Surgery Partners, Inc. (SGRY) Earnings Call Transcript & Summary

Good afternoon, everyone. My name is [ Greg Hitchko ], and I'm a member of the JPMorgan Health Care Investment Banking team. Thank you all for coming today. It is my pleasure to introduce the Surgery Partners team. Wayne DeVeydt, Executive Chairman of the Board; Eric Evans, CEO; and Tom Cowhey, CFO. I'll now turn it over to Wayne to start the presentation.

Good afternoon to everyone, and thank you for joining us. We're going to do this a little bit different because we've put some fairly data-driven slides out there. And so what I'm going to do is load these on the screen in front of you, and you'll be able to hear my voice over as we walk through this. But I want to give you a little more background on the Surgery Partners story. And I promise to walk through this fairly briskly, so that we'll have a chance to actually go through some Q&A. Before we begin, let me just start with the fact that there's a legal disclaimer. We are going to be making some forward-looking statements during this presentation, and we will also reference certain non-GAAP financial measures. Listeners are encouraged to review our periodic filings with the SEC, both our 10-Q and 10-K filings and the risk factors included therein. Also, I would let you know that we do have a reconciliation in the appendix of our non-GAAP to our GAAP measures. With that, I'm going to move to our agenda, and we'd like to really cover the Surgery Partners story in 3 buckets. First is a little bit about who we are. Many of you may be familiar with the Surgery Partners story, but some of you may be new to it. And so we'll run through that very quickly, then we'll move to what makes us unique. When we think about our business model and the fact that there's over $150 billion total addressable market, I think how we're positioned for that market is very unique. And we'll walk through those details. And then finally, how do we drive shareholder value? And you would have seen this morning, we reaffirmed our guidance for 2020. And more importantly, we gave initial guidance of $315 million of adjusted EBITDA for 2021, which represents growth north of 20% plus. So we'll walk through those components briefly. So let me start with who we are. And the first line I want to highlight is just our core values, our core values are foundational to who we are. And I'm not going to walk through each one of these, but I cannot emphasize enough that this is the culture we built that has led to the execution you've seen over the last 3 years with this team. And why is this culture so relevant? Because we're a company that's been built through acquisitions over 20-plus years. And what you'll notice is this transformational journey after a sizable acquisition in 2017 of National Surgical Healthcare, this team came together. I joined the company in the first week of January of 2018, our CFO, our CEO, and many members of his team came together at that point to really create the culture that has put us in the position we're in today. But the other point I want to make on this slide is this, it's taken 20 years for this company to get to this size and scale. And why is that relevant? Because it's resulted in us being the leading independent surgical facility operator in the United States. To replicate our size and scale as an independent operator would be incredibly difficult. And I highlight that point simply because we are uniquely positioned for the TAM in front of us. We have 116 ambulatory surgery centers, 17 short-stay surgical hospitals, over 4,000 affiliated physicians and 600,000-plus patients. What makes us unique, though, is that we're focused and we're diversified on high value-add specialties, and we're supported by an aging population. When you look at this pie chart, in the last 3 years, we've positioned our book of business so that we are very demographically focused. Over 80-plus percent of our book is supported by over 10,000 Americans turning 65 every single day. And as we all know, the majority of health care is consumed in those later parts of life. More importantly, when you think about high acuity procedures like musculoskeletal, which represents 38% of our case mix, but over 50% of our revenue. And that will become even more relevant as we walk through the presentation around the total addressable market. Finally, we have a really strong vertically integrated management team. Two points I want to make for you on this slide. First of all, it is a veteran management team, with over 25 years of experience and a consistent track record of execution. More importantly, this team is vertically integrated. I cut my teeth, our CFO, Tom Cowhey, cut his teeth on the payer side. That is where we grew up consolidating what is today known as Anthem Blue Cross Blue Shield and Aetna. Others on our team are CEO, Eric Evans, cut his teeth at Tenet, consolidating the provider side and many other members on this team cut their teeth on the health care services side. And what has that led to? Well, when we started this journey 3 years ago. We had a collection of great assets, but they were undermanaged and really lacked a strategic clarity. But where we are today is a scalable platform with clear strategic direction and purpose. And why is that relevant? Because we are on the cusp, the first inning of over $150 billion total addressable market that we're pursuing. And over the last 3 years, we built several catalysts to capture both near and long-term opportunity regarding this TAM. So let's walk through some of those components and what makes us unique regarding this opportunity. Now there's 5 things that we're going to highlight, and