Pediatrix Medical Group Inc (MD) 2010 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the 2010 first quarter earnings call.

(Operator Instructions).

I would now like to turn the conference over to our host, Bob Kneeley, please go ahead.

Thank you, and good morning, everyone.

Thanks for joining our call this morning.

Before we open the call, I want to read a forward-looking statement.

Certain statements and information during this call may contain forward-looking statements.

These forward-looking statements are based on assumptions and assessments made by Mednax's management in their experience and perception of historical trends, current conditions, expected future developments, and other factors they believe to be appropriate.

Any forward-looking statements made during this call are made as of today, and Mednax takes no duty to undertake 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, and it's quarterly reports on Form 10-Q including the sections entitled Risk Factors.

During this conference call, the Company will be using certain non-GAAP financial measures.

A detailed reconciliation of these measures to GAAP can be found in the Company's earnings release which was issued this morning, and is available on our website, www.Mednax.com.

With that let, me turn the call over to our Chief Executive Officer, Roger Medel.

Thank you, Bob.

Good morning, and thanks for joining our 2010 first quarter earnings call.

We reported another quarter of solid financial and operational results for Mednax, results that we achieved because we continue to successfully manage through a very challenging operating environment.

Our revenue for the 2010 first quarter grew by 10%.

Operating income growth was 12%, and non-GAAP net income growth was 13% after adjusting our tax rate for this quarter to our estimated annual tax rate.

Non-GAAP earnings per share of $0.82 was up 11%.

These are strong results, particularly when considering the level of variability we are still seeing in the factors affecting our neonatal practices, specifically patient volume and payer mix.

Nevertheless, we continue to find opportunities to improve the efficiency of our operations.

And with our first quarter results, we drove more efficiency through our administrative infrastructure, lowering G&A expense as a percent of revenue and expanding our operating margins.

Our results are the product of our long term strategy of providing the appropriate level of administrative support to our practices.

For years, we've maintained a lean services infrastructure at both the regional level, and through our centralized administrative areas to support our practices.

We're seeing similar benefits from this approach coming from our American anesthesiology operations.

As we've mentioned during previous conference calls, during the 2009 second quarter we migrated the billing and collections of our Fairfax, Virginia Anesthesia practice to the administrative office acquired as part of the Raleigh anesthesia practice in late 2008.

In the third quarter of 2009, we also moved billing and collections for our Atlanta anesthesia practice over to the same Raleigh office.

In both cases the services managed at our Raleigh office replaced outsourced billing companies.

Now while we have to add additional people to support those practices, our results for the 2010 first quarter demonstrate that we're able to perform these functions more efficiently than in the past.

This isn't merely a matter of putting Fairfax and Georgia practices on to the systems we acquired as part of the Raleigh practice.

Our success stems from the ability to apply many of the systems and processes that we do well on behalf of our pediatrics practices to these American anesthesiology groups.

We're demonstrating that our core administrative competencies are transferable to Anesthesia.

Within our pediatrics medical group services we continue to be impacted by lower birth levels.

Births at our hospitals were down on a same unit basis more than 3%, which lead to a decline of same unit Neonatal Intensive Care patient days of 0.7%.

The percentage of those births admitted to our NICU's increased slightly, but still within historical levels.

Length of stay has also remained flat and within historical levels, so this patient volume decline continues to be entirely attributable to fewer births.

It's hard for us to speculate on what is occurring with births in the country.

We've been working through this issue for two years now.

And there's no single factor that can adequately explain the considerable variability that we've experienced over this time.

Even within this quarter, we experienced volume fluctuations week to week, month to month, of the results of birth levels.

Directionally, the first part of the quarter was weakest, and we saw improvement during the later part of the period.

As I said we've been working through the issues around variable birth levels and payer mix for two years.

We've managed to grow our operations through this period, and there are two important factors that give us confidence that we will continue to grow and to prosper over the long term.

The first is favorable demographics, and the second is our successful model, the model that continues to drive operating efficiencies for us.

The demographic way that relates to our neonatal practices is to point at which the so-called Echo Boomers make the decision to start families of their own.

These are the children of the baby boomers, those children born in the mid 1970s through mid 1990s, when birth levels in the United States expanded from an annual level of about 3.1 million to a relatively constant 4 million babies per year.

