Pediatrix Medical Group Inc (MD) 2010 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the 2010 fourth quarter earnings conference call.

At this time all participants are in a listen-only mode.

Later we will conduct a question and answer section, with instructions given at that time.

(Operator Instructions).

As a reminder, the conference is being recorded.

And, I would now like to turn the conference over to our host, Mr.

Bob Kneeley and Dr.

Roger Medel.

Please go ahead.

Thanks, Bonnie.

And, good morning, everyone.

Thanks for joining the MEDNAX fourth-quarter earnings conference call.

Before I turn the call over to Roger Medel, I want to read a forward-looking advisory.

Certain statements and information made during this conference call might contain forward-looking statements.

These forward looking statements are based on assumptions and assessments made by MEDNAX's management in light of their experience and their 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 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 10K and its quarterly reports on Form 10Q included in the sections entitled Risk Factors.

In addition, during this call, we will discuss certain non- GAAP items.

This morning's press release contains a detailed GAAP reconciliation table.

And, that's available on the Investors page of our website which is www.mednax.com.

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

Thank you, Bob.

Good morning, everyone.

We recorded solid results from operations for MEDNAX during the 2010 fourth quarter and full-year.

Results continue to be driven largely by our successful business development program.

Included in this morning's press release is an earnings per share outlook for the 2011 first quarter that suggests a level of growth that is at a higher rate than recent quarterly periods and, at the high end of the range, represents as much as 15% growth.

During this most recent quarter, we deployed a record level of capital to complete acquisitions, seven in total, including two anesthesia groups.

We also closed our 2010 with our best year ever for acquisition, based on investing more than $343 million to buy 15 practices and to make contingent purchase price payments.

Contributions from these acquisitions are reflected in our fourth quarter results, and we expect that our acquisition efforts will continue to drive our growth well into 2011.

Our financial results for this quarter also reflect our operating model at work.

We continue to achieve modest operating improvements, and this is occurring, even though we are in the early stages of integrating these acquisitions, including the larger anesthesia groups.

Through both our Pediatrix Medical Group, and American Anesthesiology divisions we have the infrastructure to absorb acquired groups into our network of offices that provide administrative support services to our practices, and we were able to include the operations of those practices.

As an example, the five pediatrics acquisitions completed during the quarter are being integrated into four different regional offices across the country.

This bandwidth gives us confidence that we will be able to continue to support the growth of our organization.

We're also encouraged by the development of our American Anesthesiology infrastructure over the past several years.

Earlier this year, we pointed to operating improvements from our anesthesia practices as we migrated administrative support services for earlier acquisitions to our Raleigh, North Carolina administrative offices.

Today, the two most recent anesthesiology group acquisitions are in the process of being integrated into our Raleigh American anesthesiologist operations.

For several reasons, mostly related to the size of each practice, we decided to integrate the 23 physician Greensboro acquisition immediately after closing, and to stagger the integration of the 90 physician Charlotte acquisition into Raleigh over several months.

We are on track with our integration plan, and we're identifying best practices from all of our groups that can be shared across our current network to improve the operations of all of our six anesthesia practices.

We're also excited that we're in a place of delivering value back to the physicians and advanced practitioners who comprise American Anesthesiology, to our hospital and surgery center partners, and to the recurring physicians who work with our anesthesia care team, performing procedures at these facilities and in their own offices.

We are in the early stages of identifying areas for clinical quality improvement and patient safety initiatives that will be shared across our national platform.

This is a physician-driven approach, based on our successful model of improving care employed across our Pediatrix division.

During the last quarterly conference call, I talked about the strides we're making with our American Anesthesiology division.

We're particularly encouraged by the progress we are making in building this division.

And, by the way, the leaders of these groups are participating to build a true national group practice.

Before I turn the call over to Vivian, I want to give my sense of the state of the State, and, specifically, concerns over physician reimbursement rates.

We're paying close attention to how the states respond to what is shaping up to be their most challenging year in terms of trying to meet their balanced budget requirement in the face of fewer federal assistance dollars, ongoing weakness in tax receipts, and sky-rocketing, unfunded obligations.

We've always viewed our Medicaid payers as a portfolio of payers.

We are in 33 states and Puerto Rico, and the reality is that, because of our transport services, we actually participate in more Medicaid programs than that.

In the past, we would see reimbursement rates in this portfolio as, essentially, net neutral; meaning some up, some down in a given year, but the net result has been, essentially, flat for the past several years.

This year's legislative sessions have opened with governors calling attention to these heightened challenges in the form of first task budget bills submitted in some states.

It's relatively early in the budget cycle in our state, and there's a lot of positioning going on right now as governors are trying to find ways to provide services at lower costs.

As an organization, we're actively involved in the process, through a government relations program that includes participation from physician leadership across our group, as well as a network of state and federal lobbyists.

We're also joining the physician societies and communicating the penny wise, pound foolish approach towards proposed cuts to physician services.

Granting cuts to physician services will likely lead to decreased utilization for preventive care, but they won't lead to actual savings for the states.

History has proven that reducing reimbursement only means there are not enough participating providers, which means care is shifted away from physician offices to higher cost, higher acuity settings.

Businesses that are allowed to progress before treatment is initiated always become more expensive.

We know that state Medicaid directors understand the access to care issues associated with appropriate reimbursement for Medicaid.

As the budget process moves forward over the next several months, we think states will take different approaches.

And, that also means different approaches from what they've already announced.

For example, some states will have the ability to tap into rainy day funds, but need to demonstrate the severity of the situation before they can do that.

In addition, there certainly is legal precedent for states to ensure that they are providing an adequate network and we can expect the legal challenges to cut, proposed or real, will be brought forward by the provider community.

That access to care message is nothing new.

How well it will resonate in state legislative chambers this season is uncertain.

Therefore, at this time, we're taking a cautious measured view toward Medicaid rate setting for the upcoming 2012 fiscal years, which for most states, will begin in July of this year.

The state of the state is the latest challenge within the healthcare sector that speaks to the strength of our model.

A national group practice is better able to advocate on behalf of physician groups for appropriate levels of reimbursement than a small group.

With all of the hurdles placed before the small group practice, as well as our proven ability to deliver value to those groups joining us, we are encouraged that we have the opportunity to continue the growth of our national group practice for the foreseeable future.

At this time, I'd like to turn the call over to our Chief Financial Officer, Vivian Lopez-Blanco, for a review of our financial results before we open the call to take your questions.

Vivian?

Thanks, Roger.

Good morning and thanks for joining our call.

With our 2010 fourth quarter results, we're presenting a company that continues to grow with contributions from acquisitions completed during 2010.

Including the anesthesia group practice acquisitions completed early in the 2010 fourth quarter.

We continue to be challenged by variability within the same unit drivers, particularly payer mix and patient volume.

And, our results demonstrate that we continue to meet this challenge.

For the 2010 fourth quarter, patient volume was positive, while payer mix shifted towards more government payers reimbursing us for patient services.

Despite this variability, we continue to achieve solid financial results from a business model that is responsive to changing conditions.

