On February 7, 2018, First Choice Healthcare (OTCQB:FCHS) published a press release briefly outlining its wholly owned subsidiary’s acquisition of a majority ownership interest in Crane Creek Surgery Center. Then on February 8, 2017, the Company announced a strategic partnership and equity investment with Steward Health Care. In order to convey the full breadth of these developments to investors, FCHS CEO Chris Romandetti hosted a conference call on the 8th to address some of the important details, as well as answer relevant questions from attendees of the call.
Executive Casts (@ExecutiveCasts), a business focused on delivering content and investor outreach options for public companies through online video, also spoke with Mr. Romandetti back in 2017. In light of the FCHS’ new corporate developments, we thought it fitting to reference some of the segments where he spoke about various subject matter related to the company’s growth, and his strategic outlook for 2018, which can be viewed here.
But first, in case you missed it please listen to the entire audio, complimented by the transcript of the recent call, below.
First Choice Healthcare Solutions Conference Call, February 8, 2018
Operator: Good morning. My name is Jen and I’ll be your conference facilitator today. Welcome to First Choice Healthcare Solutions Update Conference Call and Webcast.
At this time, participants are in a listen only mode. And question and answer session will follow managements’ prepared remarks. As a reminder, this conference call is being recorded. A replay of today’s call will be available on First Choice Healthcare website later today and will remain posted there for the next 90 days.
I would like to remind everyone that any forward-looking statements made during the call are protected under the safe harbor provisions of the Private Securities Litigation Reform Act. Such forward looking statements are based upon current expectations, and there can be no assurance that the results contemplated in these statements will be realized.
Actual results may differ materially from such statements, due to a number of important factors and risks, which are identified in our press release and our annual and quarterly reports files with the SEC. These forward-looking statements are based on information available to First Choice Healthcare today and the company assumes no obligation to update statements as circumstances change
Now at this time, it is my pleasure to introduce Chris Romandetti, Chairman, President and CEO of First Choice Healthcare. Mr. Romandetti, please go ahead.
CHRIS ROMANDETTI: Thank you, Jen. Well, welcome, everybody. I appreciate everybody taking their time out of their important day to get on the call. I think it’s a day we’ll all be very happy for, to see that this will be transforming our company once again, into the future of what we hoped we would be.
If you all remember in the past we’ve discussed — we were having ongoing negotiations with a strategic partner. And today we’re going to discuss how that’s come to fruition. So, let’s start first with Steward Healthcare Systems and what they do.
Steward Health Care is one of the country’s largest — nation’s largest pride for public hospital systems. They have three systems in Florida and 36 across the country. They’re actually in the states of Arizona, Arkansas, Colorado, Florida, Louisiana, Massachusetts, Ohio, Pennsylvania, Texas and Utah.
And looking at choosing this as a partner, what we’ll do is discuss how we think this could help with the expansions of First Choice Health Care blueprint into their system.
One of the things to discuss also in this such strategic relationship is that the investment to help expand our company into this system, is that they made a $7.5 million investment for 5 million shares of outstanding stock of FCHS.
I do want everybody to know you’ll see more details in the 8-K, which were filed, that there’s a put on this stock that has — it’s a four to five and a half year put that allows us to buy it back. Or if they put it to us, we have to buy it back at their cost. There is an expiration of this, which expires when we achieve $100 million market cap, or closer to today’s amount of stock that’s out $3.00 per share.
So, our strategic partner; what does that really mean? Of the 36 nationwide hospitals, they offer orthopedic and spine care at all locations. But as of today, it’s not organized in a fashion the way we approach the market, by bringing in non-physician owned orthopedics to help deliver the system into their facilities, which in itself will help achieve the benefit of them, ourselves, and by lowering healthcare costs.
So that is the object that we’re both going to try to achieve. And by starting that and working on that as we speak, we’ll start the review process shortly. We’ll get back to that in a little bit.
The Crane Creek Surgery Center, the second press release, hopefully you all read this morning, that came out of our 18,000 square foot facility for O.R.s that’s capable of doing 4,000 to 5,000 orthopedic cases.
In the past we’ve discussed that we ideally wanted to take this down the path to start doing our total joint program and start seeing more orthopedic cases there.