Our model responds to this environment as well.

We have the right incentives in place for our physicians, allowing them to share in the growth and profitability of their practices.

Those incentives are also adjusted based on what's occurring at the practice level.

This model continues to serve as a magnet for other groups as well.

During the quarter, we completed four physician group practice acquisitions, three neonatal, one maternal-fetal, and we continue to see strong interest in the historical pediatric Medical Group model.

We invested more than $40 million to complete those transactions, as well as modest contingent purchase price payments and that puts us well on track to meet our targeted $100 million of acquisition spending within the pediatrics group this year.

In addition, we're moving forward to our normal business development cycle within Anesthesia, and we are on track to meet expectations to complete one or two acquisitions in that specialty this year.

The more time we spend meeting with anesthesia groups, the more time we spent with our physician developing opportunities for clinical support, and the more time we spend fine tuning our current administrative structure, the more excited we are about the prospects for long term growth presented us to through anesthesia.

Finally, before we talk through a detailed review of our financial results, I want to provide a brief update on what we're seeing on the government reimbursement side.

As various state legislatures wind down their current session, the prognosis for fiscal year 2011 is about what we had expected.

States are having a difficult time balancing their budgets, but they are also doing all they can to preserve physician reimbursement, and in the process to insure adequate access to care for Medicaid and SCHIP enrollees.

Remember as I've said in the past, we've seen that poor Medicaid reimbursement rates result in fewer doctors accepting Medicaid patients.

States that preserve reimbursement at current levels are more likely to maintain an adequate network of primary care and specialist physicians to provide care, typically in the lowest cost settings of a physicians office.

We are a few weeks away from final state budgets being passed for fiscal 2011.

and we have a general sense of the direction at this time.

Many states are counting on an extension of the FMAP allocation which was part of the 2009 stimulus package to meet their budgets.

I don't want to go down a state by state review, but in general we're seeing Medicaid reimbursement for fiscal 2011 held at or near current levels.

At this time, let me turn the call over to our Chief Financial Officer, Vivian Lopez-Blanco.

Vivian?

Thanks, Roger, and good morning everyone.

I'm going to spend a few moments going through a detailed discussion of our financial results for the quarter, results that mark a continuation of our progress in growing our organization and managing it more efficiently.

During the 2010 first quarter, our revenue grew by 9.6% or $29 million to $332.9 million.

The components of our revenue growth were roughly 7.4% from acquisitions completed since the beginning of 2009, and 2.2% from practices included in our same unit base.

Within same unit growth growth, there are a lot of items moving in different directions.

Overall reimbursement improved, despite higher government payer mix while patient volume overall declined.

On the reimbursement front, the percentage of our services reimbursed under government programs increased by 0.6 percentage point for the 2010 first quarter, when compared sequentially to the 2009 fourth quarter.

When compared with the 2009 first quarter, the percentage of our services reimbursed under government programs has increased by 3%.

A single percentage point swing towards a higher government payer mix translates to about $11 million to $12 million of annualized revenue.

The magnitude of the shift to government payors, that we've experienced during the last year has a significant effect on our growth rate.

Within that context, we achieved a net reimbursement growth of 2.5% for the 2010 first quarter due to modest rate increases from third party commercial papers.

As a result, we continue to achieve same unit reimbursement related growth within our historical range of 2% to 4%.

Across our service lines, patient volumes moved in different directions during the first quarter with some services growing and others declining.

On a combined basis patient volume declined 0.3% from the 2010 first quarter from the prior year.

This includes lower neonatal volume of 0.7% as Roger mentioned, as well as lower patient volume at our maternal-fetal medicine unit practices.

Same unit volume at our anesthesia and cardiology unit practices, as well as other services such as pediatric intensive and hospital and hearing screen programs increased.

On the expense side, profit after practice expense was $106.4 million for the 2010 first quarter, up $9.2 million or 9.5% from the prior year.

Profit after practice expense margin was essentially flat down three basis points for this year's first quarter versus last year.

Operating income for the 2010 first quarter was $63.6 million, up $6.9 million or 12.2%.

Our operating margin improved by 46 basis points to 19.09% for the 2010 first quarter from 18.63% for the prior year period, largely as a result of our ongoing expense management efforts, benefits from integrating key administrative functions of our anesthesia practices., and the timing of certain expenses.

