Surgical Care Affiliates
Surgical Care Affiliates, Inc. (Form: 10-K, Received: 02/21/2017 10:08:29)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-K

 

Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Fiscal Year Ended December 31, 2016

Commission file number: 001-36154

 

SURGICAL CARE AFFILIATES, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

20-8740447

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

510 Lake Cook Road, Suite 400

Deerfield, IL

 

60015

(Address of principal executive offices)

 

(Zip Code)

(847) 236-0921

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class

 

Name of Exchange on Which Registered

Common Stock, par value $0.01 per share

 

The NASDAQ Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act:

None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes       No  

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.    Yes       No  

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes       No  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes       No  

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

Smaller reporting company

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes       No  

The aggregate market value of the registrant’s voting and non-voting common stock held by non-affiliates of the registrant (without admitting that any person whose shares are not included in such calculation is an affiliate) computed by reference to the price at which the common stock was last sold on June 30, 2016 was $1,317,588,837.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

 

Class of Common Stock

 

Outstanding at February 15, 2017

Common stock, par value $0.01 per share

 

40,605,430 shares

 

DOCUMENTS INCORPORATED BY REFERENCE IN THIS FORM 10-K

 

Portions of the Registrant’s definitive Proxy Statement for its 2017 Annual Meeting of Stockholders are incorporated by reference into Part II – “Securities Authorized For Issuance Under Equity Compensation Plans” and Part III of this Form 10-K, or, in the event the Registrant does not prepare and file such Proxy Statement, will be provided instead by an amendment to this report containing the applicable disclosures within 120 days after the end of the fiscal year covered by this report. (With the


exception of those portions which are specifically incorporated by reference in this report, any such Proxy Statement is not deemed to be filed or incorporated by reference as part of this report).

 

 

 


SURGICAL CARE AFFILIATES, INC.

FORM 10-K

INDEX

 

General

  

2

 

 

Forward — Looking Statements

  

2

 

 

 

PART I.

 

 

  

 

 

 

 

Item 1.

 

Business

  

3

 

 

 

Item 1A.

 

Risk Factors

  

31

 

 

 

Item 1B.

 

Unresolved Staff Comments

  

56

 

 

 

Item 2.

 

Properties

  

56

 

 

 

Item 3.

 

Legal Proceedings

  

56

 

 

 

Item 4.

 

Mine Safety Disclosure

  

56

 

 

 

PART II.

 

 

  

 

 

 

 

Item 5.

 

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

  

57

 

 

 

Item 6.

 

Selected Financial Data

  

58

 

 

 

Item 7.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

  

59

 

 

 

Item 8.

 

Financial Statements and Supplementary Data

  

90

 

 

 

Item 9.

 

Changes in and Disagreements with Accounting and Financial Disclosures

  

141

 

 

 

Item 9A.

 

Controls and Procedures

  

141

 

 

 

Item 9B.

 

Other Information

  

142

 

 

 

PART III.

 

 

  

 

 

 

 

Item 10.

 

Directors, Executive Officers and Corporate Governance

  

142

 

 

 

Item 11.

 

Executive Compensation

  

143

 

 

 

Item 12.

 

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

  

143

 

 

 

Item 13.

 

Certain Relationships and Related Transactions and Director Independence

  

143

 

 

 

Item 14.

 

Principal Accounting Fees and Services

  

143

 

 

 

Part IV.

 

 

  

 

 

 

 

Item 15.

 

Exhibits and Financial Statement Schedules

  

144

 

 

 

 

 

Item 16.

 

Form 10-K Summary

 

169

 

 

 

Signatures

  

170

 

 

 

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G ENERAL

Unless the context otherwise indicates or requires, references in this Annual Report on Form 10-K to “Surgical Care Affiliates,” the “Company,” “we,” “us” and “our” refer to Surgical Care Affiliates, Inc. and its consolidated affiliates. In addition, unless the context otherwise indicates or requires, the term “SCA” refers to Surgical Care Affiliates, LLC, our direct operating subsidiary.

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements that reflect our current views with respect to, among other things, future events and financial performance, which involve substantial risks and uncertainties. Certain statements made in this Annual Report on Form 10-K are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include any statement that, without limitation, may predict, forecast, indicate or imply future results, performance or achievements instead of historical or current facts and may contain words like “anticipates,” “approximately,” “believes,” “budget,” “can,” “could,” “continues,” “contemplates,” “estimates,” “expects,” “forecast,” “intends,” “may,” “might,” “objective,” “outlook,” “predicts,” “probably,” “plans,” “potential,” “project,” “seeks,” “shall,” “should,” “target,” “will,” or the negative of these terms and other words, phrases, or expressions with similar meaning.

Any forward-looking statements contained in this Annual Report on Form 10-K are based upon our historical performance and on our current plans, estimates and expectations in light of information currently available to us. The inclusion of forward-looking information should not be regarded as a representation by us that the future plans, estimates or expectations will be achieved. Such forward-looking statements are subject to various risks and uncertainties and assumptions relating to our operations, financial results, financial condition, business, prospects, growth strategy and liquidity. Forward-looking statements involve risks and uncertainties which may cause actual results to differ materially from those projected in the forward-looking statements, and the Company cannot give assurances that such statements will prove to be correct. Except as required by law, we undertake no obligation to update any forward-looking statement, whether as a result of new information or otherwise. Given these uncertainties, the reader should not place undue reliance on forward-looking statements as a prediction of actual results. Factors that could cause actual results to differ materially from those projected or estimated by us include those that are discussed in “Part I, Item 1A. Risk Factors.”

 

 

 

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P art I

 

 

Item 1. BUSINESS

 

Merger Agreement

 

On January 7, 2017, we entered into an Agreement and Plan of Reorganization (the “Merger Agreement”) with UnitedHealth Group Incorporated, a Delaware corporation (“UnitedHealth Group”), and UnitedHealth Group’s wholly owned subsidiaries, Spartan Merger Sub 1, Inc., a Delaware corporation (“Purchaser”), and Spartan Merger Sub 2, LLC, a Delaware limited liability company (“Merger Sub 2”). Pursuant to the Merger Agreement, UnitedHealth Group has agreed to acquire all of the outstanding shares of the Company’s common stock for $57.00 per share, to be funded with a combination of cash and UnitedHealth Group common stock, as set forth in the Merger Agreement. Purchaser intends to commence an exchange offer to purchase all of the outstanding shares of the Company’s common stock, upon the terms and subject to the conditions of the Merger Agreement. Consummation of the exchange offer is subject to customary closing conditions, as set forth in the Merger Agreement. As soon as practicable following the consummation of the exchange offer, and subject to the satisfaction or waiver of certain conditions set forth in the Merger Agreement, Purchaser will merge with and into the Company pursuant to the provisions of section 251(h) of the Delaware General Corporation Law (the “First Merger”), with no stockholder vote required to consummate the First Merger, and the Company surviving as a wholly owned indirect subsidiary of Merger Sub 2. Immediately following the First Merger, the Company will be merged with and into Merger Sub 2 (the “Second Merger” and together with the First Merger, the “Mergers”), with Merger Sub 2 surviving the Second Merger as a wholly owned direct subsidiary of UnitedHealth Group.

 

The Merger Agreement contains representations, warranties and covenants of the parties customary for transactions of this type. Until the earlier of the termination of the Merger Agreement and the consummation of the Mergers, the Company has agreed to operate its business and the business of its subsidiaries in the ordinary course and has agreed to certain other operating covenants, as set forth more fully in the Merger Agreement. The Company has agreed not to solicit, initiate, knowingly encourage or knowingly facilitate the making of any alternative acquisition proposals. However, the Company may, subject to the terms and conditions set forth in the Merger Agreement, furnish information to, and engage in discussions and negotiations with, a third party that makes an unsolicited acquisition proposal that our Board of Directors reasonably believes is or could reasonably be expected to lead to a superior proposal. Under certain circumstances and upon compliance with certain notice and other specified conditions set forth in the Merger Agreement, the Company may terminate the Merger Agreement to accept a superior proposal.

