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What changed in Surgery Partners, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Surgery Partners, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+264 added−300 removedSource: 10-K (2024-02-26) vs 10-K (2023-03-01)

Top changes in Surgery Partners, Inc.'s 2023 10-K

264 paragraphs added · 300 removed · 232 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

85 edited+14 added−26 removed170 unchanged
Biggest changeThe following table sets forth the percentage of total patient service revenues for our consolidated surgical facilities by type of payor for the periods indicated: Year Ended December 31, 2022 2021 2020 Private Insurance 51.5 % 50.6 % 53.9 % Government 42.3 % 43.3 % 38.6 % Self-pay 2.6 % 2.8 % 3.2 % Other 3.6 % 3.3 % 4.3 % Total patient service revenues 100.0 % 100.0 % 100.0 % We receive reimbursement from Medicare for surgical services based on three different payment systems depending on the site of service: hospital inpatient surgical services, hospital outpatient surgical services and outpatient surgical services generally provided in our ASCs.
Biggest changeThe amounts that our surgical facilities receive in payment for their services may be adversely affected by market and cost factors as well as other factors over which we have no control, including Medicare, Medicaid and state regulations, cost containment and utilization decisions and reduced reimbursement schedules of private insurance payors. 2 Table of Contents The following table sets forth the percentage of total patient service revenues for our consolidated surgical facilities by type of payor for the periods indicated: Year Ended December 31, 2023 2022 2021 Private Insurance 52.5 % 51.5 % 50.6 % Government 41.8 % 42.3 % 43.3 % Self-pay 2.5 % 2.6 % 2.8 % Other 3.2 % 3.6 % 3.3 % Total patient service revenues 100.0 % 100.0 % 100.0 % We receive reimbursement from Medicare for surgical services based on three different payment systems depending on the site of service: hospital inpatient surgical services, hospital outpatient surgical services and outpatient surgical services generally provided in our ASCs.
In each of these strategic relationships, we also have entered into a management agreement under which we provide day-to-day management services for a management fee equal to a percentage of the revenues of the surgical facility.
In each of these strategic relationships, we have also entered into a management agreement under which we provide day-to-day management services for a management fee equal to a percentage of the revenues of the surgical facility.
Sources of Revenue - Ancillary Services Segment The fees charged for services in our Ancillary Services segment depend on a variety of factors, including the type of service provided, the location in which the service is provided and the provider of the service. Service fees are received from both government and private insurance payors.
Sources of Revenue The fees charged for services in our Ancillary Services segment depend on a variety of factors, including the type of service provided, the location in which the service is provided and the provider of the service. Service fees are received from both government and private insurance payors.
We believe the following are key components to this strategy: • Deliver outstanding patient care and clinical outcomes; • Continue to execute and expand upon our physician engagement strategy in attractive markets; • Become the partner of choice for physicians seeking to become or stay independent; • Become the employer of choice by attracting, engaging, retaining, developing and promoting talent; • Drive organic growth at existing facilities through targeted physician recruitment, service line expansion and implementing our efficient operating model; • Seek partnership opportunities with payors to make health care more affordable for their members; • Seek partnership opportunities with health systems looking to develop and/or enhance their ambulatory surgery footprint to better meet the needs of the patients and medical staff; • Continue our disciplined acquisition strategy; • Offer new services to provide a more comprehensive continuum of care; and • Enhance operational efficiencies and productivity by delivering on integration.
We believe the following are key components to this strategy: • Deliver outstanding patient care and clinical outcomes; • Continue to execute and expand upon our physician engagement strategy in attractive markets; • Become the partner of choice for physicians seeking to become or stay independent; • Become the employer of choice by attracting, engaging, retaining, developing and promoting talent; • Drive organic growth at existing facilities through targeted physician recruitment, service line expansion and implementing our efficient operating model; • Seek partnership opportunities with payors to make health care more affordable for their members; • Continue our disciplined acquisition strategy; • Offer new services to provide a more comprehensive continuum of care; and • Enhance operational efficiencies and productivity by delivering on integration; • Seek strategic relationship opportunities with health care systems looking to develop and/or enhance their ambulatory surgery footprint to better meet the needs of the patients and medical staff.
However, certain changes to the Whole Hospital Exception were made by the Affordable Care Act including: • a prohibition on hospitals from having any physician ownership unless the hospital already had physician ownership and a Medicare provider agreement in effect as of December 31, 2010; • a limitation on the percentage of total physician ownership or investment interests in the hospital or entity whose assets include the hospital to the percentage of physician ownership or investment as of March 23, 2010; • a prohibition from expanding the number of beds, operating rooms, and procedure rooms for which it is licensed after March 23, 2010, unless the hospital obtains an exception from the Secretary of the Department of Health & Human Services (the "Secretary"); • a requirement that return on investment be proportionate to the investment by each investor; • restrictions on preferential treatment of physician versus non-physician investors; 12 Table of Contents • a requirement for written disclosures of physician ownership interests to the hospital’s patients and on the hospital’s website and in any advertising, along with annual reports to the government detailing such interests; • a prohibition on the hospital or other investors from providing financing to physician investors; • a requirement that any hospital that does not have 24/7 physician coverage inform patients of this fact and receive signed acknowledgments from the patients of the disclosure; and • a prohibition on "grandfathered" status for any physician owned hospital that converted from an ASC to a hospital on or after March 23, 2010.
However, certain changes to the Whole Hospital Exception were made by the Affordable Care Act including: • a prohibition on hospitals from having any physician ownership unless the hospital already had physician ownership and a Medicare provider agreement in effect as of December 31, 2010; • a limitation on the percentage of total physician ownership or investment interests in the hospital or entity whose assets include the hospital to the percentage of physician ownership or investment as of March 23, 2010; • a prohibition from expanding the number of beds, operating rooms, and procedure rooms for which it is licensed after March 23, 2010, unless the hospital obtains an exception from the Secretary of the Department of Health & Human Services (the "Secretary"); • a requirement that return on investment be proportionate to the investment by each investor; • restrictions on preferential treatment of physician versus non-physician investors; • a requirement for written disclosures of physician ownership interests to the hospital’s patients and on the hospital’s website and in any advertising, along with annual reports to the government detailing such interests; • a prohibition on the hospital or other investors from providing financing to physician investors; • a requirement that any hospital that does not have 24/7 physician coverage inform patients of this fact and receive signed acknowledgments from the patients of the disclosure; and • a prohibition on "grandfathered" status for any physician owned hospital that converted from an ASC to a hospital on or after March 23, 2010.
Ancillary Services Segment Ancillary Services Our portfolio of outpatient surgical facilities is complemented by a suite of ancillary services that we provide to support physicians in providing high quality and cost-efficient patient care. This segment includes multi-specialty physician practices, urgent care facilities and anesthesia services.
Ancillary Services Segment Ancillary Services Operations Our portfolio of outpatient surgical facilities is complemented by a suite of ancillary services that we provide to support physicians in providing high quality and cost-efficient patient care. This segment includes multi-specialty physician practices, urgent care facilities and anesthesia services.
Seasonality Our revenue fluctuates based on the number of business days in each calendar quarter, because the majority of services provided by physicians in our surgical facilities consist of scheduled procedures and office visits that occur during business hours.
Seasonality Our revenue fluctuates based on the number of business days in each calendar quarter, because the majority of services provided by physicians in our surgical facilities consist of scheduled procedures and office visits that occur during weekday business hours.
These regulations include standards that health care providers must follow when electronically transmitting certain health care transactions, such as health care claims. Emergency Medical Treatment and Active Labor Act Our hospitals are subject to the Emergency Medical Treatment and Active Labor Act ("EMTALA").
These regulations include standards that health care providers must follow when electronically transmitting certain health care transactions, such as health care claims. Emergency Medical Treatment and Active Labor Act Our surgical hospitals are subject to the Emergency Medical Treatment and Active Labor Act ("EMTALA").
As of December 31, 2022, the majority of our facilities were accredited by either The Joint Commission or the Accreditation Association for Ambulatory Health Care, two of the 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 health care facilities.
As of December 31, 2023, the majority of our facilities were accredited by either The Joint Commission or the Accreditation Association for Ambulatory Health Care, two of the 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 health care facilities.
Medicare Reimbursement - Hospital Inpatient Services Nineteen of our surgical facilities are licensed as hospitals. Most inpatient services provided by hospitals are reimbursed by Medicare under the inpatient prospective payment system ("IPPS"). Under the IPPS, a hospital receives a fixed amount for inpatient hospital services based on each patient's final assigned Medicare-severity diagnosis related group ("MS-DRG").
Medicare Reimbursement - Hospital Inpatient Services Eighteen of our surgical facilities are licensed as hospitals. Most inpatient services provided by hospitals are reimbursed by Medicare under the inpatient prospective payment system ("IPPS"). Under the IPPS, a hospital receives a fixed amount for inpatient hospital services based on each patient's final assigned Medicare-severity diagnosis related group ("MS-DRG").
Certificate of need laws are being challenged in many states across the country and any future changes could have positive and negative impacts on our business. We currently operate in 21 states that have certificate of need laws. Our surgical facilities also are subject to state licensing requirements for medical providers.
Certificate of need laws are being challenged in many states across the country and any future changes could have positive and negative impacts on our business. We currently operate in 24 states that have certificate of need laws. Our surgical facilities also are subject to state licensing requirements for medical providers.
The EKRA creates a new federal crime for knowingly and willfully: (1) soliciting or receiving any remuneration in return for referring a patient to a recovery home, clinical treatment facility, or laboratory; or (2) paying or offering any remuneration to induce such a referral or in exchange for an individual using the services of a recovery home, clinical treatment facility, or laboratory.
The EKRA creates a new federal crime for knowingly and willfully: soliciting or receiving any remuneration in return for referring a patient to a recovery home, clinical treatment facility, or laboratory; or paying or offering any remuneration to induce such a referral or in exchange for an individual using the services of a recovery home, clinical treatment facility, or laboratory.
The terms of those management agreements are comparable to the terms of our management agreements with other surgical facilities in which we own an interest. Sources of Revenue Revenue from our surgical facilities is earned from facility fees related to health care services performed in our surgical facilities and is included in our patient service revenues.
The terms of those management agreements are comparable to the terms of our management agreements with other surgical facilities in which we own an equity interest. Sources of Revenue Revenue from our consolidated surgical facilities is earned from facility fees related to health care services performed in our surgical facilities and is included in our patient service revenues.
In addition to our corporate strategy, we continuously evaluate opportunities to expand our presence in the surgical facility market by making strategic acquisitions of existing surgical facilities and by developing new surgical facilities in cooperation with local physician partners and, when appropriate, health care systems and other strategic partners.
In addition to our operational strategy, we continuously evaluate opportunities to expand our presence in the surgical facility market by making strategic acquisitions of existing surgical facilities and by developing new surgical facilities in cooperation with local physician partners and, when appropriate, health care systems and other strategic partners.
The information found on, or otherwise accessible through, our website is not incorporated by reference into, nor does it form a part of, this Annual Report or any other document that we file with the SEC. 16 Table of Contents
The information found on, or otherwise accessible through, our website is not incorporated by reference into, nor does it form a part of, this Annual Report or any other document that we file with the SEC. 15 Table of Contents
Department of Justice ("DOJ") and the FTC to review and revise their merger guidelines to ensure that patients are not harmed by healthcare mergers, and instructs HHS to support existing price transparency rules and implement the legislation that was recently adopted to address surprise billing.
Department of Justice ("DOJ") and the FTC to review and revise their merger guidelines to ensure that patients are not harmed by healthcare mergers, and instructs HHS to support existing price transparency rules and implement the legislation adopted to address surprise billing.
In OIG Advisory Opinion No. 09-09 (July 29, 2009), the OIG concluded that an arrangement involving an ASC joint venture between a hospital and physicians involving the combination of their two ASCs into a single, larger ASC presented minimal risk of fraud or abuse, 10 Table of Contents despite the fact that it did not fit within any applicable Anti-Kickback safe harbors.
In OIG Advisory Opinion No. 09-09 (July 29, 2009), the OIG concluded that an arrangement involving an ASC joint venture between a hospital and physicians involving the combination of their two ASCs into a single, larger ASC presented minimal risk of fraud or abuse, despite the fact that it did not fit within any applicable Anti-Kickback safe harbors.
Although the security standards do not reference or advocate a specific technology, and covered health care providers, plans and clearinghouses have the flexibility to choose their own technical solutions, the security standards have required us to implement significant new systems, business procedures and training programs. 13 Table of Contents Violations of the HIPAA privacy and security regulations may result in civil and criminal penalties.
Although the security standards do not reference or advocate a specific technology, and covered health care providers, plans and clearinghouses have the flexibility to choose their own technical solutions, the security standards have required us to implement significant new systems, business procedures and training programs. Violations of the HIPAA privacy and security regulations may result in civil and criminal penalties.
Affordable Care Act Repeal Efforts Initiatives to repeal or modify the Patient Protection and Affordable Care Act (the "Affordable Care Act") have been persistent over the past several years. As of December 31, 2022, legislative efforts to repeal and replace the Affordable Care Act in full have not been successful.
Affordable Care Act Repeal Efforts Initiatives to repeal or modify the Patient Protection and Affordable Care Act (the "Affordable Care Act") have been persistent over the past several years. As of December 31, 2023, legislative efforts to repeal and replace the Affordable Care Act in full have not been successful.
While some of our surgical facilities adjust the out-of-network costs of patient co-payment and deductible amounts to reflect in-network co-payment costs when providing services to patients whose health insurance is covered by a payor with 14 Table of Contents which the surgical facilities are not contracted, our policy is to fully disclose adjustments in the claims submitted to the payors.
While some of our surgical facilities adjust the out-of-network costs of patient co-payment and deductible amounts to reflect in-network co-payment costs when providing services to patients whose health insurance is covered by a payor with which the surgical facilities are not contracted, our policy is to fully disclose adjustments in the claims submitted to the payors.
"Organization and Summary of Accounting Policies - Medicare Accelerated Payments and Deferred Government Grants" to our audited consolidated financial statements for the year ended December 31, 2022 included elsewhere herein.
"Organization and Summary of Accounting Policies - Medicare Accelerated Payments and Deferred Government Grants" to our audited consolidated financial statements for the year ended December 31, 2023 included elsewhere herein.
We are subject to various state and federal laws that regulate wages, hours, benefits and other terms and conditions relating to employment. 5 Table of Contents We have established, and continue to enhance and refine, a comprehensive set of practices for engaging, recruiting, developing, managing and optimizing the human resources of our organization.
We are subject to various state and federal laws that regulate wages, hours, benefits and other terms and conditions relating to employment. We have established, and continue to enhance and refine, a comprehensive set of practices for engaging, recruiting, developing, managing and optimizing the human resources of our organization.
The program also includes a mechanism for employees to report, without fear of retaliation, any suspected legal or ethical violations to their supervisors, designated compliance officers in our facilities, our compliance hotline or directly to our corporate compliance office. We believe our compliance program is consistent with standard industry practices.
The program also includes a mechanism for employees to report, without fear of retaliation, any suspected legal or ethical violations to their supervisors, designated compliance officers in our facilities, our compliance hotline or directly to our corporate compliance office. We believe our compliance 14 Table of Contents program is consistent with standard industry practices.
Total Addressable Market Based on management estimates, we believe that the total U.S. outpatient surgical facility market represents approximately $90 billion in annual revenue, including approximately $55 billion of hospital outpatient department procedures and $35 billion of ambulatory surgical center procedures, and we believe that ASCs are capturing an increasing share of the total surgical procedure market.
Total Addressable Market Based on management estimates, we believe that the total U.S. outpatient surgical facility market represents greater than $90 billion in annual revenue, including greater than $55 billion of hospital outpatient department procedures and $35 billion of ambulatory surgical center procedures, and we believe that ASCs are capturing an increasing share of the total surgical procedure market.
Although the facility administrator is the primary point of contact, physicians who utilize our surgical facilities are important sources of recommendations to other physicians regarding the benefits of using our surgical facilities. Recruiting teams develop a target list of physicians, and we continually review our progress in successfully recruiting additional local physicians.
Although the facility administrator is the primary point of contact, physicians who utilize our 4 Table of Contents surgical facilities are important sources of recommendations to other physicians regarding the benefits of using our surgical facilities. Recruiting teams develop a target list of physicians, and we continually review our progress in successfully recruiting additional local physicians.
The HIPAA Omnibus Rule requires us to notify patients of any unauthorized access, acquisition, or disclosure of their unsecured protected health information in all situations except those in which we can demonstrate that there is a low probability that the protected health information has been compromised.
The HIPAA Omnibus Rule requires us to notify patients of any unauthorized access, acquisition, or disclosure of their unsecured protected health information in all situations except those in which we can demonstrate 12 Table of Contents that there is a low probability that the protected health information has been compromised.
Some are specifically limited to health care services that are paid for in whole or in part by the Medicaid program; others apply to all health care services regardless of payor; and others apply only to state-defined designated services, which may differ from the designated health services under the Stark Law.
Some are specifically limited to health care services that are paid for in whole or in part by the Medicaid program; others apply to all health care 13 Table of Contents services regardless of payor; and others apply only to state-defined designated services, which may differ from the designated health services under the Stark Law.
The Stark Law currently includes the Whole Hospital Exception, which applies to physician ownership of a hospital, provided such ownership is in the whole hospital and the physician is authorized to perform services at the hospital. We believe that physician investments in our facilities licensed as hospitals meet this requirement.
The Stark Law currently includes the Whole Hospital Exception, which applies to physician ownership of a hospital, provided such ownership is in the whole hospital and the physician is authorized to perform services at the hospital. We believe that physician 11 Table of Contents investments in our facilities licensed as hospitals meet this requirement.
