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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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For the fiscal year ended December 31, 2004 |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period
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Commission file number 001-12111
PEDIATRIX MEDICAL GROUP, INC.
(Exact name of registrant as specified in its charter)
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Florida
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65-0271219 |
(State or other jurisdiction of
incorporation or organization) |
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(I.R.S. Employer
Identification No.) |
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1301 Concord Terrace, |
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33323 |
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Sunrise, Florida |
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(Zip Code) |
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(Address of principal executive offices) |
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(954) 384-0175
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the
Act:
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Name of Each Exchange on Which Registered |
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Common Stock, par value $.01 per share
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New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the
Act:
Preferred Share Purchase Rights
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 þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K (§229.405
of this chapter) 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. þ
Indicate by check mark whether the registrant is an accelerated
filer (as defined in Securities Exchange Act
Rule 12b-2). Yes þ No o
The aggregate market value of shares of Common Stock of the
registrant held by non-affiliates of the registrant on
June 30, 2004, the last business day of the
registrant’s most recently completed second fiscal quarter,
was approximately $1,698,751,000 based on a $69.85 closing price
per share as reported on the New York Stock Exchange composite
transactions list on such date.
The number of shares of Common Stock of the registrant
outstanding on March 7, 2005, was 22,782,260
DOCUMENTS INCORPORATED BY REFERENCE:
The registrant’s definitive proxy statement to be filed
with the Securities and Exchange Commission pursuant to
Regulation 14A, with respect to the 2005 annual meeting of
shareholders is incorporated by reference in Part III of
this Form 10-K to the extent stated herein. Except with
respect to information specifically incorporated by reference in
this Form 10-K, each document incorporated by reference
herein is deemed not to be filed as a part hereof.
PEDIATRIX MEDICAL GROUP, INC.
ANNUAL REPORT ON FORM 10-K
For the Year Ended December 31, 2004
INDEX
FORWARD-LOOKING STATEMENTS
Certain information included or incorporated by reference in
this Annual Report may be deemed to be “forward-looking
statements” within the meaning of the Private Securities
Litigation Reform Act of 1995, Section 27A of the
Securities Act of 1933, and Section 21E of the Securities
Exchange Act of 1934. Forward-looking statements may include,
but are not limited to, statements relating to our objectives,
plans and strategies, and all statements (other than statements
of historical facts) that address activities, events or
developments that we intend, expect, project, believe or
anticipate will or may occur in the future are forward looking
statements. These statements are often characterized by
terminology such as “believe”, “hope”,
“may”, “anticipate”, “should”,
“intend”, “plan”, “will”,
“expect”, “estimate”, “project”,
“positioned”, “strategy” and similar
expressions, and are based on assumptions and assessments made
by our management in light of their experience and their
perception of historical trends, current conditions, expected
future developments and other factors they believe to be
appropriate. Any forward-looking statements in this Annual
Report are made as of the date hereof, and we undertake no duty
to update or revise any such statements, whether as a result of
new information, future events or otherwise. Forward-looking
statements are not guarantees of future performance and are
subject to risks and uncertainties. Important factors that could
cause actual results, developments and business decisions to
differ materially from forward-looking statements are described
in this Annual Report, including the risks set forth under
“Risk Factors” in Item 1.
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PART I
As used in this Annual Report, unless the context otherwise
requires, the terms “Pediatrix”, the
“Company”, “we”, “us” and
“our” refer to Pediatrix Medical Group, Inc., a
Florida corporation, and its consolidated subsidiaries
(collectively, “PMG”), together with PMG’s
affiliated professional associations, corporations and
partnerships (“affiliated professional contractors”).
PMG has contracts with its affiliated professional contractors,
which are separate legal entities that provide physician
services in certain states and Puerto Rico.
OVERVIEW
Pediatrix is the nation’s largest health care services
company focused on physician services for newborn,
maternal-fetal and other pediatric subspecialty care. Our
national network is comprised of approximately 776 affiliated
physicians, including 603 neonatal physician specialists who
provide clinical care in 31 states and Puerto Rico,
primarily within hospital-based neonatal intensive care units
(called “NICUs”), to babies born prematurely or with
medical complications. Our affiliated neonatal physician
specialists staff and manage clinical activities at more than
220 hospitals, and our 86 affiliated maternal-fetal medicine
subspecialists provide care to expectant mothers experiencing
complicated pregnancies in many areas where our affiliated
neonatal physicians practice. Our network includes other
pediatric subspecialists, including 44 pediatric intensivists,
28 pediatric cardiologists and 15 pediatric hospitalists. In
addition, we believe that we are the nation’s largest
provider of hearing screens to newborns and the nation’s
largest private provider of metabolic screening services to
newborns.
Pediatrix Medical Group, Inc. was incorporated in Florida in
1979. Our principal executive offices are located at 1301
Concord Terrace, Sunrise, Florida 33323, and our telephone
number is (954) 384-0175.
Our Operations
The following discussion describes the components of our
services.
Physician Services. Our principal mission is the
provision of comprehensive clinical care to babies born
prematurely or with medical complications and to expectant
mothers experiencing complicated pregnancies.
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Neonatal Care. We provide clinical care to babies born
prematurely or with complications within specific units at
hospitals, primarily NICUs, through a team of experienced
neonatal physician specialists (called
“neonatologists”), neonatal nurse practitioners and
other pediatric clinicians. Neonatologists are board-certified
or board eligible pediatricians who have extensive education and
training for the care of babies born prematurely or with
complications that require complex medical treatment. Neonatal
nurse practitioners are registered nurses who have advanced
training and education in managing health care needs of
newborns, infants and their families. |
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Maternal-Fetal Care. Our operations also include
outpatient and inpatient clinical care to expectant mothers
experiencing complicated pregnancies and their unborn babies
through our affiliated maternal-fetal medicine subspecialists
and other clinicians, such as maternal-fetal nurses, certified
mid-wives, ultrasonographers and genetic counselors.
Maternal-fetal medicine subspecialists are board-certified
obstetricians who have extensive education and training for the
treatment of high-risk expectant mothers and their fetuses. Our
affiliated maternal-fetal medicine subspecialists practice in
certain metropolitan areas where we have affiliated
neonatologists to provide coordinated care for women with
complicated pregnancies and whose babies are often admitted to a
NICU upon delivery. |
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Other Pediatric Subspecialty Care. Our network also
includes other pediatric subspecialists, such as pediatric
intensivists, which are hospital-based physicians who have
additional education and training in caring for critically-ill
or injured children and adolescents, pediatric cardiologists,
which are pediatricians who have additional education and
training in congenital and acquired heart disorders, and
pediatric hospitalists, which are hospital-based pediatricians
who specialize in inpatient care and |
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management of acutely-ill children. Our affiliated physicians
also provide clinical services in other areas of hospitals,
particularly in the labor and delivery area, nursery and
pediatric department, where immediate accessibility to
specialized care may be critical. |
Newborn Screening Services. We also operate the
nation’s largest private laboratory providing newborn
metabolic screening. In addition, we are the nation’s
largest provider of hearing screens to newborns. Our newborn
screening program identifies more than 50 metabolic disorders
and various genetic and biochemical conditions, and potential
hearing loss for early treatment or management. All states
require screening for a select number of metabolic conditions
before newborns are discharged from the hospital. In addition,
38 states either require newborns to be screened for
potential hearing loss before being discharged from the hospital
or require that parents be offered the opportunity to submit
their newborns to hearing screens.