Before I begin my review of our results for the 2010 fourth quarter and full-year, I want to call attention to several items that affect comparisons from prior year periods.

Specifically, our GAAP results for the 2009 fourth quarter were impacted by a favorable legal settlement.

For purposes of comparison, we're increasing general and administrative expenses by $1.8 million for the three months and twelve months ended December 31, 2009, to exclude the impact of that item.

Also, our 2010 full year comparisons will exclude the favorable resolution of certain tax matters that were included in our 2010 third quarter results, so we're increasing the income tax provision by $10.9 million for the discussion of our 2010 full year results.

We have a detailed reconciliation of GAAP to non-GAAP items available in this morning's press release, which is posted on our website.

For the three months ended December 31, 2010, revenue grew by 10.6% to $368.5 million.

Most of this growth is attributable to acquisitions completed since the end of the 2009 third quarter.

Same unit revenue growth was 23 basis points, which is the result of revenue associated with total patient volume growth of 1.6%, offset by 1.4% decline net in reimbursement-related factors due to a shift to more of our services reimbursed under government programs.

On the volume side, our neonatal pediatric cardiology, and anesthesia physicians services group, while revenue attributable to the same unit volume declined slightly for our maternal fetal medicine physicians services.

The number of patient days at neonatal intensive care units included in our same unit base, increased by 1.5%.

The first quarterly period in which same unit NICU volume has grown since the 2009 third quarter.

At 1.5%, NICU volume growth was at a level that exceeded our estimated outlook for the 2010 fourth quarter.

Our same unit payer mix for the 2010 fourth quarter shifted towards a higher percent from government payers, and that shift was at a level that was outside our guided range.

The sequential shift in the percentages of services reimbursed under government program for the 2010 fourth quarter, relative to the 2010 third quarter was 80 basis points.

On a year-over-year comparison, our payer mix shifted by 140 basis points from commercial to government payers during the 2010 fourth quarter.

Our profit after practice expense for the 2010 fourth quarter was $131.2 million, up 9.3% from $120.1 million for the prior year period.

Profit after practice expense margin declined by 42 basis points, which is largely a result of the lower rate of same unit growth for the period, offset by contributions from our acquisitions.

We generated operating income of $85.9 million for the 2010 fourth quarter, an increase of 10.9% from $77.4 million, non-GAAP for the prior year period.

Operating margin for the fourth quarter improved by 8 basis points to 23.3% non-GAAP.

G&A expenses grew by 3.1% for the 2010 fourth quarter from the prior year period.

As a percent of revenue, G&A expenses declined to 10.7% from 11.5% for the 2009 period.

Net income for the 2010 fourth quarter was $53.8 million, up 9.2%, from $49.3 million non-GAAP for the 2009.

We reported earnings per share of $1.12 based on weighted average 48 million shares outstanding, which compares with non-GAAP EPS of $1.05 based on weighted average 47.1 million shares outstanding for the 2009 fourth quarter.

For all of 2010, our revenue grew by 8.8%.

Operating income grew by 9% and net income grew by 9.8% on a non-GAAP basis.

Revenue for the 12 months ended December 31, 2010, was $1.4 billion, up from $1.3 billion for the prior year.

Same unit revenue for 2010 grew by 1.3% with most of that coming from reimbursement-related factors, which were up 1.1% net.

Through 2010, we continue to see modest improvement in reimbursement from commercial party payers, which is partially offset by the payer mix shift towards government programs.

Same unit patient volume increased by two-tenths of 1% with volume growth coming from our same unit anesthesia and pediatric cardiology practices.

While neonatal patient volume was flat and maternal fetal volume was down.

Operating income grew to $312.9 million for 2010, up 9% from $287.2 million, non-GAAP for 2009, which excludes the favorable legal settlement that year.

Our annual tax rate for 2010 was 38.4%, after adjusting for the favorable resolution of certain tax matters in the 2010 third quarter, and is down 52 basis points from 38.9% for 2009.

For 2010, our non-GAAP net income grew by 9.8% to $191.8 million, up from $174.7 million non-GAAP for 2009.

We earned $4.03 non-GAAP based on a weighted average 47.6 million shares outstanding for 2010, up from $3.76 non-GAAP for 2009, based on $46.5 million shares outstanding.

Looking quickly at our balance sheet, we had cash and cash equivalents of $26.3 million at December 31, 2010.

Accounts receivable were $181.4 million and day sales outstanding remained fairly steady at low levels of around 45 days.

The relatively modest growth of our AR from September 30 is related to building receivables related to recently acquired practices.

As a reminder, we don't buy historical AR when we complete a practice acquisition.

The total amount outstanding on our $350 million resolving credit facility was $146.5 million at December 31.

We continue to generate strong cash flow from operations, which was $85.1 million for the 2010 fourth quarter.

As Roger said, this was our largest single quarter ever for acquisitions and we invested $277.3 million to complete seven practice acquisitions, including the anesthesia group practices in Charlotte and Greensboro, North Carolina.

That amount also includes contingent purchase price payments for acquisitions made in previous periods.

For all of 2010, cash flow from operations was $240.6 million.

Acquisition and contingent purchase price payments for the year totaled $343 million, which included funding for 15 physician group practice acquisitions made throughout the year.

Consistent with our historical patterns, most of our cash flow from operations was available for investing back into the growth of our business.

Maintenance capital expenditures for all of 2010 were $12.1 million.

As we announced in this morning's press release, we expect that our earnings per share for the 2011 first quarter will be in a range of $0.88 to $0.93.

This range represents EPS growth of 9% to 15% from the prior year period.

A range that suggests an acceleration of the rate of growth that we've experienced during the past several quarters.

For the 2011 first quarter, we've added more information in our outlook than we have in the past.

We're incorporating our view of the direction of total company same unit volume across all of our physician services, as well as total company, same unit revenue changes related to reimbursement related factors.

Within this outlook, we assume that year-over-year same unit patient volume for the first quarter will grow by 1.5%, which is comparable to the 1.6% growth we saw in the 2010 fourth quarter.

Our EPS estimate assumes total patient volume could grow within a range of 1% to 2% for the 2011 first quarter, compared to the prior year period.

This number reflects our estimate of the volume growth at all of our specialties and sub-specialties, including neonatal, anesthesia and other hospital-based pediatric sub-specialties as well as our office space, maternal fetal medicine, and pediatric cardiology practices on a same unit basis.

Within our same unit volume growth estimate, we're assuming that same unit NICU patient days will increase by 1.5%.

On reimbursement, we're assuming our same unit revenue related to reimbursement factors will be unchanged relative to the 2010 first-quarter.

This compares with the 2010 fourth quarter decline of 1.4%, associated with net reimbursement related factors from the prior year period.

Within our EPS estimate for the 2011 first quarter outlook, changes to the same unit net reimbursement factors could range from a decline of 0.5% to growth of 0.5%.

As a component of our reimbursement factors, our forecast includes the assumption that payer mix will be at the same level as the 2010 fourth quarter, which is actually 80 basis points higher on a year-over-year basis, for again, the 2010 first quarter.