Waivers or Temporary Suspension of Certain Regulatory Requirements In addition to the financial and other relief that has been provided by the federal government through the CARES Act and other legislation that has been passed by Congress, CMS and many state governments have also issued a number of waivers and temporary suspensions of health care facility licensure, certification, and reimbursement requirements in order to provide hospitals, ASCs, physicians, and other health care providers with increased flexibility to meet the challenges presented by the COVID-19 public health emergency.
Waivers or Temporary Suspension of Certain Regulatory Requirements In addition to the financial and other relief that has been provided by the federal government through the CARES Act and other legislation that has been passed by Congress, CMS and many state governments issued a number of waivers and temporary suspensions of 6 Table of Contents health care facility licensure, certification, and reimbursement requirements in order to provide hospitals, ASCs, physicians, and other health care providers with increased flexibility to meet the challenges presented by the COVID-19 public health emergency.
While we believe our ASCs would nonetheless be found to be compliant with the Anti-Kickback Statute, we cannot assure you that the OIG would view our activities favorably even though we strive to achieve compliance with the remaining elements of this safe harbor.
While we believe our ASCs would nonetheless be found to be compliant with the Anti-Kickback 9 Table of Contents Statute, we cannot assure you that the OIG would view our activities favorably even though we strive to achieve compliance with the remaining elements of this safe harbor.
Those ASCs that do not successfully report quality data under the ASCQR Program may receive a payment reduction. Annual Cost Reports Hospitals participating in Medicare and Medicaid programs, whether paid on a reasonable cost basis or under a prospective payment system, may be required to meet certain financial reporting requirements.
Those ASCs that do not successfully report quality data under the ASCQR Program may receive a payment reduction. 3 Table of Contents Annual Cost Reports Hospitals participating in Medicare and Medicaid programs, whether paid on a reasonable cost basis or under a prospective payment system, may be required to meet certain financial reporting requirements.
The primary difference between the structure of these strategic relationships and the other surgical facilities in which we hold ownership is that, in these strategic relationships, a health care system holds ownership in the surgical facility in addition to physician investors.
The primary difference between the structure of these strategic relationships and the other surgical facilities in which we hold an equity interest is that, in these strategic relationships, a health care system holds ownership in the surgical facility in addition to physician investors.
Based on the OPPS Final Rule, ASC reimbursement rates will increase by 3.8% for 2023. CMS has established the Ambulatory Surgical Center for Quality Reporting ("ASCQR") Program as a pay-for-reporting, quality data program. Our ASCs that participate in the ASCQR Program receive the full annual update to the ASC payment rate.
Based on the OPPS Final Rule, ASC reimbursement rates will increase by 3.1% for 2024. CMS has established the Ambulatory Surgical Center for Quality Reporting ("ASCQR") Program as a pay-for-reporting, quality data program. Our ASCs that participate in the ASCQR Program receive the full annual update to the ASC payment rate.
Under the FFY 2022 final rule, rates for inpatient stays in hospitals paid under the IPPS that successfully report certain quality data under the Hospital Inpatient Quality Reporting ("IQR") Program and demonstrate meaningful use of certified electronic health record ("EHR") technology will be increased by 4.3%.
Under the FFY 2024 final rule, rates for inpatient stays in hospitals paid under the IPPS that successfully report certain quality data under the Hospital Inpatient Quality Reporting ("IQR") Program and demonstrate meaningful use of certified electronic health record ("EHR") technology will be increased by 3.1%.
We operate both multi-specialty and single-specialty facilities. In multi-specialty facilities, a variety of surgical procedures are performed, including, among others, orthopedics and pain management, ophthalmology, GI and general surgery. We have diversified the mix of procedures performed at our facilities by strategically introducing select specialties that will complement existing services.
In multi-specialty facilities, a variety of surgical procedures are performed, including, among others, orthopedics and pain management, gastroenterology, ophthalmology, and general surgery. We have diversified the mix of procedures performed at our facilities by strategically introducing select specialties that will complement existing services.
The ASC Safe Harbor protects four categories of investors, including ASCs owned by (1) general surgeons, (2) single-specialty physicians, (3) multi-specialty physicians and (4) hospital/physician joint ventures, provided that certain requirements are satisfied.
The ASC Safe Harbor protects four categories of investors, including ASCs owned by general surgeons, single-specialty physicians, multi-specialty physicians and hospital/physician joint ventures, provided that certain requirements are satisfied.
One of our core values is to promote a culture of diversity and inclusion. We have a Diversity, Equity, Inclusion & Community Impact Council comprised of employees with diverse backgrounds, experiences or characteristics who share a common interest in improving corporate culture and delivering sustained business results.
One of our core values is to promote a culture of diversity and inclusion. We have a Corporate Citizenship and Community Impact Council comprised of employees with diverse backgrounds, experiences or characteristics who share a common interest in improving corporate culture and delivering 5 Table of Contents sustained business results.
The OIG is authorized to issue advisory opinions regarding the interpretation and applicability of the Anti-Kickback Statute, including whether an activity constitutes grounds for the imposition of civil or criminal sanctions. We have not, however, sought such an opinion regarding any of our arrangements.
However, the OIG has not issued any guidance in this regard. The OIG is authorized to issue advisory opinions regarding the interpretation and applicability of the Anti-Kickback Statute, including whether an activity constitutes grounds for the imposition of civil or criminal sanctions. We have not, however, sought such an opinion regarding any of our arrangements.
Several large national companies own and/or manage surgical facilities, in some cases in connection with other lines of business with which we do not compete, including HCA Healthcare, Inc., Envision Healthcare Corporation, Tenet Healthcare Corporation, Surgical Care Affiliates, Inc. and Optum, Inc.
Several large national companies own and/or manage surgical facilities, in some cases in connection with other lines of business with which we do not compete, including HCA Healthcare, Inc., AMSURG Corp., Tenet Healthcare Corporation and Optum, Inc.
Human Capital Resources At December 31, 2022, we had approximately 12,200 employees, including approximately 3,100 part-time employees. None of our employees are represented by a collective bargaining agreement. Our mission is to enhance patient quality of life through partnership. We appreciate that our colleagues are key to creating value and believe that we have a good relationship with them.
Human Capital Resources At December 31, 2023, we had approximately 13,500 employees, including approximately 3,000 part-time employees. None of our employees are represented by a collective bargaining agreement. Our mission is to enhance patient quality of life through partnership. We appreciate that our colleagues are key to creating value and believe that we have a good relationship with them.
As a result of the expiration of the public health emergency, many Medicare and Medicaid waivers and broad flexibilities deemed necessary to expand healthcare system capacity and to allow the health care system to weather the heightened strain created by COVID-19 will come to an end.
As a result of the expiration of the public health emergency, many Medicare and Medicaid waivers and broad flexibilities previously deemed necessary to expand healthcare system capacity and to allow the health care system to weather the heightened strain created by COVID-19 ended.
These contracts generally require that we offer discounts from our established charges. Some of our payments come from private insurance payors with which we do not have written contracts.
These contracts generally require that we offer discounts from our established charges. In rare cases our payments come from private insurance payors with which we do not have written contracts.
Eliminating Kickbacks in Recovery Act In addition to the Anti-Kickback Statute, the U.S. recently enacted a new law known as the Eliminating Kickbacks in Recovery Act (the "EKRA"). The EKRA is contained within the broader Substance Use Disorder Prevention that Promotes Opioid Recovery and Treatment for Patients and Communities Act (the "SUPPORT Act").
Eliminating Kickbacks in Recovery Act In addition to the Anti-Kickback Statute, in 2018, the U.S. enacted the Eliminating Kickbacks in Recovery Act (the "EKRA"). The EKRA is contained within the broader Substance Use Disorder Prevention that Promotes Opioid Recovery and Treatment for Patients and Communities Act (the "SUPPORT Act").
On August 10, 2022, CMS published the IPPS final rule for federal fiscal year ("FFY") 2023, which began on October 1, 2021.
On August 1, 2023, CMS published the IPPS final rule for federal fiscal year ("FFY") 2024, which began on October 1, 2023.
Supreme Court dismissed a case that sought to invalidate the Affordable Care Act; however, the Affordable Care Act remains subject to various challenges.
Supreme Court dismissed a case that sought to invalidate the 7 Table of Contents Affordable Care Act; however, the Affordable Care Act remains subject to various challenges.
In one model, we wholly own and operate physician practices. For example, in the state of Florida, where the law does not preclude a business corporation from employing physicians, we wholly-own and operate physician practices in several locations throughout Florida.
We employ two models in our network of multi-specialty physician practices. In one model, we wholly own and operate physician practices. For example, in the state of Florida, where the law does not preclude a business corporation from employing physicians, we wholly-own and operate physician practices in several locations throughout the state.
Operations During 2022 and 2021, we operated in two reporting segments: Surgical Facility Services and Ancillary Services. Prior to 2021, we also operated in the Optical Services reporting segment. • Our Surgical Facility Services segment consisted of the operation of ASCs and surgical hospitals and includes our anesthesia services.
Operations During 2023 and 2022, we operated in two reporting segments: Surgical Facility Services and Ancillary Services. • Our Surgical Facility Services segment consisted of the operation of ASCs and surgical hospitals and includes our anesthesia services.
Most physicians are not employees of our surgical facilities and are not contractually required to use our facilities. Physicians who use our surgical facilities also use other facilities or hospitals and may choose to perform procedures in an office-based setting that might otherwise be performed at our surgical facilities.
Physicians who use our surgical facilities also use other facilities or hospitals and may choose to perform procedures in an office-based setting that might otherwise be performed at our surgical facilities.
During 2022, patient services provided in our surgical facilities generated approximately $2.4 billion in revenue. Our Growth Strategies Our differentiated operating model employs a multifaceted strategy to grow revenue, earnings and cash flow.
Patient services provided in our ASCs and surgical hospitals (collectively, "surgical facilities" or "facilities") generated approximately $2.6 billion in revenue during 2023. Our Growth Strategies Our differentiated operating model employs a multifaceted strategy to grow revenue, earnings and cash flow.
We believe that the management fees (and in some cases guarantee fees) are adequate compensation to us for the credit risk associated with the guarantees and that the failure of the physician investors to enter into similar guarantees does not create a material risk of violating the Anti-Kickback Statute. However, the OIG has not issued any guidance in this regard.
We believe that the management fees (and 10 Table of Contents in some cases guarantee fees) are adequate compensation to us for the credit risk associated with the guarantees and that the failure of the physician investors to enter into similar guarantees does not create a material risk of violating the Anti-Kickback Statute.
Our team seeks to acquire surgical facilities that meet our criteria, including prominence and quality of physician partners, specialty mix, opportunities for growth, level of competition in the local market, level of private insurance penetration and our ability to access private insurance contracts.
We employ a dedicated acquisition team with experience in health care services. Our team seeks to acquire surgical facilities that meet our criteria, including prominence and quality of physician partners, specialty mix, opportunities for growth, level of competition in the local market, level of private insurance penetration and our ability to access private insurance contracts.
Our hospital investments do not fit wholly within the safe harbor for investments in small entities because more than 40.0% of the investment interests are held by investors who are either in a position to refer to the hospital or who provide services to the hospital and more than 40.0% of the hospital’s gross revenue last year were derived from referrals generated by investors.
Our hospital investments do not fit wholly within the safe harbor for investments in small entities because certain of the investment interests are held by investors who are either in a position to refer to the hospital or who provide services to the hospital and a portion of the hospital’s gross revenues are derived from referrals generated by those investors.
Our surgical facilities are staffed by licensed physicians. We generally do not enter into contracts with physicians who use our surgical facilities, other than partnership and operating agreements with physicians who own interests in our surgical facilities, agreements for anesthesiology services and medical director agreements.
We generally do not enter into contracts with physicians who use our surgical facilities, other than partnership and operating agreements with physicians who own interests in our surgical facilities, agreements for anesthesiology services and medical director agreements. Most physicians are not employees of our surgical facilities and are not contractually required to use our facilities.
In addition, the final rules provide additional guidance on several key compliance requirements, including fair market value and commercial reasonableness, that must be met in order for physicians and health care providers to comply with the Stark Law. We cannot yet predict the impact that the final rules will have on our surgery centers and hospitals.
In addition, the final rules provide additional guidance on several key compliance requirements, including fair market value and commercial reasonableness, that must be met in order for physicians and health care providers to comply with the Stark Law.
In some instances, we acquire ownership in a surgical facility with the prior owners retaining ownership, and, in some cases, we offer new ownership to other physicians or health care systems. We hold majority ownership in 93 surgical facilities in which we own an interest.
In some instances, we acquire ownership in a surgical facility with the prior owners retaining ownership, and, in some cases, we offer new ownership to other physicians or health care systems.
The Company, physicians and patients benefit from these services through improved clinical efficiency and scheduling, and from incremental revenue associated with retaining fees for these services. Our Ancillary Services segment contributed approximately 3% of our total revenue in each of 2022, 2021 and 2020. We employ two models in our network of multi-specialty physician practices.
The Company, physicians and patients benefit from these services through improved clinical efficiency and scheduling, and from incremental revenue associated with retaining fees for these services. Our Ancillary Services segment contributed approximately 2% of our total revenue in 2023 and 3% of our total revenue in each of 2022 and 2021.
We generally structure our partnerships where either we are a majority owner partnered with physicians or we are a minority owner with buy-up rights. These buy- 4 Table of Contents up rights give us the option to own a controlling interest at some point in the future.
We generally structure our partnerships where either we are a majority owner partnered with physicians or we are a minority owner with buy-up rights. These buy-up rights give us the option to own a controlling interest at some point in the future. Alternatively, we may choose to pursue a strategic relationship with physicians and a health care system.
In general, we seek to attract, develop and retain an engaged workforce and improve talent management processes accordingly. We offer a competitive range of compensation and benefit programs.
In general, we seek to attract, develop and retain an engaged workforce and improve talent management processes accordingly. We offer a competitive range of compensation and benefit programs. We also are committed to the health and safety of our patients, employees, and medical staff.
Many states have also suspended the enforcement of certain regulatory requirements to ensure that health care providers have sufficient capacity to treat COVID-19 patients. These regulatory changes are temporary, and we anticipate substantially all requirements will be reinstated in all material respects at the conclusion of the public health emergency.
Many states also suspended the enforcement of certain regulatory requirements to ensure that health care providers have sufficient capacity to treat COVID-19 patients. With the expiration of the public health emergency, further discussed in the following section, these temporary regulatory changes have terminated and all regulatory requirements have been reinstated in all material respects.
In addition to the IQR Program, hospitals will be subject to payment adjustments under the Value Based Purchasing Program, Readmissions Reduction Program and Hospital Acquired Conditions Reduction Programs that have been implemented by the Department of Health and Human Services ("HHS"). 3 Table of Contents Medicare Reimbursement - Hospital Outpatient Departments Surgical services that are provided in hospital outpatient departments ("HOPDs") generally are reimbursed by CMS using the Outpatient Prospective Payment System (the "OPPS").
In addition to the IQR Program, hospitals will be subject to payment adjustments under the Value Based Purchasing Program, Readmissions Reduction Program and Hospital Acquired Conditions Reduction Programs that have been implemented by the Department of Health and Human Services ("HHS").
The policy change was included in the OPPS final rule, which outlines the 2023 OPPS payment rates. Under the new policy, Medicare will pay lower rates to all OPPS participating HOPDs for non-drug services.
On November 2, 2023, CMS additionally released final updates to its Medicare Part B drug payment policy for hospitals participating in the 340B drug pricing program. The policy change was included in the OPPS final rule, which outlines the 2024 OPPS payment rates. Under the new policy, Medicare will pay lower rates to all OPPS participating HOPDs for non-drug services.
“Risk Factors-Governance Risks-Our largest stockholder has significant influence over us, including influence over decisions that require the approval of stockholders, which could limit our stockholders’ ability to influence the outcome of key transactions, including a change of control.” 15 Table of Contents Where You Can Find More Information We make available on or through the "Investors-SEC Filings" page of our website at www.surgerypartners.com, free of charge, copies of reports, such as Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to those reports (along with certain other Company filings with the SEC), as soon as reasonably practicable after electronically filing such material with, or furnishing it to, the SEC.
Where You Can Find More Information We make available on or through the "Investors-SEC Filings" page of our website at www.surgerypartners.com, free of charge, copies of reports, such as Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to those reports (along with certain other Company filings with the SEC), as soon as reasonably practicable after electronically filing such material with, or furnishing it to, the SEC.
Although all other repayments requested to date as a result of RAC, MIC and ZPIC audits have not been material to our Company, we are unable to quantify the aggregate financial impact of these audits on our facilities given the pending appeals and uncertainty about the extent of future audits. 8 Table of Contents Medicare and Medicaid Participation The majority of our revenue is expected to continue to be received from third-party payors, including federal and state programs, such as Medicare and Medicaid, and private insurance payors.
Although all other repayments requested to date as a result of RAC, MIC and ZPIC audits have not been material to our Company, we are unable to quantify the aggregate financial impact of these audits on our facilities given the pending appeals and uncertainty about the extent of future audits.
Hospitals that do not meet the reporting requirements of the Medicare Hospital Outpatient Quality Reporting Program will be subject to a 2.0% payment rate decrease. On November 1, 2022, CMS additionally released final updates to its Medicare Part B drug payment policy for hospitals participating in the 340B drug pricing program.
On November 2, 2023, CMS published its OPPS final rule for 2024. The final rule provides for a payment rate increase of 3.1%. Hospitals that do not meet the reporting requirements of the Medicare Hospital Outpatient Quality Reporting Program will be subject to a 2.0% payment rate decrease.
We believe that forming such strategic relationships can enhance our ability to attract physicians and access favorable private insurance contracts for our surgical facilities in that market.
Strategic Relationships When attractive opportunities arise, we may develop, acquire or operate surgical facilities through strategic relationships with payors, health care systems, and other health care providers. We believe that forming such strategic relationships can enhance our ability to attract physicians and access favorable private insurance contracts for our surgical facilities in that market.
