Pediatrix Team Expects $15M More in RCM Transition Losses

Feb. 21, 2023
But recently named CEO Jim Swift told analysts he expects the R1 RCM situation to improve in the second half of this year.

Physician practice management giant Pediatrix Medical Group Inc. is likely to incur a $15 million hit to EBITDA this year due to “the continued burden” of its move to the R1 RCM payment collection platform. That figure is in line with 2022 impact the revenue cycle system shift had on the Fort Lauderdale, Florida-based company’s finances.

Pediatrix, which last year changed its name from Mednax, signed on with R1 RCM in 2021 but has not been able to properly integrate R1’s system, which has hurt collections and required major remediation efforts which in turn led to changes in Pediatrix’s management team late last year and the launch of a corporate layoffs and cost-cutting program. In turn, R1 covered a significant portion of the Q4 losses and investments Pediatrix made.

Speaking to analysts last week after Pediatrix reported its fourth-quarter results, CEO Jim Swift (who stepped into that role late last year) said the company’s revenue cycle performance “has not yet improved on a sustained basis” but that his team is getting its arms around the documentation, billing and other problems and expects most of this year’s $15 million profits hit to happen in the first half.

“In the areas we first targeted, we've seen performance improvement in the form of reduced backlogs [and] better connectivity through the step functions of the front-end processes,” Swift said. “Moving from these early positive steps to full sustained improvement at scale is taking time. But we believe we are on the right track.”

CFO Marc Richards said on the Pediatrix conference call that his team expects R1 to reimburse Pediatrix for at least some of its expected 2023 losses.

“They stepped up properly and helped cover a lot of the costs that we incurred from additional labor in Q4,” Richards said. “And we have talked to them about the need to continue that bolstering by them for costs that we need to get back on track.”

In the last three months of 2022, Pediatrix posted a net profit of $29.7 million, down from $47.5 million in late 2021, while revenues rose to $514 million from $499 million. Operating profits fell to $36.0 million from $68.0 million, with expenses relating to the cost-cutting plan accounting for nearly $20 million of that decrease.

Amid the revenue cycle troubles, Swift said Pediatrix’s leaders remain interested in buying practice groups to expand its lineup of women- and child-focused clinics. And he added that the M&A market may be coming around in the company’s favor as 2023 has gotten underway.

“One of the behaviors we've seen change with groups is instead of us having to do prospecting and call groups, we have people who have been reaching out to us,” Swift said.

Shares of Pediatrix (Ticker: MD) jumped more than 10% on Feb. 17, when its leaders released earnings. Over the past six months, however, they are still down more than 15%, a move that has lowered the company’s market capitalization to about $1.4 billion.

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