Welcome to Surgery Partners' Fourth Quarter and Full-Year 2016 Earnings Call. [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mike Doyle. Please go ahead, Mr. Doyle.

Thank you, Operator. I'd like to welcome everyone to Surgery Partners' fourth quarter and full-year 2016 earnings call. Joining me on the call today is Teresa Sparks, our Executive Vice President and Chief Financial Officer. I will now turn it over to Teresa to review the Safe Harbor statements.

Thanks, Mike. Before we begin, let me remind everyone that, during this call, Surgery Partners' management may make certain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These include remarks about future expectations, anticipations, beliefs, estimates, plans and prospects. Such statements are subject to a variety of risks, uncertainties and other factors that could cause actual results to differ materially from those indicated or implied by such statements. Such risks and other factors are set forth in the Company's earnings release posted on the website and provided in our Form 10-K as filed with the Securities and Exchange Commission. The Company does not undertake any duty to update such forward-looking statements. Additionally, during today's call, the Company will discuss non-GAAP measures which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. A reconciliation of adjusted EBITDA and adjusted net income to net earnings calculated under GAAP can be found in our earnings release which is posted on our website at surgerypartners.com and in our most recent Form 10-K. With that, I will turn the call back over to Mike.

Thanks, Teresa. 2016 was an exciting year for Surgery Partners and for the healthcare industry in general. The industry continues to transform and respond to technological advances, payor engagement and an increased role of consumers in choosing their healthcare providers. Surgery Partners has an important role in this change with a network of services designed to meet the needs of consumers, physicians and payors. For the physicians, we offer an efficient, high-quality location to perform surgery and related services to care for their patients. For consumers, we offer a cost-effective and convenient setting for care. And for payors, we offer collaboration with providers in the surgical services space to ensure appropriate site of service and cost-savings alignment. The evolution of the healthcare industry to a more value-based system will span many years. Fortunately, we're well-positioned to thrive in this environment. Our unique network of services is an example of how integrated care will be provided more broadly in the future. With surgical facilities at the core of our business, we have added anesthesia services, physician practices and diagnostic services, expanding our ability to tailor services in the needs of specific physician groups and payors in local markets. The execution of our strategy and the consistent delivery of high quality of care at our locations is due to the dedicated efforts of our physicians and our staff and we're very grateful for their hard work. As we look at our results for the fourth quarter and full-year 2016, I am pleased to report progress on several initiatives. We added two integrated physician practices with multiple locations and three ambulatory surgery centers. We added three standalone surgery centers and eight independent physician practices. We delivered industry-leading same-facility revenue growth with 12.2% for the full year with case growth being 6.6% and revenue-per-case…

Thanks, Mike. As Mike mentioned, we remain enthusiastic about our business trends and the industry opportunity. In the fourth quarter, revenue increased 16.2% to $306 million as compared to $263 million in the prior year. Total cases increased 10.3% for the quarter. Our same-facility revenue increased 10.8% reflecting a balanced mix of case growth of 3.7% and revenue per case growth of 6.8%. While the mix between case growth and revenue per case growth may vary from quarter to quarter, our average same-facility revenue growth has been consistently in the low double-digit range for seven consecutive quarters. Adjusted EBITDA increased 14.4% to $50.1 million compared to $43.8 million in the fourth quarter last year. Our expense trends were largely in line with our expectations for the quarter with the exception of our self-insured employee-related healthcare costs. We experienced healthcare costs that were approximately $2 million above our estimate due to an unexpected increase in high dollar medical claims during the quarter. We will continue to monitor these costs and believe they have been addressed with 2017 plan design changes. Adjusted EBITDA at our core surgical facilities increased approximately 20% with a margin improvement of approximately 90 basis points. For the full year, our revenue increased 19.3% to $1.1 billion as compared to $959.9 million in 2015. Total cases increased 10% for the year. Our same-facility revenue increased 12.2% driven by case growth of 6.6% and revenue per case growth of 5.2%. Adjusted EBITDA for the year increased 13.4% to $179.3 million from $158.1 million in the prior year and was within management's guidance range of $179 million to $184 million despite the unexpected increase in medical claims for the fourth quarter. During the year, we spent approximately $138 million in capital related to mergers and acquisitions primarily in existing markets.…

Thanks, Teresa. For Surgery Partners, 2016 was a year of hard work and significant expansion. We're pleased with the Company's strong same-facility growth and ability to serve our physicians, patients and payors. In 2017, we're focusing on the opportunity to expand and integrate more services into our existing facilities, especially those acquired in the last 12 months. The investments in our surgical hospital markets, in conjunction with expanded payor relationships, will continue to solidify our presence in these markets as the provider of choice and provide longer term growth opportunities. We appreciate the support of our physicians, employees and investors. I would now like to turn the call back over to the operator to begin the question-and-answer session.

