Pediatrix Medical Group, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the second quarter 2021 earnings conference call. At this time, all parties are in a listen-only mode. Later, we will conduct a question and answer session. If you wish to ask a question, you can press 1 and then 0 on your telephone keypad, and you can withdraw your question at any time by repeating the 1-0 command. If you're using a speakerphone, please pick up the handset before pressing the numbers. Once again, it's 1-0. And if you require assistance during the call, you can press star and then zero. As a reminder, this call is being recorded. And now I'd like to turn the conference over to our host, Mr. Charles Lynch. Please go ahead, sir.

Thanks, operator, and good morning, everybody. Welcome to our second quarter earnings call. I'll quickly read our forward-looking statements and then turn the call over to Mark. Certain statements and information during this conference call may be deemed to be forward-looking statements within the meaning of the Federal Private Security Litigation Reform Act of 1995. These forward-looking statements are based on assumptions and assessments made by Mednax's management in light of their experience and assessment of historical trends, current conditions, expected future development, 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 can cause actual results, developments, differ materially from forward-looking statements are described in the company's most recent annual report on Form 10-K, its quarterly reports on Form 10-Q, and its current reports on Form 8-K, including the section entitled Risk Factors. In today's remarks by management, we will be discussing non-GAAP financial metrics. A reconciliation of these non-GAAP financial measures to the most comparable GAAP measures can be found in this morning's earnings press release, our quarterly reports on Form 10-Q, and our annual report on Form 10-K, and on our website at www.mednax.com. With that, I'll turn the call over to Mark Hordak.

Thanks, Charlie, and good morning, everyone. Also joining me on today's call are Mark Richards, our CFO, and Dr. Mack Hinton, who leads our pediatrics and obstetrics medical groups. You'll see in this morning's filing that the recovery in patient volumes we reported in the first quarter has continued. In fact, for the second quarter, patient volumes across our total span of services has now exceeded pre-pandemic levels. On the same unit basis, total volume was up 1.3% versus the second quarter of 2019, with hospital-based services up by 10 basis points and office-based services up by 5.2%. I'll add that other key metrics that were particularly volatile through last winter continue to show stable, improving trends coming into the summer. Pay or mix remained favorable on a year-over-year basis for the second consecutive quarter, and the rate of admission into our NICUs did so as well. As a result, our revenue for the quarter of $473 million was above our internal expectations, as was our adjusted EBITDA of $66 million. Based on our results, as well as the actions we've taken in our operations that we'll also discuss this morning, we now expect that our 2021 adjusted EBITDA will be above $240 million, up from our prior expectation of being at least consistent with the prior year for continuing operations, or $220 million. There are, of course, risks that we face. Most importantly, the recent rise in COVID-19 cases driven by the Delta variant. But that said, our updated view for the full year includes our experience to date. Looking forward beyond 2021 and couched with the same risks, there are a number of factors that give me increased confidence that we'll see additional growth in adjusted EBITDA in 2022 that will get us past the $270 million run rate we achieved pre-COVID. I'll expand on these in three areas. First, we're building momentum in our core. While demand has recovered faster than we had anticipated earlier in the year, We are also helping to drive additional growth across our practices. I heard earlier this year about the investments we've made in improving patient access, better scheduling, and a drive for increased pace and efficiency. Q2 is the first quarter where we can estimate the impact of these initiatives, and we think we've just begun by adding roughly $2 million to the top line in the quarter. I'm very confident that this is just the beginning of a long-term payoff, And please remember that we call this initiative Patient Access because it's really just that. We want to make sure the patients that need our care receive our care as soon as possible. Our re-engineered and focused sales efforts are accelerating our pipeline of organic growth. We have such a superb, focused, and organized team that makes this a reality. Halfway through this year, our new business booking, and by that I mean new contract sales, have already approached our total bookings for 2020. Our win rate has increased, our time to close has decreased, and our pipeline remains robust and diversified across multiple specialties. Our M&A pipeline also continues to build with several acquisitions of important specialty groups completed for the year to date. As an example, last week, child neurology consultants at Austin joined the MedNAC families. This group of 12 physicians and three nurse practitioners are among the premier groups of neurologists in the country. The lack of local neurology coverage is a major reason infants are transferred away from the birth hospital. This is the most recent example of investing to further support our hospital-based practices with subspecialty consultation to allow infants to stay near their homes. We believe this is also a platform for growth. both geographically and via telehealth. Second, we're still in the early stages of building our presence in children's primary and urgent care. Following our acquisition of Nightlight, we're now in the planning stages for new clinic openings outside of Nightlight's hometown of Houston. We're also working on additional investments and initiatives in primary and urgent care that we believe will meaningfully accelerate this expansion. We also believe that our breadth and depth in women's and children's health will enable us to actually change nationally many aspects of pediatric care. I look forward in future calls to cataloging our progress. Third, we're making significant progress on improving the efficiency of our practice support infrastructure. Mark Richards will detail some of this progress, but I'll highlight our previously announced agreement with R1 to transfer our RCM operations to them which not only gives us immediate G&A savings, but also enables improved bottom line results that I'm certain would not have been possible had we continued on our own. To put these things together, I think you should view our expectations for 2021 as far from the finished products. Beyond this year, we believe the full benefit of our efficiency improvements will be paired with our ongoing and compounding growth initiatives that today are only just beginning to bear incremental fruit. These factors together support our confidence that in 2022, we can achieve adjusted EBITDA above the $270 million that I've just referenced. Of course, none of this is possible without the strength in our core and a singular, unwavering focus on our top priority, taking great care of the patient. It's so timely for me to reiterate this to you today, but the fact is that in talking to our clinicians and clinical leadership, becoming clear that as the country continues to evolve through this pandemic period, the need for many, many of the highly specialized services our doctors provide is only increasing, which makes it that much more important that these doctors are able to operate as part of a highly integrated collaborative network in order to ensure that patients have access to the services they need exactly at the time they need them. That's why I've asked Mac who's a long-time neonatologist and pediatrician, to talk about the why behind the resurgence in volumes we've seen across many specialties, as well as the why behind the importance of having access to the full continuum of care for expecting parents, newborns, and children. So I will now turn the call over to a person who firsthand understands this importance, Dr. Hinton.

