R1 RCM Inc (RCM) 2010 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2010 Accretive Health, Incorporated Earnings Conference Call. My name is Shaquana and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will facilitate a question-and-answer session towards the end of this conference.

(Operator Instructions)

I would now like to turn the presentation over to your host for today's call, Mr. Gary Rubin, Senior Director of Finance. Please proceed, sir.

Good morning, and thank you for joining us. With me on the call today are Mary Tolan, the Company's Co-Founder and Chief Executive Officer, and John Staton, the Company's Chief Financial Officer.

Please note that earlier this morning Accretive Health issued a press release announcing the Company's fourth quarter and year-end 2010 results. A copy of that release is available in the Investor Relations section of the Company's website at www.accretivehealth.com.

Please note that certain statements contained in this conference call may be considered forward-looking as defined by the Private Securities Litigation Reform Act of 1995. In particular, any statements made about Accretive Health's expectations for future financial and operational performance, expected growth, new services, profitability, or business outlook are forward-looking statements.

Investors are cautioned not to place undue reliance on such forward-looking statements. No assurance that the matters contained in such statements will occur, since these statements involve various risks and uncertainties that could cause actual results to differ materially from those expressed in such forward-looking statements.

These risks and uncertainties include those listed under the heading Risk Factors in the Company's quarter report on Form 10-Q for the quarter ending September 30, 2010 filed on November 12, 2010, which is available on the Company's website as well as the SEC website.

The forward-looking statements made on today's call are based on the Company's beliefs and expectations as of today, March 2, 2011 only, and should not be relied upon as representing the Company's views as of any subsequent date. While the Company may elect to update these forward-looking statements at some point in the future, Accretive Health specifically disclaims any obligation to do so, even if its views change.

Please note that today's discussion will include references to certain non-GAAP financial measures. Please refer to today's earnings release for more information on these non-GAAP measures and reconciliation to the appropriate GAAP measures.

After the conclusion of Mary and John's prepared remarks, they will be available to answer your questions. At this time, I would like to turn the call over to Mary Tolan, Accretive Health's CEO.

Thank you, Gary. Good morning, everyone, and thanks for joining our call today. 2010 was a very good year for us. We significantly expanded our Revenue Cycle Management business and we introduced a new and exciting line of business, our Quality and Total Cost of Care offering. This more than doubles our addressable market. We also delivered strong financial results for the year including 19% growth in net service revenue and 37% growth in non-GAAP adjusted EBITDA.

We're beginning the new year with a very strong book of business. Our PCARRR, or projected contracted annual run rate of revenue, is currently in the range of $709 million to $723 million. This represents a 37% increase from our PCARRR at March 2, 2009. We believe this increase is a direct reflection of the value we are delivering for our clients.

For those listening for the first time, we define our projected contracted annual run rate of revenue as the expected total net services revenue in the next 12 months for all healthcare providers, which we're currently providing services for and that are under contract. We believe that this is the most instructive metric for gauging in growth in our business as it really eliminates the variability and historical revenue metrics, due to timing and size of our significant new customer contracts.

As some of you have heard us say before, Accretive Health is a built-for-purpose company with a sole focus on generating significant sustainable improvements in quality and operating margin for healthcare providers, while also improving the satisfaction of patients, physicians and staff.

This bears repeating, because our mission -- the pursuit of creating value for providers -- is the key business driver for our two primary offerings end-to-end Revenue Cycle Management and Quality and Total Cost of Care, which provides physicians with leading-edge population management infrastructure.

I'm going to spend a few minutes now talking about our Revenue Cycle Management business. Our opportunities in this business continue to expand as the Revenue Cycle Management process becomes more, not less, complex. We're well positioned to build our leadership position in this large and growing market, and we're looking at a number of new avenues.

First of all, we're looking to improve our full market penetration potential in some of our earliest markets. For instance, we expect that Michigan will be a bellwether for the full potential of the national market as we continue to work at a number of additional new deals in our pipeline. This national market is a $50 billion market overall and today we have less than 2% market share.

