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What changed in Surgery Partners, Inc.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of Surgery Partners, Inc.'s 2023 and 2024 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 2024 report.

+268 added−412 removedSource: 10-K (2025-03-07) vs 10-K (2024-02-26)

Top changes in Surgery Partners, Inc.'s 2024 10-K

268 paragraphs added · 412 removed · 227 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

71 edited+9 added−88 removed110 unchanged
Biggest changeOur 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.
Biggest changeOperations During 2024 and 2023, we operated in one reportable segment, Surgical Facilities, which includes the operation of ASCs, surgical hospitals, anesthesia services, urgent care facilities and multi-specialty physician practices. 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.
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.
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 their patients and medical staff.
For example, our regional managed care directors assist the local management team at each of our surgical facilities in developing relationships with private insurance payors and negotiating private insurance contracts. Surgical Facility Ownership Structure We own and operate our surgical facilities through partnerships or limited liability companies with physicians, physician groups and health care systems.
For example, our regional managed care directors assist the local management team at each of our surgical facilities in developing relationships with private insurance payors and negotiating private insurance contracts. Ownership Structure We own and operate our surgical facilities through partnerships or limited liability companies with physicians, physician groups and health care systems.
We believe that the ownership and operations of our surgical facilities will not fully satisfy the ASC Safe Harbor requirements for investment interests in ASCs because, among other things, we or one of our subsidiaries will generally be an investor in and provide management services to each ASC.
However, we believe that the ownership and operations of our surgical facilities will not fully satisfy the ASC Safe Harbor requirements for investment interests in ASCs because, among other things, we or one of our subsidiaries will generally be an investor in and provide management services to each ASC.
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.
As of December 31, 2024, 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.
We cannot predict whether other proposed amendments to the Whole Hospital Exception will be included in any future legislation, including a repeal of the Affordable Care Act, or if Congress will adopt any similar provisions that would prohibit or otherwise restrict physicians from holding ownership interests in hospitals.
We cannot predict whether amendments to the Whole Hospital Exception will be included in any future legislation, including a repeal of the Affordable Care Act, or if Congress will adopt any similar provisions that would prohibit or otherwise restrict physicians from holding ownership interests in hospitals.
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").
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").
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
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. 10 Table of Contents
In a Special Advisory Bulletin issued in April 2003, the OIG focused on "questionable" contractual arrangements where a health care provider in one line of business (the "Owner") expands into a related health care business by contracting with an existing provider of a related item or service (the "Manager/Supplier") to provide the new item or service to the Owner’s existing patient population, including federal health care program patients (so called "suspect Contractual Joint Ventures").
In a Special Advisory Bulletin issued in April 2003, the OIG focused on "questionable" contractual arrangements where a health care provider in one line of business (the "Owner") expands into a related health care business by contracting with an existing provider of a related item or service (the "Manager/Supplier") to provide the new item or service to the Owner’s existing patient population, including federal health 7 Table of Contents care program patients (so called "suspect Contractual Joint Ventures").
Utilization Review Federal law contains numerous provisions designed to ensure that services rendered by hospitals to Medicare and Medicaid patients meet professionally recognized standards, are medically necessary and that claims for reimbursement are properly filed.
Federal law contains numerous provisions designed to ensure that services rendered by hospitals to Medicare and Medicaid patients meet professionally recognized standards, are medically necessary and that claims for reimbursement are properly filed.
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.
For similar reasons, 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 because the hospital’s gross revenues are derived from referrals generated by those investors.
In addition, revenue in the fourth quarter could also be impacted by an increased utilization of services due to annual deductibles which are not usually met until later in the year and also as patients utilize their health care benefits before they expire at year-end.
In addition, 4 Table of Contents revenue in the fourth quarter could also be impacted by an increased utilization of services due to annual deductibles which are not usually met until later in the year and also as patients utilize their health care benefits before they expire at year-end.
The 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.
The 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, 2024 2023 2022 Private Insurance 53.5 % 52.5 % 51.5 % Government 41.1 % 41.8 % 42.3 % Self-pay 2.7 % 2.5 % 2.6 % Other 2.7 % 3.2 % 3.6 % 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: outpatient surgical services generally provided in our ASCs, hospital outpatient surgical services and hospital inpatient surgical services.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
These audits may result in adjustments to the amounts ultimately determined to be payable to us under these reimbursement programs. Finalization of these audits often takes several years. Providers may appeal any final determination made in connection with an audit.
These audits may result in adjustments to the amounts ultimately determined to be payable to us under these 3 Table of Contents reimbursement programs. Finalization of these audits often takes several years. Providers may appeal any final determination made in connection with an audit.
We also market our surgical facilities directly to private insurance payors. Payor marketing activities conducted by our corporate office management and facility administrators emphasize the high quality of care, cost advantages and convenience of our surgical facilities, and are focused on making each surgical facility an approved provider under local managed care plans.
We also market our surgical facilities directly to private insurance payors via our contracting and credentialing programs. Payor marketing activities conducted by our corporate office management and facility administrators emphasize the high quality of care, cost advantages and convenience of our surgical facilities, and are focused on making each surgical facility an approved provider under local managed care plans.
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.
On November 1, 2024, CMS published its OPPS final rule for 2025. The final rule provides for a payment rate increase of 2.9%. 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 August 1, 2023, CMS published the IPPS final rule for federal fiscal year ("FFY") 2024, which began on October 1, 2023.
On August 1, 2024, CMS published the IPPS final rule for federal fiscal year ("FFY") 2025, which began on October 1, 2024.
We are one of the largest and fastest growing surgical services businesses in the United States ("U.S."), with more than 180 locations in 33 states, including ambulatory surgery centers ("ASCs"), short-stay surgical hospitals ("surgical hospitals"), and multi-specialty physician practices, among others.
We are one of the largest and fastest growing surgical services businesses in the United States ("U.S."), with more than 200 locations in 31 states, including ambulatory surgery centers ("ASCs"), short-stay surgical hospitals ("surgical hospitals"), and multi-specialty physician practices, among others.
As a result, we cannot assure you that our surgical facilities will not be investigated or scrutinized by the governmental authorities empowered to do so or, if challenged, that their activities would be found to be lawful.
As 8 Table of Contents a result, we cannot assure you that our surgical facilities will not be investigated or scrutinized by the governmental authorities empowered to do so or, if challenged, that their activities would be found to be lawful.
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").
Because the ownership and operations of our surgical facilities may not fit wholly within any of the safe harbors, we attempt to structure our surgical facilities, and in particular 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").
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.
Human Capital Resources At December 31, 2024, we had approximately 15,000 employees, including full-time and 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.
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.
Based on the OPPS Final Rule, ASC reimbursement rates will increase by 2.9% for 2025. 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 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%.
Under the FFY 2025 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 2.9%.
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.
We also submit a 5 Table of Contents 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.
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.
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 22 states that have certificate of need laws. Our surgical facilities are subject to state licensing requirements.
While ASCs are not currently subject to federal cost reporting requirements, it is possible that such requirements, which could be costly for us, will be implemented by CMS in the future.
While ASCs are not currently subject to federal cost reporting requirements, it is possible that such requirements, which could be costly for us, will be implemented by CMS in the future. Acquisition and Development Programs Acquisition Program.
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.
Patient services provided in our ASCs and surgical hospitals (collectively, "surgical facilities" or "facilities") generated approximately $3.1 billion in revenue during 2024. Our Growth Strategies Our differentiated operating model employs a multifaceted strategy to grow revenue, earnings and cash flow.
We also depend on the available labor pool of semi-skilled and unskilled employees in each of the markets in which we operate. We believe that our employees are vital contributors to our success, and we devote significant resources to recruit and retain our workforce.
We also depend on the available labor pool of semi-skilled and unskilled employees in each of the markets in which we operate. We believe our colleagues are vital contributors to our success. We devote significant resources to attract, develop, retain and accelerate our workforce.
Laboratories also must undergo proficiency testing and are subject to inspections. Standards for testing under CLIA are based on the complexity of the tests performed by the laboratory, with tests classified as "high complexity," "moderate complexity," or "waived." Laboratories performing high complexity testing are required to meet more stringent requirements than moderate complexity laboratories.
Standards for testing under CLIA are based on the complexity of the tests performed by the laboratory, with tests classified as "high complexity," "moderate complexity," or "waived." Laboratories performing high complexity testing are required to meet more stringent requirements than moderate complexity laboratories.
Clinical Laboratory Regulation Our clinical laboratories are subject to federal oversight under the Clinical Laboratory Improvement Amendments of 1988 ("CLIA") which extends federal oversight to virtually all clinical laboratories by requiring that they be certified by the federal government or by a federally-approved accreditation agency. CLIA requires that all clinical laboratories meet quality assurance, quality control and personnel standards.
Clinical Laboratory Regulation Our clinical laboratories are subject to federal oversight under the Clinical Laboratory Improvement Amendments of 1988 ("CLIA") which extends federal oversight to virtually all clinical laboratories by requiring that they be certified by the federal government or by a federally-approved accreditation agency.
However, we believe we comply with the remaining elements of the safe harbor. In addition to the physician ownership in our surgical facilities, other financial relationships of ours with potential referral sources could potentially be scrutinized under the Anti-Kickback Statute. We have entered into management agreements to manage the majority of our surgical facilities and physician practices.
However, we believe our surgical facilities comply with the remaining elements of their respective safe harbors. Our financial relationships with potential referral sources could potentially be scrutinized under the Anti-Kickback Statute. We have entered into management agreements to manage the majority of our surgical facilities and physician practices.
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.
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.
The Stark Law prohibits a practitioner, including a physician, dentist or podiatrist, from referring patients to an entity with which the practitioner or a member of his or her immediate family has a "financial relationship" for the provision of certain "designated health services" that are paid for in whole or in part by Medicare or Medicaid unless an exception applies.