Thanks, Mark, and good morning, everyone. I'll start with what we're seeing across the country today, and then, for the benefit of all of our stakeholders, give some thoughts about what we truly are as a national medical group and how MEDNACS is uniquely positioned to address this current and future environment. I would describe the market trends we see today as twofold. First, as isolation measures became less restrictive, our pediatric specialists are seeing a surge in respiratory illnesses during the summer, illnesses that we typically see during the winter run. We've also seen a significant number of behavioral health issues that have resulted in both pediatric intensive care and pediatric hospital service admissions. In addition to that, the American Academy of Pediatrics now recommends that any child with COVID have a cardiac evaluation prior to returning to sports. Our pediatric cardiologists, hospitalists, critical care physicians, surgeons, urgent care physicians, and other pediatric specialists are all seeing the near and long-term consequence of COVID-19. Regardless of the immediate rate of infection in our communities, we believe the consequence of isolation and delayed healthcare will continue to require access to the entire spectrum of our pediatric specialty services. These services are scarce national resources, and access to them is vital for the health of the children in our communities. Second, alongside the significant increases in total births and NICU admissions we reported this quarter, Our maternal and fetal medicine volumes have now far surpassed pre-pandemic levels. Here, too, for at least the near term, it's clear that trends in pregnancies and deliveries have turned upward. And across the country, access to highly trained obstetrical specialists is vital for the health of expecting parents facing a high-risk pregnancy. And, in fact, a number of states have highlighted the risk of higher childbirth complications that can result from insufficient access to the proper care. And all the payers we work with, both commercial and governmental, stress the importance of access to high-quality maternal care. To put some statistics behind these two phenomena, I'll point out that compared to the second quarter of 2019 on a same-unit basis, volumes in our pediatric intensive care units were up 11.5%, and pediatric hospital volumes were up 4%. On the office-based side, pediatric surgery volumes were up 8%, and maternal fetal medicine was up 9%. Pediatric cardiology volume is still down slightly by 2%, but we anticipate that that could increase as we move into the fall. All of these statistics point to the breadth of specialty services provided across our organization and across the country, and the demand for these services has been increasing in this rapidly evolving environment. But beyond these numbers, I'll speak to you now as a physician who's been fortunate to have been a leader at MEDNACS for many years. There's a broad spectrum of care that's absolutely essential for prenatal, newborn, and pediatric populations. And that is exactly what our pediatrics and obstetrics medical groups provide every day of every year. We are far more than a collection of practices and clinicians. Sure, our clinicians touch the lives of thousands of women and children every year, but more than that, we are a highly integrated group of affiliated maternal and pediatric practices that work together to deliver care across the whole spectrum of pregnancy, childhood, and in some cases, even adulthood. This includes maternal fetal medicine doctors, OB hospitalists, and neonatologists, all working closely to provide diagnostic care to mothers who are at risk of a complicated pregnancy and to provide routine and emergency triage evaluation and care to pregnant patients presenting to the hospital, as well as to provide a complete inpatient spectrum of maternal and neonatal care. It includes pediatric hospitals, to cover smaller community pediatric services, to large tertiary referral services, emergency medicine physicians who see patients in dedicated pediatric emergency departments, and pediatric critical care physicians who care for severely ill children and adolescents with a large range of medical and surgical problems, including patients requiring cardiac surgery. With the addition of nightlight urgent care, it now includes pediatric urgent care clinicians who see pediatric patients at a time and a place convenient for parents in an environment that's the right place for their child. As Mark spoke to earlier, we see an enormous opportunity at MEDNACS to change the way pediatric primary and urgent care is practiced in our country, and this is totally complementary to our core business. It includes developmental medicine specialists who evaluate and treat disorders of development, and you see many of our former NICU patients. It includes pediatric cardiologists who evaluate and treat the entire spectrum of childhood cardiac disease, as well as adult congenital heart disease patients. and additionally support both our neonatology and hospitalized pediatric patient population, including intensive care and cardiac intensive care patients. We continue to add multiple other pediatric specialties, including neurology, endocrinology, gastroenterology, hematology, and infectious disease, to better serve our patients and their families. And this includes rapidly growing pediatric surgical services across general surgery, Each of these represents a scarce and highly specialized surgical specialty that's very important to our pediatric communities in their own right, but are also supportive to our inpatient services. I hope all of this can help you appreciate how interconnected our organization is. It is this network of care, from pregnancy to delivery, to childhood and sometimes even beyond, that makes what we do special and, in fact, essential. And, of course, we do this in a very close partnership with our hospitals. When they choose us, the vast majority of the time they stay with us because of our shared commitment to our patients, because of our work to maintain strategic alignment with them, and because they rightly expect and demand the robust resources we at MedNax provide to our affiliated clinicians every day. Mark.