We also see many opportunities to expand our Revenue Cycle Management business into new geographic regions. Our strategic focus will be on some of the larger states where we have an early foothold, or states where we have exceptional greenfield opportunities.

We're in discussions with CEOs and CFOs from some of the leading research institutions and hospitals in our target markets, and we're encouraged by the positive response to our unique model and value proposition. We're also looking to expand our Revenue Cycle Management business into new segments of the market such as home healthcare and durable medical equipment providers, and to also add more for-profit providers to our client roster.

Looking beyond our Revenue Cycle Management business, the launch of our Total Quality and Cost of Care offering has opened up a new and large opportunity that can be applied to a broad spectrum of healthcare providers. Importantly, it provides healthcare providers with a complete infrastructure that they need to become accountable care organizations. As healthcare continues to shift towards this model, we believe that Accretive will be one step ahead of the curve.

Our inaugural Quality and Total Cost of Care program with Fairview is progressing nicely, and is already demonstrating cost reductions in line with our expectations. Physician affiliation is very important to hospitals, and we are pleased to report that a number of doctors have chosen to become exclusive to the Fairview network by virtue of this innovative work.

These physicians recognize that the move toward accountable care is happening. And by partnering with Fairview, they will be able to improve the quality of outcomes for their patients and participate in the value created.

There are a number of compelling synergies between our Revenue Cycle Management and Quality and Total Cost of Care offerings, not the least of which is that both levers the investments we've made in our people, processes and technology, and align our interests with our customers. We look forward to leveraging these to drive growth.

Now, turning to our Shared Services offering. At the end of 2010, approximately 39% of our Revenue Cycle Management clients who have been with us for at least a year are participating in this program. There's a lot of innovation occurring in our Shared Services Centers, and we plan to leverage the analytics and technology that are being developed there to support decision-making and process excellence across the Company. We expect our Shared Services adoption rate will increase over time, as we continue to demonstrate the value we are delivering to our customers.

We expect all of these growth initiatives to contribute to our results in 2011 and beyond. On our last call, we reported that we had $150 million to $200 million of potential revenue in our late stage contracting. Since then, we have added another $52 million to PCARRR, while at the same time increasing our contracting phase pipeline to $190 million to $250 million.

Company-wide, the Accretive team remains focused on strengthening our model through significant investments in our innovative technology, and developing and growing our professional team.

Our passion for driving results for our clients and our recognized work in developing accountable care infrastructure has significantly enhanced our leadership position and competitive differentiation. We are well positioned for the future and excited about the opportunities we see ahead.

Now, I'll turn the call over to our CFO, John Staton, to review our fourth quarter and year-end results. John?

Thanks, Mary. Good morning, everyone, and thanks for joining our call today. Our results for the fourth quarter demonstrated continuing top-line growth and improved profitability. Total net services revenue for the fourth quarter grew 24% to $170 million, from $137.5 million in the fourth quarter of 2009.

Net base fee revenues were $142.6 million for the fourth quarter, an increase of $27.9 million over the fourth quarter of 2009. Incentive payments were $23.2 million for the fourth quarter, an increase of $3 million over the fourth quarter of 2009. For those new to Accretive Health, incentive payments are the share of the benefits we generate for clients.

Other services revenue was $4.2 million for the fourth quarter of 2010, an increase of $1.6 million over the fourth quarter of 2009. Total net services revenue for the year ended December 31, 2010 grew 19% to $606.3 million, from $510.2 million in the previous year. We believe the long-term revenue trajectory is strong, as indicated by the 37% growth in projected contracted annual revenue run rate versus 12 months ago.

Net base fee revenues were $518.2 million for the year, an increase of $84 million over the previous year. Incentive payments were $74.7 million for the year, an increase of $10.6 million over the previous year. Other services revenue was $13.4 million for 2010, an increase of $1.5 million over 2009.

