Q1 2023 Pediatrix Medical Group Inc Earnings Call

Speaker 2: Your conference will begin momentarily. Please continue to hold.

Speaker 3: Ladies and gentlemen, thank you for standing by. Welcome to the first quarter, 2023 earnings conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question and answer session. Instructions will be given at that time. If you should require assistance during the call, please press star then zero. As a reminder, this conference is being recorded.

Speaker 3: I would now like to turn the conference over to your host, Mr. Charles Lynch. Please go ahead.

Speaker 4: Thank you, Greg, and good morning, everyone. I'll quickly read our forward-looking statements, and then we'll get into the call.

Speaker 4: These forward-looking statements are based on assumptions and assessments made by pediatrics management in light of their experience and assessment of historical trends, current conditions, expected future developments, and other factors they believe to be appropriate.

Speaker 4: Any forward-looking statements made during this call?

Speaker 4: are made as of today, and Pediatrics undertake no duty to update or revise any such statements whether as a result of new information, future events, or otherwise.

Speaker 4: Important factors that could cause actual results, developments, and business decisions to differ materially from forward-looking statements are described in the company's most recent annual report on Form 10K. It's quarterly reports on Form 10Q, and it's current reports on Form 8K, including the sections entitled Risk Factors.

Speaker 4: In today's remarks by management, we will be discussing non-GAAP financial metrics. A reconciliation of these non-GAAP financial measures to the most comparable GAAP measures can be found in this morning's earnings press release, our quarterly reports on Form 10Q and our annual report on Form 10K and on our website at www.pediatrics.com.

Speaker 4: with that I'll turn the call over to our CEO , Dr. Jim Swift. Thank you, Charlie, and good morning, everyone. Also with me today is Mark Richards, our chief financial officer. Our first quarter results were largely in line with our expectations with some variances that Mark and I will discuss this morning. And as you'll see in our release this morning, we're maintaining our full year outlook for just an EBITDA between 235.

Speaker 4: your comp.

Speaker 4: Within our hospital-based services, same universe and NIC days declined year over year, but this was also against a difficult year ago comp, and both metrics were up on a two-year compounded basis.

Speaker 4: As you'll see in our release this morning, same unit pricing was also strong, keeping in mind that in last year's first quarter, we recorded roughly $10 million in CARES funds. This pricing growth partially reflects modest improvements in our revenue cycle management activities, which I'll detail in just a minute. On the cost side, our practice level expense growth continued to hover above historical trends, similar to what we've discussed in the last few quarters.

Speaker 4: But we expect this expense growth to normalize through the course of 2023.

Speaker 4: Lastly, our G&A expense declined year over year and continues to reflect efficiencies we have created, primarily in the area of net staffing, and we will continue to seek further efficiencies in our corporate services.

Speaker 4: Turning to revenue cycle, I'll classify the progress we've made as encouraging, but by no means complete.

Speaker 4: Throughout the beginning of this year, our internal focus has been on highly targeted staffing additions

Speaker 4: Both to address the gaps we had identified in front-end activities experienced to date, and to bring in the necessary subject matter expertise that matches the nature of our clinical services.

Speaker 4: particularly in the hospital-based care. Our internal team has worked very closely with our vendor to ensure that we are tracking the right metrics, quickly identifying any variances of benchmarks, and ensuring that the improvements that we have had to make to date can be built upon as we go forward. Overall, we're pleased with the steps that we have implemented to bridge the front-end gaps.

Speaker 4: that we identified and have spoken about in the past. We also believe that supplementing the extensive services we received from our vendor with an internally staffed function is not only proving effective, but will also be necessary on an ongoing basis.

Speaker 4: What we found is that in our business, a hybrid solution is the most effective at or near the point of care. And while I emphasize that it is still early, we nonetheless believe that this hybrid, a higher touch front end, working in tandem with our vendor,

Speaker 4: has enabled us to reduce our unbilled AR, get claims moving through the process, and as Mark will detail, generate improvements in our DSOs, our accounts receivable, and ultimately our revenue. With that, I'll turn the call over to Mark Richards.

Speaker 4: are net-sane unit pricing increased by 40 basis points year over year, despite a 2.2% headwind based on the CARES funds we recorded in Q1 of 22. In the first quarter of 22, we highlighted that our same unit pricing was burdened not only by core RCM activities, but also by a temporary issue surrounding our private pay collections. The latter of which represented roughly half of the pricing headwind we discussed on last year's first quarter call.

