IPC The Hospitalist Management Discusses Q4 2013 Results - Earnings Call Transcript

Feb.20.14 | About: IPC The (IPCM)

IPC The Hospitalist (NASDAQ:IPCM)

Q4 2013 Earnings Call

February 20, 2014 5:00 pm ET

Executives

Evan Pondel - Vice President

Adam D. Singer - Co-Founder, Chairman, Chief Executive Officer and Member of Quality Committee

R. Jeffrey Taylor - President, Chief Operating Officer, Director and Member of Quality Committee

Richard H. Kline - Chief Financial Officer

Analysts

Kevin Campbell - Avondale Partners, LLC, Research Division

Kevin K. Ellich - Piper Jaffray Companies, Research Division

Ralph Giacobbe - Crédit Suisse AG, Research Division

Matthew J. Weight - Feltl and Company, Inc., Research Division

Nick Hiller

Joshua Kalenderian - Deutsche Bank AG, Research Division

Gary P. Taylor - Citigroup Inc, Research Division

Gary Lieberman - Wells Fargo Securities, LLC, Research Division

Operator

Good day, ladies and gentlemen, and welcome to the IPC The Hospitalist Company Fourth Quarter 2013 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would like to hand the conference over to Evan Pondel of PondelWilkinson. Sir, please go ahead.

Evan Pondel

Thank you, operator, and good afternoon, everyone. With us today from management are Dr. Adam Singer, Chairman and Chief Executive Officer; Jeff Taylor, President and Chief Operating Officer; and Rick Kline, Chief Financial Officer.

Before we begin today's call, I would like to review the Safe Harbor Statement. Certain statements and information in this conference call may be deemed to be forward-looking statements within the meaning of the Federal Private Securities Litigation Reform Act of 1995. Forward-looking statements in this conference call may include, but are not limited to, those statements regarding estimated 2013 revenue and diluted earnings per share, projected operating results, revenues, earnings and IPC's growth opportunities and strategy. Forward-looking statements are often characterized by terminology such as may, anticipate, will, expect, estimate, project, positioned, strategy and similar expressions.

Although IPC believes that the expectations reflected in any of its forward-looking statements are reasonable based upon existing trends and information and IPC's judgments as of today, actual results could differ materially from those projected or assumed, based upon a number of factors, including those factors set forth in its 2012 annual report on Form 10-K filed on February 26, 2013, under the heading risk factors in IPC's other filings with the SEC.

IPC's future financial condition and results of operations, as well as any forward-looking statements, are subject to inherent known and unknown risks and uncertainties. IPC does not intend and undertakes no obligation to update its forward-looking statements to reflect future events or circumstances.

Also, please note that all comparisons, unless otherwise specified, are to the fourth quarter of 2012. Also, all references to amounts as adjusted reflect the exclusion of the change in fair market value of contingent consideration for practice acquisitions.

With that, I will now turn the call over to Dr. Adam Singer, Chairman and Chief Executive Officer of IPC.

Adam D. Singer

Okay. Thank you, Evan. And thank you, everyone, for taking the time to join the call. After the close of the market today, we reported our strong fourth quarter operating results and I'd like to highlight some key performance metrics. For the quarter, patient encounters grew 12% to 1.6 million encounters. Revenues grew 18% to $161.6 million and adjusted operating income increased 16% to $16 million and adjusted diluted EPS grew 14% to $0.56. From a headcount perspective as of quarter-end, we had a record of 1,765 providers or 347 incremental providers over the prior year, which is an increase of about 24%.

Reflecting on this past year, 2013 was an unprecedented year for acquisitions in 2 ways. Not only did we close a record number of 19 transactions in both the acute and post-acute arenas, but one of those transactions, Steward, was a group of practices acquired from a hospital system. The idea of a hospital system becoming a new acquisition source could be a fundamental change in how hospitals choose to manage their own operations and resources in today's environment. On the hiring front, our recruitment efforts in 2013 were very successful as we on-boarded a record number of new hires.

For 2014, we plan to continue to be aggressive in both our recruiting and acquisition initiatives. While our increased investments in these and other support areas may affect our G&A leverage in the short term, we believe such continued investment will result in positive returns over the longer term.

This was another good quarter for the company and we look forward to 2014 and the opportunities ahead of us. From our perspective, the company's goals remain the same, as we continue to invest in growing the business and promoting clinical excellence.