Thank you, Matt. I will now turn it over to Mark Richards. Thanks, Mark. Thanks, Matt. Good morning, everyone. Rather than going through each line of our P&L, I'm going to focus today on our G&A restructuring and stabilization efforts during the quarter and our expectations as we move through the second half of this year. And then I'll touch on our financial position as it stands today. We had a lot of activity during the quarter that I'll globally describe as the culmination of efforts efficiency going forward, all while keeping a priority on service to our practices. First, as previously disclosed, in May we finalized an agreement with R1 to transition our RCM functions to them. This agreement followed a thorough decision-making process from which we concluded that R1's scale, technology investments, dedicated focus on revenue cycle can give our affiliated clinicians capabilities we would never match. Under the terms of our agreement, we realize near-term G&A savings, and we also expect to benefit over time from future improvements in RCM performance, yield, and revenue enhancements. In terms of the impact of this transition on our P&L for the second quarter, It was a net savings to our G&A. But as with any major transformational project, we did record certain one-time expenses within our transformational and restructuring line item, primarily related to expected terminations of other existing third-party RCM contracts. In addition to this agreement, We passed two other important milestones related to information technology and infrastructure modernization. We completed a significant data center consolidation, and we went live on our Oracle ERP solution that represents a far more advanced financial platform. The planning and implementation of both of these have been in the works for some time. but we did incur a surge of IT-related spend in the second quarter to bring all of this over the finish line, which all sides is roughly $3 to $4 million over the year-over-year increase in our total G&A when compared to last year. Third, we have substantially completed the support services related to the PSA arrangement attached to last year's sale of our anesthesia organization and plan to wind down any remaining services through Q3. As I noted in the past couple of quarters, there will still be some period of time when we're still incurring some of those expenses but not being reimbursed for them. Finally, we sold a secondary corporate office building in Florida during the quarter. We received 25 million in cash proceeds and recorded a $7 million gain on the sale. And on a go-forward basis, we'll realize approximately $2 to $3 million in annual G&A savings from the building sale. With all of these actions moving toward our rearview mirror, we expect our dollar G&A spend for the second half of this year to be below the $137 million we encouraged earlier. I'll finish with a comment on our financial position. We generated a strong $70 million in operating cash flow for the second quarter. We ended up the quarter with $338 million in cash, up from $270 million at the end of the first quarter, and net debt of $662 million, implying leverage of less than three times. In addition, you'll see on our balance sheet we also have a $29 million income tax receivable, primarily related to the tax elections made with respect to the sale of our anesthesiology medical group last year. And we anticipate receiving that cash sometime in late 21 or early 22. Based on our expectations of second half adjusted EBITDA and cash flow, this tax receivable is and normal uses of cash for CapEx and M&A, we would expect to end this year with leverage below 2.5 times. With that, now I'll turn the call back over to Mark.