Speaker 4: Accordingly, despite a notable improvement in same-store pricing, core RCM activities continue to burden our P&L.

Speaker 4: In similar to our discussion last year of our full year outlook for adjusted EBITDA, additional and sustained improvements are a component of that outlook. Turning final letter of ballot sheet, we were a net borrower during the quarter.

Speaker 4: as we typically are in Q1 based on the timing of incentive compensation payments and employee benefit plans matching.

Speaker 4: We ended the quarter with net debt just over $750 million and net leverage of three times. With that, I'll turn the call back over to Jim. Thank you, Mark. Operator, let's now open the call for questions.

Speaker 3: Okay ladies and gentlemen if you'd like to ask a question please press 1-10 on your telephone keypad. You may withdraw your question at any time by repeating the 1-0 command. If you're using a speaker phone please pick up the handset before pressing the numbers. Once again if you have a question please press 1-10 at this time and one moment please for your first question. Okay.

Speaker 3: Your first question comes from the line of Kevin Fishbeck from Bank of America. Please go ahead.

Speaker 5: Great, thanks. Maybe just to start on the cost side of things, you said that you expected that the cost growth will moderate as the year goes on. Can you just kind of tell us what's going to be driving that and when we start to see the comp issue?

Speaker 4: getting better year over year and then how you think about cost growth once things are normalized. Hey Kevin, Mark Richards here. Why don't I jump in and then I'll flip it over to Jim. You are correct. Looking at both the discrete comp item in the P&L and fame store comp, sequentially in quarter over quarter, we did see an outsized...

Speaker 4: growth in clinical compensation. That is consistent with our projection for the quarter. And we also expect that to revert back to a more normalized increase as the year progresses. I think that's important to note. So we saw that coming in the first quarter. We expected to slowly revert to normal as the...

Speaker 4: and that will smooth out over the years so we think again this will return to normal.

Speaker 5: Okay, great. And then just on the pricing side, obviously, yeah.

Speaker 5: You know, no surprises, Axe. Still, I guess, a concern. From some, just want to hear the latest and greatest from what you guys are seeing, how that process is working and whether the backlogs that are happening have any kind of input on DSOs or skewing any of the metrics. Thanks. Well, I'll start. You know, we have not seen, you know,

Speaker 4: and we're still winning about 72 to 75 percent of these. And on individual basis with some of the payers, we're winning 80 percent. And I think that was a trend line in the CMS report for Q4 that just came out that providers on average were winning about 71 percent. So we think that's an important infrastructure piece that we've built to be able to manage the IDR process.

Speaker 4: and succeed that sends the message to the payers that we want this on a fair and balanced level. So, you know, we think that this hopefully this will bring those payers where we're out of network to the table and we've had substantive conversations with some of them.

Speaker 3: Great, thanks. Your next question comes from the line of, Brian Tentquilet from Jeffries. Please go ahead. Hi, good morning. You've got Taji on for Brian . Thanks for taking my question. So first, I just want to circle back on your commentary on things for pricing growth, right? As we reconfell that...

Speaker 4: I think that's a great question and.

Speaker 4: There are a lot of pieces in the first quarter relative to pricing as we've seen marginal improvement relative to our RCM efforts. Same unit pricing for the quarter up about 40 basis points. That was burdened by about 220 basis points of cares.

Speaker 4: in the first quarter of last year.

Speaker 4: So with taking that into account, there's 260 basis points of same store accretion there, which is partially offset by issues we saw on the private pay side in the first quarter last year, which accounts for 100 or so basis points of that.

Speaker 4: So picking through the first quarter, looking at pricing in the 150 basis point area is probably consistent with expectations going forward. I would note also that in that...

Speaker 4: pricing analysis, there's probably some component, a smaller component, some catch up from prior year activity. So to the extent that we still are creeping in that 150 basis point range as the year progresses.

Speaker 6: I'd say that's consistent with our expectation. I know that's a lot. No, I appreciate the color and then as I shift to the balance sheet, I see you ended Q1 with six million of cash on hand. Just curious about your outlook on, you know, improving you know your cash balance on hand. That's a good question. We in the first quarter...

Speaker 4: as the quarter of the year goes on that position will change, cash will continue to build up and our net borrowings will decline over the next quarter or two.

Speaker 7: Thank you.

Speaker 3: Your next question comes from the line of Ryan Daniels from William Blair. Please go ahead.

