Q4 2021 Surgery Partners Inc Earnings Call
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Gritting son, do Worldcom do surgery partners Fourthquarter, 2021, Onyx conference call.
At this time, all participants are in listen only mode.
<unk> Chin and answer session will follow the formal presentation.
If anyone should be quiet Alfredo assistance during the conference distress stars it on your telephone keypad.
As a reminder, this conference is being recorded.
I have now like to turn the conference over to your host Dave Doherty Chief Financial Officer. Please go ahead.
Good afternoon, and welcome to surgery partners fourth quarter and year end 2021 earnings call. This is Dave Doherty Chief Financial Officer Joy.
Joining me today are weighing debate surgery partners executive Chairman.
And Eric Kevin 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 afternoon's press release.
And the reports were filed with the SEC.
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.
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, which is posted on our website at surgery partners Dot com and in our most recent annual report when filed.
With that I'll turn the call over to Wayne Wayne.
Thank you Dave Good afternoon, and thank you all for joining US today before we begin I would like to take a moment to thank all of our employees and frontline workers supporting the US health care system. During these unique times, a truly embodied the American spirit of caring and providing for others and we appreciate the opportunity to support these efforts and to have the privilege of serve.
Being our communities.
Turning to our financial results.
I'm pleased to report full year adjusted EBITDA of 339, 6 million, a 32% increase as compared to the prior year for the full year. We performed just shy of 550000 surgical cases, nearly 20% more than 2020, and almost 5% greater than the prepaid demick period in 2019, resulting in annual revenue.
You have 2.2 billion, a new record high for surgery partners.
We are especially proud of these results as our company was not isolated from the continued impact of the pandemic.
With rising cases in successive waves of the Delta and army crime variance associated labor pressures in a rapidly changing regulatory landscape.
As we've discussed before our operating model has proven resilient in this dynamic environment and the board of directors continues to be proud of how this management team and our 10000 plus associates has navigated these challenges, while providing the highest quality care to our patients.
As we look closer at our fourth quarter results were impacted by regional COVID-19 cases, some labour pressures in select markets and the continued recovery from Hurricane Ida in our Louisiana facilities.
Despite these headwinds are results continue to affirm the power of our business model and the value proposition we provide.
So notable highlights of the fourth quarter include the following.
Net revenues increased to 610 million approximately 11, 3% growth over the prior year quarter.
Same facility revenues increased by nine 6% compared to the prior year quarter with five 2% higher net revenue per case, and four 2% case volume growth.
New physician recruiting efforts continue to produce strong outcomes, adding 24% more new recruits to our facilities in the fourth quarter compared to the same quarter in 2020, we.
We now estimate over 4600 physicians use our facilities on a regular basis.
And finally, the transition of procedures out of traditional acute care inpatient settings continues to accelerate joint replacements, and our asce's were up 55% as compared to the prior year quarter and approximately 88% for the year.
We continue to believe that our strong financial results are a reflection of the numerous macro tailwinds associated with the benefit of performing procedures and a high quality lower cost patient and physician centric studying with a total addressable market of over $150 billion. Our company was built for this moment in time.
Before I turn the call over to Eric I would like to take a moment to discuss the M&A pipeline and our efforts to continue to consolidate this highly fragmented industry.
After raising significant capital in 2021, we are pleased to announce that we have closed approximately $325 million in transactions at an average adjusted EBITDA multiple of approximately eight times, including three deals that were closed in late December .
Our business development team consistently manages an active and robust pipeline that remains strong heading into 2022.
As a point of reference we've already deployed and incremental $34 million acquisitions since the beginning of 2022.
As Dave will discuss in a moment we.
We entered 2022 with a strong balance sheet with significant cash on hand, and and Untap revolver.
This position gives us conviction to reach our commitment to deploying at least $200 million capital for the full year 2022.
I want to emphasize the confidence we have in our long term growth prospects. Our management team continues to demonstrate their ability to navigate the complexities of not only the pandemic, but other challenges as it executes on the organic and inorganic growth strategies to provide significant year over year growth.
Off the strength of our fourth quarter reported results and recent acquisitions, we're raising our outlook guidance for 2022, adjusted EBITDA to a range of $370 million to $380 million. This outlook is inclusive of the anticipated headwinds, we see associated with the pandemic, including labor and supply cost pressures with that let me turn the.
Call over to Eric Eric.
Thank you Wayne and good afternoon.
Today I will focus my comments on three areas that will explain my optimism for the company as we enter 2022 and are updated guidance for the year.
First I will provide a few additional highlights of our fourth quarter results.
Second I'll spend a moment talking about our most recent experience with Covid, the omicron variant and the Labour pressures, we've seen in our industry related to clinical care.
And finally, I will discuss our organic growth initiatives as well as dive a little deeper on a recent acquisitions and the increasing focus we are placing an dinovo development and health system and health plan partnership opportunities as our industry continues to migrate care to the highest value setting.
As we indicated we are pleased with our fourth quarter results, which demonstrated strong top line growth and higher adjusted EBIT margins.
The growth in total reported revenue was greater than 11% and nine 6% on a same facility basis.
As we've mentioned throughout this pandemic our business model has been affected by illnesses that are temporarily affected some of our physicians clinic.
Clinicians and patients, but these tend to be temporary and site specific.
Surgical patients, which grew by over 10500 and the quarter compared to the prior year quarter are often reschedule within weeks if necessary due to the nature of these cases and the fact that our facilities are increasingly sought after by all can stitch within the healthcare system.
That makes a surgical cases specialties is also largely stabilised in line with our expectations as Gi cases have rebounded to above prepandemic levels and our investments in recruiting positions that focused on higher acuity orthopedic cases continues to be successful.
Our ability to manage through the significant impact of Covid and the quarter demonstrates the resiliency and popularity of our business model.
Another factor that we are watching and managing very closely as the labour pressure seat in our industry. As we said before we are not isolated from these pressures, but we are somewhat insulated due to the workplace environment in which we operate in.
And our fourth quarter results reported. This afternoon, you will know that our labor Cross were just under 29% of total revenue consistent with our third quarter, but about 100 basis points higher than the reported amount in 2020, we.
We certainly anticipated some of this increase but where we projected and where it showed up where in those regions that were affected more significantly by the omicron variant.
Most notably in our California facilities.
Based on our comprehensive review, we believe these pressures are localized not widespread and largely temporary responses to supply and demand pressures. We have considered some of the regional labor rate pressures in our plans for 2022 rest.
Rest assured that we constantly monitoring closely manage these costs. When we saw this trend begin to emerge in early 2021, we developed more robust and detailed intelligence reporting that enhanced our operators and executives ability to proactively managed labor efficiency premium labor statistics and other key metrics with the objective of rapidly identifying hotspots.
As well as best practices.
Early trends, we are seeing in January support our view that any labour pressure. We experienced is largely temporary regional hotspots of COVID-19 related deferrals and labour pressures that abate nearly as quickly as they arise.
