or is that geographic concentration or maybe just what youre looking for there.
Yes.
So let me on bundle a little bit of this and start by saying, we clearly are focused on what we view as the high growth specialties.
With the broad industry dynamics that have several tailwind that would include muscular skeletal.
Cardiology.
Type procedures.
We're still always attracted though to other businesses such as ophthalmology and Gi if we can get those assets at attractive multiples.
In terms of the robustness of the pipeline I would simply say that.
The pipeline is kind of a.
In some ways a living organism in that.
There are things that we put under LOI that ultimately when we get to the quality of earnings we may or may not like and there are things that we continue to like and the LOI is a very important gating process, though for us to get to.
The acquisition that we think not only aligns with those specialties that we just highlighted but more importantly, with the type of company. We think we can drive real value and growth from.
And so that being said many of these transactions and that $2 25, as Tom said, we felt we could do at least another 100 million this quarter or are well in the due diligence phases and in the latter parts of those phases that gives us a lot of confidence that there is more reasons to believe we will get these over the finish line and there are to not believe that.
I don't think the robustness of pipeline is going to diminish I mean at the end of the day. This is a business that if you want to be successful scale matters and it's a business that if you really want to grow and grow disproportionate to the broader industry scale matters and I think the more that surgery partners can continue to execute and show the value creation for the facilities we bring on.
The more the more it becomes a little bit easier to convince the next acquisition that we can really drive the value that we're telling these positions. So.
In general I really don't see the pipeline slowing down, but Eric anything you want to add no I would just remind everyone. The biggest companies in this space have you added us altogether were less than 20% of the total market right. We've got over 4000 centers out there that are potential targets and so we've got we've got a lot of running room here, where obviously our national national.
Gail independent operator that has a particular attractiveness to a lot of docs, who like that independent approach.
And we're having great success, there, we don't see that changing we certainly like our pipeline. It is in high growth specialties. We do look a lot of demographics, we dive deep on all of these so clearly we have robust criteria. We go through but we feel we feel good about the pipeline, it's not slowing down and.
We're excited to continue to execute on that for the foreseeable future.
Got it alright, thank you.
Next question, Brian <unk> with Jefferies.
Hey, guys congrats on a good quarter.
I guess my first question in your press release.
<unk> talked about the strength in the quarter, you talked about or you highlighted health plan collaboration is one of the drivers of that maybe you can just help us think through what that is and how thats playing out and how that's driving growth.
Sure. Thanks, Brian I'll take that and thank you for the kind comments on the quarter, we're happy with it as well.
We are working with a lot of major health plans all the time on discussions and as you can imagine health plans are quite interested in finding ways to get more patients to our sites of care and so we we've talked about this some in the past, but there is there is definitely growing and broadening discussions around how do you get the incentives right for specialists to take there.
Cases to the best place possible for those based on value and so increasingly you're seeing payers be more open to this idea of raising processes.
Finding other incentives to get position to go to the right side of care and then just broader broader partnerships around how do we collaboratively think through with a pair for those high dollar specialties, where we can make a big difference. So total joints, where we might save them 20000 case cardiac cases, where we can save them, we're saving them five figures they really start to.
Matter for payers and payers I think are increasingly focused on site of care as one of their primary ways to control cost and so we hope to have more to talk about in this case I will tell you, we're having a lot of conversations not only with payers, but I would say value based care providers in general some of the new <unk> any of the any anybody in this space that trial.
To find ways to be part of the answer on the health care cost continue them when you get to procedures were in the sweet spot.
We're independent we don't come with conflicts, we have the ability to lower their cost trend and those conversations are only increasing and we expect to have a lot more to talk about that over the coming quarters.
Okay, and then I guess my follow up question, you talked about how yes, Medicare joints were up 300%. So how much runway do you think is left there in your view what percentage of joints are being done outpatient now and where can you take that.
Yeah. So we're just we're just getting started their ads. So it's been a tremendous growth we grew at a 100% nearly 100% last year, we're up again over that this year I would say this if you look over the next 10. The next decade, the amount of joints being done in the outpatient setting I think triples, your CAGR something over 20, right and so we're just getting started.
