Nutex Health Q4 2024 Earnings Call Transcript

Quartr
Provided by Quartr
April 1, 2025

There are 10 speakers on the call.

Operator

As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Ms.

Operator

Jennifer Rodriguez, Investor Relations for New Text Health. Please begin.

Speaker 1

Good morning, everyone, and welcome to New Text Health's Fourth Quarter and Full Year twenty twenty four Earnings Call. My name is Jennifer Rodriguez, and I'm happy to serve as your moderator today. We're truly grateful for your participation and your continued interest in our company as we share the highlights of an exceptional year. Please note that this call is being recorded for future reference. Joining me this morning are some of the key leaders driving New Text Health forward: Our chairman and CEO, Doctor.

Speaker 1

Tom Bo, our chief financial officer, John Bates, our president, Doctor. Warren Hosinian, and our chief operating officer, Josh D'Italia. Together, they'll provide prepared remarks to give you a comprehensive view of our performance, strategies, and vision, after which we'll open the floor for your questions. Before I turn things over to Doctor. Voe, I'd like to take a moment to address a few important points.

Speaker 1

Today's discussion may include forward thinking statements, which reflect management's current expectations about our future performance. These statements are based on what we know today, but they're subject to risks, uncertainties, and other factors that could cause our actual results to differ from what we'll share. For a deeper dive into these forward looking statements and the factors that might influence them, I encourage you to review the press release and the Form 10 ks filed earlier this week, as well as our various SEC filings. You'll find all the details there. Additionally, we may reference non GAAP financial measures, such

Speaker 2

as

Speaker 1

adjusted EBITDA, during the call. For those interested in how these metrics reconcile to GAAP standards, please refer to the press release and the Form 10 ks where we've included that information. With those housekeeping items out of the way, it's my pleasure to hand the call over to Doctor. Tom Vo, our Founder and Chief Executive Officer. Doctor.

Speaker 1

Vo, the floor is yours.

Speaker 2

Thank you, Jennifer, and good morning to everybody, and thank you for joining us on our today's investors call. It is my pleasure to speak with you as we recap Newtek Health's fourth quarter and full year results for 2024. This has been a period of exceptional growth, operational refinement and innovation as we've worked to reshape how high quality, concierge level healthcare is delivered across the communities we serve. Our entire organization is committed to our mission of providing concierge level care to the communities that we serve with a specific emphasis on patient first values. I'm excited to walk you through the details of our achievement, the strategies propelling us forward and the challenges we're navigating, particularly with a No Surprises Act and its arbitration process where we've seen some positive developments.

Speaker 2

So let's start with our financial performance. For the full year of 2024, our total revenue reached $479,900,000 up 94% from $247,600,000 in 2023. Our adjusted EBITDA increased from $10,800,000 in 2023 to $123,700,000 in 2024, up over 1000%. Our full year of 2024 net income was $52,000,000 for 2024 compared to a loss of $46,000,000 for 2023. On the patient volume side, our total visit at our hospital increased by 17% from one hundred and 44,000 in 2023 to 168,000 in 2024.

Speaker 2

Of that 17% growth in patient volume, 6.5% was from our mature hospitals. On the debt side, even with the four new hospitals that we opened in 2024, the current portion of long term debt increased only slightly from $10,800,000 in 2023 to $14,000,000 in 2024. While the net long term debt actually decreased from $26,000,000 in 2023 to twenty two million dollars in 2024, signifying our dedication to maintaining low debt and fiscal responsibility. These figures reflect the success of our expansion strategy, the strength of our mature facilities and the tireless dedication of our entire team to achieve three key metrics. ER patient volume increase, inpatient volume growth and revenue per patient growth.

Speaker 2

Now, let's turn to a critical piece of our 2024 story, the No Surprises Act or the NSA. And the arbitration process, otherwise known as independent dispute resolution process, or IDR. The NSA, effective 01/01/2022, aimed to shield patients from surprise medical bills, a noble intent we fully support and fully adhere to. However, the flawed implementation of the NSA has hit providers like us very, very hard, especially on the revenue per patient reimbursement side. In 2022, our average insurer payments for emergency services dropped roughly 30%.

Speaker 2

The root issue is that insurers often pay below the qualifying payment amount or QPA, which was described and mandated in the NSA. The QPA is the median contracted rate insurers recognized as of January 3139 for a similar service in a similar region, adjusted manually by the Consumer Price Index. So in essence, the QPA is the amount that the insurers are required to pay providers according to the law. If the providers find that the QPA payment by the insurers is consistently lower than the national benchmarks, the NSA has a provision where the providers can appeal through a formal process of mediation, sometimes referred to as open negotiation, to resolve the disputes. However, if this non binding open negotiation still doesn't work, then the next step would be to escalate to arbitration or the IDR process to resolve the differences.

Speaker 2

And while we've been participating in the open negotiation process since 2022, we have only started the arbitration process on roughly around 07/01/2024. The main reason that we pivoted from primarily using open negotiation, which is non binding, and continuing and moving on toward arbitration, which is binding, in most cases was because of the low success rate of open negotiations, where we only achieved a roughly 10% increase in collections from the original low payment amount. Once the previous administrations made arbitration process more streamlined, more efficient and more cost effective, beginning in late twenty twenty three and early twenty twenty four, we took advantage of this tool to leverage our positions with our insurers. However, compared to open negotiations, there are significant disadvantages to arbitration process. It's very costly, very labor intensive and takes a long time to collect from the insurance companies.