Federal Physician Self-Referral Law The federal physician self-referral law (the "Stark Law") prohibits physicians (as well as chiropractors, optometrists, dentists and podiatrists) from referring patients to an entity with which the practitioner or a member of his or her immediate family has a "financial relationship" for the provision of certain "designated health services" that are paid for in whole or in part by Medicare or Medicaid unless an exception applies.
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.
Instead, when a transaction or relationship does not fit within a safe harbor, 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.
They create rights for patients in their health information, such as the right to amend their health information, and they require us to impose these rules, by contract, on any business associate to whom we disclose such information in order to perform functions on our behalf.
These standards require our compliance with rules governing the use and disclosure of this health information. They create rights for patients in their health information and they require us to impose these rules, by contract, on any business associate to whom we disclose such information in order to perform functions on our behalf.
Of the 162 surgical facilities that were operational as of December 31, 2023, we hold majority ownership in 90 of these surgical facilities and consolidated 123 for financial reporting purposes..
Of the 161 surgical facilities that were operational as of December 31, 2024, we hold majority ownership in 83 of these surgical facilities and consolidated 118 for financial reporting purposes.
For example, various state laws and regulations may require us to notify affected individuals in the event of a data breach involving certain personal information, such as social security numbers, dates of birth and credit card information. HIPAA Administrative Simplification Requirements The HIPAA transaction regulations were issued to encourage electronic commerce in the health care industry.
For example, various state laws and regulations may require us to notify affected individuals in the event of a data breach involving certain personal information, such as social security numbers, dates of birth and credit card information.
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.
Our Surgical Facilities contributed substantially all of our total revenue in 2024, 2023 and 2022. 1 Table of Contents 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.
Accordingly, there can be no assurance that the adoption of any future federal or state health care reform legislation, or any ruling by a court with respect to the Affordable Care Act, will not have a negative financial impact on the Company.
Nevertheless, we are unable to guarantee that future efforts, such as the adoption of any future federal or state health care reform legislation, or any ruling by a court with respect to the Affordable Care Act, will not have a negative financial impact on the Company.
We cannot predict whether our surgical facilities will be able to comply with the final rules and the financial impact to our surgical facilities in implementing the requirements under the final rules when they take effect, or whether our surgical hospitals will be selected for an audit, or the results of such an audit.
We cannot predict whether our surgical facilities will be able to comply with future rules and are unable to predict the financial impact to our surgical facilities in implementing the requirements under such rules if and when they take effect.
Evolving interpretations of current, or the adoption of new, federal or state laws or regulations, such as the Eliminating Kickbacks in Recovery Act (discussed below), could affect many of our arrangements.
Evolving interpretations of current, or the adoption of new, federal or state laws or regulations could affect many of our arrangements.
In addition, CMS employs Medicaid Integrity Contractors ("MICs") to perform post-payment audits of Medicaid claims and identify overpayments. Our facilities and providers periodically receive letters from auditors such as RACs and ZPICs requesting repayment of alleged overpayments for services and incur expenses associated with responding to and appealing these determinations, as well as the costs of repaying any overpayments.
Our facilities and providers periodically receive letters from auditors contracted with CMS requesting repayment of alleged overpayments for services and incur expenses associated with responding to and appealing these determinations, as well as the costs of repaying any overpayments.
A determination of non-compliance with the applicable state health care laws, rules, and regulations could subject our surgical facilities to civil and criminal penalties and could have a material adverse effect on our operations. We are also subject to various state insurance statutes and regulations that prohibit us from submitting inaccurate, incorrect or misleading claims.
A determination of non-compliance with the applicable state health care laws, rules, and regulations could subject our surgical facilities to civil and criminal penalties and could have a material adverse effect on our operations.
Failure to maintain accreditation would cause a facility to become subject to state survey agency oversight and potentially subject to increased scrutiny by CMS, and could result in a loss of payment from private insurance health plans. Executive Order On July 9, 2021, President Biden issued an executive order that is intended to promote competition in the U.S. economy.
Failure to maintain accreditation would cause a facility to become subject to state survey agency oversight and potentially subject to increased scrutiny by CMS, and could result in a loss of payment from private insurance health plans.
States with certificate of need laws place limits on the construction and acquisition of health care facilities and the expansion of existing facilities and services.
States with certificate of need laws restrict or otherwise require prior authorization for the construction and acquisition of health care facilities and the expansion of existing facilities and services.
Federal and State Privacy and Security Requirements We are subject to HIPAA, including the Health Information Technology for Economic and Clinical Health Act (the "HITECH Act"), which was enacted as part of The American Recovery and Reinvestment Act of 2009. The HITECH Act strengthened the requirements and significantly increased the penalties for violations of the HIPAA privacy and security regulations.
Federal and State Privacy and Security Requirements We are subject to the Medicare Patient and Program Protection Act of 1987, as amended by the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), including the Health Information Technology for Economic and Clinical Health Act (the "HITECH Act"), which was enacted as part of The American Recovery and Reinvestment Act of 2009.
HHS has allocated increased funding towards HIPAA enforcement activity and such enforcement activity has seen a marked increase over recent years.
We expect vigorous enforcement of the HITECH Act’s requirements by HHS and State Attorneys General. HHS has allocated increased funding towards HIPAA enforcement activity and such enforcement activity has seen a marked increase over recent years.
We strive to recruit and retain a diverse population of employees at all stages of their careers that are reflective of the communities we serve. We are committed to promoting an inclusive culture through diversity of thoughts and backgrounds, recognizing the value these experiences bring to our colleagues, physicians, patients and the communities in which we reside.
We strive to live all our values, including demonstrating compassion and kindness in all that we do. We are committed to promoting an inclusive and kind culture through diversity of thoughts and backgrounds, recognizing the value these experiences bring to our colleagues, physicians, patients and communities.
To assure continued compliance with these regulations, governmental and other authorities periodically inspect our surgical facilities. The failure to comply with these regulations could result in the suspension or revocation of a facility’s license.
The failure to comply with these regulations and applicable licensing requirements could result in the suspension or revocation of a facility’s license.
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.
Affordable Care Act Repeal Efforts Initiatives to repeal or modify the Patient Protection and Affordable Care Act (the "Affordable Care Act") have persisted over the past several years.
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. To participate in the Medicare program and receive Medicare payment, our surgical facilities must comply with regulations promulgated by HHS.
Medicare and Medicaid Participation The majority of our revenue is derived from third-party payors, including federal and state health care programs, such as Medicare and Medicaid, and private insurance payors. Continued participation in these programs, and in particular Medicare, is dependent on our continued compliance with regulations promulgated by HHS.
Under regulations issued by the Office of the Inspector General of HHS (the "OIG"), certain categories of activities are deemed not to violate the Anti-Kickback Statute (commonly referred to as the safe harbors).
Under regulations issued by the Office of the Inspector General of HHS (the "OIG"), certain types of arrangements involving remuneration are deemed not to violate the Anti-Kickback Statute (commonly referred to as the safe harbors). The safe harbor regulations outline standards that, if complied with, protect conduct that might otherwise be deemed in violation of the Anti-Kickback Statute.
According to the preamble to these safe harbor regulations, the failure of a particular business arrangement to comply with the regulations does not determine whether the arrangement violates the Anti-Kickback Statute. The safe harbor regulations outline standards that, if complied with, protect conduct that might otherwise be deemed in violation of the Anti-Kickback Statute.
The failure of a particular business arrangement to comply with a safe harbor does not determine whether the arrangement violates 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.
Violations of the Anti-Kickback Statute are criminal offenses punishable by imprisonment and fines of up to $100,000 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.
In addition, although we expect each physician-investor to utilize the ASCs as an extension of his or her practice and ask each physician-investor to certify this practice, we cannot assure you that all physician-investors will derive at least one-third of their medical practice income from performing Medicare-covered ASC procedures, perform one-third of their procedures at the centers or inform their referred patients of their investment interests.
In addition, although we expect each physician-investor to utilize the ASCs as an extension of his or her practice and ask each physician-investor to certify this practice, we cannot assure you that all physician-investors will do so in a manner consistent with the requirements of the ASC Safe Harbor.
However, as a result of the enactment of the Tax and Jobs Act of 2017, the tax penalty associated with the so-called "individual mandate," which requires most individuals to obtain qualifying health insurance coverage or pay a tax penalty, was reduced to zero starting in 2019.
As an example, the Tax and Jobs Act of 2017 effectively eliminated the tax penalty associated with the so-called "individual mandate," which required most individuals to obtain qualifying health insurance coverage or pay a tax penalty. As of December 31, 2024, however, further legislative efforts to repeal and replace the Affordable Care Act in full have not been successful.
The HITECH Act authorizes State Attorneys General to bring civil actions seeking either an injunction or damages in response to violations of HIPAA privacy and security regulations or the new data breach law that affects the privacy of their state residents. We expect vigorous enforcement of the HITECH Act’s requirements by HHS and State Attorneys General.
However, a single breach incident can result in violations of multiple requirements, resulting in possible penalties well in excess of $1.5 million. The HITECH Act authorizes State Attorneys General to bring civil actions seeking either an injunction or damages in response to violations of HIPAA privacy and security regulations.
Medicare and Medicaid Private Contractor Audits CMS has implemented a number of programs that use private contractors that contract with CMS to identify overpayments and underpayments and other potential sources of billing fraud. These contractors, known as Recovery Audit Contractors ("RACs") and Zone Program Integrity Contractors ("ZPICs") conduct both post-payment and pre-payment review of claims submitted by Medicare providers.
Additionally, CMS has implemented a number of programs that use private contractors that contract with CMS to identify overpayments and underpayments and other potential sources of billing fraud.
We have the burden of demonstrating through a risk assessment that a breach of protected health information has not occurred. The HIPAA privacy standards apply to individually identifiable information held or disclosed by a covered entity in any form, whether communicated electronically, on paper or orally. These standards impose extensive administrative requirements on us.
