Okay, green light now. All right, thanks. Good morning. A pleasure to have the team from Pediatrix. I've got Dr. Jim Swift and Charlie Lynch. Thanks for joining us today. You guys dropped an 8-K, give an update on some of the initiatives that you have underway to kind of prune the portfolio. I don't know, Dr. Swift, do you want to take a minute to talk of-
Yeah, I'll start-
-practice review?
Well, you know, the genesis of that, you know, obviously, really, in the fall of last year, we were looking at what we were doing with portfolio management. And portfolio management for us, and looking at practices as they perform, or practices that we may have started through a organic standpoint. We look at the performance of those practices, and there are some each year that might not make it through kind of the initial period. But we looked at this more formally of looking at the practices in our specialties that are more narrow. These are then clinicians that come at a higher cost because there's fewer of those physicians in those specialties. And we were, you know, really looking at that, saw these practices were underperforming, and made a decision to start looking at those practices and disposing of practices last year.
And then carrying that through this year because we believe that's the right thing to do. Now, we did talk about it in the earnings call about primary and urgent care. That was less about the performance, as it was about the deployment of capital to get really to scale on that. So that was a decision that we made strategically to say: Listen, are we going to go to 200 or 300 of these locations? And what is gonna be the drag on that in terms of capital allocation? So we made the decision and found two good places for those two practices to reside, and working on that right now.
But the other specialties, we've looked at it through the lens of, if we cannot do this, and we don't get some of the downstream effect that the hospitals do, some of our hospital partners are better places for those-
Right
... specialties. So.
Right. Maybe elaborate on some of the specialties, or maybe you don't want to disclose what types of...
Yeah, I think since we're in the middle of it, I don't want to disclose it because-
Yeah
... that becomes party-
Yeah
... to the people who we are talking to right now. And, yeah, I suppose, you know, we recently had a, you know, national medical directors meeting that we do on an annual basis, and we were upfront with our clinicians, and some of the clinicians who we had already spoken to, but were there-
... they understood it, and they said, "We understand the," you know, both they want their practices to eventually reside somewhere that works for them, and they understand, you know, what we're trying to do on the core business. And, you know, our reaffirmation of what we're doing in maternal-fetal medicine, which has been, you know, really, we talked about it and on the earnings call that we acquired another practice there. And we think there's an opportunity in that specialty to continue to do well, with those providers in the density where we are in certain states.
Okay. So it sounds like this year you're gonna continue to undergo this process of identifying what you have, having conversations with the groups and the hospitals about what the best outcome is for the handoff, whether it's a sale, some other type of transaction, whatever you want to call it.
Some can be shut down altogether. So a combination of all of those, and you expect the annual earnings drag to be, annual earnings drag will be eliminated to be, what did you say, $30 million?
Thirty million.
Yeah, we targeted about $30 million on an annualized basis, off of our actual 2023 results.
And that number, I guess two points about that number: one, it reflects a combination of elimination of negative EBITDA-
Right
... practices or businesses, as well as, you know, additional cost efficiencies that become available to us as we restructure the portfolio-
Right
... across the country. And the second point is, you know, a relatively small component of that dollar amount will be realized here in 2024, just based on the timing-
Timing
... of exits and the like, and any associated cost efficiencies. So the greater part of that $30 million would accrue to the benefit of 2025.
Okay, just so I'm clear on this, the $30 million isn't just the EBITDA gain from disposing the practices, it also includes the opportunity to right-size corporate on top of the... Okay. I totally got that.
Yeah.
That makes sense. Can we talk for a second again, about just the urgent care? 'Cause it felt like this was, you just kind of bought into this as a strategy two or three years ago.
Different CEO at the time. So that's probably a factor at play here. But maybe just elaborate a little bit more on, like, the decision to-
Yeah, I think, I think at the time, you know, and recall, this is coming out of COVID, or in the middle of COVID. And on top of that, we have the, the confluence of the No Surprises Act, and the feeling of, if you're gonna be in a lower rate environment, is there the ability to move into a specialty, such as urgent care, that has more of a fixed rate component to it? And that was a decision at the time that also was bolstered by, okay, there's a lot of infants that we see in the hospital that don't have pediatricians, can't get pediatricians, and they have, you know, great insurance. So we thought it, it was an opportunity to, to really gain lives in terms of that management.