[Operator Instructions]. Our first question comes from the line of Josh Raskin with Barclays. Please proceed with your question.

So the first question is just on this 10% to 15% EBITDA growth and how we should think about that long term. Is that a good run rate for the foreseeable future the next few years or is there some specific headwinds in 2017? And then I guess as part of that, can you just give a little more color on this $5 million drag from that specific acquisition? What exactly is taking more time to ramp up than you guys expected?

Yes, maybe we will start with the thought process on the growth on a year-over-year basis and we have a positive outlook for our 10% to 15% EBITDA growth. I think from a headwind perspective, I don't think there is anything specific other than the few things that we mentioned that are 2017 that we're working through as it relates to our hospital markets and some slower growth there simply because they've been growing very strongly over the past several years frankly. They are in rural markets and usually in two hospital towns. We expanded one of our hospitals in Montana and have had great success with that, but you do have to implement new productlines and I think, as we look forward, a little bit of a slower growth rate in these assets. They are still growing, but a little bit of a slower growth rate this year, but with the new programs implemented, we should see a little bit of help as we go into 2018 is our plan and thought process. Obviously, spending a little bit less money this year, so about half of what we have usually spent and probably focusing a little bit more on our surgical facilities as we integrate these practices. So obviously a good lead-in to the last part of your question. And I think as we all know, physician practice management and acquiring these practices, it's a challenging process; not everybody is doing it and there's a reason for that is because it's tough. And as we take a look at it, we really focus on, as we bring these practices in, as we integrate them and bring them into the system, it's really focusing on a few things. It's owner engagement. So as the physician is no longer an owner…

Yes, my question is on the market competition or the ASC market competition. We have seen a higher level of [indiscernible] interest and just generally hospital interest as well. Are there any changes that you are seeing? Is it becoming much more difficult to recruit new physicians?

From a recruitment perspective, we continue to be strong. As we mentioned, we recruited over 500 new physicians into our existing facilities and to be clear, that didn't include the new physicians that we employed, so over 20 new physicians that we employed on top of that that are surgical specialists. So we continue to see a healthy pipeline and have great relationships on working with the physicians to recruit them into our existing facilities. I think an important piece to keep in mind that our facilities or 80%, are multi-specialty and we have multiple targets and multiple specialties that we can target in any given market. So as we look at the acuity and the pace of cases that are coming from the hospital setting and into the outpatient setting with 50 of our facilities doing orthopedics, we have a lot of running room. So now with 50 facilities doing orthopedics, 23 are doing joints; we have 30 doing spine. These higher acuity cases -- and again, we're lower volumes, but having the programs in place give you a good opportunity for growth. So we think we're positioned well for that. Competitions from an acquisition perspective, we haven't really seen a change. We continue to have a very robust pipeline. The idea of spending less this year is not in reaction to having a lighter pipeline. We have a development team that's been active -- has an active pipeline and frankly we're holding the reins on that side of the business. So a good thing, but, from a competition perspective, we're not having any difficulty in being positioned to buy things.

Our next question comes from the line of Brian Tanquilut with Jefferies. Please proceed with your question.

This is Jason Plagman on for Brian. So given the reigning in of the M&A spend in 2017, how should we think about the organic growth or the same-facility revenue growth outlook for 2017?

Yes, so the guidance suggests 9% to 11% top-line revenue growth, so 5% to 7% of that would be same-facility related. So as we look to lower our spend this year to $60 million to $70 million, acquiring roughly $10 million of EBITDA and realizing about $6 million of that, that will contribute to about 3% of our total growth on an EBITDA basis. So that's how you would think about the breakout there.

Okay. And any color you can provide on how your tuck-in deals are performing?

Just from a surgery center perspective?

Yes, the smaller ASC acquisitions.