On the opportunity, we clearly believe that we can take this disproportionally take market share in this space because of our our facility presence because of our experience.
So we're early we're still early innings in joints, obviously, its a lot farther along in cardiology.
But what we.
We feel like over the next six to 10 years. This is going to be a tremendous growth engine for our industry.
Yeah.
Awesome, Thanks, guys Congrats again.
Thank you, Brian and Brian.
Next question Whit Mayo with SBB Leerink.
Yes.
Hey, thanks.
Eric you mentioned earlier, some efficiency opportunities around scheduling I was just hoping maybe you could.
Delve into a little bit more detail there just anything new around either a peri operative or post operative that makes you enthusiastic about finding some some additional efficiency opportunities going forward.
Yes, so where does.
We've gotten a lot more sophisticated on our data driven approach to scheduling we have better visibility than we've ever had part of that was built out during the COVID-19 pandemic, but the ability to take like centers across the country and compare how what our costs look like how efficient we are scheduling what the gaps are between different cases, how we line up specialty.
<unk>.
And actually take a data driven approach to say I've got 20 centers that are below our median.
That opportunity can be a lot of money and we know it's not always easy to get but at least gives us a very data driven way.
Identify where we have opportunities and so we're just we're getting better at that path. All the time, we're getting the pandemic allowed us to have a different conversation with our positions around operations and they have been much more engaged on helping us think through the best way to to lineup cases, the best way to ensure you don't have gaps, we're really really disciplined about the right people.
In the room, that's not a problem for us like every time, we're going to have the right staffing in the room. The real the real Magic is how do you minimize gaps and how do you stage your cases and specialties in a way that allows you to maximize that over time, which is our most precious resource and just from a data standpoint, we're making strides there and we believe that efficiency opportunity as we continue to push.
Through on that getting cases started on time minimizing the gaps being able to make sure that our all of our rooms are as utilized as possible. That's an opportunity that we think can help us offset any pressure we might have on the labor side.
That's helpful and maybe just an update around revenue cycle.
Just where are you in consolidating some of the systems I think he has got many disparate systems out there.
<unk>, maybe just on like contract management things Youre doing to.
Reduced some of the claims leakage.
Yes.
Thanks for that.
The.
There is a rumor.
A lot of opportunities still on revenue cycle.
The I will say, we do have a distributed system, but we actually do as we've evaluated it we do quite a good job out at our facilities.
When we have a decentralized operation it tends to be reasonably efficient.
That said you hit on one of the places where we're focused on trying to drive data improvements and Thats contract management and so we have various tools that we use across our ASC most of which are on one platform HST.
We do use some of the tools that they provide to help us to understand under and over payments, which is really what a contract management system is looking to do.
Our rolling out a new contract management platform. We've had great early success with that we've used it at a small handful of some of our surgical hospitals and we'll be rolling it out to another wave coming.
Coming months.
And as we've gone through that we've had a lot of lessons learned but we've also seen a lot of additional opportunity even at some of our higher performing facilities and so on Rev cycle continues to be a place where I think based on our history.
<unk> standardized a lot of our operations and there still remains a tremendous amount of opportunity there and our teams are going after it on a on a weekly and monthly and yearly basis.
Okay. Thanks, guys.
The next question Gary Taylor Cowen. Please go ahead.
Hey, good afternoon, thanks for taking my call.
My two questions I wanted to ask about supplies a little bit.
Positive trend there at least as a percent of revenue and I presume that's still when we look year over year, partly the.
Lower acuity procedures coming back is there anything else to think about in terms of <unk>.
Supply trend and then particularly with.
Joins moving up et cetera, as we move into next year do we still think theres a favorable percent of revenue on supply chain.
Yes, we are.
Made a lot of progress there Gary over the course of the last couple of years, just getting the average.
<unk> of our implants down.
We have targets.
Particularly at our surgical hospitals, where there was a lot of disparity.
And we're actually moving now towards our ASC, so as that becomes a bigger business to ensure that we don't have a local contracting where we're not getting the best price based on the number of joints that we buy as a system.
I think we've seen some pressure on some of the PPE items, but thats been reasonably manageable.