By mutual agreement, the company that was managing at Nue Health, we’ve come to terms that we thought it was in the best interest to buy out their ownership, which was 25 percent, and to further have them transfer in that purchase their management agreement to us, so that we can take over full management of the facility.
And so, we came to an amenable decision and deal and we concluded that, and we’re proud today to say we now currently own 65 percent of the center with 100 percent of the management decisions.
We’ve also appointed an administrator, Luis Ruiz, that you can look a little bit more up on him. Luis came out of a healthcare system as a CEO to hospital systems, has his masters in healthcare administration and he’s been on the ground anticipating this for us since the beginning of the year, and has taken full control of the center. All the employees have been transferred back over to us.
And we’re really proud to have Luis on board to start bringing our surgeries out of there, renegotiating our contracts, and implementing the joint program. It’s our opinion that the total joint program, now that we finally have control of when and how and where, will be implemented on or before Q2. Our Dr. Sands is already planning to start doing joints there, I believe in April.
So, let’s talk a little bit about the update on the potential of other acquisitions. If you remember, on our last calls, we still have some opportunities — not opportunities, deals that we’ve been reviewing.
Fortunately, time is everything. And now we’re at the conclusion of entering into this deal with Steward. This will give us the financial ability to move those potential acquisitions further up the pipeline. It won’t happen in Q1 — could, but we’re still optimistic that this ancillary business we were looking at can happen in early Q2.
That’s our objective as it looks like for that.
There are still other businesses out there, that now that we’ll be doing total joints, as I mentioned in the past, that could be home health care, to add on to taking care of our patients when they go home. So, we’re looking at those options as we discuss this.
So, of the decisions that came with the Steward deal, is naturally ramming out our board of directors, all in a way so that we have the capabilities to up list either to the New York or to the NASDAQ. And in doing that, Steward will be appointing two directors to the board; First Choice Health Care board of directors.
The company has set its goal that by March 1 we’ll have five directors, three in which will be qualified and independent directors. So, over the next few weeks we’ll be busy preparing these people through background checks and bring everything in to qualify for having a meeting to bring them up.
So, we’re excited about these announcements and the business moving forward. We’ve set the potential for Crane Creek under our new ownership and management to immediately start to see the delivery platforms effects in there.
Our partnership with Steward opens the door for a vast footprint across the country. I think personally, it mitigates the risk, which I thought was extremely important for all of you as investors. This gives us the opportunity to go to communities that have existing facilities; surgeries are already current, and just realign that business.
We feel more than confident that Steward, as a strategic partner will open these doors and opportunity for the potential to see over 100,000 surgical cases per year, is what they believe they see in excess of across the country at these locations, that we can influence, look at, and evaluate to see how we could possibly work in those systems and deliver a product and better patient or outcomes at a lower cost.
So, we think this is the future of the industry. There’s no doubt in our minds it appeals — our platforms appeal to not only the doctors, but now we’re starting to see it’s appealing to the hospitals alike and gaining traction.
I’d also like to thank our team, more specifically, Kris Jones, VP of Medical Operations, and Phil Keller, our CFO. All this sounds like it just turned a switch and it happens. It’s not as smooth as that at all. It is not simple, but yet they make it look like that every day, so thank you for doing that.
I’d like to thank also our investors because you’ve all stood alongside us. I know we would have liked to have talked about this over the last six months as working together. But that’s all it was, was working to see how it could benefit the company and ultimately you the shareholder.
So, we appreciate your patience, and we’re looking forward to 2018, and upcoming calls to discuss our progress on how we’re doing. So, with that, what I’d like to do is turn this over to Jen so she can open it up for questions, which is more important than what I think I have to talk about. So, let’s do that Jen, if you could.
OPERATOR: Thank you. The floor is now fit for questions. If you do have a question, please press star one on your telephone keypad at this time. If you are using a speaker phone, we ask that while posing your question, you pick up your hand set to provide favorable sound quality.
Again, ladies and gentlemen, if you do have a question, please press star one on your telephone keypads at this time.
OK, and we do have our first question from Siggy Eggert from GEOInvesting, please go ahead.
