Pediatrix Medical Group Inc (MD) 2011 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the MEDNAX 2011 first-quarter earnings call.

For the conference, all participants are in a listen-only mode.

There will be an opportunity for your questions.

Instructions will be given at that time.

(Operator Instructions)

And as a reminder, today's call is being recorded.

Now with that being said, I'll turn the conference over to the Vice President of Investor Relations, Mr.

Bob Kneeley.

Please go ahead, sir.

Good morning.

Thank you, John.

Good morning, everyone.

Thanks for joining our first-quarter conference call.

I want to read our forward-looking statement.

Certain statements and information discussed during this conference call may 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 the perception of historical trends, current conditions, expected future developments, and other factors that 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 10-K, including the sections entitled risk factors, which is available on the investor page of 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 call today.

I'm very pleased to be presenting you results that reflect the solid performance of our organization on many different fronts.

We're growing.

We continue to be effective managers of our national group practice through an appropriate administrative infrastructure.

And, with this quarter, we're seeing some benefit from improved same-unit revenue drivers, specifically continued improvements in reimbursement from commercial payers, as well as a favorable shift to all of our services being reimbursed under commercial programs rather than government programs.

As we reported in this morning's press release, our revenue grew by 15% for the 2011 first quarter to $382.3 million.

Our revenue growth was driven largely by recent acquisition activity, particularly the two anesthesia practices acquired in the fourth quarter of last year, which are now being integrated into our American Anesthesiology division.

We also continue to successfully acquire and integrate physician practices within our pediatrics division specialties, and we added three groups during the 2011 first-quarter.

Our same-unit revenue grew by 3.7%, which included the benefit of our commercial-payer contract improvement, as well as 120 basis point shift in patient mix to commercial payers from government payers and volume growth across all of our physician specialties.

And, with these results, I'm pleased to report the continuation of one of the hallmarks of our model, which is our ability to achieve margin expansion as we integrate these acquired practices.

Operating income for the 2011 first quarter grew by 19%, and operating margin expanded by 72 basis points from the prior-year period.

We continue to grow and effectively deliver value to our key stakeholders, our physicians, our hospital partners, our payers, and most important, to our patients.

I'll let Vivian discuss the financial details in a few minutes.

I want to spend some time discussing how we're enhancing the value proposition that I just mentioned.

During the 2011 first quarter, we received CCHIT certification of BabySteps as an electronic health records module.

This is an important milestone for us.

It's not a surprise, really, but it does validate our efforts to document care and to use the data stored in our clinical data warehouse to achieve meaningful use as we care for our patients.

As many of you know, our physicians use BabySteps to create their daily progress notes.

Information from these notes populates our billing systems, ensuring that we have the appropriate documentation to support our billing codes.

We're also capturing the identified outcomes data in a clinical data warehouse that now comprises more than 13 million patient days of care.

Most important, we're using that data to meaningfully include care for our babies.

In fact, this morning a number of our physicians are at the Pediatric Academic Society's meeting where they're presenting several papers that were generated from our clinical data warehouse -- findings that are the product of our continuous quality initiatives.

These presentations deal with a variety of subjects, from management of hypothermia to nutrition.

There's one paper in particular that speaks directly to the impact that our clinical quality programs are having on patient outcomes.

We conducted a retrospective study of the outcomes for 24- to 27-week gestational-age babies in our clinical data warehouse from 2005 to 2009.

Our sample size of this early-gestational age group was more than 13,500 inborn patients, a number that is truly stunning.

Of great significance are our findings.

We reported a 19% reduction in mortality for this fragile patient population over a five-year period.

That period coincides with when we launched many of our clinical-quality efforts which have become increasingly more comprehensive.

Let me repeat that finding.

Our physicians are directing care teams in a way that is improving survival rates for our patients and that is associated with the implementation of our comprehensive clinical-quality programs.

These findings, the impact that our quality programs are having on neonatal survival, are a powerful example of the value proposition of MEDNAX.

It's the kind of impact that we are making in the care of babies across the country by providing our physicians with the clinical tools necessary to improve care for their patients in their communities.

It's just one example of how our national group practice is playing a role in improving healthcare in this country.