I'm going to cover each one briefly. But the first 2 are the most important. I don't want to lose sight on these first 2. So let me start with the first one, which is we are uniquely positioned due to our focus on high-growth specialties. So on Page 15, I want to walk you through what makes up our $150 billion TAM. And you'll see kind of a dotted box there around both the HOPD and ASC space. That is our catcher's mitt. Right? That's our 116 ASC facilities, that's our 17 surgical hospitals, that's what makes up both that $35 billion and that $55 billion. That's the catcher's mitt we built, that's where we capture both the ship from either HOPD to ASC or from an inpatient to HOPD and ASC. Today, those industries continue to be highly fragmented. And I'll show you slides later around the opportunity to consolidate those industries. And consolidate aggressively. More importantly, in addition to that $90 billion, there's over $60 billion that is shifting from the inpatient surgical cases to an outpatient setting. And when you look at that $60 billion, 60% of that is made up of musculoskeletal and cardio procedures. Think about hip replacement, knee replacement, spinal infusion (sic) [ fusion ]. These are things that are actually happening starting now. And why is that relevant? Well, when you think about the surgery partners platform, first and foremost, we've had a great track record of growing each of our specialties. But we've put particular focus around MSK over the last 3 years, and really positioning our book of business for where we think the rapid growth is coming. And what you'll see is that we've grown that area over 3x case growth in the last 8 years, with the majority of that growth happening in the last 3. And the reason that is so relevant is that if you look at the migration of orthopedic, spine and cardio procedures, you will see how much it's expected to grow, not only from '15 to '18, but more importantly, from '18 into the mid-2020. So as you think about '23, '24, '25, there's a rapid growth happening in spine and orthopedics. More importantly, these are high dollar high acuity procedures that are moving into the outpatient setting. But we also want to highlight for you cardiology on the far left because that is the next wave coming. And while I'll spend most of my time today focusing on musculoskeletal, I want you to know the playbook that we are building and running for cardio is the same playbook that we'll talk about on musculoskeletal. And the reason that is so relevant for Surgery Partners, in particular, is when you see this next slide on Slide 19, you should know that over 80% of Surgery Partners' facilities today perform MSK procedures, right? We have built the catcher's mitt for this moment in time. And 60% plus of our facilities, either do cardio procedures today or we will have them in a position to do cardio procedures by the end of this fiscal year. Why is that relevant? Let's first look at this musculoskeletal joint replacement. You will see that between 2018 actual and what's expected by 2028, that hip and knee replacements are expected to grow by 6.3%. Now this is just volume. Pure volume of procedures performed in the U.S. Now why is it growing at such a robust rate because we have 10,000-plus Americans turning 65 every single day. And that's when the majority of hip and knee replacements are done are in the mid-60s. And so, it makes sense to have this disproportionate growth rate. But what you really have to focus on is that the majority of that growth is all happening in an outpatient setting, which is expected to have a 20% CAGR versus inpatient, which actually has a slight decline. Said differently, outpatient volumes are expected to increase by over 1 million cases and comprise over 50% of total knee and hip volume. And the reason this is happening is Medicare continues to advantage the outpatient surgical facilities, which is what we do. In 2020, total knee was moved to an outpatient, approved for ASCs. In 2020, total hips were allowed to be done in HOPD setting. So think about this. In 2020, we had an opportunity with our catcher's mitt to go after total knees, we had an opportunity in HOP setting to go after total hips. In 2021, now total hips can also be done in an ASC setting. In addition to that, CMS recently announced that over 300 musculoskeletal procedures are being removed from the inpatient only list over a 3-year period, of which 266 of those start in 2021. And they announced an additional 1,400 procedures that are being removed from the inpatient only list. There's 2 real big takeaways that I want you to see on this slide. First and foremost, commercial procedures have been done safely in an ASC environment, both knees and hips for a long time. This is a very important move when Medicare does this, and the savings to the Medicare system and our government are substantial. The second point that I want to highlight for you is this. Surgeons don't just do commercial procedures or Medicare procedures or Medicaid procedures, right? Generally, they have a very diverse patient group. And historically, those surgeons could not make choices of what patients could be done in what facility, but rather all Medicare had to be done in an inpatient setting, but they could do commercial in an outpatient setting. With this new gate being removed by Medicare now, the surgeon has the choice of where they want to do their procedures, and they can now do all their procedures in a single setting. And that is very important as we think about our approach for growing and enhancing orthopedics and cardiology. Specifically, this is our playbook. It's nothing crazy. It's very simple. We focus on demographics, where