Pediatrix Execs Move On From R1, See ’24 As Year of ‘Stabilization’

Feb. 20, 2024
Investments in a hybrid revenue-cycle model and a flat volumes outlook means practice and corporate cost cuts remain a priority.

The leaders of physician services company Pediatrix Medical Group Inc. are looking for 2024 to mark a return to stability as they leave behind a costly revenue-cycle management project and continue to trim their costs.

Fort Lauderdale-based Pediatrix late last year severed ties with R1 RCM and its payment collection platform after extensive problems integrating the software. The two companies had started working together in 2021 (when Pediatrix was still known as Mednax) but CEO James Swift and his team ended the relationship in December due to “service level metrics related to performance.”

Taking R1’s place is a hybrid revenue-cycle system comprised of an in-house team as well as a new (and unnamed) vendor with whom Swift said he expects to soon sign a long-term deal. The good news: Swift said the transition since late 2023 has not created any significant disruptions in collections. Less good: Investing in the staff to run that hybrid model is adding to Pediatrix’s costs.

Those extra expenses will eat into the small top-line growth Swift and his team are forecasting for this year, with patient volumes expected to be level with 2023. The RCM switch, which will run in phases this year, also means any 2024 rate increases, if they happen at all, will come near the end of the year. That, Swift said on a Feb. 20 conference call discussing Pediatrix’s fourth-quarter results, means his team continues to try to cut costs both at the practice level by shifting more care to nurse practitioners or physician assistants as well as at Pediatrix’s corporate offices.

That work, Swift added, should begin to show through in Pediatrix’s numbers—in Q4, adjusted EBITDA was about $51 million, down from $66 million a year earlier—next year.

“Looking into ’25 really, it’d be a different story, we think,” Swift said. “We’re looking at all the practices in terms of the efficiencies in those practices that will be a benefit to the organization. And on top of that is obviously what we’re doing structurally with our overhead.”

Included in Pediatrix’s non-adjusted Q4 results was an impairment charge of more than $168 million. Most of that figure was due to a slide in the company’s shares but $20 million stemmed from needing to write off its entire 2021 investment in Brave Care, a pediatric urgent-care venture. Pediatrix led that 2021 funding round and Brave Care’s leaders at the time envisioned growing its small network to more than 100 clinics.

In its annual report with the U.S. Securities and Exchange Commission, the Pediatrix team said the writedown was due to “significant unfavorable events that took place at [Brave Care] in the fourth quarter.” Brave Care’s website shows it runs just three clinics in Oregon and one in Austin.

Shares of Pediatrix (Ticker: MD) fell about 9% on Feb. 20 to $8.46 on the earnings report and executives’ 2024 outlook. They have lost about 40% of their value over the past six months (after trading above $32 in mid-2021), a slide that has cut the company’s market capitalization to about $700 million.



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