But I think that the two platforms that we acquired, which we, you know, have great respect for, in or.... There wasn't a whole lot else out there to acquire to assemble a platform, form in more, you know, short order. So a lot of that was gonna be dependent upon going in and starting up locations in different areas where we had density. We did the first-
Yeah
... in Denver, which were our true startups. But I think as we looked at it, and as I looked at it, it was, it was gonna be something that we needed to take our focus off of and put our focus back on what we're doing right now, on top of the core of what we're doing at the hospital, which I think we still have runway of what we can do, both organically and from a acquisition standpoint. So that was the decision. We didn't want just to shut those down. We found two good homes for the two platforms, but in the end, we did-
Okay.
Did close the deal.
You are selling them?
Correct.
Okay. All right. Going through shoring up the practices this year. Should we expect this to continue to be an ongoing effort in any given year to identify underperforming practices and determine whether or not they're feasible going forward?
Yeah, I think you can go back and look at, as you know, each year there are practices, you know, and again, we're focused on ambulatory, but there's also some underperforming hospital-based practices. And listen, sometimes we're asked by a facility to come in and, you know, set up something either inpatient or outpatient with a goal and a promise-
... that there's gonna be some financial support from the hospitals, and then those budgets change.
Right.
If those budgets change, we have to, you know, react to that. So, again, I think it's gonna be—this is gonna be really a focused effort on ambulatory-
and we should see less of that, but there's always an opportunity in some of these practices for efficiencies and figuring out where we need to be. So again, I would hope the lion's share of this is really through 2024.
Yeah.
We're well on our way right now, and I think that's the most important thing. We do have timing elements with contracts with some of the hospitals we have for coverage agreements, so we have to work through those, which we are right now.
I might be misplaced on this, but my impression of Pediatrix in some ways has been the organization has been fairly decentralized in certain areas, where you leave a lot of autonomy to the practices to do a lot of the hiring, do a lot of the business decision making, obviously the clinical decision making. I think a lot of that came from Dr. Medel, you know, leaving them alone, give them the resources. How is... How do you think about, like, changing the span of control of the organization so that when decisions like hiring, you know, they have to go up through a certain level to get approval? Are there cultural changes that you're thinking about making?
Yeah, I think, I think we've already made those largely, excuse me, as a result of us being a flatter organization. You know, I, you know, my role before was I was out in the field, and I knew the practices. Some of these practices are practices I worked on how to create or to operate. So I think it starts first with an affirmation of our practices that, you know, what they're doing in terms of patient care, we've always, and we're still the same way. If someone's gonna be hired, it's not gonna be us hiring them and telling them, "Here's your fit." It has to be somebody who is culturally and ideologically the same in terms of that specialty and that practice.
I think we still believe that, there's an opportunity for us, corporate and our operators, to make decisions with our practices as to where the direction is. And, and more importantly, and I'll use... A great example of that is in OB hospitalist MFM, where that's really been a great opportunity for us to have those conjoined a bit together so that they backstop each other in terms of the service they provide. So again, I think that's been a kind of a cultural fit that we've talked about with practices, say, "Listen, if there's a need, let's figure out how that need works between the hospital and the outpatient side.
Yeah.
We've also made a lot of investments around analytics, and transparency down to the practice level, all the way from ops, finance and finance-
that are helpful. You know, when you think about the, you know, the concurrent processes of Pediatrix being willing to let go of practices and exit, you know, those groups that we can't see a financially viable path forward for, while at the same time supporting other practices through those analytics, so they have a great deal of visibility and education about their own financial profile. You know, consider it parts of that cultural change, where there is a much brighter light down to the practice level-
Giving them-
what they look like and helping them to inform-
Yeah
... their own decisions-
Yeah
about how they run their practice and move forward.
Prior to making those analytical investments, were the practices, I mean, did they have visibility into, like, the KPIs and the things that were important to?
They did. You know-
But not the level of detail that they do today or maybe the accountability.
Accountability, and I would say you know, the commonality of what they are looking at, what they can see through those analytics. And it's not to say that each practice didn't have its own P&L that they could see and the like on a regular basis, but you know, that's been refined and enhanced.
Do they have visibility into other practices to see benchmarking and performance or not?
Yeah.
Maybe not too helpful.
I think on a regional basis, yes, right?
Yeah.
'Cause that's, it's nice to know you're in the same ilk if you're in the state of Texas versus, you know, they're not looking at a, you know, something in Virginia.
Yeah.
It can't be cookie cutter, but, you know, to the extent that there's comparisons we can make.