we have an aging population. We look at those surgeons that we can recruit in that market, whether it be orthopedic, spine or cardiology. We add those new service lines, if they're not available. We'll expand our program and add robots, if that's a critical gatekeeper for surgeons to bring their procedures to us. We'll expand in markets and even buy ASCs in the market to create the ecosystem and then we develop payer, supply chain and revenue cycle management strategy. And so how have we done positioning ourselves for this growth opportunity in front of us. I want to show you this slide without COVID, and then I'm going to talk about COVID separately. So prior to 2020, we were growing at 9.4% CAGR in just orthopedic service line growth. So a number of procedures we've been doing in terms of pure case volume, we were outperforming even the broad averages for the industry, at a 9.5% growth rate. With COVID and 2020 being the first year that Medicare total needs to be done in our facilities, our total joint cases in our ASCs have grown by 97% in 2020. 97%, and that's with COVID. And that's because musculoskeletal has proven to be most resilient through the COVID disruption. This slide shows you both orthopedic and spine, 2 key aspects of high acuity cases that we've been servicing during the COVID environment. And we've included it by month. So you'll see January and February, and this is just surgical cases. We were growing 10% our volume prior to COVID. The gray area is both March and April. That's the time period that many of our facilities, because either state mandate or federal mandate were forced to close while our country dealt with the PPE shortage and the potential surge capacity needs. As you know, beginning in May, our facilities were allowed to start to reopen again. And what you can see here is that our case volume grew back to levels higher than the prior year. So in general, we continue to see incredible resiliency on the MSK, and these trends continued into Q4. So let me move to the second criteria. And while we're really proud of the fact that we've positioned this company today for these high-growth specialties, it does not matter if you don't offer a superior clinical product and customer experience. That matters most. So I want to walk you through that and a little bit of why we take a lot of pride in what we've built. First and foremost, on the clinical side, we hold ourselves to the highest standards. Our average deficiencies in our ASCs are 25% fewer than all others. And within our surgical hospitals, we are -- we have 48% fewer deficiencies than all other hospitals. And that's because we benchmark ourselves every month at every facility with a medical review done at the Board level every month. We measure clinical quality every day. It matters most. But it's also important then that it translates to a patient experience. And while we have many awards that have recognized our exceptional clinical quality, one of the awards that we're very proud of is the most recent recognition regarding the clinical experience. You'll see on here that nationwide that each year CMS gives out its coveted 4 and 5-star rating. And across the entire country, only 40% of hospitals receive the coveted 4 or 5-star rating. At Surgery Partners, 100% of our facilities were 4- or 5-star rated, with over 70% receiving the highest coveted 5-star rating. We have built a best-in-class patient experience. And it's because we measure all aspects of the patient experience, not just clinical, but even the simple things like cleanliness and comfort, communication and financial responsibility, just overall registration workflow, every part matters. And as a result, we've built a best-in-class patient Net Promoter Score. We take extreme pride in the fact that we have a 94 NPS score, and that stacks up against some of the best-in-class NPS scores in the world. So moving to the third thing that makes us unique. We are the only independent surgical facility operator. Why is this relevant? As we said, it took 20 years to get to this size and scale. And so today, we have a unique ability to be part of the value-based care system that payers and providers are working towards. Remember, health care is delivered locally. It's delivered locally. Payers can come to us if they have a need in a market, a need for quality or safety or a need for just better overall value, and we can work with payers directly. We can also work with providers, though. There are many providers that do not have an ASC strategy or have a singular ASC and need a party to help run these efficiently or really want our best-in-class patient experience in clinical quality. This gives us a unique advantage to work for both payers and providers, and more importantly, surgeons who want to remain independent and really just want a partner that's focused on them. Why is that relevant? Because we're focusing on consolidating an undervalued and fragmented industry. This is a very busy slide, but I want to pull this together for you quickly. There are over 5,851 ASCs in the United States today. That far left blue bucket, only 18% of those are on a national platform. That would be us, Surgery Partners, and a few large national competitors on the provider side. The 4,200 plus there today still represent independent, single site ASCs or ASCs with a single hospital affiliation. That is the area ripe for consolidation. That's the other $90 billion TAM that we're going after. The piece that we're either recruiting those doctors into our facilities or we are actually out consolidating that through growth. Why is that relevant? Because in the last 3 years, we've built the platform to allow us