Speaker 2

It also has a lot of upfront costs like Medicare administrative fees and arbitrator fees. To further add to the risk, the loser of this arbitration process bears the IDR arbitration fee cost. So entering into arbitration process is not a decision that we take lightly at all whatsoever. However, if this results in a fair payment that is close to the QPA payment that the insurers are required to pay by law, then of course we will proceed and use any tools necessary. Since we have implemented the arbitration process, the results have been positive.

Speaker 2

As I mentioned earlier, while our volume our patient volume increased by about 30% in 2024 compared to 2023, our revenue increased by about 94%. And some of this as a result some of this was a result of higher patient volume and acuity to our facility, but a lot of it also was directly from our arbitration initiative. Since 2024, we have submitted roughly between 60% to 70% of our billable visits to the IDR or arbitration portal. Of these claims submitted, we have achieved a roughly 80% win rate. Of these over 80% plus arbitration wins, once again which are binding, we expect the insurers to pay 60% to 70% in the first sixty days and the rest later.

Speaker 2

In terms of revenue per visit increase from the IDR process, we typically find a 150 to 250% increase in reimbursement on the facility collection side compared to the initial payment. And once again, this is all consistent with the public data and consistent with the data that are published by other providers that are also doing arbitration like we are. Once again, the goal of arbitration really is just to get to the QPA payment level as outlined in the No Surprises Act. And so far, arbitration seems to be working as it was designed to do. Today, our network spans 24 hospitals across 11 states.

Speaker 2

In 2024, we hit our target of four new hospitals opening in Green Bay, Wisconsin Post Falls, Idaho Milwaukee, Wisconsin and our very first hospital in Florida in Tampa. We are already working on new hospital pipelines for 2025, '20 '20 '6, '20 '20 '7 and 2028. Each new facility is designed to deliver concierge level care, eliminating emergency room wait times, easing patient stress and providing inpatient and outpatient services tailored to local needs. Communities and doctors across the country still reach out to us weekly to open new hospitals in their areas. We target high demand growth markets, ensuring every new site aligns with our mission to serve where we're needed the most.

Speaker 2

Meanwhile, our mature hospitals are continuing to grow, expanding their offerings to meet evolving demand. On the corporate side, we are laser focused on increasing hospital volume systems wide, increasing inpatient admissions to our hospitals, increasing our revenue per patient by implementing efficient revenue cycle processes such as arbitration and mediation and maintain low cost as well as aggressive debt management and debt payback. And for those that have been in the healthcare industry for some time, you will know that every five to seven years, there's a major disruption to our industry. That disruption for us came in 2022 with the No Surprises Act. The great news is that we were able to pivot and adapt to the current environment.

Speaker 2

Our company is designed to operate and continually be adaptable, flexible and resilient to adjust to any future geopolitical, legislative or financial challenges, just as we have done for the past fourteen years. So we are very excited about the future of Newtek as we begin 2025. So with that, I'll pass to John Bates, our CFO, to dive further into the financials. John?

Speaker 3

Hey, thanks, Tom, and good morning, everyone. I'm very excited to break down the financials for Newtek's Health fourth quarter and full year 2024, a year where we didn't just grow, but we have begun delivering transformative financial performance. Tom has given you the big picture, and I'm going to zoom in on some more detail, beginning with the fourth quarter of twenty twenty four and their results, and then talking a little bit more about the full year of 2024. There is a lot to unpack. So let's start with the fourth quarter ended 12/31/2024, and compare those results to the same period in 2023.

Speaker 3

So for the fourth quarter of 'twenty four, our total revenue grew 270% or $187,900,000 to 257,600,000.0 versus $69,700,000 for the fourth quarter of twenty twenty three. Of this increase, the arbitration process resulted in $169,700,000 more in revenue in the fourth quarter compared to the same period in 2023, which amounted to approximately 90.3% of the $187,900,000 increase in overall revenue. So, of the $169,700,000 arbitration revenue, dollars 68,900,000.0 related to dates of service for the fourth quarter of 'twenty four, dollars '70 point '5 million related to dates of service for the third quarter of twenty twenty four, and $30,300,000 related to dates of service or periods prior to the third quarter of twenty twenty four. So of that total revenue increase, mature hospitals, which are hospitals that are open prior to December thirty one of twenty twenty one, and therefore they provided two full years of comparative results, they increased their revenue by 175.6% for the fourth quarter 'twenty four versus the fourth quarter 'twenty three. For hospital division visits, we saw growth as well during the quarter, as they increased by 9.8%, or 4,063 visits, to 45,444 visits in the fourth quarter of 'twenty four versus 41,381 visits in the same period in 2023, with the mature hospitals growing at 3.1% in the fourth quarter 'twenty four versus the fourth quarter of 'twenty three.

Speaker 3

Additionally, the population health division revenue increased by just under $1,000,000 or roughly about 11%, to $7,900,000 in the fourth quarter of 'twenty four from $7,100,000 in a similar period in 'twenty three. Now, we discussed the growth in the hospital revenue and visits that we've seen in the fourth quarter of 'twenty four. Now, let's discuss the overall facility and corporate costs and the improvement in those areas. So total facility level operating costs and expenses increased $59,500,000 during the period, but only represented about 45% or $116,000,000 of total revenue for the fourth quarter of 'twenty four versus 81.1% or about $56,500,000 for the same period in 'twenty three. So of the $59,500,000 increase, 57,600,000.0 related to arbitration costs for the additional arbitration revenue booked during the period, with costs of approximately $24,000,000 related to the dates of service in the fourth quarter of twenty twenty four, another $24,000,000 related to the dates of service for the third quarter of twenty twenty four, and then just about $9,000,000 related to dates of service prior to the third quarter of twenty twenty four.