Clinical Research and Education. As part of our ongoing
commitment to improving patient care through evidence-based
medicine, we conduct clinical research, monitor clinical
outcomes and implement clinical quality initiatives with a view
to improving patient outcomes, shortening the length of hospital
stays and reducing long-term health system costs. We have
managed three neonatal clinical trials to completion. We also
make extensive continuing medical education resources available
to our physicians and neonatal nurse practitioners to give them
access to the most current treatment methodologies and best
demonstrated processes. We believe that referring physicians,
hospitals, third-party payors and patients all benefit from our
clinical research, education and quality initiatives.
Demand for our Physician Services
Hospital-Based Care. Hospitals generally must provide
cost-effective, quality care in order to enhance their
reputations within their communities and desirability to
patients, referring physicians and third-party payors. In an
effort to improve outcomes and manage costs, hospitals typically
employ or contract with physician subspecialists to provide
specialized care in many hospital-based units, including NICUs.
Hospitals traditionally staffed these units through affiliations
with small, local physician groups or independent practitioners.
However, management of these units in recent years has presented
significant operational challenges, including variable
admissions rates, increased operating costs, complex
reimbursement systems and other administrative burdens. As a
result, hospitals have contracted with physician organizations
that have the clinical quality initiatives, information and
reimbursement systems and management expertise required to
effectively and efficiently operate these units in the current
health care environment. Demand for hospital-based physician
services, including neonatology, is determined by a national
market in which qualified physicians with advanced training
compete for hospital contracts.
Neonatal Medicine. Of the approximately four million
births in the United States annually, we estimate that
approximately 10 to 12 percent require NICU admissions.
Although research continues to be conducted by numerous
institutions to identify potential causes of premature birth and
medical complications that often require NICU admissions, some
common contributing factors include the presence of hypertension
or diabetes in the mother, lack of prenatal care, complications
during pregnancy, drug and alcohol abuse and smoking or poor
nutritional habits during pregnancy. Babies admitted to NICUs
typically have an illness or condition that requires the care of
a neonatalogist. Babies that are born prematurely and have a low
birthweight often require neonatal intensive care services
because of increased risk for medical complications. We believe
obstetricians generally prefer to perform deliveries at
hospitals that provide a full complement of labor and delivery
services, which includes a NICU staffed by board-certified or
board-eligible neonatologists. Because obstetrics is a
significant source of hospital admissions, hospital
administrators have responded to these demands by establishing
NICUs and contracting with independent neonatology group
practices to staff and manage these units. As a result, NICUs
within the United States tend to be concentrated in hospitals
with a higher volume of births. There are approximately 3,800
board-certified neonatologists in the United States who practice
at approximately 1,500 hospital-based NICUs.
Maternal-Fetal Medicine. Expectant mothers with pregnancy
complications often seek or are referred by their obstetricians
to maternal-fetal medicine subspecialists. These subspecialists
provide care to women with conditions such as diabetes,
hypertension, sickle cell disease, multiple gestation, recurrent
miscarriage,
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family history of genetic diseases, suspected fetal birth
defects, and other complications during their pregnancies. We
believe that improved maternal-fetal care has a positive impact
on neonatal outcomes. Data on neonatal outcomes demonstrate
that, in general, the likelihood of mortality or an adverse
condition or outcome (referred to as “morbidity”) is
reduced the longer a baby remains in the womb. As a result, our
maternal-fetal medicine subspecialists focus on extending the
pregnancy to improve the viability of the fetus.
Other Pediatric Subspecialty Medicine. Other areas of
pediatric subspecialty medicine are closely associated with our
operations in maternal-fetal-newborn medicine. For example,
pediatric intensivists care for critically-ill or injured
children and adolescents in pediatric intensive care units
(called “PICUs”). There are approximately 1,000
board-certified pediatric intensivists in the United States who
practice at approximately 400 hospital-based PICUs. Pediatric
cardiology is another important subspecialty within pediatric
medicine and is linked closely with maternal-fetal and neonatal
intensive care. There are approximately 1,500 board-certified
pediatric cardiologists in the United States and we believe that
approximately one percent of all babies born in the United
States each year are born with congenital cardiovascular
malformations. Advances in diagnostic procedures have made it
possible to identify cardiovascular malformations relatively
early in a pregnancy, and pediatric cardiologists routinely work
closely with maternal-fetal medicine subspecialists and
neonatologists to improve patient outcomes.
Practice Administration. Administrative demands and cost
containment pressures from a number of sources, principally
commercial and government payors, make it increasingly difficult
for doctors and hospitals to effectively manage patient care,
remain current on the latest procedures and efficiently
administer non-clinical activities. As a result, we believe that
physicians and hospitals remain receptive to being affiliated
with larger organizations that reduce administrative burdens,
achieve economies of scale and provide value-added clinical
research, education and quality initiatives. By relieving many
of the burdens associated with the management of a subspecialty
group practice, we believe that our practice administration
services permit our affiliated physicians to focus on providing
quality patient care and thereby contribute to improving patient
outcomes, shortening the length of hospital stays and reducing
long-term health system costs. In addition, our national network
of affiliated physician practices, although modeled around a
traditional group practice structure, is managed by a
non-clinical professional management team with proven abilities
to achieve significant operating efficiencies in providing
administrative support systems, interacting with physicians,
hospitals and third-party payors, managing information systems
and technologies, and complying with laws and regulations.
Our Business Strategy
Our business objective is to enhance our position as a premier
health care services organization that is built around physician
services for newborn and maternal-fetal care. The key elements
of our strategy to achieve our objectives are:
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Focus on neonatal, maternal-fetal and other pediatric
subspecialty care. Through our focus on neonatology, we have
developed significant administrative expertise relating to
neonatal physician services. We have also facilitated the
development of a clinical approach to the practice of medicine
among our affiliated physicians that includes research,
education and quality initiatives intended to advance the
science of neonatology, improve the quality of care provided to
acutely-ill newborns and contribute to shortening the length of
their hospital stays and reducing long-term health system costs.