Thanks, Mark. Thanks, Matt. We are ready to respond to any questions.

Thank you. And ladies and gentlemen, if you do wish to ask a question, please press 1 then 0 on your telephone keypad, and you can withdraw your question by repeating the 1-0 command. Once again, it's 1-0. And we'll first go to the line of A.J. Rice with Credit Suisse. Please go ahead.

Hi. Thanks, everybody. Good to see the rebound in the volume trends. But it's interesting that the bursts were up 2.9%, but the NICU days were up 4.4%. I guess they usually march a little more in tandem. As you drill down, anything to say about What drove the even stronger performance on the NICU side than just in the birth number?

Yeah. Hey, James, Charlie. If you recall, through a good part of 2020, our rate of admission into the NICU was somewhat below trend. And as we came into this year, beginning in the first quarter and continuing here in Q2, it has reverted to trend. So that's the differential, essentially, between births and days for this quarter.

Okay, so is that something you'd say this is more normal going forward than maybe what we saw in 2020?

Yeah, we look on trend on the admin rate side and not sure how things will continue through the third and fourth quarter, but if they do continue on trend, that's probably somewhat additive to our NICU days versus births for the rest of the year.

Okay. I just wondered on the vaccine, some of the managed care companies have talked about, obviously, the potential. We've got the 12 to 17-year-olds, I guess, but the under 12 population. If there is an approval for that, there's some discussion that a lot of that would happen in the pediatrician office. I wonder if you've looked at that, if you're prepared for it, and how much of a tailwind that might be if that happens.

Hi, this is Mac. You know, I think the primary care pediatricians to some degree are doing the vaccine. That's not widespread necessarily across all pediatric practices. So I think there's still going to be a lot of these patients that are going to be vaccinated in sort of similar sites to what we've seen in the adult population. I'm not sure that the vaccines in and of itself in the entire pediatric population is going to provide much of a tailwind for anybody, us included.

Okay. And then I just want to ask on the acquisition that you mentioned, the neurology deal, and then I think also as you talk about different specialties that can support women's and children's health, it was a little wider discussion. catchment area than I would have thought. I guess we've been focused more on traditional things you think of as women's health. Is that an evolution in your thinking that now you branch out to some of these other areas and would you strictly in neurology or any of the other specialties you mentioned, would that strictly be practices that are focused on Pediatrics or women, or would it have a unique women's practice, or are you thinking more broadly that you might branch into some of those going forward?

Well, the answer is smart, AJ. The answer is the latter. We think that there is a very important, necessary, and big opportunity for us to be a broad provider of women's and children's health services. And that's why we look at the subspecialties in these areas and look at holes in the market and say, how can we fill those holes and how can we strengthen the network that Mac so carefully described? Hospitals depend on us for a suite of services, and our specialists work, as Mac described, very interconnectedly to support each other. So I think that is the wave of things to come. So while our core is around our NICUs, our other subspecialties are extremely important, not just for the absolute size that they present, but the opportunity they present to really provide the right level of care for our patients. And yes, I think that that strengthens our relationships with our hospitals. strengthens the ability of our doctors to provide care that's far more than if it was just a collection of practices out there.

Okay. All right. Thanks so much.

And our next question here will come from Ryan Tranquillette with Jefferies. Please go ahead.

Hey, good morning, guys. Congrats on the quarter. I guess my first question, Mark, you know, you've had some success, and thank you for highlighting the R1 GNA opportunity. But, you know, you've been here a few quarters now. How are you looking at incremental GNA or even just efficiency opportunities to drive, you know, kind of like incremental margin growth?

Well, there are two marks. I'll start. And thank you for your kind words about the quarter. We think that focus and efficiency come hand in hand. And And both marks have worked together for a lot of years to do that. So we think over time, by focusing on how to make our core better, you become more efficient. So we think that that will equate to lower percentages of GNA as we grow. I think by not being as far afield as the company used to be, by having And then we talked about the Patient Initiative Act. Those are areas where we can grow without adding any incremental overhead because you're just making your operations that much more efficient. But that requires that the core that we have today is looking at everything we do and saying, how can we do it a little bit better? And if you're not too broad, we think we can do that. So we think that's a big opportunity for us going forward.

Gotcha. And then just to the point on the recruitment and specialists and the different specialties that you're looking at, you have seen some of the job postings online for pediatric surgeons and things like that. So how are you thinking about the expansion strategy there? Is it going to be acquired or is this going to be more organic as you try to expand beyond the current service line?