Dave will talk about this in more detail next but are reported adjusted EBITDA of $114 $4 million for the quarter and 339 $6 million for the year represent a new all time high for our company.
We continue to benefit from a relentless focus on physician recruitment and targeted facility level in service line expansions that contribute to higher overall revenue per case rates and generate the highest contribution margin for our portfolio.
Let's walk through each of these areas starting with physician recruitment.
As Wayne mentioned are recruiting team was very productive in the fourth quarter recruiting 24% more positions in that quarter in the prior year quarter.
For the full year 2021, we recruited nearly 625, new surgeons, 13% more than 2020 across all of our core specialties meaningfully outpacing the loss of physicians due to typical attrition such as retirement or relocation.
We continue to be bullish on the migration of procedures to our lower cost settings, particularly in the orthopedic buying and cardiovascular specialties over 80% of our facilities perform S. K procedures and approximately 60% had the potential to form cardiac procedures, which we believe is the next big wave of migration.
To earn this growth and support our specialist recruiting we've been investing in robotics state of the art clinical equipment and or capacity to position us is the most convenient and efficient provider for these high growth areas.
For example, we now have 39 robots in our system and expect that number to be forty-three by the end of 2022. Since 2019, we have double the number of robots in our facilities.
All of this has helped fuel our growth and M's K procedures, particularly total joined cases, and <unk>, which have grown 88% in 2021 when compared to 2020.
Our orthopedic procedures exceeded 90000 and have grown by 50% since 2017, when we strategically focused on this specialty we.
We do not see this growth slowing in the near future.
While we remain focused on growing the specialty we are preparing for the next wave and cardiac procedures that is in the very early innings, not only are we investing and equipment and renovations of existing facilities to capture this migration. We're also increasingly focusing on our pipeline of dinovo opportunities and partnerships with key influencers in this space.
As Wayne mentioned, our pace of capital deployment has accelerated with approximately $325 million of acquisitions completed in 2021 at multiples consistent with what we have a store historically scene of approximately eight times.
We've talked about the strength of our pipeline in the past and that was demonstrated by the pace of acquisitions completed in December where we put $185 million to work in three separate deals, including an orthopedic surgical hospital in Omaha, Nebraska, which we are very excited about and proud to add to our platform.
Supporting this important aspect of our growth as a dedicated development team, which is now supplemented by dedicated functional teams that are involved in all phases of the deal from due diligence through integration.
This approach gives us greater confidence and seamlessly integrating new facilities into our portfolio and to enhancing the future growth of these facilities.
We target acquisitions pricing around seven to nine times, adjusted EBITDA, plus or minus depending on the specialty, but we target our internal team to bring that down at least people turn within the first 18 months based on our platform synergies.
So far are 2021 acquisitions are on track to hit this aggressive target.
At in the pipeline remains strong in 2022 as Wayne mentioned in January we close to additional deals for approximately $34 million within our targeted multiple range.
Our process for executing on M&A opportunities is now core to our DNA and allows us to begin focusing on additional areas of organic and inorganic growth such as dinovo partnerships and partnerships with health systems and health plans, we will share more news on these fronts in the coming quarters. As there are exciting opportunities that are in the early stages of development. We are also exploring unique partners.
Chips that position us to earn higher market share from large and growing physician practices incentivised by value based compensation.
Earlier this month, we announced a partnership with previous health in the state of Montana. This partnerships gifts previa an entrance into this important geography and gifts are facilities access to best in class position clinic technology that fosters efficiency, allowing our doctors to focus on what matters most their patients.
Although this deal is projected to be neutral to our 2022 earnings. It represents a potential long term value creation opportunity as we expand our high value services across the state of Montana together.
Together, we are monitoring this partnership in anticipation of it's bleeding to additional strategic growth opportunities elsewhere in the country.
Moving on to guidance as we think about the momentum. We have is an organization that performance of our business allowed us to guide to at least $370 million of adjusted EBITDA on our third quarter of 2021 call, which we reaffirmed in January of this year.
Since then having developed our operating plan for 2022, and having delivered a strong fourth quarter print. We are raising our 2022 adjusted EBIT guidance to a range of $370 million to $380 million with revenue growth of at least 12% over 2021.
Underlying this updated guidance is a great deal of optimism in 2022, returning to what our new normal will be and earning our share of the continued migration of high acuity cases should yield very strong results, particularly when coupled with our completed M&A as Wayne stated, we continue to target at least $200 million capital deployment every year in 2022 is no exception.
With our January acquisitions, we're starting out strong we are also being somewhat cautious as we are cognizant that COVID-19 remains a part of our lives and with it comes the potential for labor and supply cost pressures and short term volume disruptions.
As the year progresses, we are confident that we can manage through these risks as we did in 2021 or.
Our teams are highly aligned and we are executing on our initiatives across business development recruiting managed care procurement revenue cycle and operations to achieve our goals.
To summarize our position our company's differentiated strategy is built on the premise that we provide a cost efficient high quality and patient centered environment and our purpose built short stay surgical facilities and now more than ever our value proposition is solidify with key stakeholders in the health care environment.
We remain confident in our long term long term organic growth model and we believe that scaled independent operators such as surgery partners in collaboration with our position partners are uniquely positioned to grow in this new marketplace.
With that said I will turn the call over to Dave who will try to provide additional color on our financial results and our outlook Dave.
Thanks, her first I'll spend a few minutes on our fourth quarter financial performance before moving onto liquidity and some considerations we have as we move into 2022.
Starting with the top line surgical cases improved by seven 8% in the fourth quarter to approximately 145 pounds and with GI cases, returning to normalised levels and the contributions from our new acquisitions that were partly partially offset by lower case volumes in our pain management business.
Revenues for the quarter were $610 million 11, 3% higher than the prior year period.
On the same facility basis total revenue increased 9.6% in the fourth quarter.
Looking at the components of this increase our net revenue per case increased approximately 5% and case volume was approximately 4% higher than the prior year period, driven by acuity mix and pricing.
Continued recovery of case volume from the pandemic and favorable recruiting efforts.
Turning to operating earnings our fourth quarter of 2021, adjusted EBITDA was $114 $4 million at 26% increase from the comparable period in 2020.
These results include an $11.6 million impact from cares Act grants that were recognized in the fourth quarter of 2021 compared to $9.2 million in 2020.
Year to date, we have recognised 37 $9 million of cares that grants as grant income translating to $25.3 million and of adjusted EBITDA impact.
As of December 31, 2021, we have approximately $4 million of grants deferred at the liability on our balance sheet.
During the quarter, we recorded $15 $1 million of transaction integration, an acquisition costs with a meaningful amount of this overall expense related to our acquisition and divestiture activity in the fourth quarter.