We have quietly but eagerly adopted a leadership role in the development of these clinical-quality programs, and I think this role is having a direct impact on the high retention rate we enjoy, both among our physicians and our hospital partners.

This value proposition has gone [roots] to our model as well and we believe will continue to do so.

I realize this is a financial conference call and that we did report excellent results for our most recent quarter.

I also think, though, it's important to provide you with some perspective of the valuable work being done by our group to care for patients in our community.

So at this time, let me just turn the call over to our CFO, Vivian Lopez-Blanco, for our review of our financial results before we open the call to take your questions.

Vivian?

Thanks, Roger.

Good morning, everyone, and thanks for joining our call.

As Roger said, we're reporting a strong quarter, with growth coming from acquisitions as well as from same-unit reimbursement and patient volume.

Our revenue for the three months ended March 31, 2011 grew by 15% from the prior year to $382.3 million.

Approximately three-quarters of our revenue growth came from acquisitions, while the remainder is from same-unit growth, which increased by 3.7% for the 2011 first quarter from the prior year.

Same-unit revenue growth included net growth of 2.2% from reimbursement-related factors.

This includes continued improvement in the rates we're paid by third-party commercial payers.

In addition, we had the benefit of 120 basis point favorable shift in payer mix to commercial payers from government payers year-over-year, which is a reversal of what we experienced in the 2010 fourth quarter.

While results for this quarter were encouraging, they should also reinforce our view that what we're seeing can best be described as increased variability in payer mix over the past several years.

Same-unit revenue growth attributable to patient volume was up 1.5% for the 2011 first quarter.

And this includes growth from each of our physician specialties and subspecialties, including hospital-based anesthesia and neonatal and office-space pediatric cardiology and maternal fetal services.

The number of NICU patient-base increased by 0.7% for the 2011 first quarter from the prior-year period on a same-unit basis, and that growth comes during a period in which the number of births at our hospitals, also same-unit, was slightly positive.

Continuing with a discussion of the income statement -- Profit after practice expense for the 2011 first quarter was $123.3 million, a 16% increase from $106.4 million for the prior-year period.

Profit after practice expense margin improved by 28 basis points, which can be primarily attributed to acquistion-related growth.

Our operating income was $75.7 million for the 2011 first quarter, which is a 19% increase from the prior-year period.

First-quarter operating margin improved by 72 basis points year-over-year due to the combination of better practice expense-margin improvement, which I just mentioned, as well as continued leverage of our administrative infrastructure as our business grows.

General and administrative expenses as a percent of revenue grew by slightly less than 10% for the 2011 first quarter, a rate that is considerably below our rate of revenue growth.

G&A expenses as a percent of revenue were 51 basis points lower for the 2011 first quarter compared to the prior-year period.

Net income for the 2011 first quarter was $45.5 million, up 19% from $38.3 million for the prior-year period.

On a per-share basis, earnings grew by 16% to $0.94 for the 2011 first quarter based on a weighted-average 48.4 million shares outstanding, and that compares with earnings per share of $0.81 based on 47.3 million shares for the prior-year period.

We ended the first quarter with approximately $50 million of cash on our balance sheet.

Accounts receivable were $188.2 million, which grew slightly since year-end, though in line with the growth of our business.

Days' sales outstanding, however, were down by approximately one day for the 2011 first quarter from the 2010 fourth quarter, a reflection of our continued strong claims-processing system.

At March 31, we had a total $176.5 million outstanding on our $350 million revolving credit facility.

Our net borrowing position increased slightly during the first quarter, consistent for us, as we typically make large incentive and 401K matching contribution payments during the first quarter.

We also funded some acquisition activity during the period.

During the 2011 first quarter, we used $14.5 million of cash to fund our operation.

This is a considerable improvement from the prior year when we used $41.6 million to fund our operations.

We did see some benefit in cash collections for accounts receivable that had built during the end of last year.

Our accounts receivable build was related to practice acquisitions, including the two anesthesia practices acquired during the 2010 fourth quarter.

As a reminder, we use cash in the first quarter of every year as we make bonus payments, principally to our physicians.

We also have our normal 401K matching contribution payments in the first quarter.