Well, it's all of the above. And you know, I think probably embedded in your question is not an easy recruiting market. So you have to be the employer of choice. You have to build an organization that people are really proud to be part of. And our job as leaders of the organization is to make sure that that's what we're doing. So a lot of the work we do will be organic growth. We have a great pipeline of new contracts where we're growing in that way. And then we're also attracting new physicians. We're advertising We're out there trying to make sure that people understand who we really are and the support that we provide. Again, we want everybody to know whether you're a clinician, a practice, a hospital, a payer, anybody, we want people to understand that this is not a collection of practices, that when you're part of this organization, you get a tremendous amount of support. So if you're a clinician and you want to take care of patients, we're going to make that job as easy as we possibly can and provide as much support as we can. We have a clinical services group led by Dr. Kurt Picker that worked tirelessly to do so many things for our physicians to help them do their jobs. And then, you know, led by our human resource department and Mac and others, we're very choosy about the clinicians that join us. We think we're able to find the best doctors and clinicians out there because they know that They're in an organization that is 1,000% dedicated to taking care of patients, providing research support, IT support, everything we can to make a doctor's life better so that our patients get better care. Awesome.

Thank you. And our next question here comes from Tito Chickering with Deutsche Bank. Please go ahead.

Hey, good morning, guys. Really nice quarter here, and thanks for taking my questions. The first one is there has been some noise coming out of Texas as it relates to managed care, pushing out some doctor practices to go out of network in order to reduce their reimbursements. Obviously, your quarter was exceptionally strong. So I'm wondering if you're seeing this, or do you believe this will have any impact on you at all?

Well, yes, and thanks, Cato. Yeah, in Texas and California, we're out of network right now with CVS Aetna. You know, look, unfortunately, throwing a group out of network is a tactic that's used from time to time. I think it's unfortunate because it's very destabilizing for patients, number one. Number one, two, and three, probably. And... But, look, we're optimistic we'll be back in that work because I can't imagine how anybody that cares about women's and children's health wouldn't want an organization like MedNax and our doctors to be taking care of their members. We play a vital role in some of the communities where we are that I just, I think that, you know, I look at CVS's website and they say they're all about care, so it makes me optimistic. that if we're rational, they'll be rational and we'll be back in network. And look, we'll fight very hard to be back in network. Overall, we have a great relationship with our payers. Our doctors work their rear ends off to take care of patients, and we provide a lot of support. So we just make that point. But we're not unaccustomed to negotiating. Again, I think that a tactic like talking to somebody at the network is unfortunate, but... I've learned it's part of life. So I think we'll get past that.

Okay, fair enough. And then a second question for you on payer mix. What is the typical payment for other third parties in private pay patients versus standard managed care payer? Is it a lot higher? And that's because other third party in private pay grew 100 base points versus 2020 and contracted, you know, managed care. It's also 100 base points versus 2020. So when you put it all together, government reimbursement is down 300 base points versus last year. I'm curious, sir, what impact it is on EBITDA and how would you think about that sustainability going forward? Is this a new run rate for 2021, 2022? Thanks so much.

Hey, Peter. It's Charlie. We look at, when we're looking at payer mix, and as you know, we'll always look year over year on a same unit basis and look at it by volume to see how it's trended. As you saw in the release, our non-government volume was up by 35 basis points as a percent of the total. for the quarter, so that's how we view it, and that's somewhat additive to our net pricing when mix moves away from government. So that's how I would classify it in terms of where that's impacting and how it impacted the quarter. It's really in the aggregate having somewhat lower government reimbursement in the mix. It's usually beneficial.

Pito, just a corollary to this, I think you know this, but We do absolutely nothing, and we will do absolutely nothing to manage that number. We take patients throughout our practices, whether it's in the hospital or ambulatory, without any regard to how they're paying. So the payer mix is the payer mix. From the day that Dr. Medell started this company, there's only one mantra here, and we're continuing it, and that's take care of the patient. our doctors are blind to how the patients are going to pay, and it's something that we're very proud of and is unwavering.

The only other thing I would add to you, just real briefly, is I would be a little bit cautious about, and this is just a general commentary, a little bit cautious about looking at pure year-over-year comparisons to 2020, particularly given the distortions and disruptions across our organization through a good part of last year.

That's a good point. So let me actually rephrase this differently. Government revenues as a percent of revenues is 24% in 2Q. That was 27% in 2020. It's 26% in 2019 and 2018. Is this 24% of total revenues from government? Is this the new run rate or does this river back to mean over time back into the 26 range?