Speaker 3

As a result of the revenue and facility cost improvement, our twenty twenty four fourth quarter gross profit was $141,600,000 or 55% of total revenue as compared to $13,200,000 or just 18.9% of total revenue in 'twenty three, which is a whopping 973% improvement in the fourth quarter of 'twenty four over 'twenty three. From a corporate and other cost perspective, the general and administrative expenses as a percentage of total revenue for the fourth quarter of 'twenty four decreased to 4.9% compared to 12.2% for the fourth quarter of 'twenty three. When you look at operating income, which as you can see, a negative impact of $14,700,000 of a non cash stock based compensation expense, for the fourth quarter that operating income was $114,200,000 compared to an operating loss of $26,000,000 in the fourth quarter of 'twenty three, representing $140,000,000 improvement quarter over quarter. So net income attributable to Newtek Health was $61,700,000 for the fourth quarter of 'twenty four, again, including that negative impact from the stock comp expense. And the comparative net loss attributable to Newtek's was $31,600,000 for the fourth quarter of 'twenty three, showing a $93,300,000 improvement fourth quarter 'twenty four over the same period in 'twenty three.

Speaker 3

And route referencing adjusted EBITDA attributable to Newtek's, it did increase 90,500,000.0 from 3.1 in the fourth quarter of twenty three to 93,600,000.0 in the fourth quarter of twenty four. Now onto the twelve months ended December of twenty four compared to the twelve months ended December thirty first of twenty twenty three. Total revenue for the full year of 'twenty four grew by 93.8% or $232,000,000 to $479,900,000 versus $247,600,000 for the full year of 'twenty three. As mentioned previously, the arbitration process resulted in the $169,700,000 more in revenue in '24 versus '23, which amounted to approximately 73.1% of the $232,000,000 of revenue increase. And as mentioned before, of the $169,700,000 arbitration revenue, dollars 68,900,000.0 related to dates of service in the fourth quarter, just over $70,000,000 related to dates of service for the third quarter, and just over $30,000,000 related to dates of service for periods prior to the third quarter of twenty twenty four.

Speaker 3

So, of the total revenue increase, mature hospitals increased their revenue by 56.6% for the year of 'twenty four versus the same period in 2023. Talking about visits, visits increased, as Tom mentioned earlier, by roughly 17% or 24,330 visits, up to 168,388 visits in 'twenty four versus 144,058 visits in the same period in 'twenty three, with mature hospital visits growing at 6.5% in 2024 versus the same period in 'twenty three. Additionally, on the population health side, it grew by 4.4% to 30,900,000 in the first twelve months of 'twenty four from 29,600,000 in the same period in 2023. So, in addition to the revenue and visit growth noted above, facility and corporate costs also showed improvement for the twelve months of 'twenty four relative to 'twenty three. Total facility level operating costs and expenses increased $70,800,000 during the period, but only represented about 59% or $283,000,000 of total revenue for the twelve months ended December of 'twenty four versus 86% or $212,000,000 for the same period in 2023, a decrease of 26.9%.

Speaker 3

So of that 70,800,000.0 for the period, as mentioned previously, 57,600,000.0 related to arbitration costs for the additional arbitration revenue booked during the period with costs of approximately $24,000,000 related to the dates of service for the fourth quarter, dollars '20 '4 million related to dates of service for the third quarter, and then roughly $9,000,000 related to dates of service for the third quarter or prior. So the gross profit for the twelve months for the full year of 2024 was $196,300,000 or just under 41% of total revenue as compared to $34,800,000 or 14% of total revenue in the same period in 'twenty three. A very large $4.64 percent increase for the twelve months into 'twenty four for the same period in 'twenty three. From a corporate and other costs perspective, the G and A expenses as a percentage of total revenue for the twelve months of 'twenty four decreased 8.7% or 41,900,000 from 13.4% or $33,200,000 for the same period in 'twenty three. Operating income for the twelve months ended December of 'twenty four was a positive $130,600,000 compared to an operating loss of just under $32,000,000 for the twelve months ended 2023.

Speaker 3

Net income attributable to Newtek's was $52,200,000 for 2024 compared to that loss of $45,800,000 for '23, which was a $98,000,000 positive increase. Adjusted EBITDA attributable to Newtek increased $112,000,000 or just over 1000% from $10,800,000 in the first twelve months of twenty three to 123,700,000.0 in the first twelve months of 'twenty four. Now, as Tom stated previously, we started the independent dispute resolution arbitration process in July of 'twenty four. As part of the arbitration process, we first went through the required thirty business day open negotiation process for each claim that we believe we were paid less than the qualified payment amount on. And that QPA is defined as the median of the contracted rates the insurance plans recognize for similar services, or same or similar services, services provided by a provider in the same or similar specialty, and then services provided in the same geographic area as the service at issue.

Speaker 3

All of this, of course, is inflation adjusted. So if we're unsuccessful in open negotiations and still believe we were being paid below the QPA, then we entered into the arbitration process. And with the entire process, from entering open negotiations, to getting a win in arbitration, to actually getting paid by the payer, taking on average at least three to five months, we did not begin to see the wins and ultimate payments from the payers from this effort until the early part of the fourth quarter of 'twenty four. So as we finished out the year and the whole close process, we used our most recent results from the arbitration process to accrue revenue for all visits that have begun the open negotiations process at the end of the year. And as communicated previously, we have been submitting claims on the arbitration process for approximately 60% to 70% of our billable visits, and achieving over an 80% win rate, and that's factoring in a 70% collection rate on each win.

