Zotec Partners, a healthcare revenue cycle management company, is projected to experience a significant revenue decrease of approximately 13% following the termination of its contract with Optum, a UnitedHealth subsidiary. Despite this setback, Zotec anticipates improved earnings margins between 20% and 25%, a notable increase from the previous year’s 15% (excluding adjustments related to the Optum contract). Contributing to this positive outlook are factors such as organic growth fueled by strong bookings in 2022, a strategic emphasis on multispecialty groups, automation initiatives, and same-store growth.
However, S&P Global Ratings experts have highlighted concerns regarding Zotec’s financial health. The company’s focus on radiology and emergency medicine exposes it to reimbursement pressures affecting these specialties. For instance, the Centers for Medicare & Medicaid Services (CMS) implemented a roughly 2% reduction in Medicare radiology rates this year, impacting a substantial portion of Zotec’s revenue. Furthermore, a constrained debt market poses challenges for the company’s refinancing efforts.
S&P issued a negative outlook for Zotec, reflecting the risk of potential refinancing difficulties or a distressed debt restructuring before the 2024 loan maturity. A downgrade is possible if a default or distressed exchange becomes imminent within the next six months, barring significant positive changes in the company’s circumstances. Conversely, successful loan refinancing within the next year could lead to a positive rating action.
S&P also cited “very negative” governance factors within Zotec, including family-controlled ownership, a lack of independent board members, and “aggressive” shareholder distributions.
Zotec Partners has faced previous challenges, including legal disputes with radiology practices in 2021 related to alleged issues with its billing software. The company has not yet responded to requests for comment on its current financial situation.