As we disclosed in the third quarter of 2021 transaction integration an acquisition cost did not include any losses associated with our community Hospital in Idaho Falls as the facility began producing positive adjusted EBITDA.
Moving onto cash flow and liquidity.
In November of 2021, we closed on our second significantly oversubscribed equity offering of the year, resulting in net proceeds of approximately $306 million.
Proceeds from this offering we're partially used to fund the $185 million in acquisitions that were completed in December .
We ended the quarter with a strong cash position of $390 million, which includes approximately $60 million of Medicare advance payments.
We have held these advanced payments is deferred revenue in our financial statements.
Recruitment of these funds from future Medicare revenue will continue through the second quarter.
Moving onto cash flows in the fourth quarter surgery partners had operating cash flows of approximately $20 million.
We made a 21 million dollar payment under the tax receivable agreement and as I mentioned in December we closed three deals worth $185 million. These deals have an average year one deal multiple of approximately eight times.
As you've heard us discussed before we target a range of five to six times credit agreement leverage.
We think that range represents a good balance between maintaining an appropriate capital structure, while acknowledging the significant equity value, we can create through accretive deployment of capital.
The companies ratio of total net debt to EBITDA at the end of the fourth quarter as calculated under the company's credit agreement decreased to five six times.
[noise] normalising for the impact of Medicare advanced payment funds the ratio of total net debt to EBITDA would have been approximately 10 basis points higher.
This leverage ratio was positively impacted by the equity raised in November partially offset by our acquisitions.
We expect this leverage to float in the upper five to lower six times range in the near term future.
2022 is also a turning point for us as we expect to begin generating positive free cash flow from operations that we can redeploy.
Some of the other material uses of cash include the last of the largest payments under our tax receivable agreement in December for approximately $20 million.
Continued funding for the Idaho Falls community Hospital maturation and the repayment of the final 50% of deferred payroll taxes from 2020 of $8 million.
We're also expecting material cash inflows from a shareholder lawsuit settled late last year and an earn out payment from our 2020 sale of anesthesia assets collectively work approximately $40 million.
We have further opportunity to meaningfully lower our fixed charges. If we refinance our 2027 notes, which are callable at 105 in April of this year and carry at 10% coupon.
Or $210 million revolver was undrawn as of December 31, 2021.
As we evaluate both our cash on hand, and the untapped revolver.
We project that we will have sufficient liquidity to execute on the 200 million dollar annual capital deployment call inclusive of the most recently completed acquisitions in January .
And as a reminder of the company has an appropriately flexible capital structure with no financial covenants on the term loan or our senior notes.
Through the fourth quarter, our continued emphasis on expanding key service lines, such as orthopedics in cardiology targeting high value physician recruits and engaging and strategic right negotiations have all continue to fuel our growth trajectory.
After a strong finish to 2021 with the fourth quarter results. We released this afternoon and the momentum carried into 2022, we are raising our guidance for 2022, adjusted EBITDA to a range of $370 million to $380 million, we are optimistic about 2022.
But believe this range is prudent given the continuing risks associated with the COVID-19, pandemic and related labor and inflation costs.
Which we have successfully navigated so far on.
On the top line, we believe we can achieve at least $2.5 billion of revenue representing at least 12% growth over the 2021 baseline.
Driven by a balance of case growth and rate growth as organic growth efforts from investments in recruitment revenue cycle and managed care combined with the contributions from 2021 acquisitions.
Which will help overcome the impact of the phasing out of sequestration in mid 2022.
At the midpoint of those ranges are reported adjusted EBITDA margins.
Would expand when compared to 2021 results after excluding the effects of grants from prior year results.
As a reminder, our business has a natural seasonal pattern.
Largely driven by annual deductibles resetting for commercial Payors that tend to skew our results lower in the first quarter and higher in the fourth relatively speaking.
We are projecting 2022 will have a seasonality pattern consistent with prepandemic levels with first quarter underlying results, representing an estimated 20% of our projected full year performance and the fourth quarter, representing approximately 31%.
We're confident in our organic growth model due to our consistent historical same facility revenue growth the opportunity to maintain and capture new share in high acuity procedures, and our ability to leverage our scale through procurement revenue cycle and overall workflow efficiency.
Risks to our annual outlook remain the potential for more extended COVID-19 impacts and increased labor cross pressures in certain markets beyond that which we are currently contemplating.
These risks are offset by our ability to deploy additional capital on accretive transactions and continued focus on managing our operating costs.
As we evaluate risks versus opportunity in 2022, we are confident in our outlook and continue to see strength and momentum across multiple product lines and geographies.
I am proud to join the ranks of this highly skilled and experienced management team and to continue to support the physician partners and clinicians and our facilities that offer outstanding clinical quality and an exceptional patient experience.
The fundamentals of our business are strong with a $150 billion total addressable market and solid momentum, enabling us to continue to earn our fair share of this enormous growth opportunity.
With that I'd like to turn the call back over to the operator for questions operator.
Thank you very much.
Gentlemen, we will now begin the question and answer session.
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Yeah.
We have a first question from the lineup Brian .
Iron tranquility.
With Jeffrey Please go ahead.
Hey, good afternoon, guys. Congrats on a great <unk> great year.
I guess my first question for either winter or Eric you talked about Q for strength, but.
I think it's pretty clear that omicron add a little bit of an impact on volumes in December and January for most health care provider. So 20 year any color you can share with us in terms of what you saw during those periods in terms of the drag from that and then the bounceback if any of that you've seen say in February or a quarter to date her so far and margin how you're thinking about like volley.
Performance around surges that you see with the virus.
Hey, Brian . Thank you for the question I think it's fair to say, we all know someone who was impacted by this variant of whether it be in December January timeframe. As we think about responding to that question. We looked at it really from two lenses one is how.
How did the actual berrien impact our patients are surgeons, our nurses and then separate from that was was there any lay pressure as a result of that within within the labor market. So.
I'm going to let Eric respond to both of those and then maybe give a little commentary of what we've seen in terms of the rebound both at year end as well as going into the February timeframe.
Brian Thanks for the comments to what we were certainly pleased with the way. We finished the year. When you think about kind of our impact from omicron. We certainly saw it and you know we saw it in certain regions more than others.
We've talked about before though and particularly with omicron, it's been a situation, where even whether it's a physician or a patient.
We never cancel those cases, there reschedule within a relatively short period of time and so we've seen pressure points. They they come up and then they quickly abate patients Ah rescheduled relatively quickly usually within the month definitely within a quarter. If you think about kind of just the timeline of getting that done and what's been particularly encouraging towards the end of the year and coming into the first part of the.
2022 is the areas, where we had seen not full recovery. So you think about <unk> pain management some of those procedures that were slower coming back in the past.
They really are coming back quite strongly and so we actually were really encouraged by the start of the year.
