Medical Facilities Corporation Annual Report 2017

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FY2017 Annual Report · Medical Facilities Corporation

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LEADERSHIP

High quality facilities
with outstanding
reputations in their
communities

Established
partnerships with
physicians that
enable efficiency
and optimum care

A commitment
to care reflected
in high patient
quality and
satisfaction scores

Table of
Contents

Letter from
the CEO

About MFC

Financials

Growth

Board and
Management

Letter from the CEO
A LOOK AHEAD

Dear Shareholders,

Medical Facilities Corporation is a growing company with a

unique heritage and promising future. Founded 14 years ago,

Medical Facilities Corporation now proudly partners with over

brings value to our partnerships with efficient business practices,

access to data and resources and strategic planning. Together

with our physician partners, our facilities are able to efficiently

deliver exceptional patient care in their communities.

300 physician owners to lead 5 specialty surgical hospitals and

Organic and Acquisition Growth.

8 advanced ambulatory surgery centers in 11 states. Our skilled

Organic Growth. We will continue to focus on enhancing and

physician partners and their care teams are strongly committed to

adding services at our existing facilities, including the recruitment

patient care and satisfaction. As a result, our facilities are market

of new physicians and the addition of ancillary services such as

leaders that will continue to propel our long-term performance.

urgent care clinics. Urgent care clinics offer easily accessible

Throughout this annual report, you will see our continued trends

of solid performance in 2017, including:

• $385.3 million in net revenue, a 13.5 percent increase over

$339.5 million in 2016

walk-in treatment for non-life-threatening illness and injury, which

diversifies our service offerings while delivering the needed

access to care in the local community.

Acquisition Growth. Every acquisition opportunity will be

assessed with careful due diligence to ensure any new facility we

• $94.6 million in Adjusted EBITDA, a 4.3 percent increase over

acquire matches the high quality and strong performance in the

$90.7 million in 2016

existing portfolio. We follow strict criteria, specifically looking for:

• 67.5 percent payout ratio, compared to 69 percent in 2016

• Accretion, with growth available from a local strong provider

We are pleased with these trends, as they allow us the ability to

allocate resources to invest in growth while maintaining a reliable

base, attractive demographics, and opportunities for operating

enhancements;

dividend stream and increasing shareholder value.

• High quality and optimum clinical outcomes; and

As we look ahead to 2018, I am excited to be joined by an

• Continued strong earnings and opportunity for growth.

entrepreneurial and experienced leadership team. At the

beginning of 2018, we acquired 7 ambulatory surgery centers in

a partnership with NueHealth, LLC, to bring our total to 8, and

continue to look for accretive acquisitions to add to our portfolio.

Maximized Operating Efficiencies.

With a strong and growing portfolio of facilities, our scale enables

us to leverage operational efficiencies. As our growth continues,

we will focus additional time and attention on helping facility

As we plan for the future, our work will be guided by four key

partners improve efficiencies with value add services like group

strategies for growth and operational success:

purchasing and the sharing of best practices.

Industry Leading Quality and Service.

Now is an exciting time for Medical Facilities Corporation. Our

Our facility partners are committed to continue achieving the

reputation for performance and excellence is only possible

high quality and patient satisfaction scores, ratings and awards

with the sincere commitment of our physician partners, facility

that have placed them among the best in the United States.

leaders and teams who provide high quality patient-centered

Our extraordinary physicians, care givers and team members

care every day. On behalf of Medical Facilities Corporation’s

consistently maintain high standards of patient care and service

management team and the Board of Directors, thank you for your

excellence. And, our facilities are specifically designed for

ongoing support.

physicians to operate at high efficiency while providing attractive

patient amenities and environments, a quality that is also a key

factor in physician recruitment and retention.

Strong Physician-Centric Management Model.

Medical Facilities Corporation’s success is rooted in partnerships

with physicians. Empowered physicians drive higher quality of

care and higher patient satisfaction. Medical Facilities Corporation

Sincerely,

Robert O. Horrar

President and Chief Executive Officer

ABOUT MFC

Medical Facilities Corporation, in partnership with physicians,

owns surgical facilities across the United States.

We are committed to providing the highest quality of care to our

patients. Our facilities provide a competitive alternative to larger,
traditionally-run hospitals. Our physician partners play an active role

in the daily management and strategic direction of our facilities.

They are an integral part of Medical Facilities Corporation’s mission

to provide the highest quality of care in an environment that is safe,

convenient and comfortable to our patients, their families,

our employees and healthcare practitioners who use our facilities.