We continue to closely monitor legislative actions and regulatory guidance at the federal, state and local levels with respect to the CARES Act and other governmental programs related to the COVID-19 public health emergency. 7 Table of Contents Certificates of Need, Licensure and Accreditation Capital expenditures for the construction of new health care facilities, the addition of beds or new health care services or the acquisition of existing health care facilities may be reviewable by state regulators under statutory programs that are sometimes referred to as certificate of need laws.
Certificates of Need, Licensure and Accreditation Capital expenditures for the construction of new health care facilities, the addition of beds or new health care services or the acquisition of existing health care facilities may be reviewable by state regulators under statutory programs that are sometimes referred to as certificate of need laws.
When a transaction or relationship does not fit within a safe harbor, it does not mean that an Anti-Kickback Statute violation has occurred; rather, it means that the facts and circumstances as well as the intent of the parties related to a specific transaction or relationship must be examined to determine whether or not any illegal conduct has occurred. 9 Table of Contents We believe the ownership and operations of our surgical facilities do not fit wholly within any of the safe harbors, but we attempt to structure our ASCs to fit as closely as possible within the safe harbor designed to protect distributions to physician-investors in ASCs who directly refer patients to the ASC and personally perform the procedures at the center as an extension of their practice (the "ASC Safe Harbor").
We believe the ownership and operations of our surgical facilities do not fit wholly within any of the safe harbors, but we attempt to structure our ASCs to fit as closely as possible within the safe harbor designed to protect distributions to physician-investors in ASCs who directly refer patients to the ASC and personally perform the procedures at the center as an extension of their practice (the "ASC Safe Harbor").
The staff of our ASCs generally includes a center administrator, registered nurses, operating room technicians, as well as other administrative staff. Our surgical hospitals generally are larger than our ASCs and include inpatient hospital rooms and, in certain cases, emergency departments. Our surgical hospitals also provide services such as diagnostic imaging, laboratory, obstetrics, oncology, pharmacy, physical therapy and wound care.
Our surgical hospitals generally are larger than our ASCs and include inpatient hospital rooms and, in certain cases, emergency departments. Our surgical hospitals may also provide services such as diagnostic imaging, laboratory, oncology, pharmacy, physical therapy and wound care. We operate both multi-specialty and single-specialty facilities.
We cannot predict how, if at all, the various initiatives set forth in the executive order will be implemented by the regulatory agencies involved or the impact that the executive order will have on operations. For example, the FTC recently published a proposed rule that would prohibit employers from entering into non-compete agreements and nullify existing non-competes.
We cannot predict how, if at all, the various initiatives set forth in the executive order will be implemented by the regulatory agencies involved or the impact that the executive order will have on operations.
In the other model, we operate physician practices pursuant to long-term management service agreements with separate professional corporations that are wholly-owned by physicians. Until it was closed in the third quarter of 2020, we offered physicians toxicology testing services through our wholly-owned diagnostic laboratory based in Tampa, Florida.
In the other model, we operate physician practices pursuant to long-term management service agreements with separate professional corporations that are wholly-owned by physicians.
Violations of the Anti-Kickback Statute are criminal offenses punishable by imprisonment and fines of up to $25,000 for each violation. Civil violations are punishable by fines of up to $50,000 for each violation, as well as damages of up to three times the total amount of remuneration received from the government for health care claims.
Violations of the Anti-Kickback Statute are criminal offenses punishable by imprisonment and fines of up to $25,000 for each violation.
In addition, we believe favorable industry trends such as an aging population and advancements in medical technology will further drive growth.
In addition, we believe favorable industry trends such as an aging population, advancements in medical technology and payor and government encouragement to move high acuity procedures from acute care to our lower cost sites of care will further drive growth.
Our surgical facilities primarily provide non-emergency surgical procedures across many specialties, including, among others, orthopedics and pain management, ophthalmology, gastroenterology ("GI") and general surgery. • Our Ancillary Services segment consisted of multi-specialty physician practices, including physician practices owned and operated pursuant to long-term management service agreements, and prior to 2021, a diagnostic laboratory, which was closed during the third quarter of 2020. • Our Optical Services segment consisted of an optical products group purchasing organization, which was divested on December 31, 2020.
Our surgical facilities primarily provide non-emergency surgical procedures across many specialties, including, among others, orthopedics and pain management, ophthalmology, gastroenterology ("GI") and general surgery. • Our Ancillary Services segment consisted of multi-specialty physician practices, including physician practices owned and operated pursuant to long-term management service agreements. 1 Table of Contents Surgical Facility Services Segment Surgical Facility Operations As of December 31, 2023, we owned or operated 162 surgical facilities, including 144 ASCs and 18 licensed surgical hospitals.
Investigators have also demonstrated a willingness to look behind the formalities of a business transaction to determine the underlying purposes of payments between health care providers and potential referral sources. 11 Table of Contents On November 20, 2020, CMS and the OIG issued final rules that modify the federal physician self-referral law, or Stark Law, regulations and the federal anti-kickback and civil monetary penalty for beneficiary inducement statutes and regulations.
On November 20, 2020, CMS and the OIG issued final rules that modify the federal physician self-referral law, or Stark Law, regulations and the federal anti-kickback and civil monetary penalty for beneficiary inducement statutes and regulations.
We provide intercompany loans to some of the surgical facilities which often are secured by a pledge of assets of the facility.
We provide day-to-day management services for a majority of our surgical facilities pursuant to a management agreement and receive a management fee that is typically equal to a percentage of the facility revenue. We also provide intercompany loans to some of the surgical facilities which often are secured by a pledge of assets of the facility.
We also submit a claim for the services to the private insurance payor along with full disclosure that we have charged the patient an in-network patient responsibility amount. 6 Table of Contents Governmental Regulation General We are subject to federal, state and local laws dealing with issues such as occupational safety, employment, medical leave, insurance regulations, civil rights, discrimination, building codes and medical waste and other environmental issues.
Governmental Regulation General We are subject to federal, state and local laws dealing with issues such as occupational safety, employment, medical leave, insurance regulations, civil rights, discrimination, building codes and medical waste and other environmental issues. Federal, state and local governments are expanding the regulatory requirements on businesses like ours.
Our typical ASC is a free-standing facility that performs planned surgical procedures on an outpatient basis for patients not requiring hospitalization and for whom an overnight stay is not expected after surgery. Each ASC usually has one to seven operating or procedure rooms with areas for reception, pre-operative care, recovery and administration.
Our Surgical Facility Services segment contributed approximately 98% of our total revenue in 2023, and 97% of our total revenue in each of 2022 and 2021. Our typical ASC is a free-standing facility that performs planned surgical procedures on an outpatient basis for patients not requiring hospitalization and for whom an overnight stay is not expected after surgery.
We are dependent upon government and private insurance sources of payment for the services we provide.
Management fees received from our non-consolidated surgical facilities for management services provided are included in other service revenues. We are dependent upon government and private insurance sources of payment for the services we provide.
Anticipated Expiration of Public Health Emergency On January 30, 2023, the Biden Administration announced its intent to end the COVID-19 public health emergency declaration effective as of the end of the day on May 11, 2023.
Expiration of Public Health Emergency On May 11, 2023, the Biden Administration formally ended the COVID-19 public health emergency.
Because physician-owners of our surgical facilities are in a position to generate referrals to the facilities, the distribution of available cash to those investors could come under scrutiny under the Anti-Kickback Statute.
Civil violations are punishable by fines of up to $50,000 for each violation, as well as damages of up to three times the total amount of remuneration received from the government for health care claims. 8 Table of Contents Because physician-owners of our surgical facilities are in a position to generate referrals to the facilities, the distribution of available cash to those investors could come under scrutiny under the Anti-Kickback Statute.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeAny refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. 26 Table of Contents The Term Loan bears interest at a rate per annum equal to (x) the London Interbank Offered Rate ("LIBOR") plus a margin 3.75% per annum (LIBOR shall be subject to a floor of 0.75%) or (y) an alternate base rate (which will be the highest of (i) the prime rate, (ii) 0.50% per annum above the federal funds effective rate and (iii) one-month LIBOR plus 1.00% per annum (the alternative base rate shall be subject to a floor of 1.75%)) plus a margin of 2.75% per annum.
Biggest changeAny refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations.
If a federal or state agency asserts a different position or enacts new laws in this regard, we could be subject to criminal and civil penalties, loss of licenses and exclusion from governmental programs, which may result in a substantial loss of revenue. • If we fail to comply with physician self-referral laws as they are currently interpreted or may be interpreted in the future, or if other legislative restrictions are issued, we could incur substantial monetary penalties and a significant loss of revenue. • Federal law restricts the ability of our surgical hospitals to expand surgical capacity. • Companies within the health care industry continue to be the subject of federal and state audits and investigations, including actions for false and other improper claims. • If we become subject to large malpractice or other legal claims, we could be required to pay significant damages, which may not be covered by insurance. • Failure to comply with Medicare’s conditions for coverage and conditions of participation may result in loss of program payment or other governmental sanctions. • Our facilities could face decreased Medicare payments if they fail to report and meet various quality metrics. • If antitrust enforcement authorities conclude that our market share in any particular market is too concentrated, that our or our health system partners’ commercial payor contract negotiating practices are illegal, or that we otherwise violate antitrust laws, we could be subject to enforcement actions that could have a material adverse effect on our business, prospects, results of operations and financial condition.
If a federal or state agency asserts a different position or enacts new laws in this regard, we could be subject to criminal and civil penalties, loss of licenses and exclusion from governmental programs, which may result in a substantial loss of revenue. • If we fail to comply with physician self-referral laws as they are currently interpreted or may be interpreted in the future, or if other legislative restrictions are issued, we could incur substantial monetary penalties and a significant loss of revenue. • Federal law restricts the ability of our surgical hospitals to expand capacity. • Companies within the health care industry continue to be the subject of federal and state audits and investigations, including actions for false and other improper claims. • If we become subject to large malpractice or other legal claims, we could be required to pay significant damages, which may not be covered by insurance. • Failure to comply with Medicare’s conditions for coverage and conditions of participation may result in loss of program payment or other governmental sanctions. • Our facilities could face decreased Medicare payments if they fail to report and meet various quality metrics. • If antitrust enforcement authorities conclude that our market share in any particular market is too concentrated, that our or our health system partners’ commercial payor contract negotiating practices are illegal, or that we otherwise violate antitrust laws, we could be subject to enforcement actions that could have a material adverse effect on our business, prospects, results of operations and financial condition.
If future rules modify the provisions of the Stark Law regulations that are applicable to our business, our revenue and profitability could be materially adversely affected and could require us to modify our relationships with our physician and health care system partners. Federal law restricts the ability of our surgical hospitals to expand surgical capacity.
If future rules modify the provisions of the Stark Law regulations that are applicable to our business, our revenue and profitability could be materially adversely affected and could require us to modify our relationships with our physician and health care system partners. Federal law restricts the ability of our surgical hospitals to expand capacity.
Although we have disaster plans in place and operate pursuant to infectious disease protocols, the extent to which COVID-19 or other public health crisis will impact our business is difficult to predict and will depend on many factors beyond our control, including the speed of contagion, the development and implementation of effective preventative measures and possible treatments, the scope of governmental and other restrictions on travel and other activity, and public reactions to these factors.
Although we have disaster plans in place and operate pursuant to infectious disease protocols, the extent to which COVID-19 or another public health crisis will impact our business is difficult to predict and will depend on many factors beyond our control, including the speed of contagion, the development and implementation of effective preventative measures and possible treatments, the scope of governmental and other restrictions on travel and other activity, and public reactions to these factors.
Our ability to generate cash depends on many factors beyond our control, and any failure to meet our debt service obligations may adversely affect our business, financial condition and results of operations. • Despite our current indebtedness levels, we and our subsidiaries may still be able to incur more debt, which could further exacerbate the risks associated with our leverage. • We make significant loans to, and are generally liable for debts and other obligations of, the partnerships and limited liability companies that own and operate some of our surgical facilities. • We may be limited in our ability to utilize, or may not be able to utilize, net operating loss carryforwards to reduce our future tax liability. 17 Table of Contents Cybersecurity and Data Risks • Cybersecurity attacks or intrusions could adversely impact our businesses. • Our use and disclosure of personally identifiable information, including health information, is subject to federal and state privacy and security regulations, and our failure to comply with those regulations or to adequately secure the information we hold could result in significant liability or reputational harm.
Our ability to generate cash depends on many factors beyond our control, and any failure to meet our debt service obligations may adversely affect our business, financial condition and results of operations. • Despite our current indebtedness levels, we and our subsidiaries may still be able to incur more debt, which could further exacerbate the risks associated with our leverage. • We make significant loans to, and are generally liable for debts and other obligations of, the partnerships and limited liability companies that own and operate some of our surgical facilities. • We may be limited in our ability to utilize, or may not be able to utilize, net operating loss carryforwards to reduce our future tax liability. 16 Table of Contents Cybersecurity and Data Risks • Cybersecurity attacks or intrusions could adversely impact our businesses. • Our use and disclosure of personally identifiable information, including health information, is subject to federal and state privacy and security regulations, and our failure to comply with those regulations or to adequately secure the information we hold could result in significant liability or reputational harm.
As a result, cybersecurity and the continued development and enhancement of the controls and processes designed to protect our systems, computers, software, data and networks from attack, damage or unauthorized access remain a priority for us. We and our third-party vendors have been and likely will continue to be subject to attempted cybersecurity attacks.
As a result, cybersecurity and the continued development and enhancement of the controls and processes designed to protect our systems, computers, software, data and networks from attack, damage or unauthorized access remain a priority for us. We and our third-party vendors have been and likely will continue to be subject to cybersecurity attacks.
In 24 Table of Contents addition, subject to applicable restrictions under our Senior Indebtedness, we may incur significant additional indebtedness, which may be secured, from time to time, which could have important consequences, including: • making it more difficult for us to satisfy our obligations with respect to our indebtedness; • making us more vulnerable to adverse changes in general economic, industry and competitive conditions and adverse changes in government regulation; • requiring us to dedicate a substantial portion of our cash flow to making payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures and other general corporate purposes; • limiting our flexibility in reacting to competitive and other changes in our industry and economic conditions generally; and • limiting our ability to raise additional capital for working capital, capital expenditures, acquisitions, debt service requirements, execution of our business strategy or other general corporate purposes.
In 23 Table of Contents addition, subject to applicable restrictions under our Senior Indebtedness, we may incur significant additional indebtedness, which may be secured, from time to time, which could have important consequences, including: • making it more difficult for us to satisfy our obligations with respect to our indebtedness; • making us more vulnerable to adverse changes in general economic, industry and competitive conditions and adverse changes in government regulation; • requiring us to dedicate a substantial portion of our cash flow to making payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures and other general corporate purposes; • limiting our flexibility in reacting to competitive and other changes in our industry and economic conditions generally; and • limiting our ability to raise additional capital for working capital, capital expenditures, acquisitions, debt service requirements, execution of our business strategy or other general corporate purposes.
The amounts that we receive from the Medicare and Medicaid programs for our services are subject to statutory and regulatory changes, administrative rulings, interpretations and determinations concerning patient eligibility requirements, funding levels and the method of calculating payments or 18 Table of Contents reimbursements, among other things; refinements to the Medicare Ambulatory Surgery Center payment system and refinements made by CMS to Medicare’s reimbursement policies; requirements for utilization review; and federal and state funding restrictions; any of which could materially adversely affect payments we receive from these government programs, as well as affect the timing of payments to our facilities.
The amounts that we receive from the Medicare and Medicaid programs for our services are subject to statutory and regulatory changes, administrative rulings, interpretations and determinations concerning patient eligibility requirements, funding levels and the method of calculating payments or 17 Table of Contents reimbursements, among other things; refinements to the Medicare Ambulatory Surgery Center payment system and refinements made by CMS to Medicare’s reimbursement policies; requirements for utilization review; and federal and state funding restrictions; any of which could materially adversely affect payments we receive from these government programs, as well as affect the timing of payments to our facilities.
These laws and regulations require that our facilities meet various licensing, accreditation, certification and other requirements, including, but not limited to, those relating to: • ownership and control of our facilities; • operating policies and procedures; • qualification, training and supervision of medical and support persons; • pricing of, billing for and coding of services and properly handling overpayments, debt collection practices and the submission of false statements or claims; • the necessity, appropriateness and adequacy of medical care, equipment, personnel, operating policies and procedures; maintenance and preservation of medical records; • financial arrangements between referral sources and our facilities; • the protection of privacy, including patient and credit card information; • screening, stabilization and transfer of individuals who have emergency medical conditions and provision of emergency services; • antitrust; • building codes; • workplace health and safety; • licensure, certification and accreditation; • fee-splitting and the corporate practice of medicine; • handling of medication; • confidentiality, data breach, identity theft and maintenance and protection of health-related and other personal information and medical records; and • environmental protection, health and safety.
These laws and regulations require that our facilities meet various licensing, accreditation, certification and other requirements, including, but not limited to, those relating to: • ownership and control of our facilities; • operating policies and procedures; • qualification, training and supervision of medical and support persons; • pricing of, billing for and coding of services and properly handling overpayments, debt collection practices and the submission of false statements or claims; • the necessity, appropriateness and adequacy of medical care, equipment, personnel, operating policies and procedures; maintenance and preservation of medical records; • financial arrangements between referral sources and our facilities; • the protection of privacy, including patient and credit card information; • screening, stabilization and transfer of individuals who have emergency medical conditions and provision of emergency services; • antitrust; • building codes; • workplace health and safety; • licensure, certification and accreditation; • fee-splitting and the corporate practice of medicine; • handling of medication; 27 Table of Contents • confidentiality, data breach, identity theft and maintenance and protection of health-related and other personal information and medical records; and • environmental protection, health and safety.
Additional factors that could complicate our billing include: • disputes between payors as to which party is responsible for payment; • failure of information systems and processes to submit and collect claims in a timely manner; • variation in coverage for similar services among various payors; 23 Table of Contents • the difficulty of adherence to specific compliance requirements, diagnosis coding and other procedures mandated by various payors; and • failure to obtain proper physician credentialing and documentation in order to bill various payors.