With that, I'll turn the call over to Jeff for some operating highlights.

R. Jeffrey Taylor

Thanks, Adam. Before covering the operating results in more detail, I want to take a moment to reiterate Adam's comments on what was a remarkable year for acquisitions. Besides the unique nature of the Steward acquisition, in December we were also able to acquire what we believe to be one of the largest standalone post-acute practices with the Park Avenue transaction in New York. To give some perspective on the growth of our post-acute business, in 2010, it represented approximately 6% of total encounters and is projected to be upwards of 30% in 2014.

On a quarter-over-quarter basis, post-acute encounters were 25.7% of total encounters compared to 22.7% in the prior year quarter.

For the 2013 fourth quarter, we achieved same-market revenue growth of 14.7%, which outpaced our same-market encounter growth of 7.2%. Same market patient revenue per encounter increased 2.2%, as a result of Medicare fee schedule increases and Medicaid parity, offset by sequestration. The remainder of the difference in growth rates between revenues and encounters is a combination of hospital stipends, medical directorships and meaningful use incentives.

Our contribution margin for the fourth quarter was 27.4% compared with 27.1% in the same quarter of 2012. As we've talked about previously, our margins can be impacted by a multitude of factors, including provider productivity, reimbursement rates, facility stipends, incentive revenues and locum tenens costs. And the significance of each of these factors on contribution margin can vary from quarter to quarter. For 2014, we anticipate that our contribution margin will be between 26.5% and 27%.

On a comparative basis, our G&A overhead rate for the quarter increased 40 basis points from the prior year to 16.7% of revenues. Approximately 20 basis points, or $0.01 of EPS, of the increase for the quarter was a result of incremental legal costs associated with our ongoing CID that was unsealed in December. We also continue to see additional overhead costs associated with the growing post-acute business, as we've highlighted in recent earnings calls.

In regards to the overhead and the operating leverage for 2014, we may not see operating leverage over the next several quarters. Our leverage is being affected by incremental regional costs associated with absorbing a record year of acquisitions into operations, including the Park Avenue acquisition in New York. As we continue to assimilate these practices, we believe our leverage will improve. More importantly, the increased corporate G&A investments in 2014 are intended to not only grow the business and produce operating efficiencies, but to improve clinical operations as well.

Our plan for 2014 is to expand our recruiting resources to capture a significantly larger share of potential hires than we have previously. To do that, we have to make the upfront investment in staffing and support costs to have the resources in place. We will also continue investing in a post-acute EHR system, which we believe will eventually help to reduce the extra administrative costs and also provide a better platform for clinical documentation.

As our track record demonstrates, we are confident that these investments will pay top line dividends in the future, which we believe will also lead to improved operating leverage over the long term.

I'll now turn the call over to Rick to review the financial highlights, as well as the 2014 guidance. Rick?

Richard H. Kline

Thanks, Jeff. Please refer to our earnings release for a complete review of our operating results, as I'm only going to briefly discuss a few other financial highlights that haven't already been mentioned by Adam or Jeff.

Starting with the balance sheet, we ended the year with $25 million in cash and debt outstanding of $90 million. The increase from the $45 million debt balance at the end of the third quarter was primarily related to the Park Avenue and other acquisitions. I wanted to highlight, for the entire year we spent nearly $105 million related to acquisitions or about a 66% increase over prior year acquisition spending.

Looking at accounts receivable, our DSO or days sales outstanding was at 56 days at the end of fourth quarter, up 4 days from 52 days at the end of the prior year. The increase in DSO is primarily related to the buildup of receivables for Medicaid parity. Substantially all the states we operate in have begun paying parity with the exception of Texas, one of our largest states. Texas Medicaid intermediaries have indicated parity payments will commence in March.

As we have previously discussed, although the impact of Medicaid parity is reflected in our pricing, we have no way to fully quantify the potential increase that may result from Medicaid expansion or the individual insurance mandate.

Turning to 2014 guidance. We anticipate revenues to be in the range of $720 million to $732 million; and adjusted EBITDA, a range of $76 million to $79 million; and adjusted earnings per diluted share range of $2.41 to $2.51. Our guidance assumes a 38.3% effective tax rate, $8.4 million in stock compensation, $6 million of depreciation and 17.6 million weighted average shares outstanding. Not included in the assumptions are new market acquisitions completed after today's date, or future gains or losses related to the changes in fair value of contingent consideration of acquired practices.