In addition to using our cash to fund operations, we invested approximately $10.1 million to acquire three physician group practices during the first quarter, as well as to make contingent purchase-price payments for acquisitions completed in prior periods.

During the 2011 first quarter, we bought an office building located in the same corporate park as our headquarters building about half a mile away.

We've occupied the fifth floor of this five-story building for the past three years.

This was an opportunistic purchase and that we took advantage of the soft commercial real estate market in south Florida, buying a building that will house some of the administrative departments that will expand overtime to support our constantly growing physician base.

This transaction is included in our cash-flow statement as purchase of property and equipment.

When backing out the purchase price of the building, our maintenance capital expenditures remained minimal.

Moving on to our outlook for the 2011 second quarter.

As we announced in this morning's press release, we expect that our earnings per share for the three months ended June 30, 2011 will be in the range of $1.11 to $1.17.

As a reminder, last quarter we added more information to our outlook than what we had discussed in the past.

Specifically, we've incorporated our view of volume and net changes related to reimbursement factors on a total same-unit basis across all of our physician services.

The range for our 2011 second-quarter outlook is determined by anticipated same-unit revenue growth for the period, which we estimate to be between 1% higher to 3.5% higher year-over-year on a total same-unit basis.

The same-unit growth range assumes combined volume growth across all of our physician specialties.

In addition, this range anticipates variability in the mix of our services reimbursed under commercial and government payer programs, as well as improvement from commercial-payer contracts.

In addition, our second-quarter forecast anticipates that same-unit growth will be evenly divided between volume growth and net-reimbursement growth.

In summary, our results for this quarter reflect an organization that continues to successfully grow and to achieve operating efficiencies as we integrate our growth.

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

Thank you, Vivian Let's go ahead and open up the call for questions, operator.

(Operator Instructions) Bill Bonello, RBC Capital Markets.

Good morning, guys.

Just a question about leverage in the model as we look forward.

Wondering if you can give us some sense of any need you might have for incremental investment in infrastructure or G&A as you move forward.

You've obviously run a pretty tight ship as volume and mix shift were difficult, and as those start to get better, I'm wondering if we should think that as flowing straight through as higher earnings or would you take an opportunity to make some investments for future growth that you necessarily haven't been making over the past couple of years?

Hi, Bill.

Good morning and welcome back, by the way.

We're not creeping on investments.

We make investments as we need to make them as our business grows.

We continue to make investments, obviously, as we add more practices.

We may need to add people for our billing or managed-care contracting or other departments.

We have successfully split our country into regions.

We've grown our regions.

So I'm not anticipating any specific need to make a large or unanticipated investment.

We will continue to make investments as our practice grows and as we acquire more practices.

But all of that is included in our outlook for you.

Sounds great.

That was all I had, thank you.

Thanks, Bill.

Ryan Daniels, William Blair.

Roger, quick question for you.

I was hoping we could go back to BabySteps.

I know you got the CCHIT certification.

I'm curious what drove the Company to that?

I assume there's no change in your thoughts on ability to capture meaningful-use dollars.

And a derivative question -- does this have anything to do with your thoughts on international expansion?

Using that to go out and market the software in other markets?

Well, that won't hurt as we progress with our international efforts.

We thought we needed to have that.

It's just one more credential on our side.

We think that we do need to use -- to demonstrate meaningful use.

And so what drove it was just the -- our understanding that if we were going to be calling ourselves a quality program, we needed to have the credential behind it.

Okay.

Fair enough.

Two more bigger-picture ones and I will hop off.

We're further in the year.

We're getting closer to finalization with some of the state budgets, and it actually appears that the outlook has brightened a little bit.

I think they're placing a little bit more pressure on the facilities and less on physicians.

So in the past, you've given us a pretty good outlook of what you see in the state budgets .And I'm hoping you can reflect on that, and in particular, anything that has changed either away since we last spoke?

Yes, I think in general terms, we agree with you.

For us, it was just not unexpected, because as we said all along, historically what we see are cuts to Medicaid going more to facilities and other services than physician services.

Having said that, I have a list if you'd like, I can go down like I did last time the top five or so states for us and bring you up to date with what's going on with those states.