To give you a sense of the magnitude of this payer mix change, we currently estimate that 100 basis points change in same unit payer mix affects our annual revenue by $13 million to $15 million.

This impact has grown as our company grows.

While introducing the 2011 first-quarter estimates to date, we're well aware of the growth forecast incorporated in the current consensus estimate for the period.

In our outlook, we are presenting an organization that will grow between 9% and 15% for the 2011 first quarter, which includes contributions from recently acquired practices, while also considering the challenges presented by ongoing variability of same unit factors.

In addition, our forecast includes a higher weighted average share count relative to consensus estimates, which is largely a product of increased stock option activities during the 2010 fourth quarter that can be attributed to the appreciation from stock.

We're also expecting that our effective tax rate for the 2011 first quarter will be at a level that is consistent with what -- experience comparable in the 2010 period, which is higher than the 2010 fourth quarter.

Throughout all of 2011, we expect to invest approximately $100 million to complete acquisitions within our pediatric medical group division.

We also expect to acquire anesthesia group practices during this year.

Given the size of the anesthesia transactions, we think it prudent to provide you with a measure of contributions of these practices when we announce the completion of these transactions.

For those of you who have followed MEDNAX for some time, you'll remember that our results for the first quarter of every year are impacted by some timing issues that affect our results on a sequential basis.

Most of our neonatal services are billed as per diem charges, and there are fewer calendar days in the first quarter of every year than in the third and fourth quarters.

This has an impact on the first quarter revenue.

On the expense side, our Social Security payroll taxes are higher at the start of each year, when compared to the fourth quarter of the prior year.

Estimates for these recurring revenue and expense items which impact our revenue, operating income, net income, and earnings per share, are included in our financial outlook for the 2011 first quarter.

It's also important to remember that we typically have negative cash flow from operations during the first quarter of every year, as we use cash in amounts under our revolving credit facility to pay bonuses that have accrued throughout the prior year.

In summary, our results for the 2010 fourth quarter and full year show a company that continues its solid execution of a clearly identified growth strategy.

One that is achieving operating efficiencies, a company that has cash generating capability, coupled with access to capital to continue to grow.

At this time, I'd like to turn the call back to Roger.

Thanks, Vivian.

Operator, let's open up the call for questions, please.

Thank you, ladies and gentlemen.

(Operator Instructions)

And, our first question is from Art Henderson at Jefferies.

Please go ahead.

Hello, thanks for taking the question.

Vivian, just real quick on the guidance, just to be clear, you're assuming no further payer mix degradation going into Q1 from Q4.

Is that how I'm hearing you?

The range does include 50 basis points down or 50 basis points better.

Okay, is that based on mix or volume?

Well, what we said, remember that now we're giving you more information.

So, that's a net reimbursement.

Net, okay.

Right.

Okay, and I know that the Q4, the payer mix -- we saw greater payer mix degradation in Q4 than I know you expected.

And, I'm just -- any sort of thoughts about what is occurring out in the field?

And, then looking ahead, as we think about what states are going through right now, Roger, what sort of ability do you have to say we are not taking any more Medicaid patients in certain locations?

As you might imagine, the answer is still the same.

We were surprised to see the decrease in reimbursement, or the increase in Medicaid patients.

We were not expecting it.

And, we really don't have an explanation for it that would be satisfactory at this point in time.

I can run through the different states and sort of give you an idea of what each state is thinking about.

We do not, really, have any ability to say we're not taking Medicaid patients.

We're in the hospital -- we are, in most instances, we are the exclusive provider of services in the hospital.

We're not just going to turn our backs on sick babies because they happen to have Medicaid.

So, that's out of the question.

The advantage for us is we've always looked at our Medicaid portfolio as that, as a portfolio.

And, so, some states are up and some are down.

It has always been that game.

For the last few years, prior to 2008, we actually saw some states that were moving toward improving the reimbursement for Medicaid.

I think that our plan is to just continue to acquire these practices.

We're going to do what we can to lobby all of the states, and at the federal level for Medicaid reimbursement in the access to care issue.

I don't have any satisfactory explanation for why we saw the jump in fourth quarter Medicaid.

Okay, that's fair.

Does the change in payer mix that you're seeing, do you expect that's going trigger some more consolidation opportunities above and beyond what you've seen in the neonatology space?

Absolutely.

I don't think it's a Medicaid thing, I think it's the overall situation in our industry.

It's the volume.

It's the uncertainty related to the healthcare law, the reimbursement issue, the economic factors.

There's a whole combination of reasons why we're very excited about the opportunities here.

Let me just take the opportunity to tell you that the multiples keep going down, so it's a good time to be buying practices.

The -- on the Pediatrix side, the average multiple that we paid in 2010 was down to 3.8 for all of the Pediatrix practices.

And, I'll give you another statistic.

The aggregate multiple that we paid in 2010, including both the Pediatrix and the American Anesthesiology division was right around five.

Okay.

We think we're in the right place at the right time.

Our strategy, long-term, is to continue to acquire these practices and to look towards those situations turning around.

Great, that's very helpful.

Thank you.

Yes.

Next, we have Bill Bonello with RBC.

Please go ahead.

Hello, thanks.

Just a question on the rates.

Vivian mentioned the modest commercial rate increases.

Is there -- has there been any change there?

Are you seeing that you are getting any kind of a smaller magnitude of commercial rate increases than you have in the past, or is that pretty consistent?

That's consistent.

We're not seeing any change in our ability to negotiate these contracts.

Okay, that makes sense.

The second question would be, if you can give us any sense of how we would think about leverage on volume recovery, sort of absent payer mix shifts?

So, if we assume the payer makeshift could stabilize, volume has been weak for quite some time, it looks like the last couple of quarters it's been a little bit more stable to improving.

Just, how do we see that flow through the income statement, if we go back to more normalized volume growth?

Bill, this is Vivian.

That does change from quarter to quarter and from year to year because there are several factors that impact that -- actually, with the payer mix it just depends on where that's landing.

That's why we give you guys a range of $13 million to $15 million, because obviously, the reimbursement rates are not the same in every state.

So, that's the component factor of it.

The mix of acquisitions -- really, we haven't commented on that in the past because there are variables that do affect that.

The one thing to note though is that, obviously, we have had a very respectable increase in our G&A and our operating margins.

We've still held onto them because acquisitions, for the most part, come with no G&A in them, so we continue to manage that.

But as far as giving you a specific number, it is hard to quantify because of the variability within it.

Maybe I can just take one crack at asking it a different way and then I'll stop asking questions.

What I am trying to get at is, if we think about the NICU business, in particular, how should we think about the fixed cost structure, maybe, as a percentage of the cost versus what's variable as volume goes up?

Well, again, specifically with NICU, most of the costs, as you know, are fixed because of the fact that we are going to staff a NICU with physicians, whether the census is full or whether the census is halfway full.

So, it is a fixed cost business, specifically, in the NICU side.

Okay, all right.

Thanks.

Next, we have Ryan Daniels with William Blair.

Please go ahead.

