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Surgery Partners, Inc. (NASDAQ:SGRY)
Q4 2019 Earnings Call
Mar 5, 2020, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings and welcome to the Surgery Partners Fourth Quarter and Year-end 2019 Earnings Call. [Operation Instructions] I would now like to turn the conference over to your host, Mr. Tom Cowhey, Chief Financial Officer for Surgery Partners. Thank you. You may begin.

Tom Cowhey -- Executive Vice President and Chief Financial Officer

Good morning and welcome to Surgery Partners' fourth quarter and year-end 2019 earnings call. This is Tom Cowhey, Chief Financial Officer. Joining me today are Wayne DeVeydt, Surgery Partners' Executive Chairman; and Eric Evans, Surgery Partners' Chief Executive Officer.

As a reminder, during this call, we will make forward-looking statements. Risk factors that may impact those statements and could cause actual future results to differ materially from currently projected results are described in this morning's press release and the reports we file with the SEC. The Company does not undertake any duty to update such forward-looking statements.

Additionally, during today's call, the Company will discuss certain non-GAAP measures, which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. A reconciliation of these measures can be found in our earnings release, which is posted on our website at surgerypartners.com and on our most recent annual report when filed.

With that, I'll turn the call over to Wayne. Wayne?

Wayne S. DeVeydt -- Executive Chairman of the Board

Thank you, Tom. Good morning and thank you all for joining us today. We have a lot to cover this morning regarding our fourth quarter results and our 2020 expectations.

Before we begin, I would like to highlight the two-year journey we've been on as a company and how we've positioned Surgery Partners for sustainable double-digit adjusted EBITDA growth for the long term. This journey began in 2018 when we assembled a new team and developed both our near-term and longer-term strategic goals and key initiatives.

In 2018, we initially focused on building the foundation for growth, which included: realigning our portfolio and eliminating non-core assets; integrating corporate operations to achieve economies of scale; directing investments to the highest growth specialties with the strongest return on capital; building a pipeline of acquisition opportunities, aligned with our high growth specialties and targeted geographies; derisking the balance sheet and settling a legacy matter to eliminate distractions; and finally, establishing a culture of execution based on data-driven decision making and accountability for results. For 2018 and the early part of 2019, these initiatives drove our actions and established the foundational core that we believe was critical to becoming the partner of choice for the operation of short-stay surgical facilities.

In 2019, we leveraged our foundation and increased our focus and investments into four key areas that we believe will differentiate us as the partner of choice. These areas included: physician recruiting, essentially investing in our ability to attract more doctors to perform more surgeries in our centers; managed care, ensuring our physician partners and facilities are appropriately paid for the value we provide to the healthcare system; procurement, delivering the highest quality items with the best possible value to our centers; and finally, revenue cycle management, ensuring that our facilities are accurately and rapidly collecting what we are owed for the services we provide. By focusing on these key areas and remaining prudent stewards of our capital, we believed we could differentiate ourselves as the operator of choice, while also achieving above-market same-facility growth and double-digit adjusted EBITDA growth. Our full year 2019 results published this morning confirm that we achieve these goals with nearly 8% year-over-year same-facility revenue growth and double-digit adjusted EBITDA growth. We expect similar success in 2020 and continue to believe that we can grow adjusted EBITDA by double-digit rates for both the immediate and long term.

Our intentional focus and execution over the past two years has afforded Surgery Partners expanded opportunities for partnerships with physicians, providers and payers. As many of you are aware, earlier this year, I stepped into a new role at Surgery Partners as Executive Chairman, and I will be focusing my time on execution of our long-term strategy and business development efforts. While 2019 growth was primarily driven by organic performance, we continue to monitor an attractive pipeline of tuck-in acquisitions, particularly because we are often the partner of choice for entrepreneurial independent-minded physicians looking for the benefits of a scaled partner. As we enter 2020, we see increased opportunity for acquisitions at attractive multiples, which are both strategic and delevering.

I'm very excited about continuing to partner with this talented leadership team as I focus my efforts on these expanded opportunities. I am confident that we have the right team and the right leader in Eric to continue to drive results like the ones we released this morning.

With that, let me turn the call over to Eric to talk about the Company's operations. Eric?

Eric Evans -- Chief Executive Officer

Thank you, Wayne, and good morning, everyone. This morning, I'd like to review highlights of our most recent results and then provide an update on the strategic initiatives that contributed to these results and that will continue to drive sustainable double-digit long-term adjusted EBITDA growth. Tom will then close our opening remarks with greater detail on 2019 financial results, as well as our 2020 outlook before we take questions.

