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Operator
Welcome to the MEDNAX first-quarter earnings conference call.
(Operator Instructions)
As a reminder, this conference is being recorded.
I would now like to turn the conference over to our host, Vice President of Investor Relations, Mr. Charles Lynch.
Please go ahead.
- VP of IR
Thank you, Greg.
Certain statements and information during this conference call may be deemed to be forward-looking statements within the meaning of the federal Private Securities Litigation Reform Act of 1995.
These forward-looking statements are based on assumptions and assessments made by MEDNAX' 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 10-K and its quarterly reports on Form 10-Q, including the sections entitled risk factors.
With that, I'll turn the call to Roger.
- CEO
Thank you, Charlie.
Good morning.
Thanks for joining our call today to discuss our 2014 first-quarter results.
This morning, we reported results from operation for the first quarter, and I'm very happy with the way we've started the year.
Our revenue for the first quarter increased by about 13% with growth attributable to contributions from recently acquired practices of over 9% and same unit growth of just over 3%.
We did see some impact from the winter weather on our anesthesia volumes, but importantly, our NICU days were up for the quarter.
I'm also pleased with our margin comparisons this quarter versus 2013.
Thanks to stable profit after practice expense margins and continued controls over our G&A, we generated operating income growth of about 14% with net income and EPS growth of 15%.
Our acquisition pipeline in 2014 remains very strong.
So, I am confident that the acquisitions we've completed so far this year and the additional groups we are pursuing will contribute to continued strong operating growth beyond this year's first quarter.
During the first quarter, three practices joined MEDNAX, two in our American Anesthesiology division and one in our Pediatrix Medical Group division.
In late January, Physicians Anesthesia Associates, based in Baltimore, joined our American Anesthesiology division, our first anesthesia practice located in the state of Maryland.
The physicians at this practice have been the sole providers of anesthesiology services to Greater Baltimore Medical Center since 1965 as well to the Sheppard and Enoch Pratt hospital and four surgical centers throughout the greater Baltimore metropolitan area.
In late February, Great Lakes Anesthesia Associates based in Grand Blanc, Michigan joined our American Anesthesiology division, the second group to join that division in Michigan.
Great lakes provides anesthesia services to Genesys Regional Medical Center in Grand Blanc and three surgery centers located in the greater Flint metropolitan area.
And in early March, Piedmont Neonatology in Greensboro, North Carolina joined our Pediatrix Medical Group division.
Piedmont has been providing neonatal and pediatric services to Cone Health Women's Hospital for 20 years and will begin providing NICU services at Alamance Regional Medical Center this summer.
Since the end of the first quarter, we have also added Fredericksburg Anesthesia Associates in Fredericksburg, Virginia to our American Anesthesiology division.
Physicians at this practice provide anesthesia services to Mary Washington Hospital, Stafford Hospital, and Fredericksburg's Ambulatory Surgery Center.
Finally, today we announced the addition of Cross River Anesthesiology Services in Kingston, New York to American Anesthesiology.
Cross River provides services at Northern Dutchess Hospital, HealthAlliance of the Hudson Valley, and Kingston Ambulatory Surgery Center as well as several office space locations throughout the Hudson valley.
Our acquisition pipeline remains full, and I am certain that we will continue adding practices to both of our divisions throughout this year.
As I discussed last quarter, the timing of getting from a letter of intent to closing has extended, based on greater hospital involvement in the process, but we are clearly managing through that process as our successes so far this year demonstrate.
Another topic I want to touch on is parity.
We are now in the second year of the initial two-year program.
At this point, we have received at least some parity payments from all of the eligible states in which we operate.
True, this has been a long, drawn-out process, but we continue to gain more visibility of what is due to us, and Vivian will give you more details on this issue.
We were also pleased to see an extension of parity payments beyond 2014 included in the President's budget published earlier this year.
Clearly, this doesn't provide any guarantee that a parity extension will happen, but it does give our industry a louder voice with lawmakers as we continue our efforts to educate them about the importance of these payments in creating access to Medicaid services for the millions of Americans newly enrolled in that program.
We have also had some success at the state level.
We continue our grass-roots effort on our behalf and in partnership with larger advocacy groups to have individual states extend parity payments themselves beyond this year.
As I think you know, the state of Nevada indicated back in 2013 that it would do so.
Thus far this year, four additional states -- Maryland, New Mexico, Colorado, and most recently Maryland -- Michigan -- have taken at least some steps towards doing the same.
Nothing is final until it's final, of course, but we are extremely pleased at this level of support at the state level, and we will continue to work for additional successes, particularly this spring, as most states approach the end of their fiscal years.
Now, before I turn the call over to Vivian, I also want to share some thoughts from our annual medical director's meeting which we hosted at the end of March.
As some of you may know, we host this meeting each year with all of our medical directors in order for us to share ideas and best practices and take the measure of where we stand strategically.
This year, the theme of our medical director's meeting was a path to the future, solving the challenges of modern health care.
More than ever before we are finding one of the biggest challenges of modern health care is how a health system can measure the quality of care that it is providing, use those measurements to help improve that quality, and demonstrate those outcomes.
I know that a lot of the focus this earnings season has been on the early benefits certain providers are seeing from health care reform implementation.
But, the real challenges -- the move from volume to value, creating data [groom] systems, improving patient outcomes and satisfaction -- those challenges still lie ahead.