 

The Merger Agreement contains certain termination rights for both UnitedHealth Group and the Company and further provides that, upon termination of the Merger Agreement under certain circumstances relating to competing acquisition proposals, including if the Company terminates the Merger Agreement to accept a superior proposal, or where our Board of Directors changes its recommendation in favor of the transaction, the Company may be required to pay UnitedHealth Group a termination fee of $90.0 million.

 

Additional information about the merger is set forth in our filings with the U.S. Securities and Exchange Commission (the “SEC”).

Overview

We are a leading national provider of solutions to physicians, health plans and health systems to optimize surgical care. We operate one of the largest networks of surgical facilities in the United States, which as of December 31, 2016 included 197 ambulatory surgery centers (“ASCs”) and seven surgical hospitals in partnership with approximately 3,000 physician partners. Our business model is focused on building strategic relationships with health plans, medical groups and health systems to invest in, develop and optimize facilities in an aligned economic model that enables better access to high-quality care at lower cost. We believe that our partnership strategy and comprehensive suite of solutions will enable continued growth by capitalizing on increasing demand for high quality, cost-effective settings of care, the increasing need for scaled partners in healthcare, the transition to a coordinated care delivery model and the trend of physician and health system consolidation.

The healthcare industry is in the midst of a transition characterized by increasing focus on cost containment and clinical outcomes, driven by recent regulatory efforts and new payment and delivery models. In this environment, improving clinical quality and reducing the cost of surgical delivery, which represents one of the largest components of medical spending in the United States, continue to be of greater focus. We believe that we are a critical part of the solution because we provide a lower-cost delivery alternative that: (1) enhances the quality of care and patient experience; (2) provides a strategic approach for physicians that improves productivity and economic alignment; (3) offers an efficient and lower-cost alternative for health plans, risk-bearing medical groups and employers; (4)  enables our health system partners to expand access within their markets while addressing the pressures resulting from changing payment models; and (5) helps physicians to remain independent.

Our scale of operations allows us to provide our health plan, medical group and health system partners with a comprehensive suite of services that support clinical quality, operational efficiency and enhanced financial performance. We offer tools and systems in the

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areas of clinical benchmarking, clinical best practices, operating efficiency, care coordination and supply chain management. Our partnership model aligns the interests of our partners in achieving strong clinical and operational outcomes.

Following the purchase of our company in 2007 by TPG Global, LLC (together with its affiliates, “TPG”), MTS-SCA Acquisition LLC (“MTS”) and certain of our current and former directors, our senior leadership team focused on building our team and capabilities to position the company as a leading partner to health plans, medical groups and health systems to transform the delivery of outpatient surgical care in markets across the country. We have experienced significant growth in our partnerships, resulting in strong performance in our key operational and financial metrics, including: (1) our patient Net Promoter Score, which is a measure of loyalty based on asking patients whether they would recommend our facilities to a friend or family member, (2) our physician Net Promoter Score, which is a measure of loyalty based on asking physicians whether they would recommend performing cases at our facilities to a physician colleague, and (3) the number of physicians performing procedures in our affiliated facilities, which was over 7,700 in 2016.

Our strategy has also fueled strong financial performance. Because our business model is based on creating partnerships with strategic entities in the markets we serve, our operations are accounted for through a combination of consolidation and equity method accounting.  Therefore, we also review several internal supplemental operating measures that do not comply with generally accepted accounting principles (“GAAP”), such as systemwide net operating revenues growth, which includes both consolidated and nonconsolidated facilities (without adjustment based on our percentage of ownership), Adjusted EBITDA-NCI and Adjusted net income. These non-GAAP financial measures should not be considered substitutes for and are not comparable to our GAAP financial measures (see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Adjusted EBITDA-NCI and Adjusted net income Reconciliations” for an explanation of Adjusted EBITDA-NCI and Adjusted net income and a reconciliation of Adjusted EBITDA-NCI and Adjusted net income to their most directly comparable GAAP financial measures. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Our Consolidated Subsidiaries and Nonconsolidated Affiliates” for an explanation of systemwide metrics). Some of these GAAP and non-GAAP measures are listed below.

 

Consolidated total net operating revenues increased from $864.7 million in 2014 to $1,281.4 million in 2016, representing a 21.7% compounded annual growth rate (“CAGR”);

 

Systemwide total net operating revenues increased at a 17.6% CAGR from 2014 to 2016;

 

Net income attributable to SCA increased from $32.0 million in 2014 to $35.4 million in 2016, representing a 5.2% CAGR;

 

Net income increased from $157.1 million in 2014 to $226.3 million in 2016, representing a 20.0% CAGR; and

 

Adjusted EBITDA-NCI increased from $156.7 million in 2014 to $201.1 million in 2016, representing a 13.3% CAGR.

The revenues and expenses of affiliated facilities in which we do not have a controlling interest but do have an equity interest are not directly included in our consolidated GAAP results; rather, only the net income earned from such facilities is reported on a net basis in the line item Equity in net income of nonconsolidated affiliates, and we refer to such facilities as our “nonconsolidated facilities.”

We present Adjusted EBITDA-NCI because we believe it is useful for investors to analyze our operating performance on the same basis as that used by our management. Our management believes Adjusted EBITDA-NCI can be useful to facilitate comparisons of operating performance between periods because it excludes the effect of depreciation and amortization, which represents a non-cash charge to earnings, income tax, interest expense and other expenses or income not related to the normal, recurring operations of our business.

Our Affiliated Facilities

Our network of facilities includes ASCs and surgical hospitals. Like hospitals, ASCs serve as locations where physicians on each individual facility’s medical staff perform surgery. Our ASCs provide the facilities, equipment, supplies and clinical support staff necessary to provide non-emergency surgical services to patients not requiring hospitalization. Advances in pain management and non-invasive surgical techniques have broadened the surgical procedures performed in ASCs to include such procedures as total joint replacements. Surgeries in ASCs are typically reimbursed at significantly lower rates than in a hospital setting, and ASCs generally operate with greater efficiency and lower costs. For the year-ended December 31, 2016, our ASCs generated 87% of our net operating revenues. Our surgical hospitals allow physicians to perform a broader range of surgical procedures, including more complex surgeries, and allow patients to stay in the hospital for several nights to recover if needed. For the year-ended December 31, 2016, our surgical hospitals generated 13% of our net operating revenues.

Physicians at our facilities provide surgical services in a wide variety of specialties, including orthopedics, ophthalmology, gastroenterology, pain management, otolaryngology (ear, nose and throat, or “ENT”), urology, neurosurgery and gynecology, as well

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as other general surgery procedures. As of December 31, 2016, we consolidated the operations of 125 of our 205 affiliated facilities, had 61 nonconsolidated affiliated facilities and held no ownership in 19 affiliated facilities that contract with us to provide management services.

Our Strategic Partnerships

 

We work to build strategic relationships with health plans, medical groups and health systems. We partner with physicians and physician groups who are equity investors in our affiliates and value our expertise in managing ASCs and surgical hospitals and engaging other health care participants to drive value. We seek to build strategic partnerships with health plans to provide high-quality low cost surgical care to their members. These strategic partnerships increasingly include value-based payment models of varying forms, all designed to incentivize surgeons to select the optimal modality of care for their patients.

 

In certain markets we have chosen to partner with health systems that are seeking to affiliate with a growing number of surgeons through ASC joint ventures. We believe we are a partner of choice to leading health systems because of our comprehensive suite of surgical solutions, expertise in clinical operations and efficiency programs and development expertise.

Our Industry

Medical costs account for a substantial percentage of the United States economy. The United States spent $3.2 trillion on healthcare in 2015, according to the Centers for Medicare and Medicaid Services (“CMS”), and the percentage of gross domestic product devoted to healthcare increased from 6.9% in 1970 to 17.8% in 2015. Surgical delivery is one of the largest components of medical costs in the United States, representing approximately 30% of medical spending for individuals with commercial insurance and Medicare, according to our estimates.