Okay. Can we switch gears to a second to the revenue cycle? We're on the revenue cycle, sort of 3.0. You, you had 1.0 year, then the most recent one, we won't talk about 2.0, now 3.0, kind of a hybrid. How's it going, you know?... the investments you're making in the practices to support this and-
Well, I would judge it by our practices first and foremost, where they have said it's night and day between this vendor and the former vendor. So that's the first satisfier, is the practices have better visibility on what's happening from a rev cycle standpoint. They're able to call and participate in, you know, these updates with the vendor and with our team that's internal. So I think that starts. And I'll say from my own relationship with Guidehouse, our new vendor, it if we pick up the phone and call them, it is there is a all hands on deck meeting for them to say: "What do we need to do?" The performance, we there, again, early this is early on, but the performance we feel has been very strong.
So much so that, you know, we have waves of transition that we're doing.
Right.
So, I think, first, you know, they're doing a great job. Our hybrid team on the front end has been exceptional, and these people, they have a great relationship with Guidehouse. So, you know, right now, it's early, but we're very happy with that transition.
So our goal is to make that transition from the former vendor, which still has coverage under contract for the remainder of this year, to wean off of that as quickly as possible. So those waves that Jim's talking about-
Yeah.
will occur over the coming months, and our goal is to be fully transitioned, you know, well before the end of the year.
So if I look at fast-forward and look at the next 2, 3, 4 quarters, should I expect to see another build in AR over time as the processes are being converted, or we should see more consistency? I'm just wanna make sure that I'm prepared for it.
I would say we're looking at consistency there.
Yeah.
I guess from a budgeting standpoint, I would say that what we factored in for this year was stable performance throughout the transition. Which is not to say we're anticipating improved performance and enhanced performance over time, but to be realistic-
Okay
about it and think about the, you know, the enormous amount of work that's been going on and is going on in this transition.
Right.
We wanted to be realistic. So from that standpoint, you know, as you saw and we reported for Q1, you know, our DSOs jumped up a little bit during the first quarter. A component of that was related to change, and the hack there, and a lesser component was just, you know, transitional activities, but all within a, you know, a palatable range. We're still sitting, you know, as of March thirty-first, at, you know, 52 or so days,
Yeah
... and that'll probably be the best benchmark as we go through the coming quarters of where we stand.
Okay. Okay. Any chance that a lot of the AR that you've written off could be collected again, or is that just kind of a lost opportunity at this point?
Well, I think part of that is still being worked. And so we've used some outside vendors to work some of that to see. So, but some of that is, you know, the stuff that we have written off, you know, we're not looking to say, "Hey, we're gonna recover all of that," but I think we're not gonna just let that wallow, you know, behind us. So, but we're focused, I mean, first and foremost-
Like third-party, like, collector or something.
Correct.
Yeah.
Correct.
Yeah.
Yeah.
So-
Yeah.
So again, we're still gonna work that. And interesting enough, Guidehouse came in, and their first goal was to say: "Listen, we're gonna put a lot of bodies on the AR to see where it is, to clean it up, and anything that we can go after, we're gonna go after." And they had this SWAT team that was really focused on that AR. Okay. I'll make sure I check the box on this question. Any incremental P&L investments that you need to make today-
... to facilitate the transition? Or I think the way you described it on the call or prior calls was kinda like kind of earnings neutral. As you think about G&A, some G&A going away, we're adding some G&A as well.
Correct.
G&As will be flat as a percentage of revenue. Okay.
Yeah, that should all be embedded, and the only outlier is the T&R expense related to the roll-off from our former vendor.
Right.
I'm sorry, the line item, the transition-
Yeah, yeah, yeah
...transformational line item has the overlaying expenses from the former vendor that, like I said before, we're gonna try to wean off as quickly as possible.
Okay. Back to just wage inflation, that was something that has popped up periodically, and definitely back when you had your anesthesia platform. But when you look and unpack some of the pockets and hotspots of wage inflation, whether it's mid-level, like, where are you seeing pain points today, or where did you see pain points last year? And again, I guess the question is the steps that you're taking to try to control those better.
Yeah, I think last year, you know, some of that was around. I'd say three buckets. One, on the clinician, physician side, you know, we had some of the coverage models we needed in some of these office-based practices-
Yeah
... and an OB hospitalist, where there was a smaller population of people. And so there was pressure on us, either from a contract labor standpoint or from hiring people into those practices. The other was just that, it was mid-level of right-sizing some in the markets where we were, where we were behind.
Yeah.
And so we saw that flow through. I don't see it as much this year. I think we're in a better spot, and I think part of that is not competing for some of these bodies, for these ambulatory practices that we'll be moving out of.
Yeah.
You know, you know, I think that's the tale.
I think I see the roadmap, yeah.
Yeah.
