Mednax (MD) bills payors for services provided to patients. These payors consist of government programs like Medicare and Medicaid, contracted managed care, third parties, and private pay patients.
The company’s revenues depend on reimbursements from these payors, with contracted rates and government established rates. A tilt in the payor mix toward government reimbursements can affect the company’s total revenues. In 2016, contracted managed care and government reimbursements made up 70% and 23% of the company’s total revenues, respectively.
The company’s results depend on the number of operational days. During the first and the second quarters, revenues fell due to fewer calendar days. With events like hurricanes, fewer operational days affected revenue in 3Q17.
Higher fixed cost component
As a service company with a huge network, Mednax faces high fixed costs in the form of physician compensation. As a result, the company’s profit margins highly depend on patient volumes and workforce capacity utilization. Practice salaries and benefits have been in the range of 63%–64% of the company’s total revenues for fiscal 2016, 2015, and 2014. Meanwhile, net income as a percentage of total revenues was 10%, 12%, and 13% for 2016, 2015, and 2014, respectively.
For fiscal 2017, Mednax is expected to report a net margin of 7% while peers LifePoint Health (LPNT), Acadia Healthcare (ACHC), and Envision Healthcare (EVHC) are expected to report net margins of 2.6%, 6.6%, and 4.4%, respectively.
In fiscal 2017, the company saw lower patient volumes, affecting its margins. A significant or persistent decline in volumes can affect the company’s financials quickly.
Notably, Mednax makes up about 0.31% of the iShares S&P Mid-Cap 400 Growth ETF’s (IJK) total portfolio holdings.