That's a tough one to say. You know, as we come into this year, we have seen our mix start to move back to what we had seen in historical trends prior to 2020. But I don't think we're in a position to say that we're at a completely different level of mix just based on our overall business right now.

Okay, that's fair enough. Next quarter, guys. Thank you.

Next, we'll go to the line of Tao Kew with Stifle. Please go ahead.

Hey, good morning. This is Seth Caneto on for Tao. I just wanted to ask about the EBITDA margins in the quarter. You know, there was a nice revenue beat this quarter, but I just would have thought that given the stronger revenue, there would be more EBITDA expansion. So, can you just Give us a sense and remind us of what the costs are, variable and fixed, and how should we think about margin expansion as you grow revenues going forward?

Yeah. Hey, good morning. It's Mark. Just a couple of things on that topic with respect to EBITDA margins. As I mentioned earlier, we did have a surge of activity in the third quarter to bring – a lot of our technology and infrastructure enhancements online. So you've got a little bit of margin compression related to this surge of not only data center, but a new ERP technology that we went live on on April 1st. So that's a piece of it. But I would say You know, with respect to, you know, where this is going in the revenue push, the big component from a variable standpoint is our incentive sharing program with our physicians. And to the extent we've got a lot of top line movement, that will drive our variable cost component up. So that's probably the biggest piece of movement relative to our top wine increase over the quarter. There's a relative share of that in our bonus pools.

Yeah, we also, it's not unimportant, we happily announced the end of the long-running lawsuit that we had with CBS Aetna, and there was considerable spending has happily come to an end. So I would say that if you look at the spending that we've been doing to bolster our core, to rev up our sales effort, to really strengthen just about everything we're doing, I think that you see some of that in a quarter, and I think it's going to bear fruit going forward. And, you know, like every other company, there's increased... spending and technology to keep the company safe from unwanted intruders. So we have that too.

And just one last thing. If you're looking at the margin comparison and cost comparison versus 2020, I'll repeat what I said before. There were a number of distortions. Any way you look at our comps to last year, particularly the second quarter, we had enacted temporary compensation reductions. not only across our DNA infrastructure, but across the clinical practices as well to the second quarter last year that reverted to norm, you know, post the end of the quarter. So that distorts a little bit of your comparison to Q2 year over year.

No, thank you. That's very helpful. And then I just wanted to ask on the R1 GNA opportunity, you know, versus the patient access and patient initiatives. Can you Quantify sort of the runway there. I mean, it sounds like you guys are confident in 2022 you'll get past the $270 million pre-COVID EBITDA, but what's the runway opportunity for these programs in place?

We're not right now breaking out what we're doing with what we're going to get from R1, but we think it's going to be very meaningful. I think we'll detail that, but it's not something that we're prepared to call it as a single line item. We do know that managing a company our size, such a vast RCM function, is very difficult, and it requires an enormous amount of technology that we could never afford, and it requires the right people and the team to handle that technology. So we think that it's going to have very significant savings, and we'll detail that as we experience it. On patient access, we, again, said we think we're just scratching the surface by adding, you know, $2 million to our top line in the quarter. But there's a kind of a new way of operating here. And I think that's very important. There are weekly calls with our practices starting from, you know, max to the presidents of our region to the practice leaders. And we have a very strong operations team. that it's drilling on so many of the key metrics on scheduling. And it may seem mundane, but by doing that, we are already seeing changes in how scheduling is being done and will work even more on how appointments are being kept. It's all saying that we're in a competitive world and we want to do everything we can to get people in as quickly as we can, and whether that's physically or through telehealth, So we think that's really going to pay off.

Great. And then my last question is just in regards to the White House plan that could possibly curtail non-compete agreements. You know, it seems that this executive order would have a large impact on your business model. And I know it's been early since that announcement, but can you guys give us any color on how you're potentially thinking about the impact to your business and the industry?

Sure. Well, first, we operate in states where non-competes don't even affect what we do, and we operate very effectively there. So we believe that the best way to operate for any company is to be the employer of choice, as I said before, and we think that people really love working at Mednax, and we want to do everything we can to strengthen that. You know, and it works both ways in the absence of non-competes. It could enable us to recruit in ways that we can't today. So I don't see it as a net negative. It's just another reminder that we should operate. And in my past, I've always operated the same. You know, we want our team to stay here because they love it here, not because they're... their shackle here. So that's how we'll operate. So it's just another reminder to all of us that we have to be the best we possibly can be and be as open an organization. And I hope you don't think I'm stretching too far by saying it's another reason that focus pays off, because all we talk about, and the reason that Max spoke for quite a while today, Because all we talk about is how we take care of women and children and how we take care of our clinicians and how we build a better network. And we think people, you know, will want to come here more and more.