Against this backdrop, we believe that we are well positioned to benefit from trends currently affecting the markets in which we compete, including:

Continued Migration of Procedures Out of Hospitals

According to the American Hospital Association, outpatient surgeries increased from 57.2% of total surgery volumes to 65.9% from 1994 to 2014. In addition, a significant share of outpatient surgeries shifted from hospitals to free-standing facilities over a similar period. Advancements in medical technology, such as lasers, arthroscopy, fiber optics and enhanced endoscopic techniques, have reduced the trauma of surgery and the amount of recovery time required by patients following certain surgical procedures. Improvements in anesthesia have also shortened the recovery time for many patients by minimizing post-operative side effects such as nausea and drowsiness, thereby avoiding, in some cases, overnight hospitalization. These medical advancements have significantly increased the number of procedures that can be performed in a surgery center and have fueled the migration of surgical procedures out of hospitals and into outpatient settings. We expect that continued advancements in technology and technique will advance this trend.

Growing Focus on Containment of Healthcare Costs

Because of an increased focus on controlling the growth of healthcare expenditures in the United States, constituents across the healthcare continuum, including government payors, private insurance companies and self-insured employers, are implementing meaningful cost containment measures. These initiatives have contributed to the shift in the delivery of healthcare services away from traditional inpatient hospitals to more cost-effective settings, such as ASCs. For example, based on Medicare fee schedules, a procedure in an ASC costs, on average, 53% of what the same procedure costs when performed in a hospital surgery department, according to the Ambulatory Surgery Center Association. The cost differential creates savings for the government, Medicare plans, commercial payors and patients when a procedure is performed at an ASC instead of a hospital-based surgery department.

In addition, as self-insured employers look to reduce their overall healthcare costs, they are shifting increased financial responsibility to patients through higher co-pays and deductibles. These changes to health plan design, coupled with increased pricing transparency, have encouraged patients to seek out more cost-effective options for their healthcare delivery and may reduce demand for discretionary healthcare services. Because of their cost advantage and high patient satisfaction, we believe that ASCs stand to benefit from this increase in consumerism.

Opportunities Created by Healthcare Legislation

We anticipate that healthcare legislation will create greater opportunities for cost-effective providers of healthcare. The Patient Protection and Affordable Care Act (“Affordable Care Act”) and other related healthcare reform activities are expected to promote the transition from traditional fee-for-service payment models to more “at risk” or “capitated” models in which providers receive a flat fee per member per month from payors, regardless of the cost of care. This shift will create financial incentives for “at-risk” providers to

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direct patient procedures into the most cost-effective settings, such as ASCs and surgical hospitals. Some health systems are actively working to shift categories of surgical cases out of their hospital surgery departments into the lower-cost ASC setting, in some cases in the context of shared savings and Accountable Care Organizations (“ ACOs ”) . Given that, according to management estimates, surgical spending currently represents approximately 30% of all medical spending for individuals with commercial insurance and Medicare, the shift to “at risk” payment models is likely to create greater interest from physicians and health systems in shifting care to ASCs.

Dynamics Impacting Health Systems

Many hospitals and health systems anticipate strategic and financial challenges stemming from healthcare reform and growing efforts to contain healthcare costs. In response, many health systems are focused on strategies to reduce operating costs, build market share, align with physicians, create additional service lines, expand their geographic footprint and prepare for new payment models, including ACOs. ACOs are networks of doctors, hospitals and other healthcare providers who share responsibility for providing coordinated care to patients with the goal of improving quality and reducing overall spending. As a result, a growing number of health systems are entering into strategic partnerships with select provider organizations that can provide focused expertise, scaled operating systems, best practices, speed of execution and financial capital.

Increased Pressure on Physicians and Physician Groups

Physicians in many markets are increasingly interested in aggregating and entering into affiliations with an operating partner that can help ensure the continued growth and efficiency of their practices. Uncertainty regarding reimbursement, along with increased financial and administrative burdens resulting from healthcare legislation, has contributed to this trend. As a result, physicians in many markets are pursuing partnerships with large surgical groups, multi-specialty groups and health systems in order to gain greater stability, access to scaled clinical and operating systems and a pathway to participating in new payment models. This is creating opportunities for providers with expertise in and a track record of structuring partnerships with physicians and other health care participants.

Continued Provider Consolidation Driven by Changing Environment

We believe that consolidation among healthcare providers and health plans will continue due to cost pressures, a changing regulatory environment and the requirements imposed by new payment and delivery models. Our industry remains highly fragmented relative to other healthcare sectors, with the three largest companies in our industry operating an aggregate of only 13% of approximately 5,500 Medicare-certified ASCs in the United States as of December 31, 2016. We expect consolidation to continue, as larger operators like us bring to bear the benefits of systems, processes and larger-scale relationships.

Our Competitive Strengths

We believe that we are well-positioned to continue growing, due to: (1) our commitment to outstanding patient care; (2) our experience and capability in partnering with health plans, medical groups and health systems; and (3) the sophistication and capability of our team and our operating systems. We believe the increasing focus of the U.S. healthcare market on enhancing quality of care, the patient experience and the cost-effectiveness of healthcare aligns with our competitive strengths:

Diversified Growth Strategy

Our business model is focused on building strategic relationships with leading health plans, medical groups and health systems to invest in, develop and operate facilities, including de novo facilities, which are newly developed ASCs, in an aligned economic model. The alignment of strategic and financial interests through shared ownership is an integral component of our ability to achieve strong results—clinically, operationally and financially. We believe that our business model positions us for continued growth:

Strong same-site growth.   We believe that several factors will contribute to continued same-site growth: (1) our strong physician satisfaction, (2) the continued focus of our regional facility leadership on physician recruitment, leveraging our tools and systems, (3) the fact that a significant majority of our facilities are multi-specialty (179 of our 205 affiliated facilities), (4) a payor mix weighted toward non-governmental payors (66% of our consolidated net patient revenues and 73% of net patient revenues at our nonconsolidated facilities for the year-ended December 31, 2016 came from commercial payors), and (5) our focus on high acuity, complex procedures and new service line procedures.

 

Growth of health plan partnerships. We are developing strategic partnerships with an increased number of health plans, and we believe these types of partnerships can generate same-site and acquisition-driven growth.  For example, certain of our facilities are financially accountable to a health plan for the quality of care provided at the facility by its affiliated surgeons, and they partner with

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health plans to develop and operate programs that provide physicians with incentives to choose our lower cost ASCs and surgical hospitals when clinically appropriate .

 

Growth of medical group partnerships. We have developed strategic partnerships with large medical groups, and we believe these types of partnerships can drive continued same-site and acquisition-driven growth.  These partnerships typically involve the medical group investing in our ASC or surgical hospital joint venture and having a seat on the governing board of the facility to help guide clinical programs at the facility.

 

Growth of health system partnerships. We have partnered with many leading health systems in the country, and these partnerships can create an opportunity for continued growth through expanding our footprint of facilities in the markets of our health system partners. These partnerships typically involve the health system investing in ASCs with us and surgeons, with the health system often providing certain management services to the facility (such as managed care contracting) alongside SCA.

 

Strategic investments . Our partnership model focused on local market alignment enables us to be a strategic investor in multiple geographic markets within the fragmented ASC industry. From January 1, 2011 to December 31, 2016, we invested in or entered into management agreements with 64 facilities in our existing markets and 73 facilities in new markets. Also during this same time period, we placed into operation three de novo facilities in existing markets and one de novo facility in a new market.   

Leading National Brand and Scaled Franchise

We believe that a healthcare environment characterized by cost pressure, regulatory change, increased consumerism and consolidation favors large scale operators with strong reputations. We are one of the largest operators of surgical facilities in the United States with 197 ASCs and seven surgical hospitals operating in 33 states. Our national scale and the reputation we have developed helps us to establish strategic partnerships with health plans, medical groups and health systems. Our scale also allows us to invest in capabilities that we can leverage across a large network of opportunities and facilities, including comparative performance analytics, cost of care analytics, senior managed care resources, new service line development resources and supply chain resources. Our facilities have also developed a strong reputation among patients in our communities as a result of our focus on patient care and clinical quality. We provide each patient with a survey regarding their experience at our facilities either by an electronic survey or through traditional mail. According to our patient surveys conducted during 2016, our Net Promoter Score average was approximately positive 91. The Net Promoter Score is a nationally recognized measure of loyalty ranging from negative 100 to positive 100 based on asking patients whether they would recommend our facilities to a friend or family member. The overall response rate for these surveys was approximately 22% in 2016, which represented an average of approximately 13,500 responses received per month.