Adjusted EBITDA, a non-GAAP measure, is the financial metric that we believe is most instructive in measuring our progress. We define it as net income adjusted for interest income or expense, non-cash expenses such as depreciation and amortization, our income tax provision, and non-cash expenses related to stock option warrants.

Adjusted EBITDA for the quarter ended December 31, 2010 was $16.7 million, an increase of $6 million, or 56%, over fourth quarter of 2009. Adjusted EBITDA for the quarter reflects the increased investment in our Quality and Total Cost of Care offering, and public company costs totaling $1.8 million for the quarter as compared to last year's quarter.

We expect our investments in the new Quality and Total Cost of Care offering will begin generating revenue in 2011, as we begin to implement our Fairview Health Services contract.

Our adjusted EBITDA margin was 9.8% in the fourth quarter of 2010, versus 7.8% in the fourth quarter of 2009, an increase of 200 basis points. The increase in the adjusted EBITDA margin is the result of the operating leverage inherent in our business model, and the increase in incentive fees which occurs as our managed services contracts mature.

[Our] operating model gains traction at our clients. We generate increases in revenue yield, which translates into higher incentive payments and increasing levels of cost efficiency, which positively impacts our margin.

We are pleased with the growth in our adjusted EBITDA for the year ended December 31, 2010. Adjusted EBITDA for the year was $45 million, an increase of $12.1 million, or 37%, as compared to the year ended December 31, 2009. Our adjusted EBITDA margin was 7.4% for the full year, 100 basis point increase from the 2009 adjusted EBITDA margin of 6.4%.

Our adjusted EBITDA reflects our increased investment year-over-year in the Quality and Total Cost of Care offering during 2010 of $4.4 million and public company costs of $1.3 million. Our adjusted EBITDA includes stock-based compensation expenses of $5.7 million and $16.5 million for the fourth quarter and the year ended December 31, 2010, respectively.

This is an increase of $4 million and $9.6 million, respectively, for the fourth quarter and the full year. The increase in the stock-based compensation is principally related to the staff we hired to develop the technology and process for Quality and Total Cost of Care services and stock options granted to management in conjunction with our IPO [this] May.

Net income attributed to common shareholders for the fourth quarter of 2010 was $5.5 million, an increase of $3.2 million as compared to the fourth quarter of 2009. Net income attributed to common shareholders for the full year was $12.6 million, an increase of $6 million as compared to 2009.

The annual increase primarily reflects the absence of dividend distributions during 2010 offset by costs related to our Quality and Total Cost of Care offering, and the public company costs discussed earlier.

Now, turning to our balance sheet. We ended the year with a very strong balance sheet, including $156 million in cash and equivalents and no debt. Cash flow from operations for the year was $32 million, and our capital expenditures were $15 million. Our strong balance sheet provides us with ample resource to invest in organic growth initiatives such as our new Quality and Total Cost of Care offering, and has been a key criteria in winning new business.

Before I open the call to your questions, I will provide an update to our guidance for 2010 -- 2011, excuse me. Based on the status of our business in contracting, which is the final stage of the sales campaign, we anticipate that our projected contracted annual revenue run rate will exceed $900 million at December 31, 2011.

We have confidence in this estimate due to our very strong pipeline, which, as Mary mentioned earlier, includes between $190 million to $250 million of PCARRR in contracting, which is the final stage of the sales campaign. We also expect that our net services revenue for the year ended December 31, 2011 will be $835 million to $850 million. The midpoint of this range represents a 39% increase over the $606 million in net services revenue that we generated in 2010.

It is important to note that seasonality factors impact our incentive payments and, therefore, quarterly revenue. Our first quarter incentive payments typically represent 55% to 65% of the previous fourth quarter's incentive payments since our fourth quarter is always the strongest quarter.

There are two other factors that will impact this year's first quarter revenues. First, our Quality and Total Cost of Care contract with Fairview won't make a meaningful contribution to revenues until the back half of 2011.