I will now turn the call back over to Adam.

Adam D. Singer

Okay, thanks, Rick. Before we get into the Q&A portion of the call, I wanted to give a little more perspective on the growth we've had over the last several years. By the time we went public in January of 2008, IPC was a company of 540 providers with annual revenues of $190 million. Today, we have nearly 1,800 providers and anticipate revenues exceeding $700 million for 2014, which implies an 18% to 20% revenue growth over 2013.

We continue to believe that we are the employer and acquirer of choice in the hospital space and that we are well positioned in this era of healthcare reform to deliver high quality care at lower cost.

And with that, operator, I'd like to open it up for some questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Kevin Campbell from Avondale Partners.

Kevin Campbell - Avondale Partners, LLC, Research Division

I wanted to start with sort of your thoughts on the pipeline, particularly relative to 2013. And do you see any chance that you would be able to repeat the strong performance you had from M&A this year that you had in the last?

R. Jeffrey Taylor

Kevin, this is Jeff. Obviously, it was a great year and we don't plan to have the greatest year ever every year. Although I will say, if you'd asked the same question last year, we probably would not have been able to have confidence we were going to do what we actually did last year. There are a lot of things in our pipeline still, a lot of variety, difference in size, split between acute and post-acute. That much is pretty much unchanged. But to repeat that level would be a fairly exceptional accomplishment.

Kevin Campbell - Avondale Partners, LLC, Research Division

Okay. So maybe a return to some of the prior years, in the $40 million to $60 million of spend, might be more realistic?

R. Jeffrey Taylor

Well, if you -- yes, I mean, that's more in the middle of what we've done. But if you look over the last 5 years, there's been a very wide fluctuation in levels. And it's sort of the luck of the draw and what happens to come to fruition in any given year.

Adam D. Singer

Yes, I mean -- sorry, this is Adam. The hedge here, and why we obviously don't forecast our acquisitions is, quite frankly, the pipeline today looks about as robust and as good as it did the beginning of last year. So I mean, could -- and any of us here, we wouldn't have predicted last year's success. So quite frankly, who knows?

Kevin Campbell - Avondale Partners, LLC, Research Division

Yes. Okay, that's helpful. What are your thoughts on parity extending beyond 2015 -- I'm sorry, beyond 2014 into next year? Do you think that -- probable, possible, who knows?

Adam D. Singer

I don't know if we have any greater insight into that topic over anybody else. I mean, I can just give you an opinion that it seems pretty difficult to [indiscernible] parity up the way they did for the purpose of increasing access to primary care and then yanking it away 2 years later before people have really assimilated and gotten that care. But -- so I'm anticipating there will be some continuation of parity, but who knows?

Kevin Campbell - Avondale Partners, LLC, Research Division

Okay. And then just 2 more questions. Can you maybe give us some sense about the lift we should see in Q1 relative to Q4? I know you don't give quarterly guidance, but you had a lot of acquisitions in Q4 that were only partial period impact. So can you give us any sort of thought about the potential sort of sequential increase in revenues we might see from Q4 to Q1 or...

R. Jeffrey Taylor

Well, in -- even in a normal year without acquisition activity, if you look back over time, we normally have a lift in Q1 because it's a high utilization season and our workforce is more experienced. But obviously, the Park acquisition was of some size and was only in for 20 days and will be in for 90 days, which should give a little boost over and above the normal seasonal impact.

Kevin Campbell - Avondale Partners, LLC, Research Division

Okay, and then last question. On your -- there's other items that are driving the same-store growth outside of traditional same-store pricing and volumes. At what point do you sort of see you lapping those -- the strength from those other factors?

R. Jeffrey Taylor

I'm not sure I followed your question exactly, Kevin.

Kevin Campbell - Avondale Partners, LLC, Research Division

So you outlined in the press release that the same-market revenue increased 14.7%, but volumes were 7.2% and price was 2.2%. So you have the other components, the hospital stipends, the directorship revenues and meaningful use incentives. Do you think that the strength you've seen from those last couple of items, do you lap that at any point or do you think you can continue to grow that in the 3%, 4% range?

R. Jeffrey Taylor

No, I do think there will be some lapping effect. I would not expect the delta between encounters and revenue to be quite as broad going forward as it has been the last couple of quarters.