to accelerate this acquisition growth strategy. If you look at what we started within 2018, we have many distractions at this organization. We divested in 2018 alone over $100 million of annualized revenues. In 2019, we divested up more facilities, that were not core to our focus on musculoskeletal and cardio. And in 2020, we closed the lab, we sold selective anesthesia assets and removed the optical GPO. The point I want to make is this, we've deployed over $300 million in capital in the last 3 years, simply by reallocating dollars in low growth or no growth assets into facilities with high growth, high double-digit growth opportunities. More importantly, we are now ready to move on the offensive for capital deployment and growth. We are now in a position to actually deploy $100-plus million more in 2021. And more importantly, we think we can grow that number even more aggressively with the pipeline that is available today. And finally, we're a trusted partner of choice. While there's many models we can deploy, the vast majority of our business model is here in the middle, 2-way joint ventures. It's us and surgeon partners. But you should know that we're migrating slowly to the 3-way joint ventures as well. We're finding more payers and health systems that need a partner, and we're willing to partner with them and join forces with them. As an example, in Southern California, we entered into a partnership on 4 ASCs with UCLA and the Southern California Orthopedic Institute, one of the largest orthopedic groups in the United States. That's just one of several examples of where we're migrating, where partners are looking for somebody that can manage these facilities and bring that best-in-class clinical and patient experience. And that's resulted in a physician Net Promoter score that's also best-in-class. And one that also has led to strong physician engagement and retention. We're very proud and we boast of our 95% plus partner retention. So let me move you to the last section, which is how do we drive shareholder value. As we talked about early on, 2018 was really a foundational year of our transformational journey. 2019 and 2020 was really executing on that strategy and building for this moment in time, where we really start reaping the benefits of 2021 through 2024. The question we know that's on everybody's mind, though, which is, but how has your business performed during COVID? During a period where we know you were shut down during a period where there's a lot of fear in the market. This slide is really important. So we want you to see is how strong the growth engine is within this space that we're pursuing. This is our same-facility net revenue. In COVID, including days we were closed down as compared to the prior year. And as you can see, with the exception of that March and April time frame, where we were physically shut down by state and federal regulators that this business has proved strong resiliency and the ability to grow on the same-facility level year-over-year. And these trends continued into the fourth quarter of 2020. So our business model is simple. We have really 3 legs to our growth stool. First one is top line growth. We want to grow 2% to 3% in volume. We want to grow 2% to 3% in rate. We have consistently performed higher than that 6% growth rate, even in select months throughout the COVID period. So we feel very good about that. And with the opportunity of over 1 million new incremental procedures for hips and knees coming, we think we are uniquely positioned. Two is, we get 3% to 5% growth, just from leveraging our scale and the advantages that come with that, procurement, rev cycle and just really organizational workflow efficiency. And then finally, while we've been deploying capital for the last 3 years, it's really just been reallocating that capital into the high growth engine, versus now we're in a position to actually allow that capital to become offensive growth for us. And by deploying $100 million a year or so with multiples where they trade today, we ought to be able to add 3% to 5% EBITDA growth through acquisition as well. And that's why we believe our business model supports double digit growth for the long term. With our current guidance that we provided today of approximately of $315 million for 2021 that represents growth over 2020 at 20% plus. When you look at 2021 through 2024, we think we can grow at least 12.5% CAGR during that period of time. So I want to leave you with this and then we'll move to Q&A. So we know that as investors when you think about making decisions, we generally know that we focus on the fundamentals of the business, and we focus on management teams. And as you think about Surgery Partners advantage, first and foremost, the fundamentals of the business are incredibly strong, with a $150 billion dollar total addressable market. When you think about management teams, this is a purpose-built team. The team built for consolidation, a track record of consolidating the payer and provider side and more importantly, a team that's a veteran team that's been through many cycles. We're focused on all the high-growth specialties, and we offer a superior clinical quality and customer experience. And when you're in the right space with the right product and the greatest value you can offer, it really makes a difference. And really, that allows us to be a trusted partner of choice and leverage a scalable platform. So with that, I just want to -- I just want to highlight that, look, we think we have all the right tailwinds there for us that really equates to both near, mid and long-term double-digit growth. We appreciate your time today, and we look forward to your questions.