Great. Thanks for taking my questions.

Sure. Again, if you'd like to ask a question, it's one and then zero. We'll next go to the line of Ralph Giacobbi with Citi. Please go ahead.

Thanks. Good morning. I guess on the pricing side, you continue to note the contract admin fees, which I'm assuming is largely hospital subsidies. Does that get comped in at some point, or how do I think about how much subsidies should grow each year?

Hey, Ralph. It's Charlie. Good morning. This comes up pretty frequently, and I'll answer it in a similar fashion. When you look at that That book of revenue that we loosely term contract admin fees, it contains literally hundreds of contracts across the country, many of which are structured for different specialties, depending on their needs. Some of them might be service level driven. It could include stipends and the like for medical directorship, et cetera, and participation in the hospital's clinical leadership. And some might be outright subsidization depending on the nature of the specialty. And we often bring up the example that for an OB hospitalist practice to be stood up inside a hospital to assist and be on call for labor and delivery is typically heavily funded by the host hospital to make the P&L work and provide ability to staff those obstetricians. that has been a growing, a demand-driven growing subspecialty across the country for us. And that's, you know, a good example of where you see that revenue book continue to grow. So it's not necessarily escalators or increased subsidization of existing practices. It's also driven by business growth.

Okay. Fair enough. And then I guess, you know, you did $65.5 million in EBITDA in the quarter. Your commentary around the 240 for this year would suggest about, you know, 65 million a quarter for the back half. Just annualizing that at sort of 260. I know you talked about next year greater than 270. I guess just looking at those numbers, it sort of implies kind of a mid-single-digit EBITDA growth. I know, again, your comment was at least 270, so it depends on where you want to put that number. But anything you can frame for us in terms of, how you think even about longer-term EBITDA growth at this point?

Well, look, I think you can tell that our tone is optimistic. We think that we're marking in the right direction, and we think that that will bear fruit. We think that there are a lot of opportunities for us, and we're excited about it. We think that our organization is running more and more efficiently and really just focused on all of great organization, even greater. So, sure, we think that we think we'll be north of 240. We think we have, you know, unless, you know, COVID or something else comes up and rears its ugly head and hurts us, we should be north of 270 and our intention is to is to grow well beyond that uh we know we're not prepared to throw out a number there but uh we don't think we're we don't we don't expect to plateau at 270 and uh i hope you can tell from the the combination of the comments that that we made and uh maybe most especially if you think about all the areas where we're focused primary and urgent care, the opportunity for us to grow without leaving ever even contemplating leaving the space of women's and children's health is a big, big, big playing field out there for us.

Okay, that's helpful. If I could just squeeze in one more. In your prepared remarks, you talked about new business bookings and higher win rates. Just hoping you could flesh that out. Is that just all related to more hospital contracts coming on, what the opportunity there is, or if that was more on sort of the office-based side, just any more details around that new business booking?

Yeah, it's actually all of the above. I really must sound like a broken record, and I apologize, but it's that focus. I mean, we have leaders of the organization that when we're talking about a practice joining us, it's all hands on deck to work on that when it's approaching a hospital, or often, very flattering, not for me personally, but that hospitals approach us and say they have a need, and can you help us with this need? This is an area that we've been struggling with. We have hospitals where we've had no formal relationship that have come to us and say, we see what you've done in other places. Can you help us? And then I think we, in addition to outreach and the inbounds, we have a team that's also very skilled at taking a concept and turning it into reality, which is very important in any process, not just that a group wants to join you or a hospital wants you to do something. It's how do you get to the start of getting that program really in place. So it's a combination in our sales group of sales leaders, but also key operations leaders. And we moved a key executive from operations strictly operations to sales to make sure that we're actually getting these practices in. And when we have a hospital contract, it's enacted on time and that we're getting the bottom line that we expect, that we're recruiting the right people and they're being credentialed at the right time. So I think that's exactly why the win rate is better. And obviously, you know, versus past, we're not distracted by anything else. So, you know, all of us are involved in the effort that I just described to think about how we expand and how we make sure that we do it in a way that's clearly additive to the organization and we do it on a timely basis. So I think that's why I'm glad you asked. That's why we're proud of our win rate.

Got it. Okay. All right.

Thanks for the comment.

Thanks.

Next, we'll go to the line of Kevin Fischbeck with Bank of America. Please go ahead.