I am pleased to report we achieved our targeted double-digit full-year growth in earnings this year, reporting full-year adjusted EBITDA of $258.6 million, representing growth of 10.1% over 2018. This performance was driven by strong growth in adjusted revenue, which grew 2.8% on a reported basis and 7.6% on a same-facility basis. The strategic initiatives we've been focusing on have started to bear fruit this year, expanding our adjusted EBITDA margins 90 basis points to 13.9%.

In the fourth quarter 2019, adjusted revenues grew 4.2% to $520.7 million and adjusted EBITDA grew an impressive 15.1% to $84.4 million. As we look deeper into the quarter, days adjusted same-facility revenue increased by 7.9% from the prior-year quarter, driven by strong net revenue per case and volume growth. This continued the trend of consecutive quarterly same-facility revenue growth now at six quarters.

As we begin 2020, we remain enthusiastic about the underlying growth dynamics of our surgical facilities and the strategic initiatives that will continue to provide meaningful growth. These initiatives include our key areas previously mentioned by Wayne in his opening remarks, along with a focus on managing corporate overhead, as well as a continued foundational focus on providing exceptional quality and patient experience.

As we discussed in our third quarter call, we've been working for some time to enhance our physician recruiting efforts, arming our facility leadership and partners with highly relevant data and corporate resources to help recruit and retain key physicians in our markets. The success of these programs continues to manifest in our numbers. We added a similar number of physicians in 2019 as we did in 2018, driving another strong year of revenue and contribution margin growth from newly recruited physicians, as evidenced by our strong same-facility growth numbers.

Our data-driven focus to grow in our targeted specialties, including our total joint programs, has yielded meaningful improvements in higher acuity cases. In 2019, approximately 1,300 total joint procedures were performed in our ambulatory surgery centers, which is almost double the total performed in 2018. Currently, approximately 25% of our ambulatory surgery centers perform total joint procedures, and we expect that percentage to increase into the mid-to-high 30% range by the end of 2020 as we continue to invest in expanding the capabilities of our multi-specialty centers.

As you can see by these results, we continue to be pleased with our team's effort in making Surgery Partners' surgical facilities a destination of choice for both physicians and patients. We are equally pleased with the positive momentum we are building with payers. Our health plan partners increasingly understand and value the benefits a vibrant, independent short-stay surgical facility operator like Surgery Partners can provide to them and their members. Recently completed off-cycle rate negotiations in multiple markets are a testament to this momentum. In these markets, we achieved double-digit commercial rate increases that contributed to our fourth quarter net revenue per case growth and adjusted EBITDA growth. As previously shared, we are actively engaged in this dialog with many payers across the country.

We are confident we can continue to build on the strong foundation constructed over the last eight quarters. Our model for growth remains consistent. We believe that our base business can grow at a long-term sustainable rate of 2% to 3% on volume and 2% to 3% on rate, yielding 4% to 6% same-facility revenue growth. As we look to 2020, we reiterate this guidance with a bias toward the higher end of the range. Our results to date are proof that if we focus on bringing in the right doctors to our facilities, doing procedures in our targeted specialties and focus on getting appropriate payment for the value we bring to the system, we can achieve at least this level of growth.

On top of this baseline for growth, we expect an additional 3% to 5% of growth in support of our double-digit adjusted EBITDA growth goals by focusing our team on key areas of value. These areas include procurement, revenue cycle and G&A leverage. We continue to plant seeds in each of these areas, and we are confident they will bear further fruit in 2020 and beyond. We have built new leadership teams in these functions over the past 18 months, and they continue to scale these initiatives across our broad portfolio.

In procurement, we are optimizing the impact of our GPO and are making progress in achieving greater discounts and rebates on implants and other medical supply purchases. Recent improvements in our revenue cycle efforts have improved collections, and aggregated information on payment denials is helping identify front-end opportunities during the early stages of our billing process that we can address to reduce such denials. These distinct initiatives, on top of our base growth, give us confidence in our double-digit trajectory.

Finally, I'd like to talk briefly about my recent promotion to CEO. Since joining Surgery Partners in early 2019, I have been impressed by the transformation Wayne has led over the last two years and the exceptional leadership team he has developed. I look forward to building on these operational achievements. I've spent much of my early tenure here first as Chief Operating Officer and now as the CEO, touring our surgical facilities and meeting our physician partners and administrative support teams. This amazing and committed group of colleagues perform outstanding work to support the surgeons using our facilities, providing some of the highest clinical quality outcomes for patients. It's our job as leaders of this company to provide exceptional support to this group to enable and build on their continued success. In future calls, I will detail some of the objectives I'm challenging our leadership team with as we further mature our operating system.

With that, I will turn the call over to Tom, who will provide additional color on our financial results. Tom?