EGGERT: Hi guys, Hi Chris. Congratulations on securing the partnership with the largest hospital operator in the United States. And we think that is a major, great, positive strategic development. Can you talk maybe a little bit about the rationales from Steward’s perspective to enter this relationship?
What is the road map that they are looking at for their perspective, and what are key performance indicators for them?
ROMANDETTI: Well good morning and thank you. Without a doubt, I think that’s important. They put out the wrong press today, Mike Callum their senior vice president of the company made his comments on it. But we’ve been in town here now working with them for almost a year. They acquired two of the facilities that we are nearby back in May.
So, after looking at that, I have my opinion, I know you want me to tell you their opinion, I don’t think I can comment on their opinion. But I think we run similar paths. And that is if you can bring a patient in, and some doctors might bring a patient in and think that the care determined is to do a hip replacement.
And spend three or four days in the hospital, and then go to a rehab center for a couple of weeks. And then possibly one in ten gets a readmission. Those nationally have been indicated to cause somewhere from 50 to 200 grand but with an average of 70 grand.
But we seem to find is that by bringing A quality docs in that we have, if we can do an interior approach hip, you can go home the same day or the next day. That’s leaving a lot more chance of cost.
Because when you stay in a hospital five, its cost, going to a therapy, we have in house therapy with the expansion we’ve did. So, our therapy takes over virtually immediately. They’re the first to see the patients after surgery is therapy.
So, when you — today’s not the day I want to do that analysis. But when we start now having the ability to track their cost and our cost, it’s my belief that shortly we’ll be able to show the providers. The third-party payers, that we will ultimately be lowering orthopedic care per 100,000 patients tremendously.
Many of our patients don’t require surgery. And when we do, we do them more efficiently and get them home and back to work or back to their social life quicker. And when you do that, you lower health care costs. And I believe they have recognized that with our cases at their hospital compared to probably others. But again, the specific answer for them, I’m not in authority to do that.
EGGERT: OK, I know, I understand it. But I think it’s useful too that you mentioned that for them the lowering the overall cost for the third-party payers is a prime objective. So, with this big new partner that’s nationally active, do you think we’ll see more aggressive geographic extension as well?
ROMANDETTI: Well, I think as what I said early on here is that the relationship started a couple hours ago officially. So, we have all plans in place that we will meet weekly and discuss both where we think we can go.
I mentioned quite a few states, there’s states that are more favorable than not probably to go to. Let’s use for instance where reimbursements might be different. Where access to a surgery center that we have to come in might be different. And to where they might be having problems with shortages of surgeries that — surgeons that provide the surgeries the way we do.
So, we do know this. You know, they wouldn’t have done it if they didn’t think our platform could benefit them. I’m 100 percent believer of that, and vice versa with us. We think it’ll mitigate our opportunity because if we go to one of their cities, their ORs need 4, 5 thousand surgeries, and we think we’re the right candidate to help bring doctors, retrain doctors, or replace doctors in those communities.
And “replace” is the wrong word. “Retrain” is probably more appropriate to work with our philosophy on how we can lower health care costs by delivering a product.
And I wanted to mention before, because it made it sound like in your first question that the payer was most important, ultimately the lower cost will get down to the patient. Because if you can supply surgeries at a lower cost, that’s the payer paying us, which has to charge you.
So that’s what, I think, Steward does really, really well at with their network, and that’s what I think we’ll be able to achieve.
EGGERT: OK, great, thank you for the color. My last question is concerning the, you know, you guys taking a majority interest in the Crane Creek Surgery Center, and you commented on that a little bit in your press release and, you know, that you terminated the previous agreement with Nue Health.
What was, you know, from a — on a high level, the rational for acquiring a majority stake? Are you, in the future, always looking to, you know, acquire majority stakes in your investments, step-by-step? Or, you know, can you give me from a high-level perspective the reason for — for doing it this way.
ROMANDETTI: Well, a majority, whether it was 51 or 65, I think is the same. I think you get to make bigger decisions and can control your destiny when you’re in that position.
Being under Nue Health’s supervision and management, although they had numerous centers, we don’t think “one size fits all,” and they had a lot of policies that run their centers, and that’s their business that might not have been best for Melbourne, Florida.
