Good morning, and welcome to the 2024 Jefferies Global Healthcare Conference. I'm Brian Tanquilut, Healthcare Services Analyst here at Jefferies, and joining us this morning is Pediatrix Medical Group, with the company's CEO, Jim Swift, and Charlie Lynch, SVP of Finance, Strategy, and IR. Jim, thanks for doing this. Charlie, thanks again. Absolutely. Jim, maybe if you can give us a little bit of a state of the union for Pediatrix. Yeah, I guess where it starts is, you know, we remain obviously the leader in the space in terms of high-risk maternal care, as well as neonatal care in the country. On top of that, we have an incredibly stable relationship with all of our health systems across the country, and equally, really, the relationship we have with our clinicians with extremely low turnover. That said, you know, we really are focused on the core of what we do in terms of neonatology and inpatient services, and as well as MFM. But we have, beginning at the end of last year and really accelerating this year, have looked at our footprint in the ambulatory setting and ambulatory specialties, and really looked at those, really from standpoint of portfolio management and does it make sense for us to be in some of those specialties, especially in the case of some of the practices that are not doing well financially. So we've embarked upon, really a process to exit a number of these ambulatory specialties, started with primary and urgent care, and announced that, on our first quarter call. The thesis there is we really do believe that there is a role for primary care in the United States, and we have a unique vantage point to that. Problem with it is, from a scale standpoint, there wasn't enough in terms of attractive assets to add to the portfolio we already had, and the time to get to the scale that we needed, it was really a distraction of what we wanted to do in the core. So we are largely exited from that business here, by the end of June or so. And then as well, we're looking at the portfolio of our subspecialty practices and doing the same. No, that's, that's a great intro, Jim. Thank you for that. Maybe let's start with the core business. As we think about that segment, there obviously have been various moving pieces and developments there over the last few years, including no surprises, rev cycle, and the birthrate. How do you see that business today in terms of recovering from some, some of those headwinds, and how far do you think we are from seeing stabilization and reestablishing a baseline of growth for that business? Yeah, I'll start, maybe I'll start with the No Surprises Act. Charlie can talk a little bit about births. You know, we always knew that that was going to be a, an unknown- Mm-hmm ... in terms of a headwind. What we did is we realized that we're not opposed to No Surprises Act. We think it's the right thing to do. The implementation, however, I think many of us have felt that it was not implemented according to the wishes of Congress. And really, the arbitration process, and it was weaponized a little bit by the payers to say, "Hey, listen, we think we can get better rates with you out of network through the arbitration process." What we did is we created a more uniform and automated, to some degree, process of making sure we got the appropriate claims into the arbitration process that would then give us really eyes on what was going in and what was coming out, and you know, resulted in us winning many of our arbitration cases. And really, I think that led the payers to look and say: Listen, we can either fight this, or we can come back to the table in a cogent way and have us in network. So I think that capability really is first and foremost, a, you know, really a great offense, you know, with what we did. Secondarily, we've been advocates of looking at the implementation of the law and have been working with our lobbyists as well as our congressional representatives, to really talk about how it should work, the ghost contracting that was going on between kind of primary care specialties and neonatology. And I think all of those things have given us resolve to feel that this is the current state of the union, if you will, in terms of managed care, but we don't see it as the headwind it once was or perceived to be. Additionally, I think I would say, people have asked, I said, "It's not over. We're still gonna have to arbitrate at times," but I think our honest approach to our rates and what we do with the payers has paid off in terms of getting back in network, and then for those payers to renegotiation, they understand, you know, that we're on a level playing field. I don't know if you want to talk about birthrates, Charlie. I can. You know, just one last point, just to reiterate, our in-network presence- Yeah ... has been and is very high. So- Yeah ... you know, the arbitration process and everything that we focused on is really related to, you know, a low, low-mid single digit% of our revenue. So it didn't have a material effect on our results. Mm-hmm. But we saw that as the most important line of defense, such that we would avoid payers looking to terminate contracts and the like because it wouldn't work for them with us. You know, I guess I'll frame, you know, thoughts about the business and demand for our services as stable. You know, everyone is very aware of birth trends in the United States and all of that. You know, we're geographically and for other reasons, a little bit more favorably positioned. But as we look at, for example, how we underwrote our outlook for this year. Mm-hmm ... for 2024, you know, we underwrote it with no great expectations of change in demand. Coming out of 2023, we didn't see anything in terms of a trajectory we really needed to call out. And when taken as a whole between birth trends and their effect on our volumes in the neonatal ICUs, as well as demand for our maternal-fetal medicine