Yes, good morning, everyone.

Roger, a quick question for you, as you look forward, there are these Medicaid challenges across the United States, given state budgets.

Is there more consideration to going back to some of your hospital partners, especially in markets where you've got potentially big rate hits or, maybe, an abnormal effect from mix shift to try to get stipends?

I realize it's a small percentage of your revenue now, but is that something can you envision growing in the future?

Have you had those conversations?

We prefer to not do that.

The hospitals are going through the same things that we're going through and they are seeing some of the same cuts, et cetera, as we're seeing.

Our strategy, from day one, was to not cost the hospitals anything, and to take good care of patients.

We figured those were the two reasons why we would get fired.

And, if we were taking great care of patients and not costing the hospital anything, we would, pretty much, be able to keep our contracts forever, and that's been our experience.

We do lose some, but it's seldom that we do.

So, it's not something that we are -- that we're contemplating.

We continue to look for ways to increase our business.

As I think I mentioned the last time, I have a transport program in place that we're just starting to roll out.

We got the first contract related to that earlier this week.

So, we think that program is going to work.

We like the idea of bringing more patients from hospitals that are now providing neonatology care into our luxury units.

We think that helps us in our relationships with the hospitals, as well.

So, we've that going, we're increasing our hearing screen program, we're looking at some international opportunities.

We're looking at a number of things that we think, eventually, will convert into more revenue generating businesses for us.

But, asking the hospitals for subsidies at this point in time, really is not something we are seriously considering.

Okay, fair enough.

And, then, you mentioned also in your comments on the Medicaid challenges ahead that there could be legal challenges, and I know there's one outstanding in California.

And, I guess my question is more related to the state of Texas, obviously an important state for you, and that sparked a lot of the speculation with their budget and the 10% cuts they proposed, at least the initial shot a few weeks ago.

But, that was also a state that did have a settlement a few years ago and had to dramatically improve Medicaid payments.

And, I'm curious if there was anything in that settlement that actually precludes them, just specifically to physician fees, on reducing in the future?

Or, if that level of a rate cut went through, would they be triggering a violation of what they just settled on a few years ago?

Yes, well, we've looked at that quite a bit.

We don't think there is anything in that ruling which specifically precludes the state from going back and asking for further cuts.

So -- but, we have contacted the Texas Medical Association and other people that were involved in that original lawsuit, and, of course, they're not happy with this development.

And, they're thinking about what their strategy is going to be in response to that.

Unfortunately, the judge that tried that case originally has passed.

So, if that does get back to court, it will go to a different judge.

So, that's what --It's not necessarily at a disadvantage, but we would have liked to have had the same judge look at it -- if that ends up going back to court.

So, we see that as a potential negative for us.

Okay.

Great, and then one bigger picture one.

There has been a little bit of noise lately about the Leapfrog study that came out about elective inductions.

And, I'm curious, if in your view, that is a big driver for NICU volumes for you guys.

I know it is a huge portion of all births, but it tends to be a little bit more focused there, and I'm curious, longer term, what you think that could do to NICU volumes?

Yes, Ryan, we're not seeing that.

We saw the study, but when I look at our admission rates and percentages and length of stay and all of that, there really has been no impact from that.

Okay, perfect.

Thanks, guys.

Next, we have Gary Taylor with Citigroup.

Please go ahead.

Thanks, good morning.

Just a couple questions I wanted to run through, starting with technical.

Vivian, when you had talked about the tax rate for the first quarter, I think you said similar to the full year, 2010, which, on a reported basis, I think was 34.8%?

Yes, no, Gary--

-- But that included a gain, I know.

So -

Right, no, the first quarter tax rate that we have included in our forecast is similar to the first quarter tax rate in 2010.

Okay.

So, it's not the annualized rate.

But, you're correct that the annualized rate, once we take out the effect of the settlement of $10.9 million in the third quarter, was more in line with $38.9 million for the whole year.

As you guys know, there are some variabilities with that from quarter to quarter.

That's why I made mention of that, specifically, in the forecast.

Okay, and there was nothing unusual, actually you reported $39.5 million in the first-quarter?

Yes, that's correct, Gary.

So, that would be the number?

Yes.

Okay, so that is - I am sorry, you might have just said this while I was trying to figure that out, but the full year 2011 wouldn't be as high as that $39.5 million, probably?

-- Yes.

No.

That would be more in line with what the whole, full year, once I take out -- I exclude the $10.9 million third quarter effect.

So, it's more, the full-year effect will be more -- in the $38.9 million, $39.8 million range.

For 2011?

Yes, for the full year.

Right, thank you.

And, the first quarter's higher than that?

Got it.

That's right, that's right.

Perfect.

And, then, going to the negative 1.4% year-over-year this quarter from reimbursement related factors.

Is there anything else in there that's material besides mix?

Or is --I am understanding, obviously, that the vast majority of that was the mix shift towards government pay.

Is there anything else in there?

Does the increasing anesthesia business weigh on that metric a bit in any material way?

No, no.

I mean really the biggest shift in there, as we said, unexpectedly, the payer mix came in higher.

So, that is the single most factor in there that caused that to become negative.

And, the Medicaid reimbursement rate, the Medicaid pricing, specifically, that number's roughly flat year-over-year?

Yes.

Like Roger says, when we look at that, he talked about that in his piece, when we look at that, we look at it as the portfolio of all of the states.

And, so, we, typically, talk about the ones that have gone up, but some of them have had no changes.

And, so, basically, it's a net, flat.

Right.

Two more quick ones, Roger, maybe this one for you.

I guess our thought process here is that, beginning in 2008, when we started to see the real destruction in jobs and insurance and the economy, that you would have exposure to greater Medicaid mix, no surprise.

And, I guess it hasn't been particularly even, but I guess the thought is, as we see some economic recovery and we see volumes start to slowly improve, what you are seeing in the NICU business, my thought was, it would probably be some of the insured cases that potentially had been deferred, and seeing those births come back, do you think there's a risk, just as your -- as the volume comes back, that pulls mix along with it?

In other words, that any volume recovery that you see is going to be in that Medicaid population and just pull a deteriorating mix along with it?

Or that we're closer to the end of this multi-year shift than the middle?

Yes, I don't know why that would be the case.

I mean, we, 50-some percent of our cases are Medicaid.

And, so -- I don't know why -- as the volume returns, I would not expect it to be exclusively on the Medicaid side.

I think that -- my guess, and this is just a guess, is the opposite.

There are a number of people who have insurance, or who are going to have insurance who have put off having children because of their economic situation.

I don't think that, that is at all exclusive to the Medicare population.

Yes, that would be my guess as well, but just wondering if we think of that the same way, I guess we are.

Last question.

Just going back to margin, I'm not sure -- I was trying to follow Vivian.

I'm not sure I entirely followed what you were saying on margins.

But, when I look at consolidated EBITDA margins, for example, up 40 basis points year-over-year, and given that there's a fair amount of acquired practices included in that number of year-over-year that we would guess would have, at this point, lower than average margins.