Thanks, Wayne. First question we have is, you recently affirmed guidance in your outlook. Is there any other color you'd like to provide on that?

Greg, this is Eric Evans. And first of all, it's great to be with everyone. Yes, we're really pleased, obviously, to be able to reaffirm our guidance. When we set out that guidance of $250 million to $260 million in the second half -- or for the full year, it really assumed us to the second half of the year getting back to our plan. Now how we got there is a little different, higher acuity, a little lower volume. I will tell you that we're really pleased to be in that range finishing the year. Q4 was obviously impacted. We were not spared by COVID, but our December was extremely strong. And early January is strong, we felt good about the way we finish up the year and did get to that range that we committed to. So glad to reaffirm that. And certainly, going into next year, that $315 million number basically acts as if the COVID year didn't happen, right? We're back on to our double-digit growth format, assuming that we had gotten there in 2020. And that says a lot about the resiliency of our business. The tailwinds, Wayne talked about, and how good we feel going into 2021.

Thanks, Eric. Wayne, you mentioned deploying $100 million a year or so of capital, could you let us know whether or not M&A is included in your guidance?

Appreciate the question. Some is, the vast majority of our approximately $315 million is organic. M&A can be fickle, deals can get close and fall through. So the mass majority is organic and growth. That being said, we feel like it's time to really put the accelerator on the consolidation period. And so while there is some M&A baked into it, we think it's something that we could actually really expand on as the year grows. And we really like our pipeline that's out there today.

If I could add on that, as you think about what's going on in both the year-end close and also what gives us confidence in 2021, we had a really strong finish to the year, right? So December finished -- is quite strong, which we were very pleased to see. And we feel like that gives us really good momentum as we head into 2021, which is part of what gave us the confidence to provide -- reaffirm the range today, but also provide that initial outlook for 2021. The other thing that clearly helped is we have an ever-changing landscape on recognition of CARES grants. We have reversed a whole bunch of CARES grants at the end of the third quarter that we have recognized in the second. And we said, hey, we think we might get some of that back in the fourth quarter. We've taken about $10 million out of the facility level, probably about $6 million out at the consolidated level. And with the new rules that really benefit, folks like ourselves who have strong growth in being able to look at variation versus budget, we have confidence that we'll get that amount that we reversed in the third quarter back. And I think that there could be more there, and that may help to drive us where that ultimately lands will help to determine where we land ultimately in the range. And then as you look at 2021, we have a lot of things that are going strong in the overall business in terms of the organic momentum, we have the ability to potentially add additional M&A. And we have the potential that we might carry over some of those CARES grants and those will act as a natural hedge against some of what could happen and the variability that we might see from COVID because that's going to obviously be hard to predict what that's going to do over the course of the first half until we get to a more normal state of affairs in the world.