services, you know, I'd say that view of stability is so far correct. And, you know, within that, you know, for maternal-fetal medicine, for high-risk obstetrical care, you know, that's where we've seen persistent strength in volumes. And, you know, Jim can speak to, you know, what that might be coming from, but, you know, that's our second-largest- Mm-hmm - specialty outside of neonatology, and it has been a particularly strong point in terms of volumes this year. Yeah, I'll just add to that, that when you look at, and it's obviously been written about, in across the country in terms of the increasing morbidity, mortality for pregnant women, because these, what people would consider these maternal deserts that largely they believe to be in the rural areas, but what we are seeing is that they're near metropolitan areas as well. So what we've seen is, rather than, moms being able to get into an OB practice or an OB without, you know, a large number of OBs in some of these areas, they've ended up, in our practices in maternal-fetal medicine. Now, some of those, rightly so, because of the, the high-risk nature of the pregnancy, but, but many others, there's no other safety net for them. So either they end up in an ER and then transferred to an ER where our maternal-fetal medicine physicians cover or transferred over to our practice. So we believe that there's gonna be ongoing growth around what we're doing in maternal-fetal medicine, even to the extent that we've added, in some of our practice, primary OB- Mm-hmm in the practices to really be a pop-off. And if you take that and then center that around our OB hospitalist programs at some of these hospitals, it's really a kind of this triangle of care that we've been able to provide in the community and be a resource to these OBs that really don't wanna take some of these patients or where there just isn't enough service for the moms. Yeah, that makes sense. Maybe, Charlie, I'll follow up on the comment on the stabilization of volume. You put up a 2.5% same-store number for Q1. Yeah. You know, what are the levers at this point that you can pull to either sustain that or keep that steady or even drive that higher? Look, there's not much we can do to control total birth trends. Okay. But, you know, I would say... I guess I started with that backdrop view because virtually everything we're focused on right now is much more within our control. Mm-hmm. So, you know, whether it is the, you know, the finalization of our RCM infrastructure and model, which, you know, we're well through so far, you know, to Jim's point around the No Surprises Act, and having a decent amount of visibility into what our renewals will look like and the like, and, and, and feeling more comfortable about that. And that's important because that, in turn, gives us a better view toward thinking about M&A- Mm-hmm and how we could underwrite a practice acquisition. In terms of just the underlying trends in our NICU days, which is our billable unit, you know, one thing that's interesting that's emerged over the past year or two is that while overall births at the hospitals where we run the NICU, 400 or so hospitals across the country, you know, that trend has been flat to slightly down. You know, our trajectory in NICU volumes has been more stable, and to your point, in the first quarter, it was up a couple points. You know, the pieces behind that have been that over these last couple of years, we've seen a very slight but somewhat persistent increase in the rate of admission into the NICU. Mm-hmm out of the total deliveries in the hospitals, and we've seen a slight increase in the length of stay. It's probably premature thinking about pure clinical research and looking at all of those data to determine some of the root causes, but that's the output that we've experienced. Whether it is, you know, greater risk to the mother during pregnancy, leading to higher admissions, not sure about just preterm deliveries, and greater risk to the babies, that's been a phenomenon, again, not ground-shaking in magnitude, but somewhat persistent. And again, lend some support to, you know, to our view about, you know, just stable, stable demand and stable NICU volumes across our states. Yeah, that makes sense. Maybe, Jim, shifting gears to the labor front, you guys have been good about maintaining pretty, you know, very high, actually, retention rates, right? So as we think about the FTC ruling on noncompetes, I know it's a question mark being challenged in court right now, but- Right ... how are you thinking about that? Because obviously, that has been one of the key drivers of that retention rate, right? Yeah, I think when we look at it, and we're watching that closely, as you can imagine, but when you look at what we provide in terms of resources for our physicians, we think that stands out, and it's part of the reason for the retention, whether that is, you know, certainly what we've been able to do to maintain compensation for our physicians in the market. What we do in terms of the services around medical, legal, that's probably one of the biggest highlights our physicians look at, is the support that we provide there. And then really, the practices operate in a fashion that the physicians are shoulder to shoulder with us in terms of how we operate in the hospitals or how our MFMs operate in the clinic. So we see that, you know, that very low turnover, even if tomorrow someone said, "Hey, there's no more noncompetes." And I also say, where is everybody going to go, right? Are the hospitals then going to insource? We haven't seen that largely as a trend anyway, and if anything, we're seeing the opposite of that, that hospitals are saying, "Not quite sure we want to be the home for these clinicians." So we think in kind of the horizon is there's going to be turnover for succession. So, you know, an astute medical director in a private group or