General and administrative expenses were 11.4% of revenue for the 2010 first quarter, down 62 basis points from the same period in 2009.

G&A expenses grew by 4% during the quarter, which was considerably lower than the rate of revenue growth for the period.

G & A expense improvement during the 2010 first quarter is related to efforts to achieve efficiencies within our American anesthesiology practices as Roger said.

This really is a result of us applying our approach to administrative support to our anesthesia practices.

We will lap this benefit through the remainder of 2010, based on when we brought our administrative functions in house during last year.

We always strive to make incremental improvements to our administrative functions, and we hope to continue to do so in anesthesia, as well as our pediatric practices.

In addition, we did obtain some benefits during the 2010 first quarter from the timing of normal annual expenses which we have since incurred early in the 2010 second quarter.

Continuing with the income statement discussion, our income tax rate for the 2010 first quarter was 39.5% or 60 basis points higher than the rate we expect for all of this year due to changes in reserves for uncertain tax positions.

In recent years, we see fluctuations in our quarterly tax rate largely due to these types of changes.

As I said last quarter, we expect our effective tax rate for all of this year to be approximately 38.9%.

As I discussed net income and earnings per share, I'll present our 2010 results on a non-GAAP basis that adjust our quarterly tax rate to our estimated annual rate.

Our press release this morning contains a detailed GAAP reconciliation that's available on our website at www.Mednax.com.

Net income for the 2010 first quarter was $38.6 million non-GAAP, up 13.5% from the prior year.

Non-GAAP earnings per share of $0.82 based on a weighted average 47.3 million shares outstanding for the 2010 first quarter increased by 11%, from $0.74 based on 45.9 million shares outstanding earned during the 2009 first quarter.

To summarize our income statement for the 2010 first quarter, we continue to achieve operating efficiency largely through leveraging the G&A administrative infrastructure that supports our pediatric medical group practices.

And with this quarters results achieving similar efficiencies from our American Anesthesiology administrative infrastructure, and through continued acquisition growth.

Moving on to a quick look at our balance sheet at March 31, we had cash and cash equivalents of $23.9 million and accounts receivable were $174 million.

On the liability side, we had $129 million outstanding on our $350 million revolving credit facility as of March 31.

This is up from December 31, due to incentive compensation payments, mostly to physicians and other employee benefits payments made during in the first quarter of every year, as well as to fund acquisitions completed during the quarter.

During the 2010 first quarter, we used $41.6 million of our cash and available credit facility to fund our operations, which compares with negative cash flow of $22 million for the 2009 first quarter.

As I said during the 2010 first quarter, we paid out incentive bonuses that accrue throughout 2009, as well as matching 401(k) plan contributions.

This is consistent with prior years as we typically have negative cash flow from operations during the first quarter of every year.

We also completed four physician group practice acquisitions during the 2010 first quarter.

Acquisition payments including contingent purchase price payments on previously completed acquisitions were $40.2 million for the period.

Capital expenditures were $4.1 million for the quarter.

To summarize my comments, our results for the 2010 first quarter reflect a Company that continues to grow, and one that is achieving financial efficiencies as a result of it's effective operational management.

We anticipate strong cash flow from operations for the remainder of this year, which when coupled with the capacity on our balance sheet will provide us with the considerable resources to continue to grow our operations.

In this morning's earnings release, we also presented earnings per share outlook for the 2010 second quarter.

We expect that earnings per share will be in a range of $1.00 to $1.05 for the quarter.

That range contemplates the following assumptions, same unit NICU patient volumes that will be flat to up by as much as 1% from the 2009 second quarter, or on a year-over-year basis.

And that the percentage of our services reimbursed under government programs could be as much as one percentage point higher to one percentage point lower for the 2010 second quarter on a sequential basis, which means when compared against the 2010 first quarter.

In addition, this outlook includes contributions from acquisitions within our pediatric medical group specialties, Neonatal, maternal-fetal, pediatric cardiology and other pediatric specialty services.

We do not include any contributions from anesthesia acquisitions in this outlook.

With that, let me turn the call back to Roger.

Thank you, Vivian.

Let's get right to the questions, operator, please?

Thank you, Ladies and gentlemen.

(Operator Instructions).

