Twenty-seven of the surgery centers in operation as of September 30,
1997, perform gastrointestinal endoscopy procedures, five centers perform
ophthalmology surgery procedures, one center performs otolaryngology procedures,
one center performs orthopedic procedures and one center performs ophthalmology,
urology, general surgery and otolaryngology procedures. The other partner or
member in each partnership or limited liability company is in each case an
entity owned by physicians who perform procedures at the center.
In addition, on January 1, 1996, the Company acquired a 70% interest in
the assets of a gastroenterology and primary care physician practice associated
with a surgery center in which the Company already held an ownership interest.
On January 1, 1997, the Company acquired a 60% interest in the assets of a
urology practice and currently has a surgery center under development with this
same practice. The other partner in each of the two physician group practice
partnerships is an entity owned by the principal physicians who provide
professional medical services to patients of the practice. All third party payor
contracts under which the two physician group practices provide professional
services are entered into by the group practice in which the Company is the
general partner and owns a majority interest.
The start-up specialty physician networks are owned through limited
partnerships and limited liability companies. The Company owns a majority
interest in these entities, and the other partners are individual physicians who
will provide the medical services to the patient population covered by the
contracts the network will seek to enter into with managed care payors. It is
not expected that the specialty physician networks in themselves will be a
significant source of income for the Company. These networks were and will be
formed primarily as a contracting vehicle to generate revenues for the Company's
practice-based surgery centers and physician practices. These networks have not
generated any revenues to date.
The Company intends to expand primarily through the development and
acquisition of additional surgery centers in targeted surgical specialties. In
addition, the Company believes that its surgery centers, combined with its
relationships with specialty physician practices in the surgery centers'
markets, will provide the Company with other opportunities for growth from
specialty network development that, if appropriate, may include the acquisition
of specialty physician practices. By using its surgery centers as a base to
develop specialty physician networks that are designed to serve large numbers of
covered lives, the Company believes that it will strengthen its market position
in contracting with managed care organizations.
While the Company generally owns 51% to 70% of the entities that own the
surgery center or physician group practice, the Company's consolidated
statements of operations include 100% of the results of operations of the
entities, reduced by the minority partners' share of the net income or loss of
the surgery center/practice entities.
The Company's sources of revenues are as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
Source of Revenues 1997 1996 1997 1996
- ------------------ ---- ---- ---- ----
<S> <C> <C> <C> <C>
Surgery centers 84% 82% 82% 82%
Physician practices 15 16 16 15
Management fee -- 1 1 1
Interest and other 1 1 1 2
--- --- --- ---
Total 100% 100% 100% 100%
=== === === ===
The facility fees and fees for physician services received by the
Company's surgery centers and physician practices are generally paid by third
party reimbursement programs, including governmental and private insurance
programs. The Company derived approximately 34% and 36% of its revenues in the
nine months ended September 30, 1997 and 1996, respectively, from governmental
healthcare programs including Medicare and Medicaid.