And, that's where we come in.
We have been able to demonstrate over a long period of time that we can identify opportunities to improve outcomes through our data warehousing and analytic capabilities, address those opportunities through quality improvement protocols, and create benchmarking tools to measure the improvements that we make.
Last year alone in our two divisions, we oversaw more than 1.8 million neonatal intensive care unit patient days and provided services to more than a million anesthesia cases.
This patient experience, combined with our ability to capture, analyze, and use the data from that experience through our BabySteps and Quantum Clinical Navigation Systems is how we are solving those challenges for ourselves as an organization, and how we are creating real value for our hospital partners as well.
And, none of that wouldn't be possible if we weren't at the bedside taking care of patients every single day.
One thing that I found interesting coming out of our medical director's meeting is that while I think we have always been positioned well as a national physician group, now the value of that positioning is even greater than ever.
I made the analogy to our medical directors that we, the physicians, are the software of the health care industry.
I happen to think that our software, in particular, is better than anyone else's and something we intend to continue to support by keeping our focus on being a patient-centered organization dedicated to providing great patient care.
Fortunately, the success we had providing that care also enables us to continue growing.
I'm certainly pleased that our financial results continue to be a good indication of that.
Let me turn the call over at this point to our CFO, Vivian Lopez-Blanco, for a review of our results, and then we will go into Q&A.
Vivian?
- CFO & Treasurer
Thanks, Roger.
Good morning, and thanks for joining our call.
I wanted to add some details to Roger's comments on our first-quarter results.
At the top line, our net patient service revenue for the three months ended March 31, 2014 increased by 12.7% to $566 million.
9.6% of this growth came from recently acquired practices with American Anesthesia practices contributing 74%, and Pediatrix Medical Group acquisitions the remaining 26%.
Same unit revenue grew by 3.1% with revenue attributable to net reimbursement-related factors growth of 3.4% while volume decreased by 0.3%.
On the reimbursement side, the majority of our same unit growth was related to parity revenue.
The remainder of our same unit growth came from net reimbursement-related factors, principally due to continued modest improvement in reimbursements received from third-party commercial payers, partially offset by a slight negative shift in our payer mix with the percentage of patients covered by commercial programs decreasing by about 20 basis points compared to last year.
Same unit volumes decreased by 0.3% for the first quarter compared to 2013.
We had strong growth in neonatal services with NICU days up 1.6% and solid growth in other pediatric services, primarily newborn nursery, with pediatric cardiology up as well, while volumes were down in maternal fetal medicine and anesthesia.
Looking specifically at our anesthesia volume, while it's difficult to pinpoint the precise amount of impact this winter's weather had on utilization, based on our own review, it did indeed have an impact.
We estimate that our same unit volumes likely would have been slightly positive absent that effect.
Turning to parity, as of the end of the first quarter we had received at least some parity payments from all of our eligible states.
But, the specific amounts and the timing and frequently of parity payments continues to vary widely across both states and payers within those states.
In Q1, we recorded roughly $14 million in parity revenue, or about $0.04 per share after the impacts from incentive compensation and income tax.
Our profit after practice expense for the 2014 first quarter was $173 million, up 12.3% year over year.
Profit after practice expense margin decreased sightly by 11 basis points.
We continue to generate operating efficiencies within our general and administrative expenses.
These grew by only 9.6% over the prior year, significantly slower than revenue, and G&A as a percent of revenue declined by 30 basis points versus last year to 10.3%.
This slower growth in G&A expenses enabled us to generate operating income growth of 13.7% to $104 million.
Our operating income margin of 18.4% increased by 17 basis points versus the prior-year period.
Finally, both our first-quarter net income and diluted earnings per share grew by 15% as compared to the prior-year period, or more than 2% faster than our revenue growth.
For the quarter, weighted average diluted shares were 100.7 million, slightly lower than the prior year.
We spent roughly $117 million to buy back shares during the quarter under our previously announced share repurchase program which equated to a repurchase of roughly 2 million shares.
Looking at our balance sheet, we had cash and cash equivalents of $19.8 million at March 31, 2014.
Accounts receivable at March 31 were just over $350 million, an increase of approximately $30 million as compared to December 31.
Day sales outstanding increased by about 4 days to 50.2 for the 2014 first quarter as compared to the fourth quarter of 2013, primarily related to the integration of acquired practices.
The total amount outstanding on our $800 million revolving credit facility was $248 million at March 31, 2014.
Lastly, during the first quarter, we used $49.8 million of our cash to fund operations compared to a use of $18.4 million last year.
As you will recall, our operating cash flow is typically negative during the first quarter of the calendar year as we use cash and amounts under our revolving credit facility to pay bonuses, principally to our physicians and 401(k) plan matching contributions that had accrued throughout the prior year.
Moving on to our outlook for the 2014 second quarter, as we announced in this morning's press release, we expect that our earnings per share for the three months ending June 30, 2014 will be in a range of $0.75 to $0.79.
The range for our 2014 second-quarter outlook assumes anticipate same-unit revenue growth of 3% to 5% year over year.
The same-unit revenue growth will be driven primarily by net reimbursement growth including the impact from parity.
The forecast estimates volumes to be flat up to 1% for the 2014 second quarter as compared to the 2013 second quarter.
Included in the 2014 second quarter is approximately $0.04 to $0.05 of Medicaid parity, net of the impact from incentive compensation and income taxes.