Proprietary and Expanding Suite of Technology-Enabled Capabilities

We have developed proprietary capabilities that enable health plans, medical groups and health systems to optimize the patient experience, clinical outcomes and cost efficiency (which the Institute for Healthcare Improvement refers to as the “Triple Aim” of healthcare). Our proprietary technology tool set includes:

 

SCA Quality Index . We measure patient satisfaction, clinical outcomes and licensure and accreditation inspection readiness for each affiliated facility and combine those measures into our SCA Quality Index to drive continuous improvement clinically and to increasingly support the transition to new payment models.

 

SCA Insight TM . Our SCA Insight TM operating system provides detailed benchmarking of key operational measures (including on-time starts, turn-times and operating room utilization). Additionally it provides daily key performance indicator dashboards for volume growth, labor and supply expense metrics and revenue cycle performance.  These tools allow management to identify, monitor and adjust areas such as case mix, staffing and operating costs to improve overall performance .

 

Cost of care analytics. Our managed care analytics team performs total cost of care analytics on behalf of health plans and risk-bearing medical groups that help us design strategic partnerships and establish performance goals for those partnerships.

 

Supply chain management system . Our supply chain management system provides detailed analysis on supply cost management to improve purchasing efficiency and costs .

Our data-driven insight and ability to measure key performance indicators have been integral to achieving clinical and operational excellence and position us for success in the payment models of the future, such as ACOs, bundled payments and capitated models.

Strategic Partner to Physicians

The evolving healthcare landscape, including regulatory changes, increasing administrative burden, health plan consolidation, shifting competitive landscape and transition to new payment models is increasing pressure on physicians. We offer physicians an attractive solution to help them operate successfully in this environment as we design our facilities, structure our strategic

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relationships and adopt staffing, scheduling and clinical systems and protocols with the aim of increasing physicians’ productivity and promoting their professional and financial success. Our approximately 3 , 0 00 physician partners (as of December 31 , 201 6 ), many of whom are leading practitioners in their respective fields and geographies, value the efficiency and convenience that our facilities provide.

Our success in forming productive relationships with physicians is reflected in both the growth in the number of our physician partners and our Net Promoter Score of positive 89, which was derived from surveys completed by our physician partners and non-partner physician utilizers across 150 of our facilities during January 2017. The survey had an overall response rate of 78% from over 4,000 physicians surveyed.  The Net Promoter Score is a measure of loyalty ranging from negative 100 to positive 100 based on asking each of the physicians who utilize our facilities whether he or she would recommend performing cases at our facilities to a physician colleague.   We monitor physician satisfaction on a facility-by-facility basis and survey all of our physicians who actively utilize our facilities at least annually.  We utilize physician feedback to drive continuous improvement on a local and national basis to strengthen our position as the surgical partner of choice for physicians.

Proven Management Team

Our senior leadership team averages more than 15 years of experience in the healthcare industry and has transformed our strategic approach to partnering with health plans, medical groups and health systems to optimize surgical care. During the tenure of this management team, we have enhanced our focus on clinical outcomes and patient experience, and we have achieved significant growth in terms of the number of strategic partnerships and financial performance .

Our Business Strategy

We seek to improve the delivery of surgical care and to become the partner of choice for health plans, medical groups and health systems by:

 

Delivering outstanding patient care and clinical outcomes;

 

Driving strong and consistent same-site performance;

 

Growing existing strategic partnerships with health plans, medical groups and health systems;

 

Developing new strategic partnerships with health plans, medical groups and health systems;

 

Expanding into new service lines;

 

Establishing partnerships focused on value-based reimbursement; and

 

Consolidating a fragmented industry in attractive markets.

Delivering Outstanding Patient Care and Clinical Outcomes

We are committed to outstanding patient care and clinical quality. Our culture and operating systems reinforce this focus and commitment. We measure patient satisfaction, clinical outcomes and licensure and accreditation inspection readiness for each affiliated facility and combine those measures into our SCA Quality Index, which we monitor closely to identify areas for improvement and to track progress. We also develop and implement clinical toolkits, clinical training and best practice sharing across our network to drive ongoing improvement in clinical outcomes. Our Regional Quality Councils (“RQCs”) model allows us to develop tools and resources, provide education and communicate clinical best practices.  All of our affiliated facilities have a designated clinical leader to monitor patient outcomes and lead performance improvement initiatives. Our facilities’ clinical leaders are encouraged to participate in regional quality meetings of the RQCs. We have also developed focused training resources that are available to physicians, nurses and surgical technicians at our affiliated facilities, including through a proprietary learning computer portal called the Clinical Excellence Universe (or “CEU”). Our training programs include new teammate trainings, telephone and web conferences focusing on key clinical issues, continuing education programs, leadership development programs and initiatives aimed at enhancing our culture of patient safety.

Driving Strong and Consistent Same-Site Performance

Achieving strong performance on a same-site basis is important for us to drive organic revenue growth as well as support consistent operating performance for us and our partners. We believe that our strategic partnerships align incentives so that we and our partners can achieve improved long-term performance. We also believe that our ability to affiliate with physicians as an extension of their practices is an important driver to sustained same-site performance. Our clinical protocols and tools are designed to improve physician productivity and increase the number of procedures performed in our facilities while improving both physician and patient satisfaction. In addition, our ability to attract physicians through recruitment initiatives provides an additional opportunity for us to drive same-site growth. This alignment with physicians has contributed to annual same site consolidated net operating revenues

8


growth of 3.0 % in 201 6 , 8. 5 % in 2015 and 4.7 % in 2014 and annual same site systemwide net operating revenues growth of 6.7 % in 201 6 , 8.1% in 2015 and 3.1% in 2014 . We have shown an ability to improve facility-level profitability by gaining physician alignment around more efficient supply utilization, reducing clinical variation, more effectively contracting with payors and lowering administrative costs.

Growing Existing Strategic Partnerships with Health Plans, Medical Groups and Health Systems

We intend to continue growing the number of facilities in our existing partnerships with health plans, medical groups and health systems. Our aligned model incentivizes our partners to work closely with us to identify strategically important and financially accretive growth opportunities in the markets we serve. Our experience has shown that demonstrated results in achieving exceptional patient care and strong physician partnerships have encouraged our partners to expand their relationships with us.  

Developing New Strategic Partnerships with Health Plans, Medical Groups and Health Systems

We are focused on developing new strategic partnerships with health plans, medical groups and health systems. We believe that our capabilities and our experience with existing strategic partnerships position us strongly to secure additional strategic partnerships. The growing focus on improving the quality of care while reducing the total cost of care makes our partnership model more relevant to health plans, medical groups and health systems, given that surgery represents close to 30% of total medical spending according to management estimates. There is a significant opportunity to enhance care while materially reducing cost by leveraging high-quality, high-efficiency ASCs and surgical hospitals.

Leveraging Our Core Competencies to Expand into New Service Lines

We intend to leverage significant expertise related to the provision of surgical solutions in the form of expansion into new lines of service. For example, we have significantly grown our total joint replacement and complex spine procedure service lines over the past several years. Improvements in surgical technology and technique, along with improvements in the delivery of anesthesia, have allowed more of these complex cases to migrate to the surgery center environment, and we have invested to grow the number of programs, the number of physicians and the number of cases we perform.

Similarly, we are investing to enhance our capabilities to provide routine cardiovascular and peripheral vascular procedures in the surgery center environment. Similar to total joint replacements and complex spine procedures, we believe that there is a significant opportunity to enhance care and materially reduce the total cost of routine cardiovascular and peripheral vascular care by leveraging high-quality, high-efficiency ASCs and surgical hospitals.

Establishing Partnerships that Take Advantage of Value-Based Reimbursement

We expect the increasing focus on value-based reimbursement to enable additional strategic partnerships with health plans, medical groups and health systems.  Value-based reimbursement refers to new payment models that tie the provider’s payment for services to the predetermined quality outcomes.