So, to put our joint program in, or to realign our surgeons, we think we — you know, I like to get granular on the income statement. I don’t want to get too granular on a call, but what I’m telling you is, you know, there’s 1,908 minutes a day in that surgery center, and if it’s not bringing income in it’s costing us money.
And that’s how I like to run, and that — they were trying to have me help look at showing them how that idea would work. So, we’re going to look at it from both a business and from a patient’s perspective.
It’s a state-of-the-art — if some of you have flown down and looked at it, they must have spent $10 million to build this center. But, in our community, there isn’t a surgeon that doesn’t work there to say it’s the nicest free-standing outpatient surgery center in the community.
So, we know we have the right center. Our actual staff that does the surgeries, and the nurses — they’re the right people.
We’ve changed the leadership to bring it in so that they can deliver the platform, and this will now allow us to go do bundle payment bidding to the payers, so that if you can get a flat rate to change a hip or a knee, or do a spine surgery or a shoulder, we’re in control of everything there is now, from the day we talk to you, to the rehab, to the surgery, soon to be taking you home, and then getting you through therapy and back to work.
So, when you have to ask another company, then it might not fit their other 40 centers model. We were finding resistance there. It was just a win/win for them to go their way and for us to go our way.
So, back to the majority question. We’re at 65 percent. If it’s not making money, which it hasn’t under the current management, you don’t want 65 percent. But I can only assure you that I can’t — I can’t tell you today, this won’t be guidance on the center, but I would not want to own more of it if I thought we were going to continue to trend down.
So, if we know what we can do, we know what we’re having contracts in our hand, and we think the ability to own more will be a benefit to you and us, and that’s the decision we made.
EGGERT: OK, great. Thank you very much, and congratulations again on the progress, and we’ll follow your company.
ROMANDETTI: Thanks for your continued support.
OPERATOR: Thank you. And our next question comes from Joe Delahoussaye. Please state your question.
DELAHOUSSAYE: Yes. Hi, Chris, thanks for taking the call, and some exciting developments in the works, and good to see some tangible progress on the expansion front. My questions, I guess, have to do with the Steward rollout.
Could you describe how maybe the pace of the expansion will look for the next year or two? I guess maybe you guys focus on one market and kind of swamp that area with your — with your platform, essentially, and then move on to a different area?
And, you know, are we looking at maybe one other locale, then 18, then another 19? Or, could you just maybe talk about what you first see with that relationship on that?
ROMANDETTI: Right, I’d love to, and to tell you that if I — if, you know, today we wanted to get the shareholders up to date, that we have the opportunity. You know, we’re probably weeks away, I know we’re filing in March, and I think we’ll have a progress report by then that will be appropriate to further answer your question in more detail.
What I can tell you is I’m expecting to look at, you know, a wealth of information that has to be processed to determine — there’s no sense going to an area if it isn’t broken, and we don’t think — we don’t even know if there’s anything that needs fixing, other than our platform can do what we’ve said. Lower health care costs have outcomes that we think are superior.
And we’re going to review that data. And being we’ve been in their community here for almost a year, I think they have all that, I think they know exactly what they do when our doctors do surgeries in their facilities to the penny, and what other doctors do.
I think they did the deal because we’re attractive. And I think they’ll be educating us shortly on where they think the top five lists would be, and where they’d want us to go next. It’ll be a lot easier I think to implement going to other communities.
I no longer think it’ll take years to go to multiple locations, but because it’s easier when your partner’s helping you open doors, and your business is established the day you get there. So, that’s our opportunity that we see. And over the–probably by the year end call we’ll be able to update you deeper on that question.
DELAHOUSSAYE: OK, understood. Let me ask this line of questioning, I guess let’s say you pick a region — the first region. How would the relationship with Steward I guess approach how you enter that market in terms of a capital — the capital needed to expand.
Would — is there something where in Melbourne, you know, you have to build everything from the ground up. And so, that meant acquiring four, five, six centers sort of thing, having the Steward sort of there, walking you through things. How would I guess capital development look like under the Steward relationship versus the home-grown approach in Melbourne?
ROMANDETTI: Right. So, not a lot has changed from our plan. I mean, some people — I want to be 100 percent near accurate. Steward is a bolt-on, great facility opportunity for us to go to 34 of the locations. When we — let’s just pick a state. Say they have Colorado and we think that’s the next state.
