David Macdonald

David MacDonald with Truist Securities inquired about PACS Group's payer conversations, potential for share gains given their quality ratings, and their cost-effectiveness within the post-acute care sector, especially in the context of affordability discussions. He also asked about the M&A pipeline, the expected annual number of acquisitions, the strategy for acquiring real estate alongside operations, the potential for increased de novo activity in certain states, and current trends in M&A pricing.

Answer

Josh Derksen, President and COO of PACS Group, explained that the company's high-quality care model makes them an attractive partner for insurers, leading to strong contract negotiations and margin expansion, particularly as facilities mature. Mark Hancock, Executive Vice Chairman and Interim CFO, noted that 2026 guidance includes nominal acquisitions (5 facilities per quarter) with initial low occupancy and zero margin. Mr. Derksen described the M&A pipeline as robust and strategic, confirming a focus on acquiring both real estate and operations to strengthen the balance sheet. Regarding de novo projects, Mr. Derksen stated that while acquisitions remain the primary growth driver due to better risk-adjusted returns, there are opportunities for new builds in areas needing high-quality product, though he expects the strategy to remain acquisition-heavy in the short term. On M&A pricing, Mr. Derksen observed recent price increases due to inflation and real estate but noted a plateauing trend, emphasizing PACS Group's selective and disciplined approach.

David MacDonald with Truist Securities inquired about PACS Group's payer conversations, potential market share gains driven by their high-quality ratings, and their cost-effectiveness within the post-acute care facility landscape. He also asked about the M&A pipeline, expected annual acquisition volume, and the strategy for acquiring real estate alongside operations. Additionally, MacDonald questioned the potential for increased de novo activity in states beyond California and trends in M&A pricing.

Answer

Josh Derksen, President and COO, explained that PACS Group's high-quality care model makes them an attractive partner for insurers, leading to strong contracts and margin expansion. Mark Hancock, Executive Vice Chairman and Interim CFO, clarified that 2026 guidance includes nominal acquisitions (5 per quarter) with low initial revenue and zero margin. Derksen further described a robust and strategic M&A pipeline, confirming they seek opportunities to acquire both real estate and operations to strengthen the balance sheet. Regarding de novo projects, Derksen stated that while acquisitions remain the primary growth driver due to better risk-adjusted returns, they are open to de novo in suitable states, expecting the short-term strategy to remain focused on existing facility acquisitions. On M&A pricing, Derksen noted recent price increases due to inflation and real estate, but observed a plateauing trend, emphasizing their selective and disciplined approach.

David MacDonald asked about the momentum in the business, specifically the occupancy and skilled mix opportunities within new and ramping facilities, and potential areas of disproportionate investment heading into 2026. He also inquired about the most impactful changes made to company controls following the audit, and finally, asked about the drivers behind strong year-to-date cash flow generation and an update on the M&A pipeline and go-forward strategy.

Answer

Josh Jergensen, President and COO, explained that mature facilities maintain strong occupancy and skilled mix, while new and ramping facilities require time to implement PACS's model and increase clinical capabilities, with an expectation for these cohorts to improve towards mature facility performance. Mark Hancock, Interim CFO, added that the significant number of new facilities acquired in 2024 represents substantial embedded organic growth potential. Regarding controls, Mr. Jergensen highlighted strengthening compliance within the organization as the most notable change, providing crucial support for local decision-making. On cash flow, Mr. Hancock noted $407 million in cash provided by operations year-to-date and over $350 million in cash and equivalents, including line of credit paydown. Mr. Jergensen discussed the heavy acquisition volume in late 2024, emphasizing the focus on integration in 2025, and anticipates increasing deal activity while maintaining discipline, aiming for historical averages of around 20 acquisitions per year.

David MacDonald inquired about the robust M&A pipeline, the potential for skilled mix and occupancy improvements in recent acquisitions, the company's internal controls on M&A pacing, and the effect of high-quality scores on payer negotiations in new markets.

Answer

Executive Derick Apt confirmed the M&A pipeline is strong, with significant upside in skilled mix and occupancy in newly acquired facilities. He noted that M&A pacing is governed by deal cost, balance sheet capacity, and human capital availability. President and COO Joshua Jergensen added that high-quality scores are fundamental to their strategy, enabling them to secure a 'seat at the table' with managed care providers, which leads to better contracts and reimbursement for higher acuity patients.

David MacDonald inquired about the M&A pipeline, specifically the skilled mix and occupancy opportunities in recent acquisitions, the internal governors pacing M&A activity, and the impact of quality scores on payer negotiations in new markets.