The HITECH Act strengthened the requirements and significantly increased the penalties for violations of the HIPAA privacy and security regulations. The HIPAA privacy standards apply to individually identifiable information held or disclosed by a covered entity in any form, whether communicated electronically, on paper or orally.
Our facilities licensed as hospitals are required to meet this requirement to maintain their participating provider status in the Medicare program. Our hospitals that do not have an emergency room, maintain a protocol for the transfer of patients requiring emergency treatment.
We believe that our surgical hospitals comply with EMTALA. With respect to our hospitals that do not have an emergency room, those hospitals maintain a protocol for the transfer of patients requiring emergency treatment.
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").
Emergency Medical Treatment and Active Labor Act Our surgical hospitals are subject to the Emergency Medical Treatment and Active Labor Act ("EMTALA").
Federal Anti-Kickback Statute and Medicare Fraud and Abuse Laws The Social Security Act of 1935 includes provisions addressing false statements, illegal remuneration and other instances of fraud and abuse in federal health care programs. These provisions include the statute commonly known as the federal Anti-Kickback statute (the "Anti-Kickback Statute").
Although all such repayments requested to date have been immaterial, 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. 6 Table of Contents Federal Anti-Kickback Statute and Medicare Fraud and Abuse Laws The Social Security Act of 1935 includes provisions addressing false statements, illegal remuneration and other instances of fraud and abuse in federal health care programs.
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.
The Stark Law currently includes the Whole Hospital Exception, as modified by the Affordable Care Act, which governs physician ownership of a hospital and requires, among other things, that such ownership is in the whole hospital, the physician is authorized to perform services at the hospital, and the ownership predates December 31, 2010.
Our ASCs have licenses to operate as required in the states in which they operate and must meet all applicable requirements for ASCs. In addition, even though our surgical facilities that are licensed as hospitals primarily provide surgical services, they must meet all applicable requirements for general hospital licensure.
Although our surgical hospitals primarily or exclusively provide surgical services, they must meet all applicable requirements for general hospital licensure.
While we believe such protocols satisfy CMS requirements, CMS could interpret such protocols to be inconsistent with the 2007 CMS Policy Memorandum, which could jeopardize each facility's participation in the Medicare program. Our surgical facilities must also satisfy the conditions of participation to be eligible to participate in the various state Medicaid programs.
While we believe such protocols satisfy CMS requirements, we are unable to guarantee that CMS would not interpret such protocols to be inconsistent with EMTALA requirements, potentially jeopardizing each facility's participation in the Medicare program.
The imposition of these regulatory requirements may have the effect of increasing operating costs and reducing the profitability of our operations. Continuing Obligations with Respect to COVID-19 Regulatory Responses Numerous legislative and regulatory actions were taken in an attempt to provide businesses, including health care providers, with relief from the negative impacts of the COVID-19 pandemic.
The imposition of these regulatory requirements may have the effect of increasing operating costs and reducing the profitability of our operations.
Removed
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.
Added
Surgical Facilities Operations As of December 31, 2024, we owned or operated 161 surgical facilities, including 142 ASCs and 19 licensed surgical hospitals.
Removed
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.
Added
Our surgical hospitals primarily focus on providing non-emergency, scheduled surgical procedures, with a focus on less complex, elective surgeries that have shorter recovery times. Although some of these facilities may include emergency departments, they are generally not equipped to handle a broad spectrum of patient needs, including critical and traumatic injuries. We operate both multi-specialty and single-specialty facilities.
Removed
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.
Added
We believe this creates an engaged workforce that feels a sense of belonging in the wonderful work they carry out for patients and communities alongside colleagues and providers.
Removed
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.
Added
These provisions include the statute commonly known as the federal Anti-Kickback statute (the "Anti-Kickback Statute").
Removed
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.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeOur 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.
Biggest changeOur 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.
Claims filed with private insurers can also lead to criminal and civil penalties, including, but not limited to, penalties relating to violations of federal mail and wire fraud statutes, as well as penalties under the anti-fraud provisions of the HIPAA.
Claims filed with private insurers can also lead to criminal and civil penalties, including, but not limited to, penalties relating to violations of federal mail and wire fraud statutes, as well as penalties under the anti-fraud provisions of HIPAA.
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.
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 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 12 Table of Contents could materially adversely affect payments we receive from these government programs, as well as affect the timing of payments to our facilities.
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.
In 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 addition, a person who offers or transfers to a Medicare or Medicaid beneficiary any remuneration, including waivers of co-payments and deductible amounts (or any part thereof), that the person knows or should know is likely to influence the beneficiary’s selection of a particular provider, practitioner or supplier of Medicare or Medicaid payable items or services may be liable for civil monetary penalties of up to $10,000 for each wrongful act.
In addition, a person who offers or transfers to a Medicare or Medicaid beneficiary any remuneration, including waivers of co-payments and deductible amounts (or any part thereof), that the person knows or should know is likely to influence the beneficiary’s selection of a particular provider, practitioner or supplier of Medicare or Medicaid payable items or services may be liable for civil monetary penalties of up to $20,000 for each wrongful act.
Additionally, there is a risk that Medicare payments could be reduced if our facilities (hospitals and ASCs) fail to adequate report data as required by CMS. ASC payments are not yet adjusted based on performance against quality measures, but there is a substantial risk that Congress may soon link ASC Medicare payments to actual performance, in addition to reporting.
Additionally, there is a risk that Medicare payments could be reduced if our facilities (hospitals and ASCs) fail to adequately report data as required by CMS. ASC payments are not yet adjusted based on performance against quality measures, but there is a substantial risk that Congress may soon link ASC Medicare payments to actual performance, in addition to reporting.
Our amended and restated certificate of incorporation (the "Certificate of Incorporation") provides that, subject to certain exceptions and to the fullest extent permitted by applicable law, the Court of Chancery of the State of Delaware (the "Court of Chancery") will be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders, (iii) any action asserting a claim against us arising pursuant to any provision of the General Corporation Law of the State of Delaware, our Certificate of Incorporation or our amended and restated bylaws or (iv) any other action asserting a claim against us that is governed by the internal affairs doctrine (each, a "Covered Proceeding").
Our amended and restated certificate of incorporation (the "Certificate of Incorporation") provides that, subject to certain exceptions and to the fullest extent permitted by applicable law, the Court of Chancery of the State of Delaware (the "Court of Chancery") will be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a 25 Table of Contents fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders, (iii) any action asserting a claim against us arising pursuant to any provision of the General Corporation Law of the State of Delaware, our Certificate of Incorporation or our amended and restated bylaws or (iv) any other action asserting a claim against us that is governed by the internal affairs doctrine (each, a "Covered Proceeding").
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.
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. 26 Table of Contents Item 1B. Unresolved Staff Comments None.
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.
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; • 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.
Therefore, our business arrangements with our surgery centers, surgical hospitals and physician groups do not qualify for the expanded safe harbor protection from government review or prosecution under the Anti-Kickback Statute. However, we believe that we are in compliance with the requirements of the Anti-Kickback Statute.
Therefore, our business arrangements with our surgery centers, surgical hospitals and physician groups do not qualify for the expanded safe harbor protection from government review or prosecution under the Anti-Kickback Statute. Nevertheless, we believe that we are in compliance with the requirements of the Anti-Kickback Statute.
The Senior Indebtedness imposes significant operating and financial restrictions and limit the ability of us and our restricted subsidiaries to, among other things: • incur additional indebtedness and guarantee indebtedness; • pay dividends or make other distributions in respect of, or repurchase or redeem, capital stock; • prepay, redeem or repurchase certain debt; • make loans and investments; • sell or otherwise dispose of assets; • sell stock of our subsidiaries; • incur liens; • enter into transactions with affiliates; • enter into agreements restricting certain of our subsidiaries’ ability to pay dividends; and • consolidate, merge or sell all or substantially all of our assets.
The Senior Indebtedness imposes significant operating and financial restrictions and limit the ability of us and our restricted subsidiaries to, among other things: • incur additional indebtedness and guarantee indebtedness; • pay dividends or make other distributions in respect of, or repurchase or redeem, capital stock; • prepay, redeem or repurchase certain debt; • make loans and investments; • sell or otherwise dispose of assets; • sell stock of our subsidiaries; • incur liens; 18 Table of Contents • enter into transactions with affiliates; • enter into agreements restricting certain of our subsidiaries’ ability to pay dividends; and • consolidate, merge or sell all or substantially all of our assets.
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.
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.
We do not control whether or when any of these regulatory events might occur. In the event we are required to purchase all of the physicians’ ownership, our existing capital resources would not be sufficient for us to meet this obligation.
We do not control whether or when regulatory events might occur. In the event we are required to purchase all of the physicians’ ownership, our existing capital resources would not be sufficient for us to meet this obligation.
If we experience the loss of key personnel or if the effort devoted to the integration of acquired facilities diverts significant management or other resources from other operational activities, our operations could be impaired. Additionally, in some acquisitions, we may have to renegotiate, or risk losing, one or more of the facility’s private insurance contracts.
If we experience the loss of key personnel or if the effort devoted to the integration of acquired facilities diverts significant management or other resources from other operational activities, our operations could be impaired. Additionally, in some acquisitions, we 14 Table of Contents may have to renegotiate, or risk losing, one or more of the facility’s private insurance contracts.
In some markets, the lack of availability of clinical personnel, such as nurses, has become a significant operating issue facing all health care providers. This shortage may require us to continue to enhance wages and benefits to recruit and retain qualified personnel or to contract for more expensive temporary personnel.
In some markets, the lack of availability of clinical personnel, such as nurses, has become a significant operating issue facing all health care providers. This shortage may require us to continue to enhance wages and benefits to recruit and retain qualified personnel or to contract for more expensive 15 Table of Contents temporary personnel.
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.
In addition, other companies either currently are in the same or similar business of developing, acquiring and 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.
A substantial portion of hospital payment is at risk depending on its individual performance relative to benchmarks and other hospitals’ performance. There is a substantial risk that our Medicare payments could be reduced if our hospitals fail to perform adequately on these measures.