That would be great.

I'll let you do that, and then I'll actually hop off.

Okay.

Texas, as you know, the House had submitted a budget with a 10% across the board provider cut.

The Senate, on the other side has submitted a budget with no cut to providers, so we expect that the Conference Committee will start in the next few weeks to try and hammer out an agreement.

Georgia is expecting to cut 0.5% to physicians starting July one.

This is kind of a win for us because we had originally expected a full 1% cut.

Florida is no cut to position.

They are affecting other healthcare sectors.

North Carolina is no cut to physicians.

They had a 4% proposed cut, which has now been removed.

And the state of Washington, current indications are that we will maintain our current reimbursement levels there as well.

All in all, I think the picture is a lot brighter than it was when we first started talking about this.

Absolutely.

Thanks for all the color.

Congrats on the quarter.

Thanks.

Kevin Fischbeck, Bank of America.

Actually, this is [Joanna Betrick] for Kevin.

Can you give us a little bit more flavor in terms of your outlook for deals, and in particular, the anesthesia deals that this last time when we spoke on the fourth-quarter call you had some -- you made some statements on outlook for deals this year, so if you could give us more color here?

Yes, you know, the issue with deals is always the timing, right?

So we'd like to spread them out over every quarter and have them neatly fall in line.

But historically, that just doesn't happen.

Having said that, I'll say that I am very comfortable that we will meet our guidelines for projections for making deals this year.

We had said that we plan to spend about $75 million to $100 million in acquiring core businesses.

I'm very comfortable that we will reach that level.

Again, the question is timing.

So we can go for two months without getting a deal done, and then all of the sudden December comes along and we end up doing three or four deals in a row.

But the pipeline indicates to me that we will meet those goals and perhaps exceed them.

The same is true for anesthesia.

We did not get an anesthesia deal done in the first quarter, which was a goal of ours.

But we're getting very close to getting our anesthesia deal done, and I expect that will happen in the near future.

And again, we projected -- guided to two or three anesthesia deals being done this year, and I'm comfortable we can meet that guideline as well.

Any changes in multiple you're seeing out there?

Multiples?

No, we're always trying to drive multiple down, and the first quarter was a good example of that.

I think we came in -- in the first quarter, overall multiples were comparable to last year's multiples.

Great.

Also, seems like you made some comment that the mix shift [was unusually variably low] last quarter unusually strong this quarter.

So can you give us more color on what you think was behind that volatility that we have seen?

No, I wish I could.

We continue to just be surprised by the volatility and the variability not only in volume, not only in payer mix, but also in volume from region to region and even state to state.

So I really can't pinpoint what's going on any more than I have been able to for the last two or three years when we just look at it and we say we really don't know what's going on.

It's just variable.

One week, they're up.

The next week they're down.

One week is up, one state is down.

There's no conclusion I can draw from the data that we have.

Is that the reason why you did not provide guidance for payer mixture?

Because previously, you always had some sort of guidance for the upcoming quarter.

The reason why we did that is because, as I mentioned in my spreads, is that last quarter, we introduced the concept of same-unit overall volume as well as overall net changes from pricing.

And we do believe that, that is a more representative of really the diversity of the Company now.

So we want to be able to provide the guide as it relates to all of the factors that are going to impact it at the end and not focus just on one.

So we did that both on the volume side, as well as on the net pricing inside.

Okay, so that's the same reason why you don't have the (inaudible) volumes, but can you comment on the -- ?

Exactly.

But can you comment a little bit on your outlook in general for birth rate?

As we said, we the birth rate for us has started to trend more favorable, although it was still negative in the fourth quarter.

And again, in the first quarter we did see it move to slightly positive.

And our overall volume came in at what our range was, in spite of the fact our NICU volume came in at slightly less than we had in the range.

And therefore, again, just a representation that we want to talk about all of our physician specialties when we talk about volume.

So that's pretty much what we're seeing.

We're seeing slightly more favorable trend, both on the volume side, and again, as we reported on the payer-mix side.

Thank you very much.

That's all for me.

Dawn Brock, Kaufman Brothers.