First, we will go to the line of Darren Lehrich with Deutsche Bank.

Thanks, good morning, everybody.

I have a question just about the volume.

It appears that the growth rate in the underlying volumes was obviously a little bit better than the bursts in your hospitals.

Can you just talk a little bit more about what was driving that.

And secondarily, I'd love to just get a comment from you about market share in your hospitals with regard to births.

I think our national surveys were pointing to births in the first quarter closer to 4% to 5% down, so it seems like your hospitals did do a built better than that.

Any comments about that?

Well, our admission rate remains within our historical ranges.

And so even though it was up slightly for the first quarter, it's still within the historical range.

And so we're not seeing increases of any significance as far as admissions are concerned.

And the same thing is true for our length of stay, our average length of stay remains within historical limits.

So really, any effect that we see is a direct result, we believe of just the lower volumes, lower births and that's it.

Our hospitals in general, I would say are all over the place.

I mean, I think that we do have a number of hospitals just because they are Level 3 units with Neonatal Intensive Care services.

They tend to attract more births.

So I wouldn't be surprised if on average maybe there are more births happening in our hospitals than in your typical community hospital that doesn't have an NICU, But I don't really have a feel, Darren, for market share at the hospitals where we have services, as opposed to other hospitals in the community.

And just as far as the outlook for Q2, it seems like you're expecting volumes to come back a little bit more band into a normal band.

Is that just based on the trajectory that you saw throughout Q1, anymore commentary you could provide there?

Yes, I mean, as we said during the first quarter, we saw that January was the worst month ,and things improved as the quarter moved along.

So reading the tea leaves, and putting our fingers up in the air to see which way the wind is blowing, and looking at consumer sentiment, and those kinds of things, the best guess that we can take at this point in time is that things hopefully it will get better as the year progresses.

Okay, and then my last question here is just as it relates to the anesthesiology revenue, I guess, cycle and billing collection that you've been able to consolidate for your three practices, can you maybe just characterize how those have, that has matured relative to your internal plan?

And I guess I would also just like to get some commentary, about how important you think that is in attracting practice acquisitions, how involved they get in due diligence in your capabilities there?

thanks.

Hi, Darren, this is Vivian.

I do believe as we've said in prior calls, that this is part of what the old pediatrics is good at.

So I think that we don't want our internal disciplines, our American anesthesiology division.

And I do think that we've seen the reflection in the numbers and I think that it is going to help us going forward, just as overall our revenue cycle management process improves.

As far as how it's been received overall with our current practices, I think everyone understands that actually it is positively impacting their own practice P&L .

And so basically, they are comfortable with it.

As far as with other practices that we look at, we are certainly up front with them, and we talk about this is one of the core competencies that the Company has, and because most of these practices do have or a lot of them have them outsourced, it's nothing that they take as personally as something else.

I think they are all okay with us using our disciplines, and making their models a little

Great.

Thanks a lot.

Okay, thank you.

And next we will go to the line of Ryan Daniels with William Blair.

Please go ahead.

Yes, good morning, everyone.

I wanted to follow-up just quickly on the volume front if we look towards the future.

I'm curious, given that you saw lower maternal-fetal volume this period in some of your markets, if that ever translates going forward several months in the lower NICU volume?

I'm sure those are higher risk babies or mothers.

I'm curious if that actually gives you visibility or there's not much correlation between the two?

Ryan, we don't really buy a lot of correlation there.

So while we have practices, neonatal ICU practices all across the country, there's specific markets where we have those maternal-fetal medicine, but it's not representative of our geographic spread.

Okay, and then if we think about the NICU guidance, one thing that looks a little bit different this period is you've only provided 100 basis point range from flat to up 1%.

And I think over the last year or two, you've had more of a 200 basis point range.

And I'm curious if we should read into that that maybe you're thinking it's a little more stable or more visible ,or a little bit more comfortable that it should be modestly positive going forward?

Is there anything to that?

Well, as we tried to give you our best guess at this point in time, we try to bring the range down to what we think is the likely scenario.

So if it feels like it's a little more stable, it probably is a little more stable.

Okay, great, and then could you maybe talk about the AA division?

I'm curious what some of the bigger priorities are for this year?

Obviously last year you did the successful migration under the Raleigh billing platform, and I'm curious kind of what's in the pipeline internally?