A substantial portion of hospital payment is at risk depending on its individual performance 24 Table of Contents relative to benchmarks and other hospitals’ performance. There is a substantial risk that our Medicare payments could be reduced if our hospitals fail to perform adequately on these measures.
If these payments are reduced or eliminated, our revenue and profitability could be materially and adversely affected. • If we are unable to negotiate and enter into favorable contracts or maintain satisfactory relationships and renew existing contracts on favorable terms with private insurance payors, our revenue and profitability may decrease. • Significant changes in our payor mix or surgical case mix resulting from fluctuations in the types of cases performed at our facilities could have a material adverse effect on our business, prospects, results of operations and financial condition. • Our ability to provide medical services at our facilities would be impaired and our revenue reduced if we are not able to maintain good relationships with affiliated physicians who utilize our surgical facilities. • Physician treatment methodologies and governmental or private insurance controls designed to reduce the number of surgical procedures may reduce our revenue and profitability. • Our growth strategy depends in part on our ability to integrate operations of acquired surgical facilities, attract new physician partners, and to acquire and develop additional surgical facilities on favorable terms.
If these payments are reduced or eliminated, our revenue and profitability could be materially and adversely affected. • If we are unable to negotiate and enter into favorable contracts or maintain satisfactory relationships and renew existing contracts on favorable terms with private insurance payors, our revenue and profitability may decrease. • Significant changes in our payor mix or surgical case mix resulting from fluctuations in the types of cases performed at our facilities could have a material adverse effect on our business, prospects, results of operations and financial condition. • Our ability to provide medical services at our facilities would be impaired and our revenue reduced if we are not able to maintain good relationships with affiliated physicians who utilize our surgical facilities. • Our growth strategy depends in part on our ability to integrate operations of acquired surgical facilities, attract new physician partners, and to acquire and develop additional surgical facilities on favorable terms.
In addition, some of the governmental and regulatory bodies that regulate us are considering or may in the future consider enhanced or new regulatory requirements. These authorities may also seek to exercise their supervisory or enforcement authority in new or more robust ways.
In addition, some of the governmental and regulatory bodies that regulate us are considering or may in the future consider enhanced or new regulatory requirements. These authorities may also seek to exercise their supervisory or 21 Table of Contents enforcement authority in new or more robust ways.
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 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% of our patient service revenue in 2024, 2023 and 2022.
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.
These laws and regulations require that our facilities meet various licensing, 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 and certification 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.
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.
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, 2024, affiliates of Bain Capital owned approximately 39.3% of our outstanding common stock.
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.
Although we have disaster plans in place and operate pursuant to infectious disease protocols, the extent to which a 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.
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.
In such instances, the physicians and/or physician groups typically also guarantee their pro-rata share of such indebtedness. 19 Table of Contents Our variable rate indebtedness subjects us to interest rate risk, which could cause our indebtedness service obligations to increase significantly. Borrowings under the Credit Facilities are at variable rates of interest and expose us to interest rate risk.
These different payors typically have different billing requirements that must be satisfied prior to receiving payment for services rendered. Reimbursement is typically conditioned on our documenting medical necessity and correctly applying diagnosis codes. Incorrect or incomplete documentation and billing information could result in non-payment for services rendered.
These different payors typically have different billing requirements that must be satisfied prior to receiving payment for services rendered. Reimbursement is typically conditioned on our documenting medical 16 Table of Contents necessity and correctly applying diagnosis codes. Incorrect or incomplete documentation and billing information could result in non-payment for services rendered.
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.
Payments from private insurance payors, including state workers’ compensation programs and managed care organizations, represented approximately 54%, 53% and 52% of our patient service revenue in 2024, 2023 and 2022, respectively. Most of these payments came from private insurance payors with which our facilities have contracts.
We attempt to structure our relationship with physicians who refer to our hospitals to meet an exception to the Stark Law where required, but the regulations implementing the exceptions are detailed and complex, and we cannot guarantee that every relationship complies fully with the Stark Law.
We attempt to structure our relationship with physicians who refer to our hospitals to meet an exception to the Stark Law where required, but the regulations implementing the exceptions are detailed and complex, and we cannot guarantee that every relationship 22 Table of Contents complies fully with the Stark Law.
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.
In addition to the Senior Indebtedness, our aggregate principal amount of indebtedness outstanding includes approximately $1.0 billion 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.
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.
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 $168.1 million, $11.9 million and $54.6 million, in 2024, 2023 and 2022, respectively.
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.
Although the credit agreement governing the New Credit Facilities and the indentures governing the 2032 Unsecured Notes 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.
If we are unable to achieve any of these goals, our future growth could be limited and our operating results could be adversely affected. • Shortages of surgery-related products, equipment and medical supplies and quality control issues with such products, equipment and medical supplies could disrupt our operations and adversely affect our case volume, surgical case mix and profitability. • We face competition from other health care facilities and providers. • Competition for physicians and clinical personnel, including nurses, shortages of qualified personnel or other factors could increase our labor costs and adversely affect our revenue, profitability and cash flows. • If any of our existing health care facilities lose their accreditation status or any of our new facilities fail to receive accreditation, such facilities could become ineligible to receive reimbursement under Medicare or Medicaid or other third-party payors. • Growth of patient receivables or deterioration in the ability to collect on these accounts, due to changes in economic conditions or otherwise, could have a material adverse effect on our business, prospects, results of operations and financial condition. • If we are unable to integrate and operate our information systems effectively or implement new systems and processes, our operations could be disrupted. • A pandemic, epidemic or outbreak of a contagious disease in the markets in which we operate or that otherwise impacts our facilities could adversely impact our business.
If we are unable to achieve any of these goals, our future growth could be limited and our operating results could be adversely affected. • Shortages of surgery-related products, equipment and medical supplies and quality control issues with such products, equipment and medical supplies could disrupt our operations and adversely affect our case volume, surgical case mix and profitability. • We face competition from other health care facilities and providers. • Competition for physicians and clinical personnel, including nurses, shortages of qualified personnel or other factors could increase our labor costs and adversely affect our revenue, profitability and cash flows. • Growth of patient receivables or deterioration in the ability to collect on these accounts, due to changes in economic conditions or otherwise, could have a material adverse effect on our business, prospects, results of operations and financial condition. • If we are unable to integrate and operate our information systems effectively or implement new systems and processes, our operations could be disrupted. • A pandemic, epidemic or outbreak of a contagious disease in the markets in which we operate or that otherwise impacts our facilities could adversely impact our business.
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.
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 41% of our revenue from government payors, including Medicare and Medicaid programs in 2024 and 42% in both 2023 and 2022.
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.
After giving effect to the $10.3 million principal amount of outstanding letters of credit issued under our Revolver, we had $501.5 million of unused commitments available to be borrowed under the Revolver.
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.
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.
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).
In addition, as of December 31, 2024, we had approximately $501.5 million available for additional borrowings under the Revolver (after giving effect to the $10.3 million aggregate principal amount of outstanding letters of credit issued under our Revolver at such time).
If the government intervenes and prevails in the action, the defendant may be required to pay three times the actual damages sustained by the government, plus mandatory civil monetary penalties of between $12,526 and $25,076 for each false claim submitted to the government.
If the government intervenes and prevails in the action, the defendant may be required to pay three times the actual damages sustained by the government, plus mandatory civil monetary penalties for each false claim submitted to the government.
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").
As of December 31, 2024, we had U.S. federal net operating loss ("NOL") carryforwards of approximately $529.0 million and state NOL carryforwards of approximately $630.7 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").
All payors are increasingly conducting post-payment audits. For example, CMS has implemented the RAC program, involving Medicare claims audits nationwide, and employs MICs to perform post-payment audits of Medicaid claims and identify overpayments. In addition to RACs and MICs, the state Medicaid agencies and other contractors have increased their review activities.
For example, CMS has implemented the RAC program, involving Medicare claims audits nationwide, and employs MICs to perform post-payment audits of Medicaid claims and identify overpayments. In 23 Table of Contents addition to RACs and MICs, the state Medicaid agencies and other contractors have increased their review activities.
To the extent our patient assistance programs or other discount policies are found to be inconsistent with applicable laws, we may be required to restructure or discontinue such programs, or be subject to other significant penalties.
To the extent our patient assistance programs or other discount policies are found to be inconsistent with applicable laws, we may be required to restructure or discontinue such programs, or be subject to other significant penalties. All payors are increasingly conducting post-payment audits.
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").
As of December 31, 2024, we had $192.0 million of 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 2032 Unsecured Notes, the "Senior Indebtedness").
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.
If a pandemic, epidemic or outbreak of an infectious disease 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.
In giving approval, these states consider the need for additional or expanded health care facilities or services, as well as the financial resources and operational experience of the potential new owners of existing health care facilities.
Additionally, some states require prior approval for the construction, acquisition or expansion of health care facilities or expansion of the services the facilities offer. In giving approval, these states consider the need for additional or expanded health care facilities or services, as well as the financial resources and operational experience of the potential new owners of existing health care facilities.
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").
As of December 31, 2024, we and our subsidiaries had approximately $3.4 billion aggregate principal amount of indebtedness outstanding, which includes approximately $1.4 billion principal amount of senior secured term loans (the "Term Loan") outstanding and $800.0 million senior unsecured notes due 2032 (the "2032 Unsecured Notes").
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. The Stark Law prohibits certain self-referrals for health care services unless an exception applies.
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.
While we undertake substantial efforts to secure the PHI we maintain, use and disclose in electronic form, a cyber-attack or other intrusion that bypasses our information security systems causing an information security breach, loss of protected health information or other data subject to privacy laws or a material disruption of our operational systems could result in a material adverse impact on our business, along with potentially substantial fines and penalties.
A cyber-attack or other intrusion that bypasses our information security systems causing an information security breach, loss of protected health information or other data subject to privacy laws or a material disruption of our operational systems could result in a material adverse impact on our business, along with potentially substantial fines and penalties. Please see Item 1.