Tom Cowhey -- Executive Vice President and Chief Financial Officer

Thanks Eric. Today, I'll spend a few minutes on our fourth quarter and year-end 2019 financial performance, starting with some of our key revenue drivers, then moving on to adjusted EBITDA, cash flows and our 2020 outlook.

Starting with the top line, surgical cases increased to approximately 138,000 in the quarter, and we ended the year at approximately 525,000 cases. Importantly, as Eric noted, this growth included higher acuity cases, which drive higher net revenue and earnings. Our case growth also benefited from targeted managed care rate improvements, yielding strong revenue growth.

In the fourth quarter of 2019, we reported $521 million of adjusted revenues, 4.2% higher than the same period last year. Full-year adjusted revenues rose to $1.86 billion, representing year-over-year growth of nearly 3%, overcoming the loss of nearly $80 million of prior-year revenue from closed or divested facilities. Removing the impact of the closed or divested facilities, adjusted revenue growth would have been approximately 7.6%. On a same-facility basis, total revenue grew 7.9% in the fourth quarter and 7.6% for the full year. Higher acuity cases and improved reimbursement rates contributed 5.9% to this growth in the fourth quarter and 5.5% for the year, with the balance coming from case growth.

Turning to operating earnings, our fourth quarter 2019 adjusted EBITDA was $84.4 million, a 15.1% increase over the comparable period in 2018, bringing our full-year result to $258.6 million, achieving our full-year guidance of double-digit adjusted EBITDA growth. The primary driver of the increase over the prior period -- prior-year quarter was strong operational performance. But it is worth noting that just over a quarter of our growth in the period came from two strategic actions that we have discussed previously: the absence of operating losses from two surgical hospitals that we chose to exit at the tail end of 2018 and benefits from our 2019 health insurance plan consolidation. Our 4th quarter adjusted EBITDA margin improved to 16.2% from 14.7% in the prior-year period. And on a full-year basis, our adjusted EBITDA margin also increased by 90 basis points to 13.9%.

During the quarter, we recorded $19.3 million of transaction, integration and acquisition costs, bringing our year-to-date total to $36.1 million. Of note, fourth quarter 2019 transaction, integration and acquisition costs included approximately $11.1 million of costs associated with our de novo hospital in Idaho Falls, which opened in November 2019. As I've noted before, we expect to report results from this facility separately throughout 2020. Our guidance also excludes the impact of this new hospital in 2020.

Net revenues and adjusted EBITDA in our ancillary and optical segments were down slightly in 2019, consistent with our stated expectations for these businesses.

Turning to liquidity metrics, we ended the year with a cash balance of approximately $93 million with no borrowings on our revolving credit facility. During 2019, we deployed over $37 million of capital, enhancing our portfolio at a highly attractive multiple of 5.4 times trailing adjusted EBITDA. In addition, we made substantial investments in facilities in existing markets where we operate, the most significant of which was the construction of a new hospital in Idaho Falls.

The Idaho Falls Community Hospital opened its doors in November 2019 and received licensure in December 2019, ahead of our initial projections. This successful opening was the culmination of a multi-year investment, and we would like to thank the teams that worked tirelessly to make this possible. The new acute care hospital complements our existing surgical hospital and expands our capabilities in this very important market. We are excited to be able to better serve this community with a brand-new facility, and we expect this to be a material contributor to our adjusted EBITDA in years to come. More broadly, our Idaho Falls effort demonstrates our willingness to make strategic investments across our portfolio to achieve long-term sustainable growth. We are building Surgery Partners everyday to be positioned to consistently and predictably achieve near-term, medium-term and long-term growth goals.

For the year, operating cash flows of $129.5 million exceeded distributions to non-controlling interests by $8.3 million. For the fourth quarter, distributions exceeded operating cash flows by $6.3 million. We ended 2019 with a ratio of total net debt to EBITDA of 7.2 times as calculated under the Company's credit agreement. This ratio represents a 40 basis point decrease from the third quarter of 2019, primarily resulting from the inclusion of our new facility in Idaho Falls, as well as higher trailing 12-month adjusted EBITDA. Specific to Idaho Falls, we've added approximately $145 million of new debt between the financing lease obligations and equipment financing, and have added approximately $25 million to our credit agreement EBITDA, reflecting our projected performance of this facility in 2022. This adjustment brings credit agreement EBITDA for the period ended December 31, 2019 to $327 million.

As we have noted before, the Company has an appropriately flexible capital structure with no financial covenant on the term loan or senior unsecured notes. We continue to project that the Company's total net debt to EBITDA ratio should decline naturally over time as our business continues to grow, but may fluctuate quarterly based on timing of cash flows.