I think we've done a better job and tightening our protocols to ensure that we've got a safe procedures that are being done with the appropriate use of PPE not access to us, especially given some of the price increases that we've seen there much as we've made real strides I think in ensuring availability by by having things like a centralized work.
Houseware, we we have a couple of months of PPE on hand to ensure that supply shortages or disruptions are not really going to interfere with that but I think that theres a theres a tremendous amount of opportunity. There. There is also opportunity just in enhancing our spend that's on contract and so one of the things that we've started to.
Do right now is we're rolling out a new system for our procurement to enable us a to make whole lives of some of our associates easier and make buying decisions simpler and that also helps us to ensure formulary compliance by showing individuals' life of products, where they might be more cost effective because they are on con.
Tracked with our GPO. So a lot of our teams are doing a great job on the procurement front, we've seen year over year enhancements and they have driven meaningful dollars of synergies and we don't expect that to stop anytime soon.
I appreciate it just one more quick one on professional fees I'm, just trying to make sure we're modeling that right I'm not sure.
Last year is a good comp, but kind of versus 2019, that's been running up a couple hundred basis points percent of revenue is that just a mix effect of either Idaho falls or some of the geographies on your ASC acquisitions.
<unk> that that's impacting that that number as a percent of revenue.
You nailed it on the head most of the increase in that number is associated with.
With the Idaho Falls community Hospital.
Okay, and so 2019 is not a good comparison period because that hospital opened in mid to late November of 2019.
So youre, probably looking at a better run rate now for what we think those are reasonable expenses our year to date.
Got it thank you.
Next question Bill Sutherland with benchmark company.
Thank you.
Nice quarter, despite Ida in Delta.
Delta.
Speaking of which can you give us a feel for the size of the impact that they had on the on the quarter.
Covid I think is a little bit harder to attack, where we can talk a little bit about that but.
Maybe I'll, let Erik do that more specifically.
We lost in the month of September about a half a million dollars at our closed facility in Homer.
And we excluded those.
Was that loss from our results, we havent made any prospective adjustment, but we have excluded the losses and we expect to continue to exclude any losses until that facility reopens, which we expect to be late in the fourth quarter as we think about what the impact of that is in terms of loss profitability.
Probably about $1 million over the course of 2021.
But and maybe Eric can talk a little bit about some of the COVID-19 impact.
I mean COVID-19 just like.
We've heard from many of our peers. This last this past quarter, the third quarter was by far and away our heaviest COVID-19 period now keep in mind I'll put that on context, we are primarily an elective business. Although we have some hospitals that have.
<unk> and <unk> do see a fair amount of emerging emergency patients it was by far and away our highest number of COVID-19 patients we've treated.
The impacts for us are kind of interesting in that in some places the impact really isn't so much directly on us as it is the availability of post acute or higher level care beds, and so as we think about higher acuity procedures. Some of them require a transfer to our post acute facility <unk> you need to in case of complication have the ability to transfer to higher level facilities that was in <unk>.
And some of our markets that again as we expect that to reverse as those beds are opening up which we're seeing in many of those markets. So the third quarter was we were impacted by Covid. We were impacted by Covid in several markets. There are geographies that were impacted where you saw some cancellations certainly there was some pressure on our ability to do some of the higher acuity procedures, we would normally.
I'll be able to do but I'm really proud of how the team managed through it still delivered a good result, and we see those.
All of those challenge related to Covid, we see as being.
Transient it's just a matter of how long it lasts and we were positive. It's good to see the positive trends for Q4, but whatever happens what I'm really proud of is our facilities have shown that they are a safe haven for surgical patients we've done them very safely in all kinds of COVID-19 environments.
We feel like that will continue.
Great.
Just one more on the M&A front did you did.
Can I read right here that the.
The entire.
Hello.
Bundle of Av.
Deals that Youre looking at our single site.
Or are you buying groups.
This is when it's a good question no you heard it correctly those are single site facilities that we have around $225 million and the pipeline under LOI. Currently obviously, we continue to look at more facilities and just that we continue to look at platform assets.
But at this point under LOI its a single site.
<unk> facilities.
And your more traditional two way deals for the most correct.
Correct.
Okay.
Thanks, gentlemen.
