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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________
Form 10-Q
_____________________________________
(Mark One)
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020
or
 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number:  001-37576
_____________________________________
Surgery Partners, Inc.
(Exact name of registrant as specified in its charter)
_____________________________________
Delaware 47-3620923
(State or other jurisdiction of
incorporation or organization)
 (I.R.S. Employer
Identification No.)

310 Seven Springs Way, Suite 500
Brentwood, Tennessee 37027
(Address of principal executive offices and zip code)
(615) 234-5900
(Registrant’s telephone number, including area code)
_____________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.01 per shareSGRYThe Nasdaq Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x  No  o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes  x No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. 
Large accelerated filer o
 
Accelerated filer ☒
Non-accelerated filer o
 
Smaller reporting company 
Emerging growth company 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes   No  x
As of July 30, 2020, there were 50,551,483 shares of the registrant’s common stock outstanding.



SURGERY PARTNERS, INC.
FORM 10-Q
TABLE OF CONTENTS
Page



Table of Contents
PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements
SURGERY PARTNERS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, dollars in millions, except per share amounts)
June 30,
2020
December 31,
2019
ASSETS
Current assets:
Cash and cash equivalents$326.3  $92.7  
Accounts receivable
310.9  326.9  
Inventories49.0  46.3  
Prepaid expenses23.3  17.8  
Other current assets37.0  41.8  
Total current assets746.5  525.5  
Property and equipment, net of accumulated depreciation of $152.0 and $110.7, respectively
504.3  523.3  
Goodwill and other intangible assets, net3,454.6  3,449.7  
Investments in and advances to affiliates91.1  93.2  
Right-of-use operating lease assets311.7  297.7  
Long-term deferred tax assets114.8  98.7  
Other long-term assets21.7  30.8  
Total assets$5,244.7  $5,018.9  
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable$104.7  $96.7  
Accrued payroll and benefits57.9  54.2  
Medicare accelerated payments and deferred governmental grants124.7    
Other current liabilities220.4  191.2  
Current maturities of long-term debt63.5  56.0  
Total current liabilities571.2  398.1  
Long-term debt, less current maturities2,622.5  2,524.7  
Right-of-use operating lease liabilities298.9  283.1  
Other long-term liabilities127.3  113.6  
Non-controlling interests—redeemable314.7  321.0  
Redeemable preferred stock - Series A; shares authorized, issued and outstanding - 310,000; redemption value - $414.2 and $395.0, respectively
414.2  395.0  
Stockholders' equity:
Preferred stock, $0.01 par value; shares authorized - 20,000,000; shares issued or outstanding - none
    
Common stock, $0.01 par value; shares authorized - 300,000,000; shares issued and outstanding - 50,551,483 and 49,298,940, respectively
0.5  0.5  
Other stockholders' equity203.9  296.3  
Total Surgery Partners, Inc. stockholders' equity204.4  296.8  
Non-controlling interests—non-redeemable691.5  686.6  
Total stockholders' equity895.9  983.4  
Total liabilities and stockholders' equity$5,244.7  $5,018.9  

See notes to unaudited condensed consolidated financial statements.