Speaker 3

And we continue to refine our process each period based upon the most recent detail that we have. And finally, I'll talk about our balance sheet a little bit. It remains very strong with cash and cash equivalents at December at just under $44,000,000 up from just under 22,000,000 from 2023, a 98.2% increase. The other sizable increase at the end of the year is the accounts receivable balance, which was at $232,000,000 compared to $58,600,000 at the end of 'twenty three. And as discussed previously, the major increase for that relates to the arbitration process that we began back in July of twenty twenty four.

Speaker 3

Regarding cash flow, net cash from operating activities increased to $21,900,000 for the twelve months ended December of 'twenty four, all the way to $23,200,000 as compared to just over $1,000,000 for the same period in 2023. On the liability side, our total bank and equipment debt decreased by $1,000,000 to $41,400,000 down from $42,400,000 in December of 'twenty three. And again, with the majority of that debt relating to equipment loans at our hospitals for such things as MRIs, x rays, ultrasounds, CT machines, etcetera. So outside of this normal $40 plus million of bank debt type items, the only other items of material that look like debt on the balance sheet are liabilities related to financing and operating lease liabilities. And we talked about this a little bit in the third quarter, I wanted to reemphasize again.

Speaker 3

And so those liabilities are really just future lease payments due to our landlords on our hospital facilities. They reflect on the balance sheet because the accounting rules require us to aggregate all these lease payments that we pay to a landlord for the entirety of its lease, which might be fifteen to twenty years of payments, and then present value that back for each to the inception of that lease and record both a right of use asset and correspondingly a right of use liability on the balance sheet. As a result, on our balance sheet at December thirty one of twenty twenty four, the net asset balance for the operating and financing of right of use assets amounted to $247,000,000 which is roughly 38% of total assets. And the net liability balance for the operating and financing right of use liabilities amounted to just under $300,000,000 which is 66% of total liabilities. Now, investors and analysts don't view these right of use liabilities as real operating debt.

Speaker 3

So I just wanted to clarify that for everybody. With all that said, our balance sheet remains very solid and we have provided our company great flexibility that should allow us to execute on all of our growth plan in 2025 and beyond. Now on to Warren Zanian, our President for Population Health Update. Warren.

Speaker 4

Thank you, John, and good morning, everyone. It's great to be with you today to discuss how Newtek's Health is advancing population health management, a cornerstone of our mission to deliver sustainable, impactful healthcare. In 2024, we make strides in this area and I'm excited to share the progress, the strategies driving it, and our plans to keep pushing forward. This isn't just about numbers or operations, it's about improving patient care, reducing disparities and creating a healthcare model that works for everyone, patients, providers and communities alike. Let's start with where we are today.

Speaker 4

Our population health division currently manages over 40,000 patients across our platform. That's a broad reach and it's growing because of the trust we've built through our Independent Physician Associations or IPAs. Revenue for the division hit $30,900,000 in 2024, up slightly from 29,600,000.0 in 2023. That growth might seem modest, but it's intentional. We divested two smaller entities that were unprofitable in 2024 to sharpen our focus on core operations, ensuring every dollar and effort aligns with our long term vision.

Speaker 4

Our strategy revolves around building physician networks, both primary care physicians and specialists around our hospitals. Building strong partnerships with local doctors is critical. These relationships create a web of care that's seamless for patients, whether they're seeing a specialist, getting diagnostics or managing a chronic illness, it's all coordinated and connected. Our vision is that our hospitals and ITAs working hand in hand amplify our reach and effectiveness. We're not just adding doctors, we're fostering collaboration, sharing best practices and ensuring every provider is aligned with our patient first culture.

Speaker 4

We're growing our IPA strategically focusing on areas near our hospitals to leverage existing relationships and infrastructure. In 2024, we laid the groundwork for new IPAs in Phoenix, Arizona and Dallas, Texas with one or two more markets in the pipeline. Why Phoenix and Dallas? They are growing regions with healthcare gaps we can fill and our hospital presence there gives us a head start. This isn't random expansion.

Speaker 4

It's deliberate building on our strengths to maximize impact. By 2026, these new IPs will broaden our patient base and deepen our influence on local healthcare delivery. Coordinating large physician networks takes effort, aligning incentives, standardizing care and managing data across systems. There's a lot of competition and we're up against bigger players in some markets. But our edge is our integration, hospitals and IPAs feeding each other.

Speaker 4

Our 2024 progress, 40,000 members and 30,900,000.0 in revenue shows we're not just talking the talk. In 2026, we plan to scale this, refine it and keep proving that population health management continues to be a vital service for us. With that, I'll turn it over to Josh D'Italia, our chief operating officer to dive into our operations. Josh?

Speaker 5

Thanks, Warren. As Tom and John mentioned on volume, overall Q4 hospital visits were 45,444, up nine point eight percent from last year. For the whole year of 2024, total patient visits were 168,388 versus 144,058 in 2023, an increase of 16.9%. We've been very intentional about growth in 2024 with our hospital leadership and business development teams, and have added a lot of specialists at our hospitals to take care of more acute patients. The volume numbers also include a shift in service mix and acuity to more observation patients and inpatients.

Speaker 5

This service shift just isn't about volume, it's about meeting the community and patient demand to stay at our hospital instead of being transferred when appropriate. Keeping patients under observation helps avoid unnecessary admissions, and admitting them when they meet criteria helps foster a great continuum of care. Cost management continues to be a very good story for us at New Tex. Inflation has hit labor and supplies hard across the healthcare industry. We have worked very hard to stay lean this year.