January was somewhat affected but clearly we've seen that bounce back in February and actually expect our quarter to be where we expected to me and what we've talked about as far as labor pressure I think Wayne pointed to how does that affect us clearly when people are out sick from the short term perspective, you have to cover them often with premium labor that can be overtime that could be <unk>.
Contract labor typically overtime for us but.
But I would just remind you on labor pressure, we we we have a preferred job. So you think about our our positions are typically positions that are elective their normal business hours. They don't require extended extended extended overtime. They tend to be jobs, where they are the nurse or the clinical person can be specialized in just orthopedics just.
<unk> instead of having to be.
Hovering lots of different things in our staffing ratios quite honest here quite a bit higher than you see in traditional acute care hospitals, and so we feel like the starting points quite good the pressure is around the edges. When we have big quarters like Q4.
Extra labor needed when there's such high hospital usage based on omicron that obviously creates.
Pressure to to deal with those volume variances. The good news is that is falling down we see that following across hospitals, we see that pressure lessening.
And and to be honest within our within our business too we still have opportunity much like in the past the acute care industry has done to deal with nursing shortage of nursing pressures to focus on top of license work can make sure that we're using all all different levels of clinical caregivers and so we feel we felt quite confident we could manage through it again it's been.
Largely transient and our markets, we've seen it bounce back quickly and and really encouraged with the start of the year and how we managed through what was definitely Ah probably the biggest disruption Peter we've experienced.
With Covid so far.
That's awesome and then I guess it would follow up in your prepared remarks, you talked about the de Novo strategy as well as a previa joint venture. So just curious if you could share with us some comments on how you're addressing or how are you.
You're doing the day novo's.
You're looking at there and then they just any other color you can share on how you thought about Previa and Kelly your entry into some sort of value based arrangements with.
Primary care practices such as those.
So I'll start and then I'm Gonna ask Eric to maybe comment a little bit more on how we're expanding our dinovo strategy and the previous relationships specifically.
As a reminder, we made substantial investments on the de novo basis over the previous four years, and obviously, Idaho Falls community hospital being the largest of all those to novo's.
But we've spent a lot more time once we got those started and up and running over the last two years focusing on them being successful during the COVID-19.
And all the various various it came out so we took the foot off the pedal slightly over the last couple of years to make sure that our existing done all those would be highly successful and then our physician recruitment efforts would be implemented that being said Eric in the team over the last.
I would say eight to 12 months have really started putting the pressure back on that next wave of day, novo's and where those are at and so I'm going to let Eric comment on kind of what we're seeing and I think you'll hear more exciting things as this year goes by and then around the previous relationship Yep.
Thanks for that question I think on the Dinovo side I would say a couple of things. Let me. Let me first separate this is a new it's not a new growth prong. We typically have several dinovo a year that we do however, it is an increasingly a big part of how the industry is growing if you look at the data that's out there we think dinovo capacity represents or dinovo countless centers represents about <unk>.
4% increase on an annual basis in the last couple of years. So it has become a certainly a big part of the growth of our space on it's a place where leaning in I would just I would just remind you though that we've been doing this for quite some time on the <unk> side to what I would say to tell you is we've been really focused on the strategy. We have a number of exciting opportunities to increase.
Our pace there we think the novo's can be a a double digit part of our center growth over the next several years and were leaning in to make sure that we're positioning ourselves to do that particularly as cardiology in orthopedics come out of hospitals, sometimes it's easier than in a single specialty hospitals to start with a very specific purpose built facility and so that is something.
We're we're quite excited about I think Brian to follow back up on your question around a previa in diabase care I always start my value based care discussion was reminding everyone where value based care within the fee for service World right. So the simplest way to think about us as in the current world move patients to our site will save you a 20% to 50%.
That's a story that continues to resonate with that said that there is a growing amount of of what I would <unk> to his pay biters and you hear them called that where they're really focused on providing care, but also really aligning reimbursement, particularly for primary care around the most value based value effective.
Treatment and we as an independent operator, the only national independent operator are really well positioned to partner with organizations that are like minded around how we drive efficiency in the healthcare system and so when you think about Previa in Montana as we mentioned, it's not going to be a game changer of this year, but you think about this model where historically we have relied.
Almost exclusively on round recruiting the best positions and having them with their reputations, bringing patients to our facilities because of the cost quality and value proposition the idea of being able to align with a like.
Like minded primary care group, that's growing across the state that's really trying to drive value and make sure people are taken care of and the rights Medicare is quite attractive we see opportunities over the longer term, Montana certainly in other states, where we work whether it's previa or other value based care providers, where we have an aligned kind of footprint or can build in a line footprint.
We think we're extremely well positioned to do that as the independent short stay national operator, so it'd be more to come on that is certainly a newer development that allows us to directly tie to kind of the beginning of the referrals streams chain in a way that.
People are incentivised to really drive value, where natural choice. So excited about that maybe less thing I would add is just this.
We've been working over the last 12 months on on opportunities to accelerate the dinovo window. As we've mentioned, it's usually 12 to 18 months before you see positive EBITDA, we think there's opportunities with the right partnerships in the right individuals to actually accelerate that so that the EBITDA value creation occurs much sooner than.
Typical digested period that we've seen in the past so again more to come but we're excited about a number of things we have in the hopper right now and hopefully we'll be able to share more in the next quarter or two.
Awesome. Thanks, guys.
Thank you we have next question from the lineup Jason Fasola with city. Please go ahead.
Great. Thanks, guys. Good evening, just wanted to turn to you're trying to revenue guidance will call over 12% growth can you help frame the attribution of that growth between organic just considering the rollover COVID-19 and and maybe the pent up demand argument and then maybe the contribution you expected from feel that completed for 21, just so we understand thanks.
Two maybe and Dave feel free to chime in with any of the specifics here, but I would generally say we are targeting.
High single digit low double digit for the organic portion of revenue growth.
And then if you think about capital deployment again, if we average around 200 million user midyear convention, though for the average deployment timeline you can cut it back into the Delta there.
I would remind you that our revenue growth is on an absolute basis. So we didn't bifurcate when we gave the at least 12% we didn't bifurcate out the the government money that we're covering we didn't bifurcate out the.
The seat.
Sequestration headwind that we're dealing with so from our perspective, the underlying growth rate is actually greater than 12%. When you consider that we're actually overcoming those headwinds and then of course going on top of that but ultimately think about it is more you know high single digit low double digit organic and then the delta through through M&A.
I would agree with you Wayne.
As you as you look at what we've experienced over this past couple of years with same store growth, especially what we just reported this year.
We have a good mix of both case and rate growth that trend, we expect to continue.
But clearly a good contribution coming.
From our acquisition activity. So it's a fairly balanced way that we're looking at the growth plan for next year.
Got it okay. Thanks for maybe just with my follow up just wanted to go to the physician recruitment engine you haven't surgery interested in your prepared prepared remarks, you discuss 13% growth.