We are committed to developing similar expertise in
maternal-fetal medicine and other pediatric subspecialties. |
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Promote same unit growth. We seek opportunities for
increasing revenues in our hospital-based operations. For
example, our affiliated hospital-based physicians are well
situated to, and, in some cases, provide physician services in
other departments, such as newborn nurseries, or in situations
where immediate accessibility to specialized obstetric and
pediatric care may be critical. In addition, we market our
capabilities to obstetricians and family physicians to attract
referrals to our hospital-based units. We also market the
services of our affiliated physicians to other hospitals to
attract transport admissions. |
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Acquire physician practice groups and expand into additional
healthcare services. We continue to seek to expand our
operations by acquiring established neonatal and maternal-fetal
medicine practice groups and other complementary pediatric
subspecialty physician groups, such as pediatric intensivists,
pediatric cardiologists and pediatric hospitalists. During 2004,
we added 12 physician groups to our national network through
acquisitions consisting of eight neonatal groups, two pediatric
cardiology practices, one maternal-fetal practice and one
pediatric intensive care practice. We intend to explore other
strategic opportunities that are related to our physician and
newborn screening services and in other health care areas that
would allow us to benefit from our business expertise. |
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Expand our newborn screening services. We will continue
to seek contracts in the United States with hospitals, third
party payors and, in some cases, state agencies, and
internationally with distributors, to provide screening services
to newborns to detect the presence of hearing disorders and
metabolic conditions for early treatment or management. We
intend to focus on providing quality services and may seek other
opportunities to expand our screening capabilities. |
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Strengthen relationships with our partners. By managing
many of the operational challenges associated with a
subspecialty practice, encouraging clinical research, education
and quality initiatives, and promoting timely intervention by
qualified pediatric and maternal-fetal medicine subspecialists
in emergency situations, we believe that our business model is
focused on improving the quality of care delivered to
acutely-ill newborns, shortening the length of their hospital
stays and reducing long-term health system costs. We believe
that referring physicians, hospitals, third-party payors and
patients all benefit to the extent that we are successful in
implementing our business model. We will continue to seek
opportunities to strengthen relationships with our partners. |
OUR PHYSICIAN SERVICES
Neonatal Care
We provide neonatal care to babies born prematurely or with
complications within specific hospital units, primarily NICUs,
through our network of 603 affiliated neonatologists and other
related clinical professionals who staff and manage clinical
activities at more than 220 NICUs in 31 states and Puerto
Rico. We partner with our hospital clients in an effort to
enhance the quality of care delivered to premature and sick
babies. Some of the nation’s largest and most prestigious
hospitals, both not-for-profit and for-profit institutions,
retain us to staff and manage their NICUs. Our affiliated
neonatologists generally provide 24-hours-a-day,
seven-days-a-week coverage, supporting the local referring
physician community and being available for consultation in
other hospital departments. Our hospital partners benefit from
our experience in managing complex critical care units and
reducing the costs associated with directly employing physician
specialists. Our neonatal physicians interact with colleagues
across the country through an internal communications system to
draw upon their collective expertise in managing challenging
patient care issues. Our neonatal physicians also work
collaboratively with maternal-fetal medicine subspecialists to
coordinate care of mothers experiencing complicated pregnancies
and their fetuses. We also employ or contract with neonatal
nurse practitioners, who work with our affiliated physicians in
providing medical care.
Maternal-Fetal Care
We provide outpatient and inpatient maternal-fetal care to
expectant mothers with complicated pregnancies and their fetuses
through our network of 86 affiliated maternal-fetal medicine
subspecialists and other related clinical professionals. Our
affiliated neonatologists practice with maternal-fetal medicine
subspecialists to provide coordinated care for women with
complicated pregnancies whose babies are often admitted to the
NICU upon delivery. We believe continuity of treatment from
mother and developing fetus during the pregnancy to the newborn
upon delivery has improved the clinical outcomes of our patients.
Other Pediatric Subspecialty Care
Our network includes other pediatric subspecialists, such as
pediatric intensivists, pediatric cardiologists and pediatric
hospitalists. In addition, our affiliated physicians also seek
to provide support services in other
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areas of hospitals, particularly in the labor and delivery area,
nursery and pediatric department, where immediate accessibility
to specialized care may be critical. Our experience and
expertise in maternal-fetal-neonatal medicine has led to our
involvement in these other areas.
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Pediatric Intensive Care. Our 44 affiliated pediatric
intensivists provide clinical care for critically-ill or injured
children and adolescents. They staff and manage PICUs at more
than 17 hospitals. |
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Pediatric Cardiology Care. Our pediatric cardiology
practice consists of 28 affiliated pediatric cardiologists
practicing in the Phoenix-Tucson, Denver, Austin and South
Florida metropolitan areas who, together with related clinical
professionals, provide specialized cardiac care to fetal and
pediatric patients with congenital heart disorders through
scheduled office visits, hospital rounds and immediate
consultation in emergency situations. |
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Pediatric Hospitalists. Our 15 affiliated pediatric
hospitalists provide clinical care to acutely ill children in
more than 18 hospitals. |
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Other Newborn and Pediatric Care. Because our affiliated
physicians and advanced nurse practitioners generally provide
hospital-based coverage, they are situated to provide highly
specialized care to address medical needs that may arise during
a baby’s hospitalization. For example, as part of our
on-going efforts to support and partner with hospitals and the
local referring physician community, our affiliated
neonatologists, pediatric hospitalists and advanced nurse
practitioners provide in-hospital nursery care to newborns
through our newborn nursery program. This program is made
available for babies during their hospital stay, which in the
case of healthy babies typically comprises two days of
evaluation and observation, following which they are referred,
and their hospital records are provided, to their pediatricians
or family practitioners for follow-up care. |
OUR NEWBORN SCREENING SERVICES
We provide screening services to detect the presence of newborn
hearing disorders and metabolic conditions for early treatment
or management. Since we launched our newborn hearing screening
program in 1994, we believe that we have become the largest
provider of newborn hearing screening services in the United
States. We screened approximately 260,000 babies for potential
hearing loss at more than 100 hospitals across the nation in
2004. We also operate a technologically-advanced metabolic
screening laboratory. This laboratory provides a screening
program for newborns that we believe is among the most
comprehensive in the world. By analyzing small blood samples
drawn from newborns during the first few days after birth, we
can identify the presence of more than 50 metabolic disorders
and other genetic and biochemical conditions.
We have advocated expanded newborn screening for several years
and newborn screening is becoming an area of increasing interest
to health care providers, as well as state and federal agencies.
Many metabolic disorders can result in death if not diagnosed
and treated in a timely manner. Early detection and successful
intervention of many conditions can often improve the long-term
quality of life for patients and reduce the long-term health
care costs associated with the treatment of identified
conditions.
We contract or coordinate with hospitals and, in some cases,
state agencies to provide newborn screening services. All states
mandate the screening of a limited number of metabolic disorders
before newborns are discharged from the hospital so that a
course of treatment can begin as soon as possible. In addition,
hospitals, health care providers and parents may choose to have
expanded screening for more than 50 metabolic disorders and
other genetic and biochemical conditions. With respect to
hearing screens, 38 states either require newborns to be
screened for potential hearing loss before being discharged from
the hospital or require that parents be offered the opportunity
to submit their newborns to hearing screens.
OUR CLINICAL RESEARCH AND EDUCATION
As part of our patient focus and ongoing commitment to improving
patient care through evidenced-based medicine, we have engaged
in a number of clinical research, quality and education
initiatives intended to
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enhance the care provided to patients by our affiliated
physicians, thereby contributing to improved patient outcomes
and reduced long-term health system costs.
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Clinical Quality Initiatives. We monitor clinical
outcomes in an effort to identify specific factors in treating
babies born prematurely or with complications and to discover
new methods of patient care that result in better outcomes at a
reduced cost over the life of the patient. These efforts have
resulted in our implementation of four best demonstrated process
initiatives since 2000: Improving Weight Gain for Very Low
Birth Weight Infants in the First 28 Days; Improving Feeding of
Breast Milk at NICU Discharge; Reducing Red Blood Cell
Transfusions for 23-29 Week Infants; and Improving
Compliance with AAP Recommendation on Use of Hepatitis B Vaccine
in Premature Neonates. These initiatives are designed to
improve the growth of babies following premature birth, minimize
medical complications and shorten the length of their hospital
stays. |
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Clinical Trials. We have managed three neonatal clinical
trials to completion. Our clinical study entitled Glutamine
Supplementation In Safely Reducing Hospital-Acquired Sepsis in
Very Low Birth Weight Infants commenced in April 2000,
resulted in a paper published in the Journal of Pediatrics
in June 2003. Our clinical study entitled Epidemiology of
Respiratory Failure in Near-Term Neonates, which commenced
in February 2001, resulted in a paper accepted for publication
in October 2004 by the Journal of Perinatology. In 2004,
we completed a clinical trial, Comparing Infasurf and
Survanta in the Prevention and Treatment of Respiratory Distress
Syndrome in Low Birth Weight Infants, a study that we
commenced in March 2001 with a grant from Forest Laboratories.