We’ll be evaluating that by reimbursements close to doing business. But if we went to Colorado tomorrow and they’re doing 12,000 surgeries, we’re going to want to look to 3,000 or 4,000 of those and then come out there and ask the best in class doctors. And I’ve always said CapEx to go to one of these communities to do what we want to achieve, of 3,000 or 4,000 surgeries will be $8 million to $10 million. Now, if Steward has existing facilities there that they’ve acquired during their acquisitions, the government requires you to pay fair market value. We go to their facilities and take over operations of some of their freestanding facilities.
But the opportunity we’re trying to do in those communities is we’d lease property — I want to be clear. We got out of the business of owning it, so we’d lease our property. We would either acquire an existing MRI center for diagnostic work in the area would both put in five P.T. locations, if that’s what’s required geographically to support the 4,000 surgeries. We’re seeing right now that coming up this year, we’re going to support probably 74 and a run rate to do 75,000 patient visits in P.T. So those correlations between an order and a patient. But nothing has changed on how we’re going to do it. Instead of me picking Tampa tomorrow, where possibly Steward isn’t, we just have 36 locations that have a built-in base with a partner that’s got a wealth of investment into that community.
And when you go to a strange community, you got to negotiate with hospitals to get block time in hospitals. If they know we’re coming and we need 3,000 — 2,000 of our 3,000 surgeries to be performed in their hospital and they are our partner, I think they’ll pave the way to make that a lot easier to give us the accessibility we need to work more efficiently.
DELAHOUSSAYE: I see. OK. Fair enough on that. And then I know this is down the road. I mean, you guys are just getting started with this strategic investment or relationship.
But I assume — does the Steward relationship — is that an exclusive, or down the road four or five years or whatever the case may be if another opportunity similar to Steward becomes available, are you guys available to enter into another strategic agreement with another partner?
ROMANDETTI: Yes, no — and we want to be clear, it’s not an exclusive agreement today. We still do surgeries in other hospitals. There’s other hospitals in our community by — you use their system — and it’s great where we are, but in this county, we have four other hospitals we can service. And our doctors are credentialed. And so, by insurance changes that, by geographic area changes that.
But to answer your question, if there was another big partner to say we have 30 locations, can you come do it, we don’t have an exclusive to give Steward , but I will tell you if tomorrow, we can open up five of them and Stewards are available compared to a different one, I think we — I mentioned earlier the call here, minimally, we think there’s 100,000 surgeries of availability here to be managed.
Times that by our APV and it’s $1 billion worth of business at $10,000. So, there’s more than enough here to keep us focused we think. So, we’re not actively, right now, out looking for other strategic partners today.
DELAHOUSSAYE: Got you. OK. OK, well great. That’s all I had. Thanks for taking the call.
OPERATOR: Thank you. And we have our next question from Gary Zwetchkenbaum from Plum Tree Consulting. Please state your question.
ZWETCHKENBAUM: Chris, good morning. Congratulations on the Steward Healthcare strategic partnership. I just wanted to have a couple of questions. One, could you talk a little about the use of proceeds, the $7.5 million, if you would for First Choice?
ROMANDETTI: Well today what I can tell you is that we earlier discussed that we are in the process to do some acquisitions and the whole call discussed expanding into other communities of theirs and to maybe other platforms. So that will be a key metric in being part of that capital that will be used. So that’s as far as I want to go today on discussing what their capital would be used for.
ZWETCHKENBAUM: And I know this was touched upon, how do expect Steward — how do you expect Steward to impact your business in 2018? It is a material impact; can you talk a little about where you see — where you see the impact and the level?
ROMANDETTI: Right. So, without getting close to getting guidance today, we’re going to work on that, on our March call because I think we’ll have a better footprint on what we can achieve in ’18. And we’re sorry to say that you would think any business should know that in late ’17 to tell you. But this is a game changer. OK? This is a game changer.
The surgery center, you can do the math, I’ve told you before. We can do 500 extra joints in there at 15,000 each, it’s a big number. If we can turn around and open up a location with Steward this year, it’s a big number.
We’ve done that in Excel sheets and we’ve looked at what it could or might be. The reality is, I’m not going to — I use the word, misjudge my guidance twice. I’ve done it once, I feel like I got a strike one last year, you guys all gave me credit for where I was.