Moving on to our 2020 outlook, we are excited by our progress this quarter on a variety of fronts and remain committed to high-single digit revenue growth and double-digit adjusted EBITDA growth, as compared to the 2019 baseline. We expect to report our 2020 adjusted metrics excluding the impacts at both the top and bottom line from our new hospital in Idaho Falls, and our guidance reflects that exclusion.

While top line growth appears materially higher than last year, we remind investors that repositioning the portfolio in 2018 removed approximately $100 million of annualized revenues from the baseline and depressed headline 2019 revenue growth. We expect 2020 revenue growth to reflect continued strong same-facility revenue growth, including the impact of our previously mentioned rate negotiations.

Adjusted EBITDA growth is expected to benefit from continued volume growth, particularly in higher acuity procedures, and strong net revenue per case growth. Our efforts in procurement, revenue cycle and G&A containment are also expected to continue to pay dividends.

In summary, we believe our 2019 results continue to demonstrate our ability to achieve our target. We are pleased to see strong same-facility revenue growth with continued margin expansion, as our strategic initiatives take hold. We continue to invest to expand existing facilities and enter new markets that will support organic growth as begin to reap some of the benefits of the new Medicare procedures in our facilities.

With that, we will open the call for Q&A. Operator?

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from the line of Ralph Giacobbe with Citigroup. Please proceed with your question.

Ralph Giacobbe -- Citigroup -- Analyst

Thanks. Good morning. I guess, I'll start -- obviously, a lot on coronavirus in the headlines. Can you give us any sense if you've seen any impact in fourth quarter and just how you think about framing potential impact -- behavioral impacts, etc., of folks potentially deferring procedures?

Eric Evans -- Chief Executive Officer

Ralph, good morning. This is Eric. Not surprised we're getting this question. Obviously, it's something that's on everyone's mind. I'd start with just saying, obviously, our first priority is the safety of our colleagues, our patients and our physician partners. And so, we take that very seriously. To date, we have not seen an impact. So, from a scheduling standpoint, from a same-store standpoint as the year started off, we haven't seen that impact. But we are clearly taking steps to make sure that we are all over our triage policies in the hospitals and our ASCs, making sure we appropriately screen patients. Our business is less ER dependent and there's probably less access points in most places. So, we feel like, in general, our ability to manage this is pretty strong. But it is clearly something I don't know that any of us can predict as far as the overall impact. I wouldn't want to prognosticate. But I would say that to date, we have not seen an impact.

Ralph Giacobbe -- Citigroup -- Analyst

Okay. And I guess just the follow-up question, the cash flow number was a little bit light in the quarter. Anything to call-out there on sort of why the weakness? And maybe if you can just help us on sort of operating cash flow expectations for 2020 and expected capex spend as well? Thanks.

Tom Cowhey -- Executive Vice President and Chief Financial Officer

Sure. Hey, Ralph, it's Tom. So as you think about the cash flows and just make you think about the year, you've got higher earnings, which obviously help to translate, but we have higher interest expense because of some of the transactions that we've done. We took a -- some operating cash flow losses in the quarter and in the year associated with the start-up costs for Idaho Falls Community Hospital. And as you think about the tax receivable agreement as well, the payments on that went up this year, and they'll go up again next year, and those are fourth quarter payments. So, the tax receivable agreement, combined with the IFCH opening and also just your higher level of interest as compared to last year are your three primary drivers. And the partial offset there is just obviously that we grew earnings in the period by 15% over the prior year period.

As you think about next year, you will have some of the same dynamics. You'll have a little bit of annualization of the interest rate in the fourth quarter associated with the 2027 notes. But you'll have higher income because we expect to grow double-digit, much as we did this year. And then, you will have additional losses at Idaho Falls. As you look at the EBITDA impact this year, we've taken full year probably low-teens in terms of losses at that hospital and excluded them, which we've reported every quarter. I would expect that the EBITDA impact in 2020 would be similar to that number, perhaps a little bit better and -- but the cash flow drain from that will be probably more than 2 times that, and we're fully anticipating that we will fund that in our outlook.

Ralph Giacobbe -- Citigroup -- Analyst

Okay, thank you.

Operator

Thank you. Our next question comes from the line of Kevin Fischbeck with Bank of America. Please proceed with your question.

Kevin Fischbeck -- Bank of America Merrill Lynch -- Analyst

Great, thanks. Just wanted to ask about deals. I guess, Wayne, you kind of said that you're positioning within your role to kind of focus more on that side of the equation. Should we -- I know your guidance does not include deals, I guess, just to confirm that. But beyond that, should we expect deals to show up in a bigger way this year? Or is this the beginning of an initiative and it's really not until next year and beyond that we should expect that -- to actually see the deals flow through in a bigger way?