Second, some of the contracts added in the fourth quarter and included in the PCARRR won't ramp up until the middle of this year's first quarter, from a revenue perspective. As a result, we expect our first quarter 2011 revenues will account for between 19% and 20% of our full year revenues.

Finally, we expect that adjusted EBITDA for the year ended December 31, 2011 will be $80 million to $86 million. The midpoint of this range represents an 84% increase over the $45 million of the adjusted EBITDA that we generated in 2010.

This increase in adjusted EBITDA is a reflection of the operating leverage in our business model, the increased margin contribution from a growing mix of higher margin incentive payments, and our managed services contracts continue to mature, and the expected breakeven of our new Quality and Total Cost of Care business. These figures are consistent with our long-term goals of a 25% to 30% compound annual growth rate, and adjusted EBITDA margins moving into the 14% to 18% range in 2014.

With that, I'd like to open the call up to your questions.

(Operator Instructions)

Your first question comes from the line of Ryan Daniels, representing William Blair. Please proceed.

Yes. Good morning, guys. Just a couple of quick housekeeping questions up front. John, can you, one, give us your tax rate assumption for 2011? And then, number two, just so we can back into an adjusted EPS number, what you expect for stock-based compensation for the full year?

Yes. We expect the tax rate, that we're assuming for the year of 2011 is 41%. And our stock-based compensation will range, we believe, between $19 million and $20 million for the full year.

Okay, great. Thanks. And then, a little bit bigger picture. It sounds like the pipeline remains very strong based on your comments. And I'm curious if you see overall demand in the market trending towards end-to-end RCM solutions versus the consulting engagements or technology only.

Or maybe asked a little differently, are you seeing more hospitals look towards the fully outsourced solutions today? And, if so, what do you believe is driving that?

I think that we are noticing that hospitals who maybe in the past would not have considered something along the lines of a full partnership end-to-end are really considering it as they, a, hear more about the results that that model has been producing and can really seek more insight into that through references; and, b, as they feel more financial pressure or perceive it as going to occur on the horizon.

I think those two factors are very helpful to the pipeline right now.

Okay. And then, if we look at your 2011 revenue expectations, are you considering that base fees for the full year will still hover around 83% to 85% of sales? Or, is that going to gravitate lower given the maturity of the contracts and inherent incentives there as well as the new Quality and Total Cost of Care? I assume that's going to be more incentive-driven versus base fee-driven.

I think you'll see through the 2011 that that ratio will hold and start toward the end of 2011, [as] the base fee as a percent of revenues will start to decline. Two things -- obviously, the continued maturity of our contracts will obviously be [showing off] incentive payments as a greater percent of revenue. And our Quality and Total Cost of Care, as we shared with you previously, has a much higher percent of its revenue coming from the gain share or incentive payments.

Is it still -- the last question here and I'll hop off -- your impression that maybe 12 months into those contracts, or within the fourth quarter of a contract start, that you'll start seeing some of those incentive fees?

That is correct.

Okay, great. Thanks, guys.

Your next question comes from the line of Atif Rahim, representing JPMorgan. Please proceed.

Hi. Thanks for taking my question. I guess, John, in terms of the cost and quality initiative, could you talk about what the dynamics are in terms of revenue recognition that will push off the rev rec later into 2011?

Sure, Atif. As we look at the business, we have, just from a rev rec and accounting perspective, the need to basically do the measurement to make a determinable posted quarter. So we are ramping up here. We are seeing great operating results, but our ability to recognize that, at least in the early quarters, is going to be a little bit deferred.

Though, we do expect for the full year, as we mentioned earlier, that this business will be breakeven or better for all of 2011.

Okay. Understood. And then, what's in your pipeline in the PCARRR estimate maybe as of right now? I don't know how much signed in the quarter, but also, when you look at the $900 million as year-end '11, how much do you think (inaudible) is going to contribute to this?

We aren't, at this point, disclosing that because (inaudible) contract, Atif, but I would expect it right now to be a modest contribution of revenue for 2011.