Now, I will turn the call back over to Roger.
- CEO
Thank you, Vivian.
I think we are off to a great start this year, and I look forward to the opportunities as we continue to grow.
With that, let's open the call for questions.
Operator?
Operator
(Operator Instructions)
Your first question is from the line of Ryan Daniels from William Blair.
Please go ahead.
- Analyst
Good morning, everyone.
Thanks for taking the question.
Vivian, maybe a quick one for you on Medicaid parity.
I know we talk about this every quarter.
Now that every state is effectively paying you, are you moving forward and thinking of that $15 million, $16 million as the true run rate on an accrual basis each quarter?
Or is that still incorporating some catch-up payments or some lags in payments as we go forward?
- CFO & Treasurer
It's still a little bit of a mixed bag, Ryan.
It's basically of that $14 million, we have roughly about $2 million accrued.
Our method of accrual is still consistent with what we started with in the fourth quarter, which we have to see a trend of more than the states, to be candid with you, as the payers.
Once we see that they are consistently paying, then we start accruing them.
There are still a bit of payers that have started to pay, but we haven't seen that consistent trend yet.
But as soon as we see that, we will continue to then implement the accrual for that specific payer.
- Analyst
Let me ask it a little differently.
Do you know then, based on what you are getting paid and how many payers are paying, how much upside you still have on a full run-rate basis?
Or how close we are to maximum quarterly parity revenues?
- CFO & Treasurer
We are getting a little bit more clarity on that, although we still have a couple of states where we have gone back and forth with them on really the reconciliation of the rate that they are paying.
So there is still some of that.
I do think that we should see it increasing.
When you compare, in the second quarter when we go through the forecast, you remember that last year we started to accrue $2.5 million -- I think it was -- in the second quarter of 2013.
So I do think that it will start going up slightly.
Our forecast includes about $1 million more than what we had in the first quarter of this year.
- Analyst
Right.
Then a final question just on the share repurchase.
I don't know if that is just timing, but it was the first time in a while we have actually seen the share count go down.
Was the intention to start it bigger at the front of the year to have that benefit all year?
Or was it just more of a timing issue or maybe a change in capital deployment?
Any color there?
Thanks.
- CFO & Treasurer
I think it shows that we are certainly behind our stock, and we do believe that we wanted to take advantage of buying back the dilution when we felt it was a good time to do it.
So there wasn't anything other than that to it.
There isn't really any change in the capital structure, as you mentioned.
It was more taking advantage of the opportunity and then buying back the dilution really for the year.
- Analyst
Okay.
Great, thanks.
Operator
Your next question is from the line of Kevin Ellich from Piper Jaffray.
Please go ahead.
- Analyst
Good morning.
Thanks for taking the questions.
Just going back to the share repurchase question, Vivian.
Of the deals that you have done this year, have you used any stock or equity off of your shelf registration?
- CFO & Treasurer
Not yet.
- Analyst
Okay.
Great.
And then it looks like margins, both operating and EBITDA, have stabilized.
And we have seen improvement the last quarter and this quarter.
How confident are you that we are going to continue to see this sort of improvement throughout the year?
And do you have much more leverage?
You are doing a really good job on G&A it looks like.
- CFO & Treasurer
We are always hopeful that as we continue to integrate these practices that that does provide some leverage on the G&A margins.
So a big part will be a function of that.
We are always looking to improve certainly items in our revenue cycle, management and other areas.
So I'm hopeful that that will continue.
As you know, a big function of that is related to the acquisitions.
- Analyst
Got it.
Okay.
And then speaking of acquisitions, looking at the anesthesia business that was disclosed in the 10-K.
When I took the number of cases and your anesthesia revenues, it looks like revenue per case in anesthesia was down about 10% to 11% in 2013.
I'm wondering what is causing that?
Is that a function of the mix of practices that you are buying?
- CFO & Treasurer
I would say that because, as you know, it just depends on, like with our neonatal business, the payer mix of the practices that you are acquiring.
- Analyst
Okay.
Great.
And then, last question, on the weather impact, how did you parse that out?
I know it's hard to pinpoint and know exactly how much of the case volume was affected by weather.
How do you know it wasn't utilization and just seasonality with higher deductibles and co-pays?
- CFO & Treasurer
Did I not tell you I hire weathermen in the Finance Department?
(Laughter)
No, basically we are looking at the trends before and after, like some average trends, and we can see where it's very clear where the volume went down, specifically in certain days that we know that the weather was out there and not good and certainly in areas like Atlanta, Virginia, and all of that.
So, it's quite obvious when you look at the day-to-day activity, and you compare that to an average.
As you said, Kevin, it's not a science, but it certainly is very noticeable that those days had a big decrease compared to prior weeks' same-day volume.
So, it is kind of obvious.
- Analyst
Okay.
Great.
Operator
Your next question is from the line of Brooks O'Neil from Dougherty & Company.
- Analyst
Good morning, Roger, or should I call you Yogi?
I have a couple questions.
First, I understand that a large hospital company indicated that their birth rate had increased by about 4% in the first quarter.
I'm just curious, obviously you saw some volume benefit.
Can you tell us what you are seeing across your contracts as it relates to birth rate?
And any thoughts you might have about the future, since you are Yogi, now would be helpful.
- CEO
We didn't see 4%, but we did see increases in volume across our network.