Yeah. Yeah. Can we unpack the... You had a little bit of volume growth. It was nice to see in the first quarter. I know that's not really within your control all the time, but some of the specialties, where do you feel like there's maybe more momentum, tailwinds behind a specialty versus another right now?
I can give a couple of-
Yeah.
Yeah, I can give a couple of data points, and Jim can kind of talk more intelligently about this. You know, in our core neonatology business, you know, we've seen what I would call stable demand. And how that shakes out is that, you know, birth trends across the 400 or so hospitals where we're in the NICU, we're just under flat through the first quarter. Our NICU volumes were better than that, and it's a phenomenon that we've experienced for the last year or two, that those inputs to our billable units, which is a NICU day, have shown movement. Or, you know, the rate of admission into the NICU has slightly increased over the last couple of years.
-against the total deliveries in the hospital, and the length of stay has increased somewhat as well. And, you know, we'll leave it to our clinical research team to really pore through those data-
and try to determine, you know, what the root causes are for that, and there's plenty of areas where you can speculate, and I won't. But, you know, that's kind of par for the course related to our outlook for this year, and what's embedded is just stable-
Right
... demand on the neo side. You know, the strength that we saw, and Jim, you should speak to this, the strength that we saw coming into this year that has been persistent, you know, through last year as well, is in maternal-fetal medicine. Where I think our volumes in the first quarter were up in the low to mid-single digits, and not simply because of an easy comp. It's been relatively persistent, and we've seen nice volume growth across MFM.
Yeah, and I think that what we're seeing there is this whole issue, and we spoke about it a little bit in some previous conferences, is about the maternal deserts that are out there for OB, and people saying it's all rural, and it's not. There's a growing confluence of those deserts near the metropolitan areas. So where these patients can't get care, they're getting referred in either by an OB to our MFMs or, more importantly, they're showing up in ERs. And they're showing up in ERs with no care and then no provider, and the providers that are affiliated with that health system say-
Yeah
... "Not on my watch!" And so they get transferred either to a facility or a practice of ours. So, I think that as we're looking through the data now with our researchers, part of that is what we're seeing in terms of the acuity in the NICU, not that there's more micro preemies, just that there are sicker babies that are coming in, that results in that length of stay that we're seeing. And I think that's the role our MFMs are gonna fulfill for the time being, because without, you know, access to some of this, these moms are gonna be, you know, left, and this is written about across the country in terms of increased maternal morbidity and mortality.
Yeah. Payer mix nudged slightly higher in the quarter, and it's been relatively consistent for years, I'd say, just looking at the consolidated mix that you provide. I think about, like, where a lot of your practices are and where a lot of the hospitals are that you're providing coverage. We've seen just meaningful growth in exchange enrollment, and, you know, look at HCA and Tenet reporting 50%-60% increases in exchange volumes. I have data on all the births in Florida. I can track it. You've seen it-
And then it's up. I've just been surprised that we haven't seen that increased coverage manifest into more improvement in your payer mix. What... I mean, when you guys are really studying this, or you study this-
Yeah
... why is it not translating into more positive results?
I mean, look, we've got a fairly diversified footprint, particularly in neonatology, which kind of dominates our P&L. I would say that really for the past several years, if you chart it out, our payer mix has very gradually but persistently improved. And remember, we're binary. Our payer mix is pretty much Medicaid versus non-government, right?
Right.
So, you know, I would say there is a possibility that that exchange enrollment plays a role. There's also the possibility that just general employment trends and economic trends play a role, which I would say they have for, you know, on a very long-term basis, the ultimate driver of that kind of a binary mix-
Yeah
... change. So, yeah, I mean, looking at the first quarter, looking at the, you know, the general body of 2023, you know, that trend line has been nothing earth-shattering, but supportive and improving.
Yeah. Well, I don't know. There's such a meaningful rate differential between the two. It wouldn't take a-
Yeah
... lot of mix improvement to-
Again, you know-
move the needle.
The trends in our neo business are governed by the size and diversity-
Right
... of it. So, you know, similar to looking at reported delivery statistics from, you know, the systems versus what we report. You know, there are-
Yeah
... a lot of hospitals that don't have a NICU but might have labor and delivery in them and might see wider swings. In the large hospitals where we're running a NICU with a high level of consistent deliveries year after year, those changes are more modest.
Yeah. Okay, and I guess that's just a function more of that, the Medicaid population that... I don't know. I've just been surprised we haven't seen redeterminations in the growth in exchanges-
... drive more improvement, but maybe we will.
Can't rule it out.
Yeah.
Right.