We also have several multi-center clinical trials designed for
implementation during 2005. These include: Comparing the
Impact of One versus Two Courses of Antenatal Steroids on
Neonatal Outcomes, Removal versus Retention of Cerclage in
Preterm Premature Rupture of Membranes, and Progesterone to
Reduce Neonatal Morbidity due to Preterm Birth in Twin and
Triplet Pregnancies. We have several other multi-
institutional trials that are in the development stages. |
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Continuing Medical Education. We also make extensive
physician continuing medical education (called “CME”)
resources available to our affiliated physicians in an effort to
ensure that they have knowledge of current treatment
methodologies. We are accredited as a provider of CME Category I
credits for physicians and as a provider of continuing education
for nurses. We also maintain “Pediatrix
University — A University Without Walls™”
which is an interactive educational web-site. In addition, we
have a Professional Development Award program that offers a
stipend and research support for neonatal and maternal-fetal
fellows-in-training. |
We believe that these initiatives have been enhanced by our
integrated national presence together with our management
information systems, which are an integral component of our
clinical research and education activities. See “Our
Management Information Systems”.
OUR PRACTICE ADMINISTRATION
We provide multiple administrative services to support the
practice of medicine by our affiliated physicians and improve
operating efficiencies of our affiliated practice groups.
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Unit Management. We appoint a senior physician practicing
medicine in each NICU, PICU, maternal-fetal and cardiology
practice and other subspecialty unit that we manage to act as
our medical director for that unit. Each medical director is
responsible for the overall management of his or her unit,
including staffing and scheduling, quality of care, professional
discipline, utilization review, coordinating physician
recruitment, and monitoring our financial success within the
unit. Medical directors also serve as a liaison with hospital
administration and the community. Each medical director reports
to one of our Regional Presidents. All medical directors and
Regional Presidents are board-certified or board-eligible
physicians in their respective specialties. |
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Staffing and Scheduling. We assist with staffing and
scheduling physicians and advanced nurse practitioners within
the units that we manage. For example, each unit or practice is
staffed by at least one specialist on site or available on call.
All our affiliated physicians are board-certified or board- |
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eligible in neonatology, maternal-fetal medicine, pediatrics,
pediatric critical care or pediatric cardiology, as appropriate.
We are responsible for salaries and benefits for physicians
affiliated with us. In addition, we employ, compensate and
manage all non-medical personnel for our affiliated physician
groups. |
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Recruiting and Credentialing. We have significant
experience in locating, qualifying, recruiting and retaining
experienced neonatologists, maternal-fetal medicine
subspecialists, pediatricians and pediatric subspecialists. We
maintain an extensive database of maternal-fetal, neonatal and
other pediatric subspecialty physicians nationwide. Our medical
directors and Regional Presidents play a central role in the
recruiting and interviewing process before candidates are
introduced to hospital administrators. We check the credentials,
licensure and references of all candidates so that each of our
prospective affiliated physicians meet the hospital’s and
our requirements. In addition to our database of physicians, we
recruit nationally through trade advertising, referrals from our
affiliated physicians and attendance at conferences. |
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Billing, Collection and Reimbursement. We assume
responsibility for billing, collection and reimbursement with
respect to services rendered by our affiliated physicians, but
not charges for services provided by hospitals to the same
payors which are separately billed and collected by the
hospitals. We provide our affiliated physicians with a training
curriculum that emphasizes detailed documentation of and proper
coding protocol for all procedures performed and services
provided, and we provide comprehensive internal auditing
processes, all of which is designed to achieve appropriate
billing and collection of revenues for physician services. Our
billing and collection operations are conducted from our
corporate offices, as well as our regional business offices
located across the United States and in Puerto Rico. |
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Risk Management. We maintain a risk management program
focused on reducing risk and improving outcomes through
evidence-based medicine, including diligent patient evaluation,
documentation and access to research, education and best
demonstrated processes. We maintain professional liability
coverage for our national group of affiliated heath care
professionals. In addition, we provide regulatory expertise to
assist our affiliated practice groups in complying with
increasingly complex laws and regulations. |
We also provide management information systems, facilities
management, marketing support and other services to our
affiliated physicians and affiliated practice groups.
OUR MANAGEMENT INFORMATION SYSTEMS
We maintain several information systems to support our
day-to-day operations and ongoing clinical research and business
analysis. Our clinical information systems contain clinical
information from over five million daily progress records
relating to more than 250,000 discharged patients. These systems
are used to report and analyze clinical outcomes and identify
prospective clinical trials and quality initiatives. Studies
from these databases have resulted in 24 articles published in
peer-reviewed medical journals.
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BabyStepsTM.
BabySteps is our clinical information management system that
permits our affiliated physicians to record clinical progress
notes electronically and provides a decision-tree to assist them
in selecting appropriate billing codes. We developed this
software system to replace our existing Research Data System
(“RDS”). BabySteps is in the process of being
implemented throughout Pediatrix. |
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RDS. First installed in March 1996, RDS is a centralized
clinical database which is still being used at various locations
within Pediatrix pending the full implementation of BabySteps. |
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Pediatrix
UniversityTM.
Pediatrix University is an educational website that disseminates
clinical research, continuing quality improvement and education
materials for which physicians may obtain continuing medical
education credit. Pediatrix University also functions as a
“virtual doctors’ lounge”, enabling physicians
around the country to discuss difficult or unusual cases with
one another. |
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Our management information systems are also an integral
component of the billing and reimbursement process. We maintain
systems that provide for electronic data interchange with payors
accepting electronic submission, including electronic claims
submission, insurance benefits verification, and claims
processing and remittance advice and that enable us to track
numerous and diverse third-party payor relationships and payment
methods. Our information systems have been designed to meet our
requirements by providing for scalability and flexibility as
payor groups upgrade their payment and reimbursement systems. We
continually seek improvements in our systems to provide even
greater streamlining of information from the clinical systems
through the reimbursement process, thereby expediting the
overall process.
We maintain additional information systems designed to improve
operating efficiencies of our affiliated practice groups, reduce
physicians’ paperwork requirements and facilitate
interaction among our affiliated physicians and their colleagues
regarding patient care issues. Following the acquisition of a
physician practice group, we implement systematic procedures to
improve the acquired group’s operating and financial
performance. One of our first steps is to convert the
newly-acquired group to our broad-based management information
system. We also maintain a database management system to assist
our business development and recruiting departments to identify
potential practice group acquisitions and physician candidates.
RELATIONSHIPS WITH OUR PARTNERS
Our business model, which has been influenced by the direct
contact and daily interaction that our affiliated physicians
have with their patients, emphasizes a patient-focused clinical
approach that addresses the needs of our various
“partners”, including hospitals, third-party payors,
referring physicians, affiliated physicians and, most
importantly, our patients. Our relationships with all our
partners are important to our continued success.