Yes, so both our smaller ASC transactions and our smaller physician practice acquisitions have transitioned very well and I think we've also made some changes from a structure perspective on the physician practices that I probably didn't mention. I think as we look at what's been successful and what hasn't is how do you really focus on that owner engagement. The ones that have sold their practice and our more recent transactions have followed the same guideline that has been really successful in our surgery centers is looking at joint venture opportunities with the physician practice side of the business, so that as we grow in a given market that the physician and the team that's on the ground can participate in that. So from a tuck-in perspective, those surgery centers have continued to perform well. We've been able to expand productlines. We've seen some growth. Obviously, it's still early in the ownership process, but they've been performing well, as expected.

And then just a last one from me. Teresa, can you comment on your comfort level with your guidance given what you have seen year-to-date two months in? And then also what are the levers that could push you to the high end of that EBITDA guidance range?

Yes, I think, just looking back at our first year as a public company, our first full year, looking back to this time last year, I think we're much more comfortable than we were at this time last year just in a period of rapidly expanding growth. I think we have a lot more insight into the business. We have different models of deal structure that we're contemplating, as Mike mentioned. We have a good handle on the integration. The timing of that, as you mentioned as well, is a little bit more extended than our initial thoughts, but the market we're talking about in particular has significant growth opportunities as it is a common market. So we have -- we feel like these are -- we put forth achievable goals for 2017. There's nothing that has happened in the first -- insight into the first couple of months of the year here that would indicate anything differently. I would say upside as we continue with payor engagement, we'd look at shifting more higher acuity cases into the outpatient setting. All of those industry dynamics that are favorable for ASCs definitely could add upside, but we feel very comfortable with our 10% to 15% EBITDA growth.

Our next question comes from the line of Kevin Fischbeck with Bank of America Merrill Lynch. Please proceed with your question.

A couple questions, going back to the $5 million EBITDA headwind from physician integration, how does this manifest itself in the guidance? Is it lower revenue and therefore lower EBITDA or is there a cost dynamic to it?

Yes, there is a little bit of both. So as you are replacing providers and making those changes, you will have a slow in volume which will continue pick up as you replace those providers. So you will have a little bit falling into both categories, probably fairly evenly split, maybe a little bit heavier on the revenue side, but that's how we see that situation.

So I guess when you bought this in 2016, do you feel like the 2018 number that you thought was achievable in 2016 is still achievable and it's a down and then up to it or is it -- we should think about this as maybe just being $5 million lower and you will grow nicely off of that lower $5 million base?

No, you should think about it 2017 down. We're already seeing improvements from the fourth quarter of -- in the first quarter, we're already seeing improvements in that acquisition from the fourth quarter of 2016. So you should think about we're going to get that back as we take a look at starting -- I should say January 1 of next year, we will be back to the point of what we expected from this acquisition.

Okay, great. And then just going back to the commentary about organic growth slip, I think that the data that you gave, Teresa, was about what you are going to buy in 2017, but obviously I guess you bought things in 2016 that will be in for a full year in 2017. Is that an additional component of the growth or is it really 75% organic and 25% from deals?

Yes, so at the EBITDA line, it's -- or are you talking from a revenue perspective?

However you want to talk about the organic growth rate. I just want to understand how much is really from deals and how much is from real organic growth.

Right. So from an EBITDA perspective, about -- just because I mentioned the spend, so I will tie it back to that, about 25% of the growth will come from 2017 new development. So with a $60 million to $70 million spend that's roughly a 7 times multiple is what we're targeting. So if you just look at the high end, $10 million of EBITDA, we would realize about $5 million to $6 million of that, so that would be about 25% of our growth on an EBITDA basis in 2017.

So I guess what do the 2016 deals contribute to 2017 growth? I guess annualized, something that happened during the year in 2016 to 2017. Is there a way to think about that?

Yes. So if you look at it from that perspective, at the midpoint, roughly 12.5% growth, so your organic is giving you, call it, 5%; 2016 new development, roughly 4%; and then the 2017 development, roughly 3%. So that was --.

Okay, perfect. And then it looks like you guys are looking for margin expansion in 2017 versus 2016 even though you've got some pressure on physician integration and investments. Where is that margin expansion coming from?