Great. Thanks. Maybe I'll actually go back to the answer you kind of gave. You mentioned, hey, you can see that our tone is optimistic. I guess I would contrast that with last quarter. You sounded like that there was a lot of uncertainty in the underlying business and fluctuations and pair mix and things like that. So I guess the tone definitely does sound a lot more strong and optimistic, I guess. What have you seen and learned in the last few months that makes you more confident?

Well, let me, that's a great question. I'll have to ask a psychologist maybe, but I would say that I was really trying to be, or I hope I always do, in last quarter and this quarter, trying to be analytical about where we are. So in the last quarter, we had just come from a period of real fluctuation following massive fluctuation in 2020. So it wasn't that I was pessimistic. I don't like to call a trend if I don't see a trend. And sometimes it's a little bit too early. So I don't like to have a good day and annualize it. I like to make sure that we see things clicking. Also, I got here a year ago, and a lot of work that's been underway both before I got here to now is really starting to bear fruit. So it's one thing to say, gee, if things settle in, we should be at a good trend. It's another thing to say, wow, things seem to be settling in, and we are on a good trend. And that's a big difference between the first and second quarter. And I don't think, looking back, I was wrong in the first quarter to be mindful that in the fourth quarter of 2020, things were awfully, awfully erratic. And so one quarter, to me, doesn't make a trend. You look at Q1, Q2... Things like R1 falling into place well, the patient access initiatives falling into place well, the team gelling, a few of us are new. You start to get a sense that things are clicking, and that's why I try to be as accurate as I can be. So I don't try to be ahead of myself or conservative, just try to see it where it is. So, you know, we could do better than 240. We could do better than 270. I try to also be careful and say, hey, we're not sure. There are a lot of variables in our business, and we don't want to hit fake anybody.

That's definitely helpful. And I guess, you know, when we think about the 240, 270, I know that, you know, Ralph just bridged it from kind of the run rate basis, but I guess You know, just from a year-over-year basis, it's about, you know, double-digit growth. Any way to just kind of roughly dive in, I'm sure it's a mix of revenue growth and margin expansion, but just kind of roughly bucket it. Is it equally split between revenue growth and margin? Is it more margin? How should we think about that bridge from this year's guidance to next year's?

Well, it's a bunch of factors to go into the 240 and the 270 and looking at a lot of the spending that we have. So I can't break it out. in more detail on the call, I think we'll report to you on the components of our earnings as we experience it. But we look at trends in various areas like any company would. It's from spending on small things to big things. It's looking at where we think we're going to grow in sales in particular regions and the pace that we think we could grow in acquisitions. So So it's all of that, and it's not saying that we think that there's a secular growth in margins in one area and a secular decline in expenses in another area. It's a compilation of things. So I think we just have to stay with that to give you our broad thinking and then obviously report to you on a gap basis every quarter.

Okay, and then last question, I guess. Um, surprise billing, we got the first piece of it. I'm not, I feel like maybe the next or one of the next pieces is going to be more informative, but any, any, uh, a bit of thoughts on surprise billing and, um, overall, and then, and in particular, you know, if there's anything you learned from the, uh, from the first part of the proposal, uh, that makes you feel better or worse about that.

Nothing makes me feel better or worse. I think I commented in the past that we believe that a patient shouldn't get a surprise bill. So we agree that that's the right thing. So we're not at all against surprise billing legislation. And we enjoy a very good relationship with our payers who know that we're vital to their members and to their networks. So we think that while there are times where we have negotiations, that's never going to come to an end. And there are times, like CVS, that we might be out of network for some period of time. We think that if you do your job well, you'll be a necessary part of networks, and there will be no reason to generate a surprise bill. So there's nothing in the legislation so far. Now, some of the implementations, some of the fine points of the legislation, we don't know yet. So there are lots of things that we're still going to learn. But yes, I would say overall, we favor doing everything that's good for the patient. And getting a whopper of a surprise is not. And we haven't been a surprise billing organization. So overall, we're fine with it. And I think we will manage our company and our relationships to make sure that it's a positive for our patients and for us.

All right. Great. Thank you.

And again, if you would like to ask a question, please press 1 and then 0. And given a moment here, no further questions in queue at this time.

All right, well, if there are no other questions, what I should have done at some point in this call is, since I'm bragging about all the things that we've done and I'm feeling good about it, is to thank everybody in our organization because it wasn't me, it's them. And I appreciate everybody's support for what we're doing and where we're going.

And ladies and gentlemen, that does conclude the conference for today. Thanks for your participation. If using AT&T Teleconference, you may now disconnect.