Probably closer to 1%, 1.2% is what we saw. ¶
Hopefully, that is the beginning of stable and continuous increase in births.
We didn't see 4%.
- Analyst
Not 4%.
That's helpful.
Just curious if you could share any thoughts about the pipeline -- what you are seeing out there in the marketplace?
Any differences that you are seeing right now relative to what you have seen over the last, say, 12 months or something would be very, very helpful.
- CEO
It certainly continues to increase.
Our pipeline is accelerating.
We have, as you saw, seen some deals get completed this year.
What we are seeing is some larger groups also coming to market.
So we think that this is a trend that is going to continue over the next foreseeable future.
And, I think there is just a lot of interest and excitement within the specialties in which we take an interest in to join or to do something with their practices.
It's definitely accelerating from our standpoint.
- Analyst
How do you feel about the state of your organization on the anesthesia side?
I know you and Karl and the team have been investing and working hard over the last couple of years.
Can you give us a feel for -- it seems like you probably feel like you are ready to scale that business pretty aggressively.
- CEO
I'm not so sure about Karl any more.
(Laughter)
- CFO & Treasurer
He is sitting right here, obviously, folks.
- CEO
We think we have a great team.
We are always looking to improve.
We certainly don't have a perfect team.
We are looking at all of the areas, from revenue cycle management to [administer] contracting.
So we are looking at our structure.
We're constantly rethinking whether we have the right structure or not.
As you know, we are structured now according to our specialties.
So we have a neonatology and pediatrics kind of structure and an anesthesia kind of structure.
And we are constantly asking ourselves whether that is the right structure, whether we ought to be more geographically structured.
We've got a good team in place.
It's not a perfect team, and we are constantly reevaluating whether we are doing things correctly or not.
We will continue to do that.
We have made a number of investments in building our infrastructure, bringing in some middle-level managers.
All of that is already in place.
We are happy with where that is currently, but we are always looking to improve.
- Analyst
That's good.
Thank you very much and congratulations on a good start to the year.
- CEO
Thanks, Brooks.
Operator
Your next question comes from the line of Kevin Fischbeck from Bank of America.
Please go ahead.
- Analyst
Great, thanks.
If we can maybe go back to the first question.
I think [Brooks'] comment was more that commercial volumes had increased 4%, and that their same-store birth number was probably closer to what you were showing overall.
But that begs the question about your payer mix in the quarter.
Was there any differential between the pediatric payer mix and anesthesia payer mix in the quarter?
Or was it all generally the same?
- CFO & Treasurer
Both were slightly up.
I have to tell you, as I said to you on the last few quarters, I'm still very encouraged with the payer mix trends.
Because 20 basis points, we consider that pretty good as it relates to not such a big movement.
Over the last couple of years, if you go back in the first quarter, we had a lot more significant shift in payer mix to government payers.
This is more in line with what we have seen over the last couple of quarters, which is a slight increase.
- Analyst
I'm just looking at a chart myself right now as we speak that shows that.
And I agree, it's definitely encouraging.
Just because it was positive the last couple of quarters, are there any issues about geography or anything else that you would point to as far as where the mix changed?
- CFO & Treasurer
No.
It's a slight shift, so there is really nothing that stands out, Kevin, from that.
- Analyst
The volume number was, I thought, also quite a good number; and Roger highlighted that as well.
Anything you would highlight there on the birth trends geography-wise?
Or was that also relatively broad-based?
- CFO & Treasurer
That is relatively pervasive which is, again, encouraging on the neonatology side -- all of the related services there.
Again, with anesthesia and MFM.
Certainly, on the anesthesia side, a lot of it related to weather, we believe.
- Analyst
If I remember correctly, you said that this quarter from the pricing side, more of it -- the majority of it was parity.
I thought last quarter you said something to the effect of maybe half of it was parity.
I wanted to see if I had that right.
If I did, that implies that commercial is maybe decelerating a little bit?
Or how do I think about that?
- CFO & Treasurer
First of all, honestly, I can't remember if it was half last quarter.
I'd have to go back.
But I can tell you this quarter, when we talk about commercial pricing, remember there is some timing to that.
So it doesn't mean that it's not consistent quarter to quarter because it depends on the contracts that are coming up for renewals and the ones that have escalators in it.
It's not a number that is evenly spread throughout the quarters of the year.
- Analyst
But nothing you would highlight as a change in trend on the commercial pricing side?
- CFO & Treasurer
Say that again, Kevin?
I couldn't hear you.
- Analyst
There is nothing you would highlight as a change in trend or anything going on, on the commercial side?
- CFO & Treasurer
No trend changes.
No, not at this point.
- Analyst
All right.
Great, thank you.
Operator
Your next question is from the line of Ralph Giacobbe from Credit Suisse.
Please go ahead.
- Analyst
Thanks.
Good morning.
I want to stay on the pricing side.
If I do the math and try to back out parity, it did look like pricing was softer in the quarter.
We're calculating about up 60 bps.
Last quarter, if you do the same exercise, up about 3%.
Is it all payer mix-related?
Or is there something else dragging that down?
And then the other piece to this is you talked about patient days up 1.6%, which would sort of suggest higher length of stay.
I would think that that would drive acuity up and also help the pricing number there.
Can you talk about the acuity mix side of that as well and maybe if that helped at all in the quarter or what that was in the quarter?
Thanks.