Additional factors that could complicate our billing include: • disputes between payors as to which party is responsible for payment; • failure of information systems and processes to submit and collect claims in a timely manner; • variation in coverage for similar services among various payors; 22 Table of Contents • the difficulty of adherence to specific compliance requirements, diagnosis coding and other procedures mandated by various payors; and • failure to obtain proper physician credentialing and documentation in order to bill various payors.
Additionally, such facilities are subject to periodic inspection by government authorities and accreditation organizations to assure their continued compliance with these various standards. 22 Table of Contents All of our facilities are deemed certified, meaning that they are accredited, properly licensed under the relevant state laws and regulations and certified under the Medicare program or are in the process of applying for such accreditation, licensing or certification.
Additionally, such facilities are subject to periodic inspection by government authorities and accreditation organizations to assure their continued compliance with these various standards. 21 Table of Contents All of our facilities are deemed certified, meaning that they are accredited, properly licensed under the relevant state laws and regulations and certified under the Medicare program or are in the process of applying for such accreditation, licensing or certification.
Therefore, a significant shift in our case mix toward a higher percentage of lower revenue cases, which could occur for reasons beyond our control, could result in a material adverse effect on our business, prospects, results of operations and financial condition. 19 Table of Contents Our case volume and surgical case mix may be adversely affected by patients’ unwillingness to pay for procedures in our facilities.
Therefore, a significant shift in our case mix toward a higher percentage of lower revenue cases, which could occur for reasons beyond our control, could result in a material adverse effect on our business, prospects, results of operations and financial condition. 18 Table of Contents Our case volume and surgical case mix may be adversely affected by patients’ unwillingness to pay for procedures in our facilities.
However, our financial condition and results of operations would be materially adversely affected if our surgical facilities are unable to repay these intercompany loans, or such loans are challenged under certain health care laws. Additionally, at December 31, 2022, our global intercompany note, which we use to transfer debt balances between our subsidiaries, had a zero balance.
However, our financial condition and results of operations would be materially adversely affected if our surgical facilities are unable to repay these intercompany loans, or such loans are challenged under certain health care laws. Additionally, at December 31, 2023, our global intercompany note, which we use to transfer debt balances between our subsidiaries, had a zero balance.
For the year-ended December 31, 2022, our salary and benefit expenses represented approximately 29% of our revenue. We also depend on the available labor pool of semi-skilled and unskilled workers in each of the markets in which we operate. If our labor costs increase, we may not be able to raise rates to offset these increased costs.
For the year ended December 31, 2023, our salary and benefit expenses represented approximately 29% of our revenue. We also depend on the available labor pool of semi-skilled and unskilled workers in each of the markets in which we operate. If our labor costs increase, we may not be able to raise rates to offset these increased costs.
These provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and employees. 35 Table of Contents Item 1B. Unresolved Staff Comments None.
These provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and employees. 34 Table of Contents Item 1B. Unresolved Staff Comments None.
In addition, other companies either currently are in the same or similar business of developing, acquiring and 21 Table of Contents operating surgical facilities or may decide to enter our business. Many of these companies have greater resources than we do, including financial, marketing, staff and capital resources.
In addition, other companies either currently are in the same or similar business of developing, acquiring and 20 Table of Contents operating surgical facilities or may decide to enter our business. Many of these companies have greater resources than we do, including financial, marketing, staff and capital resources.
The remaining federal NOL carryforwards, which were generated after 2017, do not expire. Our state NOL carryforwards will expire between 2023 and 2042. Future ownership changes may subject our NOL carryforwards to further annual limitations, which could restrict our ability to use them to offset our taxable income in periods following the ownership changes.
The remaining federal NOL carryforwards, which were generated after 2017, do not expire. Our state NOL carryforwards will expire between 2024 and 2042. Future ownership changes may subject our NOL carryforwards to further annual limitations, which could restrict our ability to use them to offset our taxable income in periods following the ownership changes.
If we are unable to successfully execute on this strategy in the future, our future growth could be limited. We may be unable to identify suitable acquisition and development opportunities, or to complete acquisitions and new projects in a timely manner and 20 Table of Contents on favorable terms.
If we are unable to successfully execute on this strategy in the future, our future growth could be limited. We may be unable to identify suitable acquisition and development opportunities, or to complete acquisitions and new projects in a timely manner and 19 Table of Contents on favorable terms.
Because our facilities perform hundreds or thousands of similar procedures each year for which they are paid by Medicare, and since the statute of limitations for such claims extends for six years under normal circumstances (and possibly as long as ten years in the event of failure to discover material facts), a repetitive billing error or cost reporting error could result in significant, material repayments and civil or criminal penalties.
Because our facilities perform hundreds or thousands of similar 30 Table of Contents procedures each year for which they are paid by Medicare, and since the statute of limitations for such claims extends for six years under normal circumstances (and possibly as long as ten years in the event of failure to discover material facts), a repetitive billing error or cost reporting error could result in significant, material repayments and civil or criminal penalties.
Regulatory changes that could create purchase or renegotiation obligations include changes that: • make illegal the referral of Medicare or other patients to our surgical facilities and hospitals by physician investors; • create a substantial likelihood that cash distributions to physician investors from the partnerships or LLCs through which we operate our surgical facilities and hospitals would be illegal; • make illegal the ownership by the physician investors of interests in the partnerships or LLCs through which we own and operate our surgical facilities and hospitals; or • require us to reduce the aggregate percentage of physician investor ownership in our hospitals.
Regulatory changes that could create purchase or renegotiation obligations include changes that: • make illegal the referral of Medicare or other patients to our surgical facilities and hospitals by physician investors; • create a substantial likelihood that cash distributions to physician investors from the partnerships or LLCs through which we operate our surgical facilities and hospitals would be illegal; 28 Table of Contents • make illegal the ownership by the physician investors of interests in the partnerships or LLCs through which we own and operate our surgical facilities and hospitals; or • require us to reduce the aggregate percentage of physician investor ownership in our hospitals.
Any enforcement 29 Table of Contents action against us, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business. A number of initiatives have been proposed during the past several years to reform various aspects of the health care system in the U.S.
Any enforcement action against us, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business. A number of initiatives have been proposed during the past several years to reform various aspects of the health care system in the U.S.
If the proportion of our services subject to out-of-network fee schedules increases, we may experience a decrease in volume at our ASCs or other facilities due to fewer referrals of out-of-network patients. Additionally, payments from workers’ compensation payors represented approximately 4%, 5% and 6% of our patient service revenue in 2022, 2021 and 2020, respectively.
If the proportion of our services subject to out-of-network fee schedules increases, we may experience a decrease in volume at our ASCs or other facilities due to fewer referrals of out-of-network patients. Additionally, payments from workers’ compensation payors represented approximately 4%, 4% and 5% of our patient service revenue in 2023, 2022 and 2021, respectively.
If a pandemic, epidemic or outbreak of an infectious disease, including the recent outbreak of respiratory illness caused by a novel coronavirus known as COVID-19, or other public health crisis were to affect the areas in which we operate, our business, including our revenue, profitability and cash flows, could be adversely affected.
If a pandemic, epidemic or outbreak of an infectious disease, including another outbreak of respiratory illness caused by the coronavirus known as COVID-19, or other public health crisis were to affect the areas in which we operate, our business, including our revenue, profitability and cash flows, could be adversely affected.
We depend upon private and governmental third-party sources of payment for the services provided by physicians in our physician network and to patients in our surgical facilities, including surgical hospitals. We derived approximately 42%, 43% and 39% in 2022, 2021 and 2020, respectively, of our revenue from government payors, including Medicare and Medicaid programs.
We depend upon private and governmental third-party sources of payment for the services provided by physicians in our physician network and to patients in our surgical facilities, including surgical hospitals. We derived approximately 42%, 42% and 43% in 2023, 2022 and 2021, respectively, of our revenue from government payors, including Medicare and Medicaid programs.
In such instances, the physicians and/or physician groups typically also guarantee their pro-rata share of such indebtedness. Our variable rate indebtedness subjects us to interest rate risk, which could cause our indebtedness service obligations to increase significantly. Borrowings under the Senior Secured Credit Facilities are at variable rates of interest and expose us to interest rate risk.
In such instances, the physicians and/or physician groups typically also guarantee their pro-rata share of such indebtedness. Our variable rate indebtedness subjects us to interest rate risk, which could cause our indebtedness service obligations to increase significantly. Borrowings under the New Credit Facilities are at variable rates of interest and expose us to interest rate risk.
Our failure to comply with the restrictive covenants described above as well as others contained in our future debt instruments from time to time could result in an event of default, which, if not cured or waived, could result in our being required to repay 25 Table of Contents these borrowings before their maturity.
Our failure to comply with the restrictive covenants described above as well as others contained in our future debt instruments from time to time could result in an event of default, which, if not cured or waived, could result in our being required to repay these borrowings before their maturity.
Although the credit agreement governing the Senior Secured Credit Facilities and the indentures governing each of the 2025 Unsecured Notes and 2027 Unsecured Notes, respectively, contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of significant qualifications and exceptions, and the indebtedness incurred in compliance with these restrictions could be substantial.
Although the credit agreement governing the New Credit Facilities and the indentures governing each of the 2025 Unsecured Notes and 2027 Unsecured Notes, respectively, contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of significant qualifications and exceptions, and the indebtedness incurred in compliance with these restrictions could be substantial.
These obligations and the possible termination of our partnership and management agreements would have a material adverse effect on our financial condition and results of operations. 30 Table of Contents Our surgical facilities do not satisfy the requirements for any of the safe harbors under the federal Anti-Kickback Statute.
These obligations and the possible termination of our partnership and management agreements would have a material adverse effect on our financial condition and results of operations. Our surgical facilities do not satisfy the requirements for any of the safe harbors under the federal Anti-Kickback Statute.
State efforts to regulate the construction, acquisition or expansion of health care facilities could prevent us from acquiring additional surgical facilities, renovating our existing facilities or expanding the breadth of services we offer. Some states require prior approval for the construction, acquisition or expansion of health care facilities or expansion of the services the facilities offer.
State efforts to regulate the construction, acquisition or expansion of health care facilities could prevent us from acquiring additional surgical facilities, renovating our existing facilities or expanding the breadth of services we offer. 32 Table of Contents Some states require prior approval for the construction, acquisition or expansion of health care facilities or expansion of the services the facilities offer.
Under the current Stark Law and related regulations, services provided at an ASC are not covered by the statute, even if those services include imaging, laboratory services 31 Table of Contents or other Stark designated health services, provided that (i) the ASC does not bill for these services separately, or (ii) if the center is permitted to bill separately for these services, they are specifically exempted from Stark Law prohibitions.
Under the current Stark Law and related regulations, services provided at an ASC are not covered by the statute, even if those services include imaging, laboratory services or other Stark designated health services, provided that (i) the ASC does not bill for these services separately, or (ii) if the center is permitted to bill separately for these services, they are specifically exempted from Stark Law prohibitions.
The effect of this structure is that we depend on the earnings of our subsidiaries, and the distribution or payment to us of a portion of these earnings to meet our obligations, including those under the Term Loans and Revolving Facility and any of our other debt obligations.
The effect of this structure is that we depend on the earnings of our subsidiaries, and the distribution or payment to us of a portion of these earnings to meet our obligations, including those under the Term Loans and Revolver and any of our other debt obligations.
Some jurisdictions prohibit us from entering into non-compete agreements with our professional staff. Other states are reluctant to strictly enforce non-compete agreements and restrictive covenants against physicians and other health care professionals. Furthermore, the Federal Trade Commission ("FTC") recently published a proposed rule that would prohibit employers from entering into non-compete agreements and nullifying existing non-competes.
Some jurisdictions prohibit us from entering into non-compete agreements with our professional staff. Other states are reluctant to strictly enforce non-compete agreements and restrictive covenants against physicians and other health care professionals. Furthermore, the FTC published a proposed rule that would prohibit employers from entering into non-compete agreements and nullifying existing non-competes.
In addition to the Senior Indebtedness, our aggregate principal amount of indebtedness outstanding includes approximately $757.0 million of notes payable and finance lease obligations primarily related to property and equipment for operations. Our level of indebtedness increases the risk that we may be unable to generate cash sufficient to pay amounts due in respect of our indebtedness.
In addition to the Senior Indebtedness, our aggregate principal amount of indebtedness outstanding includes approximately $898.8 million of notes payable and finance lease obligations primarily related to property and equipment for operations. Our level of indebtedness increases the risk that we may be unable to generate cash sufficient to pay amounts due in respect of our indebtedness.
These limitations, when combined with amounts allowable due to net unrecognized built in gains, are not expected to impact the realization of the deferred tax assets associated with these NOLs. The Company has $446.2 million of federal NOL carryforwards that will begin to expire in 2030 and will completely expire in 2037.
These limitations, when combined with amounts allowable due to net unrecognized built in gains, are not expected to impact the realization of the deferred tax assets associated with these NOLs. The Company has $438.9 million of federal NOL carryforwards that will begin to expire in 2030 and will completely expire in 2037.
Both direct enforcement activity by the government and whistleblower lawsuits under the FCA have increased 32 Table of Contents significantly in recent years; thus, the risk that we will have to defend a false claims action, pay significant fines or be excluded from the Medicare and Medicaid programs has increased.
Both direct enforcement activity by the government and whistleblower lawsuits under the FCA have increased significantly in recent years; thus, the risk that we will have to defend a false claims action, pay significant fines or be excluded from the Medicare and Medicaid programs has increased.
In certain instances former employees have brought claims against us and we expect that we will encounter similar actions against us in the future. 33 Table of Contents An adverse outcome in any such litigation could require us to pay contractual damages, compensatory damages, punitive damages, attorneys’ fees and costs.
In certain instances former employees have brought claims against us and we expect that we will encounter similar actions against us in the future. An adverse outcome in any such litigation could require us to pay contractual damages, compensatory damages, punitive damages, attorneys’ fees and costs.
As of December 31, 2022, we and our subsidiaries had approximately $2.6 billion aggregate principal amount of indebtedness outstanding, which includes approximately $1.4 billion principal amount of senior secured term loans (the "Term Loan") outstanding, $185.0 million senior unsecured notes due 2025 (the "2025 Unsecured Notes") and $320.0 million senior unsecured notes due 2027 (the "2027 Unsecured Notes").
As of December 31, 2023, we and our subsidiaries had approximately $2.8 billion aggregate principal amount of indebtedness outstanding, which includes approximately $1.4 billion principal amount of senior secured term loans (the "Term Loan") outstanding, $185.0 million senior unsecured notes due 2025 (the "2025 Unsecured Notes") and $320.0 million senior unsecured notes due 2027 (the "2027 Unsecured Notes").
Payments from private insurance payors, including state workers’ compensation programs and managed care organizations, represented approximately 52%, 51% and 54% of our patient service revenue in 2022, 2021 and 2020, respectively. Most of these payments came from private insurance payors with which our facilities have contracts.
Payments from private insurance payors, including state workers’ compensation programs and managed care organizations, represented approximately 53%, 52% and 51% of our patient service revenue in 2023, 2022 and 2021, respectively. Most of these payments came from private insurance payors with which our facilities have contracts.
Although we are no longer a “controlled company” within the meaning of the corporate governance standards of Nasdaq, affiliates of Bain Capital continue to be able to strongly influence or effectively control our decisions. Provisions in our charter documents and Delaware law may deter takeover efforts that could be beneficial to stockholder value.
Although we are no longer a “controlled company” within the meaning of the corporate governance standards of Nasdaq, affiliates of Bain Capital continue to be able to significantly influence our decisions. Provisions in our charter documents and Delaware law may deter takeover efforts that could be beneficial to stockholder value.
In addition, at the time we acquire a surgical facility, we may agree to replace or expand the acquired facility. If we are unable to obtain required approvals, 34 Table of Contents we may not be able to acquire additional surgical facilities, expand health care services we provide at these facilities or replace or expand acquired facilities.
In addition, at the time we acquire a surgical facility, we may agree to replace or expand the acquired facility. If we are unable to obtain required approvals, we may not be able to acquire additional surgical facilities, expand health care services we provide at these facilities or replace or expand acquired facilities.
We have undertaken significant efforts involving substantial time and expense to implement these requirements, and we anticipate that continual time and expense will be required to submit standardized transactions and to ensure that any newly acquired facilities can submit HIPAA-compliant transactions.
We have undertaken significant efforts involving substantial time and expense 26 Table of Contents to implement these requirements, and we anticipate that continual time and expense will be required to submit standardized transactions and to ensure that any newly acquired facilities can submit HIPAA-compliant transactions.
For some of our surgical facilities, indebtedness at the partnership level is funded through intercompany loans that we provide. At December 31, 2022, our intercompany loans totaled $32.5 million. Through these loans we may have a security interest in the partnership’s or limited liability company’s assets, depending upon the terms thereof in each instance.
For some of our surgical facilities, indebtedness at the partnership level is funded through intercompany loans that we provide. At December 31, 2023, our intercompany loans totaled $21.4 million. Through these loans we may have a security interest in the partnership’s or limited liability company’s assets, depending upon the terms thereof in each instance.
Governance Risks Our largest stockholder has significant influence over us, including influence over decisions that require the approval of stockholders, which could limit our stockholders’ ability to influence the outcome of key transactions, including a change of control. As of December 31, 2022, affiliates of Bain Capital owned approximately 46.2% of our outstanding common stock.
Governance Risks Our largest stockholder has significant influence over us, including influence over decisions that require the approval of stockholders, which could limit our stockholders’ ability to influence the outcome of key transactions, including a change of control. As of December 31, 2023, affiliates of Bain Capital owned approximately 39.5% of our outstanding common stock.
Financial and Accounting Risks We have a history of net losses and may not achieve or sustain profitability in the future. We had net losses attributable to Surgery Partners, Inc. of $54.6 million, $70.9 million and $116.1 million, in 2022, 2021 and 2020, respectively.