Okay, got it. And then follow-up on the competitor dynamics, or pretty much on the RCM space in general. I noticed, Mary, you talked about the academics being an opportunity. That seems to be somewhat different from the core segments you focused on in the past. What's getting them interested in this -- the fully-outsourced offering?

We actually, Atif, have had academics in our customer base; we've talked about Dartmouth publicly and so forth. But I think what is happening is that the academics are -- they're very sophisticated institutions and they're really thinking about accountable care. They're thinking long and hard about healthcare reform, and they really want to be prepared financially for it.

In some ways, because they actually provide some of the most sophisticated tertiary care, broad-based cost reduction is probably going to be the most harmful to them. So, they feel very motivated. And they also, I think, want to be leading in the Quality and Total Cost of Care arena. What we're noticing is that those institutions are very interested in both of our offerings.

Thank you.

And your next question comes from the line of Sebastian Paquette, representing Goldman Sachs. Please proceed.

Good morning, and thanks for taking the questions. First off, if you assume in the current backlog -- enters into PCARRR in 2011, you could see PCARRR approaching $1 billion without adding additional contracts. So, could you kind of walk us through how you expect backlog to trend through 2011?

One of the things, Sebastian, I think we've shared is that these deals are very large and they're very significant for our customers, and so they go through quite a lot of governance steps to be able to get to closure and they can be lumpy.

We've got some very large and leading institutions in there. So, there's not a nice tidy progression that we can say you're going to see this come in in some sort of even way throughout the year.

But when we do report what's in contracting, we do feel that those are very good, very solid pipeline numbers. We're all the way through all the decision-making and really through all price discussions. And we're really just going through legal Ts and Cs and sort of concluding on these deals.

Timing can be -- it really does come down often to the governance of the institution. Academics are more complicated. You not only have the hospital side of the equation, but you have the physicians' side and then you also have a medical school, typically. So, those types of institutions can take longer.

Also, as we break new ground into new areas of the provider landscape where they typically are for-profit, like in durable medical equipment and home health, we're also breaking ground in new tax implications in states and so forth.

So, those are all just things that you work through in the process, but they can affect timing. And really, it wouldn't be prudent to give you some sort of a predictable progression on how these things would land during the year.

Okay. And then, to confirm. I believe that the final gating factor for a majority of the $150 million to $200 million backlog reported on the third quarter was due to kind of some last minute legal regulatory clearance. And so, I wanted to just clarify that the contract closing process is going according to plan, and that there haven't been any kind of unforeseen delays in that existing backlog.

Well, it's going to plan in the sense that we have not had anything fall out of backlog or not move forward. So, that's very good. And, again, I think that we have found that our, in particular, academic institutions do take a bit longer than our typical window.

Okay. There was a Wall Street Journal article, kind of late 2010, that stated that Fairview may be looking to expand its existing quality arrangement to the remainder of its commercial business in 2011. So, I believe you have an exclusive clause within the Fairview quality contract, and can you comment on the potential for this expansion?

Yes. I think the expansion is really exciting. It indicates that the leadership of Fairview is fully committed to this strategy. I think it's very bold and innovative that they have been able to convince all of their commercial payors to work with them in this vein.

And, I think that the two things that I spoke about are unbelievable early indicators. One is the way affiliated physicians are choosing to become exclusive to Fairview in this very competitive market because of this infrastructure and this potential. And number two, the early results that we're seeing in terms of reduction in readmission rates and key cost drivers.

So, I think they're feeling very bullish about the strategy and they're moving forward with it and we are exclusive, as you mentioned.

Thank you.

And your next question comes from the line of Bret Jones, representing Brean Murray. Please proceed.

Thank you for taking the question. I was wondering if you could give us a sense for when some of that $52 million signed -- I was wondering if it was primarily in Q4 or some of that, or if a good bit of that signed in the early part of Q1 since you report the PCARRR as of March 2.

The vast majority of that -- over 80% of it was signed in Q4.