Wayne S. DeVeydt -- Executive Chairman of the Board

Hey, Kevin, appreciate the question, and good morning. Yeah, let me put in perspective a few things. Let me first just start with, when we think about our annual guidance, we view all levers as being available to that. Now, obviously, right now, we have not baked in outright M&A, but I would also tell you, we still have some assets that we are planning to prune throughout the next year. And so, there'll be some kind of a reshifting of a few assets that are core -- that are not core to ASCs and being replenished with ASCs. That being said, we have a very robust M&A pipeline right now, and we have many transactions under LOI that started late last year. The actual process started early last year but got to LOI late last year, and now we're in a place where hopefully we can get these over the finish line in the first half of this year. And we've made a number of proposals with a number of entities.

I highlight this, though, to say that in '18, because our focus was pruning the asset and redeploying that capital back into our growth initiatives, that was kind of gold number one, and goal number two has been establishing a foundational core and proving that we could get the effective returns through these acquisitions. And then of course, last year, we started doing that on a smaller scale, but doing the plug and play into the infrastructure we built, and actually seeing it as a proof point. So, the long and short, to your question, Kevin, is the pipeline is robust. I would expect us to announce a lot more transactions this year than we did last year. And I would expect some of these, knock on wood, we'll be announcing at -- either at the end of Q1 or into early Q2 that we've got some of these over the finish line. And then, how those play into our double-digit earnings growth is really a reflection of the items we're looking at divesting, several which are under LOI as well, and whether they'll just replenish the short-term EBITDA that we've divested or whether they will be additive to our EBITDA. I do think for the year, they'll be in an additive position.

Kevin Fischbeck -- Bank of America Merrill Lynch -- Analyst

Okay, great. Thanks. And then, I guess, in the last couple of quarters, you spent a lot of time talking about the ramp-up of physicians that you've recruited. Can you give any color about what your guidance assumes this year as far as physicians recruited this year relative to the last couple of years, and then, how you're seeing the ramp-up of volumes of recently recruited docs?

Eric Evans -- Chief Executive Officer

Sure. This is Eric. A couple of things on that. We've talked a lot about our really data-focused approach to physician recruiting over the past couple of years, and we've been pleased with those results. This year, we have added a Chief Growth Officer and some additional resources to that goal. And we do expect probably a slightly better number of our physicians recruitment number in this year than last year. We were pleased with this year's number. In particular, we're pleased with the focused specialties and the docs that we are keying [Phonetic] on. The big difference this year that we can say is that the doctors we had were significantly a bigger impact on our financials, both earnings and revenue. And so, we are seeing the acuity growth we expect. As you know, there's a lot of opportunities opened up for us with the CMS additions to what can be done at ASCs, and we're taking full advantage of that. So we actually expect that number to continue to grow, as far as physicians recruited this year. We've definitely invested in that area, and it will continue to be a huge focus.

And, Tom, I don't know if you want to add anything to that.

Tom Cowhey -- Executive Vice President and Chief Financial Officer

No, I think we've gotten a lot smarter every year as we think about how it is that we want to invest and how we get our ROI. And I am confident with the folks that we have added in terms of additional focus in this area that we're going to take a very good result in 2019 and really accelerated into 2020.

Kevin Fischbeck -- Bank of America Merrill Lynch -- Analyst

Great, thanks. If I can squeeze one last clarification in related to Ralph's earlier question about coronavirus, you said you're not seeing any impact now. Does your guidance assume that there will be an impact? Or is it kind of you're not seeing it, so you're not adjusting your guidance to...

Eric Evans -- Chief Executive Officer

No, there is no plans [-- or there's nothing in our guidance related to coronavirus. I would say, obviously, look, I don't think anyone is in a position to necessarily [Phonetic] procrastinate or make a prediction as to what's going to happen. But I -- with our business, so far, we have not seen an impact. And again, ours is a very elective business. We don't have the same type of kind of acute infrastructure in most of our facilities, very few ERs. And to date, we feel like the impact has been very -- well, actually, we haven't had one. But again, it's a moving target and we get new information every day on this. I think our biggest focus here is to make sure we do our part to keep our patients, colleagues and physicians safe, and we think we're well positioned to do that.

Kevin Fischbeck -- Bank of America Merrill Lynch -- Analyst

Great, thanks.

Operator

Thank you. Our next question comes from the line of Chad Vanacore with Stifel. Please proceed with your question.

Chad Vanacore -- Stifel -- Analyst

Thanks. Actually, I just want to follow up on Kevin and Ralph's questions. I missed, what did you say about expected start-up losses for Idaho Falls in 2020?