- CFO & Treasurer
As far as the average length of stay, really there is no big changes to that either.
It's totally within the range.
But you do bring up a good point, which is that there are several components to impact pricing, acuity being one -- which in this quarter, it was slightly up.
But again, not necessarily anything out of the ordinary.
There are other things that impact that line as well which are some of the contract revenue items and coding utilization, price increase -- all of the things that you mentioned.
Again, there is not really a trend there.
The dollars for the contracting in this quarter are lower than what we had in the fourth quarter.
Again, not reflecting a trend, just reflecting that there it is seasonality to that, as I mentioned before, on when these contracts come up for renewals, then when the escalators kick in.
But we haven't seen there be a difference in that trend.
- Analyst
Okay.
With anesthesiology growing to be a much bigger piece of the business, I think it's over 30% now.
Any thoughts or expectations on breaking out segment details, just from a transparency standpoint as well going forward?
Or what is the threshold we need to see to get the breakdown between the divisions?
- CFO & Treasurer
Okay.
So, we do consider that.
Again, what we've said before to you, we are consistent.
It really isn't related to the rules because we are aggregating based on the accounting rules.
It's more going back to have more mass because when we do decide to potentially break it out for the purposes of having more transparency with our investors, we do have to go back several years because that's how the rules work.
So we want to just make sure that there was enough math in there so that we don't give away any competitive information there.
So it has been more related to the competitiveness of the business versus anything else.
- Analyst
My last one, can you give us a sense of maybe same unit margins and the magnitude of the improvement there?
And maybe just the actual level of same-unit margin in the first quarter versus non-same unit?
- CFO & Treasurer
As you know, e don't specifically quantify that because it does change from quarter to quarter.
What I can tell you there is obviously same-unit certainly on the neonatology side favorably impacted with the parity, as you would expect, because that's a pricing increase.
So that has been helping that margin.
- Analyst
Okay.
Thank you.
Operator
Your next question comes from the line of Brian Tanquilut from Jefferies.
Please go ahead.
- Analyst
Roger, if you don't mind just talking about deal valuations, in anesthesiology especially.
You have done quite a number of deals here to date.
I wanted to see if multiples have started to change in that space?
- CEO
Hello, Brian, good morning.
Yes, we do see a little creep in the multiples.
They are not at the same level as they were a year ago.
They are not crazy high, but they certainly have crept up a little as we see more competition come into the market.
- Analyst
And then you alluded to how the hospitals are basically the reason for some of the delays or the push back on deal timing.
What kind of discussions are you having with those hospitals as they look through the contracts and look to sign off on these acquisitions?
- CEO
Okay.
Hospitals are feeling a lot of pressure and, like the rest of us, aren't really sure what this is going to lead to.
What they want to have is just the flexibility to be able to participate in whatever things happen to come down the line.
The majority of hospitals don't want to own these hospital-based practices.
They just want to have real partners that when the hospitals decide they are going to join this or that organization that they are going to get cooperation from their hospital-based physicians.
Of course, it's one thing to have a local group that has been with you for the last 10 or 20 years.
And it's another thing to have a large national group practice coming in now.
So they just need to get comfortable that they are going to have a real partner when MEDNAX comes in, in helping them accomplish and achieve their goals and their objectives.
Those are conversations that just take time.
Fortunately for us, we are able to point to a number of hospital clients that have been partners with us for many years and eventually get them comfortable that we will be good partners.
That we will cooperate with them and work with them because we both have the same goals in mind.
But it does take longer.
It doesn't just take one conversation.
It takes a number of meetings and conversations and reassurances, et cetera, to get to that point.
- Analyst
What about the discussions with the physicians, Roger?
Once the leaders have agreed to sell or to sign an LOI with you, convincing the other doctors in the practices -- has that conversation changed over the years?
- CEO
I think those conversations have gotten easier, actually.
I think that most groups will not sign a Letter of Intent until their whole group has agreed to it.
It's not like we're meeting with one or two leaders signing an LOI and then -- oh by the way -- telling their 60 other partners, this is what we have done.
By the time it gets to LOI stage, most of the group has agreed to move forward.
That conversation because of the pressures in the marketplace, because of the changes in the business of health care -- the legislation, Obamacare, et cetera, et cetera -- physicians, in general, are feeling like they need to do something in order to respond to all of these external pressures.
I'm not saying that all of them are doing that, but the vast majority -- particularly where you have larger groups.
And one of the differences that I pointed out in the past is anesthesiology groups by nature tend to be larger than neonatology groups.
Those larger groups just tend to have a more significant group government structure in place.
They have group leaders, and they are more business-oriented.
It's not like four, five, six physicians in a group of neonatologists.
When you have 40 or 50 or 70 anesthesiologists, and another 40 or 50 or 70 nurse anesthetists as part of your group, your governance is much more substantial.
That helps as well.
- Analyst
Last question from me.
Roger, about a year ago, you talked about a pilot you are running with HCA with a Centennial Hospital for pediatric surgery.
Just wanted to get an update on that as a way to get a gauge on your relationship with HCA and what you are doing with them on the pediatric side?
- CEO
We have a good relationship with HCA.
We run more than half of their neonatal ICUs across the country.
We are not in a lot of their anesthesia practices, but we have a very good relationship with them.
That one pediatric surgery practice is doing well.
There are pressures in that marketplace and reasons why it may not have grown as much as we would have liked for it to grow.