For example, one of our strategic medical group partners is a large, integrated multi-specialty physician group that manages capitated risk for both senior lives (Medicare) and commercial lives. This partner was one of the original five ACOs piloted under a Dartmouth College/Brookings Institute-supported initiative in ACO healthcare delivery. As of December 31, 2016, we had seven joint venture surgical facilities with this physician group, and we have been able to meaningfully improve the cost of surgical care for their population through our strategic partnership.

As another example, we entered into a commercial bundled payment program for total joint replacements with a major health plan for one of our facilities. The health plan chose to partner with SCA on this bundled payment program because we demonstrated an ability to have strong patient outcomes and patient satisfaction while materially reducing total episode cost through actively managing the patients throughout the process and aligning the interests of the various providers pre- and post-surgery.

Consolidating a Fragmented Industry in Attractive Markets

We expect to continue our acquisition activity as we partner with more health plans, medical groups and health systems and as we expand our existing strategic partnerships. We believe that our scale, operational expertise and value-added services and solutions differentiate us and provide us with the ability to selectively invest in attractive assets in attractive markets where we can create value, both in the near term as well as over the longer term. We plan to continue to leverage our proven strategy for target identification, thorough diligence, transaction execution and integration, which we have systematically implemented in the investment in 58 consolidated and 55 nonconsolidated facilities from January 1, 2011 to December 31, 2016.

9


Operations

General

Our operations consist primarily of our ownership and management of ASCs and surgical hospitals. Our affiliated facilities provide the space, equipment and medical support staff necessary for physicians to perform non-emergency surgical procedures. Our typical ASC is a freestanding facility with fully-equipped operating and procedure rooms and ancillary areas for reception, preparation, recovery and administration. Our surgical hospitals provide medical services similar to those provided by our ASCs and can also accommodate more complex procedures, some of which require patients to stay overnight. The typical staff of an affiliated facility includes an administrator/CEO, registered nurses and operating room technicians, as well as personnel in a business office performing tasks such as billing and collecting. In addition, at each facility, a physician who serves as the medical director is responsible for medical direction and certain administrative services at the facility, including ensuring that clinical activities are performed in accordance with the facility’s policies and procedures and serving as a liaison between the facility’s administration and its medical staff. Our facilities generally have service agreements with anesthesiologists and certified registered nurse anesthetists (“CRNAs”) to provide anesthesiology services. Generally, those anesthesiologists and CRNAs are independent contractors of the facilities and are responsible for their own clinical and billing activities; in a few cases, those individuals are employed by the facility. Otherwise, the physicians who utilize our facilities are not employees of SCA or our facilities. We typically assist each of our facilities by ensuring they are strategically aligned in their markets with the right physician partnerships and appropriate health plan contracts.

Each affiliated facility is licensed in accordance with local and state requirements. All of our facilities are also certified as Medicare providers. Our facilities are available for use only by licensed physicians and other qualified healthcare providers. To ensure consistent quality of care, each facility has a medical executive committee comprised of local physicians that reviews the qualifications of each physician who applies to practice at the facility. In addition, as of December 31, 2016, the vast majority of our facilities were accredited by either The Joint Commission or the Accreditation Association for Ambulatory Health Care (“AAAHC”), the two major national organizations that establish standards relating to the physical plant, administration, quality of patient care and operation of medical staffs of various types of healthcare facilities. We believe that accreditation is the quality benchmark used by commercial health plans for inclusion of a facility in their network. Some health plans may not include a facility in their network unless the facility is accredited.  

Billing and Payment

Our affiliated facilities derive their net patient revenues by collecting institutional fees from patients, insurance companies, government programs and other third-party payors in exchange for the provision of surgical procedures. The surgeons and, in most cases, anesthesiologists and CRNAs at our affiliated facilities bill their patients and other payors directly for their professional services; therefore, such services are not billed by our facilities.

Each affiliated facility uses a patient accounting system to manage scheduling, billing and collection, accounts receivable management and other essential operational functions. We have implemented systems to centralize financial data from most affiliated facilities into our corporate data systems. These systems support our access to information on a timely basis.

Revenues at our affiliated facilities consist primarily of net patient service revenues that are recorded based upon established billing rates less allowances for contractual adjustments and bad debts. Revenues are recorded during the period in which the healthcare services are provided, based upon the estimated amounts due from patients and third-party payors, including commercial health plans, employers, workers’ compensation plans and federal and state agencies (under the Medicare and Medicaid programs). We utilize the payment history specific to each affiliated facility by health plan to record estimated contractual allowances and allowances for bad debts, and we employ other analytical tools to ensure the appropriateness of these estimates. Third-party payor contractual payment terms are generally based upon predetermined rates per procedure or discounted fee-for-service rates.

It is our general practice, where possible, to verify a patient’s insurance and collect estimated co-payments prior to rendering services. Claims are submitted electronically if the health plan accepts electronic claims. We require claims submitted to third-party health plans to be paid within timeframes that are generally consistent with industry standard practices, which vary based upon health plan type.

In general, we or our health system partners negotiate contracts directly with non-governmental payors and employers. The rates paid by governmental agencies are set by such agencies and are not subject to negotiation. We market our affiliated facilities directly to non-governmental payors and employers in order to communicate the cost advantages of surgery centers versus hospitals. Health plan marketing and engagement activities are conducted by a specialized team with input from our physician partners. We emphasize the high-quality healthcare, cost advantages and convenience of our affiliated facilities.

Patients are generally not responsible for the difference between our established charges and amounts reimbursed for such services under Medicare, Medicaid and negotiated health plan contracts, but they are responsible for any exclusions, deductibles, co-payments or coinsurance features of their coverage.

10


Clinical and Operating Systems

We have developed a number of tools to track and compare results from our affiliated facilities and across our network. We believe these systems are an important strength and provide us data to improve results, training and efficiency across our affiliated facilities.

Our clinical systems allow detailed benchmarking of clinical outcomes endorsed by the National Quality Forum, patient satisfaction and accreditation inspection readiness. We have extensive tools to prepare for regulatory surveys. We strongly encourage all of our ASCs and surgical hospitals to seek and to maintain accreditation by an independent agency, either The Joint Commission or the AAAHC. All of our facilities that have sought such accreditation have successfully completed the survey process and have received a three-year term of accreditation, which is only provided after the accrediting organization has concluded that the facility is in substantial compliance with the relevant organizational standards. Our clinical resource system, the CEU, offers best practice tools and education programs tailored to our approximately 3,700 clinical teammates, as of December 31, 2016, across the country.

Our operating systems provide detailed benchmarking of key operational measures (including on-time starts, turn-times, staffing ratios and supply expense metrics). Management uses these tools to measure operating results against target thresholds and to identify, monitor and adjust areas such as case mix, staffing, operating costs, teammate expenses and accounts receivable management.

Our SCA Insight TM operating system provides detailed labor cost, supply cost and contribution margin data by procedure code, physician, facility and payor. This SCA Insight TM data allows us to work with our physicians to benchmark their performance on a detailed level and show them precise steps they can take to optimize clinical, operational and financial results. We also have a dedicated supply chain team that works with our facilities and affiliated physicians across the country to aggregate the approximately $458 million spent on surgical supplies in 2016 and to use that purchasing power to negotiate more favorable company-wide contracts with vendors.

Our detailed data also allows us to work in partnership with health plans to optimize the cost of surgery for their covered members. Surgery is one of the largest components of medical costs, typically representing approximately 30% of total medical spending for individuals with commercial insurance, according to our estimates. Because of this, we are increasingly focused on working with commercial health plans, Medicare Advantage plans and capitated physician groups to help them reduce the total medical spend (or rate of medical spend growth) while maintaining or improving the quality of care and the patient experience offered to their respective patient populations.

Facility Level Ownership Structure

Almost all of our affiliated facilities are owned in partnership with local physicians. As of December 31, 2016, we had approximately 3,000 physician partners. While the amount of physician ownership in our facilities ranges widely based on local market conditions, it typically ranges from 25% to 55%. When we partner with a health system in a three-way joint venture with physicians, we typically hold a non-controlling ownership interest in a holding company that owns a majority or controlling ownership interest in the facility, and the health system partner holds the controlling interest in the holding company.