Financial and Accounting Risks We have a history of net losses and may not achieve or sustain profitability in the future. We had net losses attributable to Surgery Partners, Inc. of $11.9 million, $54.6 million and $70.9 million, in 2023, 2022 and 2021, respectively.
We may become subject to future lawsuits, claims, audits and investigations that could result in substantial costs and divert our attention and resources and adversely affect our business condition.
We may 31 Table of Contents become subject to future lawsuits, claims, audits and investigations that could result in substantial costs and divert our attention and resources and adversely affect our business condition.
The limited number of surgical facilities we develop typically incur losses in their early months of operation (more so in the case of surgical hospitals) and, until their caseloads grow, they generally experience lower total revenue and operating margins than established surgical facilities, and we expect this trend to continue.
The surgical facilities we develop typically incur losses in their early months of operation and, until their caseloads grow, they generally experience lower total revenue and operating margins than established surgical facilities, and we expect this trend to continue.
The surgery center safe harbor protects four types of investment arrangements: (1) surgeon owned surgery centers; (2) single specialty surgery centers; (3) multi-specialty surgery centers; and (4) hospital/physician surgery centers.
The surgery center safe harbor protects four types of investment arrangements: surgeon owned surgery centers; single specialty surgery centers; multi-specialty surgery centers; and hospital/physician surgery centers.
In addition, as a result of the Symbion acquisition, approximately $116.7 million in NOL carryforwards are subject to an annual Section 382 base limitation of $4.9 million, and, as a result of the Novamed acquisition, approximately $9.2 million in NOL carryforwards are subject to an annual Section 382 base limitation of $4.9 million.
In addition, as a result of the Symbion acquisition, approximately $111.8 million in NOL carryforwards are subject to an annual Section 382 base limitation of $4.9 million, and, as a result of the Novamed acquisition, approximately $6.8 million in NOL carryforwards are subject to an annual Section 382 base limitation of $4.9 million.
As of December 31, 2022, we had no outstanding borrowings under our $350.0 million senior secured revolving credit facility (the "Revolver" and, together with the Term Loan, the "Senior Secured Credit Facilities" and, together with the 2025 Unsecured Notes and the 2027 Unsecured Notes, the "Senior Indebtedness").
As of December 31, 2023, we had no outstanding borrowings under our $703.8 million senior secured revolving credit facility (the "Revolver") and, together with the Term Loan, the "New Secured Credit Facilities" and, together with the 2025 Unsecured Notes and the 2027 Unsecured Notes, the "Senior Indebtedness").
In addition, we own and operate three consolidated surgical facilities in Idaho, representing approximately 26% of our revenue during fiscal 2022. These surgical facilities also provide ancillary services, including physician practices, radiation oncology and anesthesia services.
In addition, we own and operate three consolidated surgical hospitals and four consolidated ASCs in Idaho, representing approximately 28% of our revenue during fiscal 2023. These surgical facilities also provide ancillary services, including physician practices, radiation oncology and anesthesia services.
In addition, the HITECH Act authorized state attorneys general to bring civil actions seeking either an injunction or damages in response to violations of HIPAA privacy and security regulations that threaten the privacy of state residents. 28 Table of Contents HIPAA also authorizes state attorneys general to bring civil actions seeking either an injunction or damages in response to violations of HIPAA privacy and security regulations that threaten the privacy of state residents.
HIPAA also authorizes state attorneys general to bring civil actions seeking either an injunction or damages in response to violations of HIPAA privacy and security regulations that threaten the privacy of state residents.
As of December 31, 2022, we had U.S. federal net operating loss ("NOL") carryforwards of approximately $540.9 million and state NOL carryforwards of approximately $581.1 million, which may be limited annually due to certain change in ownership provisions of Section 382 of the Internal Revenue Code of 1986, as amended (the "Code").
As of December 31, 2023, we had U.S. federal net operating loss ("NOL") carryforwards of approximately $533.6 million and state NOL carryforwards of approximately $588.7 million, which may be limited annually due to certain change in ownership provisions of Section 382 of the Internal Revenue Code of 1986 ("Section 382"), as amended (the "Code").
In addition, as of December 31, 2022, we had approximately $342.0 million available for additional borrowings under the Revolver (after giving effect to the $8.0 million aggregate principal amount of outstanding letters of credit issued under our Revolver at such time).
In addition, as of December 31, 2023, we had approximately $694.3 million available for additional borrowings under the Revolver (after giving effect to the $9.5 million aggregate principal amount of outstanding letters of credit issued under our Revolver at such time).
After giving effect to the $8.0 million principal amount of outstanding letters of credit issued under our Revolver, we had $342.0 million of unused commitments available to be borrowed under the Revolver.
After giving effect to the $9.5 million principal amount of outstanding letters of credit issued under our Revolver, we had $694.3 million of unused commitments available to be borrowed under the Revolver.
Our revenue is particularly sensitive to regulatory, economic and other conditions in the states of Texas and Idaho. As of December 31, 2022, we owned and operated eleven consolidated surgical facilities in Texas. The Texas facilities represented approximately 12% of our revenue in fiscal 2022.
Our revenue is particularly sensitive to regulatory, economic and other conditions in the states of Texas and Idaho. As of December 31, 2023, we owned and operated three consolidated surgical hospitals and seven consolidated ASCs in Texas. The Texas facilities represented approximately 11% of our revenue in fiscal 2023.
We cannot assure you that we will be able to maintain compliance with these covenants in the future and, if we fail to do so, that we will be able to obtain waivers from the lenders and/or amend the covenants.
The terms of any future indebtedness we may incur could include more restrictive covenants. We cannot assure you that we will be able to maintain compliance with these covenants in the future and, if we fail to do so, that we will be able to obtain waivers from the lenders and/or amend the covenants.
While the EKRA does contain certain exceptions similar to the Anti-Kickback Statute Safe Harbors, those exceptions are more narrow than the Anti-Kickback Statute Safe Harbors. As a result, the operations at our clinical laboratories may be impacted by the EKRA.
In addition to the Anti-Kickback Statute, the Eliminating Kickbacks in Recovery Act, or EKRA, contains certain exceptions similar to the Anti-Kickback Statute Safe Harbors, those exceptions are more narrow than the Anti-Kickback Statute Safe Harbors. As a result, the operations at our clinical laboratories may be impacted by the EKRA.
The market for cybersecurity insurance is relatively new and coverage available for cybersecurity events may evolve as the industry matures. While we maintain insurance relating to cybersecurity events, such insurance is subject to a number of exclusions and may be insufficient to offset any losses, costs or damage we experience.
While we maintain insurance relating to cybersecurity events, such insurance is subject to a number of exclusions and may be insufficient to offset any losses, costs or damage we experience.
We cannot assure you that our business will generate sufficient cash flow from operations, that currently anticipated revenue growth and operating improvements will be realized or that future borrowings will be available to us under the Term Loan and Revolver in amounts sufficient to enable us to pay our indebtedness, or to fund our other liquidity needs.
If we are forced to refinance these borrowings on less favorable terms, our results of operations and financial condition could be adversely affected. 24 Table of Contents We cannot assure you that our business will generate sufficient cash flow from operations, that currently anticipated revenue growth and operating improvements will be realized or that future borrowings will be available to us under the Term Loan and Revolver in amounts sufficient to enable us to pay our indebtedness, or to fund our other liquidity needs.
The Revolver bears interest at a non-default rate per annum equal to (x) the Secured Overnight Financing Rate ("SOFR") (plus a customary SOFR adjustment) plus a margin of up to 3.25% per annum or (y) an alternate base rate (which will be the highest of (i) the prime rate, (ii) 0.5% per annum above the federal funds effective rate and (iii) one-month SOFR (plus a customary SOFR adjustment) plus 1.00% per annum) plus a margin of up to 2.25% per annum.
The Term Loan bears interest at a rate per annum equal to (x) the forward-looking term rate based on Secured Overnight Financing Rate (“Term SOFR”) plus 3.50% per annum or (y) an alternate base rate (which will be the highest of (i) the prime rate plus, (ii) 0.50% per 25 Table of Contents annum above the federal funds effective rate and (iii) Term SOFR plus 1.00% per annum (the alternate base rate shall be subject to a floor of 1.00%)) (the "Base Rate") plus 2.50% per annum.
Under such circumstances, our Certificate of Incorporation holds that such actions may properly be filed in a court other than the Court of Chancery. Any person or entity purchasing or otherwise acquiring any interest in shares of our stock shall be deemed to have notice of and to have consented to these provisions in our Certificate of Incorporation.
Any person or entity purchasing or otherwise acquiring any 33 Table of Contents interest in shares of our stock shall be deemed to have notice of and to have consented to these provisions in our Certificate of Incorporation.
However, we cannot assure you that regulatory authorities would agree with that position. The Eliminating Kickbacks in Recovery Act may affect our financial relationships with referral sources utilizing our clinical laboratories In addition to the Anti-Kickback Statute, the U.S. recently enacted a new law known as the Eliminating Kickbacks in Recovery Act, or the EKRA, discussed in greater detail above.
However, we cannot assure you that regulatory authorities would agree with that position. 29 Table of Contents The Eliminating Kickbacks in Recovery Act may affect our financial relationships with referral sources utilizing our clinical laboratories.
We may be limited in our ability to utilize, or may not be able to utilize, net operating loss carryforwards to reduce our future tax liability.
The Revolver bears interest at a rate per annum equal to (x) Term SOFR plus 3.25% per annum or (y) the Base Rate plus 2.25% per annum. We may be limited in our ability to utilize, or may not be able to utilize, net operating loss carryforwards to reduce our future tax liability.
However, a single breach incident can result in violations of multiple requirements, resulting in possible penalties well in excess of $1.5 million.
However, a single breach incident can result in violations of multiple requirements, resulting in possible penalties well in excess of $1.5 million. In addition, the HITECH Act authorized state attorneys general to bring civil actions seeking either an injunction or damages in response to violations of HIPAA privacy and security regulations that threaten the privacy of state residents.
In addition, we may be required to maintain specified financial maintenance ratios and satisfy other financial condition tests in connection with the Senior Indebtedness. The terms of any future indebtedness we may incur could include more restrictive covenants.
As a result of these and other covenants and restrictions, we may be limited in how we conduct our business. In addition, we may be required to maintain a specified financial maintenance ratio in connection with the Senior Indebtedness if the Revolver is utilized in excess of a specified threshold.
Removed
As a result of these and other covenants and restrictions, we are and will be limited in how we conduct our business, and we may be unable to raise additional capital to compete effectively or to take advantage of new business opportunities.
Added
For example, in May 2023, we experienced an immaterial cybersecurity incident that temporarily disrupted certain facilities in our Idaho market. The market for cybersecurity insurance is relatively new and coverage available for cybersecurity events may evolve as the industry matures.
Removed
If we are forced to refinance these borrowings on less favorable terms, our results of operations and financial condition could be adversely affected.
Added
Under such circumstances, our Certificate of Incorporation holds that such actions may properly be filed in a court other than the Court of Chancery.
Removed
Discontinuation, reform or replacement of LIBOR may adversely affect our business. The credit agreement governing the Senior Secured Credit Facilities permits interest on our Term Loan borrowings to be calculated based on LIBOR.
Removed
LIBOR and certain other interest "benchmarks" may be subject to regulatory guidance and/or reform that could cause interest rates under our current or future debt agreements to perform differently than in the past or cause other unanticipated consequences. The United Kingdom’s Financial Conduct Authority, which regulates LIBOR, has announced that it intends to phase out LIBOR by June 2023.
Removed
If the phase out occurs as planned, the interest rate applicable to our Term Loan may be calculated based on an alternative, comparable or successor rate which may have a material adverse impact on the cost of the variable rate portion of our indebtedness.
Removed
The timing and result of the phase out of LIBOR are unclear, and efforts of industry groups to develop a suitable successor are not guaranteed to result in a viable or widely adopted replacement for LIBOR.
Removed
If LIBOR becomes unavailable before a suitable replacement is widely adopted, it could have a material adverse impact on the availability of variable rate financing. As of December 31, 2022, we also had interest rate swap agreements based on LIBOR. If LIBOR becomes unavailable, it is unclear how payments under those agreements would be calculated.
Removed
Relevant industry groups are seeking to create a standard protocol addressing the expected discontinuation of LIBOR, but there can be no assurance that such a protocol will be developed or implemented with respect to our swap agreements.
Removed
Our stock price could be volatile, and, as a result, our stockholders may not be able to resell their shares at or above the price paid for them.
Removed
Since our initial public offering, the price of our common stock as reported on The Nasdaq Global Select Market has ranged from a low of $4.00 on March 18, 2020 to a high of $69.58 on June 25, 2021.
Removed
The price of our common stock could be subject to fluctuations in response to a number of factors, including those described elsewhere in this Annual Report and others such as: • variations in our operating performance and the performance of our competitors; • actual or anticipated fluctuations in our quarterly or annual operating results; • publication of research reports by securities analysts about us or our competitors or our industry; • announcements by us, our competitors or our vendors of significant contracts, acquisitions, joint marketing relationships, joint ventures or capital commitments; • our failure or the failure of our competitors to meet analysts’ projections or guidance that we or our competitors may give to the market; • strategic decisions by us or our competitors, such as acquisitions, divestitures, spin-offs, joint ventures, strategic investments or changes in business strategy; • the passage of legislation or other regulatory developments affecting us or our industry; 27 Table of Contents • speculation in the press or investment community; • changes in accounting principles; • terrorist acts, acts of war or periods of widespread civil unrest; • natural disasters and other calamities; and • changes in general market and economic conditions.
Removed
Securities class action litigation is often initiated against companies following periods of volatility in their stock price. This type of litigation could result in substantial costs and divert our management’s attention and resources, and could also require us to make substantial payments to satisfy judgments or to settle litigation.

Item 2. Properties

Properties — owned and leased real estate

1 edited+0 added−0 removed3 unchanged
Biggest changeOf our 146 surgical facilities, 142 utilize leased real property. These leases generally have initial terms of 10 years, but range from 2 to 15 years. Most of the leases contain options to extend the lease period for up to 10 additional years. We generally guarantee the lease obligations of the partnerships and LLCs that own our surgical facilities.
Biggest changeOf our 162 surgical facilities, 159 utilize leased real property. These leases generally have initial terms of 10 years, but range from 2 to 15 years. Most of the leases contain options to extend the lease period for up to 10 additional years. We generally guarantee the lease obligations of the partnerships and LLCs that own our surgical facilities.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

1 edited+0 added−0 removed2 unchanged
Biggest changeIn the opinion of management, we are not currently a party to any proceedings that would have a material adverse effect on our business, financial condition or results of operations. Item 4. Mine Safety Disclosures Not applicable. 36 Table of Contents PART II
Biggest changeIn the opinion of management, we are not currently a party to any proceedings that would have a material adverse effect on our business, financial condition or results of operations. Item 4. Mine Safety Disclosures Not applicable. 35 Table of Contents PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

6 edited+0 added−1 removed5 unchanged
Biggest changeAt December 31, 2022, the Company continued to have authority to repurchase up to $46.0 million of shares of common stock under the share repurchase program. 38 Table of Contents Item 6. [Reserved]
Biggest changeAt December 31, 2023, the Company continued to have authority to repurchase up to $46.0 million of shares of common stock under the share repurchase program. The authorization does not obligate us to repurchase any shares, and we do not intend to make further repurchases under this program. Item 6. [Reserved]
The stock performance shown on the graph represents historical stock performance and is not necessarily indicative of future stock price performance. 37 Table of Contents Purchases of Equity Securities by the Issuer and Affiliated Purchasers On December 15, 2017, our Board of Directors authorized a share repurchase program of up to $50.0 million of our issued and outstanding common stock from time to time.
The stock performance shown on the graph represents historical stock performance and is not necessarily indicative of future stock price performance. 36 Table of Contents Purchases of Equity Securities by the Issuer and Affiliated Purchasers On December 15, 2017, our Board of Directors authorized a share repurchase program of up to $50.0 million of our issued and outstanding common stock from time to time.
The authorization does not have a specified expiration date, and the share repurchase program may be suspended, recommenced or discontinued at any time or from time to time without prior notice. The Company did not repurchase any shares of common stock during the three months ended December 31, 2022.
The authorization does not have a specified expiration date, and the share repurchase program may be suspended, recommenced or discontinued at any time or from time to time without prior notice. The Company did not repurchase any shares of common stock during the three months ended December 31, 2023.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information for Common Stock Our common stock trades under the symbol "SGRY" on the Nasdaq Global Select Market. Stockholders As of February 22, 2023, there were 167 holders of record of our common stock.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information for Common Stock Our common stock trades under the symbol "SGRY" on the Nasdaq Global Select Market. Stockholders As of February 19, 2024, there were 179 holders of record of our common stock.
Health Care Providers Index $ 100.00 $ 108.12 $ 127.63 $ 142.87 $ 186.51 $ 188.70 This graph is furnished and not filed with the SEC, is not soliciting material under the Exchange Act and shall not be incorporated by reference into any such filings, irrespective of any general incorporation contained in such filing.
Health Care Providers Index $ 100.00 $ 118.05 $ 132.14 $ 172.51 $ 174.53 $ 167.73 This graph is furnished and not filed with the SEC, is not soliciting material under the Exchange Act and shall not be incorporated by reference into any such filings, irrespective of any general incorporation contained in such filing.
The graph begins on December 31, 2017, and the comparison assumes $100 was invested in our common stock and in each of the indices on such date and assumes the reinvestment of dividends, if any. 12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 Surgery Partners, Inc. $ 100.00 $ 80.91 $ 129.38 $ 239.75 $ 441.40 $ 230.25 Nasdaq Composite Index $ 100.00 $ 96.12 $ 129.97 $ 186.69 $ 226.63 $ 151.61 Dow Jones U.S.