Our facilities rank among the highest in industry surveys and studies

of patient satisfaction and quality scores.

North Little Rock, Arkansas
ARKANSAS SURGICAL
HOSPITAL

Arkansas Surgical Hospital specializes in orthopedic, spine,

cosmetic, and breast oncology surgeries, while also offering

pain management treatments and diagnostic procedures.

Recently, urgent care services were added to meet a growing

need. Focusing on a limited number of specialties has given

us the opportunity to create a high degree of expertise

and better levels of quality care. The physicians and other

caregivers have extensive experience in their fields; No other

facility in Arkansas performs more joint replacements. Our

hospital was recognized as the only double five-star rated

hospital in Arkansas and only one of 19 hospitals in the United

States by the Centers for Medicare & Medicaid Services.

At Arkansas Surgical Hospital we constantly work to maintain

quality services and an exceptional patient experience. With

spacious suites, an on-site restaurant, and personalized

attention, we are surpassing patient expectations and

industry standards.

Proven Quality: HCAHPS
Quality Topic1
Patients who reported

YES, they would definitely
recommend the hospital:

89%

Arkansas Surgical Hospital

70%

Arkansas Average

72%

National Average

“

It is a privilege each day to work alongside
the best of the best in our industry and
such an honor to be involved in helping our
patients achieve such positive outcomes
time and time again.

“

Sarah Loftin, RN

Director of Quality Services

Arkansas Surgical Hospital

Mishawaka, Indiana
UNITY MEDICAL AND
SURGICAL HOSPITAL

Unity Medical and Surgical Hospital has a long-standing

tradition of providing quality patient care. Our patient-

focused team of specialists tailors care plans for each

patient. This ensures patients receive personalized and

compassionate care.

A focus on patient satisfaction allows us to deliver better

results and more positive outcomes. With a patient-to-nurse

ratio of just three-to-one and a near-zero infection rate, our

hospital routinely receives local, state and national awards

for patient healthcare. Our hospital was recently rated the top

hospital and most recommended hospital in Indiana according

to medicare.gov. In 2017, the hospital was honored to receive

the Guardian of Excellence Award from Press Ganey for

achieving HCAHPS scores among the top five percent of

hospitals nationally.

Proven Quality: HCAHPS
Quality Topic1
Patients who reported

YES, they would definitely
recommend the hospital:

74%

Indiana Average

91%

Unity Medical and
Surgical Hospital

72%

National Average

“

The personal touch is remembered and
enhances the experience. Our physician
board maintains that we have a low patient
to nurse ratio to deliver close patient care.
Patients notice the personal care and touch.

“

Dr. Madhu Rao

Orthopedic Surgeon

Unity Medical and Surgical Hospital

Oklahoma City, Oklahoma
OKLAHOMA SPINE
HOSPITAL

Oklahoma Spine Hospital is one of the United States’ first

physician-owned and -operated specialty surgical spine

hospitals and is the only facility in the Oklahoma City

metropolitan area focusing on the treatment of disorders

of the spine. This important distinction makes the hospital

a destination for spine care throughout Oklahoma.

A commitment to delivering superior results for patients

has resulted in the hospital offering new and innovative

procedures for spine surgery.

The quality of patient care and the outcomes achieved drive

our surgical team. With dedicated professionals and best-

in-class treatments and facilities, Oklahoma Spine Hospital

has been rated the #1 Hospital in Oklahoma for Patient

Safety in Spinal Surgery2 and consistently receives the

Guardian of Excellence Award from Press Ganey for achieving

HCAHPS scores that put it among the top five percent of

hospitals nationally.

Proven Quality: HCAHPS
Quality Topic1
Patients who reported

YES, they would definitely
recommend the hospital:

87%

Oklahoma Spine Hospital

74%

Oklahoma Average

72%

National Average

“

I have not one complaint. I would use
the same hospital and same physician
— I received excellent care, both before
and after.

“

Oklahoma Spine Hospital Patient

Rapid City, South Dakota
BLACK HILLS
SURGICAL HOSPITAL

Black Hills Surgical Hospital is a premier surgical hospital

and imaging center, offering a wide range of specialized

medical services, with a primary focus on orthopedic and

neurosurgery procedures. The hospital’s three urgent

care locations provide patients with convenient access,

expanded outreach and treatment options for a range of

illnesses while offering similar high-quality patient amenities.