Roger, maybe you could talk a little bit about the dynamics of the fundamentals, i.e., pricing and volume and the margin, and just make sure that I'm looking at this properly.

You made some tough decisions to retain the practice sizes over the last couple of years .As the volume strength comes then, based on the fact that, that's a fixed-cost structure on base salaries, it looks like you got some leverage there.

Is that the right way to be looking at that?

Just early signs?

Absolutely, Dawn.

We talked about this really being pretty much a fixed-cost kind of business, and so when volume drops, we pay the price, and when volume picks up, we generate the benefits from it.

And that is absolutely the way that we look at it.

Again, what we are trying to do here is to remind you there's more to this Company than Neonatology today.

As we all know in days past, that's always used to talk about.

But our revenues from Neonatology are probably no more than 70% at this point in time.

So we want to just make sure that there's other sides to this business, and we're trying to get away from just being so focused on Neonatology.

It's still the bulk of what we do, of course, but there's Anesthesia.

There's pediatric Cardiology.

There's Internal Fetal Medicine.

There's pediatric Intensive Care.

There's a lot of other factors that are at play here, and so I just want to make sure we don't generalize too much.

Okay.

Roger, I very may well go on record saying I love you for saying no more than 70% of volume.

I'll make sure my wife doesn't listen.

Okay.

Sounds good.

Pricing strength.

Look, net reimbursement was obviously a bit better than we were looking for.

Solid increases on January 1 on the commercial side.

Did that play into it?

Sure, yes.

We continue to see no change in our ability to generate improvement in reimbursements from our commercial contracts.

What we've said before is -- still holds true today.

We're not being any inability to continue to generate the same kinds of improvements in our contracts.

Okay.

Just quickly, would you just mind giving us an update on the transport program that you've been working on and in some ways, how that differs, both logistically and technically, from the arrangements you've had historically with your feeder hospitals?

What we've tried to do is come up with a general strategy for transports, as opposed to what had existed until recently, which was each hospital sort of did their own thing.

So transports, in my experience, are a function of doing outreach, which means going out to the referring hospitals and giving some lectures, teaching the referring physicians and nurses how to care for specific conditions, and making them aware that you're available.

Response time, having a centralized 1-800 number that they can call that's answered 24 hours a day.

Getting the backup -- it's a comprehensive program.

So what we've done is -- or what we're trying to do, we haven't done yet -- is get away from the hit and miss.

If you happen to be a hospital in Texas and you happen to be calling XYZ hospital for transport, you make get a good response.

You may not.

You may remember that these people went there to give you a lecture.

You may not.

What we're doing is developing a program that will be comprehensive and nationwide so that everybody -- every one of our referral centers will be getting the same lecture.

We'll be going out using the same outreach methodology.

A centralized 1-800 -- it's just an organized program.

We are also looking at hospitals that are not referring patients to us and why that might be and putting together some strategies to bring those patients to our facilities as well.

So again, it's just an organized strategy that we believe will help us.

Nothing happens as fast as you'd like for to happen, and everything takes longer than you'd like for it to take, etc., but we'll get it done.

Is this also partnership with a hospital, or are you guys doing this pretty much independently?

Not really.

The local -- again, practices do utilize the referring -- Referral Centers, whatever resources they might have available, and some have helicopters and some don't.

So we're happy to continue to use whatever resources are available to us from the local practices.

But what we're talking about is not really utilizing specifically any local resources.

Okay.

Carl, I think I have one for you.

Could you give us an update on integration schedule -- the Charlotte practice into Raleigh?

Yes, we completed the acquisition of Charlotte October first, I think it was, and Greensboro on November first.

So we have transitioned from a billing standpoint Greensboro 100% into the Raleigh regional office.

And that is moving forward and working really well in getting that process done.

Because of the effort in that and the size of the Charlotte practice, we have been holding off on that transition, with our plan to make that transition at some point during the third quarter of this year to move it into Raleigh.

As you can imagine, a practice with over 90 physicians with even services within anesthesia split between regular anesthesia services and pain management, it's pretty complex.

So we want to be sure we get it right from day one moving that much business.

So that will occur during the third quarter this year.

Okay.

Great.