Speaker 8: Yeah, hi, good morning. This is Jack on for Ryan. Looks like you guys had some nice office based patient service growth year over year with maternal fetal medicine being a strong area this quarter. Any comment on the growth or contribution from some of the other service areas such as pediatric primary nurse?

Speaker 3: in patient volumes in that service line. The caveat is that

Speaker 5: aggregate it remains a relatively small piece of our total volume and net revenue. So in terms of impact to overall same store volume growth doesn't move too much. You know within the office space service lines looking at the first quarter the strength we saw was primarily

Speaker 9: What.

Speaker 10: Okay, that's all. Thank you.

Your next question comes from the line of AJ Wright from Credit Suisse. Please go ahead. Hi everybody. Maybe first on the comments around the revenue cycle management. So you're at 51 days and hoping ultimately maybe to get back to the high 40s. Any time frame on that?

then also with respect to this issue you've added staff to support everything that's going on there and make sure you're getting it right. Is this a sort of run rate that you think of expenses associated with the revenue cycle management side that will go forward or

As you get things on track, you see an opportunity to reduce some costs you're incurring there beyond just getting the DSOs in a more normalized fashion.

Hey, AJ, thanks for the question. This is Jim. I'll start and Mark can speak to it as well. I think what we found and what I commented on is there's a fair amount of high touch really at the point of care, especially in the hospital-based side where we need to get the information that can be a little bit challenging at times in an automated fashion.

So we've put some folks back forward facing, and actually some of these folks used to be within the organization doing other activities, but we have them forward facing at almost at the bedside, if you will, to get some of this information. It's a small amount of people that we're focused on, but that has smoothed out the front end side of the business in terms of the RCM.

We are going to keep those people in line right now because we think that's part of the solution to what challenges are. We are working with the vendor on some of the areas beyond the front end and then also on the back end. But we think for the future right now we're going to keep these folks in line but it's not a...

continued improvement in the DSO. So we would expect to be in that high 40s as we approach your rent this year. Okay. All right. We'll need to try to weigh with our continued efforts surrounding improvements relative to RCM.

in the NICU adjacent Women's Health Services. Can you talk a little bit about the pipeline that you see out there and maybe the opportunities for growth in that direction?

Yeah, AJ, thank you. Listen, I think from an organic standpoint, we still have a very robust pipeline of organic growth. It probably breaks evenly across the ambulatory specialties and the inpatient specialties. Some of those may be tilted more towards the newborn service lines.

and pediatric critical care, but we do have some NICU opportunities in there. On the non-organic side, we feel we have a pretty good pipeline that we're actively working at this time that is inclusive of some opportunities in level 3 NICUs. So, more to come on that, but we feel it's a pretty balanced approach both on organic and inorganic.

And then finally, when I hear people, I hear the hospitals reporting, they are calling out some fees associated with hospital-based services increasing. Now that sounds like it's mostly emergency room, maybe anesthesia a little bit. Is there any dynamic going on with what you're doing in terms of the

changing year to year fees that hospitals would have to pay you for any reason.

I think our approach to that, AJ has been pretty flat. You know, there are some services that do require fees to support, especially in smaller volume or I note sometimes in the OB hospital arena, that's one that requires some contract stipend with the hospitals.

But again, we haven't seen a big change in our approach. As you know, we largely have our practices, do not have stipends with it, so again, we haven't been at the forefront of that discussion. Okay, thanks a lot. Your next question comes from the line of Tito Chickering from Deutsche Bank. Please go ahead. Hi there, you've got Kieran Ryan on for Tito. Thanks for taking the question.

2 percent range this year.

Hey, Karen, it's Charlie Lynch. I think Mark gave a good reference around that. Essentially,

a core trend in that mid-ones range when you picture the pieces for this quarter. So, you know, I think you're relatively on point there. On the paramic side, yeah, we did see a 70-bit increase by volume year over year on the government side. It had a modest impact on our net pricing for the quarter.

So given that there are some variants of quarter to quarter, we like to call those out. But smoothing that out a little bit, we've got a meaningful amount of stability in our overall pair mix. And in fact, it has a very slightly favorable trajectory.

Got it. Thank you. And then if I can just get a quick follow up, obviously, the improvement on the RCM front. I just wanted to check in and just see, are you still sizing that impact at about 15 million this year weighted towards the first half?

Thank you. And then I can just get a quick follow up. Obviously, the improvement on the RCM front. I just wanted to check in and to see, are you still sizing that impact at about 15 million this year? We waited towards the first half. So I'm just seeing that. That's right. That's right.