Answer

Executive Derick Apt confirmed the M&A pipeline is robust, with recent acquisitions offering significant upside as their skilled mix and occupancy rates are well below PACS's averages. He stated that M&A pacing is governed by deal cost, capital availability, and human capital readiness, while maintaining a baseline expectation of acquiring 20 facilities annually. President and COO Josh Jergensen added that high CMS quality scores are fundamental to securing favorable contracts with managed care payers, which is a key part of their strategy for driving revenue growth in new and existing markets.

David MacDonald inquired about how PACS leverages its superior quality metrics in payer contract negotiations and the potential to share in the value created. He also asked about the maturation timeline for facilities in the 'Ramping' cohort and whether the proposed CMS minimum staffing rule could accelerate M&A opportunities.

Answer

President and COO Josh Jergensen explained that quality is a key competitive advantage, with high star ratings and low rehospitalization rates being crucial gating items in payer negotiations, which in turn drives occupancy. Executive Derick Apt added that many facilities are nearing maturation and performing well. He noted the CMS rule could increase M&A opportunities from smaller operators, and PACS would evaluate these based on a scorecarding method, assessing if a facility's model can be evolved.

David MacDonald of Truist Securities asked about leveraging quality metrics in payer contracting, the maturation timeline for facilities in the 'Ramping' cohort, and whether the CMS minimum staffing rule could accelerate M&A opportunities.

Answer

Joshua Jergensen, President and COO, explained that quality metrics like high star ratings and low rehospitalizations are key in payer negotiations and drive occupancy. Derick Apt, an executive, added that over 70 Ramping facilities are maturing ahead of schedule, and while the staffing rule presents challenges for smaller operators, it could increase M&A opportunities for PACS, which evaluates targets based on a comprehensive scorecard.

David MacDonald posed a strategic question regarding the incremental opportunities Pennant gains as scaled competitors are acquired by payers, and asked about share gain opportunities in new markets like the Southeast. He also inquired about any uptick in the M&A pipeline despite Pennant's temporary pause for integration.

Answer

President and COO John Gochnour highlighted that competitor acquisitions underscore the value of home healthcare and hospice. He emphasized Pennant's local business model as a competitive advantage, positioning them as a premier independent provider, which aids in contract negotiations and clinical outcomes. CEO Brent Guerisoli stated that the Southeast was strategically chosen for talent and service center development, anticipating significant growth there. He confirmed a pause on large acquisitions but noted openness to tuck-in deals and senior living opportunities, with increased outreach due to expanded geographic presence. John Gochnour added that consolidation in the Southeast creates a unique opportunity for Pennant to gain market share with its locally driven focus.

David MacDonald asked about the incremental opportunities for Pennant given that scaled competitors have become captives of payers, and inquired about share gain opportunities in new markets like the Southeast. He also asked about any uptick in the M&A pipeline following the high-profile UnitedHealth/Amedisys deal, despite the current integration pause.

Answer

President and COO John Gochnour highlighted that payer acquisitions validate the value of home health and hospice. He emphasized Pennant's local operating model as a competitive advantage against national, captive competitors, positioning them as the 'premier independent provider' and enabling favorable contract negotiations. CEO Brent Guerisoli explained that the Southeast expansion was strategic for talent and growth, confirming a pause on large acquisitions for now to focus on integration. He noted increased outreach and recognition, anticipating significant expansion post-integration, especially in the consolidated Southeast market.

David Macdonald of Truist Securities asked about the long-term sustainability of the strong revenue per occupied bed in the senior living segment, pre-closing spending related to the Amedisys-UnitedHealth deal, and the company's M&A strategy if the final home health rule remains unfavorable.

Answer

CEO Brent Guerisoli stated that while recent revenue per occupied room growth has been high, it is expected to normalize to mid-single digits long-term. John Gochnour, President & COO, detailed pre-closing investments in leadership training and service center resources. Guerisoli added that an unfavorable rule could create M&A opportunities, but all growth decisions will continue to be based on leadership availability, operational strength, and deal viability.

David MacDonald asked about the increasing pace of conversations with payers regarding affordability and site of care initiatives, as well as discussions with hospital systems facing economic pressures and potential site neutrality changes. He also inquired about the advanced practitioner model's growth, specifically for Intramed sites, and the expected increase in utilization and nursing efficiency within the existing footprint.

Answer

President and CEO John Rademacher confirmed that conversations with payers have increased, focusing on reducing total cost of care through site of care initiatives. He noted strong relationships with hospital systems for safe patient transitions, leveraging Option Care Health's national scale and local responsiveness. Rademacher clarified that the 25% increase in infusion clinic visits was specific to Intramed sites and reiterated the expectation of continued growth in patient census and nursing efficiencies, aiming for about a 20% improvement over time.