Okay, great. And then, generally speaking, how long does it take from contract signing to go live? And if you could break that out between RCM and the Quality and Total Cost of Care product.

On the RCM side, it can vary from right at the contract start, within a week of contract signing, and in some cases it can take up to six weeks before we would launch with the client and kick off the revenue.

And on the Quality and Total Cost of Care product?

We don't have a whole lot of experience there yet, but I'll tell you what we would think that it would be is that we would start to recognize revenue probably three to four months post the beginning of the engagement because it's -- which is the vast majority of it is these incentive payments.

There are going to be some base fees associated with these contracts that we'd expect, and that would be [trickling in]. But again, the vast majority of the revenue in these contracts is tied to our ability to improve total cost of care for a population.

But one thing to be clear. When we give a PCARRR number, we have factored in start times, and so there's really no additional handicapping you've got to do on our signed contracts. All of that's been factored in.

Okay, great. And then, just lastly, on the final contracting number, and I think this touches on what Atif was trying to ask earlier. I was wondering -- you don't want to talk about how much revenue contribution from the Quality and Total Cost of Care product, but I was wondering if you could tell us -- give us a sense for how much of that $190 million to $250 million in final contracting would be associated with that offering.

At this stage -- and we're being very conservative in the way we estimate this. So for instance, somebody was bringing up earlier on the call, we started with Fairview, we had an exclusive contract and now it's growing. But the way we have that in PCARRR is really with the smallest and most certain scope.

And so, if I take that very conservative approach, what is in our pipeline right now on Total Cost of Care and Quality is in the $40 million to $60 million range for a 12-month period, commencing when they start. But again, being a new offering, we tend to be very conservative in the way we estimate PCARRR.

Okay, great. Thank you very much.

And your next question comes from the line of Eric Coldwell, representing Baird. Please proceed.

Thanks. I think the last questioner and I were on the same page with a lot of questions, so most of mine are actually addressed. A couple of quick ones. In the past, I think once contracts moved into contracting phase you typically -- I think, at least in the early days of the Company saw that those deals would get signed within 30 to 90 days and your success rate was in the high 90% area.

I'm curious if you've seen any change in that that you would like to share with us today in terms of what you're thinking, the progression time that's in contracting phase opportunities once you get to that phase.

I think the first thing that I would indicate is that we think that the ultimate success rate of contracting phase is holding and, as I said earlier, we haven't seen anything fall out of the pipeline that reached that reached that phase.

The second thing I think is that even when we mentioned that it was 30 to 90, we said there are outliers and those outliers historically were, even though we have a small sample size, academic institutions.

And then, I think as we break into new areas like Total Cost of Care, which are very early on, and then also new areas in the for-profit arena where we've got to go through some regulatory and tax issues in states, those are the other reasons why things could take a bit longer.

Having said that, we feel that the pipeline is more robust than it's ever been, and we're very excited about where we stand competitively in the market.

Thanks for that. Sorry if I missed this, but historically you've given the total number of hospitals under management as well as contracts under management. I was curious if we could get that.

66 is where we are as of 12/31.

66 hospitals on 12/31?

That's correct.

And number of contracts? I think it was 26 last quarter?

26 as of 12/31.

26. Okay. Thank you for that. And then, finally, I know over the last few quarters you've been working to adjust your incentive structure on traditional deals, perhaps get incentives a little quicker in the process. And therefore, the early day implementation losses that you took on in prior years were less pronounced.

I was curious if you could give us an update on where you stand here in the first quarter -- what your outlook is for, say, the first quarter's implementation profitability or loss on new traditional deals?

I think the progress that we had mentioned to you earlier, that we are making our deals actually reduce in terms of their first quarter loss and then moving to cash flow positive faster, is continuing to hold.

John, do you have anything more that you would add on that?

No. Our recent experience has been our contracts are certainly turning to be positive contract margins through the first 12 months, which just a couple of years ago we were at slightly negative. So we continue to demonstrate through that first 12 months. And, again, each quarter along the way is performing at a better level than we were just a year or two years ago.