Thank you.
Next question <unk> with Stifel.
Hey, good afternoon.
I think you called out $20 million revenue contribution from the Idaho Falls halls Hospital and positive EBITDA for the first time and it looks like you got 19 could you provide more color on the improvement given the higher employee census, there.
I think you also mentioned in the past it will facility should be off Q2 'twenty.
While we are seeing EBITDA, but how should we think about the speed at that then.
And how much up at 370 million guidance.
The contribution from de Novo.
So I'll jump in here, we have been including the revenue in that hospital. This year is the first time, it's come above the line on EBITDA and it was small in this quarter, but it's nice to have a positive obviously launching a new hospital during a pandemic was not ideal timing.
And so that hospital has been impacted by that look we're really positive on that market that $21 million of revenue was pretty big growth over prior year. It was COVID-19 impacted in that market as many of our markets have been.
But they continue to see growth they continue to make progress we still believe in the long term $25 million opportunity in that market I do think with Covid and the delay of some of our more acute plans, including becoming a trauma center and some other things we want to get done there clearly that timing has been impacted but we remain incredibly bullish on Idaho falls our position in that market.
But that community hospital, and its potential and its continuing to make progress.
Behind but we're excited about where it's going.
Can you comment on the guidance how much of that is in that 370 more involved with guidance.
It's a modest year over year increase now realize that we haven't actually are you talking about for the full year. There is a benefit thats inside the fourth quarter for 2021 for.
For next year, I think that the ramp that we're currently anticipating as we complete our processes right. So not like I have a formal approved budget that I am talking to here.
Looking at Big Macros, we don't anticipate that it's going to be a meaningful year over year contribution.
It's probably going to take a little bit longer for some of the services and some of the other programs that we have there to launch, but we think it will be positive momentum as we think about 2022.
Okay, and just one more on the.
The return of the 2% Medicare sequestration next year could you quantify the dollar impact on your revenue.
Yes, probably the easiest way to think about that is if.
If you say hey, how much is your Medicare revenue, it's between 35% and 40% of our total.
And Youre looking at maybe a 2% headwind there and rough math, you look at kind of 60% impact for that EBITDA less NCI that NCI impact the minority share. So you are probably looking at plus or minus $10 million headwind from sequestration.
Great. Thank you. Thank you for taking my questions.
Thank you our last question comes from Frank Morgan with RBC capital markets.
Good afternoon, most of my questions have been answered, but I guess you have.
Mentioned, the syndication that's coming up.
Transaction, that's coming up here in the fourth quarter, just curious if you could give us a little bit more detail about the specifics there.
The size of it and the contribution that will make thanks.
Hey, Frank.
One thing to keep in mind first of all this is all what I'll say is it's a facility that we are extremely bullish on.
We had a number of physicians that were in the latter stages of.
Production in terms of their involvement and prepared for retirement and so from our perspective.
We actually like the idea of buying up into the facility.
Knowing where we see this asset going over time, what it really does is it gives us a lot of flexibility now on whether we want to re syndicate to some of the new recruits we bring in or not relative to the economics in the quarter I kind of view it a little bit of a flush with what we had happen with our surgical facility that had to be closed now for the remaining <unk>.
Water due to the hurricane so net net.
Yeah.
It will be positive run rate going forward, but but as it relates to the quarter and a lot of ways. It's offsetting the headwind from a closed facility.
Okay. Thanks.
Okay.
I'll now turn the call over to Eric for closing remarks.
Great well first of all I appreciate everyone's time and before we conclude our call today I do want to take a moment as we always do to say thank you to our over 10000 colleagues in over 4400 positions for their many contributions this past quarter saw the most stress on the U S health care system from the Covid pandemic as compared to any quarter to date and I'm humbled by the efforts of.
Our frontline colleagues and partner physicians as they continue to fill our fulfill our mission to enhance patient quality of life through partnership.
As we execute against our goal to become the preferred partner for operating short stay surgical facilities across the U S is the daily efforts of all of our colleagues and physicians in the field and all of our corporate staff here that will allow us to get there. So thank you to them and thank you all for joining our call. This afternoon and hope you have a great day.
This concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.
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