So as we look at the guidance from the low to the high end, it does suggest slight margin improvement. We have, as we have discussed, these integrated physician practices Mike just mentioned are putting the pressure from a margin standpoint, but we will have -- we're showing improvement already in the first quarter, so that will continue. We will continue to leverage our corporate G&A and we're continuing to project bad debt expense at a very low percent, call it 2%, 2.5% in 2017.

I think one of the other things that you see is really on the core surgical facilities continuing to see some margin expansion there and we've seen that throughout 2016. So I think as you take a look into 2017, we had expected a little bit better on the margin expansion, but that is somewhat muted just obviously from the conversations we've had around the -- a little bit slower in the surgical hospitals and bringing in some new productlines there and the challenges in the integration of the physician practice.

Okay, just last question. Obviously, 2016 had a headwind from the lab cuts. I think 2017 was supposed to be a little bit better. How does that contribute to the guidance?

Yes, so we have that built into our same facilities, so it's not a significant increase. I think from more of our standpoint, it's more symbolic. It's about a $1.5 million to $2 million increase. It's again more so symbolic in the fact that Medicare is actually giving back something they took away and we're thrilled to have that, but it has a $1.5 million, $2 million impact roughly on the numbers in 2017.

Our next question comes from the line of Tejus Ujjani with Goldman Sachs. Please proceed with your question.

How should we think about seasonality of EBITDA contribution, I guess, going through 2017?

As we look at the historical trends, the first quarter is always a lower quarter. I would say there's about 20%, 21% of the contribution coming in in the first quarter, averaging 26%, 25% in second and third quarter and then fourth quarter always ramps up from a seasonality perspective, probably rounding out in that 27%, 28% range.

Thanks. That's very helpful. And just to go back to Mike's comments about the surgical hospital growth, I guess can you help us understand a little bit more I guess from 2015 to 2016 what kind of growth trends you saw there and I guess what are you saying that normalizes down to in your 2017 guidance?

Yes, so we don't really break out on a facility-by-facility basis perspective, but I think if you take a look at our surgical facilities as a whole from a revenue growth perspective, they've been in the high double digits. So we've had call it 19%, 20% in some of these facilities and we're going to see that slow to call it probably in that 10% to 12% range in some of those facilities. Again, you've got some of your single specialty surgical facilities that have lower growth rates than your multi-specialty and these surgical hospitals have been growing and capturing marketshare in the programs that they offer at a pretty impressive rate. The good news is they are getting that marketshare and being the dominant player in the programs that they offer. The downside is you are in a small market. You have two hospitals. They are in a two-hospital town and you have somewhat of a limited market size and at some point, you need to expand your productlines and that's something that we're making the effort to do. We did it last year in our Great Falls hospital. We will do it in another two markets this year on expanding the service lines, really focusing on the higher acuity type cases into these types of facilities. And the interesting piece of that is just the collaboration we're having with the payors. The payors -- we're the low-cost provider in these markets. They are looking for a broader service range and a broader line of services in order to meet the needs in this community and maintain the competition in the community. So it's been a welcomed conversation from our perspective with the payors and the collaboration we're getting with them to expand services and do some exciting things in these markets.

Okay. And just a brief follow-up on that same point there. Is the payor mix of the surgical hospital significantly different from your single-site ASCs? And do they do -- they are not ERs -- there is no ER stuff there, right? It's really just--?

Yes, the ER services are limited. You see a little bit heavier government mix because we have one facility that is heavy in cardiology and orthopedics and so that tends to sway that mix a little heavily -- more heavily weighted towards government when you think in terms of compared to a freestanding ASC. But overall, we look at the surgical facilities as one segment and that's reflected in our overall payor mix.

Our next question comes from the line of Ralph Giacobbe with Citi. Please proceed with your question.

So I understand some of the challenges around integration and cost side of the equation, but same-facility revenue has been in the low double-digit range despite some of the pressures you've seen through 2016. So just want to understand a little bit more about how that is getting almost cut in half to that 5% to 7% range and maybe if you can help us break down how you see price versus volume in that equation as well.