Our facilities are organized as limited partnerships (“LPs”), general partnerships, limited liability companies (“LLCs”) or limited liability partnerships (“LLPs”). In ventures that do not include a health system partner, we typically serve as the general partner (or its equivalent) of the entity, as well as the day-to-day manager of the facility owned by the entity. In our three-way joint ventures that include a health system partner, we typically serve as a noncontrolling member of an LLC that is co-owned with the health system, and that LLC serves as the general partner (or its equivalent) of the facility. In such three-way ventures, we typically enter into a management agreement to handle most of the day-to-day management functions for the facilities owned by the LLC, and the health system negotiates fee schedules with payors and provides other miscellaneous services.

Our affiliated facilities typically pay a monthly management fee to us and, where we have an ownership interest, a monthly or quarterly pro rata distribution of cash in excess of current obligations, less amounts held in reserve for working capital and certain other anticipated expenditures. The partnership and LLC agreements typically provide for, among other things, limited voting rights for our limited partners and limited rights to transfer ownership interests. We have developed a “model” agreement that includes provisions to restrict a physician partner from owning an interest in a competing ASC or surgical hospital during the period in which the physician owns an interest in our facility and for a period of two years after they no longer own an interest in our facility. Similarly, our model agreement for ASCs requires our physician partners to certify that they are using the applicable facility in a way that is consistent with the regulatory guidance on what constitutes use of the facility as an “extension of their office practice.” In multi-specialty ASCs, this means, among other things, that at least one-third of their eligible cases must be performed at our facility. These provisions give us (or our health system partner) the right to repurchase equity from physician partners who do not meet this threshold. Our agreements also typically give us the right, but do not require us, to repurchase equity interests from physician partners who retire or trigger certain other repurchase provisions in the agreements. However, some of our agreements do not include some or any of these model provisions.

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Many of our operating agreements have termination dates upon which the agreement expires by its terms.  Most of these termination dates are many years in the future. In situations where a termination date is approaching, if we wish to continue the business, we attempt to negotiate an extension of the agreement. See “Risk Factors — Risks Related to Our Business — Certain of our partnership and operating agreements contain termination dates that will require us to amend and possibly renegotiate such agreements if we want to continue the business.”

In addition, certain of our agreements contain provisions that give our partners or other members rights that include, but are not limited to, rights to purchase our interest, rights to require us to purchase the interests of our partners or other members, or rights requiring the consent of our partners and other members prior to our transferring our ownership interest in a facility, or prior to a change in control of us or certain of our subsidiaries.

Almost all of our partnership and operating agreements contain restrictions on actions that we can take, even though we may be the general partner or the managing member, including rights of our partners and other members to approve the sale of substantially all of the assets of the entity, to dissolve the partnership or LLC and to amend the partnership or operating agreement. Many of our agreements also restrict our ability in certain instances to compete with our existing facilities or with our partners. Where we hold only a limited partner or a non-managing member interest, the general partner or managing member may take certain actions without our consent, although we typically have certain protective rights to approve major decisions, such as the sale of substantially all of the assets of the entity, the dissolution of the partnership or LLC and the amendment of the partnership or operating agreement. See “Risk Factors — Risks Related to Our Business — Certain of our partnership and operating agreements contain provisions giving rights to our partners and other members that may be adverse to our interests.”

Further, some of our partnership and LLC agreements provide that the partnership, LLC, general partner or managing member, as applicable, will purchase all of the physicians’ ownership interests at fair market value if certain regulatory events occur, including, for example, if it becomes illegal for the physicians to own an interest in a facility, refer patients to a facility or receive cash distributions from a facility. See “Risk Factors — Risks Related to Healthcare Regulation — If laws or regulations governing physician ownership of our facilities change, we may be obligated to purchase some or all of the ownership interests of our physician partners or renegotiate some of our partnership and operating agreements with our physician partners and management agreements with our surgical facilities.” From time to time, we may extend loans to the partnerships or LLCs on commercially reasonable and fair market value terms in order to fund capital expenditures, leasehold improvements or other cash requirements. See “Risk Factors — Risks Related to Our Business — We make significant loans to the partnerships and LLCs that own and operate certain of our facilities.”

Resyndications

We periodically provide physicians who use our facilities the opportunity to purchase ownership interests (or increase their ownership interests) in those facilities, which we call “resyndication.” We believe that periodic resyndication of ownership interests helps our facilities maintain a core group of physicians who actively use the facility as an extension of their office practice and are incentivized to ensure that the facilities make the necessary investments and follow the necessary practices to provide high-quality and cost-efficient patient care services.

In addition to selling our equity interest, a key component of our resyndication strategy is repurchasing equity interests from existing physician partners and re-selling that equity to non-partner physicians or to other existing physician partners. Where feasible, we seek to redistribute equity from existing to new physician partners before selling our own equity or new equity in our facilities. However, we will continue to sell portions of our existing ownership where we believe it is in our overall best interest.

Case and Payor Mix

We seek to maintain diversity of case mix in our portfolio to insulate us from potential negative effects that could stem from emphasizing one particular case type. The following chart breaks down our consolidated net patient revenues by specialty and by type of payor for the year-ended December 31, 2016.

12


 

Case Mix

 

 

 

 

 

 

 

Payor Mix

 

 

 

 

 

 

 

YEAR-ENDED

 

 

 

 

 

 

YEAR-ENDED

 

 

 

 

DECEMBER 31,

 

 

 

 

 

 

DECEMBER 31,

 

 

 

 

2016

 

 

 

 

 

 

2016

 

 

Orthopedic

 

 

31

%

 

 

 

Managed care and other discount plans

 

 

66

%

 

Ophthalmology

 

 

14

 

 

 

 

Medicare

 

 

20

 

 

Gastroenterology

 

 

13

 

 

 

 

Workers’ compensation

 

 

7

 

 

ENT

 

 

8

 

 

 

 

Patients and other third-party payors

 

 

4

 

 

Pain

 

 

7

 

 

 

 

Medicaid

 

 

3

 

 

General Surgery

 

 

27

 

 

 

 

 

 

 

 

 

 

Total

 

 

100

%

 

 

 

Total

 

 

100

%

 

Seasonality

In recent years, our facilities have experienced a disproportionate allocation of payor mix throughout the year. Our facilities typically see a relatively higher percentage of patients with governmental health insurance in the first half of the year and a relatively higher percentage of patients with commercial health insurance in the second half of the year. We believe this pattern is a result of the continuing trend of commercial health plans and employer sponsored benefit plans increasing annual patient deductibles which is in turn causing some patients to delay surgery until later in the year, after their higher deductible has been met.

13


Facilities

The following table sets forth information relating to our facilities and corporate offices as of December 31, 2016:

 

Facility

 

Location

 

Date of Acquisition or Affiliation (1)

 

Capacity (2)

ORs

 

 

Capacity (2)

PRs

 

 

Our Beneficial Ownership Percentage (3)

 

Alabama

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

*Birmingham Outpatient Surgery Center, Ltd.

 

Birmingham, AL

 

6/29/2007

 

8

 

 

1

 

 

 

28.5%

 

*Florence Surgery Center, L.P.

 

Florence, AL

 

6/29/2007

 

4

 

 

 

 

 

 

50.0%

 

*Gadsden Surgery Center, Ltd.

 

Gadsden, AL

 

6/29/2007

 

4

 

 

2

 

 

 

57.5%

 

*Mobile-SC, LTD.

 

Mobile, AL

 

6/29/2007

 

4

 

 

3

 

 

 

33.0%

 

Surgery Center of Cullman, LLC

 

Cullman, AL

 

6/29/2007

 

4

 

 

3

 

 

 

33.3%

 

*Surgicare of Mobile, Ltd.

 

Mobile, AL

 

6/29/2007

 

5

 

 

3

 

 

 

20.0%

 

*Tuscaloosa Surgical Center, L.P.

 

Tuscaloosa, AL

 

6/29/2007

 

5

 

 

7

 

 

 

30.0%

 

Alaska

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

*Alaska Spine Center LLC

 

Anchorage, AK

 

5/1/2014

 

3

 

 

 

 

 

 

37.8%

 

*Alaska Surgery Center, Limited Partnership

 

Anchorage, AK

 

6/29/2007

 

8

 

 

1

 

 

 

37.8%

 

Arizona

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Banner Desert Surgery Center, L.P.