But, in general, that practice is doing about as well as we thought it was going to do.
- Analyst
Thanks.
Operator
Your next question is from the line of Gary Taylor from Citi.
Please go ahead.
- Analyst
Good morning.
- CFO & Treasurer
Good morning, Gary.
- Analyst
Just a few tidbits.
One, I know this has already been touched on, but just going back to the share repurchase.
I know historically, generally the thought process was not using the balance sheet really for using repurchase, using free cash flow generation.
Generally, typically just to buy down the dilutions of any options issuance throughout the year.
My question is, is the thought here that really you will end up taking the fully-diluted share count down year over year?
Or is it still just generally, as was historically the case, just buying the options solution to keep the share count pretty stable?
- CEO
No changes.
It's the same idea as before.
We are not going to out and acquire shares at this point in time other than just to solve the dilution.
We just got out ahead of it.
We think our stock is cheap, so we went out and got it.
[Laughter)
- Analyst
I just wanted to confirm that.
The investment income -- these are tidbits -- but, the investment income was higher, over $1 million this quarter.
Is there anything unusual there, recurring there?
- CFO & Treasurer
Yes.
Yes, so what it is is that we had a small settlement on a case we were working on.
That is what is recorded in our line.
- Analyst
Okay.
And then are you actually receiving parity payments from Texas?
- CFO & Treasurer
I believe, yes.
We have received not a lot, but we did start getting parity payments from Texas, yes.
- Analyst
But you are accruing the full value of what you think you will receive?
Is that correct?
- CFO & Treasurer
Again, the way we do our accrual, Gary, is for any one of these payers, we want to see the trend of them paying consistently before we start accruing the rest.
Because again, there has been a lot of variability -- a big reconciliation process to make sure that what they are paying us is correct.
Once we see that any given payer in any given state is paying us consistently, then we accrue what we expect to get from them once we've reconciled then there is a trend of that cash coming in.
- CEO
Just to clarify, Gary, we are not accruing on a per-state basis.
We are accruing on a per-payer basis.
If we only have two payers paying us from Texas, which I think is what it is right now, that's the only thing that we are accruing.
We are not accruing all of Texas.
- CFO & Treasurer
Or any other states.
- Analyst
Last question, going back to the cash flow.
Obviously, I understand it's typical use of funds -- always the use of funds in the 1Q.
But it was more of a use of funds this year than last.
I know it looks like payables are the real differential and maybe some growth in payables in the fourth quarter reversed.
And that's why it was more of a drain here in the first quarter.
But anything else to add on the cash flow number?
- CFO & Treasurer
You're right.
It is in that line, but I am happy to report it is related to paying higher bonuses, versus last year, to our physicians as well as an increase in the 401k match that was accrued as of last year.
- Analyst
Okay.
That's all I have.
Thanks.
Operator
Your next question is from the line of Rob Mains from Stifel.
Please go ahead.
- Analyst
Thanks, good morning.
Just about everything I had was asked.
I just have one left for you, Roger.
The acquisitions -- you said now two of these calls in a row that you are seeing the run to the finish line getting stretched out a little bit, yet you've had fairly active year so far.
Is there anything to surmise maybe, from the size of the deals that have been completed to date, that delays that you have alluded to are more marked when you are talking about bigger practices than smaller ones?
- CEO
No, I wouldn't say that, Rob.
It does seem that way.
But what I think is playing a role here is that when you are dealing with smaller practices, it's just easier to get through the employment contracts, the credentialing issues, all the issues with the acquisition contract.
When you're talking to 12 or 15 physicians, it's just easier to get through that than when you are dealing with 60 physicians and 60 nurse anesthetists.
- Analyst
That would be the case even if the hospitals weren't slowing things down, I assume?
- CEO
The issues with the hospitals wanting their physicians to participate and to be good partners are the same independently of the group size.
- Analyst
Okay.
I think you said this earlier that in the pipeline, there are kind of the beachhead type deals that you have done in the past, as well as the types that you have completed to date?
- CEO
Absolutely.
- Analyst
That's all I had, thank you.
- CEO
Yes.
Operator
Your next question is from the line of Darren Lehrich from Deutsche Bank.
Please go ahead.
- Analyst
Thanks.
Good morning, everybody.
Two questions here.
First, Roger, I wanted to go back to some of your prepared remarks with regard to the Medical Directors Meeting and how you are measuring quality and some of the things that we've heard about for a long time here.
As it relates to your ability to measure quality and talk about it in a more sophisticated way to the hospitals, I can see how that certainly improves your retention.
I'd be curious just to get an update on whether you think that can drive more contract growth with some of your existing practices, particularly in anesthesiology.
Maybe just comment a little bit about your contract growth and how you leverage the exiting practices in a region.
- CEO
We think, in the first place, that it helps us to attract physician practices when we talk about the benefits that we can offer these practices as they join MEDNAX.
And some of the savings and some of the quality measurements that we can expect the new groups to accomplish as well.
So, that is one thing.
It helps us during that process.
With our existing hospitals, I would say that it helps because we are avoiding complication rates in a lot of instances.
So as I look towards, for example, on the newborn side, our rate of -- and one of the big problems with prematures is the blindness of prematurity, called the retinopathy of prematurity.
And it's caused by too much oxygen, too much carbon dioxide, et cetera.