Yes, I think our thought process on price versus volume, it continues to be a pretty even split. From the way we're looking at sequentially on a year-over-year basis, we led to the thought process on these surgical hospitals and having a slower growth rate there. They do have an effect on the overall view of what we see from a growth perspective. And I think as we take a look at the last couple of quarters, we've had some slight slowing, but we've also had some things -- our July, as we talked about on our last call and the hurricane in Florida, so I think we have to build some of that in and take a look at the historical perspective of what was seen. There's opportunities to continue to recruit new physicians into our existing facilities and the strength at which or the speed at which we will continue to bring in the commercial side of total joints and some of these higher acuity cases, that remains to be seen. So I think that's what we would lean on that explanation.

Okay. But I guess again some of those pressures were faced, whether it was the hurricane or one less day and you still did double digits. So is there something in the first couple of months -- I think the question was asked earlier; I'm not sure if you guys answered it. Is there something in the first couple of months that you're seeing?

No, we're seeing anything unusual. Trends are very similar to what we've seen in the past. There's nothing unusual. I think it really just goes back to you are growing your surgical facility base historically at 19%, 20% and we've said, okay, we need to invest in new service lines and that growth is going to continue to be impressive, although slower in 2017. So you are seeing that in the same-facility results.

Okay. And then can you talk about the managed care strategy a little bit more in terms of are you having more discussions with payors? Who is driving those conversations? What are some of the things you can do together in a partnership? And then maybe along those lines, how do you see the UNH deal for SCAI impacting you and maybe broadly around those payor relationships?

Yes, absolutely. So I guess multi-part question, I will try to make sure I can remember all of it as we walk through it. But maybe starting with the payor relationships and what we've seen change there. We've always initiated payor conversations and been pushing on our payors. We have a pretty expansive team across the country in multiple locations being able to have those relationships with the key people on a state-by-state basis with the major payors and then working into some of the individual payors that are specific to that individual state. As you think about what's been happening and we've always been pushing for some of these higher acuity cases, giving us a better way to get reimbursed for implants and really focusing on that cost savings that we can provide for them based on the site of service because we have the physicians engaged in our facilities. They are interested in bringing those cases. They don't want to go to multiple surgical facilities to be able to do their cases, meaning our surgery center or our surgical hospital and another location. So we've seen that change where the health systems have had some challenges on keeping a lot of those cases in the network. We've seen the payors coming to us with specifics around what they need to address in given markets and how our physicians can play a role in that. So we've just seen a pretty significant switch on the focus of the payors to really engage with us on those aspects of how can we save money, how can we work with you to save money and what are the key controls. And as we've said for many years, the key control is the patient is going to choose the doctor. The doctor…

Our next question comes from the line of Chad Vanacore with Stifel. Please proceed with your question.

So thinking about 2017 which implies just slower margin expansion than we anticipated and outside the integration issues that you highlighted, what factors changed in those assumptions? Is that slower pricing growth, higher expenses or something else?

Well, as we've discussed, adding these new service lines in a couple of our surgical hospital markets, just like we saw in the Montana market, there is a near term drag on earnings. As you ramp up those services, you have startup costs and those types of expenses related to those new service lines. So I think the twofold margin discussion is about the physician integration of these larger practices which we've touched on and then adding new service lines to our hospitals, both of which we've described as having that longer term growth, but a near term impact.

And then just thinking about weather-related closures and higher healthcare claims. Can you quantify those a little bit more for us? I don't think you actually said a number related to weather and you gave us $2 million for the healthcare claims, but maybe tell us about your claims experience and how that's changed.

Yes, so as we've looked at the fourth quarter and the costs related to these high dollar claims that we incurred in the fourth quarter, really we've had some of that impact throughout the year, but it was really immaterial. When you got to the fourth quarter, it was about a $2 million impact. And so as we continue to monitor those high dollar claims, they just don't disappear at 12/31 when you start a new plan year. So they are still in process, but what we've -- our approach is we've taken steps to change the 2017 plan design to make sure that we contained the impact from those higher dollar claims if they were to continue at that same level. So just to give you more specifics, we had historically averaged about 10 what are classified as high dollar claims and as we progressed through 2016, we had about 30 of those high dollar claims, even to the point where we had a little bit of reinsurance kick in which you know if you ever have reinsurance kick in, then you've got some pressure from high dollar claims because it's hard to get those dollars paid out. And then we talked about in the third quarter that the hurricane probably had roughly a $2 million impact on the Company. That's a little bit hard to quantify, but we had about 20 plus ASCs that were impacted. Of those call it 22 ASCs that were impacted, we do anesthesia at about 14 of those and then our practice locations were also impacted. So probably being a little conservative on the $2 million, but in that range.