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.
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.
Therefore, the results of our individual affiliated facilities, including facilities that are material to our results, may be volatile, which could result in a material adverse effect on our business, prospects, results of operations and financial condition.
In addition, we are unable to predict the results of an increasing trend towards value based payment on our reimbursement.Therefore, the results of our individual affiliated facilities, including facilities that are material to our results, may be volatile, which could result in a material adverse effect on our business, prospects, results of operations and financial condition.
Cybersecurity and Data Risks Cybersecurity attacks or intrusions could adversely impact our businesses. We, independently and through third-party vendors, collect and store on our networks and devices sensitive information, including intellectual property, proprietary business information and personally identifiable information of our patients and employees.
We, independently and through third-party vendors, collect and store on our networks and devices sensitive information, including intellectual property, proprietary business information and personally identifiable information of our patients and employees.
Physician treatment methodologies and governmental or private insurance controls designed to reduce the number of surgical procedures may reduce our revenue and profitability. Controls imposed by Medicare, Medicaid and private insurance payors designed to reduce surgical and other procedure volumes, in some instances referred to as "utilization review," could adversely affect our facilities.
Controls imposed by Medicare, Medicaid and private insurance payors designed to reduce surgical and other procedure volumes, in some instances referred to as "utilization review," could adversely affect our facilities.
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.
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.
In addition, many of the states in which we operate have also adopted laws, similar to the Anti-Kickback Statute, that prohibit payments to physicians in exchange for referrals, some of which apply regardless of the source of payment for care. These statutes typically impose criminal and civil penalties, including the loss of a license to do business in the state.
In addition, many of the states in which we operate have also adopted laws, similar to the Anti-Kickback Statute, that prohibit payments to physicians in exchange for referrals, some of which apply regardless of the source of payment for care.
Our failure to recruit and retain qualified management and medical personnel, or to control our labor costs, could have a material adverse effect on our business, prospects, results of operations and financial condition.
Our failure to recruit and retain qualified management and medical personnel, or to control our labor costs, could have a material adverse effect on our business, prospects, results of operations and financial condition. Our surgical facilities are sensitive to regulatory, economic and other conditions in the states where they are located.
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.
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.
Our leverage could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry, expose us to interest rate risk to the extent of our variable rate debt and prevent us from meeting our obligations under our outstanding indebtedness.
If we are not able to achieve, sustain or increase profitability, our business will be adversely affected and our stock price may decline. 17 Table of Contents Our leverage could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry, expose us to interest rate risk to the extent of our variable rate debt and prevent us from meeting our obligations under our outstanding indebtedness.
Higher numbers of unemployed individuals generally translates into more individuals without health care insurance to help pay for procedures, thereby increasing the potential for persons to elect not to have procedures performed.
Our case volume and surgical case mix may be adversely affected by patients’ unwillingness to pay for procedures in our facilities. Higher numbers of unemployed individuals generally translates into more individuals without health care insurance to help pay for procedures, thereby increasing the potential for persons to elect not to have procedures performed.
All of these factors could contribute to future net losses and, if we are unable to meet these risks and challenges as we encounter them, our business may suffer. If we are not able to achieve, sustain or increase profitability, our business will be adversely affected and our stock price may decline.
All of these factors could contribute to future net losses and, if we are unable to meet these risks and challenges as we encounter them, our business may suffer.
Even procedures normally thought to be non-elective may be delayed or may not be performed if the patient cannot afford the procedure due to a lack of insurance or money to pay their portion of our facilities’ fee. It is difficult to predict the degree to which our business will continue to be impacted by economic conditions in the future.
Even procedures normally thought to be 13 Table of Contents non-elective may be delayed or may not be performed if the patient cannot afford the procedure due to a lack of insurance or money to pay their portion of our facilities’ fee.
In addition, our growth strategy includes the acquisition and development of existing surgical facilities and the development of new surgical facilities jointly with local physicians and, in some cases, health care systems and other strategic partners. We are currently evaluating potential acquisitions and development projects and expect to continue to evaluate acquisitions and development projects in the foreseeable future.
In addition, our growth strategy includes the acquisition and development of existing surgical facilities and the development of new surgical facilities jointly with local physicians and, in some cases, health care systems and other strategic partners. If we are unable to successfully execute on this strategy in the future, our future growth could be limited.
Our results may change from period to period due to fluctuations in payor mix or case mix or other factors relating to the type of cases performed at our facilities. Payor mix refers to the relative share of total cases provided to patients with no insurance, private insurance, Medicare coverage and Medicaid coverage.
Our results may change from period to period due to fluctuations in payor mix or case mix or other factors relating to the type of cases performed at our facilities.
The "Investment Interest" safe harbor and the "Personal Services and Management Contracts" safe harbor apply to business arrangements similar to those used in connection with our surgical facilities.
These state laws typically impose criminal and civil penalties, including the loss of a license to do business in the state. The "Investment Interest" safe harbor and the "Personal Services and Management Contracts" safe harbor apply to business arrangements similar to those used in connection with our surgical facilities.
Any 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.
Any 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. 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.
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.
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 are increasingly scrutinizing healthcare mergers, acquisitions, joint ventures, and other strategic transactions.
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.
The Company has Section 382 limitations due to certain historical acquisitions; however, 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.
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.
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.
As we operate in multiple markets, each with a different competitive landscape, shifts within our payor mix or case mix may not be uniform across all of our affiliated facilities. Rather, these shifts may be concentrated within certain markets due to local competitive factors.
It is difficult to predict the degree to which our business will continue to be impacted by economic conditions in the future. As we operate in multiple markets, each with a different competitive landscape, shifts within our payor mix or case mix may not be uniform across all of our affiliated facilities.
In addition, a violation of the Stark Law or the Anti-Kickback Statute can result in liability under the federal False Claims Act (the "FCA").
In addition, a violation of the Stark Law or the Anti-Kickback Statute can result in liability under the federal False Claims Act (the "FCA"), which, among other things, prohibits a person from knowingly presenting, or causing to be presented, a false or fraudulent claim to the federal government.
In addition, the OIG and the DOJ have, from time to time, undertaken national enforcement initiatives that focus on specific billing practices or other suspected areas of abuse. In its 2013 Work Plan, the OIG stated its intention to review the safety and quality of care for Medicare beneficiaries having surgeries and procedures in ASCs and hospital outpatient departments.
In addition, the OIG and the DOJ have, from time to time, undertaken national enforcement initiatives that focus on specific billing practices or other suspected areas of abuse.
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.
Our revenue is particularly sensitive to regulatory, economic and other conditions in the state of Idaho. As of December 31, 2024, we owned and operated three consolidated surgical hospitals and four consolidated ASCs in Idaho, representing approximately 29% of our revenue during fiscal year 2024. These surgical facilities also provide ancillary services, including physician practices, radiation oncology and anesthesia services.
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.
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. Cybersecurity and Data Risks Cybersecurity attacks or intrusions could adversely impact our businesses.
If we are unable to maintain strong relationships with these payors, we may not be able to participate in these narrow provider networks. Some of our payments from private insurance payors come from payors with which our facilities or subsidiaries do not have a contract.
Some of our payments from private insurance payors come from payors with which our facilities or subsidiaries do not have a contract.
Governmental authorities have and may continue to challenge or scrutinize our operations. An allegation or determination that we have violated the law could have a material adverse effect on our business, prospects, results of operations and financial condition.
These private parties, often referred to as relators, are entitled to share in any amounts recovered by the government through trial or settlement. An allegation or determination that we have violated the law could have a material adverse effect on our business, prospects, results of operations and financial condition.
Where these state laws are more protective than HIPAA, we have to comply with their stricter provisions. Only some of these state laws impose fines and penalties upon violators, but some may afford private rights of action to individuals who believe their PII has been misused.
Only some of these state laws impose fines and penalties upon violators, but some may afford private rights of action to individuals who believe their PII has been misused. California’s patient privacy laws, for example, provide for penalties of up to $250,000 and permit injured parties to sue for damages.
We have implemented formal compliance programs designed to safeguard against overbilling and believe that our management agreements comply with the requirements of the Anti-Kickback Statute. However, we cannot assure you that the OIG would find our compliance programs to be adequate or that our management agreements would be found to comply with the Anti-Kickback Statute.
We cannot assure you that the OIG would find our compliance programs to be adequate or that our management agreements would be found to comply with the Anti-Kickback Statute. 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.
Managed care companies such as HMOs and PPOs, which offer prepaid and discounted medical service packages, represent a growing segment of private insurance payors. If we fail to enter into favorable contracts or maintain satisfactory relationships with private insurance organizations, our revenue may decrease.
If we fail to enter into favorable contracts or maintain satisfactory relationships with private insurance organizations, our revenue may decrease.
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.
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. 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.
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.
We may be unable to identify suitable acquisition and development opportunities, or to complete acquisitions and new projects in a timely manner and on favorable terms. Our acquisition and development activities require substantial capital resources, and we may need to obtain additional capital or financing, from time to time, to fund these activities.
Moreover, another trend impacting health care providers is the increased use of the FCA, particularly by individuals who bring actions under that law. Under the "qui tam," or whistleblower, provisions of the FCA, private parties may bring actions on behalf of the federal government.
Moreover, individuals are increasingly using the "qui tam" or whistleblower provisions of the FCA, which permit private parties to bring actions on behalf of the federal government.
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.
Local physicians, physician groups and health care systems also own an interest many of these partnerships and limited liability companies. For some of our surgical facilities, indebtedness at the partnership level is funded through intercompany loans that we provide. At December 31, 2024, our intercompany loans totaled $35.7 million.
In addition, HIPAA mandates that the Secretary of HHS conduct periodic compliance audits of HIPAA covered entities such as us. In addition, many states in which we operate may impose laws that are more protective of the privacy and security of PII than HIPAA.