Advanced medical technologies complement the hospital

staff’s expertise and deliver a superior healthcare experience

to patients.

After 22 years of service in our community, we remain

committed to the complete patient experience, with private

suites, made-to-order gourmet meals, and a one-to-three

nurse-to-patient ratio. U.S. News & World Report has ranked

Black Hills Surgical Hospital as the #6 Hospital in the U.S.

for quality service and care. The hospital has also been

accredited by Surgical Review Corporation under its Center

of Excellence for Orthopedic and Neurosurgery program.

Proven Quality: HCAHPS
Quality Topic1
Patients who reported

YES, they would definitely
recommend the hospital:

93%

Black Hills Surgical Hospital

77%

South Dakota Average

72%

National Average

“

This facility allows doctors to practice
their best medicine. Administration is very
responsive to our suggestions and to
improving quality of care, and the resulting
efficiencies are staggering.

“

Bryan Den Hartog, M.D.

Orthopedic Surgeon, Foot and Ankle Specialist

Black Hills Surgical Hospital’s Orthopedic and Spine Center

Sioux Falls, South Dakota
SIOUX FALLS
SPECIALTY HOSPITAL

Sioux Falls Specialty Hospital is a leading healthcare facility

that provides specialty care services to Sioux Falls area

residents as well as patients from the rest of South Dakota

and nearby states, in an environment of quality, safety, and

patient comfort. Operating since 1985, we offer a wide range

of services including orthopedics, ophthalmology, pain

management, imaging, urgent care and occupational health

and medical services. We employ the best technologies and

innovative procedures for patient treatment, including high-

field 3T MRI and open upright MRI scanners. Patient care is a

prime focus at our hospital. In 2017, several members of our

team were recognized by the National Summit and National

Pinnacle Awards from Custom Learning Systems for service

excellence.

Proven Quality: HCAHPS
Quality Topic1
Patients who reported

YES, they would definitely
recommend the hospital:

89%

Sioux Falls Specialty Hospital

77%

South Dakota Average

72%

National Average

“

Very kid-friendly recovery area. Our
recovery nurse was wonderful. We were
allowed to be with our daughter almost
immediately out of surgery. Your facility
definitely has this process down to an art!
Thank you for your expertise!

“

Sioux Falls Specialty Hospital Patient

Newport Beach, California
NEWPORT CENTER
SURGICAL

Newport Center Surgical is an ambulatory surgery center

that provides outpatient medical procedures. Our range of

services covers gastroenterology, gynecology, orthopedics,

pain management and cosmetic surgery. Accredited as a

Medicare-Deemed Multi-Specialty Facility by the Accreditation

Association for Ambulatory Health Care, we offer innovative

treatments using the best technologies available and are

committed to providing our patients a safe and pleasant visit.

Financials
2017 HIGHLIGHTS

Achieved record
revenue of

$385.3M

$94.6M

Adjusted EBITDA3

24.6%

Adjusted EBITDA margin

C$51.7M

Cash available for distribution3

67.5%

Payout ratio3

Through December
31, 2017 paid 165
consecutive dividends
since inception

Repurchased 95,600
common shares at
an average price of
C$14.71 per share

All figures in US$ unless otherwise stated.

FINANCIAL TRENDS
Revenue ($ millions)

385.3

339.5

293.2

297.4

308.8

2013

2014

2015

2016

2017

Adjusted EBITDA

Adjusted EBITDA
($ millions)3

Adjusted EBITDA Margin
(%)

98.8

92.3

91.6

31.5%

30.8%

32.0%

90.7

26.7%

94.6

24.6%

2013

2014

2015

2016

2017

All figures in US$ unless otherwise stated.

Strong Cash Flow

Cash Available for Distribution
(C$ millions)3

Dividends Paid
(C$ millions)3

Payout Ratio (%)3

84.3%

85.2%

76.7%

69.0%

67.5%

40.8

41.4

45.9

50.7

51.7

34.4

35.3

35.2

34.9

2013

2014

2015

2016

2017

Share Price Performance Since Inception (C$)

14.23

March 2004

December 2017

All figures in US$ unless otherwise stated.

Relative Total Return Since Inception (C$)

MFC Total Return

MFC Share Price

S&P/TSX Comp. Index
Total Return

S&P/TSX Comp. Index

800

700

600

500

400

300

200

100

376%

176%
89%
35%

March 2004

December 2017

Assumes C$100 investment with dividends reinvested in Medical Facilities’ common shares.