Tom Cowhey -- Executive Vice President and Chief Financial Officer

Sure. So, if you add up all the pieces for this year, the EBITDA that losses that we've excluded are kind of low-teens in terms of an EBITDA impact. And I would expect that this year, we'll be excluding something similar. We've got a lot of fixed costs. We did receive licensure. So we are expecting that we will start to have revenue to offset that. So the losses will not be as bad. But we think that over the full year, they won't be as concentrated as what you saw in the fourth quarter. And so, we think that that number is slightly better in 2020 versus what it was in 2019 and very concentrated in the fourth quarter. But as you look at what the cash flow impact of that is, because of the way that we finance the building and other things, you're really looking at kind of a 2 times impact in terms of the cash flow impact for this year. And we've fully contemplated that as we think about our guidance and we think about our liquidity and availability to ensure that we've got the appropriate capital set aside to fund that loss, which we then hope is going to start to turn in 2021 and really then accelerate in terms of growth in 2022.

Eric Evans -- Chief Executive Officer

Yeah. And I would add one thing there just for context, having opened a number of hospitals over the years, this market is a market where we know it well. We're well positioned from a value standpoint. We're well positioned with our reputation, our physician relationships. And this is one of those hospitals, while all hospitals will incur losses as they start up, the turn on this hospital will be as fast as any I've seen, and we feel really, really positive about where this hospital is going in the coming years.

Chad Vanacore -- Stifel -- Analyst

All right. And then, just on the M&A question, you said you plan to prune some assets but the pipeline is robust. In the past, you've guided us to somewhere between 3% to 5% external growth on revenues via acquisition. Should we be thinking that growth is really flat in 2020?

Wayne S. DeVeydt -- Executive Chairman of the Board

Not necessarily. I think, Chad, the one thing I would highlight is, it's always about timing. So, as you know, you don't have a deal done until the deal is done. And so, one of the things we have going is, we've got a couple of assets that we're pruning that are clearly not core to what we do as an entity, and that will become clear. And the timing on those, we're anticipating probably closing those sometimes in 2Q. We are hopeful to get a few of these other LOIs done in early Q1. And then, the pipeline is robust enough that if we can come to some terms on a couple other acquisitions we're looking at, this could actually be positive, net positive this year, meaning we replenish the EBITDA that we lose and we actually start growing the EBITDA through M&A again. So right now, I would bias toward positive growth from M&A after -- even after neutralizing those that we divest.

Chad Vanacore -- Stifel -- Analyst

All right. And then, just one other thing, you had mentioned that the knee replacement started picking up in the fourth quarter. And I think, third quarter, we asked about this. You thought it was tough to quantify that initial impact. So now, you've got a quarter under your belt. Where do you see these knee replacements going to?

Eric Evans -- Chief Executive Officer

Yeah. So, I'm not going to give direct guidance on this, as far as exactly how fast that is going shift out of the hospitals. I will say, we're seeing an increasing comfort level among docs in many regions of the country with moving knees out of acute care hospitals into ASCs and to different -- the appropriate care setting. I also will say that one of the big health [Phonetic] -- we've talked about this in the past, we've been doing these in our ASCs for a while, commercial knees. Now that we can do Medicare, it's a big advantage from a scheduling standpoint. Physicians don't have to split up schedules. We're seeing that advantage. And we expect that to continue to grow. There's predictions out there that within the next five years, up to half of the total joints could be done in ASCs. I've seen that. I don't think it's unreasonable. But that timing is always tough.

I guess, as an example, we think about the stuff that's been added this year for cardiology, so as you guys know, the PCIs and stenting was added to the ASC list this year. If you think about that in just relative terms, it was 10 years ago, maybe more, when they first started allowing PCIs to be done in hospitals without open heart backup, which in theory, that should have been the moment they were allowed into ASCs. This stuff takes time. It's based on regulatory. It's also based on physician comfort level.

So across the country, we have some states where physicians are bringing all their joints and feel extremely comfortable and are having great results. In other parts of the country, it is just beginning, and physicians are still getting used to this concept. So, I would say, the maturation levels are quite different across the country. We expect that trajectory to continue to be a really nice positive for us. But it's hard to predict the exact kind of movement timing.

Wayne S. DeVeydt -- Executive Chairman of the Board

Hey, Chad. One other thing I just want to clarify. So the fourth quarter print does not include any Medicare TKA because those procedures are eligible starting in the first quarter. And so, the numbers that we talked about earlier are really all commercial. All right? So we've had a focus over the last couple of years in arming our ASCs to be able to do total joints for commercial populations in anticipation of being able to potentially start doing Medicare knees and hopefully hips in a couple of years in those same facilities. And so, about a quarter of our ASCs today have the capability to do a total joint. And we're going to add probably about 10 facilities to that list this year, and really, as we continue to expand our ability to service that population across our footprint.