I think you've talked about trying to do scheduling systems and improving that.

But, one, maybe what's on the pipeline?

And number, two, and my final question would be are there kind of any triggers there once you're done with certain internal developments you might get a little bit more active on the M&A front, or is it really just finding the right deal and the right timing?

Thanks.

I just happened to ask Karl Wagner here.

Hi, Karl.

Hello.

I'll let him take a swing at that.

Well as we've said, clearly continuing to grow through acquisitions and looking at practices has clearly been one of the things we're bringing forward, and want to complete this year.

As Roger said, we're on track to do one to two deals this year.

We're talking to a lot of groups, and there's a lot of activity, and a lot of interest and excitement over what we're doing in American anesthesiology.

We're going to continue down the path of working on the administrative side as well, working through the scheduling systems or the practices as we get those implemented, and make a more integrated process.

And that's more the improvement of the practices out there.

We're also spending time this year working on clinical systems.

One of the things that really dropped pediatrics to where it is in the neonatal industry and that we're doing in the other subspecialties there, is having a it clinical system where we can pull data out of and do comparisons to see how we're doing in improved care that's provided at the bedside.

And that's a real big emphasis we're working on this year.

We're building our own clinical data warehouse off the basis of what the practices had done.

So we're continuing to move down that road and that's a big emphasis for us this year.

Okay, great.

Thanks for all of the color.

Thank you.

Next we will go to the line of Art Henderson with Jefferies & Company.

Please go ahead.

Hi, thanks for taking the question.

Good morning.

Just dove-tailing off of the questions on anesthesiology acquisitions.

So the one or two you're expecting to do this year in terms of deals -- I know you previously talked about maybe having one done by the first half -- is that slipping more into the second half of the year?

Could you give any color on that?

Good morning.

Good morning.

So much of that is out of our control.

We're working to get it done during the first half, but if it slips for a couple of weeks or whatever, I still think we'll be sort of within that range of late first quarter, or late first half, early second half.

Okay, and then Vivian, with the comments that you made about the expense reductions you've done, the G&A growth, should we expect that level of G&A for the remainder of the year?

I missed it in your opening remarks there.

But you said that we would overlap some of the cost reductions that you did moving systems on the anesthesiology side in the back half of this year?

Right, so Art, I wanted to just put that in perspective, because when you look at year-over-year, of course in the first quarter it was significant.

If you recall last year, we moved Fairfax April 1, and we moved GPC, the Georgia practice in August 1.

So that's why I was just trying to set the stage for that, because when you have second and third quarter year-over-year comparisons, that margin will slightly shrink, because we did have a little bit of already favorability in those numbers.

In addition, to that we did have some timing of one of our large annual expenses related to one of our conferences that slipped from the first quarter to the second quarter.

So that's why I kind of just wanted to put that in perspective.

But you will see some favorability obviously going forward, but when you have a year-over-year comparison, it will be -- the margin of comparison will be slightly less.

Okay, that's very helpful, and then the last question.

Your commercial payer pricing trends are better than what we had forecasted.

And I'm wondering, now that you've got real density among neonatology and pediatric subspecialties, are you getting a lot of leverage over that density in these commercial payer pricing negotiations?

and could you characterize kind of how that, where you expect this pricing to go kind of going forward?

Thank you.

Yes, we've said in the past that we don't believe we get any leverage from our presence in the markets.

We think that what's important to us is to be in what we call -- we feel are the right hospitals.

Meaning, if you are developing a network of providers, there are specific hospitals that must be in your network if you want to sell insurance.

And for us, the important thing is really to be in the right hospital.

We don't think we get any leverage from being in different hospitals within a specific community.

What gives us our ability to negotiate fair rates with hospitals, is or with payers, is being in the right hospital.

So our size we don't think is real leverage.

Okay, thank you very much.

Okay, thank you.

And next we will go to the line of Kevin Ellich with RBC Capital Markets.

Please go ahead.

Hi, thanks for taking my questions.

Just wanted to go back to the birth trends.

Roger, I was wondering if you'd be willing to share with us how the trend happened in the first quarter?

You said January was the weakest.

Just wondering if March was actually positive?

Yes, January was negative, and February was slightly negative and March was positive, yes.

Okay.