 

Mesa, AZ

 

4/1/2016

 

7

 

 

1

 

 

Managed-Only

 

Banner Estrella Surgery Center, L.P.

 

Phoenix, AZ

 

4/1/2016

 

4

 

 

2

 

 

Managed-Only

 

Surgical Specialty Hospital of Arizona, LLC

 

Phoenix, AZ

 

12/31/2014

 

4

 

 

1

 

 

 

34.7%

 

Surgicenter of America, L.P., an Arizona Limited Partnership

 

Phoenix, AZ

 

4/1/2016

 

7

 

 

3

 

 

Managed-Only

 

California

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Greater Los Angeles Facilities / Orange County Area

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

*Antelope Valley Surgery Center, L.P.

 

Lancaster, CA

 

6/29/2007

 

4

 

 

2

 

 

 

82.2%

 

*Arcadia Outpatient Surgery Center, L.P.

 

Arcadia, CA

 

6/29/2007

 

4

 

 

2

 

 

 

40.0%

 

Channel Islands Surgicenter, L.P.

 

Oxnard, CA

 

6/29/2007

 

3

 

 

3

 

 

 

29.4%

 

*Diagnostic and Interventional Surgical Center, LLC

 

Marina del Rey, CA

 

9/1/2014

 

3

 

 

 

 

 

 

51.0%

 

*Digestive Disease Center, L.P.

 

Laguna Hills, CA

 

12/31/2012

 

 

 

 

3

 

 

 

25.0%

 

*DISC Surgery Center at Newport Beach, LLC

 

Newport Beach, CA

 

9/1/2014

 

2

 

 

 

 

 

 

51.0%

 

*GLBESC, LLC

 

Long Beach, CA

 

6/29/2007

 

4

 

 

3

 

 

 

25.0%

 

*Glenwood Surgical Center, L.P.

 

Riverside, CA

 

6/29/2007

 

3

 

 

3

 

 

 

46.9%

 

*Golden Triangle Surgicenter, L.P.

 

Murrieta, CA

 

6/29/2007

 

3

 

 

1

 

 

 

72.0%

 

*Inland Surgery Center, L.P.

 

Redlands, CA

 

6/29/2007

 

4

 

 

1

 

 

 

43.4%

 

*MemorialCare Surgical Center at Orange Coast, LLC

 

Fountain Valley, CA

 

4/1/2013

 

4

 

 

3

 

 

 

26.6%

 

*MemorialCare Surgical Center at Saddleback, LLC (Saddleback)

 

Laguna Hills, CA

 

12/27/2012

 

4

 

 

6

 

 

 

25.3%

 

*MemorialCare Surgical Center at Saddleback, LLC (Laguna Woods)

 

Laguna Woods, CA

 

12/31/2007

 

4

 

 

1

 

 

 

25.3%

 

*MemorialCare Surgical Center at Saddleback, LLC (Laguna Niguel)

 

Laguna Niguel, CA

 

8/1/2014

 

2

 

 

1

 

 

 

25.3%

 

*PS Center, LLC

 

Costa Mesa, CA

 

4/1/2014

 

6

 

 

2

 

 

 

49.0%

 

*Surgicare of La Veta, Ltd., a California Limited Partnership

 

Orange, CA

 

6/29/2007

 

5

 

 

1

 

 

 

20.5%

 

*Surgicare of La Veta, Ltd., a California Limited Partnership (Barranca)

 

Irvine, CA

 

8/1/2014

 

2

 

 

1

 

 

 

20.5%

 

*Upland Outpatient Surgical Center, L.P.

 

Upland, CA

 

6/29/2007

 

2

 

 

1

 

 

 

92.8%

 

14


 

Facility

 

Location

 

Date of Acquisition or Affiliation (1)

 

Capacity (2)

ORs

 

 

Capacity (2)

PRs

 

 

Our Beneficial Ownership Percentage (3)

 

     Sacramento Facilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fort Sutter Surgery Center, a California Limited Partnership

 

Sacramento, CA

 

6/29/2007

 

5

 

 

4

 

 

 

26.0%

 

Sacramento Surgery Center Associates, L.P.

 

Sacramento, CA

 

1/1/2011

 

2

 

 

 

 

 

 

25.3%

 

South Placer Surgery Center, L.P.

 

Roseville, CA

 

5/1/2012

 

2

 

 

 

 

 

 

25.0%

 

Sutter Alhambra Surgery Center, L.P.

 

Sacramento, CA

 

6/29/2007

 

3

 

 

 

 

 

 

25.0%

 

     San Diego Facilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Center for Surgery of North Coast L.P.

 

Encinitas, CA

 

11/1/2016

 

4

 

 

 

 

 

 

25.1%

 

*Grossmont Surgery Center, L.P.

 

La Mesa, CA

 

6/29/2007

 

3

 

 

2

 

 

 

20.0%

 

*Pomerado Outpatient Surgical Center, L.P.

 

San Diego, CA

 

6/29/2007

 

4

 

 

1

 

 

 

56.8%

 

*San Diego Endoscopy Center

 

San Diego, CA

 

6/29/2007

 

 

 

 

3

 

 

 

45.0%

 

Surgical Center of San Diego, LLC

 

San Diego, CA

 

9/1/2016

 

3

 

 

2

 

 

 

25.0%

 

UCSD Ambulatory Surgery Center, LLC

 

San Diego, CA

 

11/30/2007

 

3

 

 

 

 

 

 

24.2%

 

     San Francisco Facilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

East Bay Endoscopy Center, L.P.

 

Emeryville, CA

 

7/1/2011

 

 

 

 

2

 

 

 

25.0%

 

Golden Gate Endoscopy Center, LLC

 

San Francisco, CA

 

7/1/2011

 

 

 

 

3

 

 

 

26.2%

 

Marin Health Ventures, LLC

 

Greenbrae, CA

 

8/1/2008

 

2

 

 

1

 

 

 

25.0%

 

Mountain View Endoscopy Center, LLC

 

Mountain View, CA

 

7/1/2011

 

 

 

 

1

 

 

 

20.0%

 

Peninsula Eye Surgery Center, LLC

 

Mountain View, CA

 

12/1/2012

 

2

 

 

1

 

 

 

26.6%

 

Presidio Surgery Center, LLC

 

San Francisco, CA

 

6/29/2007

 

5

 

 

1

 

 

Managed-Only

 

San Francisco Endoscopy Center LLC

 

San Francisco, CA

 

7/1/2011

 

 

 

 

3

 

 

 

8.0%

 

Santa Rosa Surgery Center, L.P.

 

Santa Rosa, CA

 

6/29/2007

 

5

 

 

4

 

 

 

20.2%

 

Walnut Creek Endoscopy Center LLC

 

Walnut Creek, CA

 

7/1/2011

 

 

 

 

2

 

 

 

25.0%

 

     Other California Facilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Auburn Surgical Center, L.P.

 

Auburn, CA

 

6/29/2007

 

2

 

 

1

 

 

 

42.5%

 

*Bakersfield Physicians Plaza Surgical Center, L.P.