The graph begins on December 31, 2018, and the comparison assumes $100 was invested in our common stock and in each of the indices on such date and assumes the reinvestment of dividends, if any. 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023 Surgery Partners, Inc. $ 100.00 $ 159.91 $ 296.32 $ 545.56 $ 284.58 $ 326.76 Nasdaq Composite Index $ 100.00 $ 135.23 $ 194.24 $ 235.78 $ 157.74 $ 226.24 Dow Jones U.S.
Removed
The timing and size of repurchases will be determined based on market conditions and other factors. The authorization does not obligate us to repurchase any shares, and we may repurchase shares of common stock at any time without prior notice. The share repurchases will be made in accordance with applicable securities laws in open market or privately negotiated transactions.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThe following table reconciles Adjusted EBITDA and Adjusted EBITDA excluding grant funds to income (loss) before income taxes, the most directly comparable GAAP financial measure (in millions and unaudited): Year Ended December 31, 2022 2021 2020 Consolidated Statements of Operations Data: Income (loss) before income taxes $ 110.3 $ 81.2 $ (18.8) Plus (minus): Net income attributable to non-controlling interests (141.6) (141.6) (117.4) Depreciation and amortization 114.8 98.8 94.8 Interest expense, net 234.9 221.0 201.8 Equity-based compensation expense 18.4 17.4 13.2 Transaction, integration and acquisition costs (1) 48.6 46.1 38.2 Loss on disposals and deconsolidations, net 11.1 2.2 5.7 Litigation settlements and other litigation costs (2) (24.7) 5.6 6.4 Loss on debt extinguishment 14.9 9.1 — Undesignated derivative activity (3) (8.0) — — Hurricane-related impacts (4) 1.5 (0.2) — Impairment charges — — 33.5 Gain on escrow release (5) — — (0.8) Adjusted EBITDA $ 380.2 $ 339.6 $ 256.6 Less: Impact of grant funds (6) (1.7) (25.3) (31.1) Adjusted EBITDA excluding grant funds $ 378.5 $ 314.3 $ 225.5 (1) This amount includes transaction and integration costs of $47.5 million, $39.8 million and $23.2 million for the years ended December 31, 2022, 2021 and 2020, respectively.
Biggest changeAdjusted EBITDA and Adjusted EBITDA excluding grant funds are key measures used by our management to assess operating performance, make business decisions and allocate resources. 45 Table of Contents The following table reconciles Adjusted EBITDA and Adjusted EBITDA excluding grant funds to income (loss) before income taxes, the most directly comparable GAAP financial measure (in millions and unaudited): Year Ended December 31, 2023 2022 2021 Consolidated Statements of Operations Data: Income before income taxes $ 135.0 $ 110.3 $ 81.2 Plus (minus): Net income attributable to non-controlling interests (147.2) (141.6) (141.6) Depreciation and amortization 118.1 114.8 98.8 Interest expense, net 193.0 234.9 221.0 Equity-based compensation expense 17.7 18.4 17.4 Transaction, integration and acquisition costs (1) 64.9 48.6 46.1 Net loss on disposals, consolidations and deconsolidations 14.4 11.1 2.2 Litigation settlements and regulatory change impact (2) 17.5 (24.7) 5.6 Loss on debt extinguishment 15.5 14.9 9.1 Undesignated derivative activity (3) 0.6 (8.0) — Other (4) 8.6 1.5 (0.2) Adjusted EBITDA $ 438.1 $ 380.2 $ 339.6 Less: Impact of grant funds (5) (1.1) (1.7) (25.3) Adjusted EBITDA excluding grant funds $ 437.0 $ 378.5 $ 314.3 (1) This amount includes transaction and integration costs of $61.7 million, $47.5 million and $39.8 million for the years ended December 31, 2023, 2022 and 2021, respectively.
There were no material impacts on our financial condition or results of operations due to changes in assumptions or conditions related to income taxes during the years ended December 31, 2022, 2021 and 2020. Impairment of Goodwill Goodwill represents the excess of the fair value of the consideration conveyed in the acquisition over the fair value of net assets acquired.
There were no material impacts on our financial condition or results of operations due to changes in assumptions or conditions related to income taxes during the years ended December 31, 2023, 2022 and 2021. Impairment of Goodwill Goodwill represents the excess of the fair value of the consideration conveyed in the acquisition over the fair value of net assets acquired.
There were no material impacts on our financial condition or results of operations due to changes in assumptions or conditions related to revenue recognition during the years ended December 31, 2022, 2021 and 2020.
There were no material impacts on our financial condition or results of operations due to changes in assumptions or conditions related to revenue recognition during the years ended December 31, 2023, 2022 and 2021.
Other service revenues include management and administrative service fees derived from our non-consolidated facilities that we account for under the equity method, management of surgical facilities and physician practices in which we do not own an interest, management services we provide to physician practices for which we are not required to provide capital or additional assets and other non-patient services.
Other service revenues include management and administrative service fees derived from our non-consolidated facilities that we account for under the equity method, 37 Table of Contents management of surgical facilities and physician practices in which we do not own an interest, management services we provide to physician practices for which we are not required to provide capital or additional assets and other non-patient services.
Revenue Recognition Our patient service revenues are derived primarily from surgical procedures performed at our ASCs and surgical hospitals, patient visits to physician practices, anesthesia services provided to patients, pharmacy services and diagnostic screens ordered by our physicians. The fees for such services are billed either to the patient or a third-party payor, including Medicare and Medicaid.
Revenue Recognition Our patient service revenues are derived primarily from surgical procedures performed at our surgical facilities, patient visits to physician practices, anesthesia services provided to patients, pharmacy services and diagnostic screens ordered by our physicians. The fees for such services are billed either to the patient or a third-party payor, including Medicare and Medicaid.
As a result, approximately $415.9 million in NOL carryforwards are subject to an annual Section 382 base limitation of $14.2 million. At this time, we do not believe this limitation, when combined with amounts allowable due to net unrecognized built in gains, will affect our ability to use any NOLs before they expire. However, no such assurances can be provided.
As a result, approximately $408.6 million in NOL carryforwards are subject to an annual Section 382 base limitation of $14.2 million. At this time, we do not believe this limitation, when combined with amounts allowable due to net unrecognized built in gains, will affect our ability to use any NOLs before they expire. However, no such assurances can be provided.
Subject to certain conditions and requirements set forth in the credit agreement, we may request one or more additional incremental term loan facilities or one or more increases in the commitments on the Revolver.
Subject to certain conditions and requirements set forth in the Credit Agreement, we may request one or more additional incremental term loan facilities or one or more increases in the commitments under the Revolver.
As a percentage of revenues, net income attributable to non-controlling interests was 5.6% in 2022 and 6.4% in 2021.
As a percentage of revenues, net income attributable to non-controlling interests was 5.4% in 2023 and 5.6% in 2022.
Because our services are primarily non-emergency, our surgical facilities have the ability to control these procedures. 42 Table of Contents There were no material impacts on our financial condition or results of operations due to changes in assumptions or conditions related to accounts receivable during the years ended December 31, 2022, 2021 and 2020.
Because our services are primarily non-emergency, our surgical facilities have the ability to control these procedures. There were no material impacts on our financial condition or results of operations due to changes in assumptions or conditions related to accounts receivable during the years ended December 31, 2023, 2022 and 2021.
Collection efforts include direct contact with insurance carriers or patients, written correspondence and the use of legal or collection agency assistance, as required. Our average days sales outstanding was 64 and 67 days for the years ended December 31, 2022 and 2021, respectively.
Collection efforts include direct contact with insurance carriers or patients, written correspondence and the use of legal or collection agency assistance, as required. Our average days sales outstanding was 60 and 64 days for the years ended December 31, 2023 and 2022, respectively.
Our calculation of Adjusted EBITDA and Adjusted EBITDA excluding grant funds may not be comparable to similarly titled measures reported by other companies. We use Adjusted EBITDA and Adjusted EBITDA 47 Table of Contents excluding grant funds as measures of financial performance.
Our calculation of Adjusted EBITDA and Adjusted EBITDA excluding grant funds may not be comparable to similarly titled measures reported by other companies. We use Adjusted EBITDA and Adjusted EBITDA excluding grant funds as measures of financial performance.
Year Ended December 31, 2021 Compared to Year Ended December 31, 2020 Our discussion regarding the comparison of the year ended December 31, 2021 compared to the year ended December 31, 2020 was previously disclosed beginning on page 45 in our Annual Report on Form 10-K for the year ended December 31, 2021, which was filed on March 1, 2022, under "Item 7.
Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 Our discussion regarding the comparison of the year ended December 31, 2022 compared to the year ended December 31, 2021 was previously disclosed beginning on page 44 in our Annual Report on Form 10-K for the year ended December 31, 2022, which was filed on March 1, 2023, under "Item 7.
Discussion of the operating, investing and financing activities for the year ended December 31, 2021 was previously disclosed beginning on page 46 in our Annual Report on Form 10-K for the year ended December 31, 2021, which was filed on March 1, 2022, under "Item 7.
Discussion of the operating, investing and financing activities for the year ended December 31, 2022 was previously disclosed beginning on page 45 in our Annual Report on Form 10-K for the year ended December 31, 2022, which was filed on March 1, 2023, under "Item 7.
(2) This amount includes a net litigation settlements gain of $29.3 million and a loss of $1.2 million for the years ended December 31, 2022 and 2020, respectively, with no comparable costs in 2021. This amount also includes other litigation costs of $4.6 million, $5.6 million and $5.2 million for the years ended December 31, 2022, 2021 and 2020, respectively.
(2) This amount includes a litigation settlements loss of $10.6 million and a net gain of $29.3 million for the years ended December 31, 2023 and 2022, respectively, with no comparable costs in 2021. This amount also includes other litigation costs of $2.5 million, $4.6 million and $5.6 million for the years ended December 31, 2023, 2022 and 2021, respectively.
Management's Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations - Year Ended December 31, 2021 Compared to Year Ended December 31, 2020 " and is hereby incorporated herein by reference. Liquidity and Capital Resources Cash and cash equivalents were $282.9 million at December 31, 2022 compared to $389.9 million at December 31, 2021.
Management's Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations - Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 " and is hereby incorporated herein by reference. Liquidity and Capital Resources Cash and cash equivalents were $195.9 million at December 31, 2023 compared to $282.9 million at December 31, 2022.
The primary source of our operating cash flows is the collection of accounts receivable from federal and state agencies (under the Medicare and Medicaid programs), private insurance companies and individuals. Our cash flows provided by operating activities was $158.8 million in 2022 compared to $87.1 million in 2021.
The primary source of our operating cash flows is the collection of accounts receivable from federal and state agencies (under the Medicare and Medicaid programs), private insurance companies and individuals. Our cash flows provided by operating activities was $293.8 million in 2023 compared to $158.8 million in 2022.
Senior Unsecured Notes As of December 31, 2022, we have $320.0 million aggregate principal amount of senior unsecured notes due April 15, 2027 (the "2027 Unsecured Notes"), which bear interest at the rate of 10.000% per year, payable semi-annually on April 15 and October 15 of each year. In December 2022, we redeemed $225.0 million of the 2027 Unsecured Notes.
Senior Unsecured Notes As of December 31, 2023, we have $320.0 million aggregate principal amount of senior unsecured notes due April 15, 2027 (the "2027 Unsecured Notes"), which bear interest at the rate of 10.000% per year, payable semi-annually on April 15 and October 15 of each year.
As of December 31, 2022, we have $185.0 million aggregate principal amount of senior unsecured notes due July 1, 2025 (the "2025 Unsecured Notes"), which bear interest at the rate of 6.750% per year, payable semi-annually on January 1 and July 1 of each year.
As of December 31, 2023, we have $185.0 million aggregate principal amount of senior unsecured notes due July 1, 2025 (the "2025 Unsecured Notes"), which bear interest at the rate of 6.750% per year, payable semi-annually on January 1 and July 1 of each year. See Note 5.
If these estimates and related assumptions change in the future, we will be required to adjust our deferred tax valuation allowances. As of December 31, 2022, we had unused federal NOL carryforwards of approximately $540.9 million. Such losses expire in various amounts at varying times beginning in 2030.
If these estimates and related assumptions change in the future, we will be required to adjust our deferred tax valuation allowances. As of December 31, 2023, we had unused federal NOL carryforwards of approximately $533.6 million. Such losses expire in various amounts at varying times beginning in 2030.
The following table sets forth the percentage of cases in each specialty performed at the surgical facilities that we consolidate for financial reporting purposes for the periods indicated: Year Ended December 31, 2022 2021 2020 Orthopedics and pain management 36.4 % 35.7 % 39.3 % Ophthalmology 24.3 % 26.3 % 25.3 % Gastrointestinal 22.9 % 22.3 % 19.4 % General surgery 3.0 % 3.0 % 3.1 % Other 13.4 % 12.7 % 12.9 % Total 100.0 % 100.0 % 100.0 % Segment Information Our business is currently comprised of two segments: (1) Surgical Facility Services and (2) Ancillary Services.
The following table sets forth the percentage of cases in each specialty performed at the surgical facilities that we consolidate for financial reporting purposes for the periods indicated: Year Ended December 31, 2023 2022 2021 Orthopedics and pain management 36.1 % 36.4 % 35.7 % Ophthalmology 24.4 % 24.3 % 26.3 % Gastrointestinal 23.7 % 22.9 % 22.3 % General surgery 2.6 % 3.0 % 3.0 % Other 13.2 % 13.4 % 12.7 % Total 100.0 % 100.0 % 100.0 % 38 Table of Contents Segment Information Our business is comprised of two segments: Surgical Facility Services and Ancillary Services.
Based on its evaluation of all such factors, the Company concluded that no event had occurred and no circumstances had changed that would more likely than not reduce the fair value of its reporting units below their carrying values. 43 Table of Contents In 2022 and 2021 there were no non-cash impairment charges.
Based on its evaluation of all such factors, the Company concluded that no event had occurred and no circumstances had changed that would more likely than not reduce the fair value of its reporting units below their carrying values. In 2023, 2022 and 2021, there were no non-cash impairment charges. See Note 4.
Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources" and is hereby incorporated herein by reference. Debt As of December 31, 2022, the carrying value of our total indebtedness was $2.622 billion, which includes unamortized fair value discount of $2.1 million and unamortized deferred financing costs and issuance discount of $10.2 million.
Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources" and is hereby incorporated herein by reference. Debt As of December 31, 2023, the carrying value of our total indebtedness was $2.775 billion, which includes unamortized fair value discount of $1.6 million and unamortized deferred financing costs and issuance discount of $27.1 million.
This amount further includes start-up costs related to de novo surgical facilities of $1.1 million, $6.3 million and $15.0 million for the years ended December 31, 2022, 2021 and 2020, respectively.
This amount further includes start-up costs related to de novo surgical facilities of $3.2 million, $1.1 million and $6.3 million for the years ended December 31, 2023, 2022 and 2021, respectively.
We used the applicable annual interest rate as of December 31, 2022 of 7.63%, based on LIBOR plus the applicable margin, for our $1.4 billion outstanding Term Loan to estimate interest payments on this variable rate debt instrument. (2) This reflects our future operating lease payments. We enter into operating leases in the normal course of business.
We used the applicable annual interest rate as of December 31, 2023 of 8.86%, based on SOFR plus the applicable margin, for our $1.4 billion outstanding Term Loan to estimate interest payments on this variable rate debt instrument. (2) This reflects our future operating lease payments. We enter into operating leases in the normal course of business.
We incurred a loss on debt extinguishment of $14.9 million for the 2022 period related to the partial redemption of our 10.000% Senior Unsecured Notes due 2027 and the voluntary prepayment on our senior unsecured term loan (See Note 5. "Long-Term Debt" to our consolidated financial statements included elsewhere in this Annual Report).
"Long-Term Debt" to our consolidated financial statements included elsewhere in this Annual Report. We incurred a loss on debt extinguishment of $14.9 million in 2022 related to the partial redemption of our 10.000% Senior Unsecured Notes due 2027 and the voluntary prepayment on our senior unsecured term loan. Interest Expense, Net.
Depreciation and amortization expenses were $114.8 million and $98.8 million in 2022 and 2021, respectively. The increase is primarily due to acquisitions completed in 2022 and 2021. As a percentage of revenues, depreciation and amortization expenses were 4.5% in 2022 and 4.4% in 2021. Transaction and Integration Costs.
Depreciation and amortization expenses were $118.1 million and $114.8 million in 2023 and 2022, respectively. The increase is primarily due to acquisitions completed in 2023 and 2022. As a percentage of revenues, depreciation and amortization expenses were 4.3% in 2023 and 4.5% in 2022. Transaction and Integration Costs.
Total revenues for 2022 increased 14.1% to $2.5 billion from $2.2 billion in 2021. The increase in revenues is attributable to same-facility revenue growth and acquisitions completed in 2022 and 2021. Days adjusted same-facility revenues for 2022 increased 7.7% from 2021, with a 3.6% increase in revenue per case and a 3.9% increase in same-facility cases.
Total revenues for 2023 increased 8.0% to $2.7 billion from $2.5 billion in 2022. The increase in revenues is attributable to same-facility revenue growth and acquisitions completed in 2023 and 2022. Days adjusted same-facility revenues for 2023 increased 11.3% from 2022, with a 7.1% increase in revenue per case and a 3.9% increase in same-facility cases.
Unless they expire, these NOL carryforwards may be used to offset future taxable income and thereby reduce our income taxes otherwise payable. We recorded a valuation allowance against our deferred tax assets at December 31, 2022 and 2021 totaling $114.7 million and $113.0 million, respectively.
Unless they expire, these NOL carryforwards may be used to offset future taxable income and thereby reduce our income tax payable. We recorded a valuation allowance against our deferred tax assets at December 31, 2023 and 2022 totaling $150.1 million and $114.7 million, respectively.
Inflation Inflation and changing prices have not significantly affected our operating results or the markets in which we operate. 49 Table of Contents
Inflation Inflation and changing prices have not significantly affected our operating results or the markets in which we operate.