Speaker 5

We don't struggle with the staffing challenges and turnover that large hospitals do. Our employees love working with us. We have a great culture, a better pace, and are totally focused on our patients and their experience. It's about delivering excellent care without burning out and exhausting our teams, and our model works extremely well. In terms of supply chain savings, as stated previously, we continue to be on target for 2025 with the GPO realignment we completed back in Q3 of twenty twenty four.

Speaker 5

We continue to work on corporate contracts for services with corporate discounts, and we'll keep at it in 2025. We held costs essentially flat, except for the arbitration expenses on higher volume throughout 2024, while also opening four new hospitals. In 2024, we also incorporated several new software packages, including HR and procurement software. For 2025, we want to expand our technology with more software and AI to save costs and provider and back office time. Some of the new AI tools are showing increased promise, and our better cash flow position will allow us to pilot some of these AI agents.

Speaker 5

The latest AI for healthcare promises faster check ins, predictive staffing, note writing for doctors and nurses, which can free them up to see more patients, optimize coding, and personalized treatment and care plans. It can also predict supply usage and optimize schedules, freeing resources for patient care and providing further cost savings. We believe we're just in the early stages of AI in healthcare and hospitals, but we believe this transition will happen fast and we want to be an early adopter. Lastly, one of our big competitive advantages and differentiators besides our concierge care model model is that we are deeply integrated into our communities and markets. In 2024, we ramped up outreach and business development, including more health fairs, school and clinic collaborations, community events, and patient education.

Speaker 5

This visibility builds trust and relationships. When patients have an emergency in their family, they pick us because they know and trust that we'll take excellent care of them. We also get a lot of repeat visits. We have great doctors, leaders, and employees who are some of the best in healthcare. As you know, healthcare is all about people, and we believe we have the very best people, which is why our model and service continue to shape the future of healthcare.

Speaker 5

Thank you. Back to you, Jen.

Speaker 1

Thank you, Josh and team, for those updates. I will now turn it over to our operator, Melissa, who will begin the Q and A portion of the call.

Operator

Thank you. If you'd like to ask a question, please press star, one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2, if you'd like to remove your question from the queue. For participants using speaker Our first question comes from the line of Bill Sutherland with The Benchmark Company.

Operator

Please proceed with your question.

Speaker 6

Thank you and good morning everybody. Great, great work and the year just ended. So I think on top of everyone's minds is trying to think about your prospectively about your arbitration process and just trying to get a handle on kind of what's a realistic way to think about what you can realize in the coming quarters.

Speaker 2

Yeah, hi Bill, this is Tom. Great for you to join us, and thank you. So our philosophy on arbitration and John, feel free to chime in. But our philosophy on arbitration is that it is a tool that we can use from the NSA, and the tool allows for us to collect a fair rate. And really that is the main reason why we use it.

Speaker 2

And a fair rate is, as John stated, is defined as the QPA or essentially median in network. And really all we want to do is just get to a median in network which is basically the right in the middle of where we should get paid. And that's basically it. And so as long as the No Surprises Act is still in effect, as long as arbitration is within the rules and confines of the NSA, we will continue to use it. And hopefully long term, the insurance company will start paying us better and closer to the QPA or the median annual work rate so that we don't have to do arbitration.

Speaker 2

But it's, that's a something that we're going to have to watch very closely month by month, quarter by quarter. John, do you have anything else

Speaker 3

And Bill, great question. What I would say is, and we've talked about this when we were finishing up, say, the third quarter, were early, early stage in this process, not knowing exactly where it would land. And as we started to see some of these benefits happen and come through in the latter part of the fourth quarter, we're getting a better picture, at least what's happening currently. But I'll still say this is very much in the early stages of this process. If you think about it, when it takes three to five months or more to get paid on something, you have to go through a pretty long process to get there.

Speaker 3

So we're watching and identifying and trying to determine what the realization will be. And I feel like certainly, as we finished out the year and the financials you're seeing, we feel pretty confident in what we have in there. But as things progress, just like our business prior to even getting into the arbitration business, we were always watching and seeing or estimating what we're ultimately going get paid. And then when cash came in, we would adjust accordingly. And I think our ability to predict was very, very good in previous years because we did have a lot more history.

Speaker 3

And so now we're getting some history. And I think now we finished out the year and rolling into the first quarter, I think we'll have even more data as we go through each quarter this year. So we hope that it will the trend that we have would continue, but there's no guarantee of that. But the good news is that we feel solid about where we're at the end of the year and we're very bullish on making sure that we're getting paid what would be the qualified payment amount. And we're watching to see if that will happen.

Speaker 3

But great question.

Speaker 6

So John, just to clarify a little bit more, The file size if you will that you have in arbitration is did was there like a catch up process that occurred or is this or we should think of it more just an ongoing process? I know you can't talk to whatever success rates will be. But just in terms of the claims that you're going to be moving into arbitration, is it going to be at a similar pace on a go forward basis, assuming they don't step up and start negotiating more fairly?

Speaker 3

Yeah, that's that's a loaded question, a great question. And I think we'll better understand that in these next couple of months as well. But we still take the same approach on as we look at visits, visit by visit. If we don't believe that we're getting paid equitably, then we're working through the process and going through what we described as being the arbitration process in those cases. And as we mentioned back, even in the end of the third quarter and in the press release that we did a month or two ago, that 60% to 70% of the billable business that we have seems to be in line with what we're consistently so far seeing that can go into this process.

Speaker 3

So that piece for now is pretty consistent as it changes, we would certainly let you know. But I think that's all that's one of the independent variables, right? Then you also have how many visits come in, in general that drive up or down and then different acuities, etcetera, that come into play. So the answer is we see it being somewhat consistent at this point and we'll adjust as necessary.