Hospitals
Our relationships with our hospital partners are critical to our
operations. We have been retained by over 220 hospitals to staff
and manage clinical activities within specific hospital-based
units, primarily NICUs. Our hospital-based focus enhances our
relationships with hospitals and creates opportunities for our
affiliated physicians to provide patient care in other areas of
the hospital, including emergency rooms, nurseries and other
departments where access to specialized obstetric and pediatric
care may be critical. Because hospitals control access to their
NICUs through the awarding of contracts and hospital privileges,
we must maintain good relationships with our hospital partners.
Our affiliated physicians are an important component of
obstetric and pediatric services provided by hospitals. Our
hospital partners benefit from our expertise in managing
critical care units staffed with physician specialists,
including managing variable admission rates, operating costs,
complex reimbursement systems and other administrative burdens.
We also work with our hospital partners to enhance their
reputation and market our services to referring physicians, an
important source of hospital admissions, within the communities
served by those hospitals.
Under our contracts with hospitals, we have the responsibility
to manage, in many cases exclusively, the provision of physician
services to the NICUs and other hospital-based units. We
typically are responsible for billing patients and third-party
payors for services rendered by our affiliated physicians
separately from other related charges billed by the hospital to
the same payors. Some of our hospital contracts require a
hospital to pay to us administrative fees if the hospital does
not generate sufficient patient volume in order to guarantee
that we receive a specified minimum revenue level. We also
receive fees from hospitals for administrative services
performed by our affiliated physicians providing medical
director services at the hospital. Administrative fees accounted
for 6% of our net patient service revenue during 2004. Our
contracts with hospitals also generally require us to indemnify
them and their affiliates for losses resulting from the
negligence of our affiliated physicians. Our hospital contracts
have terms of typically one to three years which can be
terminated without cause by either party upon prior written
notice, and renew automatically for additional terms of one to
three years unless earlier terminated by any party. While we
have in most cases been able to renew these arrangements,
hospitals may cancel or not renew our arrangements, or reduce or
eliminate our administrative fees in the future.
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Third-Party Payors
Our relationships with government-sponsored plans (principally
Medicaid), managed care organizations and commercial payors are
vital to our business. We seek to maintain professional working
relationships with our third-party payors and streamline the
administrative process of billing and collection, and assist our
patients and their families in understanding their health
insurance coverage and any balance due for co-payment,
co-insurance deductible, or out-of-network benefit limitations.
In addition, through our quality initiatives and continuing
research and education efforts, we have sought to enhance
clinical care provided to patients, which we believe benefits
third-party payors by contributing to improved patient outcomes
and reduced long-term health system costs.
We receive compensation for professional services provided by
our affiliated physicians to patients based upon rates for
specific services provided, principally from third-party payors.
Our billed charges are substantially the same for all parties in
a particular geographic area, regardless of the party
responsible for paying the bill for our services. A significant
portion of our net patient service revenue is received from
government-sponsored plans, principally state Medicaid programs.
Medicaid programs can be either standard fee-for-service payment
programs or managed care programs in which states have
contracted with health insurance companies to run local or
state-wide health plans with features similar to Health
Maintenance Organizations. Our compensation rates under standard
Medicaid programs are established by state governments and are
not negotiated. Rates under Medicaid managed care programs are
negotiated but are similar to rates established under standard
Medicaid programs. Although Medicaid rates vary across the
individual states, these rates are generally much lower in
comparison to private sector health plan rates. In order to
participate in the Medicaid programs, we and our affiliated
practices must comply with stringent and often complex
enrollment and reimbursement requirements. Different states also
impose differing standards for their Medicaid programs. See
“Government Regulation — Government Reimbursement
Requirements” below.
We also receive compensation pursuant to contracts with
commercial payors that offer a wide variety of health insurance
products, such as Health Maintenance Organizations, Preferred
Provider Organizations, and Exclusive Provider Organizations,
that are subject to various state laws and regulations, as well
as self-insured organizations subject to federal ERISA
requirements. We seek to secure mutually agreeable contracts
with payors that enable our affiliated physicians to be listed
as in-network participants within the payors’ provider
networks. We generally contract with commercial payors through
our affiliated professional contractors, principally on a local
basis. Subject to applicable laws and regulations, the terms,
conditions and compensation rates of our contracts with
commercial third-party payors are negotiated and often vary
widely across markets and among payors. In some cases, we
contract with organizations that establish and maintain provider
networks and then rent or lease such networks to the actual
payor. Our contracts with commercial payors typically provide
for discounted fee-for-service arrangements and grant each party
the right to terminate the contracts without cause upon prior
written notice. In addition, these contracts generally give
commercial payors the right to audit our billings and related
reimbursement to us for professional services provided by our
affiliated physicians.
If we do not have a contractual relationship with a health
insurance payor, we generally bill the payor our full billed
charges. If payment is less than billed charges, we bill the
balance to the patient, subject to state billing practice
regulations. Although we maintain standard billing and
collections procedures with appropriate discounts for prompt
payment, we also provide discounts in certain hardship
situations where patients and their families do not have
financial resources necessary to pay the amount due for services
rendered. Any amounts written-off related to private pay
patients are based on the specific facts and circumstances
related to each individual patient account.
Referring Physicians
We consider referring physicians to be our partners, and our
affiliated physicians seek to establish and maintain
professional relationships with referring physicians in the
communities where they practice. Because patient volumes of our
NICUs are based in part on referrals from other physicians,
particularly obstetricians, it
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is important that we are responsive to the needs of referring
physicians in the communities in which we operate. We believe
that our community presence, through our hospital coverage and
outpatient clinics, assists referring obstetricians,
office-based pediatricians and family physicians with their
practices. Our affiliated physicians are able to provide
comprehensive maternal-fetal-newborn and pediatric subspecialty
care to patients using the latest advances in methodologies,
supporting the local referring physician community with
24-hours-a-day, seven-days-a-week on-site or on-call coverage.
Affiliated Physicians and Practice Groups
One of our most important assets is our relationships with our
affiliated physicians. Our affiliated physicians are organized
in traditional practice group structures. In accordance with
applicable state laws, our affiliated practice groups are
responsible for the provision of medical care to patients. Our
affiliated practice groups are separate legal entities organized
under state law as professional associations, corporations and
partnerships, which we sometimes refer to as “our
affiliated professional contractors.” Each of our
affiliated professional contractors is owned by a licensed
physician affiliated with PMG through employment or another
contractual relationship. Our national infrastructure enables
more effective and efficient sharing of new discoveries and
clinical outcomes data, including implementation of best
demonstrated processes, and affords access to sophisticated
information systems, and clinical research and education.
Our affiliated professional contractors employ or contract with
physicians to provide clinical services in certain states and
Puerto Rico. In most of our affiliated practice groups, each
physician has entered into an employment agreement with us or
one of our affiliated professional contractors providing for a
base salary and incentive bonus eligibility and having typically
a term of three to five years which usually can be terminated
without cause by any party upon prior written notice. We
typically are responsible for billing patients and third-party
payors for services rendered by our affiliated physicians
separately from other charges billed by hospitals to the same
payors. Each physician must hold a valid license to practice
medicine in the state in which he or she provides patient care
and must become a member of the medical staff, with appropriate
privileges, at each hospital at which he or she practices.
Substantially all the physicians employed by us or our
affiliated professional contractors have agreed not to compete
within a specified geographic area for a certain period after
termination of employment. Although we believe that the
non-competition covenants of our affiliated physicians are
reasonable in scope and duration and therefore enforceable under
applicable state laws, we cannot predict whether a court or
arbitration panel would enforce these covenants. Our hospital
contracts also typically require that we and the physicians
performing services maintain minimum levels of professional and
general liability insurance. We negotiate those policies and
contract and pay the premiums for such insurance on behalf of
the physicians.