On December 31, 2020, we sold the remaining assets of the Optical Services segment. For more information about the components of each segment, please see Part I, Item 1. "Business-Operations" included elsewhere in this Annual Report. The "All other" line item below primarily consists of amounts attributable to the Company's corporate general and administrative functions.
For more information about the components of each segment, please see Part I, Item 1. "Business-Operations" included elsewhere in this Annual Report. The "All other" line item below primarily consists of amounts attributable to the Company's corporate general and administrative functions.
The items excluded from Credit Agreement EBITDA are significant components in understanding and evaluating our liquidity. Our calculation of Credit Agreement EBITDA may not be comparable to similarly titled measures reported by other companies. When we use the term "Credit Agreement EBITDA," we are referring to Adjusted EBITDA, as defined above, further adjusted for acquisitions and synergies.
Our calculation of Credit Agreement EBITDA may not be comparable to similarly titled measures reported by other companies. When we use the term "Credit Agreement EBITDA," we are referring to Adjusted EBITDA, as defined above, further adjusted for acquisitions and synergies.
The following table summarizes revenues by service type as a percentage of total revenues: Year Ended December 31, 2022 2021 2020 Patient service revenues: Surgical facilities revenues 95.8 % 95.7 % 95.3 % Ancillary services revenues 2.7 % 3.0 % 3.4 % Total patient service revenues 98.5 % 98.7 % 98.7 % Other service revenues 1.5 % 1.3 % 1.3 % Total revenues 100.0 % 100.0 % 100.0 % Payor Mix The following table sets forth by type of payor the percentage of our patient service revenues generated at the surgical facilities that we consolidate for financial reporting purposes: Year Ended December 31, 2022 2021 2020 Private insurance payors 51.5 % 50.6 % 53.9 % Government payors 42.3 % 43.3 % 38.6 % Self-pay payors 2.6 % 2.8 % 3.2 % Other payors (1) 3.6 % 3.3 % 4.3 % Total 100.0 % 100.0 % 100.0 % (1) Other is comprised of anesthesia service agreements, auto liability, letters of protection and other payor types. 40 Table of Contents Surgical Case Mix We primarily operate multi-specialty surgical facilities where physicians perform a variety of procedures in various specialties.
The following table summarizes revenues by service type as a percentage of total revenues: Year Ended December 31, 2023 2022 2021 Patient service revenues: Surgical facilities revenues 96.0 % 95.8 % 95.7 % Ancillary services revenues 2.4 % 2.7 % 3.0 % Total patient service revenues 98.4 % 98.5 % 98.7 % Other service revenues 1.6 % 1.5 % 1.3 % Total revenues 100.0 % 100.0 % 100.0 % Payor Mix The following table sets forth by type of payor the percentage of our patient service revenues generated at the surgical facilities that we consolidate for financial reporting purposes: Year Ended December 31, 2023 2022 2021 Private insurance payors 52.5 % 51.5 % 50.6 % Government payors 41.8 % 42.3 % 43.3 % Self-pay payors 2.5 % 2.6 % 2.8 % Other payors (1) 3.2 % 3.6 % 3.3 % Total 100.0 % 100.0 % 100.0 % (1) Other is comprised of anesthesia service agreements, auto liability, letters of protection and other payor types.
Additionally, for 2022, Adjusted EBITDA increased 12.0% to $380.2 million compared to $339.6 million for 2021. The increase in Adjusted EBITDA is primarily attributable to revenue growth, continued cost management initiatives and acquisitions completed in 2022 and 2021. For 2022, the net loss attributable to common stockholders was $54.6 million compared to $81.2 million for 2021.
Additionally, for 2023, Adjusted EBITDA increased 15.2% to $438.1 million compared to $380.2 million for 2022. The increase in Adjusted EBITDA is primarily attributable to revenue growth, continued cost management initiatives and acquisitions completed in 2023 and 2022. For 2023, the net loss attributable to common stockholders was $11.9 million compared to $54.6 million for 2022.
As a result of the Symbion acquisition in 2014, approximately $116.7 million in NOL carryforwards are subject to an annual Section 382 base limitation of $4.9 million, and, as a result of the NovaMed acquisition in 2011, approximately $9.2 million in NOL carryforwards are subject to an annual Section 382 base limitation of $4.9 million.
As a result of the 40 Table of Contents Symbion acquisition in 2014, approximately $111.8 million in NOL carryforwards are subject to an annual Section 382 base limitation of $4.9 million, and, as a result of the NovaMed acquisition in 2011, approximately $6.8 million in NOL carryforwards are subject to an annual Section 382 base limitation of $4.9 million.
The increase was driven by a 7.7% increase in days adjusted same-facility revenues and acquisitions completed in 2022 and 2021. The increase in days adjusted same-facility revenues was attributable to a 3.9% increase in same-facility case volumes and a 3.6% increase in same-facility revenue per case. Cost of Revenues.
The increase in days adjusted same-facility revenues was attributable to a 3.9% increase in same-facility case volumes and a 7.1% increase in same-facility revenue per case. Cost of Revenues. Cost of revenues was $2.1 billion in 2023 compared to $2.0 billion in 2022. The increase was primarily driven by acquisitions completed in 2023 and 2022.
Executive Overview As of December 31, 2022, we owned or operated, primarily in partnership with physicians, a portfolio of 146 surgical facilities comprised of 127 ASCs and 19 surgical hospitals across 31 states. We owned a majority interest in 93 of the surgical facilities and consolidated 118 of these facilities for financial reporting purposes.
Executive Overview As of December 31, 2023, we owned or operated, primarily in partnership with physicians, a portfolio of 162 surgical facilities comprised of 144 ASCs and 18 surgical hospitals across 33 states. We owned a majority interest in 90 of the surgical facilities and consolidated 123 of these facilities for financial reporting purposes.
Results of Operations The following tables summarize certain results from the statements of operations for the periods indicated (dollars in millions): Year Ended December 31, 2022 2021 2020 Revenues $ 2,539.3 $ 2,225.1 $ 1,860.1 Operating expenses: Cost of revenues 1,964.4 1,733.7 1,480.3 General and administrative expenses 102.2 104.0 97.1 Depreciation and amortization 114.8 98.8 94.8 Transaction and integration costs 47.5 39.8 23.2 Grant funds (2.4) (37.9) (46.2) Loss on disposals and deconsolidations, net 11.1 2.2 5.7 Equity in earnings of unconsolidated affiliates (12.5) (11.3) (10.8) Litigation settlements (29.3) — 1.2 Loss on debt extinguishment 14.9 9.1 — Impairment charges — — 33.5 Other income (16.6) (15.5) (1.7) 2,194.1 1,922.9 1,677.1 Operating income 345.2 302.2 183.0 Interest expense, net (234.9) (221.0) (201.8) Income (loss) before income taxes 110.3 81.2 (18.8) Income tax (expense) benefit (23.3) (10.5) 20.1 Net income 87.0 70.7 1.3 Less: Net income attributable to non-controlling interests (141.6) (141.6) (117.4) Net loss attributable to Surgery Partners, Inc. $ (54.6) $ (70.9) $ (116.1) Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 Revenues.
"Goodwill and Intangible Assets" to the consolidated financial statements elsewhere in this Annual Report for additional disclosure related to goodwill. 41 Table of Contents Results of Operations The following tables summarize certain results from the statements of operations for the periods indicated (dollars in millions): Year Ended December 31, 2023 2022 2021 Revenues $ 2,743.3 $ 2,539.3 $ 2,225.1 Operating expenses: Cost of revenues 2,095.8 1,964.4 1,733.7 General and administrative expenses 120.9 102.2 104.0 Depreciation and amortization 118.1 114.8 98.8 Transaction and integration costs 61.7 47.5 39.8 Grant funds (1.1) (2.4) (37.9) Net loss on disposals, consolidations and deconsolidations 14.4 11.1 2.2 Equity in earnings of unconsolidated affiliates (14.2) (12.5) (11.3) Litigation settlements 10.6 (29.3) — Loss on debt extinguishment 15.5 14.9 9.1 Other income (6.4) (16.6) (15.5) 2,415.3 2,194.1 1,922.9 Operating income 328.0 345.2 302.2 Interest expense, net (193.0) (234.9) (221.0) Income before income taxes 135.0 110.3 81.2 Income tax benefit (expense) 0.3 (23.3) (10.5) Net income 135.3 87.0 70.7 Less: Net income attributable to non-controlling interests (147.2) (141.6) (141.6) Net loss attributable to Surgery Partners, Inc. $ (11.9) $ (54.6) $ (70.9) Year Ended December 31, 2023 Compared to Year Ended December 31, 2022 Revenues.
These adjustments do not relate to our historical financial performance and instead relate to estimates compiled by management and calculated in conformance with the definition of "Consolidated EBITDA" used in the credit agreements governing our credit facilities. 48 Table of Contents The following table reconciles Credit Agreement EBITDA to cash flows from operating activities, the most directly comparable GAAP financial measure (in millions and unaudited): Year Ended December 31, 2022 Cash flows from operating activities $ 158.8 Plus (minus): Non-cash interest expense, net (25.9) Non-cash lease expense (34.8) Deferred income taxes (21.9) Equity in earnings of unconsolidated affiliates, net of distributions received 1.8 Other non-cash income 7.5 Changes in operating assets and liabilities, net of acquisitions and divestitures 160.7 Income tax expense 23.3 Net income attributable to non-controlling interests (141.6) Interest expense, net 234.9 Transaction, integration and acquisition costs 48.6 Litigation settlements and other litigation costs (24.7) Undesignated derivative activity (8.0) Hurricane-related impacts 1.5 Acquisitions and synergies (1) 94.0 Credit Agreement EBITDA $ 474.2 (1) Represents impact of acquisitions as if each acquisition had occurred on January 1, 2022.
These adjustments do not relate to our historical financial performance and instead relate to estimates compiled by management and calculated in conformance with the definition of "Consolidated EBITDA" used in the credit agreements governing our credit facilities. 46 Table of Contents The following table reconciles Credit Agreement EBITDA to cash flows from operating activities, the most directly comparable GAAP financial measure (in millions and unaudited): Year Ended December 31, 2023 Cash flows from operating activities $ 293.8 Plus (minus): Non-cash interest expense, net (25.0) Non-cash lease expense (35.2) Deferred income taxes 1.7 Equity in earnings of unconsolidated affiliates, net of distributions received 2.2 Changes in operating assets and liabilities, net of acquisitions and divestitures 63.5 Income tax expense (0.3) Net income attributable to non-controlling interests (147.2) Interest expense, net 193.0 Transaction, integration and acquisition costs 64.9 Litigation settlements and other litigation costs 17.5 Undesignated derivative activity 0.6 Other (1) 8.6 Acquisitions and synergies (2) 73.6 Credit Agreement EBITDA $ 511.7 (1) This amount includes estimates for the impact of a cyber event, losses from divested business and hurricane-related impacts.
For 2022, the effective tax rate is primarily impacted by income tax expense related to (i) the valuation allowance on the interest limitation under IRC Sec. 163(j), and income tax benefits related to (ii) vesting of certain restricted stock awards, (iii) net income attributable to non-controlling interests, and (iv) certain 2022 entity divestitures. Net Income Attributable to Non-Controlling Interests.
For 2023, the effective tax rate is primarily impacted by income tax expense related to the valuation allowance on the interest limitation under IRC Sec. 163(j) and income tax benefits related to net income attributable to non-controlling interests and losses on entity divestitures. Net Income Attributable to Non-Controlling Interests.
"Organization and Summary of Accounting Polices - Medicare Accelerated Payments and Deferred Governmental Grants" to our consolidated financial statements included elsewhere in this Annual Report. Loss on Disposals and Deconsolidations, Net. The $11.1 million loss on disposals and deconsolidations, net in 2022 was primarily attributable to our disposal and deconsolidation activity in the period (See Note 2.
For further discussion, see Note 1. "Organization and Summary of Accounting Polices - Medicare Accelerated Payments and Deferred Governmental Grants" to our consolidated financial statements included elsewhere in this Annual Report. Net Loss on Disposals, Consolidations and Deconsolidations. The net loss on disposals, consolidations and deconsolidations in 2023 and 2022 includes activity discussed in Note 2.
(3) This amount includes the reclassification of $7.5 million of unrealized gains out of accumulated OCI into income related to the de-designation of a portion of one of the Company's interest rate caps. This amount further includes fair value changes of undesignated derivatives.
(3) This amount includes the reclassification of $7.5 million of unrealized gains out of accumulated OCI into income related to the de-designation of a portion of one of the Company's interest rate caps for the year ended December 31, 2022.
Revenues for 2022 and 2021 were as follows (dollars in millions): Year Ended December 31, 2022 2021 Patient service revenues $ 2,502.1 $ 2,195.0 Other service revenues 37.2 30.1 Total revenues $ 2,539.3 $ 2,225.1 Patient service revenues increased 14.0% to $2.5 billion in 2022 compared to $2.2 billion in 2021.
Revenues for 2023 and 2022 were as follows (dollars in millions): Year Ended December 31, 2023 2022 Patient service revenues $ 2,700.4 $ 2,502.1 Other service revenues 42.9 37.2 Total revenues $ 2,743.3 $ 2,539.3 Patient service revenues increased 7.9% to $2.7 billion in 2023 compared to $2.5 billion in 2022.
The following tables present financial information for each reportable segment (in millions): Year Ended December 31, 2022 2021 2020 Revenues: Surgical Facility Services $ 2,470.4 $ 2,157.8 $ 1,793.4 Ancillary Services 68.9 67.3 63.6 Optical Services — — 3.1 Total revenues $ 2,539.3 $ 2,225.1 $ 1,860.1 Adjusted EBITDA: Surgical Facility Services $ 473.6 $ 422.0 $ 339.3 Ancillary Services (2.3) 1.7 (3.4) Optical Services — — 1.4 All other (91.1) (84.1) (80.7) Total Adjusted EBITDA (1) $ 380.2 $ 339.6 $ 256.6 Supplemental Information: Cash purchases of property and equipment, net: Surgical Facility Services $ 74.3 $ 55.0 $ 38.7 Ancillary Services 1.1 0.5 0.4 All other 5.2 2.1 3.8 Total cash purchases of property and equipment, net $ 80.6 $ 57.6 $ 42.9 (1) For a reconciliation of Adjusted EBITDA to income before income taxes as reflected in the audited consolidated statements of operations see "Certain Non-GAAP Measures" below. 41 Table of Contents December 31, 2022 2021 Assets: Surgical Facility Services $ 6,001.1 $ 5,552.8 Ancillary Services 41.7 47.5 All other 639.3 517.3 Total assets $ 6,682.1 $ 6,117.6 Critical Accounting Policies In preparing our consolidated financial statements in conformity with U.S.
The following tables present financial information for each reportable segment (in millions): Year Ended December 31, 2023 2022 2021 Revenues: Surgical Facility Services $ 2,675.8 $ 2,470.4 $ 2,157.8 Ancillary Services 67.5 68.9 67.3 Total revenues $ 2,743.3 $ 2,539.3 $ 2,225.1 Adjusted EBITDA: Surgical Facility Services $ 544.0 $ 473.6 $ 422.0 Ancillary Services (3.9) (2.3) 1.7 All other (102.0) (91.1) (84.1) Total Adjusted EBITDA (1) $ 438.1 $ 380.2 $ 339.6 Supplemental Information: Cash purchases of property and equipment, net: Surgical Facility Services $ 87.9 $ 74.3 $ 55.0 Ancillary Services 0.8 1.1 0.5 All other 0.1 5.2 2.1 Total cash purchases of property and equipment, net $ 88.8 $ 80.6 $ 57.6 (1) For a reconciliation of Adjusted EBITDA to income before income taxes as reflected in the audited consolidated statements of operations see "Certain Non-GAAP Measures" below.
Further this includes revenue and cost synergies from other business initiatives and de novo facilities and an adjustment for the effects of adopting the new lease accounting standard, as defined in the credit agreement governing the Senior Secured Credit Facilities.
(2) Represents impact of acquisitions as if each acquisition had occurred on January 1, 2023. Further this includes revenue and cost synergies from other business initiatives and de novo facilities and an adjustment for the effects of adopting the new lease accounting standard, as defined in the credit agreement governing the New Credit Facilities.
The Term Loan bears interest at a rate per annum equal to (x) LIBOR plus a margin of 3.75% per annum (LIBOR shall be subject to a floor of 0.75%) or (y) an alternate base rate (which will be the highest of (i) the prime rate, (ii) 0.5% per annum above the federal funds effective rate and (iii) one-month LIBOR plus 1.00% per annum (the alternate base rate shall be subject to a floor of 1.75%)) plus a margin of 2.75% per annum.
The Term Loan bears interest at a rate per annum equal to (x) the forward-looking term rate based on Secured Overnight Financing Rate (“Term SOFR”) plus 3.50% per annum or (y) an alternate base rate, which will be the highest of (i) the prime rate plus, (ii) 0.5% per annum above the federal funds effective rate and (ii) Term SOFR plus 1.00% per annum, subject to a 1.00% floor) (the “Base Rate”) plus 2.50% per annum.
We incurred $47.5 million of transaction and integration costs in 2022 compared to $39.8 million in 2021. The costs for both periods primarily relate to ongoing development initiatives and the integration of acquisitions we completed in 2022 and 2021. Grant Funds.
We incurred $61.7 million of transaction and integration costs in 2023 compared to $47.5 million in 2022. The costs for both periods primarily relate to ongoing development initiatives and the integration of acquisitions we completed in 2023 and 2022. 42 Table of Contents Grant Funds. Grant funds recognized in 2023 and 2022 were $1.1 million and $2.4 million, respectively.
Summary Broad economic factors resulting from the ongoing COVID-19 pandemic could negatively affect our payor mix, increase the relative proportion of lower margin services we provide and reduce patient volumes, as well as diminish our ability to collect outstanding receivables.