And then given your acquisition expenditures this quarter, it was a little bit higher than what I remember seeing historically, just wondering what's going on with multiples, and if there's anything unusual in those expenses?

I don't know what you have, Kevin, but no.

Our multiples are within the four historical multiples that we have.

And that's the three to five times range?

Yes.

When I say four, I mean four times.

Okay, got you.

And then just going back to the G&A expense then, Vivian, you mentioned the annual expenses or even normal annual expenses were pushed out.

Was there anything other than, I think you guys have an annual meeting, or something like that once a year.

Was that what was pushed into Q2?

Yes, that's right, Kevin.

And then I guess thinking about the anesthesia improvements of your administrative infrastructure improvements, how much more of that should we expect or how much do you think we can see?

Like I said, it's going to start overlapping.

So we don't really want to give you a specific number, because as I mentioned I think when Darren asked me the question, we continue to try to make more significant improvements on the revenue cycle overall, just on the whole collections cycle.

So we're happy with what we've done so far.

It is what was in our plan as far as our business plan, and what we thought we could bring to the table.

But I don't want to specifically quantify that because that would put a lot of pressure on Karl there.

Got you, okay.

And then just one more question, and we can wait until the Q comes out, but wondering if you can give us what the accrued expenses were for the incentive payments for bonuses?

Well, basically, I could tell you what the payments that we made were.

We made about $131 million of bonus payments, which were as I said in my script, is primarily related to the payments to the physicians.

Yes.

Okay, thank you guys.

Great.

Thank you.

And next we'll go to the line of Dawn Brock with Kaufman Brothers.

Please go ahead.

Good morning, thank you for taking my question guys.

Number one I wanted to see if we could drill down a little bit more into anesthesiology vis-a-vis commercial versus government, meaning was the 300 basis points in the core business?

Or was there also a rise in anesthesiology when it came to the rise in government reimbursement?

Yes, Dawn, good morning.

It's Vivian.

Most of that is obviously related to Pediatrics Medical Group.

The payer mix for anesthesia typically is better than it is in the neonatal business because you have more Medicaid, I'm sorry Medicare.

So they have seen a slight increase, but it's not to the extent of pediatrics at all.

Okay, thank you, that was very helpful.

And secondly, Vivian, maybe you could talk a little bit to the variability in the tax structure.

I think since FIN48 you've needed to reserve kind of early on, and then when it rolls off, you get the benefit throughout the year.

Could you just talk a little bit to the seasonality of that, and how we can look at that to better model it?

Sure, and you very well put it, Dawn.

I mean honestly, this is all basically after FIN48, unfortunately it does create some variability in quarterly tax rates, because before you could just include that in your yearly rate, and now you have to take it on a quarterly basis.

So for Mednax in recent times, the rate has been a little bit higher in the first and second quarter, and then lower in the third and forth.

So that's been the trajectory there.

Again, there are a lot of factors that affect that, because it just depends where we're at with taxing authorities on different matters.

But historically in recent times that's how it's been.

So that's why we like to give you the annual rate because to me, that's important for you to know that that rate isn't changing for the year.

Okay, that's helpful.

And I guess the last thing is you've got a much more diversified business mix right now, I mean the 3% decline kind of on the margin side with NICU doesn't seem to be impacting you, as much as one might have expected.

Can you just talk a little bit to that diversification inside maybe to the commercial pricing that you're getting both on the NICU side, and kind of how that's moving forward?

And how that's I guess appreciating with your relationships on the anesthesiology side, maybe Karl that one is for you?

Well, I think overall we've seen as Roger said some favorability as we've seen in the past with our contracting.

And we are seeing favorability as well on anesthesia.

So that's obviously helped impact our unfavorability in other sides of the house.

But again we haven't seen that stop at this point, so right now, we have that built into our forecast.

Dawn, if your question is does our neonatology presence help our anesthesiology managed care contracting, I would say no, if that's what you're asking.

That's probably more where I was going with it was due to the relationships that you have that are embedded over 25 years, are you seeing those relationships kind of newer to the anesthesiology side with the commercial care providers?

I would say no.

We try to keep both separate, and negotiate contracts separate, so that we are not hearing since we're giving you X on this side, we would like to give you X minus on the other side.