Each of our affiliated professional contractors has entered into
a comprehensive management agreement with PMG that is long-term
in nature, and in most cases permanent, subject only to a right
of termination by PMG (except in the case of gross negligence,
fraud or illegal acts of PMG). Under the terms of these
management agreements, PMG is paid for its services based on the
performance of the applicable practice group, and PMG is
responsible for the provision of non-medical services and the
compensation and benefits of the practices’ non-physician
medical personnel. See “Governmental Regulation —
Fee Splitting; Corporate Practice of Medicine” and
Note 2 to our Consolidated Financial Statements included in
Item 8 of this Annual Report.
COMPETITION
Competition in our business is generally based upon a number of
factors, including reputation, experience and level of care, and
our affiliated physicians’ ability to provide
cost-effective, quality clinical care. The nature of competition
for our hospital-based practices, such as neonatology and
pediatric intensive care, differs significantly from competition
for our office-based practices. Our hospital-based practices
compete nationally with other pediatric health services
companies and physician groups for hospital contracts and
qualified physicians. In some instances, they also compete on a
more local basis for referrals from physicians and transports
from other hospitals. Our office-based practices, such as
maternal-fetal medicine and pediatric cardiology, compete for
patients with office-based practices in that specialty.
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Because our operations consist primarily of physician services
provided within hospital-based units, primarily NICUs, we
compete with others for contracts with hospitals to provide
neonatal services. We also compete with hospitals themselves to
provide such services. Hospitals may employ neonatologists
directly or contract with other physician groups to provide
services either on an exclusive or non-exclusive basis. A
hospital not otherwise competing with us may facilitate
competition by creating a new NICU, expanding the capacity of an
existing NICU or upgrading the level of its existing NICU and
then awarding the contract to operate the neonatal service to a
competing group or company. Because hospitals control access to
their NICUs through the awarding of contracts and hospital
privileges, we must maintain good relationships with our
hospital partners. Hospitals may terminate our contracts without
cause at any time upon prior written notice.
The health care industry is highly competitive. Companies in
other segments of the industry, some of which have financial and
other resources greater than ours, may become competitors in
providing neonatal, maternal-fetal and other pediatric
subspecialty care.
GOVERNMENT REGULATION
The health care industry is governed by a framework of federal
and state laws, rules and regulations that are extensive and
complex and for which the industry has the benefit of only
limited judicial and regulatory interpretation. If we or one of
our affiliated practice groups is found to have violated any of
these laws, rules and regulations, our business, financial
condition and results of operations could be materially
adversely affected. Moreover, health care continues to attract
much legislative interest and public attention. Changes in
health care legislation or government regulation may restrict
our existing operations, limit the expansion of our business or
impose additional compliance, requirements and costs, any of
which could have a material adverse effect on our business,
financial condition, results of operations and the trading price
of our common stock.
Licensing and Certificates of Need
Each state imposes licensing requirements on individual
physicians and clinical professionals, and on facilities
operated or utilized by health care companies like us. Many
states require regulatory approval, including certificates of
need, before establishing certain types of health care
facilities, offering certain services or expending amounts in
excess of statutory thresholds for health care equipment,
facilities or programs. We and our affiliated physicians are
required to meet applicable Medicaid provider requirements under
state laws and regulations.
Fee-Splitting; Corporate Practice of Medicine
Many states have laws that prohibit business corporations, such
as PMG, from practicing medicine, employing physicians to
practice medicine, exercising control over medical decisions by
physicians, or engaging in certain arrangements, such as
fee-splitting, with physicians. In these states, we maintain
long-term management contracts with our affiliated professional
contractors, which employ or contract with physicians to provide
physician services. In states where we are not permitted to
practice medicine, we perform only non-medical administrative
services, do not represent that we offer medical services and do
not exercise influence or control over the practice of medicine
by the physicians employed by our affiliated professional
contractors. In states where fee-splitting is prohibited, the
fees that we receive from our affiliated professional
contractors have been established on a basis that we believe
complies with the applicable states’ laws. Although the
relevant laws in these states have been subjected to limited
judicial and regulatory interpretation, we believe that we are
in compliance with applicable state laws in relation to the
corporate practice of medicine and fee-splitting. However,
regulatory authorities or other parties, including our
affiliated physicians, may assert that, despite these
arrangements, we are engaged in the corporate practice of
medicine or that our contractual arrangements with our
affiliated professional contractors constitute unlawful
fee-splitting, in which case we could be subject to civil or
criminal penalties, our contracts could be found legally invalid
and unenforceable
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(in whole or in part) or we could be required to restructure our
contractual arrangements with our affiliated professional
contractors.
Fraud and Abuse Provisions
Existing federal laws governing Medicaid and other federal
health care programs, as well as similar state laws, impose a
variety of fraud and abuse prohibitions on health care companies
like PMG. These laws are interpreted broadly and enforced
aggressively by multiple government agencies, including the
Office of Inspector General of the Department of Health and
Human Services (the “OIG”), the Department of Justice
and the various state authorities. The federal government’s
enforcement efforts have been increasing in recent years, in
part as a result of the establishment of an inter-agency fraud
and abuse control program that coordinates federal, state and
local law enforcement efforts nationwide and that is funded
through the collection of penalties and fines for violations of
the health care fraud and abuse laws.
The fraud and abuse laws include extensive federal and state
regulations applicable to our financial relationships with
hospitals, physicians and other health care entities. In
particular, federal anti-kickback laws and regulations prohibit
certain offers, payments or receipts of remuneration in return
for either referring Medicaid or other government-sponsored
health care program business, or purchasing, leasing, ordering,
or arranging for or recommending any service or item for which
payment may be made by a government-sponsored health care
program. In addition, federal physician self-referral
legislation, commonly known as the “Stark Law,”
prohibits a physician from ordering certain designated health
services reimbursable by Medicaid from an entity with which the
physician has a prohibited financial relationship. These laws
are broadly worded and, in the case of the anti-kickback law,
have been broadly interpreted by federal courts, and potentially
subject many business arrangements to government investigation
and prosecution, which can be costly and time consuming.
Violations of these laws are punishable by substantial
penalties, including monetary fines, civil penalties, criminal
sanctions (including imprisonment), exclusion from participation
in government-sponsored health care programs, and forfeiture of
amounts collected in violation of such laws, any of which could
have an adverse effect on our business and results of
operations. For example, if we or our affiliated professional
contractors were excluded from any government-sponsored
healthcare programs, not only would we not be permitted to make
claims for reimbursement under these programs but also we would
be unable to contract with other healthcare providers, such as
hospitals, to provide services to them. Many of the states in
which we operate also have similar anti-kickback and
self-referral laws which are applicable to our non-government
business and which also authorize substantial penalties for
violations.