Summary Broad economic factors, including recent increases in interest rates, inflation and supply chain risks and market volatility, could negatively affect our payor mix, increase the relative proportion of lower margin services we provide and reduce patient volumes, as well as diminish our ability to collect outstanding receivables.
"Long-Term Debt" to our consolidated financial statements included elsewhere in this Annual Report for a further discussion of the senior unsecured notes. 46 Table of Contents Other Debt We and certain of our subsidiaries have other debt consisting of outstanding bank indebtedness of $171.3 million, which is collateralized by the real estate and equipment owned by the surgical facilities to which the loans were made, and right-of-use finance lease obligations of $585.7 million for which we are liable to various vendors for several property and equipment leases classified as finance leases.
Other Debt We and certain of our subsidiaries have other debt consisting of outstanding bank indebtedness of $205.2 million, which is collateralized by the real estate and equipment owned by the surgical facilities to which the loans were made, and right-of-use finance lease obligations of $693.6 million for which we are liable to various vendors for several property and equipment leases classified as finance leases.
We believe this diversification helps to protect us from adverse pricing and utilization trends in any individual procedure type and results in greater consistency in our case volume.
Surgical Case Mix We primarily operate multi-specialty surgical facilities where physicians perform a variety of procedures in various specialties. We believe this diversification helps to protect us from adverse pricing and utilization trends in any individual procedure type and results in greater consistency in our case volume.
Subsequent to the date of our annual impairment test, the Company considered its operating results for the fourth quarter of 2022, macroeconomic, industry and market conditions, and other market indicators including its market capitalization.
As of the October 1, 2023 valuation, the fair value for the Surgical Facilities reporting unit was substantially in excess of its carrying value. Subsequent to the date of our annual impairment test, the Company considered its operating results for the fourth quarter of 2023, macroeconomic, industry and market conditions, and other market indicators including its market capitalization.
Net cash provided by financing activities in 2022 was $42.1 million compared to $316.3 million in 2021.
Net cash used in financing activities in 2023 was $155.2 million compared to net cash provided of $42.1 million in 2022.
As a percentage of revenues, interest expense, net was 9.3% in 2022 compared to 9.9% in 2021. Income Tax (Expense) Benefit . Income tax expense was $23.3 million and $10.5 million for 2022 and 2021, respectively. The effective tax rate was 21.2% for 2022 compared to 12.9% in 2021.
Income tax benefit was $0.3 million for 2023 and expense was $23.3 million for 2022. The effective tax rate was (0.2)% for 2023 compared to 21.0% in 2022.
The Company tests its goodwill for impairment at least annually, as of October 1, or more frequently if certain indicators arise. A detailed evaluation of potential impairment indicators was performed, which specifically considered recent increases in interest rates, inflation risk and market volatility.
A detailed evaluation of potential impairment indicators was performed, which specifically considered recent increases in interest rates, inflation risk and market volatility. As of October 1, 2023, all of the Company's goodwill was allocated to the Surgical Facilities reporting unit.
Litigation settlements in 2022 was primarily attributable to the resolution of the stockholder litigation matter, as discussed in Note 13. "Commitments and Contingencies" to our consolidated financial statements included elsewhere in this Annual Report. There was no comparable activity for the 2021 period. Loss on Debt Extinguishment.
"Acquisitions, Disposals and Deconsolidations" to our consolidated financial statements included elsewhere in this Annual Report. The remaining net loss in both periods was primarily attributable to sales and disposals of other assets. Litigation Settlements. Litigation settlements in 2022 were primarily attributable to the resolution of the stockholder litigation matter, as discussed in Note 13.
General and administrative expenses were $102.2 million and $104.0 million in 2022 and 2021, respectively. As a percentage of revenues, general and administrative expenses were 4.0% in 2022 compared to 4.7% in 2021. The decrease was primarily driven by ongoing cost management initiatives. 44 Table of Contents Depreciation and Amortization.
As a percentage of revenues, cost of revenues was 76.4% and 77.4% for 2023 and 2022, respectively. General and Administrative Expenses. General and administrative expenses were $120.9 million and $102.2 million in 2023 and 2022, respectively. As a percentage of revenues, general and administrative expenses were 4.4% in 2023 compared to 4.0% in 2022. Depreciation and Amortization.
We recognize patient service revenues, net of contractual allowances, which we estimate based on existing contracts or the historical trend of our cash collections and contractual write-offs. Prior to its sale on December 31, 2020, our optical products purchasing organization negotiated volume buying discounts with optical product manufacturers.
We recognize patient service 39 Table of Contents revenues, net of contractual allowances, which we estimate based on existing contracts or the historical trend of our cash collections and contractual write-offs.
We had cash and cash equivalents of $282.9 million and $342.0 million of borrowing capacity under our revolving credit facility at December 31, 2022. Operating cash flows were $158.8 million in 2022, an increase of $71.7 million compared to the prior year.
We had cash and cash equivalents of $195.9 million and $694.3 million of borrowing capacity under our Revolver at December 31, 2023. Operating cash flows were $293.8 million in 2023, an increase of $135.0 million compared to the prior year. See "Liquidity and Capital Resources" below for further discussion.
We have included it because we believe that it provides investors with additional information about our ability to incur and service debt and make capital expenditures. Credit Agreement EBITDA is not a measurement of liquidity under GAAP, and should not be considered in isolation or as a substitute for any other measure calculated in accordance with GAAP.
We use Credit Agreement EBITDA as a measure of liquidity and to determine our compliance under certain covenants pursuant to our New Credit Facilities. Credit Agreement EBITDA is determined on a trailing twelve-month basis. We have included it because we believe that it provides investors with additional information about our ability to incur and service debt and make capital expenditures.
Capital Resources Net working capital was approximately $427.6 million at December 31, 2022 compared to $409.3 million at December 31, 2021. The increase is primarily due to increases in accounts receivable, inventories and other current assets as well as a decrease in deferred Medicare accelerated payments.
Capital Resources Net working capital was approximately $372.0 million at December 31, 2023 compared to $427.6 million at December 31, 2022. The decrease is primarily due to a decrease in cash, as discussed above, and increases in accounts payable and current maturities of long-term debt. These were partially offset by increases in accounts receivable and other current assets.
Term Loan and Revolving Credit Facility As of December 31, 2022, we had term loan borrowings with a carrying value of $1.370 billion, consisting of outstanding aggregate principal of $1.372 billion and unamortized fair value discount of $2.1 million (the "Term Loan"). The Term Loan matures on August 31, 2026.
In connection with entering the New Credit Facilities, we terminated the then-existing senior secured credit facilities, originally dated as of August 31, 2017 and, as amended thereafter. As of December 31, 2023, we had Term Loan borrowings with a carrying value of $1.398 billion, consisting of outstanding aggregate principal of $1.400 billion and unamortized fair value discount of $1.6 million.
During 2022 we completed the following: • We acquired controlling interests in seven surgical facilities, two of which were merged into existing facilities, and a physician practice for aggregate cash consideration of $146.4 million, net of cash acquired, non-cash consideration of $5.6 million and assumed debt of $39.4 million. • We acquired non-controlling interests in seven surgical facilities and seven in-development de novo surgical facilities for an aggregate cash purchase price of $95.1 million. • We sold our interests in two surgery centers, one of which was previously accounted for as an equity method investment, for net cash proceeds of $25.7 million.
During 2023 we completed the following: • We acquired controlling interests in eleven surgical facilities, two in-development de novo surgical facilities, and four physician practices for aggregate cash consideration of $80.0 million, net of cash acquired, and non-cash consideration of $1.3 million. Seven of the acquired surgical facilities were previously accounted for as equity method investments.
Material Cash Requirements The following table summarizes our material cash requirements by period as of December 31, 2022 (in millions): Payments Due by Period Total Less than 1 year 1-3 years 4-5 years More than 5 years Long-term debt obligations, including interest (1) $ 4,053.6 $ 266.6 $ 677.4 $ 1,963.1 $ 1,146.5 Operating lease obligations, including interest (2) 456.1 61.9 111.7 90.4 192.1 Total contractual obligations $ 4,509.7 $ 328.5 $ 789.1 $ 2,053.5 $ 1,338.6 (1) Included in long-term debt obligations are principal and interest owed on our outstanding debt obligations.
In addition to cash flows from operations and available cash, other sources of capital include amounts available on our Revolver as well as anticipated continued access to the capital markets. 44 Table of Contents Material Cash Requirements The following table summarizes our material cash requirements by period as of December 31, 2023 (in millions): Payments Due by Period Total Less than 1 year 1-3 years 4-5 years More than 5 years Long-term debt obligations, including interest (1) $ 4,727.7 $ 303.3 $ 761.0 $ 787.0 $ 2,876.4 Operating lease obligations, including interest (2) 409.7 59.1 105.2 75.7 169.7 Total contractual obligations $ 5,137.4 $ 362.4 $ 866.2 $ 862.7 $ 3,046.1 (1) Included in long-term debt obligations are principal and interest owed on our outstanding debt obligations.
(4) Reflects losses incurred, net of insurance proceeds received at certain surgical facilities that were closed following Hurricane Ian in September 2022 and Hurricane Ida in September 2021. (5) Included in other income in the consolidated statement of operations for the year ended December 31, 2020, with no comparable gain in 2022 and 2021.
Amounts presented for the years ended December 31, 2022 and 2021 reflect losses incurred, net of insurance proceeds received, related to certain surgical facilities that were closed following Hurricane Ian and Hurricane Ida, respectively. (5) Represents the impact of grant funds recognized, net of amounts attributable to non-controlling interests.
On January 13, 2023, the Company entered into an amendment to the credit agreement governing the Revolver, to provide a $203.8 million increase in the outstanding commitments under the Revolver. See Note 5. "Long-Term Debt" to our consolidated financial statements included elsewhere in this Annual Report for a further discussion of the Senior Secured Credit Facilities.
"Long-Term Debt" to our consolidated financial statements included elsewhere in this Annual Report for a further discussion of the senior unsecured notes.
Key factors contributing to the change include: • An increase of $518.8 million in repayments of long-term debt, payment of a premium on debt extinguishment of $11.3 million and a decrease in borrowings of $81.6 million; • An increase in equity offering proceeds, net of related costs of $303.5 million; • A decrease in payments related to ownership transactions with non-controlling interest holders of $25.0 million, partially offset by an increase in distributions to non-controlling interest holders of $15.8 million; • Decreased payments of $11.7 million for debt issuance costs, $5.1 million for preferred dividends and $8.0 million related to other financing activities.
Key factors contributing to the change include: • The 2022 period included equity offering proceeds, net of related costs, of $857.7 million that did not repeat in the current year; • An increase of $650.7 million in borrowings of long term debt, net of payments, including payments related to debt issuance costs and a premium on debt extinguishment in the 2022 period.
As of December 31, 2022, our availability on the Revolver was $342.0 million (including outstanding letters of credit of $8.0 million).
As of December 31, 2023, our availability on the Revolver was $694.3 million (including outstanding letters of credit of $9.5 million). The Revolver may be utilized for working capital, capital expenditures and general corporate purposes. The Revolver matures on December 19, 2028.
As of December 31, 2022, we have a revolving credit facility providing for revolving borrowings of up to $350.0 million (the "Revolver" and, together with the Term Loan, the "Senior Secured Credit Facilities"). The Revolver will mature on February 1, 2026.
Term Loan and Revolver On December 19, 2023, the Company entered into a Credit Agreement (the “Credit Agreement”), which provided for a $1.4 billion senior secured term loan (the "Term Loan") and a $703.8 million revolving credit facility (the "Revolver" and, together with the Term Loan, the "New Credit Facilities").
Key factors contributing to the change include: • A decrease in payments for acquisitions (net of cash acquired) of $139.4 million, partially offset by an increase in purchases of equity method investments of $95.1 million; • An increase in proceeds of $6.9 million from disposals of facilities and $7.4 million from sales of equity method investments; 45 Table of Contents • An increase in purchases of property and equipment of $23.0 million and other investing activities of $11.8 million.
The $82.3 million decrease was primarily driven by: • An aggregate decrease of $90.2 million in payments for acquisitions (net of cash acquired) and purchases of equity method investments, including consideration paid to acquire management rights from the prior management service provider, which is included as a component of the increase in other investing activities; • An increase in purchases of property and equipment of $8.2 million.
During 2022, the Company had identified two reporting units, which include the following: 1) Surgical Facilities and 2) Ancillary Services. Prior to 2021, the Company had a third reporting unit, Alliance, which was a component of the Optical Services operating segment.
During 2023, the Company had identified two reporting units, which include the following: Surgical Facilities and Ancillary Services. The Company tests its goodwill for impairment at least annually, as of October 1, or more frequently if certain indicators arise.
In addition, we are required to pay a commitment fee of 0.50% per annum in respect of unused commitments under the Revolver. The Revolver may be utilized for working capital, capital expenditures and general corporate purposes.
In addition, we are required to pay a commitment fee ranging from 0.50% to 0.25% per annum, depending on our first lien net leverage ratio, in respect of unused commitments under the Revolver. See Note 5. "Long-Term Debt" to our consolidated financial statements included elsewhere in this Annual Report for a further discussion of the New Credit Facilities.
Removed
The increase was primarily attributable to the receipt of stockholder litigation proceeds of $32.8 million in the 2022 period and a DOJ settlement payment of $32.2 million, including interest, made during the 2021 period. Net operating cash inflows, including operating cash flows less distributions to non-controlling interests, were $12.0 million for 2022.
Added
The Company also amended the operating agreement of a previously non-controlled surgical facility resulting in the Company obtaining a controlling interest in the facility. • We acquired non-controlling interests in five surgical facilities and two in-development de novo surgical facilities for an aggregate cash purchase price of $50.3 million. • We sold our interests in six surgical facilities for aggregate net cash proceeds of $30.4 million, a portion of which will be held in escrow pursuant to the purchase agreements for such transactions.
Removed
Impact of COVID-19 The public health and economic effects of the COVID-19 pandemic have significantly affected our facilities, employees, patients, communities, business operations and financial performance, as well as the U.S. economy and financial markets.
Added
Net operating cash inflows, including operating cash flows less distributions to non-controlling interests, were $147.7 million for 2023 compared to $12.0 million for 2022. Revenues Our revenues consist of patient service revenues and other service revenues. Patient service revenues consist of revenue from our Surgical Facility Services and Ancillary Services segments.
Removed
The impact of the COVID-19 pandemic on our surgical facilities varies based on the market in which the facility operates, the type of surgical facility and the procedures typically performed. We cannot provide any certainty regarding the length and severity of the impact of the COVID-19 pandemic, which is difficult to predict and is dependent on factors beyond our control.
Added
December 31, 2023 2022 Assets: Surgical Facility Services $ 6,347.4 $ 6,001.1 Ancillary Services 36.3 41.7 All other 493.0 639.3 Total assets $ 6,876.7 $ 6,682.1 Critical Accounting Policies In preparing our consolidated financial statements in conformity with U.S.
Removed
Taking into account the pandemic and other factors, the United States economy has recently experienced general inflationary pressures, significant disruptions to global supply networks, and an extremely competitive labor market. We have incurred, and may continue to incur, certain increased expenses arising from the pandemic and these economic conditions, including additional labor, supply chain, capital and other expenditures.
Added
The increase was primarily driven by an 11.3% increase in days adjusted same-facility revenues, which includes variable consideration recognized associated with supplemental reimbursement programs, and acquisitions completed in 2023 and 2022, partially offset by divestitures completed in 2023.
Removed
While we have implemented cost containment and other measures to try to counteract these developments, we may be unable to fully offset these increases in our costs and otherwise effectively respond to supply disruptions. Executive Order On July 9, 2021, President Biden issued an executive order that is intended to promote competition in the U.S. economy.
Added
"Commitments and Contingencies" to our consolidated financial statements included elsewhere in this Annual Report. Litigation settlements in 2023 were not material for individual disclosure. Loss on Debt Extinguishment. The loss on debt extinguishment in 2023 is attributable to the debt transactions on December 19, 2023, as discussed in Note 5.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

4 edited+0 added−0 removed3 unchanged
Biggest changeFinancial Statements and Supplementary Data Information with respect to this Item is contained in our consolidated financial statements beginning on Page F-1 of this Annual Report. Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure None.
Biggest change"Derivatives and Hedging Activities" to our consolidated financial statements for the year ended December 31, 2023 included elsewhere herein. Item 8. Financial Statements and Supplementary Data Information with respect to this Item is contained in our consolidated financial statements beginning on Page F-1 of this Annual Report.
Additionally, we periodically enter into interest rate swap agreements to manage our exposure to interest rate fluctuations. Our interest rate swap agreements involve the exchange of fixed and variable rate interest payments between two parties, based on common notional principal amounts and maturity dates.
Additionally, we periodically enter into interest rate swap and cap agreements to manage our exposure to interest rate fluctuations. Our interest rate swap and cap agreements involve the exchange of fixed and variable rate interest payments between two parties, based on common notional principal amounts and maturity dates.
These derivatives have been recognized in the financial statements at their respective fair values. Changes in the fair value of these derivatives, which are designated as cash flow hedges, are included in other comprehensive income. Our variable rate debt instruments are primarily indexed to the prime rate or LIBOR.
These derivatives have been recognized in the financial statements at their respective fair values. Changes in the fair value of these derivatives, which are designated as cash flow hedges, are included in other comprehensive income. Our variable rate debt instruments are primarily indexed to the prime rate or SOFR.
Based on our indebtedness and the effectiveness of our interest rate swap and cap agreements at December 31, 2022, we do not expect changes in interest rates to have a material effect on our net earnings or cash flows in 2023. Item 8.
Based on our indebtedness and the effectiveness of our interest rate swap and cap agreements at December 31, 2023, we do not expect changes in interest rates to have a material effect on our net earnings or cash flows in 2024. For more information regarding our interest rate swap and cap agreements, please refer to Note 7.

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