It would seem to suggest on the same store basis the margins are up, even though the unit growth hasn't been great, even though you have the mix shift year-over-year.

It didn't sound like that is what you were saying about same practice margins.

So, can you help me on that?

Yes, I mean, what I was talking about, when Bill was asking the question of what kind of leverage we can get on the margins, is that -- there have been -- there are other factors influencing margins all the time, which is, basically, where the shifts occur in government, payer mix.

Also, the types of acquisitions that we bring in that, typically, do not have G&A with them.

I mean, obviously there are exceptions to that with some of the larger anesthesia practices.

And, then, the overall bigger one, which is in the NICU side of the house, that basically the physician costs are pretty much fixed.

And, then, also keeping in mind that depending on where the volume, and, as well as net revenue goes at a practice level, that does impact the bonus accruals.

And, so, I think that we've been able to, certainly, look at that and control cost, because all of these factors, they do shift from quarter to quarter, because of the moving parts in them.

So, generally, for the year, what do you think the same practice margins have done?

They've been relatively flat, or have they been up?

We don't talk about margins between same unit and non-same units.

Well, I know you don't, that's why I was asking.

Thanks, Gary.

That was good, I tried to give you as much as I could.

Okay, that's all I have.

Thank you.

Thanks, Gary.

And, next, we have Darren Lehrick with Deutsche Bank.

Please go ahead.

Thanks, good morning, everybody.

Good morning.

I guess one of the clear bright spots of 2010 is that the same unit, first, in Europe affiliated units, looks like it was much higher than the national average.

I'm wondering if you can put a little more meat around that observation.

I think you're reporting in your press release the consolidated results.

But what was the same unit births for your units?

And, if you could maybe just give us a little bit of insight in terms of what you're seeing relative to market share shifting to your affiliated units?

Yes, I think that's right.

I think that when you look at the national average, what you're looking at is the national average.

That includes the hospitals that don't have NICUs, etc.

Our hospitals, because they tend to be larger, tend to have a higher number of births, than, perhaps some shift to -- smaller hospitals with level one units that may be delivering 300, 400, 500 babies a year that have stopped delivering babies.

So, our population of hospitals, I think -- does not reflect what's going on across the country.

In our hospitals, for the fourth quarter, we saw about a 0.6% change in births from fourth quarter 2010 compared to fourth quarter 2009, so less than a 1% drop in births at our hospitals, comparing the 2009 fourth quarter with the 2010 fourth quarter.

And, would you have an annual figure for us?

Yes.

The change for the 12 months was 3.23%.

Okay.

And, that's the same unit figure?

Yes.

Okay.

And, I guess, while on this topic, how are you looking at -- what leading indicators are you looking at to call a little bit more of a return to more robust growth in births?

Any additional thoughts you have for us on that?

Yes, we're looking at home sales.

We've commissioned people a few years ago to look at this problem.

The closest that they're able -- or the best information they're able to give us were some relationships with new home sales.

That is something we're keeping a close eye on.

Other than that, there really -- we really don't see a lot of correlation with anything else that's being recorded.

Okay.

And, then, I just wanted to make sure I am clear on one of the underlying trends within the government portion of your revenue mix.

Where does managed Medicaid get classified?

And, maybe if you could just remind us how you are seeing managed Medicaid payers reimburse relative to Medicaid fee for service, and anyway to think about that?

No, I guess classified is just Medicaid, we don't break that out.

For us, there really is no benefit or loss from going to managed Medicaid.

We get paid, pretty much the same from one or the other.

Occasionally, we can talk a managed Medicaid company into paying us 101% or 102% of the fee for service Medicaid because we saved them some money and administrative costs, et cetera, et cetera.

But, in general terms, we get paid 100% of the Medicaid fee for service, and that's how we budget it from a managed Medicaid.

Okay, that's helpful.

The last thing I wanted to focus on is the underlying trends that you're seeing, and maybe a little more commentary, if you could, with what you're seeing in anesthesia.

And, you've highlighted maternal fetal as still being negative.

Any commentary about sequential trends there would be great.

But, just a broad update, first, on your anesthesia business, where it is, percentage of total, roughly, and how that tracked in 2010 over the full year?

Well, anesthesia is positive.

Every one of our practices grew on the in-store basis during 2010.

We continue to feel good about our anesthesia business.

We think that we're in the right business.

We think there are tremendous opportunities for growth.

There is a lot of interest from a lot of different groups in participating on what we're doing.

We feel -- this business is only about providing value for the physicians and the nurse practitioners, and the nurse anesthetists.

And, we think that we are doing that.

The reason we've been able to be successful in our core business is because our physicians perceive some real value in being a part of Pediatrix.

And, if we can continue to provide that for our anesthesiology practices, we'll be successful as well.

And, that is where we are at.

We're at a point where our physicians will tell you that they see real value.

And, forget the dollars they get paid for being -- they forget about that very quickly, for coming to be a part of what we're doing.

Are you solving my problems?

Is my practice easier?

Do I have systems in place now?

Are my collections better?

Do we have opportunities to do some research?

Am I communicating with my partners?

Or they're helping me solve problems?

That's where building this national group practice is successful.

We feel good about where we are with that.

We will continue to focus on acquiring these practices.

There are a lot of practices out there that are interested in becoming part of American Anesthesiology, and we hope to be able to continue to build it.

Thanks a lot.

Okay.

And, next, we have Kevin Fischbeck with Bank of America.

Please go ahead.

Okay, thank you.

I wanted to go back to a comment made earlier about the 100 basis points mix shift being about $13 million to $15 million impact.

That was a revenue number, correct?

Annual revenue, yes.

Annual revenue.

And, so, I guess when we think about the offsets to that, there's going to be the physician bonus payment would be impacted by that?

Do you have an operating income type number?

Yes, it would impact -- the bonus program would impact that number.

Is it 50/50, or -- ?

On average, we use about 45% to 50%.

But, again, that shifts, depending on the number of physicians that are on our 50/50 bonus plan.

Okay.

And, so then, I guess when we think about the guidance for Q1, obviously, you're forecasting some year-over-year mix shift.

But, the Medicaid rates, as far as Q1 goes, they are at the historical 0% --

Remember, most Medicaid programs, their fiscal year is in July.

And, so, I appreciate the comments framing the Medicaid situation.

But, I don't, maybe I missed it, but I guess there was no directional -- I don't remember hearing the quantification about where you think rates will be in the second half of the year.

Do have a point of view at this point?

Or, is it too early still?

That was kind of the message I was trying to convey.

Which is that, A) it's going to be in July, B) there's a lot of posturing going on right now.

And, we really will have to wait until at least the beginning of the second quarter before we have a better idea.

Because a lot of what we think is going on right now is just posturing, and we do believe that some of it will change, as we have seen happening in the past.

We do have a lot of lobbying efforts going on, not only by our physicians, but by our hired lobbyists.

And, so, we think we are four to five months away, yet, from seeing what the real final number here is going to be.

I agree, it seems like there's a lot to go between here and there.

So, I guess when we think about -- just go back to the mix shift then for a minute.