Kevin Campbell - Avondale Partners, LLC, Research Division

Okay. You think it will last though, for another quarter or 2? When might you lap some of those?

R. Jeffrey Taylor

Well, it will last. It's just a question of magnitude. I think there will still be a gap. That revenues will outpace -- revenue growth will outpace encounter growth, but it will narrow.

Operator

And our next question comes from the line of Kevin Ellich from Piper Jaffray.

Kevin K. Ellich - Piper Jaffray Companies, Research Division

A couple of questions, guys. I guess starting off kind of a big picture question for Adam. Are you -- are the hospital customers that you guys work with asking for other services or more from you guys at this point?

Adam D. Singer

I mean, I don't know. The answer is yes, but maybe not in the way you're implying. I mean, the demand on hospitalists themselves continues to increase as we -- as they become much more focused on the issues related to value-based purchasing. So -- and I don't think this is what you're really asking, but for hospital services, the demand continues to increase and the amount of things they're asking for is more, like better control on length of stay, better control on readmissions, higher patient satisfaction and more services to do that. Are they asking us to provide other specialty services, I -- which I thought was probably your question. I would say, the -- I mean, we -- again, I'm going to answer it not in the way that I think you're expecting, they are not asking us to also do their ER, their anesthesia or that kind of thing. We're not being asked to bundle multiple specialties together in any significant way. We do get asked increasingly, for other hospitalist specialty services when they can't get it staffed, like infectious disease hospitalist, neurohospitalist, psychiatric hospitalist coverage is becoming a very big issue out there. And so those services are becoming more and more important. More and more grabbing some of our attention, only because they're asking us for that. In terms of what you are asking is, are we facing the bundle, the ER hospitalist bundle? We certainly see it out in the marketplace. We know our competition is promoting that. I can't say, in any material way, it's impacted us yet though.

Kevin K. Ellich - Piper Jaffray Companies, Research Division

Okay. If it did comes down to it, would you be willing to add other specialties, Adam?

Adam D. Singer

Well, if it came down to what?

Kevin K. Ellich - Piper Jaffray Companies, Research Division

No -- expanding business with a hospital client or a hospital client going to another provider, and ending your relationship because you aren't able to add -- provide those services?

Adam D. Singer

My answer is that any specialty that I thought we could professionally provide in a high quality way that actually could deliver on whatever promise we were selling, the answer is yes. At this point in time, would we be the best provider of emergency room services? The answer is no, nor do I believe ER groups are the best provider of hospital services. But right now, we are jobbing [ph] expertise in some of these other areas like psychiatric hospitalist, neurohospitalist, infectious disease, et cetera, and continue to expand those areas. Are we having conversations with some of the ER providers out there to align and work together in a closer way? The answer is yes to that. I think that we could -- would be better served by partnering with those that know how to do that work, so that both halves, the hospitalists and ER are delivering professional services to the client facility, and those conversations are ongoing.

Kevin K. Ellich - Piper Jaffray Companies, Research Division

Got it, okay. A couple of financial questions for you, Rick. How much Medicaid parity was in Q4 results and what's included in your guidance?

Richard H. Kline

Are you saying for 2014?

Kevin K. Ellich - Piper Jaffray Companies, Research Division

Exactly.

Richard H. Kline

Yes, for 2014, really substantially all the Medicaid parity is based upon the rates that we have in place and we're seeing in 2013. So there's not really any material changes with that, Kevin.

Adam D. Singer

It's already in the numbers.

Richard H. Kline

Yes.

Kevin K. Ellich - Piper Jaffray Companies, Research Division

No, no. I mean, in terms of incremental revenue. I mean, you said Texas isn't going to pay until March. So...

Richard H. Kline

But that's already been included in the rate. That's more just on the cash side of when that money is collected versus what we've recorded for revenue.

Adam D. Singer

We've been booking parity.

Richard H. Kline

Yes. If you want accrual basis because we can estimate that amount.

Kevin K. Ellich - Piper Jaffray Companies, Research Division

Right, right. Okay, forgot about that. And then in the prepared remarks, you guys mentioned investments that you need make or that you plan to make, post-acute, EHR. Just wondering how much will that add? Is that going to be in G&A and then which vendors are you guys looking at?