working for a hospital decides to retire, and the hospital then says, "Well, we don't know what to do next. Who could we turn to?" And I, I think where we've been situated is to have the conversations with both small healthcare systems and our large health system partners to really let them know if there's a need, we're happy to step into that. And I think there's a runway for us on acquisitions for that very reason. And when you look at what we're doing in terms of the efficiencies around the ambulatory footprint, and a much more stable cash flow, for what we're doing, our eyes, it certainly now and into 2025, is looking at what we can do on acquisitions in that core, and I think we will, we will have opportunities there, over the next year. Well, that makes sense. And then maybe, Charlie, just really quickly, as we think about subsidies, what does that look like for you guys right now? Or what are you thinking in terms of subsidy growth this year? Well, that revenue bucket for us has grown over the last number of years, but the evolution of that growth is interesting. You know, for some time, it was related to new business- Yeah ... and demand for, from hospitals and health systems for us to stand up new programs, OB hospitalists, for example. Mm-hmm. You know, more recently, I would say that alongside the portfolio management we're undertaking and looking at whether we exit a practice that doesn't seem to have a viable financial path forward, you know, one of the steps we have often taken and continue to take is to have that discussion with our with the hospital- Mm-hmm ... that's involved and whether it's appropriate for there to be greater stipend support for that, for that specialty, that practice, particularly since, in many cases, it's the hospital who's, you know, requesting that we have clinicians on the floor and in the facility, which takes away from time in the office. So, you know, we've had success there as well. I wouldn't say it is a primary pathway for us, thinking about our portfolio restructuring, but it has existed, and it's just, as Jim brings up a lot, it's just an honest conversation with the hospital that the staffing requirements, you know, for that practice, for that specialty, are such that it needs to be supported in a more robust fashion by the hospital. So, you know, I think that to the extent that we see continued growth in contract and admin fees, it'll be that same combination, but probably more balanced about stipend discussions and renewals and negotiations with the hospitals, as well as, you know, an underlying layer of new business to the extent that we think it's appropriate to stand up new practices. Jim, since Charlie alluded to the portfolio rationalization, maybe if we can just talk about that. Like, what prompted that, and how are you thinking about, you know, basically the new strategy going forward? Yeah, you know, if you look year-over-year, there's always a process we go through- Mm-hmm ... in terms of practices that are underperforming, and we look at dispositions with some of those practices. You know, over the years, we have been asked by hospitals to come in, and it's a service that the hospital doesn't provide. It's tangential to what we do, and in a specialty that, quite honestly, some of these specialties are very, very narrow in terms of the labor force associated with them. So we've embarked upon, and many times at the request of the hospital, and with the hospital saying, "We'll provide financial support to do it," we've gotten into these specialties, which appropriate with great physicians, some of the labor costs associated with that, and we've seen an increasing labor cost is because these are specialties that are underrepresented. But we had to look at this clearly and realize that some of these are negative EBITDA practices that really are a drag on what we're doing. And as we talk to the hospitals, the real part of the reason for the need was the downstream that the hospital has that doesn't really do much for us. So the conversation we've had very honestly with our clinicians in the ambulatory setting is, we are going to exit these practices. We're going to find appropriate homes for them, either in discussions with our hospital partners or with some other third parties who are in the space, to say, "Listen, this is not the right place for us or for those clinicians with us." So we, you know, it was a more concerted effort than what we've seen year-over-year, and we really, you know, looked at this in the fourth quarter and said, "We need to start moving this direction." And then really, here at the beginning of the year, we're largely well on our way to disposing of a number of those practices, with the goal to be that we really are a hospital-based neonatal and our other hospital-based specialties, pediatric intensive care, and MFM. We believe that MFM has huge potential for us in terms of growth, both through acquisitions, but in adding clinicians into some of our practices in these, you know, dense markets we have, and really focusing not on the one-offs of being in a state with one specialty. It's being in the states where, you know, we have an operational density that can really bring the efficiencies of what we're doing with those practices. Maybe just to touch on urgent care- Yeah ... I mean, what, what are the thoughts there? Yeah, listen, we loved urgent care, and we loved what it brought to the table. We did have a thesis that, again, it wasn't just about urgent care. We would see babies in the hospital, whether they had insurance or, you know, they had Medicaid. We couldn't get them into the pediatrician's office because their offices say, "We have no space, we have no appointments." And so we saw it as an extension, that this was acquiring lives- Mm-hmm. managing a population. But the problem again with it is as you start to do that in our entry into urgent care, you