And then, Roger, I have one more for you and then I'll be done.

Can you give us your opinion and your thought process around the announcement out of Watson Columbia Labs?

We've been hearing about Progesterone trials and treatments for a very long time.

But they just submitted an NDA to the FDA for PROCHIEVE, as you well know.

Many attempts, with these products in the past, small sample size from the trial that I could see.

Your thoughts, and thoughts from your docs about it?

Yes, for an old therapy, it sure is getting a lot of attention.

Our physicians point us to studies which show Progesterone use, for this indication, being as effective as placebo.

That's all I'm going to comment on it.

Okay, perfect.

Thank you.

Okay.

(Operator Instructions) Brooks O'Neill, Dougherty & Company.

I have a couple questions.

I'm just curious.

Obviously, you've already commented about the variability of the mix and unpredictability of it, but I was just curious if there was any discernible trend from a monthly perspective -- January, February, March -- or whether you expect to see continued mix improvement if the employment, the economy, continues to show a little bit more strength?

Brooks, we don't really want to comment on any monthly -- we do want to get into that game.

But of course, if the economy continues to improve and people pick up jobs and health insurance, we expect that we'll see a reversal in that trend of patients moving into Medicaid.

But you know, I think it's, for us, because it is a nine-month process, we're not dealing with direct, immediate reactions.

So, I think it'll play itself out over the next five or six months.

Sure.

That makes total sense.

Could you comment and if the acquisitions themselves contributed to margin expansion this quarter, or it was more of a leveraging effect of your overall corporate G&A that drove the margin expansion?

Yes, the acquisitions did contribute to the margin expansion, as well as then, obviously, leveraging from that, because they do not come typically with G&A, as you know.

So they were both a factor.

Okay, and could you comment at all about 2Q guidance?

Is the timing of the acquisitions a big factor as you think about the outlook for 2Q and beyond?

You know, we take, of course, timing into consideration.

We'd like to get all of our just on the first day of the quarter so we can see the contribution for the whole quarter.

But we have an outlook as to when these acquisitions are going to happen, and that is part of the guidance that we've given you.

So we have our own idea of the times that we -- .

Sure.

That make sense.

Could you comment at all about the pipeline?

I know you talked I think with Dawn or one of the other people about your confidence in your ability to continue to consummate acquisitions.

But my sense is in the core business, that you began to tap into some larger practice acquisitions.

And there's probably some groups that have resisted your charms over the years.

Would you say that you're beginning to see some receptivity on the part of some of the larger groups to consider joining you?

Yes, I'm kind of used to people resisting my charms.

Right.

That's not something that's unusual around here.

You're right.

We are talking to groups that we hadn't talked to in the past.

We do have some good groups in the pipeline.

We're excited about talking to groups that are not only larger groups, but in space we have not heretofore been able to penetrate.

So we're seeing a combination, and I think it's a result of all of the different factors that are putting pressures on the physicians, whether the regulatory environment, the economic environment, the new health law, the malpractice situation.

There are a number of factors, which I think are playing a role in us being able to at least have conversations with groups that, in the past, had not been interested in talking with us.

That's great.

I think it is terrific.

Lastly, obviously, we know that first quarter is a negative cash flow quarter for you guys, but could you comment whether you feel like you have combination of cash flow and availability on the line?

Sufficient capital to complete your acquisition plans and hopes this year?

Yes, we do, because not only do we have our cash flow and the line, but as you know, these practices come with a lot of cash flow themselves.

So every time you see that we acquire one of these practices, it's not just the earnings and the potentials for contribution from this practices, but it's the cash flow that comes from them as well.

So our cash flow, as you know, continues to increase.

So we're feeling like we've got enough access availability to cash to execute our plans for the foreseeable future.

Great.

Well, congratulations on a strong first quarter, and we're looking forward to the rest of the year.

Thanks, Brooks.

I appreciate it.

Rob Mains, with Morgan, Keegan.

Want to follow up a little bit on what you're seeing in acquisition opportunities in Anesthesiology.

You've been kind of regionally focused currently in the deals you've done -- a bit of mix of big ones and smaller ones.