 

Bakersfield, CA

 

6/29/2007

 

4

 

 

 

 

 

 

96.0%

 

Mirage Endoscopy Center, LP

 

Rancho Mirage, CA

 

6/1/2013

 

 

 

 

2

 

 

Managed-Only

 

North Coast Surgery Center, Ltd., a California Limited Partnership

 

Oceanside, CA

 

6/29/2007

 

4

 

 

 

 

 

 

34.1%

 

Redding Surgery Center, LLC

 

Redding, CA

 

10/1/2013

 

2

 

 

 

 

 

 

26.6%

 

San Luis Obispo Surgery Center, a California Limited Partnership

 

San Luis Obispo, CA

 

6/29/2007

 

3

 

 

 

 

 

 

47.8%

 

Santa Barbara Endoscopy Center, LLC

 

Santa Barbara, CA

 

7/1/2011

 

 

 

 

1

 

 

 

25.0%

 

*Santa Cruz Endoscopy Center, LLC

 

Santa Cruz, CA

 

7/1/2011

 

 

 

 

1

 

 

 

40.0%

 

Colorado

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Audubon Ambulatory Surgery Center, LLC (E. Woodmen)

 

Colorado Springs, CO

 

8/1/2015

 

6

 

 

1

 

 

 

18.8%

 

Audubon Ambulatory Surgery Center, LLC (North Circle)

 

Colorado Springs, CO

 

8/1/2015

 

7

 

 

2

 

 

 

18.8%

 

Pueblo Ambulatory Surgery Center Limited Partnership

 

Pueblo, CO

 

6/29/2007

 

5

 

 

 

 

 

 

12.3%

 

Surgery Center of Fort Collins, LLC

 

Fort Collins, CO

 

6/29/2007

 

4

 

 

 

 

 

 

25.0%

 

Connecticut

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

*Connecticut Surgery Center, Limited Partnership

 

Hartford, CT

 

8/22/2007

 

3

 

 

1

 

 

 

48.8%

 

*Danbury Surgical Center, L.P.

 

Danbury, CT

 

8/22/2007

 

4

 

 

2

 

 

 

47.5%

 

Norwalk Surgery Center, LLC

 

Norwalk, CT

 

6/1/2013

 

2

 

 

2

 

 

 

4.7%

 

River Valley ASC, LLC

 

Norwich, CT

 

11/1/2016

 

4

 

 

 

 

 

 

49.0%

 

*Surgery Center of Fairfield County, LLC

 

Trumbull, CT

 

8/22/2007

 

4

 

 

2

 

 

 

48.3%

 

The Surgical Center of Connecticut, LLC

 

Bridgeport, CT

 

11/1/2016

 

2

 

 

2

 

 

 

49.0%

 

15


 

Facility

 

Location

 

Date of Acquisition or Affiliation (1)

 

Capacity (2)

ORs

 

 

Capacity (2)

PRs

 

 

Our Beneficial Ownership Percentage (3)

 

Florida

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

*Alliance Surgical Center, LLC

 

Lake Mary, FL

 

11/1/2014

 

2

 

 

3

 

 

 

64.9%

 

            *Boca Raton Outpatient Surgery & Laser Center, LTD.

 

Boca Raton, FL

 

6/29/2007

 

6

 

 

2

 

 

 

30.0%

 

*Childrens Surgery Center LLC

 

Maitland, FL

 

8/1/2014

 

3

 

 

1

 

 

 

52.2%

 

            *Citrus Regional Surgery Center, L.P.

 

Lecanto, FL

 

6/29/2007

 

4

 

 

1

 

 

 

57.0%

 

*E Street Endoscopy, LLC

 

Clearwater, FL

 

8/2/2010

 

1

 

 

2

 

 

 

51.0%

 

              Emerald Coast Surgery Center, L.P.

 

Fort Walton Beach, FL

 

6/29/2007

 

5

 

 

3

 

 

 

10.0%

 

*Gladiolus Surgery Center, L.L.C.

 

Fort Myers, FL

 

4/1/2016

 

2

 

 

2

 

 

 

50.0%

 

            *Grove Place Surgery Center, L.L.C.

 

Vero Beach, FL

 

6/1/2016

 

2

 

 

4

 

 

 

52.6%

 

*Melbourne Surgery Center, LLC

 

Melbourne, FL

 

6/29/2007

 

5

 

 

2

 

 

 

68.3%

 

            *Miami Surgery Center, LLC

 

Doral, FL

 

12/1/2016

 

4

 

 

3

 

 

 

55.0%

 

*Orlando Center for Outpatient Surgery, L.P.

 

Orlando, FL

 

6/29/2007

 

5

 

 

1

 

 

 

66.2%

 

            *Sand Lake SurgiCenter, LLC

 

Orlando, FL

 

9/1/2014

 

3

 

 

2

 

 

 

49.5%

 

*Space Coast Surgical Center, Ltd.

 

Merritt Island, FL

 

3/1/2016

 

4

 

 

 

 

 

 

50.1%

 

            *Specialists in Urology Surgery Center, LLC (Bonita Springs)

 

Bonita Springs, FL

 

4/1/2015

 

2

 

 

 

 

 

 

60.0%

 

*Specialists in Urology Surgery Center, LLC (Fort Myers)

 

Fort Myers, FL

 

4/1/2015

 

1

 

 

1

 

 

 

60.0%

 

            *Specialists in Urology Surgery Center, LLC (Naples)

 

Naples, FL

 

4/1/2015

 

2

 

 

1

 

 

 

60.0%

 

*Winter Park Surgery Center, L.P.

 

Winter Park, FL

 

6/29/2007

 

6

 

 

2

 

 

 

18.1%

 

Georgia

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Atlanta Facilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

*Perimeter Center for Outpatient Surgery, L.P.

 

Atlanta, GA

 

6/29/2007

 

4

 

 

2

 

 

 

37.2%

 

     Other Georgia Facilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gainesville Surgery Center, L.P.

 

Gainesville, GA

 

6/29/2007

 

4

 

 

2

 

 

 

43.1%

 

*Surgery Center of Athens, LLC

 

Athens, GA

 

11/30/2015

 

4

 

 

1

 

 

 

53.0%

 

Hawaii

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

*Aloha Surgical Center, LLC

 

Kahului, HI

 

6/29/2007

 

4

 

 

 

 

 

 

74.0%

 

Castle Ambulatory Surgery Center, LLC

 

Kailua, HI

 

6/1/2013

 

2

 

 

2

 

 

 

10.2%

 

Honolulu Surgery Center, L.P.

 

Honolulu, HI

 

6/29/2007

 

5

 

 

2

 

 

 

48.4%

 

Idaho

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

*Treasure Valley Hospital Limited Partnership

 

Boise, ID

 

6/29/2007

 

6

 

 

10

 

 

 

41.1%

 

Illinois

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Advocate Southwest Ambulatory Surgery Center, L.L.C.

 

Tinley Park, IL

 

12/1/2016

 

4

 

 

1

 

 

Managed-Only

 

*Belleville Surgical Center, Ltd., an Illinois Limited Partnership

 

Belleville, IL

 

2/1/2008

 

4

 

 

 

 

 

 

78.6%

 

*Beville Surgical Center, Ltd., an Illinois Limited Partnership (West Lincoln)

 

Belleville , IL

 

9/1/2014

 

1

 

 

1

 

 

 

78.6%

 

*Hawthorn Place Outpatient Surgery Center, L.P.

 

Vernon Hills, IL

 

2/1/2008

 

5

 

 

1

 

 

 

38.0%

 

*Joliet Surgery Center Limited Partnership

 

Joliet, IL

 

11/1/2009

 

4

 

 

2

 

 

 

50.8%

 

*Loyola Ambulatory Surgery Center at Oakbrook, L.P.

 

Oakbrook Terrace, IL

 

2/1/2008

 

3

 

 

 

 

 

 

45.0%

 

*Midwest Center for Day Surgery, LLC

 

Downers Grove, IL

 

12/1/2016

 

5

 

 

1

 

 

 

26.0%

 

Naperville Surgical Centre, LLC

 

Naperville, IL

 

6/1/2016

 

4

 

 

 

 

 

 

12.8%

 

*Northwest Surgicare, Ltd., an Illinois Limited Partnership

 

Arlington Heights, IL

 

2/1/2008

 

4

 

 

1

 

 

 

57.0%

 

Palos Hills Surgery Center LLC

 

Palos Hills, IL

 

12/1/2016

 

2

 

 

 

 

 

Managed-Only

 

*Southwest Surgery Center, LLC

 

Mokena, IL

 

10/1/2015

 

4

 

 

1

 

 

 

60.0%

 

*Winchester Endoscopy, LLC

 

Libertyville, IL

 

1/21/2016

 

 

 

 

2

 

 

 

51.0%

 

16


 

Facility

 

Location

 

Date of Acquisition or Affiliation (1)

 

Capacity (2)

ORs

 

 

Capacity (2)

PRs

 

 

Our Beneficial Ownership Percentage (3)

 

Indiana

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Indianapolis Facilities