One of the things that we have shown over the years is a reduction in our own rate of retinopathy of prematurity, a dramatic reduction of more than 50% in these cases.
When you talk about -- forget the human cost and the emotional cost -- just the financial cost to patients, that is a significant number.
We talk about that with our payers as well as with our hospitals.
On the anesthesia side, the whole perioperative process is something that we pay a lot of attention to.
And what that means -- I just learned about it not too long ago -- one thing is the actual surgical procedure.
But what they mean when they talk about the perioperative process is everything that surrounds that.
The pre-surgical, the admission, the post-surgical, the complication rates, a lot of emphasis placed on vomiting just after the procedures and getting them out of the recovery room quicker, and all kinds of things.
I am talking out of turn here.
They are all smiling as I try to tell you this.
So those rates are of interest to the hospital.
The hospitals get better rates of satisfaction from the patients as they do their analysis from the patients as to how well their experience went.
So that is all information that we are gathering.
And we can use that, whether it is as we go to other hospitals, to payers, to other groups.
We can use all of that information in saying -- Look at what we have and the things that we have done.
I can't really point to a hospital contract, which I think is the question you are asking, in specifics and say -- We got this contract at X hospital because of that.
I think it helps.
I think it's one more point that we make.
And I think it's an eye opener for a number of our clients.
But we can't really specifically point to one contract and say -- This is the reason we got this contract, at this point.
- Analyst
That's helpful in terms of how you are using the data, and it seems like you've got a great message.
The other question I had for you just going back to the parity discussion.
I'm curious really at the state level -- you mentioned Nevada and others, maybe about a handful of states that are starting to talk about this.
I wanted to hear from you just at the state level, how are the states thinking about paying for this?
And if you can give us some examples of how your advocacy is working along those lines to get this better traction on this topic.
- CEO
Well, as I said, we have four or five states that have agreed that they will move forward beyond 2014.
Not all of them have agreed to go at 100% of Medicare.
Most of them have.
One or two of them are talking about maybe going to 80%, 85%, 90% of Medicare, which is still great for us.
Better than nothing, obviously.
And, we have a very strong advocacy and government relations program.
Not only at the federal level, but in all of the major states in which we practice, we have local representation there as well.
We have the second or third largest PAC in health care services.
So we have a great message.
That is another way that we use our statistics.
We go and talk to government officials about our reductions in ROP, retinopathy of prematurity, and other things.
I think we have a great story to tell.
And so we utilize what we have in order and try to convince these government agencies in different states that we need to continue to provide increased reimbursements so that we can continue to do the work that we are doing.
- Analyst
Okay.
Thanks very much.
- CEO
Thanks.
Operator
Your next question comes from the line of Ryan Zimmerman from Goldman Sachs.
Please go ahead.
- Analyst
Thanks and good morning.
Given that this was a fairly unusual quarter with the weather, I was wondering if you could give us a bit more insight on what the volume progression was throughout the quarter.
And then for any volumes that you've lost on the anesthesia side, do you think you could get those back in the second quarter?
- CFO & Treasurer
Good morning.
I do think we will get them back.
I'm not sure that they are going to be scheduling all of those surgeries immediately, but I think we will get them back.
But I can't tell you.
As far as the progression goes, other than what I mentioned to Kevin, which is the way we looked at it was just seeing the days where we can clearly see that there was a big decrease in the activity for that day, and you could kind of match it to the weather days.
Other than that, I can't really give you any other things.
I think it was like at the end of January, we had some really bad weather; and I think then you had some in February.
As I recall, those were the bigger days hit.
It was within that time that we could see the days that were most impacted.
as I look at my notes here, it was mid-January through the end of February, and then a big impact occurring like the end of January and mid-February when we saw some of those bad weather days there.
- CEO
Let me just add to that.
Well, somebody has already said, the babies aren't going to wait.
So you saw that the volumes --
- CFO & Treasurer
This is anesthesia.
- CEO
This is just on the anesthesia side, and these are elective procedures
Any kind of emergencies aren't going to wait either.
If you have an appendicitis, you're going to -- whether it's snowing or not.
So these are elective procedures or semi-elective procedures.
I think people will have more time to get their procedures rescheduled.
- Analyst
It would be fair to say, then, March was a bit more of a return to normalization based on that commentary?
- CFO & Treasurer
Yes, honestly I have to go back and check that.
But I do think even before, some of the January before the weather hit was better.
So, yes.
- Analyst
Okay.
Thanks.
Then on the acquisition side, based on all the commentary you have given today and what you have accomplished this year, would it be fair to say that we should expect to see more acquisitions on the anesthesia side of the business for the remainder of the year?
Or what sort of mix between anesthesia and neonatal do you perceive?
- CEO
We expect all along that the bulk of the acquisitions will come from the anesthesia side.
We still think we will do some pediatric stuff, but the bulk of it will be on the anesthesia side.
- Analyst
Most of the pickup in NICU days you've addressed were really from birth rates.
You didn't see much of a change in length of stay.
Did you see any change on the admittance rates on the NICU side?
- CFO & Treasurer
No.
- Analyst
So it was births.
All right.
Thanks a lot.
Operator
Your next question comes from the line of Gary Lieberman from Wells Fargo.
Please go ahead.
- Analyst
This is Ryan Halstead on for Gary.
My first question going back to the anesthesia volumes, I just wanted to clarify -- was there an impact from day count?