So we try to keep the negotiations, and that's what we have separate subsidiaries and separate people negotiating contracts.

Okay, got you.

Thank you.

Okay, thank you.

And next we will go to the line of John Ransom with Raymond James.

Hi, it's tough to come up with a good question here at the end, but a couple of things.

Has the spread on acquisition multiples narrowed or changed at all, between the very competitive anesthesiology area, and maybe the less competitive traditional area where you guys play?

Well, I mean, let me just back up here for a second.

As you know, we finished 2009, we said on the pediatric side with multiple average across the year, under four.

We -- it's too early to say what 2010 is going to look like, but I don't see anything changing drastically there.

The multiples that we paid for the anesthesia practices, as we said in the past, have been higher.

But they also when we talk about those kinds of multiples we talk about actual versus pro forma multiples.

And so if your question is are the pro forma multiples on the anesthesia side coming down, the answer is yes.

Okay, and then my second question is if you look at the healthcare reform bill, there's a significant expansion of Medicaid in the bill.

Have you guys done any work to assess if that cannibalizes any of your current commercial pay?

Or is this going to be newly insured for the most part and therefore you're getting Medicaid, perhaps as opposed to getting a fallback payment from the hospital?

Or how should we think about that, or is it too early to tell?

Well, I think we're still talking about 133% of federal poverty levels.

Correct.

And most of the states are already there for mothers and children.

So while that is going to be an increase for other services, we believe that most if not all of our states, as far as women, mothers, and children are already there.

Do you recall what Texas is?

I think Texas is actually higher than that.

I don't know off the top of my head, but they may be at a 100 -- I think they are higher than that.

I can --

Okay, and then secondly, I know there's a lawsuit in Florida over the adequacy of Medicaid reimbursement similar to what played out in Texas a couple years ago.

Do you have any update there?

I don't have an update on there.

I haven't seen anything lately coming across from the Academy on that.

Okay, thanks a lot.

Thank you.

Thank you and next we will go to the line of Gary Taylor with Citigroup.

Please go ahead.

Hi, good morning.

Good morning.

Just want to follow-up on the healthcare reform question, I had John queue that up for me, just to start the conversation.

(Laughter).

I'll get a nasty e-mail here shortly probably.

but I appreciate your comment around the FPL.

So I guess that means overall then you'd view this as a positive, if it plays out as intended because clearly, there are going to be some uninsured folks that previously would have gotten picked up by you as Medicaid, that could end up in exchanges, and getting paid higher commercial rates then, right?

Well, you may get a dirty e-mail from me, but we -- haven't gotten that.

The devil for that is going to be in the details, and we'll see how all of that develops over time.

We are happy, that we're not considering there to be a negative.

So whether there will be a positive or not Gary, we'll see.

Okay, a question around the disclosure of the government mix.

I was just trying to get my numbers to tie out.

So the numbers you'd given up about 60 bips sequentially, 295 year-over-year on the government mix.

When I go back to the 1Q 2009 press release, you had said approximately flat year-over-year, and then lower sequentially, but you didn't really call out what the lower was.

So do you happen to have that sequential number 1Q 2009, or should I assume since it was just lower without a number attached, it was immaterially lower and should just leave it at that?

Yes, you're saying from the third quarter to the fourth quarter?

No, I'm thinking about what you had said 1Q 2009 about the sequential progression from 4Q 2008 into 1Q 2009, the press release just said that lower sequential, but it didn't attach a figure to that?

Yes, I don't remember exactly but we can certainly get that.

Okay.

And then on acquisitions, I know you had talked about the four you had done this quarter very early in the call.

And it made I think one additional comment that I didn't catch, so maybe I missed this.

But I know you don't typically talk about the total amount of revenue acquired, but did you I guess did you make a comment about the total number of NICU days or something that I missed?

No.

I think the only comment I made was -- the multiple was still within the four times pro forma EBITDA historical multiples.

And I think we acquired something around 25,000.

I think the number that we gave was 25,000 acquired days.

Approximately what I had.

And then just one last question on the cash flow from Ops.

Obviously I understand that's typically down because of 1Q bonus payments that are made ,and the quarter did actually come in slightly better on a cash from Ops base it than we had modeled.

Since I don't have the full cash flow statement I guess I'm just trying to parse out the year-over-year differential.

and I know a year ago there was about a nearly a $20 million source of funds from the income tax line.