And physician ads off of 2021 is that how we should think about targeted growth morning for just given the focus there and and maybe just help out in terms of what kind of growth you need to help offset the natural attrition of physicians that noted in your prepared remarks. Thanks.
So probably the best way to think about it is that we average around 95% retained retention in our physician base now.
That varies between those that are owners with us versus those that may be somewhat transient either returning are relocating cetera, but as you generally think average of averages we retained somewhere around that 95% tile.
So all things being equal you've got to be able to recruit at least 5% new position base to recover those that retire relocate.
Or just just choose to change professions and so.
We generally try to target is basically replenishing that whole each year and then of course, we would like to see a level of growth on top of that so I don't know that I would say, we're always going to be 13% a year because.
Who who knows where this will end up but I would tell you that we've been we've.
We've been very heavily focused on high acuity procedures and I've been very pleased with the level of the teams down there and there's multiple specialties that we are actively pursuing still will there be ophthalmology Gi et cetera. So.
I still think we will be double digit growth I would say, we've align the team and their and their incentives around recruiting physicians in the right doctors, so that will be a line drawn that double digit growth that Eric anything you want to add no I think you've hit the the key points I think we have a very experienced team that has used a data driven approach to drive this growth and it's every year.
We're making gains were making gains on only on procedures with the type of procedures.
Tracking the right Doctor in every market and we do I guess, what I will say is we actually continue to see our pipeline strengthen this is not something that slowing down our pipeline is as strong any entering this year, it's ever been actually that's a stronger than it's ever been so we we look at the opportunities that remain on that as a obviously a big part of our organic grew.
<unk>.
When we go out and acquire a new facility. It's one of the big value propositions, we bring as being really thoughtful around how do we how do we market too and gain traction with the most important physicians in that community that can drive value in our facilities and we've executed upon that really well and I don't expect that to change.
Great. Thanks for the color.
Of course.
Thank you we have next question from the lineup, Kevin Fischbeck with bank.
Bank of America. Please go ahead.
Alright, great. Thanks, I guess the first question I think when you said that you're.
Your guidance includes headwinds from labor and supply cost pressure from the pandemic is there any way to.
Like those out and when we think about the impact that maybe those had in 2021 is that cares recognition a good proxy for that or is there. Some other way to think about that.
I mean ultimately we've had this debate internally that we've been trying to wrap our hands around like helps how big is it how do you measure it but ultimately.
Tears grants were there to subsidize for where you had shortfalls and shortcomings, whether it be from labor labor pressure or timing on volume.
So I don't know if that full $25 million is completely the right proxy I'd, probably say, it's a little bit south of that but I would say that it's a reasonable proxy to say that that we've had to overcome that entire headwind in a revised guidance and are updated guidance. We've had to overcome the sequestration as well so I would view it like that and if you look at just overall call.
<unk>.
We're up about 100 basis points.
Huge compared to last year at this time on kind of the Labour headwind, we're closer to the 2019 levels, but we're kind of investing through this so but I would use I would at this point I'd, probably use a little bit south of the grants as a proxy because some of that grant related to the prior year, meaning 2020 at rolled into 21.
As we were figuring out the rules that CMS was publishing.
But south of that number, but obviously a reasonable proxy.
Yeah, I would just maybe if you're thinking about kind of how we thought about that rolling into next year, clearly and the second part of the year we've.
<unk> talked about this point, but our current performance is basically the same as a percentage of revenue as it was in 2019, it's up over 2020.
Even to kind of over the prior month, if you look at our over the prior quarter, but we don't part of the reason we'd be able to do that is through some of the efficiencies. We've gained through COVID-19 . So we've outrun some of that just simply by being more efficient we have kept that kind of higher rate in there for a period. This year, because we still think we're going to have noise. So we say it includes that.
We certainly have based on our best knowledge and understanding how we have to manage through this on a transitional basis. There is some of that in there, but our expectation again is that this is this is an area where we can really manage through number one because we have a great job that we tend to retain people and number two the pressure is coming off kind of that floating on nursing.
<unk> and then number three much like the industry has done over the years, we will continue to look for ways, where we have pressured positions to make sure. We're working top of license and adjusting our mixed to to meet that need.
Okay. That's helpful and then I guess.
As far as the managed care negotiations go you keep seem to me to be benefiting from these two strategic be negotiations where are we in that process how much longer do we have to.
Or should we be thinking that we'll be talking about this and still in two or three years or is this kind of wrap up sooner than that.
So I think we still have a fair amount of a ways to go there we are still a value player within our space.
We have certainly.
I think made a lot of progress in the last couple of years and making sure. We're getting paid fairly and are more core markets now the real opportunity comes for some of these more what.
What I would say more interesting strategic discussions on how do we make sure that we're partnering with physicians to make sure. Our physicians are giving the professional fee incentive they should to ensure they go to the high value place, making sure that we are contracted a head of our facility expansion is when it comes to service lines and making sure where we can we are we are sharing and some of the savings we.
Created so I think that's going to be the real opportunity for us over the next several years, but we're certainly not in any way shape or form a price leader in our markets. We still have plenty of opportunity to partner, we have a very strong value proposition as an independent player in this space and that continues to resonate.
Kevin I would remind you when we started this journey four years ago.
We were just building out the team then around managed care and contracting and how we wanted to approach it and as you know most contractual arrangements are generally three years in length and so even if we were able to hit the ground running.
As of one 119.
Best case, we got we got an initial bite to all the contracts and where they needed to move too, but as you know these contracts have about a third of them renew each year over the three year period. So I would say knowing the trajectory that were on I don't think we've hit the top of the mountain yet I think we still got another three to five years of climbing to get to the top of the mountain and at that point.
We think will have even further scale that should drive even more value for the system that we would have another round. So I would say maybe we're in the fourth inning at this point, we're not in the first thing any more but we're a long way away. So from the value creators from from contract negotiation and Kevin just as a reminder, as we move into higher acuity services I think the inning rolls back I may I would just.
To you that you start thinking about the procedures, we're doing more of today.
Hips knees spine cardiology. These are the types of procedures that prepares our six figure savings per procedure.
That actually really changes our value prop in a way that allows us to rethink and renegotiate our partnerships because we're going to drive so much value together and so like I don't think it's it's if I gave you an inning from where I thought we were going to be initially I would probably say for for the fifth but ultimately as as higher acuity procedures are proven out to be safe in our space.
<unk> leaned in I think that opportunity has gotten larger for partnership in larger for ways to make sure that we're aligning on creating value for the system in a very accretive way for surgery partners.
Alright, great. Thank you.
Thank you we have next question from the lineup Sarah James with Barclays. Please go ahead.
Hi, This is Steve Braun on for Sarah.
Hey, Steve so.
Hey, How's it Goin'.
A question on.
I guess like the acquisitions and the multiple that you guys say that at a time. So is there was that like the reason for the eight times multiple I guess like the last number we had seen was 75 times as the average multiple you had paid since 2018.