R. Jeffrey Taylor

Kevin, this is Jeff. It will have a little impact on G&A during the implementation phase and it will have a little impact on productivity as we roll through the regions and go through the training phase. But on the back end of that, we believe there will be more productivity with the -- with providers and more leverage on G&A once we've got that done. Maybe somewhere in the neighborhood of 20 basis points of incremental G&A in the year and somewhat softened by maybe a little bit of EHR incentive in this year. But I don't think there will be much of that in '14.

Richard H. Kline

And it does affect, Kevin, our -- it does affect our depreciation a little because there will be some cost in addition that we'll be capitalizing since there's hardware, et cetera, involved in that.

That's included.

R. Jeffrey Taylor

And the vendor that we are working with currently is eClinicalWorks.

Kevin K. Ellich - Piper Jaffray Companies, Research Division

Okay. And then last question for Rick. Now that you have the debt on the balance sheet, is your -- do you plan on delevering or do you think we could see the debt go up if you guys do more deals?

Richard H. Kline

It really would be contingent, Kevin, on the acquisition activity that's in front of us and what we can do there. I think we'll continue to see good improvement in cash flow from operations. And our leverage right now probably works out to about a 1x. So it's fairly conservative.

Kevin K. Ellich - Piper Jaffray Companies, Research Division

And what's your comfort level on the leverage ratio?

Richard H. Kline

It's 1x. I mean, that's -- I think that...

R. Jeffrey Taylor

Well, what comfort level we're -- we could go a lot more than that.

Richard H. Kline

We could go a lot more than that. Yes.

Adam D. Singer

We can go to 2, 3x. We feel pretty comfortable.

Richard H. Kline

Yes.

Operator

And our next question comes from the line of Ralph Giacobbe from Crédit Suisse.

Ralph Giacobbe - Crédit Suisse AG, Research Division

So I guess first, can you maybe talk about productivity per doc? You look like that's decelerating a little bit. Is that just your ramp-up phase of all the new docs coming in? And if you could possibly maybe split out how it looks on a legacy basis?

R. Jeffrey Taylor

Hey, Ralph, this is Jeff. A couple of factors there. One, yes, we had a lot of on-boarding and so there is a little bit of that impact and a couple of sizable transactions in the year that we've mentioned, both Steward and Park Avenue, both of which platforms function at below our normal average productivity historically. So they tend to dilute a bit. I think the legacy platform is pretty much unchanged.

Ralph Giacobbe - Crédit Suisse AG, Research Division

Okay. And then the stipend and directorship revenue. Is that -- I think -- I know for the directorship, I think you've talked about a pass-through. Is the stipend similar? In other words, do you make a margin on that revenue or is that just 100% pass-through?

R. Jeffrey Taylor

On the medical directorships, it's a mixed bag. A lot of the medical directorships are 100% pass-through, the ones that have existed for -- over time. On new ones that come in, we take a small margin of the hospital stipends. In the contracts, there are numerous methodologies we use, anywhere from taking a full 30% margin on the stipend down to a lower number. But there is some margin on the hospital stipend. It's below our 27-ish percent average, however.

Ralph Giacobbe - Crédit Suisse AG, Research Division

Okay. And then I think this was asked before. I don't know if you guys sort of -- can you give -- what was the parity that you recognized in the quarter in terms of the dollar amount or maybe the contribution to the 2.2% same-market pricing?

Richard H. Kline

It's been consistent, Ralph, throughout the years, because we estimate what those rates were throughout the year, in a sense. So it's not as much as there being an incremental cash basis piece. We set that in the rate that we've been accruing for all throughout the period.

Ralph Giacobbe - Crédit Suisse AG, Research Division

No, no, I understand. But I mean, still this year, in fourth quarter, there was an incremental benefit over the year-over-year number, right?

Richard H. Kline

For the entire year, if you go back to what we originally estimated, I think that was somewhere close to, well, closer to -- less than but close to 2%.

R. Jeffrey Taylor

Yes, it was roughly 2% of revenue.

Richard H. Kline

Yes, probably upper 1% range or less than 2%.

Ralph Giacobbe - Crédit Suisse AG, Research Division

Okay, okay. All right, that's helpful. And then just my last one. What was the turnover rate percentage in 2013? I think you guys typically give that number on sort of the annual -- at the annual call.