All figures in US$ unless otherwise stated.

OUR STRATEGY
FOR GROWTH

Growing to enhance long-term shareholder value

Medical Facilities Corporation is committed to organic growth and

•

Improved procurement practices and pursued cost-reduction

growth through strategic acquisitions. As the company evolves,

strategies across our network of facilities.

we will also continue the financial prudence it has maintained

since inception.

Acquisition growth focused on physician-aligned surgical

hospitals, ambulatory surgery centers and ancillaries continues

Organic growth remains a key focus as we work with our local

to be a priority to further secure our strong financial foundation

leadership teams to strengthen and grow existing markets.

by increasing and diversifying our revenue base. In 2017, we

2017 Successes

• Added practicing physicians and additional services across the

facilities.

considered many opportunities to acquire high-quality facilities

that would fit our disciplined acquisition criteria and complement

our existing portfolio. As a result of the extensive due diligence

and screening, at the beginning of 2018 we announced and

• Expanded service offerings at Arkansas Surgical Hospital and

completed the acquisition of seven ambulatory surgery centers

Sioux Falls Specialty Hospital by adding urgent care clinics.

through a partnership with NueHealth, LLC.

Newly acquired ambulatory surgery centers

Miracle Hills

Brookside

Riverview Ambulatory

Surgery Center

Surgical Center

Omaha, Nebraska

Battle Creek, Michigan

Kingston, Pennsylvania

Two Rivers Surgery Center

Eugene, Oregon

Eastwind Surgical

Westerville, Ohio

City Place Surgery Center

Creve Coeur, Missouri

Central Arkansas

Surgical Center

Russellville, Arkansas

BOARD AND MANAGEMENT

Board of Directors

Marilynne Day-Linton is a CPA, CA with board experience on reporting issuer and not-for-profit boards and

senior management experience in the travel and travel-related service industries. Ms. Day-Linton was a

member of the board of the Greater Toronto Airports Authority, which operates Toronto Pearson International

Airport, and chaired its board and audit committee. In 2017 she completed her thirteen year tenure on the

board of St. Joseph’s Health Centre Foundation in Toronto and had chaired its board and finance committee.

Prior to that, she held senior financial management roles at Signature Vacations Inc., Wardair International,

The Gemini Group LP, an electronic distribution company servicing travel service providers, and obtained her

designation working for KPMG as an auditor with clients in a diverse group of industries.

Marilynne Day-Linton
Chair of the Board of
Directors

David Bellaire is an operating partner with Waud Capital Partners (Chicago) and an investor in and director

for several private companies operating at the intersection of technology application and healthcare.

He previously was a senior advisor following a decade as senior partner and director at Bain & Company

where he held leadership roles in health insurance, provider and related service sectors. Prior to Bain &

Company, Mr. Bellaire was EVP and COO of NASDAQ-listed health technology company, lead partner of

Booz Allen Hamilton, SVP at APM, Inc. and Computer Sciences Corp., lead executive for two specialty

reinsurance companies sold to an industry consolidator, and faculty member of Northwestern University

David R. Bellaire
Chair of the Investment
Committee

Medical School. He has served in interim turnaround and merger/integration leadership roles and was the

founder/CEO of a prosthetics company. He has served in a number of governance and ownership roles over

his career including for a medical information company, toxicology labs, physical therapy company, national

specialty pharmacy provider, genomic informatics company, and a pharmaceutical care services provider,

among others. Mr. Bellaire received his MBA and graduate (prosthetics/bio-engineering) degrees from

Northwestern University.

Stephen Dineley, FCPA, FCA is a retired partner with over 30 years of experience in assurance services at

KPMG LLP, from which he retired in March 2014. From 1998 to 2000, Mr. Dineley held the position of Chief

Financial Officer at Extendicare Inc., one of the leaders in Canada’s senior housing sector. Mr. Dineley provides

consulting services to an alternate mortgage lender based in Toronto and also provides consulting services

on accounting and auditing matters. He also serves as a director for the Bank of New York Trust Company

Canada. Mr. Dineley holds an ICD.D designation with the Institute of Corporate Directors.