“Business-Governmental Regulation-Federal and State Privacy and Security Requirements” included elsewhere in this Annual Report. 20 Table of Contents Many states in which we operate may impose supplemental laws that are more protective of the privacy and security of PII than HIPAA. Where these state laws are more protective than HIPAA, we have to comply with their stricter provisions.
Removed
For instance, private insurance payors may lower reimbursement rates in response to increased obligations on payors imposed by the Affordable Care Act or future reductions in Medicare reimbursement rates. Further, private insurance payors may narrow their provider networks in response to the need to negotiate lower reimbursement rates with providers.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeSpecifically, the Audit Committee periodically reviews our cybersecurity policies, data security programs and plans that management has established to monitor compliance and assess preparedness. Our cybersecurity team is led by our CISO, who has over 20 years of experience in the cybersecurity space and is a Certified Information Security Manager (CISM).
Biggest changeOur cybersecurity team is led by our CISO, who has over 20 years of experience in the cybersecurity space and is a Certified Information Security Manager (CISM). On an annual basis, at a minimum, our CISO or Chief Information Officer (CIO) present necessary updates on our cybersecurity risks and any material cybersecurity incidents.
Additionally, while we have insurance coverage in place that is designed to address certain aspects of cyber risks, such insurance coverage may be insufficient to cover all insured losses or all types of claims that may arise.
Additionally, while we have insurance coverage in place that is designed to address certain aspects of cyber risks, such insurance coverage may be insufficient to cover all insured losses or all types of claims that may arise. Cybersecurity Governance Management is responsible for the day-to-day handling of risks facing our Company.
On an annual basis, at minimum, our CISO or Chief Information Officer (CIO) present necessary updates on our cybersecurity risks and any material cybersecurity incidents. These updates include the following: (i) current cybersecurity threats, (ii) an overview of third-party risks, (iii) our cybersecurity roadmap, (iv) the maturity of our cybersecurity programs and/or (v) ongoing regulatory compliance.
These updates include the following: (i) current cybersecurity threats, (ii) an overview of third-party risks, (iii) our cybersecurity roadmap, (iv) the maturity of our cybersecurity programs and/or (v) ongoing regulatory compliance.
Cybersecurity Governance Management is responsible for the day-to-day handling of risks facing our Company Our Board of Directors, as a whole and through its committees, oversees risk management, including cybersecurity risks. The Board has delegated risk management responsibilities with respects to cybersecurity to our Audit Committee.
Our Board of Directors as a whole and through its committees, oversees risk management, including cybersecurity risks. The Board has delegated risk management responsibilities with respects to cybersecurity to our Audit Committee. Specifically, the Audit Committee periodically reviews our cybersecurity policies, data security programs and plans that management has established to monitor compliance and assess preparedness.
We utilize various risk assessment tools and technologies to identify potential cyber and information security threats and risks as well as engage with various third parties to assist in program development, risk evaluation and testing. For example, we have implemented a third-party risk assessment process for certain service providers, suppliers, and vendors, which is conducted during the procurement cycle.
We utilize various risk assessment tools and technologies to identify potential cyber and information security threats and risks as well as engage with various third parties to assist in program development, risk evaluation and testing. Our cybersecurity program is predicated on the National Institute of Standards and Technology Cybersecurity Framework (NIST CSF).
Added
At minimum, on an annual basis we measure ourselves against this framework and use the NIST CSF as a guide to help us identify, assess, and manage cybersecurity risks relevant to our strategic execution. We have also implemented a third-party risk assessment process for certain service providers, suppliers, and vendors, which is conducted during the procurement cycle.

Item 2. Properties

Properties — owned and leased real estate

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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.
Biggest changeOf our 161 surgical facilities, 157 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

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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
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. 27 Table of Contents Item 4. Mine Safety Disclosures Not applicable. 28 Table of Contents PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

6 edited+0 added−0 removed5 unchanged
Biggest changeThe 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.
Biggest changeThe graph begins on December 31, 2019, 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. 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023 12/31/2024 Surgery Partners, Inc. $ 100.00 $ 185.31 $ 341.17 $ 177.96 $ 204.34 $ 135.23 Nasdaq Composite Index $ 100.00 $ 143.64 $ 174.36 $ 116.65 $ 167.30 $ 215.22 Dow Jones U.S.
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 stock performance shown on the graph represents historical stock performance and is not necessarily indicative of future stock price performance. 29 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, 2023.
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, 2024.
At 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]
At December 31, 2024, 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]
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.
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 24, 2025, there were 193 holders of record of our common stock.
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.
Health Care Providers Index $ 100.00 $ 111.94 $ 146.13 $ 147.85 $ 142.09 $ 127.80 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.

Item 7. Management's Discussion & Analysis

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

62 edited+24 added−37 removed21 unchanged
Biggest change"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.
Biggest change"Goodwill and Intangible Assets" to the consolidated financial statements elsewhere in this Annual Report for additional disclosure related to goodwill. 34 Table of Contents Results of Operations Comparison of Operating Results for the Year Ended December 31, 2024 to the Year Ended December 31, 2023 The following tables summarize certain results from the statements of operations for the periods indicated (in millions): Year Ended December 31, 2024 2023 2022 Revenues $ 3,114.3 $ 2,743.3 $ 2,539.3 Operating expenses: Cost of revenues 2,368.7 2,095.8 1,964.4 General and administrative expenses 138.7 120.9 102.2 Depreciation and amortization 152.6 118.1 114.8 Transaction and integration costs 100.1 61.7 47.5 Net loss on disposals, consolidations and deconsolidations 40.6 14.4 11.1 Equity in earnings of unconsolidated affiliates (19.5) (14.2) (12.5) Litigation settlements (0.8) 10.6 (29.3) Loss on debt extinguishment 5.1 15.5 14.9 Other income (20.0) (7.5) (19.0) 2,765.5 2,415.3 2,194.1 Operating income 348.8 328.0 345.2 Interest expense, net (201.7) (193.0) (234.9) Income before income taxes 147.1 135.0 110.3 Income tax (expense) benefit (134.6) 0.3 (23.3) Net income 12.5 135.3 87.0 Less: Net income attributable to non-controlling interests (180.6) (147.2) (141.6) Net loss attributable to Surgery Partners, Inc. $ (168.1) $ (11.9) $ (54.6) Revenues.
Goodwill is reviewed for impairment at the reporting unit level, which is defined as one level below an operating segment, on an annual basis or sooner if the indicators of impairment arise. Our judgments regarding the existence of impairment indicators are based on market conditions and operational performance of each reporting unit.
Goodwill is reviewed for impairment at the reporting unit level, which is defined as one level below an operating segment or at the operating segment level, on an annual basis or sooner if the indicators of impairment arise. Our judgments regarding the existence of impairment indicators are based on market conditions and operational performance of each reporting unit.
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.
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 2024, 2023 and 2022, there were no non-cash impairment charges. See Note 4.
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.
Summary Broad economic factors, including recent changes 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.
(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.
(2) Represents impact of acquisitions as if each acquisition had occurred on January 1, 2024. 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.
If general economic conditions, including recent increases in interest rates, inflation risk and market volatility, continue to deteriorate or remain uncertain for an extended period of time, our ability to access capital could be harmed, which could negatively affect our liquidity and ability to repay our outstanding debt.
If general economic conditions, including recent changes in interest rates, inflation risk and market volatility, continue to deteriorate or remain uncertain for an extended period of time, our ability to access capital could be harmed, which could negatively affect our liquidity and ability to repay our outstanding debt.
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 the reportable 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.
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.
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, 2024, 2023 and 2022.
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.
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.
A reconciliation of non-GAAP financial measures appears below under "Certain Non-GAAP Measures." We continue to focus on improving our same-facility performance, selectively acquiring established facilities, developing new facilities and other portfolio management initiatives.
A reconciliation of non-GAAP financial measures appears below under the heading "Certain Non-GAAP Measures." We continue to focus on improving our same-facility performance, selectively acquiring established facilities, developing new facilities and pursuing other portfolio management initiatives.
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 used the applicable annual interest rate as of December 31, 2024 of 7.09%, 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.
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.
Management's Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations - Year Ended December 31, 2023 Compared to Year Ended December 31, 2022 " and is hereby incorporated herein by reference. Liquidity and Capital Resources Cash and cash equivalents were $269.5 million at December 31, 2024 compared to $195.9 million at December 31, 2023.
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.
Total revenues for 2024 increased 13.5% to $3.1 billion from $2.7 billion in 2023. The increase in revenues was attributable to same-facility revenue growth and acquisitions completed in 2024. Days adjusted same-facility revenues for 2024 increased 8.0% from 2023, with a 4.0% increase in revenue per case and a 3.9% increase in same-facility cases.
Income Taxes We use the asset and liability method to account for income taxes. Under this method, deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.
Under this method, deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.
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.
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, 2024 2023 2022 Orthopedics and pain management 40.2 % 36.1 % 36.4 % Ophthalmology 23.3 % 24.4 % 24.3 % Gastrointestinal 22.6 % 23.7 % 22.9 % General surgery 2.3 % 2.6 % 3.0 % Other 11.6 % 13.2 % 13.4 % Total 100.0 % 100.0 % 100.0 % 31 Table of Contents Segment Information Our business is comprised of one reportable segment, Surgical Facilities.
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.
Discussion of the operating, investing and financing activities for the year ended December 31, 2023 was previously disclosed beginning on page 43 in our Annual Report on Form 10-K for the year ended December 31, 2023, which was filed on February 26, 2024, under "Item 7.
Accounts Receivable Our patient service revenues and other receivables from third-party payors are recorded net of estimated implicit price concessions, which are estimated based on the historical trend of our surgical hospitals’ cash collections and contractual write-offs, and for our surgical facilities in general, established fee schedules, relationships with payors and procedure statistics.
Accounts Receivable Our patient service revenues and other receivables from third-party payors are recorded net of contractual allowances and implicit price concessions, which are estimated based on established fee schedules, relationships with payors, procedure statistics and other objective information including the historical trend of cash collections and contractual write-offs.