Was there any reason that the multiple may have stepped up a bit was that like pertaining to maybe the three deals that were closed and.
December .
Yeah. It's a great question. If you think about multiples they vary on a range that can be literally as low as five times to as high as nine times, sometimes even is closer to 10, it's a function of the quality of the asset as well as the specialty in which they are in.
So if you think about historically if you go all the way back to 18 that was when we were pruning the asset repositioning the book into the high growth specialties and so certain assets, we were getting a lower multiple on others a little higher if you look at our most recent acquisitions. They are very heavy in the <unk> in cardio lines of service and when you think about those those generally have a slightly higher multi.
Paul than other specialties that have already moved a significant portion into an outpatient setting, but all in around an eight times multiple on a trailing 12 month pre synergies. So if you think about is Eric said in the opening comments, we usually take about a turn off on these things after we get on a synergized basis. So.
But I think you'll see multiples continue to hover in the seven to nine times average range and specialty is really the big driver.
Got it thanks for that and then I guess like on the other one so the how much of like I guess the revenue guide for 2022, how much of the.
Inorganic growth is taking into consideration the three deals versus like incremental deals that you may do in 2022.
We do not count transactions as organic until they've gotten through one full year of maturity. So none of those transactions will count towards our organic growth model that we just completed in December those counters M&A.
So our organic growth is a very pure growth, we've got only acid per year and at that point. We then look at what is the value creation that we create after the one year Mark.
Yeah, No I was sorry, I was saying when you were dice.
Dissecting the pieces of the growth algorithm I was saying how much of.
Of that M&A was factored into like the inorganic peace.
You had to talk about it I think that maybe it yeah. So so we just I would that would just to clarify a little bit. So yes, we think about going into this year, we clearly have capital spilled to deploy and we think there is additional upside for us as we put that to work. We don't have we don't try to build way ahead on that we have assumptions that we have on any given year will look like but the reality of it is as we go through the.
Course of this year and we deploy capital we have no reason, we shouldn't we've got a strong pipeline it continues to build.
That there are certainly opportunities for us to exceed.
The range, we talked about today, yeah, I think for modeling think of it as we said we targeted least 200 million use a mid year convention and use roughly eight multiple as a rounding factor and that's what we would use to say that's how you back into what kind of value creation to the extent that we can accelerate the timeline relative to the mid year.
Convention that is additive to the outlook to the extent that we do more than $200 million. It could be added it to the outlook. So a lot of moving parts here, but.
We would say the pipeline as robust as as it's ever been yeah. One thing I didn't clarify early I Wanna make sure. It doesn't get lost on this call is we talked to about the dinovo opportunities for us going forward that is a separate and apart from our normal $200 million plan right, but we're going to put together, we're going to do our traditional M&A, we feel good about our ability to do that we have a great pipe.
Align separate and apart from that we see this additional growth opportunity and do novo's that we think also can be quite accretive to our to our future.
Okay, great. Thank you.
Thanks.
Thank you Hope you have next question from the line of tall key with Stifel. Please go ahead.
Hey, good evening I'm, just trying to understand the revenue cadence for the year. You mentioned that you expect <unk> revenue to be 20% off this whole year at the same time sounds like there are delay procedures that you're rescheduling pretty quickly. So the experience might be more similar to what we saw in 2021, one Q was actually high.
A year on how should we think about being petkoff pent up demand improving improvement in staffing in terms of the impact on the first quarter.
Well that's.
Thanks for the question. So first off we're not giving quarterly guidance on the revenue piece just yet but you are absolutely right. We do look at the seasonality of our adjusted earnings to look somewhat consistent with what we've seen on a prepaid demick level.
But as as we've looked at those cases.
There might be impacted by omicron.
We're still looking at those things inside the quarter, so anything that might have been delayed isn't being delayed for a long period of time, which is why we feel comfortable with.
That overall earnings pattern.
Still remaining somewhat consistent.
Yeah, we actually are kind of crowd regressing to our norm this year, a little bit and it certainly we're going to have some recovery in some places which is offset by some disruption, but the reality of it is we're getting back to what we see is our new normal which is back to this really fast growth pace.
But when you think about the seasonality of our business, particularly as as many of you know of covered US a long time that fourth quarter is a big quarter Moon typically is 31, 32% of our revenues Q.
Q1, as we talked about earlier tends to be 19, 20% and.
We just wanted to make sure that we pointed that out I think I think part of that.
Part of that mix of course is the impact of deductibles on patients that are commercial based.
That will tend to bring those cases and a little bit later in the year and the reimbursement of those.
Part of it is just natural as you do get back to again, those prepandemic levels, which is probably a better comparable or comparison for you rather than the past couple of years clearly.
Got Ya and then can you talk about $4 million deferred liability from the grants income is that including the adjusted EBITDA guidance you guys got it.
No it is not.
And as you know kind of relatively small the the.
Grant income.
That gets recorded is all subject to the.
Ah Clickability of the the facility itself they received it and the nature of the grant that was received and so a large part of that $4 million. That's still on the balance sheet was.
Received in the fourth quarter grants and so we just look carefully at that.
It will.
Be dependent upon losses that were incurred at that particular facility and then how it may be used across the rest of the portfolio based on actual COVID-19 related losses, so more to come on that but unclear how that might be pushed into the year. If at all we have no more assumptions around receiving grants that then the guidance.
Like to view that money on the balance sheet as a hedge.
If we have a particular facility that has impacted and that it would apply against that facility, but very similar to what you saw in queue for we manage our business without those brands. So it's our job and.
And so that's why we have such a strong Q4 and that we were able to not only execute but we were able to recognize many grants and markets that were impacted by omicron and by the wage pressures. So no we're not assuming any of it in our guidance and view it as either a hedge of potential upside.
Understood Great. If I may squeezing one more I think Dave you mention that you are comfortable taking the leveraging high fives on those six <unk>, there's no need to raise equity capital near term given the $20 million type of deployment Tiger.
I'm, sorry say that last part of your question again.
So given the cabinet deployment target of $200 million just doing my math here. It seems like there's no need to raise equity capital near term is that a fair correct characterization. Thank you very fair very fair characterization, we have more than ample capital 390 million consolidated cash $210 million Undrawn revolver.
And I do not see a need for us to raise more capital and I would remind everybody that we are now going to be cash flow positive that our business north.
North of $3 15, an EBITDA moves us into cash flow positive territory around 65 cents of every dollar about 315 converts to positive cash flow and on top of that as you know we have some.
That that we can call with a 10% interest rate and the ability to refinance that will also give us even further flexibility of improving our cash flow position. So.
I would say we feel like we are in a very strong position.
Without having to raise additional capital.
Thank you.
Thank you you have next question from the lineup Kerri Chandler with Cohen and please go ahead.
Hi.