There are a variety of other types of federal and state fraud
and abuse laws, including laws authorizing the imposition of
criminal, civil and administrative penalties for filing false or
fraudulent claims for reimbursement with government health care
programs. These laws include the civil False Claims Act
(“FCA”), which prohibits the filing of false claims in
federal health care programs, including Medicaid, the TRICARE
program for military dependents and retirees, and the Federal
Employees Health Benefits Program. Substantial civil fines can
be imposed for violating the FCA. Furthermore, to prove a
violation of the FCA requires only that the government show that
the individual or company that filed the false claim acted in
“reckless disregard” of the truth or falsity of the
claim, notwithstanding that there was no intent to defraud the
government program and no actual knowledge that the claim was
false (which are required to be shown to uphold a typical
criminal conviction). The FCA also includes
“whistleblower” provisions that permit private
citizens to sue a claimant on behalf of the government and
thereby share in any fines imposed under the law. In recent
years, many cases have been brought against health care
companies by such “whistleblowers,” which have
resulted in the imposition of substantial fines on the companies
involved. In addition, federal and state agencies that
administer health care programs have at their disposal statutes,
commonly known as the “civil money penalty laws”, that
authorize substantial administrative fines and exclusion from
government programs in any case where the individual or company
that filed the claim or caused the claim to be filed knew or
should have known that the claim was false. It often is not
necessary for the agency to show that the claimant had actual
knowledge that the claim was false in order to impose these
penalties. The civil and administrative penalty statutes are
being applied in an increasingly broader range of circumstances.
For example, government
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authorities often argue that claiming reimbursement for services
that fail to meet applicable quality standards may, under
certain circumstances, violate these statutes. Government
authorities also often take the position that claims for
services that were induced by kickbacks or other illicit
marketing schemes are fraudulent and, therefore, violate the
false claims statutes.
Although we intend to conduct our business in compliance with
all applicable federal and state fraud and abuse laws, many of
the laws and regulations applicable to us, including those
relating to billing and those relating to financial
relationships with physicians and hospitals, are broadly worded
and may be interpreted or applied by prosecutorial, regulatory
or judicial authorities in ways that we cannot predict.
Accordingly, we cannot assure you that our arrangements or
business practices will not be subject to government scrutiny or
be found to violate applicable fraud and abuse laws. Moreover,
the standards of business conduct expected of health care
companies under these laws and regulations have become more
stringent in recent years, even in instances where there has
been no change in statutory language. If there is a
determination by government authorities that we have not
complied with any of these laws and regulations, our business,
financial condition and results of operations could be
materially adversely affected. See “Government
Investigations.”
Government Reimbursement Requirements
In order to participate in various state Medicaid programs, we
and our affiliated practices must comply with stringent and
often complex enrollment and reimbursement requirements.
Different states also impose differing standards for their
Medicaid programs. Our compliance program requires that we and
our affiliated practices adhere to the laws and regulations
applicable to the government programs in which we participate,
and failure to comply with these laws and regulations could
negatively affect our business, financial condition and results
of operations. See “Government Regulation-Fraud and Abuse
Provisions”, “Government Regulation-Compliance
Plan”, “Government Investigations” and
“Other Legal Proceedings.”
In addition, Medicaid and other government health care programs
(such as the TRICARE program) are subject to statutory and
regulatory changes, administrative rulings, interpretations and
determinations, requirements for utilization review and new
governmental funding restrictions, all of which may materially
increase or decrease program payments as well as affect the cost
of providing services and the timing of payments to providers.
Moreover, because these programs generally provide for
reimbursements on a fee schedule basis rather than on a
charge-related basis, we generally cannot increase our revenues
by increasing the amount we charge for our services. To the
extent our costs increase, we may not be able to recover our
increased costs from these programs, and cost containment
measures and market changes in non-governmental insurance plans
have generally restricted our ability to recover, or shift to
non-governmental payors, these increased costs. In attempts to
limit federal and state spending, there have been, and we expect
that there will continue to be, a number of proposals to limit
or reduce Medicaid reimbursement for various services. For
example, the Balanced Budget Act of 1997 made it easier for
states to reduce their Medicaid reimbursement levels and some
states have enacted or are considering enacting measures that
are designed to reduce their Medicaid expenditures. The Balanced
Budget Act of 1997 also mandated that the Centers for Medicare
and Medicaid Services, or CMS, conduct competitive bidding
demonstrations for certain Medicare services. These competitive
bidding demonstrations could provide CMS, Congress and the
states with models for implementing competitive pricing in other
federal health care programs. If, for example, such a
competitive bidding system were implemented for Medicaid
services, it could result in lower reimbursement rates, exclude
certain services from coverage or impose limits on increases in
reimbursement rates. Our business may be significantly and
adversely affected by any such changes in reimbursement policies
and other legislative initiatives aimed at reducing health care
costs associated with Medicaid and other government healthcare
programs.
Our business also could be adversely affected by reductions in
or limitations of reimbursement amounts or rates under these
government programs, reductions in funding of these programs or
elimination of coverage for certain individuals or treatments
under these programs, which may be implemented as a result of:
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increasing budgetary and cost containment pressures on the
health care industry generally; |
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new federal or state legislation reducing state Medicaid funding
and reimbursements or increasing the proportion of state
discretionary funding; |
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new state legislation mandating state Medicaid managed care or
encouraging managed care organizations to provide benefits to
Medicaid enrollees, thereby reducing Medicaid reimbursement
payments to us; |
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state Medicaid waiver requests granted by the federal
government, increasing discretion with respect to, or reducing
coverage or funding for, certain individuals or treatments under
Medicaid, even in the absence of new federal legislation; |
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increasing state discretion in Medicaid expenditures which may
result in decreased reimbursement for, or other limitations on,
the services that we provide; or |
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other changes in reimbursement regulations, policies or
interpretations that place material limitations on reimbursement
amounts or coverage for services that we provide. |
Antitrust
The health care industry is highly regulated for antitrust
purposes and we believe that it will continue to be subject to
close regulatory scrutiny. In recent years, the Federal Trade
Commission (the “FTC”), the Department of Justice, and
state Attorney Generals have taken increasing steps to review
and, in some cases, take enforcement action against, business
conduct and acquisitions in the health care industry. We
continue to be the subject of an active and ongoing
investigation by the FTC relating to issues of competition in
connection with our 2001 acquisition of Magella Healthcare
Corporation (“Magella”) and our business practices
generally. See “Government Investigations”. Violations
of antitrust laws are punishable by substantial penalties,
including significant monetary fines, civil penalties, criminal
sanctions, and consent decrees and injunctions prohibiting
certain activities or requiring divestiture or discontinuance of
business operations. Any of these penalties could have a
material adverse effect on our business, financial condition and
results of operations.
Medical Records Privacy Legislation
Numerous federal and state laws and regulations govern the
collection, dissemination, use and confidentiality of patient
health information, including the federal Health Insurance
Portability and Accountability Act of 1996 and related rules
(“HIPAA”), violations of which are punishable by
monetary fines, civil penalties and criminal sanctions. As part
of our medical record keeping, third-party billing, research and
other services, we and our affiliated practices collect and
maintain patient health information.
The Office of Inspector General of the Department of Health and
Human Services (DHHS) is required under the Administrative
Simplification Provisions of HIPAA to adopt standards to protect
the privacy and security of health-related information in an
effort to improve the efficiency and effectiveness of the
healthcare industry by enabling the efficient electronic
transmission of certain health information. DHHS released final
regulations in December 2000 containing privacy standards that
apply to medical records and other individually identifiable
health information used or disclosed by healthcare providers,
hospitals, health plans and healthcare clearinghouses in any
form, whether electronically, on paper, or orally. Compliance
with these privacy regulations was required by April 14,
2003. We have implemented privacy policies and procedures,
including training programs, designed to ensure compliance with
the privacy regulations. In addition, DHHS adopted final
regulations in February 2003 containing security standards
requiring healthcare providers to implement administrative,
physical and technical safeguards to protect the integrity,
confidentiality and availability of electronically received,
maintained or transmitted (including between us and our
affiliated practices), individually identifiable health-related
information. Compliance with these regulations is mandated by
April 21, 2005. We are substantially complete with our
compliance efforts and will continue to take appropriate
measures to comply with the security regulations.