Speaker 6

Okay, that's good. I'll pass it along. Thanks a lot, guys.

Speaker 2

Thank you, Bill.

Operator

Thank you. Our next question comes from the line of Carl Byrnes with Northland Capital Markets. Please proceed with your question.

Speaker 7

Thanks for the question, and congratulations on the quarter and the year.

Speaker 4

I'm wondering if you can maybe help

Speaker 7

me out a little bit with the hospital division and how you're currently recognizing revenue at the time of service. And then are you subsequently adjusting it after the IDR adjudication process is finalized? And then

Speaker 6

I have a follow-up as well. Thanks. Sure.

Speaker 2

Okay. Thank you, Carl.

Speaker 3

Great question.

Speaker 2

Yeah, John, go ahead. Yeah.

Speaker 3

Great question, Carl. So we absolutely, as we see visits, every visit that comes in, just like we did even pre arbitration, we would go back and analyze that specific visit and look back at similarities to that visit with adjudicated claims in previous periods and see what average reimbursement would be based on the acuity, the payer and the location. And so we're continuing that exact same process, even adding this kind of new twist to it with the arbitration piece. And so we're doing our best to exactly what will be realizable down the road today with a visit that walks in the door based on its similarities to a similar claim in the past and how it ultimately would get realized. So as that continues to prove itself out and that continues to feed sort of the engine and the model, and so it will adjust up or down based on the realization that happens, just takes a little bit of time for that to prove itself out.

Speaker 3

But so through the end of the year, to answer your question, Karl, so that process was in place and to the best of our data that we had at that point, which is all the information on the wins, losses, etcetera, through the December, we were able to go back and say, okay, for every visit that might not necessarily have gotten through the arbitration process if it was going there, but yet we believe it will go there or maybe it's in one stage of that process. We used our most recent data by location, as I mentioned, by acuity, by payer, and then tried to do our best estimate exactly what we believe will happen when the ultimate realization of that receivable happens, whether it's a month, two months or three months down the road.

Speaker 7

Got it. That's very helpful. And then just sort of on that line, just as a follow-up, you had adjusted EBITDA in the fourth quarter, let's just call it $94,000,000 I think it was 93,700,000.0 and for the year, it was 123,700,000.0 So it was very loaded in the fourth quarter. How much of that would be attributable to IDR adjudication awards or to kind of phrase it differently, how might we look at what would a normalized adjusted EBITDA number potentially be or look like? Thanks.

Speaker 3

Yes. So I know we described and I talked about it in my prepared comments, talking to you a little bit about how the revenue side of things played out. And I would say that our best scenario or best situation right now that we would anticipate that it would follow a similar trajectory. So you have even of that arbitration revenue that we recorded in the fourth quarter, and I provided how from a data service perspective it related back to third quarter. Most of it was third and fourth quarter and there was some that was prior to that period.

Speaker 3

So I think on a similar percentage basis, would if I were projecting, which I'm not yet, but that would be where I would see it. I don't have any other data that tells me differently. But I think based on that trending, that would be where you would see the adjusted EBITDA, whether it's for the year of next year or whether it's quarter by quarter.

Speaker 7

Got it. Thanks. I'll jump back in the queue.

Speaker 3

Thanks, Carl.

Operator

Our next question comes from the line of Anthony Vendetti with Maxim Group. Please proceed with your question.

Speaker 8

Thank you. Just a couple of questions. Just one more on the IDR and then a couple on the hospitals. So this independent dispute resolution, this amount was all accounted for here in the fourth quarter. Do you expect it to be as you roll through this process in 2025, do you expect it to be spread more over the quarters?

Speaker 8

Or is likely that you do this kind of calculation at the end of the year when you do the full year audit and it's likely to be a fourth quarter event again?

Speaker 3

Anthony, great question. And it it's not a back loaded scenario. Of course, is in 2024 only based on the data that we had and the timing that we were able to work through it. So now as we get better and get more data, so now we're working that into the models every single month. So our intent is we're doing that every single month, first quarter, second quarter, third quarter.

Speaker 3

So it's not going to be necessarily at all in a backloading scenario in '20 It will be progressively updated throughout the year based on data that we have just like we had really started to accumulate at the end of the fourth quarter.

Speaker 8

Great. No, that's helpful. Yes, thanks, John. And then just on the hospital, so you opened four in 2024. Can you talk about how that is ramping up?

Speaker 8

I know some of them are they haven't hit the mature date in terms of gauging that, but can you talk about how patient volume is ramping in those hospitals? Is it fairly evenly? Is one hospital doing much better than the others? Can you talk about how that's playing out so far?

Speaker 2

Yes. Hi, Anthony. This is Tom. So yes, absolutely. So the four hospitals that we opened up were in Green Bay, Wisconsin Milwaukee, Wisconsin Tampa, Florida and Post Falls, And as you know, medicine's local.

Speaker 2

Every facility is slightly different, but I would say that two of those hospitals are performing up to par and even better than expected. And then the other two are a little bit newer, like for example, Tampa opened late December. So we don't have a lot of data on that yet. But I would say half of them are performing better than expected and the other two are performing as expected.

Speaker 8

Okay, great. And then, can you provide a little more color at this point on the planned openings in 2025? As we roll through this year, what's the schedule look like for the planned 2025 openings?

Speaker 2

Yes. So we have three hospitals that are currently under development and they're under construction as we speak. And all three of them are scheduled to be open either third quarter or fourth quarter of this year, assuming that construction and everything else goes well. Okay, great. And then 2026, we have probably four more after that.

Speaker 2

And then '27, I think we have a couple more and then we're already working on hospital pipelines for 2028.