R. Jeffrey Taylor

Yes, Ralph, this is Jeff. It was in the 16% range again, sequentially down about 20 bps or so from last year, but essentially unchanged. We'd love to see it go lower, but I don't expect it to.

Operator

And our next question comes from the line of Matt Weight from Feltl and Company.

Matthew J. Weight - Feltl and Company, Inc., Research Division

Just wondering, with your guidance here, implying EBITDA margin being down year-on-year. Can you talk a little bit more about the increased G&A? How much is legal costs, or if any, that you're implying in that? And just help us parse that out a little bit.

R. Jeffrey Taylor

Sure, Matt, this is Jeff. We have added a little bit of estimate for legal costs to -- going forward, to assume that with the increased activity, now that things have been unsealed and there's a little more activity going on that we'll see levels more like Q4. But the major moving pieces in that are really the recruiting staff and our development team. We have made the investments already. The people have already joined the team either in Q4 or very early in Q1 of this year, and will be with us all year. We did that for a very good reason. We want to acquire more and we want to hire more. But there is a timing factor. The cost comes before the revenue.

Richard H. Kline

Yes, Matt, just to clarify, too, our -- with regard to 2014, there's probably a similar rate of overall annual legal assumption cost there.

Matthew J. Weight - Feltl and Company, Inc., Research Division

Okay, very good. And then, there's a question on productivity in the Park Avenue transaction just skewing that a little bit. So how many docs or physicians did you bring on from Park Avenue?

R. Jeffrey Taylor

It was approximately about 150 or so. And the same is true of the Steward acquisition, because it's staffed on a shift model. So each provider is seeing fewer per month because they're not working as many days. And there's -- in general, there's a little bit lower productivity in all of the post-acute platform. And as that continues to grow, you'll see a little bit of impact both on revenue per encounter and on productivity. But the productivity difference in most of our post-acute platform is pretty narrowed to the acute.

Matthew J. Weight - Feltl and Company, Inc., Research Division

Okay, all right. And then just last question. Looking at revenue per encounter. That rate, you've seen 2 sequential, I think, increases now over the last 2 quarters. Is that rate sustainable, do you think, looking out over 2014?

Richard H. Kline

I think if -- Matt, looking at that, we do have the effect of having full year stipends on some of the new acquisitions that we've had that were partial last year. And overall, I think our rate increases are somewhat nominal, maybe around the 1% range, something in that area. But we have, we'll have a full year's effective stipend monies on some of these larger deals that we had.

Operator

And our next question comes from the line of Ryan Daniels from William Blair.

Nick Hiller

This is Nick Hiller in for Ryan Daniels. I was just wondering, how is the pipeline looking for hospitals outsourcing more hospitalist contracts to an external organization? And do you continue to see that grow or has that slowed a bit?

Adam D. Singer

No, we think that's actually growing and getting more robust as hospitals begin to look for professional solutions for their hospitalist services. About 50% up to about a year ago of hospitalist programs were actually employed by hospitals. And I think there is a clear pendulum shift now to finding better answers to these expensive programs. So we're seeing our pipeline expand there and we're seeing more opportunities now than we were in years past.

Nick Hiller

Okay. And I apologize if you mentioned this already. Did you break out what the stipends were as a percentage of revenue during the quarter?

Adam D. Singer

I don't think we break that out.

Richard H. Kline

Yes, we don't typically show that separately.

R. Jeffrey Taylor

It's -- I mean, historically, it's been in about the 7% range.

Richard H. Kline

Yes.

R. Jeffrey Taylor

It's probably crept up.

Richard H. Kline

It's ticked up a little bit. Yes, about 7%-ish range.

Operator

And our next question comes from the line of Darren Lehrich from Deutsche Bank.

Joshua Kalenderian - Deutsche Bank AG, Research Division

This is Josh Kalenderian in for Darren. In terms of your 2014 guidance, are you anticipating any sort of benefit from health care reform or how are you guys thinking about reform in the next year?

R. Jeffrey Taylor

Well, it's very difficult for us to estimate that. Nobody seems to have a good handle on what percentage of the uninsured are going to become insured. And even if somebody knew that answer, the question would be, would those people be showing up on average in the facilities where we practice or greater than average or less than the national average? So it was very difficult for us. We have about 5% or so people uninsured. We took what we thought was a very conservative stab at it and went with about a 1% impact in our guidance. But frankly, we don't know whether that's conservative, right on or aggressive.