And then just one more from me. Teresa, you had mentioned target leverage by the end of 2018 of about 5 times. How do you get there? Is that through debt repayment or is that just through EBITDA growth?

EBITDA growth. So we're going to continue to use our free cash flow to fund our M&A program which I mentioned earlier was $60 million to $70 million. So we will continue to delever with that organic growth perspective.

Our next question comes from the line of John Ransom with Raymond James. Please proceed with your question.

Your $70 million in acquisition spend, buying $10 million, is this all physician practice or is there some ASC assumptions embedded in that?

Yes, so when we think about our spend, we're going to be more heavily weighted toward surgical facilities. So I would say about 80% of that spend will be related to surgical facilities and the remainder to physician practices and less focused on the larger practices as we regroup in 2017 and tackle some of those integration challenges we mentioned and more so on the what I would call independent, one-off physician practices which, as we have talked about through the year, they have about a 9 to 12-month integration period, but when we look at those practices, they are performing well. There's less of those integrations efforts related to those one-off standalone physician practices. So that 20% of our total spend will be focused in that area. Now the pipeline has a lot of different ways that we could go. It's very active and a lot of variety in the pipeline, but that's our general thoughts on how we would target our spend.

So a couple of years ago, you were able to buy these small doctor groups for very low multiples of pro-forma EBITDA. Have you plowed that field? Is there no more opportunity there?

No, I think you are absolutely right on that, John. From our perspective, we've seen the success and you end up in some markets to get your foothold in that market and get that initial platform that you then launch throughout the state. So what we've been able to do and what we found that has worked better is getting that platform acquisition and then being able to use that business to expand throughout a geographical area has been very helpful and that's why we've been very successful in Florida where we initiated the practices, doing those one-off physician practice acquisitions where one or two-person group and the opportunity to capture cases that you currently don't have, diagnostics that you don't currently have, getting some upside in those less sophisticated operations from a practice perspective on rate with the payors has been a place where we've had great success. I think as we found as we go into the platform acquisitions that have already been integrated from a multiple service line perspective, so as we go into these platform acquisitions, they usually have a surgery center, they have a lab. They have the practice, they have some other services. To get the upside out of those, unless you go out and start immediately acquiring some of those one-off physician practices in the area and leverage that, that has to be the plan and you are absolutely right, that's where we will focus our efforts.

And curious, I'm going to attempt to do some math which is always scary, but if I look at your fourth quarter EBITDA and I add back a little bit for high claim costs, I add back the lab cuts, I add back $6 million of acquired EBITDA, I adjust for seasonality, it looks like you are essentially modeling flat EBITDA in 2017 over your run rate 4Q in 2016. We know 4Q 2016 also had some effects from Hurricane Matthew, so that just seems a bit more conservative than I would have guessed. Am I missing something? I know you are talking about the whole year, but when I just look at what you actually, it just looks like you are modeling a flat year off 4Q.

Well, at the low end of the guidance, there's some margin improvement. As you move up to the higher end of the range, we pick up some margin expansion. So some of the things that we've talked about will fall into that same-facility bucket. We've layered in the lab rate reimbursement into that. As I mentioned, it's not necessarily material, but $1.5 million to $2 million. And then some of the pressure we talked about from our surgical hospitals adding those service lines, that falls squarely in that surgical or that same-facility bucket and when you lower that growth rate from call it 20% down to the mid-teens, you are going to have some pressure on same-facility results.

Okay.

We're comfortable with the 10.5% and so we think that captures all of what we've talked about.

Our next question comes from the line of Bill Sutherland with Benchmark Company. Please proceed with your question.

Just a couple at this point. Mike, can you just tell me, for all the docs you added last year, the mix relative to hires versus acquisition?

The mix from a -- we look at them from either three categories of physicians as they come into our facilities. They are either affiliated where they are coming in utilizing our facility. We have partners and then, finally, we have employed physicians. So we recruited about 500 new physicians throughout 2016 that had never been in our facility before, that have never done cases in our facility before. And then in addition to those 500 that were recruited in, we employed about 20 more physicians than we did on a year-over-year basis that are surgical specialists. So that's the two components in the mix. So on the 500 from a recruited, new physicians that are not employed with us and about 20 that are.