Speaker 8

Okay, excellent. And then just in terms of the mature hospitals in your portfolio, I know it's hard to gauge, but what is your expectation based on trends you're seeing for growth? Is it mid single digits? Do you think you can outperform that? Because I know the larger hospitals, they're lucky to get low single digits, depending on what they're doing or if they're changing specialty, sometimes they can increase that.

Speaker 8

But what are you seeing and what's your expectations for your mature hospitals?

Speaker 2

Yes. So great question. And I'll answer and then Josh maybe could chime in also. So we're shooting for also single digits in our ER volume growth year over year, which I think is doable and achievable. However, on top of that, we're not just trying to get single digit ER volume.

Speaker 2

We're also growing our other service lines. So for example, we're actually ramping up our specialists. We're ramping up our hospital list so that we could admit more patients to our hospitals. So the idea of using all four walls of the hospital in order to bring as much patients through the then after that do as much observation as we can and increase inpatient as much as we can. And the only way to do that is to increase staffing and expertise so that you could treat more people and more variety of illnesses.

Speaker 2

Josh, do you have anything else to add to that?

Speaker 5

No, Tom. That was very well said. Increasing mature hospitals ER visits, but then also the service mix is changing as well. So we're expecting a great year.

Speaker 8

And then Sure.

Speaker 7

Go ahead, Tom.

Speaker 2

I'm sorry. I was going to say one more thing that is very unique to us is that since we're small, we're able to pivot to a lot of different needs. And so what we do is we find what the community needs and we try to pivot to solve that need. And so that's the beauty of having a hospital that has pretty much all the functions of a regular hospital. So I just want to say that.

Speaker 2

And so every market is slightly different. And so we're sort of like tailor the need of that market for our hospital.

Speaker 8

Okay. And Tom, you touched on an important point, right, which is, for hospitals hiring not just ER physicians but hospitalists or intensivists that can continue to see the patients and continue to treat the patients once they are in your setting. Are particular specialists hard to come by? And do you have an executive recruiter or someone that helps to staff your hospitals?

Speaker 2

The answer is yes and no. So by that what I mean is, you know, going back to the medicine is local kind of concept, a lot of the time the specialists actually come to us because they are somehow either dissatisfied with hospital or they don't want to admit their patients to the local hospitals. And so they admit their patients to us, and we take care of them. Right? So that's one.

Speaker 2

And then in terms of using a recruiter of some type, we do have an in house recruiting team. However, the best way that we get specialists are through personal relationship with our local physicians. And so our local physicians are all sort of like superstars of the communities that they live in. So they tend to know pretty much everybody in terms of the healthcare dynamics. And so through those relationships, we get a lot of specialists that want to send their patients to our hospital.

Speaker 8

That's great. And then just lastly, I'm going to switch back for the last question to the IDR. So you've been in your commentary, said you've been submitting about 60% to 70% of your claims to the IDR process and your win rate is about 80%. As you've demonstrated to these insurance companies that you're willing to, A, go through this process and your win rate has been so high, have the insurance companies come back and said, okay, you know what, going forward, we're going to start reimbursing, so we don't have to go through this process? Or are you expecting in 2025 for it to be similar in that you're still expecting to submit about 60% or 70% of your claims to the IDR process?

Speaker 2

Yes. I think the answer is that if the insurance company pay better upfront and pay close to the QPA or the median in network, then, we don't have to submit anything to the arbitration process and and and by the way, the arbitration process was designed as sort of like the last ditch effort. So, so that the providers like us could use it to get a fair payment. It wasn't designed to be the first form of payment, if that makes sense. But unfortunately, because of the way that this whole thing came about with a low payment upfront, we have to use it as a last ditch effort.

Speaker 2

But if the insurance company starts to pay better at the first time or in the beginning, we wouldn't have to go through it. And so I think that in time and we'll see how this whole process works. I think in time the insurance company will come around and start to pay a little bit better because if they lose 80% of the time, then that means that the expenses associated with the arbitrator is also borne by the insurance company or by the loser, unfortunately. So I think that may be an incentive for them to come around. But we'll see.

Speaker 2

I mean, I think that this is very new, like John said, and there's a lot of things that is uncertain at this point.

Speaker 8

Understood. Hey, that was great color. Thanks so much for all the information. Appreciate it. And I'll hop back in the queue.

Speaker 2

Thank you, Anthony.

Operator

Thank you. Our next question comes from the line of Gene Mannheimer with Freedom Capital Markets.

Speaker 9

Yeah, you're welcome. Following up on Anthony's line of questioning, it sounds like then, Tom, you're gonna collect the money one way or the other, Either through dispute or through a blanket increase in reimbursement. So we shouldn't be viewing the dispute process as a extraordinary or a one time event, but it'll be in course of business going forward.

Speaker 2

Yeah, that's right. So the way to think about this is that, and you know, think John spoke about this is that the increase in the revenue for the fourth quarter was actually spanned over the third and fourth quarter when we started doing the arbitration. And so and I'm just going to put in a very layman's term is that we can report it in the third quarter because the arbitration process was not completed yet. And so we didn't know how much we were going to win. So the 80% win, that was all of that was in the fourth quarter.

Speaker 2

And so once we saw that, then John obviously reported that in the fourth quarter, right? So and so and so the other way to think about is that that revenue that is revenue that we should have gotten from day one had the insurance company pay a fair rate. And so that revenue in our opinion should be the QPA. Because we went through a very expensive formal binding process where you have two sides or like arguing using, you know, the letter of the law according to the NSA. So we feel confident that final payment is probably as close to the QPA as we think it should be, right?