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SURGERY PARTNERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, dollars in millions, except per share amounts, shares in thousands)
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
Revenues$374.7  $445.4  $815.7  $862.2  
Operating expenses:
Salaries and benefits116.1  132.7  256.5  261.9  
Supplies110.1  123.4  239.4  238.4  
Professional and medical fees45.3  36.4  92.1  71.5  
Lease expense21.5  21.0  42.8  41.6  
Other operating expenses26.3  26.9  54.7  53.1  
Cost of revenues319.3  340.4  685.5  666.5  
General and administrative expenses25.3  23.3  48.1  45.0  
Depreciation and amortization23.4  19.1  45.2  37.9  
Income from equity investments(2.5) (2.2) (4.5) (4.2) 
Loss (gain) on disposals and deconsolidations, net2.9  (8.2) 6.4  (7.6) 
Transaction and integration costs4.9  6.2  10.4  8.2  
Grant funds(43.1)   (43.1)   
Litigation settlement    1.2    
Loss on debt extinguishment  11.7    11.7  
Other income(0.2) (0.4) (1.7) (0.4) 
Total operating expenses330.0  389.9  747.5  757.1  
Operating income 44.7  55.5  68.2  105.1  
Tax receivable agreement expense      (2.4) 
Interest expense, net(49.2) (46.4) (96.3) (88.4) 
(Loss) income before income taxes(4.5) 9.1  (28.1) 14.3  
Income tax (benefit) expense(0.6) 1.0  (15.8) 2.7  
Net (loss) income(3.9) 8.1  (12.3) 11.6  
Less: Net income attributable to non-controlling interests(28.6) (27.9) (47.7) (51.5) 
Net loss attributable to Surgery Partners, Inc.(32.5) (19.8) (60.0) (39.9) 
Less: Amounts attributable to participating securities(9.7) (8.8) (19.2) (17.3) 
Net loss attributable to common stockholders$(42.2) $(28.6) $(79.2) $(57.2) 
Net loss per share attributable to common stockholders
Basic$(0.86) $(0.59) $(1.63) $(1.19) 
Diluted (1)
$(0.86) $(0.59) $(1.63) $(1.19) 
Weighted average common shares outstanding
Basic 48,840  48,291  48,661  48,241  
Diluted (1)
48,840  48,291  48,661  48,241  
(1) The impact of potentially dilutive securities for all periods presented was not considered because the effect would be anti-dilutive in those periods.

See notes to unaudited condensed consolidated financial statements.


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SURGERY PARTNERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited, dollars in millions)
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
Net (loss) income$(3.9) $8.1  $(12.3) $11.6  
Other comprehensive income (loss), net of tax:
Derivative activity7.3  (16.8) (17.9) (28.3) 
Comprehensive income (loss)3.4  (8.7) (30.2) (16.7) 
Less: Comprehensive income attributable to non-controlling interests(28.6) (27.9) (47.7) (51.5) 
Comprehensive loss attributable to Surgery Partners, Inc.$(25.2) $(36.6) $(77.9) $(68.2) 
See notes to unaudited condensed consolidated financial statements.


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SURGERY PARTNERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited, dollars in millions, shares in thousands)
Common StockAdditional
Paid-in Capital
Accumulated Other Comprehensive LossRetained DeficitNon-Controlling Interests—
Non-Redeemable
Total
SharesAmount
Balance at December 31, 201848,869  $0.5  $673.5  $(22.4) $(247.0) $694.3  $1,098.9  
Net (loss) income—  —  —  —  (20.1) 16.0  (4.1) 
Equity-based compensation517  —  0.9  —  —  —  0.9  
Preferred dividends—  —  (8.5) —  —  —  (8.5) 
Other comprehensive loss—  —  —  (11.5) —  —  (11.5) 
Net effect of adoption of new accounting standard—  —  —  —  18.0  —  18.0  
Acquisition and disposal of shares of non-controlling interests, net (1)
—  —  8.0  —  —  6.1  14.1  
Distributions to non-controlling interests—non-redeemable holders—  —  —  —  —  (23.5) (23.5) 
Balance at March 31, 201949,386  0.5  673.9  (33.9) (249.1) 692.9  1,084.3  
Net (loss) income—  —  —  —  (19.8) 18.7  (1.1) 
Equity-based compensation117  —  3.1  —  —  —  3.1  
Preferred dividends—  —  (8.8) —  —  —  (8.8) 
Other comprehensive loss—  —  —  (16.8) —  —  (16.8) 
Acquisition and disposal of shares of non-controlling interests, net (1)
—  —  9.6  —  —  (7.6) 2.0  
Distributions to non-controlling interests—non-redeemable holders—  —  —  —  —  (17.7) (17.7) 
Balance at June 30, 201949,503  $0.5  $677.8  $(50.7) $(268.9) $686.3  $1,045.0  
Balance at December 31, 201949,299  $0.5  $662.7  $(50.7) $(315.7) $686.6  $983.4  
Net (loss) income—  —  —  —  (27.5) 13.6  (13.9) 
Equity-based compensation1,219  —  2.8  —  —  —  2.8  
Preferred dividends—  —  (9.5) —  —  —  (9.5) 
Other comprehensive loss—  —  —  (25.2) —  —  (25.2) 
Acquisition and disposal of shares of non-controlling interests, net (1)
—  —  (0.7) —  —  1.4  0.7  
Distributions to non-controlling interests—non-redeemable holders—  —  —  —  —  (14.9) (14.9) 
Balance at March 31, 202050,518  0.5  655.3  (75.9) (343.2) 686.7  923.4  
Net (loss) income—  —  —  —  (32.5) 22.8  (9.7) 
Equity-based compensation33  —  3.8  —  —  —  3.8  
Preferred dividends—  —  (9.7) —  —  —  (9.7) 
Other comprehensive income—  —    7.3  —  —  7.3  
Acquisition and disposal of shares of non-controlling interests, net (1)
—  —  (1.2) —  —  2.9  1.7  
Distributions to non-controlling interests—non-redeemable holders—  —  —  —  —  (20.9) (20.9) 
Balance at June 30, 202050,551  $0.5  $648.2  $(68.6) $(375.7) $691.5  $895.9  
(1)Includes post acquisition date adjustments.

