David Macdonald

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 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 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 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 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 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 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 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.