had to look at it and say, "There's a little bit of competition there if you're gonna do primary care and urgent care." And the pediatricians look and go, "Well, are you on our side or not?" And we were merely saying, "But we can't get the kids into your office." That said, as I described earlier, the requirement to get to scale, or 200 or 300 practices, was just going to take too much runway. And so, again, to look at the portfolio, to look at what we're doing, and to focus really on the core, we felt that it was the right thing to do to exit that business at this time. And who knows? We may very well come back around to primary care pediatrics in a different way, but we believe that we need. There's growth in what we see in our core services, and we're really focused on that right now. That makes sense. Maybe Charlie, just shifting to rev cycle, obviously it's been an issue that has impacted your business and cash flows. So how's the transition going, and why do you think this hybrid strategy that you're shifting to will work, and why is it better than the outsource strategy or full in-source that you were using before outsourcing RCM? Yeah, there's a lot of unique aspects to the rev cycle function, particularly the front end of it within neonatology. And our experience told us that a fully outsourced, you know, vendor structure didn't bring the subject matter expertise to what we needed. It was also. It also created a lot of challenges for technological connectivity from the very outset. You know, a baby is admitted into the Neonatal ICU, in many cases, doesn't have a name. And then you have to identify the parent or parents that they're with, their financial class, and the like. Those were the gaps that we experienced in our first outsourcing of RCM, and that was where most of the challenges came from. So as we, as we moved forward, you know, well over a year ago, about a year and a half ago, we made the decision, "No, we need an internal team, with good subject matter expertise to supplement what a vendor can do." And we've accelerated that, to the point where, you know, today we're virtually fully staffed on the internal team across the country. We switched vendors, late last year, and the new vendor, Guidehouse, has been a, has been a great, a great partner for us. So I would say just that. It was experience-based, and lessons learned, and we feel really comfortable and confident about the structure that we have today because we have much more control over it at the front end, and we can avail ourselves of, you know, the automation, the efficiency, and scale of a vendor like Guidehouse for the remainder of the process. So, you know, we're our target is that we'll be, you know, fully through this transition from our previous vendor, relatively soon, and very certainly, you know, within this year. And we can wean off of, you know, some of the expense, some, some of the duplicative expenses that we're bearing, with that transitional arrangement, hopefully, you know, through the third quarter. But, from a structural standpoint and from a performance standpoint, we feel pretty good about, about what we've done. We're not out of the woods yet, but we think we've got the right team and the right partner. Charlie, are you able to quantify what that roll-off of expenses would look like? So as we think about a normalized- Yeah ... rate in 2025. Yeah, I, you know, it's pretty transparent. We have a line item that captures the expenses to the previous vendor. So you can see through that, and within our P&L, ex, that line item is, you know, the ongoing costs- Exactly ... that we bear. You know, what's notable, I think, you know, through this process is, look, we have staffed up. This is not a team of two dozen people. It's, it's fairly large, and we do have, you know, the costs associated with the new vendor. But we've taken other steps within our G&A of, of cost takeout, such that for 2024, you know, our expectation coming into the year was that we would maintain a G&A load as a percent of revenue comparable to 2023, and, you know, we're hoping that we actually do better than that. Jim, we've got a minute or so here left, so maybe what parting words would you leave for the audience as we think about, you know, the inflection of the business at Pediatrix? And, you know, at some point, I'm sure you're expecting to drive healthy growth again in the business. Yeah, listen, I think that in some of these things we started with, NSA, talking about rev cycle, I look at it as distractions and eliminating distractions, right? And so, because when you look at the kind of heritage of the company, and we very much are a growth company focused on the core services we provide, I think getting the distraction out of the portfolio management- Mm-hmm ... allowing us, you know, the balance sheet that we have and, and the cash flow that we can generate allows us to really approach growth in a different way. You know, we didn't talk about multiples, but we see very low single-digit multiples on acquisitions in the core services where we are, and, and I think that's going to persist into, into 2024 and 2025. And I think from that vantage point, removing those distractions, the team is very focused on what we're doing. Charlie's point on rev cycle is absolutely true. We, we all have been waking up and going to sleep thinking about rev cycle, and that should be a function we put behind that seems automatic. And so I think that it will be the case. Then the final thing I'd say is, we are that resource in the country for our hospital partners. You know, not a day goes by where we don't have a conversation with our hospital partners about what else can we do and where are they growing and what new facilities are opening that will include neonatology and the other inpatient services we provide. That's awesome. Thank you, guys. Appreciate it. Thank you. Thanks. Bye. Thank you.