See notes to unaudited condensed consolidated financial statements.















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SURGERY PARTNERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, dollars in millions)
Six Months Ended June 30,
20202019
Cash flows from operating activities:
Net (loss) income$(12.3) $11.6  
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization45.2  37.9  
Non-cash interest expense (income), net2.2  0.1  
Equity-based compensation expense6.9  4.9  
Loss (gain) on disposals and deconsolidations, net6.4  (7.6) 
Loss on debt extinguishment  11.7  
Deferred income taxes(16.4) 2.0  
(Loss) income from equity investments, net of distributions received(0.2) 0.1  
Non-cash lease expense20.1  19.6  
Changes in operating assets and liabilities, net of acquisitions and divestitures:
Accounts receivable16.3  6.9  
Medicare accelerated payments and deferred governmental grants124.7    
Other operating assets and liabilities18.2  (40.0) 
Net cash provided by operating activities211.1  47.2  
Cash flows from investing activities:
Purchases of property and equipment(19.9) (31.8) 
Payments for acquisitions, net of cash acquired(12.4) (13.2) 
Proceeds from disposals of facilities and other assets9.4  17.6  
Purchases of equity investments   (15.2) 
Other investing activities0.4  (0.3) 
Net cash used in investing activities(22.5) (42.9) 
Cash flows from financing activities:
Principal payments on long-term debt(182.8) (422.8) 
Borrowings of long-term debt288.2  438.9  
Payments of debt issuance costs(6.5) (8.8) 
Payment of premium on debt extinguishment   (17.8) 
Distributions to non-controlling interest holders(51.7) (60.9) 
(Payments) receipts related to ownership transactions with non-controlling interest holders(1.9) 1.2  
Other financing activities(0.3) (1.0) 
Net cash provided by (used in) financing activities45.0  (71.2) 
Net increase (decrease) in cash, cash equivalents and restricted cash233.6  (66.9) 
Cash, cash equivalents and restricted cash at beginning of period93.0  184.6  
Cash, cash equivalents and restricted cash at end of period$326.6  $117.7  
See notes to unaudited condensed consolidated financial statements.