Thanks, Tom. You briefly mentioned this, but know there have been recent rules from CMS, could you discuss how those impact your business going forward?

Yes. So clearly, CMS this year has leaned in a lot on the ASC side, and we're excited about not only hips moving in, but some of the changes they're making around the inpatient only list. It's clear that CMS is leaning into our value-based model in the ASC space. And so we're quite excited about that for a number of reasons, not only the procedural growth that Wayne talked about, but also just it makes it much simpler for a physician to use us for all of their business. It's easier to schedule business when you can do all payers in one place, it starts to remove obstacles. And so we're very excited about both the procedures that are moving to HOPD. But more importantly, those moving to the ASC space and our ability in those service lines to really capture that, as Wayne talked about our catcher's mitt. So CMS changes are certainly a tailwind for us.

Thanks. Can you guys talk about the valuation trends that you see on acquisition targets on EBITDA going forward?

So it's been interesting. Eric, please chime in, but we've actually seen valuation still stay incredibly low. Now it's important to recognize that over the last 3 years as we were growing into our leverage as we were really transforming the company to be in this position of growth that we were able to generally get acquisitions done at sub-7 multiples. In the 2019 period, we actually did sub-5 multiples, right? So -- but in general, the trends have really remained pretty steady with what we've seen historically. I would say, you saw a competitor recently announced a really great acquisition and at really attractive multiples. And I would say those multiples continue to hold for us regarding our pipeline as well. But Eric or Tom, anything you'd like to add?

I would agree. I mean, we continue to see attractive multiples. Obviously, we love tuck in deals. We love de novos. We love expanding in our market, but we're also seeing a number of new markets and importantly, a number of cardiac opportunities in the mix, and those are coming in those same type of 7-ish range multiples. So we're very enthusiastic about our pipeline. I know, Tom, we've talked about this. It's one of the more attractive pipelines we've seen in a number of years.

Yes. No, absolutely. I mean, part of what allows us to deploy capital at an average of 7 is, a, just the -- some of the things that we can do in local markets, right, where we've deployed capital very efficiently. And that gives us the leverage and the ability to stretch a little bit when we see higher quality, higher growth assets. As I think about some of the acquisitions like the Heart Hospital, that we did in the beginning of the fourth quarter, that's a wonderful marquee asset. And we think it's got a lot of growth in front of it. Nice large facility and a wonderful marketplace that we really believe in the long-term potential there. And our ability to source deals at below that average allows us to stretch a little bit for those marquee assets and really create a nice tailwind..

And then when you think about your ability to fund M&A going forward, do you have -- see any issues with leverage and ability to issue incremental debt? Or do you envision other sorts of liquidity such as cash for these?

Well, so I'll start with saying we have $100 million or so, a little over $100 million that we could -- we plan to deploy over the next 12 months. So we have cash on the balance sheet now. And certainly, we're going to look at a lot of different options in front of us as far as additional cash. As Wayne has talked about, and I think all 3 of us on this call talk with our Board about. We're very excited about the opportunities to consolidate in the marketplace. We think this is a time to be aggressive, especially with valuations being as attractive as they are. And so we're looking at multiple opportunities to think about ways to fund that. But we have a fair amount of cash on the balance sheet today to do over $100 million. And certainly, we're going to look for opportunities to create more value for our shareholders by increasing that. I don't know, Wayne or Tom, if you want to add to that.

I would just say we had a lot of available liquidity right? So our revolver is undrawn as of year-end that gives us $113 million worth of dry powder that extra set in just some new letters of credit that we write for business operations, plus cash on the balance sheet. And so that's what gives us as a company of a level of confidence that we could go out. We had talked about doing $100 million to $150 million. We obviously from the October time frame after we did our call, we said that we could do that in as little as 12 months. We still have the revolver undrawn. We've done another incremental deal in a great market in the fourth quarter. Did it by a California ASC, this GI focus that we're really excited about. And we have a great pipeline in front of us. So there's definitely good momentum there.