We’re going to do this diligently. I think what you’ll be getting from me in the upcoming numbers will be as how I feel our run rate will be by December of this year. And somewhere between what we will report, we did January here soon or by yearend and where we’ll be over the course, I’m not going to bring it down to which day it happens.
And we have our weekly meetings and when we talk with manager they four 60, three-day cycles to produce their revenues here that you’re all worried about and that’s how live and die on, but I can’t tell you if can be in one or two of their platforms this year, or three. The availability is 34. So, what we’re going to do is evaluate, make safe judgments, make sure we have capital, hopefully by debt to try not to bring diluted products to turn around and grow it.
And I think that’s a measurable response. We’re still talking the opportunity in the call so that we can get this company up list which I think will expand it capability to have access to additional capital. So that’s my answer on that Gary. So, I hope that answered it
ZWETCHKENBAUM: You did, and I have to tell you it was a — as a long-term shareholder, connecting the dots, you’ve done what you said you’re going to do. I think the key element here is that it is a game changer, and seeing you be able at some point to up list into a more secure market where more shareholders can easily have access to the company. I commend you, I appreciate your candor and your answer thank you.
ROMANDETTI: You know, hey Gary, just one last part of that because I want to be clear with this, remember — they — having Steward invest into our company is — they’re not coming in to bring their policies and procedures here, they like what we’re doing. And I think that’s — and in saying that and doing that and clarifying that, they invest in us because they see our ability to take care of patient care and operate things efficiently.
They run hospitals, they have 37,000 people. I don’t know if they know the names of all those people. We are going to produce all this income this year with 21 doctors. So, we — to open 10 of these, we need 200 doctors, we don’t need 37,000.
So, the — so we think that’s an important part to realize that bringing our efficiencies to them, putting it into their network which they have, and doing this all under their ACO and leveraging their ACO will benefit both parties and the future of our relationship.
It’s really important to know that we didn’t go to them and say, can you come fix us, we’re not going there to fix them. We do two separate total things, we do two separate total things. They do what they do really well, we think we’re really good with ours. And that’s a partner.
Because a long ago I told you that when we spoke, even it was Oppenheimer that said, Chris, there’s a triangle on where patient care and all this is going. And it’s the facility, it’s the doctor and it’s the payer.
And we have now have joint with a partner — not joined with a partner, we have a strategic partner that’s made an investment in us that is the facility, the big facility. We think we do a great job with our doctors and we think short in order; the payers will be there.
And do remember this, if you really start getting under the hood of Steward, I don’t have my stat here, was it over a million and a half lives or 3 million, 1.5 million lives they are at risk at that they have put that policy throughout the country.
That means they collect your premium, and whether you need a heart transplant, or you need a knee replaced, they know how to do that. So, they really could start to become the third part of the puzzle, which is the payer. So, we really commend them that they’ve gone from 4 or 500, 600,000 lives, they’ve doubled this year.
They’ve naturally grown and went into these territories. But it’ll become the future of lowering healthcare cost, just own it from the patient through the entire episode and that’s what we think we’ve done.
ZWETCHKENBAUM: They are — Chris, they seem to be the 600-pound gorilla in this space. The fact that they see the advantage in coming to you makes me feel like I’ve done the right thing, so keep it up.
ROMANDETTI: Just do a little more of that Gary, and we’ll be even more happy.
ZWETCHKENBAUM: I’m happy now, thank you very much, Chris.
ROMANDETTI: Thanks Gary.
OPERATOR: Again, ladies and gentlemen, if you do have a question, please press star one on your telephone keypads at this time. And there appears to be no questions at this time.
ROMANDETTI: Excellent. Well with that then, what I’d like to do is just thank everybody for taking the time out of the day to take the call, we’ll look forward to updating you with the progress of how we move along with our results. And once again, thank you and have a great day. And god bless. Bye.
OPERATOR: Thank you. This does conclude today’s teleconference. We thank you for your participation, you maybe disconnect your lines at this, and have a great day.
For more information, please visit www.myfchs.com, www.myfcmg.com, www.thebackcenter.net and www.cranecreeksurgerycenter.com