David MacDonald inquired about Option Care Health's strategies for addressing healthcare affordability with payers and hospital systems, including the impact of site neutrality discussions. He also asked for clarification on the advanced practitioner model's growth, specifically regarding Intramed sites, and the expected increase in utilization and nursing efficiency across the existing footprint.

Answer

President and CEO John Rademacher explained that Option Care Health is actively partnering with payers on site-of-care initiatives to reduce total cost of care, noting an increased pace of these conversations. He highlighted strong relationships with hospital systems for safe patient transitions, leveraging national scale and local responsiveness. Rademacher clarified that the 25% increase in advanced practitioner visits was specific to Intramed sites year-over-year and reiterated the expectation of a 20% improvement in nursing efficiencies through increased utilization of infusion suites and clinics.

David Macdonald inquired about the nature of conversations with payers regarding site-of-service redirection, the growth trajectory of Ambulatory Infusion Suite (AIS) utilization, details on the advanced practitioner model, and legislative progress recognizing home infusion cost savings.

Answer

CEO John Rademacher confirmed heightened payer interest in site-of-care initiatives and noted the advanced practitioner model allows Option Care Health to serve more complex patients and those not covered by Medicare fee-for-service. He also mentioned positive legislative recognition of cost differentials. CFO Mike Shapiro added that AIS penetration reached 35% of nursing visits, driven by chronic patient utilization.

David MacDonald inquired about a potential 'halo effect' on the chronic business from supporting payers on the acute side. He also asked for specific best practices being adopted from the Intramed acquisition and whether AI initiatives could reduce bad debt in the acute segment.

Answer

CEO John Rademacher confirmed that helping payers with complex acute cases creates goodwill that benefits the entire portfolio. He identified Intramed's advanced practitioner model and its next-gen pharmacy system as key learnings. CFO Michael Shapiro added that AI and automation are being used to create 'clean claims,' which improves the speed of collections and reduces bad debt across the business.

David MacDonald inquired about the IV solution supply chain, asking how supply has trended since the recent hurricanes and if it's expected to resolve by year-end. He also asked about the market opportunity from a major competitor exiting certain therapies and requested more detail to quantify the financial impact of the STELARA pricing changes.

Answer

CEO John Rademacher stated that while they are seeing encouraging signs of increased IV supply, a full recovery timeline is hard to predict. He confirmed that competitor exits create an attractive medium-term growth opportunity once supply normalizes. CFO Michael Shapiro added that Q4 guidance incorporates various recovery scenarios for the IV supply and clarified that the chronic inflammatory category, which includes STELARA, represents roughly 20% of total revenue.

David MacDonald asked about the rollout progress of TechLive in new geographic regions, details on dynamic scheduling, updates on EBCD coverage with commercial payers, and the impact of capitated contracts on revenue.

Answer

Mark Stolper, EVP and CFO, explained that TechLive's rollout is nearing completion, significantly reducing exam room closures and increasing MRI volume. He detailed dynamic scheduling's AI-driven predictive modeling for no-shows, leading to better slot utilization. Howard Berger, President and CEO, noted slow but positive discussions with commercial payers for EBCD coverage, with patient out-of-pocket adoption exceeding 45%. He highlighted successful rate increases from capitated programs, some converting to higher fee-for-service, and several large capitated groups now covering EBCD as a benefit, improving HEDIS performance.

David MacDonald inquired about the rollout progress of TechLive in new geographic regions beyond New York and sought more details on the dynamic scheduling system, specifically whether it involves predictive modeling for cancellations or focuses on increasing throughput. He also asked for an update on EBCD coverage by commercial payers and the impact of capitated contracts converting to fee-for-service.

Answer

EVP and CFO Mark Stolper indicated that the TechLive rollout would be substantially complete by year-end or early Q1, noting its significant impact on MRI volume growth and a 42% reduction in exam room closures in New York. He explained dynamic scheduling uses AI to predict no-shows, allowing for overbooking to fill unused slots. President and CEO Howard Berger added that EBCD adoption is over 45% nationally, with discussions ongoing with commercial payers. He highlighted successful agreements with capitated medical groups like Regal Medical Group, Lakeside Community Healthcare, ADOC Medical Group, and Desert Oasis Healthcare to cover EBCD as a benefit, driven by early detection benefits and improved HEDIS performance. Mark Stolper emphasized the pressure this puts on commercial insurers.