When you think about growth to, how significant can new doctor additions be through top line growth over the next few years? Have you seen an increase in doctor recruitment since COVID with doctors being with that struggle? And how significant can this be to driving growth going forward?

Well, obviously, a key part of our growth is organic growth, and it's physician recruitment. So if you look at this year, we've talked a lot about through the first 3 quarters, we added over -- about 10% more docs over 400 docs. And more importantly, we're at the -- the docs that we are adding. So if you compare the class of 2020, with our recruitment class of 2019, we're recruiting a few more docs, but more importantly, those docs are creating 20% more plus net revenue per doc because they're in the high acuity specialties we're focused on. We actually think that, that gets more attractive going forward. We've seen a change in physician sentiment through COVID. A lot of physicians who maybe in the past hadn't tried us are willing to try us. We've seen the ability to bring higher acuity specialties over, and we're making some investments to help make that easier, too, whether it's robotics in 11 of our centers for orthopedics or other investments locally. We certainly feel like our targeted approach there particularly in orthopedics and cardiology is going to pay dividends going forward, and we think those opportunities are stronger going forward than they were this year.

One of the things that we can talk about, as we look at cohorts out there, kind of vintage, if you will, of recruiting classes, history has shown us going all the way back to '18, '19 and now '20, that each vintage more than doubles its output in the subsequent year. And then even in the third year, we'll actually grow even a little bit more. And so one of the reasons we have a lot of optimism as we roll into 2021 was not only the resiliency of our business and the ability to grow revenue over the prior year, but to do it in a COVID environment, but to also do with high acuity procedures. And again, the idea that we had total joints in our ASCs grow by over 97%. And if that vintage holds true like we expected to with historical vintages, we should see that double as we go into 2021, right? So these opportunities to continue to grow in these high acuity procedures and kind of the multiyear accumulation impact as you recruit these doctors in as they get more comfortable with your facilities and as they bring more business to your facilities are really just a lot of reasons that we have such a strong organic position, and that's why our guidance is primarily organic when you think about the approximately $315 million.

And when you mentioned these procedures, what type of cardiovascular procedures do you envision moving mostly from hospital to ASC? Are there any specific areas where you believe Surgery Partners can excel the most?

So I'll start with saying we do have hospital -- all our surgical hospitals obviously have big cardiac program. So I want to remind everyone, we've got the Heart Hospital in Lubbock. We've got the Heart Hospital that we just bought in Bakersfield a couple of other facilities. So we do these in both in the HOPD setting, hospital setting as well as ASCs. We're just getting started on the ASC side. I think initially, just to set expectations, a lot of that's going to be cardiac, where the management, it's going to be pacers, device implants, lead removals. But I will tell you, though, over time, absolutely, with the changes that have happened recently, we do expect that to expand into PCI in electrophysiology, and we're seeing that in our pipeline. And we're seeing interest from that in many of our centers. And I have to point out, this year, we have a target of 4 to 6 of our existing centers, starting new cardiac programs, we think that's probably a tally conservative. I'd point out to Wayne's point, though, 60% of our facilities today would be capable of adding this as a certain service, and the opportunity is going to vary by market. There are markets where cardiology is largely an employed model. But there are a lot of our markets we're in where there are cardiologists that are anxious to have this opportunity to work in an outpatient setting. And so we feel like we're well positioned to grow that and it's everything from the basics of cardiac rhythm management, which is starting out lower acuity, all the way to PCIs and EP.

Thanks, Eric. Have you benefited from hospitals in your marketing to defer surgeries due to rising COVID capacity constraints?

We have. It's been interesting. We've talked about this a lot. It's a Tale of Two Cities, right? I mean, some markets, everyone is so impacted, where it's hard to get staff. You have a lot of COVID patients in your beds, in your competitors' beds. But there are a number of markets where we have benefited, whether it's the big academic medical center down the street in a couple of our markets that have slowed down or have not been able to continue elective surgeries. In those cases, we've become the safe haven. I think one of the great factors of our resiliency is if you look over the past 9 months, we've got -- now done hundreds of thousands of procedures safely. And if you look at the month of December, which was a very strong month for us, it's the highest, obviously, infection rate of COVID in the country, but what you're seeing is resilience in our safety and our approach in our kind of safe haven facilities. And we absolutely have markets that have outperformed, and we've had to open up Saturdays and extra shifts in those particular markets due to the scarcity of places to do those procedures, needed elective procedures that we've been able to step in and provide. For every market like that, though, there's also been the COVID impact to markets that we have to deal with, but we certainly have been able to take advantage of that.