Speaker 2

So going forward, to John's point, we are still going to continue to evaluate each patient and determine whether or not the payment is we think it's fair according to market value. And if it is fair, then we accept it. If it is not fair, then we run it through the queue, first starting with open negotiation. And then if that doesn't work, then putting them through the arbitration. But once again, as I mentioned, arbitration is not cheap.

Speaker 2

It's not free. It's very expensive, time consuming, lots of stress on our team to do it. But unfortunately, if we have to do it, we're gonna have to do it.

Speaker 9

Yep, yep, no, that all makes sense, Tom. So I mean, John pointed out, you recognized 70,000,000 or 69,000,000 from dates of service in Q4, Q4, '70 million in Q3. So is that kind of the ballpark number to think about going forward? Or there be a lot of variation around that number?

Speaker 2

John, you want to tackle this?

Speaker 8

I can speak to that.

Speaker 3

I mean, you know as well as I do that there's always going to be variation in this in as early stage as it is. We do not know what is how it will translate into first or second quarter and beyond, it's starting to show a trend. That's what I would say. And we're trying to look at it and certainly we're doing the calcs, the behind the scenes to come up with what the estimate should be now month by month by month as we really were able to kind of go through the process at the end of the year based on all of the data we had at that point. Well, now we have data in January and February and we'll have something in March or shortly.

Speaker 3

So all of that will start to prove this out. But I mean, the trend that we saw, as I described, the dates of service that those wins did relate to is starting to show kind of a trend. Whether that will be up or down going forward. I can't commit to that, of course, but I think it's starting to give us a pattern of what we should expect.

Speaker 9

Okay. No, that's fair, John. And just two more from me. So there was 30,000,000 of dispute related revenue for dates of service prior to Q3. How far back does that go?

Speaker 3

Most of that is Q2. But there are just to remind everybody, the process started in July, but you can't go into the open negotiations arbitration process until you get the first payment from the insurance provider or payer. In this case, so you have some that were of course second quarter as well. You even have a couple that were even in the early part of last year, one or two are very small piece that might have even been 2023 because it takes sometimes three, four, five months on some of these claims to get that first payment and you can't start the process until then. But predominantly third and fourth quarter, then you have a little trickle into the second quarter, much past that.

Speaker 3

It's pretty small into the first quarter of last year and even in prior to that. It's predominantly third and fourth quarter.

Speaker 9

Got it. Thank you. And lastly, these claims that you're disputing, do they tend to be specific to certain payers or are they across the board?

Speaker 3

Yeah, great question. There's not a specific payer, it's pretty across the board. And it's not, we're really payer agnostic from that respect. It's more about what we believe to be equitable QPA type payment. And then just so happens if it happens to be one payer in one location or another, it honestly does not matter.

Speaker 3

We're seeing it sort of across the board. There are some that pay a little bit better and a little bit more upfront, but generally it's more of a pervasive situation than it is specific to one payer in one location. Very good.

Speaker 9

All right. Thanks and congrats again.

Speaker 3

Thank you.

Operator

Thank you. Our next question is a follow-up from the line of Karl Burns with Northland Capital Markets. Please proceed with your question.

Speaker 7

Thanks for the follow-up. You've obviously had you're experiencing great success with increasing revenue on a per visit basis, driven by acuity and specialists and hospitals and such. I'm wondering if you might be able to kind of quantify that in terms of a percent in year over year increase on a normalized basis. Thanks.

Speaker 3

Let me make sure I understand your question. Step back in if you don't mind. So you're talking about year over year basis, are we talking about the arbitration component relative to the non arbitration component? What is your question again?

Speaker 5

No. I'm wondering if you're able to

Speaker 7

look at the revenue per visit on a normalized basis and quantify that at all in terms of what you've been able to achieve in terms of increased acuity that would drive revenue per visit? Forgetting about it, I'm just trying to look at it on a normalized basis because that's one of your initiatives is to drive acuity and various procedures that are high dollar value.

Speaker 3

Okay. Well, I don't know that I can speak specifically to a number that it's going to be as you move forward. But you can see within the financials as presented kind of that progression of you're asking about revenue per visit. So I know it's a little back loaded into the fourth quarter, but if you look at it compared to say '23, our revenue per visit, I think if you saw in the K that we filed at the end of last year was over $1,500 just maybe $1,500 15 14 dollars a visit. And then if you go forward into, say, for the full year of 2024 under this scenario, it's a little under, it's around $2,600 or so.

Speaker 3

And I think you have still a muddied picture of what you're looking at when it comes in there. So I think as you look forward, it's going to be somewhere in between those numbers is how we look at it at this point. We don't know exactly where that will be, but it's somewhere between where you would see for the full year 2024 and full year of twenty twenty three with of course arbitration starting mid year of '20 '20 '4.

Speaker 7

Got it. Thanks. Congratulations again.

Speaker 3

Yeah, thank you. Great question.

Operator

Thank you. Ladies and gentlemen, we've come to the end of our time allowed for questions. I'll turn the floor back to Ms. Rodriguez for any final comments.

Speaker 1

Thank you all for those valuable questions and answers. For all those joining us today, if you have more questions, please email us at investorsnewtekshealth dot com, and we'll get back to you promptly. On behalf of the Newtek's management team, thank you all for joining us for our fourth quarter and full year twenty twenty four earnings call. We've covered a lot: growth, strategy, challenges, and our vision, and we appreciate your time and interest. A recording of this call will be available on our website for a limited time, so feel free to revisit it there.

Speaker 1

Take care, everyone, and we look forward to keeping you updated on our journey.

Operator

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.

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Nutex Health Q4 2024
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