Can't rule it out that it's behind some of the improvements that we've seen, and can't rule it out that it could continue.
One of the other trends that's developed, and this has been more impactful and profound for the hospitals, has been the growth in supplemental programs, DPP programs. And why is it that you take a specialty like neonatology that is so heavily oriented around Medicaid, that some of these programs and the dollars aren't flowing to you?
... Yeah, in certain states, there are programs, obviously, that reflect both the facility and the provider, but it's not uniform across the country. So where we look at it is we look at it, you know, some of our contracts with the hospital include, you know, stipends that are built off of that population.
Got it.
Not, not fee splitting, but, you know, based on, hey, this is gonna be a population that we're servicing. But I think where we've worked judiciously is with state Medicaid to get increases on those areas, primarily maternal-fetal medicine and neonatology, that we've been fairly successful at. But those programs are generally not aligned with the providers or aligned with the facilities.
Okay. All right, that's helpful. So take a program like Nevada, where Universal, HCA get a bunch of money, not that it's contractually tied to that, but there's-
correct.
There's definitely a flow-through that you can-
Correct
... you can get. Okay, so that's helpful. So those, these programs are helpful for you, just more indirectly.
Yeah, they are, and take a look, and I'm just speaking about Nevada, you know, we run one of the largest cardiovascular programs, inpatient, with the cardiovascular intensive care for newborns, infants, and children, and so that is funded through the state to the hospital. And the hospital recognizes that in order to have that program, we have to have a certain subgroup of providers there, and so, you know, we contract with the hospital to provide that that may not see the benefit inherently by itself, so.
Got it. Okay. Maybe just a quick update on No Surprises Act, surprise billing, sort of where, where that is, where you are with it. Are we, are we through it? Like, we haven't been able to detect really anything through the income statement or your balance sheet yet that would suggest that there's been a meaningful headwind or noticeable headwind, so just kind of curious.
Yeah, we're not—as I said, we're not ready to declare victory, and we've always said that we're supportive of the No Surprises Act. It's the implementation that remains problematic. I think our investment that we made in, you know, the arbitration process and the automation around that, has been the one tool we have to have an honest conversation with payers. So I think that has, you know, really helped us in those conversations, so we aren't out of network, and also for those that we've had, you know, a difficult relationship, to get back in network. So we're not seeing it right now as a major issue.
However, it remains, for the time being, something we have to look at in terms of rate and what the payers wanna do on rate, and it's gonna be—it's not uniform across the board.
Okay.
Some payers in some states where we meet with and get reasonable increases, and other payers we're looking for concessions, but the concessions haven't been what we had feared, you know, two years ago.
You touched briefly, as we were just talking about the flow-through of some of these program funds to you, but just subsidies in general, like-
are each year, I mean, we can see it in the filings, we know that it's growing, but is it growing at a faster pace at this point or consistent with historical trends?
I'm gonna say it's consistent with the historical trends, except I would say, over time, what's changed, and I'll use it as an example, is OB Hospitalist, right? If you go back 6-7 years ago, that specialty wasn't as prominent across the country.
Yeah.
And that is really not based as much on the patient service revenue because it's somebody, it's fixed costs there at the hospital, that's through, you know, contract revenue. And I think what we've looked at with the hospitals is it requires contract revenue, and we have more and more hospitals who are turning to us saying, "Hey, we need this program." And there are those hospitals we talk to and say: "Listen, you're not ready to have, you know, that type of program.
Right.
But I think that, you know, it's new programs that may drive a little bit more of that, you know, contract revenue, but I think it's pretty consistent for us over the years in terms of the percentage in neonatology versus, you know, other specialties.
Yeah, and I would say you know, the portfolio management activity we have underway isn't solely around looking at exits and restructuring the portfolio. It is also looking at those instances where any kind of stipend support has proven not to be sufficient for the viability of the practice. And, you know, it gives us the need to have that discussion with the hospital about the stipend support, about the staffing needs for that practice. Right, basically, what the hospital would like, and it's an office-based practice, and if the hospital wants a physician, you know, in a facility, you know, for a certain amount of time, you know, that's taking away NPSR from us in the office-based setting, and that has to be accounted for.
You know, there are those conversations as well as part of looking across the portfolio about, you know, whether there are operational and other improvements we can make to a practice, you know, versus letting it go.
Yeah.
Okay. We got 40 seconds left, so I think we can just wrap it up here and let you guys go, but I appreciate the time today.
Thank you. We appreciate being here.
Yeah. Talk to you guys soon. Thanks.
Thank you. Thank you.