When do you feel like the mix shift stops becoming that year over year head wind?

When should that normalize and, potentially, start be thinking about it as a positive growth?

I have always felt that, although the two issues here are volume and payer mix.

I've never been able to really say that I've thought that the volume issue was related to the economy.

Just because, again, when you look at the variability -- I'm talking about the volume now, on a quarter to quarter, month to month, unit to unit basis, it just is not amenable to drawing any conclusions as far as seeing any trends.

I have a big region this quarter that would surprise you with the same unit growth over the same unit volume was, over 2009, was 20%.

So, it's not reasonable for me to draw the conclusion that this is related to the economy.

Because, when you consider that region, it's not one that you would be thinking about growing at 20%.

On the other hand, I do, absolutely, believe the payer mix is an issue related to the economy.

People lose their jobs, they lose their health insurance, and the payer mix deteriorates.

So, to me, it's a matter of getting people back to work.

The sooner we see that, the sooner I think we'll see the payer mix headwind subside.

Okay.

And, as you think about how you deal with these types of issues, either from a mix shift perspective or if there is, ultimately, a rate cut on Medicaid?

You talk a little bit about the bonus program.

Is there anything you can do on the commercial side?

Are you able to go back to the commercial payers -- they see the situation as clearly as you do.

Are you able to make up some of that shortfall from them?

Or is that hard to do?

We're gaining pretty good -- historically, we said we get 2% to 4% rate increases on an annual basis from the private payers.

We have said that we don't see any changes, we have not seen any changes in that going into 2011.

We continue to get 2% to 4% rate increases.

Now, that is on an aggregate level.

And, so, really, because half of our patients are Medicaid, that means that we're getting 4% to 8% across the board.

So, we -- we're doing, I think, about as much as we can in that arena.

I don't think the payers are going to be too receptive of us going back and trying to get 10% from them.

Not that we don't try, but you know.

Yes, exactly.

Okay, last question.

You mentioned that Q4 was a record year -- a record quarter for acquisition deployment.

The year number was, certainly, also quite strong.

What are the odds that you can do something similar to the 2010 acquisition outlay?

Or, should we be thinking about something closer to where you had been, historically, as more 150 to 250 type deal?

Yes, well, we're guiding for the same $100 million of the base side of the business, as we guided you last year.

I'm on the record as saying I would like to do at least three anesthesiology deals this year.

Karl is smiling at me as I say that.

But, I think that we ought to be able to do that.

We'll work with the practices, there's a lot of interest out there.

There's a lot of interest on the core business side, there are some large practices, neonatology practice, left out there that we are in contact with, and we hope to be able to bring into our national group practice.

So, without making any promises, I'm hopeful that we can have just as good, and watch my general counsel cringe when I say, perhaps even a better year next year than we had this year.

But, that's speculation.

Agree, thank you.

Everybody's cringing around this table.

And, next, we have a question from Jeff Wherrmann from Stifel & Company.

Please go

Yes, hello.

Just related to the anesthesiology business, again, you're talking about the pipeline remaining strong.

Is that just overall interest?

Is there anything -- when you look at the progress of the acquisitions, the potential acquisitions, is there anything near term?

And, then, have you seen any competition or things you thought might have hit for you, but haven't?

We have practices in all of the different buckets that I talk about, offers made and due diligence, and all of that stuff.

So, I don't want to comment any further than that.

The processes are moving along.

As far as competition, there are -- we have seen EMS and Team Health get into the business.

They have different models or, at least, talk about having different models from what our model was.

But, we haven't really -- it's such a large area.

We haven't lost any practices that we wanted to the competition.

We hear a lot about some venture capital coming into this space.

We haven't really seen it, but there is talk about that.

But, I'll just say that we have not lost any practices that we wanted to other competitors to this point.

And, then my last question, because we're already over the hour mark here, but what was the progression of Medicaid mix?

Did it consistently get worse throughout the quarter, and that's why it surprised you?

And, then, is your guidance for flattish mix kind of based on your experience so far in the quarter?

Well, first of all, we don't talk about the month over month variances here.

What I can tell you is that we do have, remember, when we're saying flat, that does -- that's net reimbursement factors.

So, that does include, that -- we're basically saying that we're starting off from the 80 basis points we had as an increase in the fourth quarter.

Historically, we've seen that it goes down from the fourth quarter to the first quarter, somewhat.

We did have an aberration -- in last year that it actually went up.

And, so, the mix, unfortunately, is not behaving all the time as it relates to historical patterns.

But, the zero is based on having the 80-point increase in the fourth quarter.

Okay, that's all for me.

Thanks.

Next, we have Rob Mains with Morgan Keegan.

Please go ahead.

Thanks, good morning

Hello, Rob.

Good morning.

A question, just to make sure I've got the right metrics.

Roger, when you said about acquisition multiples, that's a pro forma operating income multiple?

That is correct.

Okay, and when you talked about the decline in payer mix.

Am I surmising that, that was primarily in the NICU as opposed to any of the other -- service settings that you saw that in?

Yes, I mean, primarily that is NICU.

It's an overall number, of course, but the primary Medicaid population that we see is a NICU population.

Right, and also, my question, specifically, the impact of commercial to Medicaid shift isn't as severe in terms of the revenue drop off, is that what you're saying?

Or is it about the same everywhere?

The commercial to -- say your question again, Rob?

Are you on a speaker phone, Rob?

We're having a hard time hearing you.

Yes, I'm at an airport.

So, I don't know if it is going through that well.

NICU, I think you said is kind of three to one ratio, commercial to Medicaid, I just want to know if that is the case in other service settings, or is not as severe a difference?

Overall, that is what we've said.

Obviously, for anesthesia, the business is not Medicaid, it's more Medicare.

If you're asking the multiple from commercial to Medicaid, that's not changing.

Okay.

But, you have a government mix shift in anesthesia, it's not be as big of a drop-off in terms of revenues?

Per procedure.

Well, yes.

Anesthesia is coming off from a Medicare, right.

This is Karl.

On the anesthesia side, when you look at, you can get this from ASA as well, one of the issues they highlight in reimbursement for Medicare for anesthesia services is that it's about a third of what commercial services pay for anesthesia services.

So, it's about the same ratio you see in the neonatal business from Medicaid to what commercial reimbursement is that we see across networks.

It's pretty similar in anesthesia across the board.

Got it, okay, that's helpful.

And, then, last question I have and, getting back to Gary's margin question, when I look at the sequential progression in margins in the third quarter to the fourth quarter, and I see that you did a couple big anesthesia deals in the fourth quarter.

And, in the past, those have come in at lower margins, plus you have the adverse mix.

I would have expected a little bit more of a hit to margins in quarter then, in fact, you saw.

Can I surmise that these practices that you acquired on the anesthesia side came in at clearer margins than what you've talked about in the past?

Okay.

We've said all along that we expect to drive these margins to a similar place where we were with neonatology.

We're not there, but we're moving in that direction.

And, certainly, having our own back office built for these practices and being able to integrate them immediately following the acquisition is helping us go in that direction.