Good afternoon, or good evening I'll have to go back to the transcript I was going to ask a question about that free cash flow, Dave was ripping through a lot of numbers pretty quickly, but wanted to ask what does maintenance capex.
Recurring look like in 22 are kind of go forward now given your current portfolio yes.
Yeah sure this is Dave Gary and.
And I am happy to walk you through those numbers again.
If you need to bring your right. It's all kind of laid out pretty nicely in those talking points.
Perfect for US last year was somewhat of a normalised level for us and.
I think we reported in just shy of $57 million for just around $57 million of.
Of Capex procedures, and so as we look forward on a normal maintenance basis as well as the the growth that Eric was talking about with regard to dinovo investments that are necessary. That's a good number to use.
Got it and then my second question I, just wanted to ask about supply cost trend look pretty good this quarter I mean.
For obvious reasons supply cost per procedure treks pretty closely with your revenue growth per procedure is particularly as you've done more higher.
Cutie procedures, but uhm this quarter, we actually had supply cost per case down about half a point you had pretty decent revenue per procedure growth was a pretty wide gap versus what we're used to sort of seeing.
Uhm from you. So is there anything about the mix of of cases, this quarter or anything else driving that performance.
It is a great question is Erica.
Started maybe Dave give more detail, but I would say high level you did see some return of the lower acuity, we started to see paying come back a little bit in late in the quarter and certainly those are high margin lower supply cost procedures in general we've got a supply chain team has done a fantastic job of staying close to our large large distributors large.
Suppliers and we've been very very proactive on managing this and we.
In some cases that means we have to work with our physicians to change preference in other cases, it's simply a matter of making sure that we carry enough stock to live through disruptions, but in general we feel like our supply chain progress and what we're driving there.
Is sustainable and hopefully we can build upon it I don't know what they've you would add to that yeah. I think I think the other two points to consider one.
Fourth quarter does have higher mix of commercial business in those so you're going to see a different revenue mix, the new C, which is going to impact that that metric just a little bit and also as you as you look at the fourth quarter compared to say for example, fourth quarter of 2019 that might be a better comparison than your sequential as you would return to <unk>.
A more normal and Eric's absolutely right as we talk about.
Supply chain and as we have worked with our vendors and at least the key.
Suppliers and there we are talking about.
Future trends and Ah current view of how long, we think that's going to persist for and so much like the labor trends, if we do see him in pockets and we also.
Ken deploy different strategies is Eric was mentioning either either buying in advance some of those things taken advantage of stock also finding.
Alternatives that are reasonable for our physicians as a way for us to kind of manage them. So much like our labor pressure, we look very very closely at ways. We can manage that cost to help offset the the inflation factor there.
Got it thank you.
Thank you we have to ask questions from the line of wits mile with S. VB Leerink. Please go ahead.
Hey, Thanks have a good afternoon I just wanted to go back for a second to the 13% increase in the.
The new physicians on boarded this year I don't think this is a hugely significant number yet but can you comment on.
What percent of the same store growth in 2021 may have come from that group of physicians and I guess really the broader question is reflecting back on 2019 or 2020, when you look at the various cohorts and and how those new physicians are performing in the level of productivity that.
They are having and and your centers now.
Yes. This is Eric I'll I'll take a shot at that word thanks for the question.
We've talked about before we think about the cohorts and how they progress over time.
We've looked at this kind of year over year for quite some time and it continues to hold true which is typically the business in the second half of the year is up at least I think it's a 50% higher or it's actually.
Double often and you're too so typically we double that business in year. Two continues to have a growth in year three and so this is one of those you do have to look cohort by cohort. If you think about the 13% in a given year, it's actually not going to be driving as much as the cohort from the prior year is and you're too.
But it is certainly a big part of that growth story.
And as we've gotten more refined on that it's kind of a it builds upon itself, especially as we have increasingly been working on making sure. We have really high retention, obviously of our partners and we have good backfill plans. This all becomes additive and so I mentioned earlier, our pipeline as strong as it's ever been with our positions that are in the queue going through our recruiting.
Process and ultimately.
It has a built upon itself roughly doubles in year, two and again with higher acuity specialties, we've been recruiting.
Recruiting it makes a bigger difference, but I couldn't tell you off the top of my head the percentage of our same store growth. It's there clearly new physicians and also mixes together a bit with new service lines.
So as we add as we had a joint program is we had a cardiology program. Those two are kind of connected same with robotics.
So it would be hard to just pull that are part and say, it's just new physicians part of its new equipment Parvis New service lines.
But it's certainly a big part of that organic growth fees, maybe to take erik's comment, though and tried to put a little bit of color around the idea that.
If a typical ear one physician again remember some physicians get recruited in January some get recruited in December . So when we look at average of averages. So if you were to look back to kind of 19 2021. Those are the first three years that this team has the ability to kind of look at how a vintage has a bold bright so the typical vintage near one is in the 30 to 30.
$5 million in revenue is Eric set of doubles by the second year and then it grows from there so.
Vintage gets fully out there you are starting to get more to like that 100 million run right over time and what's important to recognize with that is if you think about $2 billion of revenue and you think about just about half of our organic growth is coming from these recruitment efforts now of course. Some of that then is offsetting the docks you lose to retirement, two et cetera. So.
It is not as simple as does that group always give us 5% growth, but what you have to look at it with that lens is that it's generally though a pretty solid contributor to that mid single digit growth that is there to both cover those docks that leave plus add to our growth and is Eric said, we have so many other initiatives then which is the mix of what we're bringing in the robotics to expand even existing <unk>.
Seizures with existing doctors. So when we talk about that that is literally just brand new doctors that have never used our facilities.
Yeah, no that makes sense.
The punch line is it should increase our visibility into sustaining that level of growth. My last question is simply around Idaho falls I'm not sure that there was an update around the performance of that facility and maybe just what the expectations are for its contribution this year or anything you could share.
Would be super helpful.
Yeah sure what I can I can take that.
So first off let me just remind you.
Hope balls.
Was reflected below the line for.
For all.
Of it's existence up through the second quarter of this year when it turned profitable as when we moved it above the line and included it in our earnings and in the past we've talked about the.
The revenue contribution from that facility as those numbers were kind of put above the line for a period of time, we're not disclosing that any more.
Because the overall business is now kind of in there, but you can assume that that that growth trajectory that we've seen in the first part of the year has continued.
It is part of the system that we have up in the Idaho-falls community market.
Which does.
Which does enjoy kind of the typical growth that we've seen across the rest of the portfolio. So.
So it's fair to assume that revenue trajectory is going to continue to grow and the other point I would I would make is we still feel confident in the long term value associated with Idaho Falls community hospital in for the time being until we get there.
You will see that being included as an addition to our credit agreement adjusted EBITDA.
Which we still have in there at.
At at approximately $20 million.