So is that going to be non-recurring and that's the primary year-over-year difference?

Well, no.

I mean that was non-recurring, in the fourth quarter we had a receivable.

But the point is that you had a higher bonus payout, than the prior year and that was the biggest piece of it.

So that $130 million number you gave compared to what last year?

It was, it's roughly like $15 million higher, and then you have also higher on the 401(k) payments.

So all in, those items are roughly $21 million between the both of them.

Okay, perfect.

Thank you.

Great, thank you.

And next we'll go to the line of Brooks O'Neil with Dougherty & Company.

Please go ahead.

Good morning.

It's dangerous to follow John and Gary, but I'll give it a shot.

I don't know exactly what it means, when they talk about Medicaid rates tracking with Medicare rates ,as it relates to babies.

But is it your sense that there's a possibility you might get a rate increase in Medicaid somewhere down the line because of health reform?

We're not projecting anything like that at this point in time.

Okay, secondly, obviously last year, you made some of the larger NICU acquisitions in history.

Can you just give us an update on how those are performing, and maybe help us to have some sense of what the pipeline looks like?

Roger, would you expect to continue to make some larger NICU acquisitions going forward, or have you taken advantage of that opportunity?

No, there's more in the pipeline.

We expect that we'll do all.

We'll do some smaller ones and some larger ones.

But there are definitely larger ones still left in the pipeline that we're working to get completed.

And how were the larger ones performing?

Are those about --- are they all about the same or have you found some nice opportunities with the larger groups?

Well, what we do when we project out our own internal numbers is we have a first year, when we talk about our expectation being X amount of dollars pro forma contribution, that is tempered by what we believe we can accomplish during the first year of the acquisition, because it takes time to migrate the practices and for our billing services and to migrate them into our Managed Care contracts and all that kind of stuff.

So we have sort of a transitional year which is the first year.

And we expect that at the end of the first year, we will have completed that whole transition, and that our model as projected over the long term will be in place.

And I can tell you that for the practices that we acquired last year, they are all within that first year model plan.

So we think they're working right according to plan, and that we will meet that over the long term, that overall multiple of under four for the acquisitions.

So they are working fine.

Great.

Thank you very much.

Thanks, Brooks.

All right, thank you.

Next we'll go to the line of Robert Mains with Morgan Keegan.

Please go ahead.

Yes, thanks, good morning.

Good morning.

The mix issue in this quarter, down 60 basis points, last quarter the sequential channel was kind of flat, and you've been guiding to this minus one, plus one.

Should we read the difference between flat and down 60 basis points as just typical quarter-to-quarter noise?

Well, I don't know if we can say anything is typical anymore when it comes to payer mix, because we have seen, as we've said a lot of fluctuation with that in recent times.

So basically as Roger said at the beginning we try to look at where we think we're add and what historical trends have been.

So basically that's why we give you a range.

So that's really about all I can say with that, because I don't know that a lot of these variabilities still continues, which is why we just want to say, it's either going to be positive or negative, because at the moment it could swing either way.

Okay, that was sort of my question that what you're seeing is variability, it's not a steady, or even accelerating downward trend?

Right.

That's right.

It's variability.

Yes, Rob.

And it's quarter-to-quarter and region to region, sometimes they're up, sometimes they are down, but it's really no trend we can point to.

Okay, fair enough and then when you look at anesthesiology acquisitions, in the first ones that you did were pretty large, and the last one was smaller.

When you talk about doing one to two this year are you thinking about larger deals, smaller ones, could be either, what's sort of your thinking?

We're talking to a lot of different practices.

We're working on I would say a large one and a medium sized one.

Okay.

Fair enough.

That's all I had, thanks.

Thanks.

Okay, thank you.

(Operator Instructions).

Next we will go to the line of Mickey Schlein with Ladenburg.

Please go ahead.

Thank you, my question has already been answered.

Okay, thank you.

(Operator Instructions)>

Okay, if there are no further questions, we can go ahead and terminate the call.

Thank you, operator.

And thanks to everyone for participating this morning.

Okay, thank you so much.

Ladies and gentlemen, that does conclude our conference for today.

Thank you for your participation, and for using AT&T executive teleconference services.

You may now disconnect.