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SURGERY PARTNERS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. Organization and Summary of Accounting Policies
Organization
Surgery Partners, Inc., a Delaware corporation, acting through its subsidiaries, owns and operates a national network of surgical facilities and ancillary services. The surgical facilities, which include ambulatory surgery centers ("ASCs") and surgical hospitals, primarily provide non-emergency surgical procedures across many specialties, including, among others, gastroenterology, general surgery, ophthalmology, orthopedics and pain management. The Company's surgical hospitals also provide services such as diagnostic imaging, laboratory, obstetrics, oncology, pharmacy, physical therapy and wound care. Ancillary services are comprised of a diagnostic laboratory, multi-specialty physician practices, urgent care facilities, anesthesia services and optical services. Unless the context otherwise indicates, Surgery Partners, Inc. and its subsidiaries are referred to herein as "Surgery Partners," "we," "us," "our" or the "Company."
As of June 30, 2020, the Company owned or operated a portfolio of 127 surgical facilities, comprised of 111 ASCs and 16 surgical hospitals in 30 states. The Company owns these facilities in partnership with physicians and, in some cases, health care systems in the markets and communities it serves. The Company owned a majority interest in 85 of the surgical facilities and consolidated 107 of these facilities for financial reporting purposes.
Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for fair presentation of the Company's financial position and results of operations have been included. The Company’s fiscal year ends on December 31 and interim results are not necessarily indicative of results for a full year or any other interim period. The information contained in these condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2019 (the "2019 Annual Report on Form 10-K").
The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, as well as interests in partnerships and limited liability companies controlled by the Company through its ownership of a majority voting interest or other rights granted to the Company by contract to manage and control the affiliate's business. All significant intercompany balances and transactions are eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and footnotes. Examples include, but are not limited to, estimates of accounts receivable allowances, professional and general liabilities and the estimate of deferred tax assets or liabilities. Actual results could differ from those estimates.
COVID-19 Pandemic
The COVID-19 global pandemic has significantly affected the Company's facilities, employees, patients, communities, business operations and financial performance, as well as the United States economy and financial markets. Beginning mid-March, the COVID-19 pandemic began to negatively affect the Company's net revenue and business operations. Due in part to local, state and federal guidelines as well as recommendations from major medical societies, social distancing and self-quarantines in response to the COVID-19 pandemic, surgical case volumes across most of the Company's surgical facilities were significantly impacted in the second quarter. The impact of COVID-19 on the Company's surgical facilities varies based on the market in which the facility operates, the type of surgical facility and the procedures that are typically performed. Although the Company cannot provide any certainty regarding the length and severity of the impact of the COVID-19 pandemic, surgical case volumes gradually improved throughout the second quarter as states began to re-open and allow for non-emergent procedures. The Company's operating structure naturally enables some flexibility in the cost structure according to the volume of surgical procedures performed, including much of its cost of revenues. In addition to the natural variability of these costs, the Company and its partners in the surgical facilities have undertaken additional steps to preserve financial flexibility. Beginning in mid-March, and into the second quarter, the Company took actions that included significantly reducing cash operating expenses and deferring non-essential expenditures at the height of the crisis.
CARES Act
The Company is continuing to closely monitor legislative actions at the federal, state and local levels including the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") and other governmental assistance that might be available in response to the COVID-19 pandemic. As part of the CARES Act, the United States government initially announced that it would offer $100 billion of relief to eligible health care providers. On April 7, 2020, Centers for Medicare and Medicaid Services ("CMS") officials indicated they would distribute $30 billion of direct grants to hospitals, ASCs and other health care providers based on how much they bill Medicare. Payments received from these grants are not required to be repaid provided the recipients attest to and comply with certain terms and conditions, including limitations on balance billing and not using funds received from the grants to reimburse expenses or losses that other