Chad Vanacore -- Stifel -- Analyst

All right, thanks a lot.

Operator

Thank you. Our next question comes from the line of Brian Tanquilut with Jefferies. Please proceed with your question.

Brian Tanquilut -- Jefferies -- Analyst

Hey, good morning, guys. I guess my first question is for Wayne. As we think about joint ventures and just on the M&A outlook, it seems like there is increasing interest from hospitals to outsource and JV this. So what are you seeing on that front? And then, I guess, the second part of that is, historically, Surgery Partners as a company focused mostly on the two-way partnership strategy. So if you don't mind just walking us through the thinking on potentially partnering with hospitals and what that does to your model and the economics of the business.

Wayne S. DeVeydt -- Executive Chairman of the Board

Hey, good morning, Brian. Thanks for the question. Yeah, I think an important point you raise is, it's not just about M&A. It's really about these JVs and the value creation that comes through them. As a reminder, today, about 5% of our business is in these three-way JVs, and it's generally been isolated to some academic institutions that we've got good relationships with, say, Vanderbilt here in Tennessee or UCLA in Southern California. But as we look at that and if you compare that just to historically what some of our previous competitors had in terms of three-way JVs, we are less than 25% of where they were at on these three-way JVs on a percentage of total book basis.

And so, as we've been evaluating those, I would tell you, and I've said this in the last couple of calls, that my optimism on entering into more partnerships with hospitals that need a partner to run an ASC strategy for them is high. I would tell you that we are having ongoing and regular dialog with not only local systems but regional and national systems right now. And we are in the process of doing some black box work in a number of our facilities to understand what is the mutual value creation we can bring to them with our ability to run a very efficient operation, coupled with the fact that they've got large ecosystem footprints and how they can drive volume to these facilities. And so, that work is well under way to the point that I wouldn't be surprised if we announce some JV opportunities and ventures this year. And so -- and those to me are just another tool in the toolbox that give us our confidence in our 10% plus growth model that we've laid out. And I think that's why we continue to just say double-digit. Where that lands remains to be seen, but I think for us, we like the way we're approaching it. And I do think that a couple of years of solid execution really opens up a lot of people's eyes around what we can do to manage their platform. So, very bullish on this on this opportunity for us, not only in the M&A, but I would say, probably even more bullish on the JVs right now.

Eric Evans -- Chief Executive Officer

Yeah, the only thing I would add to that, and I think Wayne covered it very well, is that because of our historic position of not having a lot of three-way JVs, it also opens up opportunities for us to partner with health plans. And so, we're on both sides of that, depending on the region. We clearly want to make sure that we remain a value player, and we believe we create that in every one of our markets. And there are cases where we are much better off working with the health plans and being that large independent operator in a region. But there are other times where it clearly makes sense to partner with a like-minded health system. I think that is a -- the optionality we have, given our industry structure, is a really big piece of value for us.

Brian Tanquilut -- Jefferies -- Analyst

I guess, a follow-up to that last point, Eric. Being a value player and marrying that with what you guys have been doing in terms of trying to bring your rates to market, how much juice do you left in terms of what is the percentage of contracts where you're still below market or the ability to ratchet up or get, what you call, inflation increases going forward on those contracts that you've already renegotiated?

Eric Evans -- Chief Executive Officer

I will say it's significant. We still have a number of markets where, just based on market data, we have a significant opportunity just to be at the market of the value-playing industry we're in. So we still see upside there. Clearly, what we would prefer to do is find a way to move that up in partnership where we're also collaborating on how we actually move business to the right place too. So it's a volume-value trade. But we have lots of opportunities in several markets. We have a lot of negotiations under way. And we see significant upside in our ability to capture more of the value we're creating and be paid fairly, while even at the same time -- and I will tell you, in the negotiations that we have completed, while we got significant increases, we also at the same time have the payers collaborating with us to move business because we're still a value player with those increases. So I think our job is to find the sweet spot of where do we create value and also remain that independent partner where people want to move additional volume because we're the right place for their patients.