David Macdonald of Truist Securities asked about the expected incremental capacity and labor leverage from new technologies like TechLive and C-Mode, initial feedback from the iCAD customer base, and the status of payer conversations regarding EBCD reimbursement.

Answer

Howard Berger, Chairman, President & CEO, provided examples of increased capacity, such as a 42% reduction in MRI room closures in New York due to TechLive. He noted it was too early for specific iCAD feedback but expressed confidence in the team and ongoing payer discussions for EBCD. Mark Stolper, EVP & CFO, added that RadNet is also expanding its physical footprint with 22 new de novo centers planned through 2026.

David Macdonald of Truist Securities asked about the incremental capacity and labor leverage from new technologies like TechLive and C-Mode once fully rolled out in 2026. He also inquired about initial feedback from the iCAD customer base and any new conversations with payers regarding EBCD reimbursement.

Answer

Howard Berger, Chairman, President & CEO, provided examples from the New York market where TechLive reduced MRI room closures by 42% and software upgrades created capacity for 4-5 more scans per day. He noted it is too early to comment on iCAD feedback but is pleased with the team. He also mentioned that payer conversations for EBCD are ongoing and it's a matter of time for broader adoption. Mark Stolper, EVP & CFO, added that 22 de novo centers are planned for 2025-2026, adding about 5% more capacity.

David MacDonald of Truist Securities inquired about the recovery timeline from the Q1 weather and wildfire impacts, any early learnings from the DeepHealth OS rollout, and the dynamics of the M&A pipeline, including specifics on how the Palm Beach OB/GYN partnership materialized.

Answer

Dr. Howard Berger (Executive) explained that the California wildfires had a severe, widespread impact similar to a major snowstorm, but confirmed that business volumes had returned to normal by mid-March with no expected impact on Q2. Regarding the DeepHealth OS, he noted it was still early but highlighted the enthusiastic internal collaboration to automate processes and create capacity. Dr. Berger also detailed that the Palm Beach OB/GYN group initiated contact due to dissatisfaction with their prior service, and RadNet was able to quickly expand the partnership from professional services to include its full suite of Digital Health solutions, creating a valuable case study.

David Macdonald of Truist Securities requested a comparison of labor metrics like hiring and retention today versus 12-18 months ago. He also asked about the M&A environment and strategy, particularly for PDS, following the Thrive acquisition.

Answer

CEO Jeff Shaner explained that success has come from strategically aligning caregiver capacity with preferred payers, which unlocked growth, rather than a broad change in the labor market. On M&A, he confirmed Aviana has the liquidity to be active. While previously interested in Home Health, they are now more cautious pending the final rate rule. He reiterated that the company's focus is on growth through M&A, not debt paydown, and will seek thoughtful, deleveraging deals in PDS and Home Health.

David MacDonald of Truist asked if the Inflation Reduction Act (IRA) has affected the M&A pipeline or deal pricing. He also sought more detail on PBM contracting changes and questioned whether the 2024 improvement in vaccine clinic profitability would create an annualization tailwind in 2025.

Answer

Executive David Morris noted the M&A pipeline remains robust and suggested the IRA has not hurt it, and may have even helped slightly. Executive Fred Burke declined to share specific negotiation details with PBMs but confirmed they are actively engaged in finding a solution. Regarding the vaccine clinics, Morris clarified the profitability benefit was concentrated in Q4 and does not create a significant tailwind for 2025, as its profitability is lower than the core business. Burke added the point was to explain the strong Q4 EBITDA growth.

David MacDonald asked for additional details on discussions with payer partners regarding the Inflation Reduction Act (IRA), inquired about any notable hurricane impacts factored into Q4 guidance, and sought further updates on the Heartland acquisition's performance.

Answer

Fred Burke, an executive, confirmed that productive discussions with payers are ongoing but are sensitive. David Morris, an executive, added that the company is confident in navigating the IRA issue for 2025-2026. Morris also stated that the Q4 hurricane impact was minimal and that the Heartland acquisition is progressing well, with synergies expected in 2025 and significant growth opportunities manifesting.

David MacDonald inquired about the specific reasons for the high volume of M&A activity in Colorado and requested an update on progress in Tennessee. He also asked for any preliminary high-level thoughts on growth opportunities, headwinds, and tailwinds for 2025.

Answer

Executive Chad Keetch explained that the Colorado activity was opportunistic, driven by a strong local team and reputation rather than state-specific factors. He confirmed Tennessee is a key growth market with announcements expected soon. CEO Barry Port added that the company is well-prepared for growth in new geographies and expressed confidence in 2025, citing strong organic growth fundamentals and a robust acquisition pipeline.