Environmental Regulations
Our health care operations generate medical waste that must be
disposed of in compliance with federal, state and local
environmental laws, rules and regulations. Our outpatient
operations are subject to compliance
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with various other environmental laws, rules and regulations.
Such compliance does not, and we anticipate that such compliance
will not, materially affect our capital expenditures, financial
position or results of operations.
Compliance Plan
We have adopted a Compliance Plan that reflects our commitment
to complying with laws and regulations applicable to our
business and meeting our ethical obligations in conducting our
business. We believe our Compliance Plan provides a solid
framework to meet this commitment, including:
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a Chief Compliance Officer who reports to the Board of Directors
on a regular basis; |
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a Compliance Committee consisting of our senior executives; |
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our Code of Conduct, which is applicable to our
employees, independent contractors, officers and directors; |
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our Code of Professional Conduct — Finance,
which is applicable to our finance personnel, including our
chief executive officer, chief financial officer, chief
accounting officer and controller; |
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an organizational structure designed to integrate our compliance
objectives into our corporate, regional and practice
levels; and |
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education, monitoring and corrective action programs designed to
establish methods to promote the understanding of our Compliance
Plan and adherence to its requirements. |
The foundation of our Compliance Plan is our Code of
Conduct, which is intended to be a comprehensive statement
of the ethical and legal standards governing the daily
activities of our employees, affiliated professionals,
independent contractors, officers and directors. All our
personnel are required to abide by, and are given a thorough
introduction to, our Code of Conduct. In addition, all
employees and affiliated professionals are expected to report
incidents that they believe in good faith may be in violation of
our Code of Conduct. We maintain a toll-free hotline to
permit individuals to report compliance concerns on an anonymous
basis and obtain answers to questions about our Code of
Conduct. Our Compliance Plan, including our Code of
Conduct, is administered by our Chief Compliance Officer
with oversight by our Chief Executive Officer and Board of
Directors. We also have a Code of Professional
Conduct-Finance, which is applicable to our finance
personnel, including our Chief Executive Officer, Chief
Financial Officer (who is also our Chief Accounting Officer) and
Controller. A copy of our Code of Conduct and our Code of
Professional Conduct-Finance is available on our website,
www.pediatrix.com. Any amendments or waivers to our Code
of Professional Conduct — Finance will be disclosed on
our website within four business days following the date of the
amendment or waiver.
GOVERNMENT INVESTIGATIONS
In June 2002, we received a written request from the FTC to
submit information on a voluntary basis in connection with an
investigation of issues of competition related to our May 2001
acquisition of Magella and our business practices generally. In
February 2003, we received additional information requests from
the FTC in the form of a Subpoena and Civil Investigative
Demand. Pursuant to these requests, we produced documents and
information relating to the acquisition and our business
practices in certain markets. We have also provided on a
voluntary basis additional information and testimony on issues
related to the investigation. At this time, the investigation
remains active and ongoing and we are cooperating fully with the
FTC.
Beginning in April 1999, we received requests from various
federal and state investigators for information relating to our
billing practices for services reimbursed by Medicaid and the
United States Department of Defense’s TRICARE program for
military dependents and retirees. Since then, a number of the
individual state investigations were resolved through agreements
to refund certain overpayments and reimburse certain costs to
the states. In June 2003, we were advised by a United States
Attorney’s Office that it was conducting a civil
investigation with respect to our Medicaid billing practices
nationwide. This federal Medicaid investigation, the TRICARE
investigation, and related state inquiries are now being
coordinated together and
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are active and ongoing. We are cooperating fully with federal
and state authorities with respect to these investigations and
inquiries.
In November 2003, our maternal-fetal practice in Las Vegas,
Nevada was served with a search warrant by the State of Nevada.
The warrant requested information concerning Medicaid billings
for certain maternal-fetal services provided by us in that
state. We are cooperating fully with appropriate officials in
the investigation.
Currently, management cannot predict the timing or outcome of
any of these pending investigations and inquiries and whether
they will have, individually or in the aggregate, a material
adverse effect on our business, financial condition, results of
operations and the trading price of our common stock.
We also expect that additional audits, inquiries and
investigations from government authorities and agencies will
continue to occur in the ordinary course of our business. Such
audits, inquiries and investigations and their ultimate
resolutions, individually or in the aggregate, could have a
material adverse effect on our business, financial condition,
results of operations and the trading price of our common stock.
OTHER LEGAL PROCEEDINGS
In the ordinary course of our business, we become involved in
pending and threatened legal actions and proceedings, most of
which involve claims of medical malpractice related to medical
services provided by our affiliated physicians. Our contracts
with hospitals generally require us to indemnify them and their
affiliates for losses resulting from the negligence of our
affiliated physicians. We may also become subject to other
lawsuits which could involve large claims and significant
defense costs. We believe, based upon our review of pending
actions and proceedings, that the outcome of such legal actions
and proceedings will not have a material adverse effect on our
business, financial condition or results of operations. The
outcome of such actions and proceedings, however, cannot be
predicted with certainty and an unfavorable resolution of one or
more of them could have a material adverse effect on our
business, financial condition, results of operations and the
trading price of our common stock.
Although we currently maintain liability insurance coverage
intended to cover professional liability and certain other
claims, this coverage generally must be renewed annually and may
not continue to be available to us in future years at acceptable
costs and on favorable terms. In addition, we cannot assure that
our insurance coverage will be adequate to cover liabilities
arising out of claims asserted against us in the future where
the outcomes of such claims are unfavorable to us. With respect
to professional liability insurance, we self-insure our
liabilities to pay deductibles through our wholly-owned captive
insurance subsidiary. Liabilities in excess of our insurance
coverage, including coverage for professional liability and
certain other claims, could have a material adverse effect on
our business, financial condition and results of operations. See
“Professional and General Liability Coverage.”
PROFESSIONAL AND GENERAL LIABILITY COVERAGE
We maintain professional and general liability insurance
policies with third-party insurers on a claims-made basis,
subject to deductibles, exclusions, and other restrictions, in
accordance with standard industry practice. We believe that our
insurance coverage is appropriate based upon our claims
experience and the nature and risks of our business. However, we
cannot assure that any pending or future claim will not be
successful or if successful will not exceed the limits of
available insurance coverage.
Our business entails an inherent risk of claims of medical
malpractice against our affiliated physicians and us. We
contract and pay premiums for third-party professional liability
insurance that indemnifies us and our affiliated heath care
professionals on a claims-made basis for losses incurred related
to medical malpractice litigation. Professional liability
coverage is required in order for our affiliated physicians to
maintain hospital privileges. We self-insure our liabilities to
pay deductibles under our professional liability insurance
coverage through a wholly-owned captive insurance subsidiary. We
record in our consolidated financial statements estimates for
our liabilities for self-insured deductibles and claims incurred
but not reported based on an actuarial valuation using
historical loss patterns. Liabilities for claims incurred but
not reported are not
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discounted. Because many factors can affect historical and
future loss patterns, the determination of an appropriate
reserve involves complex, subjective judgment, and actual
results may vary significa