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SURGERY PARTNERS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
sources are obligated to reimburse.The Company received approximately $48 million of the grant funds distributed under the CARES Act and other governmental assistance programs during the six months ended June 30, 2020. Based on an analysis of the compliance and reporting requirements and the impact of the COVID-19 pandemic on our operating results through the end of the second quarter, approximately $43.1 million was recognized as a reduction in operating expenses under the caption Grant funds in the condensed consolidated statements of operations for the three and six months ended June 30, 2020. The recognition of amounts received is conditioned upon certification that payment will be used to prevent, prepare for and respond to the COVID-19 pandemic and shall reimburse the recipient only for healthcare related expenses or lost revenues that are attributable to the COVID-19 pandemic. Amounts are recognized as a reduction to operating costs and expenses only to the extent the Company is reasonably assured that underlying conditions are met. Amounts received, but not recognized as a reduction to operating expenses as of June 30, 2020, are reflected as a component of Medicare accelerated payments and deferred governmental grants in the condensed consolidated balance sheets as of June 30, 2020, and such unrecognized amounts may be recognized as a reduction in operating expenses in future periods if the underlying conditions for recognition are met. Additionally, approximately $4 million in rural grant funds were received in July 2020 which did not qualify for recognition during the three months ended June 30, 2020.
As a way to increase cash flow to Medicare providers impacted by the COVID-19 pandemic, the CARES Act expanded the Medicare Accelerated and Advance Payment Program, which allows for most providers and suppliers, including the Company’s surgical hospitals and ASCs. ASCs can request up to 100% of the Medicare Fee-for-Service payment amount for a three-month period. Hospitals can request up to 100% of the payment amount for a six-month period, with certain critical access hospitals able to request up to 125% of the payment for a six-month period. Repayment of advance payments will commence 120 days after the date the payment is issued and will be effectuated via an automatic 100% offset against future claims payments. Hospitals will have one year from the date the payment is received to repay the advance payments; all other providers will have 210 days to repay the advance payment. The program currently requires that any outstanding balance remaining after 12 months must be repaid by the provider or be subjected to a 10.25% annual interest rate. The Company received approximately $120 million of accelerated payments during the six months ended June 30, 2020. These accelerated payments received were deferred and included as a component of Medicare accelerated payments and deferred governmental grants in the condensed consolidated balance sheets as of June 30, 2020. The Company does not expect to receive additional Medicare accelerated payments.
The CARES Act also provides for the deferral of the Company's portion of social security payroll taxes for the remainder of 2020. Under the CARES Act, half of the deferred amount will have to be paid in each of December 2021 and December 2022. The Company began deferring the social security payroll tax match in April 2020. As of June 30, 2020, the Company has deferred approximately $4.3 million, included as a component of accrued payroll and benefits in the condensed consolidated balance sheets as of June 30, 2020.
Variable Interest Entities
The condensed consolidated financial statements include the accounts of variable interest entities ("VIE") in which the Company is the primary beneficiary under the provisions of the Financial Accounting Standards Board's ("FASB") Accounting Standards Codification 810, "Consolidation". The Company has the power to direct the activities that most significantly impact a VIEs economic performance. Additionally, the Company would absorb the majority of the expected losses from any of these entities should such expected losses occur. As of June 30, 2020, the Company's consolidated VIEs include four surgical facilities, three anesthesia practices and three physician practices.
The total assets (excluding goodwill and intangible assets, net) of the consolidated VIEs included in the accompanying condensed consolidated balance sheets as of June 30, 2020 and December 31, 2019, were $35.9 million and $36.2 million, respectively, and the total liabilities of the consolidated VIEs were $26.2 million and $25.2 million, respectively.
Fair Value of Financial Instruments
The fair value of a financial instrument is the amount at which the instrument could be exchanged in an orderly transaction between market participants to sell the asset or transfer the liability. The Company uses fair value measurements based on inputs classified into the following hierarchy:
Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These may include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
Level 3: Unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, depending on the nature of the item being valued.
The carrying amounts reported in the condensed consolidated balance sheets for cash and cash equivalents, accounts receivable, restricted invested assets and accounts payable approximate their fair values under Level 3 inputs.