That Charlotte -- you did not have integrated yet?

Correct?

Right, we have not -- there's still room to go.

We did not integrate Charlotte, totally.We're in the process of doing that, we have not totally integrated.

Okay, great.

That's all I have.

Thank you very much.

Thanks, Rob.

And, we have Brooks O'Neil with Doherty & Company.

Please go ahead.

Good morning, there have been a lot of questions.I was curious.

Obviously, you have a very strong cash flow business.

But the first quarter is, typically, a cash drain.

How do you feel about your current availability on your line?

Do you expect to need or want to expand that for 2011?

Well, we feel good.

We have had a lot of cash availability, we will throw off cash.

Some of what happened in that fourth quarter, as well, was, as you know, when we acquired these practices, Brooks, we don't acquire their ARs.

Okay.

It takes us a while for us to build up the AR, and for the cash flow to start coming in.

We expect to see some of that in the first quarter, as well.

So, we think it's just a timing issue from all of the acquisitions that we made during the fourth quarter.

Hopefully, we'll need to go out and raise more cash because there're so many practices to be bought, that we'll need to --.

But if - we think that we're in a good state as far as our cash availability is concerned.

That line of credit, as you know, is $350 million.

And generating -- it is about $500 million in cash availability.

I doubt we'll be able to run through all of that during 2011.

That's great, and just one other question.

You mentioned, I think, in the prepared remarks, seen some opportunities internationally.

I think you maybe put your toe in the water beyond Puerto Rico a bunch of years ago.

Maybe give us some color on what you're seeing.

Is it anesthesia?

Is it base business?

Is it big?

Is it small?

Just anything you could help us with would great.

And, thanks a lot.

Yes.

Well, you are an old guy if you remember that.

I am getting old, Roger, just like you.

I just meant old in the company, not -- I just meant you've been around for a while.

Right, right.

But, I am getting old.

We did, as you know, just dip our toe in the international waters a number of years ago just for a minute or two, and pulled it out very quickly.

We're looking at some international opportunities there on the core business side.

The opportunities -- we're in the very early stages for that.

And, they're not related to acquiring practices, they're related to providing services for the international Neonatologists.

And, so, things like -- are they interested in having an electronic medical record?

Are they interested in doing some research with medical education?

Are they interested in CQI best practices?Telemedicine with difficult cases?

So, the things we're exploring now are really more along the lines of providing services to the international Neonatologists.

It's early on in the game.

There does seem to be some early interest in talking about doing those things and, hopefully, this year, we'll be able to get some concrete contracts in place to start to do some of those things.

That's great.

It sound like low risk and a nice opportunity.

Thanks a lot and congratulations on your continued progress.

Thanks, Brooks.

Next, we have Dawn Brock with Kaufman Brothers.

Please go ahead.

Good morning, thank you.

Roger, and I do not want to beat a dead horse, but I just want to go back to the payer mix for a minute.

And, just ask you whether or not you are seeing any anecdotal evidence of mothers with commercial insurance who qualify for Medicaid for their newborns.

Are they opting into that program?

Thank you for not saying a dead old horse.

No, we don't really have any visibility on that.

There would be no way for us to know whether that was happening or not.

No, I can't think of a way that we would be able to figure that out.

Okay.

So, if the volume is, I guess, from a neonatal side, if we're seeing that stabilize, then the only real explanation would be a larger nominal number of births coming from the Medicaid population?

Yes.

That's the right conclusion.

Okay.

Then, I want to switch over really quickly, thank you for that, to the budgets and to Medicaid on that front .

So, from your feel, you're much more in the weeds on this, and your lobbyists, and what have you, then we probably are.

Historically, the cuts appeared to be more focused in the proposals on facilities versus physician services.

Are you also seeing that, this

Well, again, I think it's early.

When they talk about global cuts, we are going to cut Medicaid by 10% or 4% or whatever, we assume that includes all of the Medicaid components.

But, we know that as the process progresses that there will be weeding out of what they typically cut, and what they don't.I can give you, kind of a state by state analysis of where they are today and what they're saying today, if you're interested in that.

I think we'd all be very interested in that.

All right, well, here we go.

Arizona has no specific provider cuts in their budget.

And, their program is run entirely through the managed care organization.

California, as you know, their latest proposal is a 10% cut to physicians, specifically.

Although previous cuts, as you know, have been blocked by the courts.

The US Supreme Court is considering this state's appeal, and we believe a decision is not likely until late 2011 or even early 2012.

So, we don't think that will have any real impact this year.

Colorado is proposing to bring codes that exceed 95% of Medicare to that level.

We'd be happy to get 95% of Medicare for our Colorado Medicaid patients.

Florida, there's no talk of provider cuts at this point in time.

Georgia has a 1% proposed cut to physicians across the board.

Louisiana has no specific proposals in reference to physician fees, at this point in time.

Nevada has proposed a 15% reduction to physician reimbursement for their fiscal 2011 to 2013 budget.

North Carolina has proposed a 4% cut to physician services for their fiscal 2012.

Actually, they proposed the same thing for 2011, and our advocacy efforts managed to not see that go through.

Not only our advocacy efforts, but advocacy efforts in general.

South Carolina has proposed cuts of 3% to 5% for physicians; however, their budget provisos make that difficult.

Tennessee, their hospital bed tax, we believe will have to be renewed in order to avoid a 7% cut to physicians.

And, they're talking about limiting adult inpatient days, etcetera.

Texas has had a 1% cut of September 1 of last year, and another 1% on February 1 of this year.

They're proposing a 10% cut across all of the state agencies, including Medicaid, but it's not specific to physician services.

And, as we said earlier, we expect that if they do try to do that it would get challenged in court.

Virginia has a 4% cut to physicians across the board effective July 1.

And, Washington state, which is another large state for us, has no Medicaid cuts in the Governor's draft budget.

So, that gives you an idea of how we're looking at it, and where we are focusing our lobbying efforts.

Okay, that was great.

And, maybe I can piggyback on that and ask you about the way that you are looking at some of the components of the PPACA from last year.

There was a 10% Medicare bonus payment that was supposed to go -- go into effect this year for primary care.

Since Medicare does set the benchmark for Medicaid for neonatal, do you feel as though, number one, the Neonatologists can be viewed as primary care?

Number two, whether or not your office space would be considered as primary care?

And, then, number three, while it does not start until 2013, 2014, there is also this provision that Medicaid rates will be no less than 100% of Medicare payment rates at that time.

So, it seems like there's a lot of moving parts until we get to that point where the states would be -- and/or the federal government would be incentivized to keep the states plush, so there isn't a lot of fluctuation.

Well, I think you're right.

There are a lot of moving parts, as you've pointed out.

The change does not take place until 2013.

The regulations haven't really been published.

We, of course, are making the case that neonatology is a primary care specialty.

Because we are the attending physician for the patient who get admitted to that new born intensive care unit, and neonatologists are pediatricians first, with some additional training later on.

Those are exactly the points that we are making, and that we believe our lobbyists are making.

We think we've got a shot at perhaps being able to participate in some of that.

