Radiology provider Mednax has been forced to unload its slumping anesthesiology division amid widespread stoppage in elective surgeries.
The Florida physician services firm said it will net $50 million in cash from the deal, which will allow it to focus on core specialties in imaging, pediatrics and obstetrics. North American Partners in Anesthesia is acquiring the division and will swell to more than 6,000 clinicians following the transaction’s close.
American Anesthesiology has been plagued by several recent business challenges, despite tallying $1.2 billion in revenue last year, Mednax noted in a Wednesday filing with the Securities and Exchange Commission. Those include labor cost inflation, adverse changes to its payer mix that have constrained revenue growth, and a “difficult reimbursement environment,” where revenues have failed to keep up with rising costs.
Such challenges have been “significantly exacerbated” by the current business climate, with April operating revenue falling upward of 70% below pre-coronavirus predictions.
“The company views the completion of the transaction as a significant advance in its efforts to reduce the current and potential future impacts of the disruption from COVID-19 on its operations and financial condition, and going forward will enable Mednax to focus on its Pediatrix and Obstetrix and Radiology Solutions medical groups,” officials noted in the filing.
The buyer has agreed to pay $50 million in cash at the transaction’s close, and Mednax will hold onto American Anesthesiology’s accounts receivable, which total $110 million as of March 31. The seller will also retain a “contingent economic interest” in North American Partners in Anesthesia following the sale. The value of said interest will range anywhere from $0 to $250 million and be “based upon the multiple of invested capital returned to NAPA’s owners upon exit of the investment.”
Most significantly, Mednax added, the seller will immediately stop suffering losses tied to its anesthesiology wing.
“While it is not possible to predict with any certainty the continuing and future impact of COVID-19 on American Anesthesiology, Mednax has evaluated various scenarios and estimates future cash losses related to COVID-19 for American Anesthesiology of at least $150 million to $250 million,” the firm noted, adding that it expects “continued significant pressures on the revenue and margins” of this division, regardless of how the pandemic plays out.
Headquartered in Sunrise, Florida, Mednax employs some 800 radiologists. The company revealed last month that its top executives were taking a 50% pay cut to help weather the COVID storm, as it also deals with meaningful declines in imaging volume. The investor-owned company is slated to reveal its first quarter results on Thursday, May 7.
Marty Stempniak has covered healthcare since 2012, with his byline appearing in the American Hospital Association's member magazine, Modern Healthcare and McKnight's. Prior to that, he wrote about village government and local business for his hometown newspaper in Oak Park, Illinois. He won a Peter Lisagor and Gold EXCEL awards in 2017 for his coverage of the opioid epidemic.