Wayne S. DeVeydt -- Executive Chairman of the Board

Hey, Brian, one last thing. This is a tough one to really quantify, although I will tell you we've done our own math. And I don't want to put numbers out that everybody wants to see us print, but what I would tell you is, the opportunity is not millions. It's not even 10s of millions. It's well north of that. And I would simply just tell you that the key isn't about going and just capturing short-term value creation. It's about capturing sustainable value creation. So when you ask about kind of where we're at in this journey, I would say we have barely scratched the surface on the delta between what we should be getting paid versus what the market is paying today versus what we actually get paid. And so those are really three different levers you have to think about. Where we stand versus where we want to be to be the value play versus where the market is actually paying today, which is even above that. So, a lot of runway for us as a company, and that's what gives us our optimism over the long term around double-digit growth.

Brian Tanquilut -- Jefferies -- Analyst

That's very helpful. Thanks Wayne.

Operator

Thank you. Our final question comes from the line of Frank Morgan with RBC Capital Markets. Please proceed with your question.

Frank Morgan -- RBC Capital Markets -- Analyst

Good morning. I guess, to stay on the total joint, in terms of that timing going from 25 facilities that have that capability up to the mid-to-high 30s, how is it staggered over the course of the year and what is the capital requirements for doing that?

Eric Evans -- Chief Executive Officer

Yeah, it's a great question, Frank. We have a number of facilities already identified that have the space and the capabilities of doing joints quickly. So, a lot of these centers that we're adding are multi-specialty centers where we're adding total joint capability that doesn't require a lot of capital. Now, there are also obviously examples where we have to expand ORs, we have to add new rooms, new capacity. Those get a lot more expensive. But the ones that we have identified that move us from the mid-20s to the mid-30s do not require much capital. It's simply a matter of getting docs comfortable, getting their protocols in place. And so we're quite -- we have a clear path to the centers we put out there as far as more centers adding total joints, there are additional opportunities beyond that, but some of those do require more capital.

Frank Morgan -- RBC Capital Markets -- Analyst

Got you. And so, is the -- the spread of those, is it kind of back-end loaded so that the impact in the current year is not that meaningful? Or is it kind of ratably spread?

Eric Evans -- Chief Executive Officer

I would say, it's relatively a normal curve. And we've got varying levels of ready-to-go. We had two new centers in the first -- so far this year that have started doing program, so they've done their first joint. So it will be spread across the year. And I don't expect it to be any kind of -- it's not going to be particularly back-loaded or front-loaded.

Frank Morgan -- RBC Capital Markets -- Analyst

Got you. And just one question on the volume side. I think you all called out last quarter something like 750 procedures may have been deferred because of some hurricane-related issues. Just curious, it didn't -- I kind of thought maybe you could see more of a impact of that in the fourth quarter number, but just any color around that? Thanks.

Eric Evans -- Chief Executive Officer

Yeah. So first of all, I'd say, we were pleased with our fourth quarter growth, both acuity-wise and positive volume growth as you guys saw a couple of percent case growth. It's always hard to know on procedures like that when it comes to a day lost in surgery. I think Wayne mentioned this last time like a day lost, yes, it spreads out. You hope to get it back. It's hard to always pin all those down. I would assume some of that's in that number, but I don't think that made a huge impact. And in total, we were quite pleased with the growth we posted.

Frank Morgan -- RBC Capital Markets -- Analyst

Okay. Thanks.

Eric Evans -- Chief Executive Officer

Yeah. So with that, I think that was the last call. And before we conclude our call, I just want to take a moment to join my Surgery Partner colleagues and say thank you to our over 10,000 associates and over 4,000 physicians who make up our care system for their contributions. Surgery Partners collectively serves over 600,000 patients each year and thousands of patients each day in what are often their absolutely most vulnerable moments. We take that trust and faith that our physician partners and patients place in us incredibly seriously and are privileged to make a positive difference in so many people's lives.

I'm excited about and humbled by the opportunity to lead this company as we work to more fully deliver on our mission of enhancing patient quality of life through partnership. In our efforts, we are clearly part of the solution to many of the challenges facing our nation's healthcare system and are extremely proud of the value we are creating for all of our stakeholders. As we execute against our goal to become the preferred partner for operating short-stay surgical facilities across the US, it is the daily efforts of each and every Surgery Partner colleague and physician that will get us there. So I want to definitely say thank you to them, and thank you for joining our call this morning and have a great day.

Operator

[Operator Closing Remarks]

Duration: 44 minutes

Call participants:

Tom Cowhey -- Executive Vice President and Chief Financial Officer

Wayne S. DeVeydt -- Executive Chairman of the Board

Eric Evans -- Chief Executive Officer

Ralph Giacobbe -- Citigroup -- Analyst

Kevin Fischbeck -- Bank of America Merrill Lynch -- Analyst

Chad Vanacore -- Stifel -- Analyst

Brian Tanquilut -- Jefferies -- Analyst

Frank Morgan -- RBC Capital Markets -- Analyst

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