Stephen Dineley
Chair of the Audit
Committee

Irving Gerstein, C.M., O.Ont. is a retired executive. Mr. Gerstein is chair of the board of directors of Atlantic

Power Corporation (TSX:ATP; NYSE:AT) and lead director of Student Transportation Inc. (TSX:STB;

NASDAQ:STB). He previously served as a director of other public corporations, including CTV Inc., Traders

Group Limited, Guaranty Trust Company of Canada, Confederation Life Insurance Company, Scott’s Hospitality

Inc. and Economic Investment Trust Limited, and as an officer and director of Peoples Jewellers Limited. Mr.

Gerstein is a Member of the Order of Canada and a Member of the Order of Ontario. He was a member of the

Senate of Canada from 2009 to 2016. Mr. Gerstein is an honorary director of Mount Sinai Hospital (Toronto),

Irving R. Gerstein

having previously served as Chairman of the Board, Chairman Emeritus and a director over a period of 25

years. Mr. Gerstein received his BSc. in Economics from the University of Pennsylvania (Wharton School of

Finance and Commerce).

Robert O. Horrar
President and Chief
Executive Officer

Dale Lawr
Co-Chair of the
Corporate Governance,
Nominating and
Compensation
Committee

Jeffrey C. Lozon
Co-Chair of the
Corporate Governance,
Nominating and
Compensation
Committee

Robert Horrar is President and Chief Executive Officer of Medical Facilities which he joined in May 2017 initially

as Chief Operating Officer. Mr. Horrar is a seasoned healthcare leader with more than 25 years of experience

in health plan and hospital operations. He was formerly with Community Health Systems, Inc. which he joined

in 1998 as Vice-President of Business Development ultimately reaching the position of Division President

responsible for overseeing the operations of affiliated hospitals in Indiana, Tennessee and West Virginia.

Before Community Health Systems, Mr. Horrar was with Humana, Inc. for over 11 years and held several key

management positions, including Executive Director for Nevada operations. Mr. Horrar holds a Bachelor of

Science degree in Economics from Centre College in Kentucky and a Master of Science degree in HealthCare

Administration from Trinity University in Texas.

Dale Lawr is a CPA, CA with executive experience in a broad range of organizations in Canada and the United

States, including public and private companies and a crown corporation. Until March 2015, Ms. Lawr was

Chief Risk Officer at Infrastructure Ontario, which she joined in 2011 as Chief Financial Officer. Previously,

Ms. Lawr was with Altus Group Limited (TSX:AIF), where she initially served as Chief Financial Officer and

then as EVP Finance, Strategic Initiatives. Previously, Ms. Lawr lived in Chicago, where she served as Chief

Financial Officer of RTC Industries Inc., a retail design firm; Vice President Finance of Frankel & Co., a

national marketing services agency and a business unit of Publicis SA; and Senior Manager and Director of

Finance for Accenture in the firm’s Chicago and Toronto offices. Ms. Lawr holds an MBA from Rotman School

of Management, University of Toronto and an ICD.D designation with the Institute of Corporate Directors.

Ms. Lawr is on the board of directors and chairs the finance, audit and risk committee for the Ontario Institute

for Cancer Research.

Jeffrey Lozon is Chairman of Lozon Associates advisory services and a corporate director. Until April 2014,

he was President and Chief Executive Officer of Revera Inc., a leading provider of seniors’ accommodation,

care and services with 250 sites and 30,000 employees in Canada and the United States. Prior to joining

Revera in 2009, Mr. Lozon held a 17-year tenure as President and Chief Executive Officer of St. Michael’s

Hospital in Toronto. He was previously seconded to the position of Deputy Minister of Health and Long-Term

Care for the Province of Ontario from 1999 to 2000. He has also served on a number of national and provincial

committees and organizations, including Chairing the Canadian Partnership Against Cancer and Vice Chair of

Canada Health Infoway. Mr. Lozon holds an honourary Doctor of Civil Laws from Bishops University, a Masters

of Health Services Administration from the University of Alberta and a Bachelor of Arts (Honours) from the

University of Guelph. In 2009, he was appointed as a Member to the Order of Canada.

Reza Shahim, M.D. is a neurosurgeon specializing in all aspects of neurosurgical care and minimally invasive

spine surgery. Dr. Shahim practices at Neurological Surgery Associates and Arkansas Surgical Hospital, where

he also serves on the Board of Managers. Dr. Shahim is board certified by the American Board of Neurological

Surgery and is a member of the Pulaski County Medical Society. He received his Medical Degree in 1995 from

the University of Arkansas for Medical Sciences and acquired his Neurosurgical Training at the University of

Kentucky Medical Center in Lexington, Kentucky.

Reza Shahim, M.D.

Executive Officers