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SURGERY PARTNERS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A summary of the carrying amounts and estimated fair values of the Company's long-term debt follows (in millions):
Carrying AmountFair Value
June 30,
2020
December 31,
2019
June 30,
2020
December 31,
2019
Senior secured term loan$1,546.9  $1,434.1  $1,373.9  $1,434.1  
6.750% senior unsecured notes due 2025
$370.0  $370.0  $338.6  $368.2  
10.000% senior unsecured notes due 2027
$430.0  $430.0  $435.9  $471.4  
The fair values in the table above were based on a Level 2 inputs using quoted prices for identical liabilities in inactive markets. The carrying amounts related to the Company's other long-term debt obligations, including finance lease obligations, approximate their fair values under Level 3 inputs.
The Company has entered into certain interest rate swap agreements (see Note 6. "Derivatives and Hedging Activities"). The fair value of these derivative instruments was $68.6 million and $50.7 million at June 30, 2020 and December 31, 2019, respectively, and was included in other long-term liabilities in the condensed consolidated balance sheets. The fair value of these derivative financial instruments was based on a quoted market price, or a Level 2 input.
Revenues
The Company's revenues generally relate to contracts with patients in which the performance obligations are to provide health care services. The Company recognizes revenues in the period in which our obligations to provide health care services are satisfied and reports the amount that reflects the consideration the Company expects to be entitled to receive. The contractual relationships with patients, in most cases, also involve a third-party payor (e.g., Medicare, Medicaid and private insurance organizations, including plans offered through the health insurance exchanges) and the transaction prices for the services provided are dependent upon the terms provided by or negotiated with the third-party payors. The payment arrangements with third-party payors for the services provided to the related patients typically specify payments at amounts less than the Company's standard charges. The Company continually reviews the contractual estimation process to consider and incorporate updates to laws and regulations and the frequent changes in managed care contractual terms resulting from contract renegotiations and renewals.
A summary of revenues by service type as a percentage of total revenues follows:
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
Patient service revenues:
   Surgical facilities revenues95.0 %94.1 %94.8 %94.0 %
   Ancillary services revenues3.5 %4.6 %3.7 %4.7 %
98.5 %98.7 %98.5 %98.7 %
Other service revenues:
   Optical services revenues0.1 %0.2 %0.2 %0.2 %
   Other revenues1.4 %1.1 %1.3 %1.1 %
1.5 %1.3 %1.5 %1.3 %
Total revenues100.0 %100.0 %100.0 %100.0 %
Patient service revenues. This revenue is related to charging facility fees in exchange for providing patient care. The fee charged for health care procedures performed in surgical facilities varies depending on the type of service provided, but usually includes all charges for usage of an operating room, a recovery room, special equipment, medical supplies, nursing staff and medications. The fee does not normally include professional fees charged by the patient’s surgeon, anesthesiologist or other attending physician, which are billed directly by such physicians to the patient or third-party payor. However, in several surgical facilities, the Company charges for anesthesia services. Ancillary service revenues include fees for patient visits to the Company's physician practices, pharmacy services and diagnostic tests ordered by physicians.
Patient service revenues are recognized as performance obligations are satisfied. Performance obligations are based on the nature of services provided. Typically, the Company recognizes revenue at a point in time in which services are rendered and the Company has no obligation to provide further patient services. As the Company primarily performs outpatient procedures, performance obligations are generally satisfied same day and revenue is recognized on the date of service.
The Company determines the transaction price based on gross charges for services provided, net of estimated contractual adjustments and discounts from third-party payors. The Company estimates its contractual adjustments and discounts based on contractual agreements,

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SURGERY PARTNERS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
its discount policies and historical experience. Changes in estimated contractual adjustments and discounts are recorded in the period of change.
Other service revenues. Optical service revenues consist of handling charges billed to the members of the Company's optical products purchasing organization. The Company's optical products purchasing organization negotiates volume buying discounts with optical products manufacturers. The buying discounts and any handling charges billed to the members of the buying group represent the revenue recognized for financial reporting purposes. The Company satisfies the performance obligation and recognizes revenue when the orders are shipped to members. The Company bases its estimates for sales returns and discounts on historical experience and has not experienced significant fluctuations between estimated and actual return activity and discounts given.
Other revenues include management and administrative service fees derived from the non-consolidated facilities that the Company accounts for under the equity method, management of surgical facilities in which it does not own an interest, and management services provided to physician practices for which the Company is not required to provide capital or additional assets. These agreements typically require the Company to provide recurring management services over a multi-year period, which are billed and collected on a monthly basis. The fees derived from these management arrangements are based on a predetermined percentage of the revenues of each facility or practice and are recognized in the period in which management services are rendered and billed.
The following table sets forth patient service revenues by type of payor and as a percentage of total patient service revenues for the Company's consolidated surgical facilities (dollars in millions):
Three Months Ended June 30,
20202019
Amount%Amount