Surgery Partners in 2019: 6 points of strategic growth — de novos, payer partnerships, total joints & more

Surgery Partners reported 32 percent revenue growth in 2018, and the company is poised for additional growth in 2019.

During the fourth quarter and full year 2018 earnings conference call, Surgery Partners CEO Wayne DeVeydt and CFO Thomas Cowhey discussed the key elements of the strategic plan for Surgery Partners' growth in the future. Here are six takeaways based on a Seeking Alpha transcription of the call.

1. Two top ongoing investments from 2018 include development of Idaho Falls Community Hospital, an 88-bed facility with an emergency room and intensive care unit, and The Villages Ambulatory Surgery Center, an Orlando, Fla.-based partnership with The Villages Health which will bring a multispecialty ASC to the community. "Both of these investments are expected to open no later than the first quarter of 2020 and be significant contributors to our long-term organic growth," said Mr. DeVeydt.

2. The company plans to spend around $80 million to $100 million on acquisitions over the next year. "We're finding that assets that are available in the market in some cases are becoming a little more richer," said Mr. Cowhey. "I don't think we're a surprise anymore to people, so we're going to be very selective on those transactions. But I would say over time that that's our targeted range, the $80 million to $100 million, and we're going to continue to move down that path this year. We've got pipeline already, we've got some [letters of intent] signed, we'll see if we get them over the finish line but that's where we're at."

The company sees opportunities among existing ASCs and plans to target centers for potentially non-brokered deals. "We like the idea of not just sitting in a tree and waiting for opportunities to come but to actually get out and hunt for those opportunities," said Mr. DeVeydt.

3. Total joint replacements done at Surgery Partners centers increased in 2018 as the company rolled out bundled payments. In 2017, the company's centers averaged around 15 total joints per quarter, but after deploying bundled payments mid-year, the company reported more than 100 total joints in the fourth quarter of 2018.

"We've piloted this program in four markets in 2018 and we are now rolling it out to four additional markets in '19, and if we continue to like how it goes we'll continue to expand," said Mr. DeVeydt. "You've got to have the equipment to roll this out, you've got to have the space to roll this out, and you've got to have the block time to do this. So we wanted to make sure we could do it well and do it right, but we're really encouraged [by] we can do with bundling at this point and look forward to seeing how this impacts not only '19 but 2020 and beyond."

4. Surgery Partners is considering co-ownership with a "named payer" that could turn into a joint venture facility. Mr. DeVeydt reported the company has non-disclosure agreements signed and has already begun recruiting physicians for potential de novo centers.

"I would say it's no longer [in] early stages, but these [partnerships] have long digested periods, but we've got a couple lines and that we're feeling encouraged about at this point, and we're hopefully going to be able to show the payer community the value we continue to bring," he said. "We're excited about what we did on the bundle front and we see that gaining momentum. I think we're trying to show them the opportunities of having even more influence if they partner with us."

He hopes to announce the partnerships later this year.

5. Surgery Partners is in discussion with government officials related to the medical necessity of drug tests dating back to 2010. In October 2017, the federal government sent Surgery Partners a letter demanding documents about its physicians submitting drug tests to laboratories Surgery Partners owned and operated. During the fourth quarter, Surgery Partners reported a $46 million charge related to the investigation, and talks are ongoing.

"We currently expect this charge to be sufficient to cover a potential settlement with the government to these matters and certain related legal expenses," said Mr. DeVeydt. "It is important that we put this matter behind us so we can ensure our focus is in providing exceptional clinical care to our patients and services to our physician partners and associates. This investigation relates to a chapter of our past that we are looking forward to closing shortly with federal investigators, as we continue to improve our culture of innovation, compliance and accountability."

6. Surgery Partners named Eric Evans new COO, effective April 1. "Eric brings over 15 years of industry experience to our company, and will play a key role in continuing to implement our growth strategy and deliver value to our stakeholders," said Mr. DeVeydt.

More articles on surgery centers:
Where 5 major ASC companies stand in 2019: Strategy, market share & more
Surgery Partners revenue up 32% year over year
Humana adds 100+ SurgCenter Development facilities to national network: 3 things to know

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