Adam D. Singer

The only thing I'll add to that is that's the issue of more insureds versus however many we had uninsured last year. And the issue on pricing, that is baked completely into our guidance already in terms of Medicaid parity.

Joshua Kalenderian - Deutsche Bank AG, Research Division

Okay, great. And then in terms of margins, your G&A ratio has kind of stepped up steadily during the year, so I'm just -- in terms of how we should think about that going forward, do you expect that ratio to keep going up? I'm looking at excluding stock-based comp, the G&A ratio is up 40 basis points year-over-year and 30 basis points quarter-over-quarter? So I'm just curious to know what you guys are thinking about that going forward.

R. Jeffrey Taylor

Obviously, something we're very focused on. We've mentioned the major factors that have been driving that in the -- over the second half of last year and into this year. We do expect to return to operating leverage. Our guidance range implies that, that is essentially flat. We get about 10 basis points at the top of the range and fall back 10 basis points at the bottom and in the middle, we're flat. That's about what our thinking is, we would love to do a bit better than that. But that's what our thinking is.

Joshua Kalenderian - Deutsche Bank AG, Research Division

Okay. And then, could you just -- I'm not sure if you mentioned this. I know you gave the pack encounter mix. What was the post-acute revenue mix?

R. Jeffrey Taylor

Let me grab that number. Obviously, the revenue is a smaller percentage -- are you asking for the quarter or for the year, Josh?

Joshua Kalenderian - Deutsche Bank AG, Research Division

For the quarter, please.

R. Jeffrey Taylor

Just a second. We've got, on revenues [indiscernible]

Richard H. Kline

[indiscernible]

R. Jeffrey Taylor

It's all print and old eyes.

Richard H. Kline

25% [ph].

R. Jeffrey Taylor

We'll get -- we'll blurt that out as soon as we have it, Josh.

Adam D. Singer

Quarter it's 21%.

Richard H. Kline

21.7% [ph]

R. Jeffrey Taylor

21.7%, Josh.

Joshua Kalenderian - Deutsche Bank AG, Research Division

21.7%.

Operator

And our next question comes from the line of Gary Taylor from Citi.

Gary P. Taylor - Citigroup Inc, Research Division

Just a few questions. On the Medicaid parity that you talked about, can you just remind us, you talked about kind of the full year impact to revenue. Were we supposed to be thinking a similar gross margin contribution after you share some of those monies with docs or a higher-than-average gross margin contribution?

R. Jeffrey Taylor

It's a normal 70-30 split on that, Gary, so...

Gary P. Taylor - Citigroup Inc, Research Division

Okay, great. And I was listening but when you touched on DSO, I'm not sure I got everything. So I just want to go back to that. So you were seeing the increase in DSO was Medicaid parity accruals, primarily Texas and then also the New York transaction?

Richard H. Kline

Acquisition?

R. Jeffrey Taylor

That's right.

Richard H. Kline

Yes, we had -- if you look at the number of transactions we had closed in the fourth quarter, they are fairly sizable that don't quite convert yet as far as the collection on the revenues, the receivables, along with Medicaid parity, particularly Texas. And then without the rest of the remaining states, they are probably, in some cases, a quarter behind the retroactive catch-up of the new parity rates for previous quarters. Which, really going into 2014 now, it's all in effect and should be caught up at some point.

Gary P. Taylor - Citigroup Inc, Research Division

Great. The guidance has no new market acquisitions. Can you talk about the assumption for same-market acquisitions that are inherent in the guidance?

R. Jeffrey Taylor

We don't really even try to quantify that by looking historically. Normally, we're doing small tuck-in acquisitions in same markets, which are sort of like group hires to us. So we're really baking what we think our growth rate can be in those markets, combination of tuck-ins and hiring. There's not a specific amount really baked in there.

Gary P. Taylor - Citigroup Inc, Research Division

So in your overall same-market revenue assumption?

R. Jeffrey Taylor

Right.

Gary P. Taylor - Citigroup Inc, Research Division

And then just finally just going back to the EHR and the spend you were talking about. I was just hoping if you could provide just a little more detail on what exactly it is you're investing in or building and how the docs will use it and you're doing that all internally, if you're using some outside folks? Just a little more detail on that.