As you roll out this year, do you expect to remain southeast-based, or could we see moving to some other areas?

Hi, Rob.

We're not limiting ourselves to any specific geographic area.

There are states that we really like, just because of the regulatory environment and the reimbursement environment, etc.

And clearly those are states that we are more focused on.

But I wouldn't say that we are -- I wouldn't be surprised to see us do a deal somewhere outside the southeast.

Okay.

We could still look at larger deals?

You said some possibly the size of Charlotte?

Yes, the deals are all over the place.

We are getting a lot of interest from a lot of anesthesiology practices, and we are talking to a lot of different practices, sizes and geographic spread.

It's very interesting to me that we're getting a lot of inbound calls from potential Anesthesiology acquisitions.

Okay.

Great.

That leads into my next question.

You were talking about some of the clinical accomplishments that you've made on the Neonatology side.

I want to get your sense as to when you'll be at a point of being able to use that hook on the Anesthesiology site as well.

Are we a few years away?

A few quarters away?

Where do you think you are in terms of developing the clinical strength to match what you may be able to do with back office and the like?

Thanks, Rob.

This is Carl [Leek].

We are working on some things right now.

Clearly, we have a great blueprint to follow from pediatrics.

I think there will be some real differences in how we approach it, and it's -- I don't think we will have a system, a notes system, like BabySteps has.

But we are developing system where we can aggregate data and outcomes in anesthesia services.

We've done that by looking at what the practices that have come in have done historically and looking to build a database.

So for instance, the Charlotte practice has a very good program they called Quantum Clinical Navigation System, which they've deployed.

So we're looking at whether that's a good opportunity in other locations and talking to our groups but also the hospital systems, because they like the idea of getting this information.

And it's really been received well, the thought of having something like this.

In addition, we've gathered information in other groups that we've brought on, whether it be Raleigh, to be able to pull into a database so we can start doing comparative data.

I think at some point next year, we're going to have data that we'll be sharing across practices.

The exact form of that I don't think we have an answer on at this point, but I do think at some point next year, we'll start sharing information across practices so they can benchmark each other and look for areas of improvement in outcomes.

And I think that's really going to be a solid piece clinically of what we look to.

And when we talk to groups, not only groups that are part of us now but the groups that we're talking to, they're really excited about that opportunity, to be able to see, improve the quality of medicine that they are providing.

Okay, great.

That's what I needed.

Thank you very much.

Thanks, Rob.

(Operator Instructions) We do have a follow up from Bill Bonello.

Just a quick question.

Roger, when you went through the list of states, I don't think you mentioned what was happening in California on reimbursement with the Medicaid.

If you could just --

Yes, California is still waiting on the Supreme Court to rule on the previous injunctions that prevented the cut.

That case is expected to be heard in October.

The state is suggesting that they will put the cuts into their budget but they won't actually implement them without a Supreme Court ruling.

So that's just up in the air right now.

Okay.

And you said, I'm sorry, you said October is when the case is supposed to be heard?

What we're hearing from our lobbyist is that the case is expected to be heard in October, yes.

Okay.

Thank you.

Okay, you're welcome.

We have a follow-up from Kevin Fischbeck.

Please go ahead.

This is Joanna again.

Just on the topic that you discussed briefly on the different drugs out there.

But also in Texas recently indicated they are focusing more on reducing NICU days by reducing early inductions.

So can you comment on whether you're seeing an impact on the business here and any other states may be looking to do something similar here on that front?

Thank you.

Okay.

You're welcome.

There's a bill in Texas, as I recall, to prohibit elective C-sections before 39 weeks for the Medicaid population.

This is consistent with guidelines by the American College of Obstetrics and Gynecology, and we support those guidelines.

So, we agree with that, and we're aware of it.

And I don't know if that bill is going to go through or not, but we're aware of it and we support those guidelines.

Thank you.

You're welcome.

We have no for the questions in queue.

I'll turn it back over to the presenter for any closing comments.

All right.

Thanks very much.

If we're done, then I appreciate everyone's attention this morning, and I'll look forward to speaking with you next quarter.

Ladies and gentlemen, that does conclude your conference.

Thank you for your participation.

You may now disconnect.