Some providers have been struggling given the scarcity of nurses and other clinical support due to COVID. How have you guys been handling that? How do you think about labor costs in the near-term with the shortage of providers?

So much like my last response, I would just say this is very market specific, right? There are certainly places we're feeling a lot of pressure on staffing in California some -- earlier in the year in Florida. But in general, we have not seen a lot of pressure in it from a wide perspective. But in the near term, there are several markets where I think we are going to have pressure. Ultimately, our care setting tends to be a very popular one amongst nursing staff. We typically don't have on call. We don't have a lot of ER coverage. It's a great place to work, and we feel really good about being able to continue to attract the talent we need at reasonable rates. Although in the near term, when you think about the next 3 to 6 months, I think there will be markets that will continue, not only because of the scarcity of labor in general, but also because of staff being ill, and the reality of it is we have markets where you're having to use contract labor. It's a short term headwind, but it's relatively isolated to a few markets. And in most places, we feel like our employment setting positions us really well to manage that cost.

How do you compete with larger hospital players that are using, for example, robotics as marketing to attract patients?

It's a great question. And Tom, I'll let you dive in on this, too, because we've been working together to actually add robotics where we can. I mean the one thing I'd say about robotics is when it's a technology, that it's the only thing keeping a patient from being in the appropriate setting of care from a value perspective, we're starting to see those walls come down, right? So we've mentioned -- we may So we've mentioned -- we've made an investment in 11 orthopedic robotics robots this year to basically take away that obstacle. And I would say, in general, payers, physicians, everyone's aligned that if there's a technology barrier and otherwise, that patient could be treated safely in an outpatient setting, I think there's -- we're going to solve that because the economics are too great. The savings of the system are too great, and we're starting to see those walls come down. But Tom, we've looked at a bunch of markets this year with robots. You want to talk a little bit about our approach.

Yes. Actually some of our robotics work came out of a much larger effort, right, where we actually started to a, let's take a look at where we might be able to enhance our market share with our existing physicians. Where they might be splitting their time and doing procedures in another place. And let's figure out who they are. Let's figure out how we can do a better job of meeting their needs. And that's a lot of what drove some of our efforts on robotics because there were docs that wanted to do more procedures in our facilities, but we didn't have some of the equipment, these robots that really they wanted to have to be able to do those procedures effectively. And so the economics that we've been getting from the manufacturers have been fabulous. I think that they've improved dramatically over the course of the last couple of years. It's kind of a razor blade kind of concept. And we've been able to strike what we think are some economically advantageous arrangements that help us to grow our business through those investments. So really excited about what that might bring. And we're looking to roll out additional ones over the course of next year, even as we start to do some actual direct marketing, trying to do some peer-to-peer marketing to help people understand where they might be searching for alternatives. And there are a lot of docs out there that are searching for alternatives in this post COVID filled environment. Where they can find a really great facility that they can have good block time at and get their procedures done in effective manner. So we've been using a lot of those same tactics quite effectively over the course of the last several months, and we expect to continue to do so into 2021 to the extent that we don't even expand some of those efforts.

Thanks, Tom. I think we are unfortunately ran out of time. Maybe I'll just give it to Wayne for any other final comments before we end the session.

Yes. Thanks, [ Greg ]. Look, we just want to thank everybody for being here today to hear a little bit about our story. We're obviously very excited about the fundamentals of this business, this $150 billion TAM that we think we're uniquely positioned for. And probably more importantly, really, the 10,000-plus associates in our organization that have built this culture of kind of execution and ability and really, clinical quality and compassion each and every day. So thank you for your time today, and we look forward to meeting with many of you.

Thank you, guys. Appreciate the time.

Thank you.