AmSurg's fourth-quarter 2013 adjusted EPS of $0.60 surged 22%
marking its third consecutive quarter of double-digit growth. EPS
also steered ahead of the Zacks Consensus Estimate of $0.57 and
exceeded the company's guidance range. Revenues increased 17% and
were ahead of the estimate. Double-digit sales growth came on the
back of increased revenues per procedure owing to the higher
percentage of multi-specialty centers. Still, headwinds like
reduction in workers' compensation reimbursement, sequestration and
increased interest expense are intimidating. However, we are
encouraged by AmSurg's new alliance with a hospital system that
will create growth prospects going forward. We are Neutral on
Headquartered in Nashville, TN, AmSurg Corporation (AMSG) is a
leading operator of single-specialty practice-based ambulatory
surgery centers (ASCs). The company develops, acquires, and
operates practice-based ASCs in partnership with physician practice
groups throughout the U.S.
At the end of Dec 2013, AmSurg operated 242 ASCs located in 35
states and the District of Columbia. Among these ASCs approximately
65% performed procedures in a single specialty and 35% performed
procedures in more than one specialty, or multispecialty.
Sources of Revenues
Revenues are derived entirely from facility fee charges, which
are largely funded by third-party reimbursement programs such as
government and private insurance. The fee varies depending on the
procedure but usually includes all charges for operating room
usage, special equipment usage, supplies, recovery room usage,
nursing staff and medication and in some cases, billing for
anesthesia services. However, it does not include consultation
charges of the surgeon, anesthesiologist or other attending
physicians for patients as these are billed directly by the
physicians themselves. In 2013, AmSurg derived approximately 25% of
revenues from governmental healthcare programs, primarily Medicare
and Medicare managed programs, and the remainder from a wide mix of
commercial payors and patient co-pays and deductibles.
At the end of Dec 2013, 50% of AmSurg's revenues was generated
at gastroenterology centers, 38% at multi-specialty centers, which
includes orthopaedic centers, and 12% was generated at the
company's ophthalmology centers.
Effective Jan 1, 2008, Centers for Medicare & Medicaid
Services (CMS) revised the payment system for services provided in
ASCs and the phase-in of the revised rates was completed in 2011.
The revised payment system resulted in a significant reduction in
the reimbursement rates for gastroenterology procedures, which
comprise approximately 75% of the procedures performed by AmSurg's
surgery centers, and certain ophthalmology and pain procedures.
Accordingly, AmSurg's EPS were negatively impacted in 2008 (by
$0.05), in 2009 (an additional $0.07), 2010 (an additional $0.06)
and by an additional $0.05 in 2011 based on the reimbursement rates
for 2011 (announced in November 2010), which included a 1.5% CPI
increase and a 1.3% productivity adjustment decrease.
In 2012, reimbursement rates increased 1.6%, which positively
impacted AmSurg's 2012 revenues by $5.0 million and net earnings
per share by $0.05. In 2013, reimbursement rates again increased
0.6%, which positively impacted 2013 revenues by $2.5 million and
net earnings per share by $0.02. CMS has announced that ASC
reimbursement rates will increase by 1.2% for 2014, which the
company expects to positively contribute to its 2014 revenues by
$6.0 million, net of the continued effects of sequestration. There
can be no assurance that CMS will not revise the ASC payment system
or that any annual CPI (Consumer Price Index) increases will take
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