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.
The following table summarizes revenues by service type as a percentage of total revenues: Year Ended December 31, 2024 2023 2022 Patient service revenues 98.1 % 98.4 % 98.5 % Other service revenues 1.9 % 1.6 % 1.5 % Total revenues 100.0 % 100.0 % 100.0 % 30 Table of Contents 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, 2024 2023 2022 Private insurance payors 53.5 % 52.5 % 51.5 % Government payors 41.1 % 41.8 % 42.3 % Self-pay payors 2.7 % 2.5 % 2.6 % Other payors (1) 2.7 % 3.2 % 3.6 % Total 100.0 % 100.0 % 100.0 % (1) Comprised of automobile liability, letters of protection and other payor types.
Adjusted 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.
Adjusted EBITDA is a key measure used by our management to assess operating performance, make business decisions and allocate resources. 37 Table of Contents The following table reconciles Adjusted EBITDA to income before income taxes, the most directly comparable GAAP financial measure (in millions and unaudited): Three Months Ended December 31, 2024 2023 2022 Consolidated Statements of Operations Data: Income before income taxes $ 147.1 $ 135.0 $ 110.3 Plus (minus): Net income attributable to non-controlling interests (180.6) (147.2) (141.6) Depreciation and amortization 152.6 118.1 114.8 Interest expense, net 201.7 193.0 234.9 Equity-based compensation expense 33.3 17.7 18.4 Transaction, integration and acquisition costs (1) 108.0 64.9 48.6 Net loss on disposals, consolidations and deconsolidations 40.6 14.4 11.1 Litigation settlements and regulatory change impact (2) 3.1 17.5 (24.7) Loss on debt extinguishment 5.1 15.5 14.9 Undesignated derivative activity (3) — 0.6 (8.0) Other (4) (2.7) 8.6 1.5 Adjusted EBITDA $ 508.2 $ 438.1 $ 380.2 (1) This amount includes transaction and integration costs of $100.1 million, $61.7 million and $47.5 million for the years ended December 31, 2024, 2023 and 2022, 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.
(2) This amount includes a net litigation settlements (gain) loss of $0.8 million, $10.6 million and $29.3 million for the years ended December 31, 2024, 2023 and 2022, respectively. This amount also includes other litigation costs of $3.9 million, $2.5 million and $4.6 million for the years ended December 31, 2024, 2023 and 2022, respectively.
(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.
(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. This amount further includes fair value changes of undesignated derivatives for the years ended December 31, 2024, 2023 and 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.
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. 38 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): Twelve Months Ended December 31, 2024 Cash flows from operating activities $ 300.1 Plus (minus): Non-cash interest expense, net (6.5) Non-cash lease expense (38.9) Deferred income taxes (131.5) Equity in earnings of unconsolidated affiliates, net of distributions received 2.0 Changes in operating assets and liabilities, net of acquisitions and divestitures 118.9 Income tax expense 134.6 Net income attributable to non-controlling interests (180.6) Interest expense, net 201.7 Transaction, integration and acquisition costs 108.0 Litigation settlements and other litigation costs 3.1 Other (1) (2.7) Acquisitions and synergies (2) 58.4 Credit Agreement EBITDA $ 566.6 (1) This amount includes estimates for the impact of a cyber event, losses from divested business and hurricane-related impacts.
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.
Comparison of Operating Results for the Year Ended December 31, 2023 to the Year Ended December 31, 2022 Our discussion regarding the comparison of the year ended December 31, 2023 compared to the year ended December 31, 2022 was previously disclosed beginning on page 42 in our Annual Report on Form 10-K for the year ended December 31, 2023, which was filed on February 26, 2024, under "Item 7.
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.
The primary source of our operating cash flows is the collection of accounts receivable from private insurance companies, federal and state agencies (under the Medicare and Medicaid programs) and individuals. Our cash flows provided by operating activities was $300.1 million for the year ended December 31, 2024 compared to $293.8 million for the year ended December 31, 2023.
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.
As of the October 1, 2024 valuation, the estimated fair values of the reporting units were substantially in excess of their carrying values. Subsequent to the date of our annual impairment test, the Company considered its operating results for the fourth quarter of 2024, macroeconomic, industry and market conditions, and other market indicators including its market capitalization.
Section 382 of the Internal Revenue Code of 1986 ("Section 382"), as amended (the "Code") imposes an annual limit on the ability of a corporation that undergoes an "ownership change" to use its NOLs to reduce its tax liability.
Section 382 of the Internal Revenue Code of 1986 ("Section 382"), as amended (the "Code") imposes an annual limit on the ability of a corporation that undergoes an "ownership change" to use its NOLs to reduce its tax liability. Approximately $404.0 million in NOL carryforwards are subject to annual Section 382 base limitations.
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.
Executive Overview As of December 31, 2024, we owned or operated, primarily in partnership with physicians, a portfolio of 161 surgical facilities comprised of 142 ASCs and 19 surgical hospitals across 31 states. We owned a majority interest in 83 of the surgical facilities and consolidated 118 of these facilities for financial reporting purposes.
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.
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.
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.
The $100.1 million for the year ended December 31, 2024, includes approximately $10.7 million of costs associated with evaluating strategic alternatives. This amount further includes start-up costs related to de novo surgical facilities of $7.9 million, $3.2 million and $1.1 million for the years ended December 31, 2024, 2023 and 2022, respectively.
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.
Additionally, for 2024, Adjusted EBITDA increased 16.0% to $508.2 million compared to $438.1 million for 2023. The increase in Adjusted EBITDA was primarily attributable to revenue growth, continued cost management initiatives and acquisitions completed in 2024 and 2023. For 2024, net loss attributable to Surgery Partners, Inc. was $168.1 million compared to $11.9 million for 2023.
The valuation allowance has been established for certain deferred tax assets for which we believe it is more likely than not that the tax benefits will not be realized, which are primarily Section 163(j) interest carryforwards and certain state net operating losses and state credit carryforwards.
The valuation allowance has been established for certain deferred tax assets for which we believe it is more likely than not that the tax benefits will not be realized.
Certain Non-GAAP Measures Adjusted EBITDA and Adjusted EBITDA excluding grant funds are not measurements of financial performance under GAAP and should not be considered in isolation or as a substitute for net income, operating income or any other measure calculated in accordance with GAAP.
Certain Non-GAAP Measures Adjusted EBITDA is not a measurement of financial performance under GAAP and should not be considered in isolation or as a substitute for net income, operating income or any other measure calculated in accordance with GAAP. The items excluded from this non-GAAP metric are significant components in understanding and evaluating our financial performance.
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.
The 2024 Refinancing Term Loans shall bear interest at a rate per annum equal to (x) the forward-looking term rate based on Term SOFR plus 2.75% per annum or (y) an alternate base rate (which will be the highest of (i) the prime rate plus 0.5% per annum above the federal funds effective rate and (ii) Term SOFR plus 1.00% per annum (which shall not be less than 1.00%) plus 1.75% per annum.
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 recognize patient service 32 Table of Contents revenues, net of contractual allowances and implicit price concessions, which we estimate based on existing contracts or the historical trend of our cash collections and contractual write-offs. Contractual allowances are recorded at the time of payment and the time of billing for surgical hospitals and ASCs, respectively.
While changes in estimated reimbursement from third-party payors remain a possibility, we expect that any such changes would be minimal and, therefore, would not have a material effect on our financial condition or results of operations. Our collection policies and procedures are based on the type of payor, size of claim and estimated collection percentage for each patient account.
Contractual allowances are recorded at the time of payment and the time of billing for surgical hospitals and ambulatory surgical centers, respectively. While changes in estimated reimbursement from third-party payors remain a possibility, we expect that any such changes would be minimal and, therefore, would not have a material effect on our financial condition or results of operations.
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.
The following tables present financial information for the reportable segment (in millions): Year Ended December 31, 2024 2023 2022 Revenues: Surgical Facilities $ 3,114.3 $ 2,743.3 $ 2,539.3 Total revenues $ 3,114.3 $ 2,743.3 $ 2,539.3 Adjusted EBITDA: Surgical Facilities $ 610.0 $ 534.3 $ 461.9 All Other (101.8) (96.2) (81.7) Total Adjusted EBITDA (1) $ 508.2 $ 438.1 $ 380.2 Depreciation and amortization: Surgical Facilities $ 138.9 $ 110.8 $ 105.4 All other 13.7 7.3 9.4 Total depreciation and amortization expense $ 152.6 $ 118.1 $ 114.8 Supplemental Information: Cash purchases of property and equipment, net: Surgical Facilities $ 86.6 $ 88.7 $ 75.4 All Other 3.8 0.1 5.2 Total cash purchases of property and equipment, net $ 90.4 $ 88.8 $ 80.6 (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.
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.
December 31, 2024 2023 Assets: Surgical Facilities $ 7,466.3 $ 6,383.7 All Other 423.7 493.0 Total assets $ 7,890.0 $ 6,876.7 Critical Accounting Policies In preparing our consolidated financial statements in conformity with U.S.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. If an NOL and/or interest limitation ("163(j)") carryforward exists, we make a determination as to whether that NOL and/or 163(j) carryforward will be utilized in the future.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. We assess the likelihood that deferred tax assets will be recovered from sources of future taxable income.
As a percentage of revenues, net income attributable to non-controlling interests was 5.4% in 2023 and 5.6% in 2022.
As a percentage of revenues, net income attributable to non-controlling interests was 5.8% and 5.4% for the years ended December 31, 2024 and 2023, respectively.
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.
The increase was primarily driven by an 8.0% increase in days adjusted same-facility revenues and the net impact from acquisitions and divestitures completed during the year ended December 31, 2024. The increase in days adjusted same-facility revenues was attributable to a 3.9% increase in same-facility case volumes and a 4.0% increase in same-facility revenue per case. Cost of Revenues.