- CFO & Treasurer
In the first quarter, we typically do have a few less days.
I can't remember now.
But, yes, there are a few less days in the first quarter.
- Analyst
Year over year or sequentially?
- CFO & Treasurer
February.
- Analyst
So did you have a thought on how that impacted volumes?
- CFO & Treasurer
Go ahead.
- Analyst
I was trying to arrive at what the impact on the volumes was from the one fewer day.
I guess the gist of my question is going back to utilization, the hospital companies have been reporting some decent trends, I think, on our elective procedures.
And I am curious if absent the day count and the weather, were there any signs that that impacted your anesthesia business?
- CFO & Treasurer
No.
Right now, like I said, the only one we quantified was the weather, when we went back there.
We just haven't really noticed anything else that was significant.
Karl is here, so I will let him expand on anesthesia volumes.
- President of American Anesthesiology
OR days didn't have an impact year over year.
But when you look at where the predominance of our practices are, that weather stream kept coming and hitting Tennessee, Georgia, North Carolina, the DC area, and Detroit had a fair amount throughout the year.
We have got some large practices through that area.
So, it had a bit impact on us.
It isn't necessarily going to be indicative of what you might be seeing nationally in some of these bigger markets.
Unlike our neonatal business, which is much more dispersed nationally, we don't have that on the anesthesia side at this point.
So we did feel the impact of the weather significantly through a lot of our practices.
We probably had a bigger impact than a lot of the national hospital companies that would have maybe had some offset in other places.
So that did hit us.
Some of the analysis, as Vivian talked about, when we looked at the impact of the surgical volume for those days, we did see drop-offs in those days.
What we didn't see is a change of the trend dramatically on a go-forward basis.
It's that we made up for those.
The trends of the surgical procedures we were doing, the cases we were doing, throughout the rest of the months remained pretty consistent.
As Vivian said, January started off strong; and we continued to see consistent.
But the impact of those days wasn't being able to be made up, so we didn't see any consistent higher level (inaudible).
So that gives us some comfort that it wasn't completely made up throughout the quarter.
We would expect to see some of that coming into this quarter.
- Analyst
Great, appreciate the color.
My other question is, on the Medicaid parity, I'm curious if you are seeing any evidence that the higher payment rates are having an influence on your pediatricians maybe expanding access to Medicaid patients?
Or is it just that you are getting paid more on the normal volume?
- CEO
We participate in the Medicaid program.
It's really the office-based pediatricians that you're hoping will elect to see more Medicaid patients or those that didn't participate at all.
I hear comments from my buddies who are general pediatricians on both sides.
Some are saying -- particularly those that already see Medicaid patients but maybe limit the percentage of patients they see to 25% of their practice or something.
Some are saying that they are seeing more patients.
They have increased the number of patients.
Others are saying that they are not really seeing more patients because it goes away at the end of this year.
So another comment I hear is that they feel kind of a trap that they would agree to see Medicaid patients; and then at the end of 2014, those increasing payments would go away.
They now have these patients that they feel responsible for, and they are not going to turn away.
So some of them are waiting to see whether their specific state is actually going to prolong or extend the parity beyond 2014.
- Analyst
That's very helpful.
Thank you.
Operator
Your next question is from the line of Dana Hambly from Stephens.
Please go ahead.
- Analyst
Thanks for getting me in.
Roger, back to the hospital discussions, I understand the administrators at the hospital would have plenty of questions for you.
I'm just curious if this is a back and forth, where you are interviewing them as well?
And kind of what questions you would be asking them?
And is there anything that you have seen that they've demanded or suggested that would make you shy away from a particular acquisition?
- CEO
Each hospital contract for us is a negotiation.
Some hospitals want to make sure that they are keeping their physicians.
They've had a group for a number of years, and they want to make sure that that group is not going to go away.
That we are not going to bring in a bunch of younger guys, less experienced physicians, and pay them less and those kinds of things.
I would say the majority of our conversations from a hospital standpoint revolve around just their getting comfortable that we are not going to come in and change too much on the clinical side.
That's an easier conversation for us to have because we don't do that.
We have a number of hospitals across the country that we can point them to, to get comfortable with that.
What has changed recently, as I said earlier, is this concept that hospitals want to remain flexible.
And they want to have the ability to participate in whatever payment reimbursement schemes may come along in the future that they are not really knowledgeable of at this point in time.
They want to know they have a partner that is going to be with them.
From our standpoint, we are interested in, obviously, the longevity of the management team.
But we are interested in their growth plans.
Are they looking to enter into other kinds of arrangements?
Or how are they looking to grow in their communities, and what kind of services are they thinking about providing?
That's really -- but that has always been the conversation with us: Who are you?
Are you comfortable with your existing group?
And what are your plans for growth within your community?
- Analyst
Okay.
That's helpful.
Then just the last one for me.
On the states that have -- you said taken some steps on, perhaps, extending payment parity.
Just curious, at the state level, is it kind of a fiat decision by someone?
Or do these have to go through a legislative process?
Or does it vary by state?
- CEO
No, it has to go through a legislative process.
It's at the state legislature level.
- Analyst
Okay.
Thank you.
- CEO
Thanks.
Operator
At this time, there are no further questions.
- CEO
Okay.
If there aren't any further questions, let me thank you for participating this morning.
And we will look forward to speaking to you next quarter.
Operator
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