R. Jeffrey Taylor

Well, we're using an outside software product and that product comes with some help on the training front. But we're also using some of our own internal resources to aid in the training as we roll it out. There's a technology gap in many of the nursing homes. And so for our providers to be able to electronically enter a note and then get that note printed and into an EHR and be able to see it remotely, will be a huge leap forward. It's not just clinical documentation, it's going to help in our scheduling, tracking and monitoring of patients as well. It will have impact on the back end when we have billing questions or audits. If this happens in the acute care hospital, we simply -- our billing office here can pull that down from the hospital website. Currently, we have to send personnel out to retrieve these medical records from the skilled nursing facilities and fax them back here. But that will be obviated by the EHR once we have it rolled out. But as with anything like this, upfront is the cost and the implementation and then your benefits are on the back end.

Gary P. Taylor - Citigroup Inc, Research Division

Got it. So it's mostly a physician practice software product for your post-acute practices, because really the facilities they are in -- don't have anything to offer. Is there any -- I guess, will you tie in to these SNFs somehow or...

Adam D. Singer

If there's anything to tie into that. We've begun that. We actually have begun that in some of the ones that are more sophisticated. And we have actually begun the programming of integrating eClinicalWorks into IPC-Link. So they're still within our software world when they're using this. It's still connected to our billing systems and audit trails, et cetera. Even though it's an outside vendor, that's really just the GUI interface that the doctors are using.

Operator

And our final question for today comes from the line of Gary Lieberman from Wells Fargo.

Gary Lieberman - Wells Fargo Securities, LLC, Research Division

Can you talk about what you hear from physicians that you're recruiting in terms of their thoughts of going to work for you versus going into practice on their own and how you see that evolving with healthcare reform and as ACOs develop sort of near term and long term? If you have any thoughts there.

Adam D. Singer

So I mean -- well, let me take it further. It's kind of hard to answer that question. In the sense that doctors that come talk to us are really not talking about wanting to go off into practice on their own. And so it's a very skewed sample. I mean, I think overall and increasingly, doctors are coming out of training and are finding -- and by the way, it's not just doctors coming out of training, doctors who have been in practice, are finding a very difficult environment to exist in a small group practice or a solo practice to be able to handle the regulatory issues, compliance issues, cost of practices, marketing, contracting, legal, accounting, et cetera. It's just really too expensive and too complicated to do on your own anymore. I think increasingly, doctors are looking for safe havens in the storm and for larger groups that can leverage the resources to provide professional back-office infrastructure, which is really what our goal and plan has been all along in terms of being the Employer of Choice for hospitalists.

Gary Lieberman - Wells Fargo Securities, LLC, Research Division

Okay, that's helpful. And then I assume you don't want to talk specifically about the whistleblower suit that was unsealed. But could you talk more generally about your comfort with your coding policies? And any statistics that you have or could provide that would indicate that you're coding is sort of in line with industry standards?

Adam D. Singer

Well, first part of your question, right we don't want to talk about the CID. Yes -- and two, well, I'll tell you, we've changed very little in terms of the way we train our doctors on how to code and the way we take the codes they select and submit to the various payers that we have. And the reason we haven't changed much there is we don't believe we're doing anything improper. We think we are billing and coding properly and following all of the rules. I don't have specific metrics to give you on that. I can tell you that we have been through thousands of audits of claims and while there's always some claims that we have to pay a little money back for, we have done that voluntarily and when discovered on our own without those audits, and we have found many audits in which we were underpaid. And all of those have been adjudicated satisfactorily over the years. So I just -- we don't -- we really don't believe that there is fundamental changes that we need to enact here in terms of the way we bill and code and run our compliance department.

R. Jeffrey Taylor

I mean -- and Gary, this is Jeff. The only thing I would add is the manuals and the rules do not say you should bill x percent of 2s and x percent of 3s. It's based on the specifics of the work that was done on that individual patient. So averages would imply that everybody else is doing it right, which I think is a flawed concept. You have to evaluate each charge based on the medical record and the work that was done as opposed to on averages.

Operator

And that concludes our question-and-answer session for today. I would like to turn the conference back over to management for any concluding remarks.

Adam D. Singer

I really don't have any further comments. I want to thank everyone for participating in today's call, and we look forward to speaking to you again in a few months.

Operator

Thank you. Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program and you may now disconnect. Everyone have a good day.

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