Okay.

What about the office space, I'm curious as to whether or not they would be considered primary care, as well?

Yes, office space we think are even more so, just because the cardiologists are pediatricians first.

So, we think there's a shot there, as well.

Perhaps, even with the maternal field medicine guys, although that might be a little more difficult.

But -- again, those are obstetricians with additional training.

So, we'll continue to make those points.

It's just a little too early at this point.

Got you, I appreciate that.

And, then, last one, and this is for you, Vivian, you've all made mention of the fact that G&A was up only 3% on a 10% increase in revenue.

You also talked about when answering a number of different questions, the robust infrastructure and -- bench strength for leadership in both operating arms.

So, is it fair to assume that we can continue to look for some leverage, particularly in SG&A, as we move forward, even with a very strong consolidation effort?

Yes, I mean, I think that's what we have proven in the past, and, as Roger said, with some of the -- even with the more recent anesthesia deals we've done, we've not fully integrated them.

So, I think that, as you know, in spite of the head winds we've had and some of our other variable factors here, we continue to be an operating company and we continue to manage that.

So, I do believe that we will continue to get good leverage on that.

As I said earlier, a lot of these acquisitions come with no G&A and we do leverage the huge administrative platform that we have for bringing them in and doing their billing and all of these things that we're pretty good at on, certainly on the core side and getting very good at it on the anesthesia side.

So, yes.

That's great.

And, just two last questions.

And, I know I'm taking a shot in the dark here, but is there any way you will give us the government mix or overall payer mix for the year a little early?

The answer to that would be -- you can wait until -- we will be filing our K-- we are working on that.

We'll be filing our K here in a couple of weeks here.

We don't want to give the number out prematurely.

Okay.

That's fair enough.

And, then, my one last stab in the dark is probably going to make Karl smile, but is there any way you guys will break out anesthesiology anytime soon?

I don'tt think Carl is smiling as much as I am here.

The answer to that question of how long before we do reporting is, I'm going to hold off for as long as I can.

Are there any general just rules from a percentage of revenue perspective that will trigger this?

Well, yes.

The point is, if you look at the accounting rules, that's only one of the measures.

Obviously, we have looked at the accounting rules.

And, basically, what happens is under those rules that we can aggregate our operating segments because of the fact that we do have similarities in a lot of the different business aspects, that are also points you have to evaluate when you are looking at that accounting technical pronouncement.

So, obviously, that's been looked at by us and our auditors and others.

It's not, necessarily, only triggered by, Dawn, the percentage of revenue.

There are other factors within it.

Understood.

Thank you very much.

Thank you, Dawn.

And, we have Bill Bonello with RBC.

Please go ahead.

Hello, just one quick follow-up.

You mentioned the higher share count.

Should we just think of Q4 as the right share count base for Q1 or is there-- should we think of it going up sequentially?

Yes, we typically put in there -- another roughly, 2%, again.

The Q4 increase, I think I mentioned it in my part, it was related to, obviously, the appreciation of the stock.

But, typically, we put in, roughly, around 2%.

Okay.

We should think of that above and beyond what Q4 was?

Yes.

Okay, that's all.

Thank you .

Operator?

We have John Ransom with Raymond James.

Please go ahead.

Hello, just tagging in at the end here.

Speaking of our beloved home state, I know the Governor Scott is supposed to release his budget either Friday or Monday.

Have you heard anything with respect to how much they are thinking of expanding Medicaid managed care in the state?

No.

I do not have any information.

I know they are talking about expanding it and I know they have some projects they are working on, but not anything I could give you a number on.

Have you heard anything all about Florida?

We heard they are considering that, John, but we have not heard about how much that would be.

The budget, we know, is February 7, the expected deficit is $3.6 billion.

The proposal is to shift more of Medicaid to managed care.

Right.

That does not have any impact on us.

To us it doesn't make a difference to whether it is managed care or Medicaid.

I guess my other question, obviously, those on the outside looking in, it is difficult to impossible to predict these mix shifts quarter to quarter.

It's odd that it happened in the fourth quarter after three years of labor market weakness.Do you have any handy theories as to --what things will should be looking at next year to get ahead of the trend a little bit?

Or is it a shot in the dark?

I'd agree with you.

We were taken surprise by three years later seeing this.

I really don't, I would share it with you if I did.

We cannot come up with anything.

Is there any evidence that there is a demographic shift in who is having babies?

The lower end of the socioeconomic?

Do you think it is a statistical blip?

Or that employers are proactively reacting to some of the Obama care mandates and maybe trying to trim their healthcare exposure?

I don't think that.

I don't know, with all speculation, but that's not really what I think.

If you had to guess, what would you guess?

Do you think it's just a blip?

If I had to guess, I would say it is just a blip.

It is not something we typically see, and particularly in that quarter.

If I had to guess, that would be my guess.

The other question, any longer term thoughts about the RBS weightings on Medicare, anesthesiology and where you think those will go over time?

I know they made an adjustment a couple of years ago.

Do you still think that's something that can be adjusted upward?

This is Karl, again.

I think this is something, clearly, the anesthesia society, anesthesia practices in general are pushing very hard with.

They've had some support in Congress to the Senate, I don't think it's anything we are going to see happening in the short term based upon political status right now, and the whole health care debate.

I do not think putting in something that would increase the cost of Medicare or any of its services is going to happen quickly.

But, I think the point is being continually made, we do make it when we meet with legislators.

I know the ASA is making it, and they do have legislators talking to CMS about that issue, it's just nothing that's really moved very quickly.

Right.

And, now that you're into, I think, year three with your earliest anesthesiac with those acquisitions, how do you rate your revenue cycle efforts there, compared to a similar point with your neonatology and other more traditional acquisitions?

I would say we're seeing good progress in our patient accounts department, and that process in really bringing in the infrastructure in Raleigh was a big help along that line.

I do think that what we do see in some of the larger practices, especially in anesthesia, is they were fairly sophisticated with what they have done from a billing collections managed care.

So, as a comparison to neonatal practices, or even the office space practices, they were much smaller and didn't have the resources in place in their practices.

I don't think we're seeing dramatic changes that we might see in some of those practices that we brought in.

But, we are seeing, as we bring practices in markets together, and understand the dynamics in those markets, we see a [Inaudible] opportunity, especially in the smaller practices we've brought in.

And, I am curious.

If you were to make a stab at aggregating all of the back office and business people in the practices you bought, kind of at time zero.

What are you able to kind of run the back offices of those practices today, kind of compared to time zero?

How much are you able to shrink out of the FTE effort applied to that?

It's really hard to say from a FTE effort.

It's not really something we look at that way.

But, because some of them outsourced their billing in a lot of cases, so we are actually adding FTE count but that is being offset by lower costs.

If you look at the practices we've acquired, several of them had out-sourced billing, so that's been a dramatic change to bring that in-house, as we have moved forward.

So, we do not look at it that way.

We do it the best we can and have the resources there that we need to support the growth and improve the results.

Right, okay, thank you.

Thank you.

Thanks, John.

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