Okay, that's great. Last question actually is, last quarter you mentioned your contracting phase opportunities, but you also gave some color around your late phase marketing pipeline.

I believe if I added that up correctly it was about $240 million last quarter for deals that had not yet moved into contract end phase but were getting closer. Could you possibly give us an update on what that status is as well?

The status of the pipeline in general is extremely strong. Again, what we are noticing is that the strategic nature of our capabilities, both in revenue cycle and increasingly with CEOs wanting to also talk about accountable care and how we're preparing them for that, it's becoming more and more the case that people understand the connection between payment systems, incentives, and the transformational change that needs to take place in the clinical enterprise.

So our entire pipeline is extremely strong. And as I mentioned in some of the comments, we have some of the leading institutions in this country in very serious dialogue and consideration with us. And we feel very good to continue to be affiliating with leaders and people that the market really looks to in terms of being opinion leaders.

Okay. Thanks very much. I'll leave it with that.

Thanks, Eric.

(Operator Instructions)

And your next question comes from the line of Jamie Stockton, representing Morgan Keegan. Please proceed.

Good morning. Thanks for taking my questions. John, real quick, the SG&A line fell sequentially. Can you give us some color there? Was that lower investment in the Quality and Total Cost of Care program?

It actually was just -- part of that was a shift in terms of how we were recognizing the investment in the Quality and Total Cost of Care. It was being recognized as SG&A since we signed that contract in early November. Most of those operating expenses flipped over into contract expenses, and that is the primary reason for the sequential down on the SG&A.

Okay. And then, a couple more questions. One, would you be willing to share roughly how many hospitals you guys are assuming you will be working with at the end of 2011?

We don't really think about this from a hospital perspective because there's a number of aspects of the business and they come in all different shapes and sizes. If you looked at what our maybe --. We haven't -- really have a projection in here, but if your model's built on this, Jamie, you might want to just take a look at our average kind of revenue per hospital and make a projection from there based on the revenue estimates.

Okay.

I think it's a really -- I think it's a somewhat unhelpful way of looking at things. We have one system in our pipeline that has $1 billion in revenue, but 800 comes from its flagship hospitals and it's got four other small hospitals making up the rest. We've never really found it to be a useful way of thinking about things.

Okay. The other question I had was on Ascension -- if you could just give us a refresh on how penetrated you are within that system.

Today on the acute care side, we're roughly at two-thirds in terms of our penetration of Ascension from the acute care hospital business. And today, Ascension is -- at least for all of 2010, is 50% of our revenues.

And we have other significant ministries within Ascension in our current pipeline.

And by the way, it's down about 10% from last year. They were at 60%, down to 50%. We expect that kind of trend to continue going forward, as a lot of our additions to our business have been non-Ascension.

All right. Thanks.

You have a follow-up question from the line of Bret Jones, representing Brean Murray. Please proceed.

Thank you. I didn't want to tie up the line earlier, but I had a couple of other questions. I was wondering if you could give us a sense for the percentage of academics within the final contracting since they tend to take a little bit longer.

I think that you would see that about 60% of that is academic governance structure.

Okay, great. And then just finally, I was wondering, on the incentive fee side, it was a little bit lower than what I was expecting. Can you give us an update on the level of improvement to NPR you're seeing at the five-year mark? In particular, I was wondering about contracts that are older than five years -- if you are getting greater than 500 basis points improvement in those contracts.

Yes. I think we are seeing improvements that are still in line with those mature contracts in that 400 to 600 basis points improvement on the mature contracts. And we are, for the year, certainly, and for the quarter, in line with our expectations.

Okay, great. Thank you.

At this time, there are no further audio questions. I would now like to turn the call over to Ms. Mary Tolan for closing remarks.

Thank you. I'd like to thank everyone for participating in our call today and for your interest in Accretive Health. We're very excited about the growth opportunities we see ahead, and we look forward to updating you on our progress throughout the year. Thanks, and have a great day.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect, and have a great day.