And how did that compare to the prior year as far as the recruitment number?

Yes, unfortunately, I don't have the prior year in front of me, but just as general direction, as we continue to have a larger platform, a larger number of specialties that we're performing and the opportunity to bring in higher acuity cases, again, on a year-over-year basis, it's higher. We were probably in the mid-300s last year and moved that up to the 500 this year. The one thing that I just want to caution as we talk about this piece of it, what matters is the specialties and the number of cases that come in with that and really focusing on that case mix. We may have an orthopedic surgeon that comes in and has a high net revenue per case, but only does 200 cases a year or we could have a GI surgeon that comes in, does 2000 cases a year at a lower net revenue. So we just have to keep that in mind as we take a look at volume growth and how that growth factor splits out. If we're having success in higher acuity cases, you'll probably see lower volume and higher net revenue contribution and that recruitment effort has widened in the types of cases that we can recruit into our facilities, so it's a good thing.

And generally, what I remember is that the ramp time is a blended number. It's all over the place, I know, but is 6 to 12 months the full productivity? For the surgeons you bring in, recruit or are they quicker than that?

For the surgeons that we recruit, it depends on how much of their business -- so they may have a geographically diverse practice where they're practicing in three areas of town and we're getting a day of surgery -- we've recruited them in, but they are doing a day of surgery every two weeks. So it really depends on that physician. We have the ability to ramp them up; it's usually within a three-month period of them coming in and getting the full rhythm of cases that we will get from that physician, understanding their block time and understanding how they like the practice, how many cases do they like to do on a given day, what time they like to start. So we fine-tune it over the first three months, but from a new physician coming in, other than a ramp that may occur in their practice as they have relocated or added a new location, we can pretty much accommodate them as quickly as they want to convert their cases to our facility.

Okay. So we couldn't think of this so much as a leading indicator for how you might expand revenue from these recruited docs in later periods? It's kind of a same quarter, next quarter impact? And do you think you will be recruiting at that pace or higher in 2017?

It really depends. As you take a look at -- the easiest thing to measure is just the number of new physicians that are coming in through the door, but obviously that shows you that we're successful, but as far as narrowing that down to a specific metric and taking each one of those 500 physicians that are in multiple facilities, breaking down their case mix and the revenue associated with those cases is obviously a very difficult, cumbersome task. So we're using a number, but, on that number, if we recruited 100 neurosurgeons and 50 orthopedic surgeons, that may exceed the revenue that we're capturing from all 500 of these physicians. So I think we're using it just as an indicator that we have a successful active team bringing in new physicians, new blood into our surgical facilities. If you don't bring in new blood, then you will understand that physicians are going to retire and move on. So I think we're using it just as a point to demonstrate we have a very active successful process in bringing new blood into our existing facilities.

That's good color. Then last on the surgical hospital, what percent of revenue is that, A? And then, B, did you circle two of them as having issues as far as revenue this year or --?

Yes, so I will split this into two parts. I'll give Teresa the numbers part. I think as we identify -- we're not really having issues. What we're seeing is a slower growth rate. We continue to grow. We have a limited number of productlines that are usually offered in these surgical hospitals and until you round them out and capture marketshare, you don't move on to the next. So a big focus of what we're looking to do in two of our markets because we do have a dominant marketshare in specific programs is to expand those programs more focused on the spine orthopedic, neurosurgery side of the equation. So again from an expansion perspective, these are very positive things. We're adding new productlines which will provide a long term growth path for these facilities. They are still going to grow in 2017; the growth is just not going to be as robust as it was in the past.

When we think about the breakout of surgical hospitals, we look at it as a segment, a surgical facility segment and as you think about these facilities, they are licensed hospitals. They have the availability, the capabilities to do inpatient and other services, but they are still largely outpatient in focus. About 80% of what they do is outpatient. So that's why they are in one segment and how we think about our surgical facilities. I would say they are about 35% of total revenue if you want to get down to that level, but that's how we think about it as having primarily inpatient capabilities, but being more outpatient-focused.

Thank you. At this time, I will turn the floor back to Mike Doyle for closing remarks.

Thanks, Rob. I appreciate everyone calling in this morning. Thank you for your continued support and wish everybody to have a great weekend. Thank you.

Thank you. This will conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.