Yeah, I just reaffirm what day. So this is this is a great market for US we love our position in the marketplace. This hospital is a value player in that marketplace. It was certainly delayed by launching a new hospital during COVID-19 , especially a hospital that.
Is going to be a trauma center, that's going to have a fair amount of cardiology over time and when you're doing that in the middle of an E D impacted.
Period, starting a hospital, obviously, a little bit behind where we would have expected. It to be we will also delayed by just trying to get people out the license things and trying to get everyone was distracted, but we believe that this facility is going to be a fantastic facility. We still have great confidence in in some market, we like we like our positioning and ultimately it's just been delayed.
By Covid, but continue to be excited about Idaho falls.
Can I just clarification on that day.
<unk> said that there's $20 million of add backs to the credit agreement on it normally that implies that there are losses.
Is this is this a facility that you expect to be a positive EBIT Doc contributor. This year I just want to make sure that I'm on.
Thinking about this right.
This is where I, let me let me clarify that it is a positive contributor EBITDA. It will be a positive contributor for 2022, we're expecting it to contribute an additional $20 million in the out years. So that's why we're including it in the credited so so if you had all is it's all added up meaning we are not off track. We started slower than we had expected cause we opened it up in the middle of Covid.
But it has already turned a positive EBIT mid year this year and that trajectory is not slowing down and we would expect going into the out years, an additional $20 million EBIT a growth on top of what we're projecting for this year.
Okay. Thank you so much.
Thank you we take the last question from the lineup band Hendrix with RBC. Please go ahead.
Hey, Thanks, guys for squeezing me in here at the end.
Just hoping you could provide a little bit more information or a little more detail around the cardio opportunity as the next wave of high acuity growth maybe.
Maybe some specifically some details are on the timeline is that going to ramp up as fast as M. S. K has.
Any detail you can provide around that.
Sure, but and this is erica thanks for the question.
Certainly a service line, we're very excited about just because of the value creation opportunity given how much expense it drives in the traditional acute care world from a from a patient care standpoint.
I would say I don't know that I expected to move quite as fast as orthopedics, although I am being surprised that sometimes the pace that we're seeing.
We expect to launch I believe it's seven to nine new programs this coming year and <unk> meeting cardiac rhythm management programs and so my talking about cardiology I would just think about it it's kind of an evolution. If you think about our current facilities, 60% of them have the fluoroscopy capability needed to do basic cardiac rhythm management, which is thinking about that as pacemakers lead extractions some of the.
More basic.
Procedures, but there is a there is definitely a growing interest among specialists to have cath lab procedures are available in outpatient world certainly cardiologists have not had as much exposure as what orthopedic surgeons did asce's necessarily.
But we're seeing tremendous interest and we think that's again, that's part of it maybe part of the Dinovo story because a lot of these facilities can be efficiently build us dinovo cardiac facilities, we're seeing more show up in our pipeline and we're certainly seeing more on the recruitment side. When you think about our pipeline. It opens up a whole new group of physicians, whether that's EEP physician EEP vascular cardiology.
With procedures that can come into our space and so what's great about it is when you think about our team. It's part of that that next $60 billion is moving out of facilities tends to be a place.
Where the acute care world has really nice margins in cardiology, we tend to provide a very very attractive.
Value proposition, while still having really attractive margins and so it's a place where excited to grow in we will do it.
At a pace that makes sense, we want to make sure. Obviously, we do a fantastic job on quality. We are building those things into place, but we see this is a much like orthopedic. So it's going to be one of those things you. We started orthopedics in 2017, we grew that we mentioned in our prepared remarks, you either by 50% over that period I would expect something very similar on cardiology elephant that number is it all out of the realm now getting just starting from a little.
A bit lower in.
But the growth prospects there are tremendous and there is growing interest now a little bit different in this timeframe. The north peak winter. It speaks first started cardiologist heavily employed specialty and so in certain markets those contracts tend to be three years, they're not necessarily happily employed but heavily employed and so we do see opportunity.
Four disruption, especially as some of these centers get up throughout the case.
And we're excited to be one of the leaders in making in helping make that transition happen in creating a bunch of value for the health care system.
Thank you for that shrink color and just finally is there any risk to that growth from a regulatory perspective, I just asked because of the kind of vacillation, we've seen among CMS kind of adding taking names on and taking names off of the outpatient or inpatient only list. Thanks yeah.
Yeah. So I appreciate the question. So I just Ah just as a little bit of a baseline on cardiology I've made this argument a lot which is analyzed 10 or 15 years ago that hospitals began doing intervention will cardiology procedures and stenting pci's without open our backup and so just putting this in perspective I think it took CMS 10, or 15 years to get comfortable with the reality of it.
These these patients often go home within 24 hours today, they have for a long period of time, there's been now a lot of a lot of data backing up the efficacy. These procedures and so I think CMS was very very thoughtful on the procedures. They took off the inpatient only list are they put back on I should say and as we've talked about before net net that actually was a positive for us with our surgical hospital balance so it wasn't.
Anything we did many procedures of but they were also very deliberate on leaving hips.
Hits, the knees and leaving cardiology.
One because the data backs it up from a safety standpoint, and two because the tremendous value creation and actually better patient experiences. So we actually don't we don't see risk there they looked at that thoroughly they've left the things on that they feel really comfortable with this is one of those and I actually like I said I think this could of this critical off in my opinion years earlier in fact, a lot of <unk>.
<unk> patients on the cardiologist side, there are a number of white busy outpatient cardiac centres on the commercial side that it's been out there for a number of years that is very compelling as far as safety and efficacy will clearly want to make sure we're going through all of the appropriate checkmarks to make sure we provide as good or better care than anywhere else and that's what we do with all of our service lines, but.
I don't I don't see this is one that's going to go back the other way.
Thank you.
Thank you ladies and gentlemen.
Yes, hi.
Yeah, as I say I appreciate everyone's questions today, and I just want to make sure as we conclude I do want to take a chance to say thank you to our over 10000 colleagues and are over 4600 positions, where there are many contributions.
Surgery partners collectively serves over 600000 patients each year and thousands of patients each day and water often they're most vulnerable moments, we take the trust and faith of our communities patients physician partners and colleagues, placing us incredibly seriously and we are truly privileged to make a positive difference in so many people's lives each day I.
Continue to be energized and humbled by the opportunity to lead this company as we work to deliver on our mission to enhance patient quality of life through partnership our company is clearly part of the solution to the many challenges facing our nation's health system and I'm very proud of significant value, we're creating for all of our stakeholders as the preferred partner for operating short stay surgical facilities across the U S.
It is the daily contributions of our colleagues physicians all of our partners that enable that success and I couldn't be more proud of the team and how they've managed through what's been a very very difficult period of time.
And it couldn't be more excited about where we're heading that accompany so thank you. So much for your time and questions today that concludes our comments.
Thank you very much sir.
And gentlemen that concludes today's conference.
You may disconnect your lines at this time, thank you for your participation.
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