That's still consistent with our expectations this year. That is correct. Thanks so much.

Your next question comes from the line of Wick Mail from SVB Securities. Please go ahead. Thanks. Good morning. Just a few clarification questions here. Mark, did you guys recover any AR in the first quarter that you had fully reserved in prior quarters? Well, with, it is...

That component of really any recovery really flows through the rate analysis. There's not a significant component of that. My comment was, you know, to the extent that the first quarter rate is on its face.

positive that may contain some additional efforts related to last year that are flowing through. That's the extent of it.

Okay. I think you guys also referenced in your prepared comments some efficiencies that you expect to see in corporate this year. Can you maybe just elaborate a little bit more on some of those efforts?

In terms of our overhead.

Yeah, I think you said you're seeking some efficiencies in our corporate expenses this year. I wasn't sure if that's a number that we should circle as being sizable or if that's an ongoing effort. Yeah.

No, I would say that was relative to what we have done over the past year or two. There have been significant changes. We continue to seek efficiencies, but as we indicated, right now we don't have a significant program in place or the expectation of material cuts to that throughout the remainder of the year.

more about the prior year incentive comp.

Yeah, with it, Charlie, that's a little bit specific and it largely references the flow through your over-year related to the care dollars we received in the first quarter of 22, which grew down to the practice level and will impact incentive comp and variable comp there and I didn't recur this year.

Okay, last one, sorry. I know that you guys don't want to be in the habit of providing guidance for every specific quarter, but I wasn't sure if there's anything Mark or Charlie that you care to call out or share just as it relates to sort of your internal expectations.

I would say that to the extent that in the quarter ahead, we noticed anything in consensus expectations that we would want to address, we did not notice that related to Q2. Perfect. Thank you guys.

If there are any additional questions, please press 1 and 0.

And at this time there are no further questions.

Thank you, operator. We'll end the call now.

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using AT&T teleconferencing. You may now disconnect.

I.

I.

Goodbye.

Ladies and gentlemen, thank you for standing by. Welcome to the first quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. Instructions will be given at that time. If you should require assistance during the call, please press star then zero. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Charles Lynch. Please go ahead.

Thank you Greg and good morning everyone. I'll quickly read our forward-looking statements and then we'll get into the call. Certain statements and information during this conference call may be deemed to be forward-looking statements within the meaning of the Federal Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on assumptions and assessments made by Pediatricis Management.

light of their experience and assessment of historical trends, current conditions, expected future developments, and other

Any forward-looking statements made during this call are made as of today, and pediatrics undertakes no duty to update or revise any such statements, whether as a result of new information, future events, or otherwise. Important factors that could cause actual results, developments, and business decisions to differ materially from forward-looking statements are described in the company's most recent annual report on Form 10-K .

its quarterly reports on Form 10Q, and its current reports on Form 8K, including the sections entitled Risk Factors. In today's Remarks by Management, we will be discussing non-GAAP financial metrics. A reconciliation of these non-GAAP financial measures to the most comparable GAAP measures can be found in this morning's earnings press release, our quarterly reports on Form 10Q,

and our annual report on Form 10K and on our website at www.pediatrics.com. With that, I'll turn the call over to our CEO , Dr. Jim Swift. Thank you, Charlie. And good morning, everyone. Also with me today is Mark Richards, our Chief Financial Officer.

Our first quarter results were largely in line with our expectations with some variances that Mark and I will discuss this morning. And as you'll see in our release this morning, we're maintaining our full year outlook for adjusted EVA between 235 and 245 million. In terms of business trends, patient volumes were stable to positive against relatively strong year ago.

year ago comp and both metrics were up on a two-year compounded basis.

As you'll see in our release this morning, same unit pricing was also strong, keeping in mind that in last year's first quarter we recorded roughly $10 million in CARES funds. This pricing growth partially reflects modest improvements in our revenue cycle management activities which I'll detail in just a minute.

On the cost side, our practice level expense growth continued to hover above historical trends, similar to what we've discussed in the last few quarters. But we expect this expense growth to normalize through the course of 2023. Lastly, our G&A expense declined year over year and continues to reflect efficiencies we have created, primarily in the area of net staffing.

and we will continue to seek further efficiencies in our corporate services. Turning to revenue cycle, I'll classify the progress we've made as encouraging, but by no means complete. Throughout the beginning of this year, our internal focus has been on highly targeted staffing additions, both to address the gaps we had identified in front-end activities experienced to date.