We recognize that final reimbursement of outstanding accounts receivable is subject to final approval by each third-party payor. However, because we have contracts with our third-party payors and we verify the insurance coverage of the patient before services are rendered, the amounts that are pending approval from third-party payors are minimal.
However, because we have contracts with our third-party payors and we verify the insurance coverage of the patient before services are rendered, the amounts that are pending approval from third-party payors are minimal. Amounts are classified outside of self-pay if we have an agreement with the third-party payor or we have verified a patient’s coverage prior to services rendered.
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.
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, 2024, 2023 and 2022. Income Taxes We use the asset and liability method to account for income taxes.
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.
Material Cash Requirements The following table summarizes our material cash requirements by period as of December 31, 2024 (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) $ 5,208.2 $ 327.2 $ 592.1 $ 546.8 $ 3,742.1 Operating lease obligations, including interest (2) 409.7 59.1 105.2 75.7 169.7 Total contractual obligations $ 5,617.9 $ 386.3 $ 697.3 $ 622.5 $ 3,911.8 (1) Included in long-term debt obligations are principal and interest owed on our outstanding debt obligations.
This amount further includes fair value changes of undesignated derivatives for the years ended December 31, 2023 and 2022, with no comparable activity in 2021. (4) This amount includes estimates for the net impact of the May 2023 cyber event and losses from a divested business for the year ended December 31, 2023.
(4) For the year ended December 31, 2024, this amount includes hurricane-related impacts, net of insurance proceeds related to cyber event losses predominantly incurred in 2023. For the year ended December 31, 2023, this amount includes estimates for the net impact of the May 2023 cyber event and losses from a divested business.
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.
We believe such adjustments are appropriate, as the magnitude and frequency of such items can vary significantly and are not related to the assessment of normal operating performance. Our calculation of Adjusted EBITDA may not be comparable to similarly titled measures reported by other companies. We use Adjusted EBITDA as a measure of financial performance.
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.
As a percentage of revenues, cost of revenues was 76.1% and 76.4% for the years ended December 31, 2024 and 2023, respectively. General and Administrative Expenses. General and administrative expenses were $138.7 million and $120.9 million for the years ended December 31, 2024 and 2023, respectively.
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 table sets forth revenues (in millions): Year Ended December 31, 2024 2023 Patient service revenues $ 3,054.4 $ 2,700.4 Other service revenues 59.9 42.9 Total revenues $ 3,114.3 $ 2,743.3 Patient service revenues increased 13.1% to $3,054.4 million for the year ended December 31, 2024 compared to $2,700.4 million for the year ended December 31, 2023.
The operating systems used to manage our patient accounts provide for an aging schedule in 30-day increments, by payor, physician and patient. We analyze accounts receivable at each of our surgical facilities to ensure the proper collection and aged category. The operating systems generate reports that assist in the collection efforts by prioritizing patient accounts.
We analyze accounts receivable at each of our surgical facilities to ensure the proper collection and aged category. The operating systems generate reports that assist in the collection efforts by prioritizing patient accounts. Collection efforts include direct contact with insurance carriers or patients, written correspondence and the use of legal or collection agency assistance, as required.
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.
During 2024, the Company had identified two reporting units, American Group and National Group. 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.
Net cash used in financing activities in 2023 was $155.2 million compared to net cash provided of $42.1 million in 2022.
Net cash provided by financing activities for the year ended December 31, 2024 was $262.0 million compared to net cash used of $155.2 million for the year ended December 31, 2023.
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.
In certain cases, we may not reduce the valuation allowance by the amount of the deferred tax liabilities depending on the nature and timing of future taxable income attributable to deferred tax liabilities. We recorded a valuation allowance against our deferred tax assets at December 31, 2024 and 2023 totaling $284.7 million and $150.1 million, respectively.
Amounts are classified outside of self-pay if we have an agreement with the third-party payor or we have verified a patient’s coverage prior to services rendered. It is our policy to collect co-payments and deductibles prior to providing services, where possible. It is also our policy to verify a patient’s insurance 72 hours prior to the patient’s procedure.
It is our policy to collect co-payments and deductibles prior to providing services, where possible. It is also our policy to verify a patient’s insurance 72 hours prior to the patient’s procedure. Because our services are primarily non-emergency, our surgical facilities have the ability to control these procedures.
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.
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. In assessing tax contingencies, we apply the provisions of ASC 740, “Income Taxes”.
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.
The $262.9 million increase was primarily driven by an aggregate net increase of $250.2 million in payments for acquisitions (net of cash acquired) and purchases of equity method investments and a $23.2 million decrease in proceeds from sales of facilities.
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.
Income tax expense was $134.6 million for the year ended December 31, 2024 compared to income tax benefit of $0.3 million for the year ended December 31, 2023.
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.
We incurred $100.1 million of transaction and integration costs for the year ended December 31, 2024 compared to $61.7 million for the year ended December 31, 2023. The costs for both periods primarily related to ongoing development initiatives and the integration of acquisitions. Net Loss on Disposals, Consolidations and Deconsolidations.
"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.
The net loss on disposals, consolidations and deconsolidations for the years ended December 31, 2024 and 2023 includes activity discussed in Note 2. "Acquisitions, Disposals and Deconsolidations" of the accompanying notes to the consolidated financial statements. The remaining net loss in both periods was primarily attributable to sales and disposals of other assets. Interest Expense, Net.
Interest expense, net was $193.0 million in 2023 compared to $234.9 million in 2022. The decrease is primarily attributable to the pay down of certain long-term debt in 2022. As a percentage of revenues, interest expense, net was 7.0% in 2023 compared to 9.3% in 2022. Income Tax Benefit (Expense) .
Interest expense, net was $201.7 million for the year ended December 31, 2024 compared to $193.0 million for the year ended December 31, 2023. As a percentage of revenues, interest expense, net was 6.5% and 7.0% for the years ended December 31, 2024 and 2023, respectively. Income Tax (Expense) Benefit .
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.
As a percentage of revenues, general and administrative expenses were 4.5% and 4.4% for the years ended December 31, 2024 and 2023, respectively. Depreciation and Amortization. Depreciation and amortization expenses were $152.6 million and $118.1 million for the years ended December 31, 2024 and 2023, respectively.
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.
The 2032 Notes bear interest at an annual rate of 7.250% per year, payable semi-annually on April 15 and October 15 of each year, beginning on October 15, 2024.
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.
For the year ended December 31, 2022, this amount includes losses incurred, net of insurance proceeds received, related to certain surgical facilities that were closed following Hurricane Ian. We use Credit Agreement EBITDA as a measure of liquidity and to determine our compliance under certain covenants pursuant to our New Credit Facilities.
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.
During 2024, we acquired a controlling interest in eight surgical facilities and several physician practices for aggregate cash consideration of $378.8 million, net of cash acquired, and non-cash consideration of $1.1 million. We had cash and cash equivalents of $269.5 million and $501.5 million of borrowing capacity under the Revolver as of December 31, 2024.
Removed
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.
Added
Revenues Our revenues consist of patient service revenues and other service revenues. Patient service revenues consist of revenue from our Surgical Facilities reportable segment.
Removed
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.
Added
Our collection policies and procedures are based on the type of payor, size of claim and estimated collection percentage for each patient account. The operating systems used to manage our patient accounts provide for an aging schedule in 30-day increments, by payor, physician and patient.
Removed
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.
Added
Our average days sales outstanding was 61 and 60 days for the years ended December 31, 2024 and 2023, respectively. We recognize that final reimbursement of outstanding accounts receivable is subject to final approval by each third-party payor.
Removed
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.
Added
To the extent we believe that recovery is not probable, a valuation allowance is established. To the extent we establish a valuation allowance or subsequently increase or decrease this allowance, we must include an adjustment as part of the income tax provision in our results of operations.
Removed
A valuation allowance will be established for certain NOL and 163(j) carryforwards and other deferred tax assets where their recoverability is deemed to be uncertain. The carrying value of the net deferred tax assets is based upon estimates and assumptions related to our ability to generate sufficient future taxable income in certain tax jurisdictions.
Added
The first step in determining the deferred tax asset valuation allowance is identifying reporting jurisdictions where we have a history of tax and operating losses or are projected to have losses in future periods as a result of changes in operational performance.
Removed
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.
Added
We then determine if a valuation allowance should be established against the deferred tax assets for that reporting jurisdiction. The second step is to determine the amount of the valuation allowance.
Removed
If our expectations for future operating results on a consolidated basis or at the state jurisdiction level vary from actual results due to changes in health care regulations, general economic conditions, or other factors, we may need to adjust the valuation allowance, for all or a portion of our deferred tax assets.
Added
We will generally establish a valuation allowance equal to the net deferred tax asset (deferred tax assets less deferred tax liabilities) related to the jurisdiction identified in step one of the analysis.
Removed
An "ownership change" is generally defined as any change in ownership of more than 50.0% of a corporation’s "stock" by its "5-percent shareholders" (as defined in Section 382) over a rolling three-year period based upon each of those shareholder’s lowest percentage of stock owned during such period.
Added
The Company made income tax payments of $1.6 million, $1.4 million and $1.8 million for the years ended December 31, 2024, 2023 and 2022, respectively. In each of these periods the income tax payments related to states in which the Company does not have a NOL to 33 Table of Contents offset taxable income.
Removed
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.
Added
During the years ended December 31, 2024, 2023 and 2022, the Company made no federal income tax payments due to utilization of its NOL carryforwards.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

2 edited+0 added−0 removed5 unchanged
Biggest changeBased 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.
Biggest changeBased on our indebtedness and the effectiveness of our interest rate swap and cap agreements at December 31, 2024, we do not expect changes in interest rates to have a material effect on our net earnings or cash flows in 2025. For more information regarding our interest rate swap and cap agreements, please refer to Note 7.
"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.
"Derivatives and Hedging Activities" to our consolidated financial statements for the year ended December 31, 2024 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.

Other SGRY 10-K year-over-year comparisons