• the risk that payments from third-party payors, including government healthcare programs, may decrease or not increase as our costs increase;

• adverse developments affecting the medical practices of our physician partners;

• our ability to maintain favorable relations with our physician partners;

• our ability to acquire and develop additional surgery centers on favorable terms;

• our ability to grow revenues by increasing procedure volume while maintaining operating margins and profitability at our existing centers;

• our ability to manage the growth in our business;

• our ability to obtain sufficient capital resources to complete acquisitions and develop new surgery centers;

• our ability to compete for physician partners, managed care contracts, patients and strategic relationships;

• adverse weather and other factors beyond our control that may affect our surgery centers;

• our failure to comply with applicable laws and regulations;

• the risk of changes in legislation, regulations or regulatory interpretations that may negatively affect us;

• the risk of becoming subject to federal and state investigation;

• the risk of regulatory changes that may obligate us to buy out the ownership interests of physicians who are minority owners of our surgery centers;

• potential liabilities associated with our status as a general partner of limited partnerships;

• liabilities for claims brought against our facilities;

• our legal responsibility to minority owners of our surgery centers, which may conflict with our interests and prevent us from acting solely in our best interests;

• risks associated with the potential write-off of the impaired portion of intangible assets; and

• potential liabilities relating to the tax deductibility of goodwill.

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations - (continued)
Overview
We develop, acquire and operate ambulatory surgery centers, or centers or ASCs,
in partnership with physicians. As of March 31, 2009, we owned a majority
interest (51% or greater) in 192 ASCs. The following table presents the changes
in the number of ASCs in operation, under development and under letter of intent
for the three months ended March 31, 2009 and 2008. An ASC is deemed to be under
development when a limited partnership or limited liability company has been
formed with the physician partners to develop the ASC.

                                                                          Three Months Ended
                                                                               March 31,
                                                                        2009              2008
Centers in operation, beginning of period                                   190               176
New center acquisitions placed in operation                                   3                 2
New development centers placed in operation                                   -                 -
Centers held for sale                                                        (1 )              (1 )


Centers in operation, end of period                                         192               177


Centers under development, end of period                                      3                 2
Development centers awaiting regulatory approval, end of period               -                 1
Average number of continuing centers in operation, during period            192               177
Centers under letter of intent, end of period                                 1                 3

Of the continuing surgery centers in operation at March 31, 2009, 135 centers performed gastrointestinal endoscopy procedures, 36 centers performed ophthalmology surgery procedures, 15 centers performed procedures in multiple specialties and six centers performed orthopedic procedures. We intend to expand primarily through the acquisition and development of additional ASCs in targeted surgical specialties and through future same-center growth. Our growth targets for 2009 include the acquisition or development of 13 to 16 surgery centers. We expect our growth for same-center revenue to be flat in 2009, compared to our recent historical average of 3% to 5%, due to the economic outlook in 2009, which we believe will result in reduced patient visits and surgical procedures. While we generally own 51% of the entities that own the surgery centers, our consolidated statements of earnings include 100% of the results of operations of the entities, reduced by noncontrolling interests' share of the net earnings or loss of the surgery center entities. The noncontrolling interest in each limited partnership or limited liability company is generally held directly or indirectly by physicians who perform procedures at the center. Sources of Revenues
Substantially all of our revenues are derived from facility fees charged for surgical procedures performed in our surgery centers. These fees vary depending on the procedure, but usually include all charges for operating room usage, special equipment usage, supplies, recovery room usage, nursing staff and medications and, in limited instances, billing for anesthesia services. Facility fees do not include the charges of the patient's surgeon, anesthesiologist or other attending physicians, which are billed directly by the physicians. Our revenues are recorded net of estimated contractual adjustments from third-party medical service payors.
ASCs depend upon third-party reimbursement programs, including governmental and private insurance programs, to pay for services rendered to patients. The amount of payment a surgery center receives for its services may be adversely affected by market and cost factors as well as other factors over which we have no control, including changes to the Medicare and Medicaid payment systems and the cost containment and utilization decisions of third-party payors. We derived approximately 32% of our revenues in both the three months ended March 31, 2009 and 2008 from governmental healthcare programs, primarily Medicare, and the remainder from a wide mix of commercial payors and patient co-pays and deductibles. The Medicare program currently pays ASCs in accordance with predetermined fee schedules.
Effective January 1, 2008, the Centers for Medicare and Medicaid Services, or CMS, revised the payment system for services provided in ASCs. The key points of the revised payment system as it relates to us are:
• ASCs are paid based upon a percentage of the payments to hospital outpatient departments pursuant to the hospital outpatient prospective payment system;

• a scheduled phase in of the revised rates over four years, beginning January 1, 2008; and

• planned annual increases in the ASC rates beginning in 2010 based on the consumer price index, or CPI.

The revised payment system has resulted in a significant reduction in the reimbursement rates for gastroenterology procedures, which comprise approximately 75% of the procedures performed by our surgery centers, and certain ophthalmology and pain procedures.

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations - (continued)
We estimate that our net earnings per share was negatively impacted by $0.05 in 2008 by the revised payment system. In November 2008, CMS announced final reimbursement rates for 2009 under the revised payment system. Based upon our current procedure mix, payor mix and volume, we believe the 2009 payment rates will reduce our net earnings per diluted share in 2009 by approximately $0.07 as compared to 2008 and that our diluted earnings per share in each of 2010 and 2011 will be reduced by an incremental $0.07 as compared to the prior year as a result of the scheduled reduction in rates in those years. Beginning in 2010, reimbursement rates for our ASCs should be increased annually based on increases in the CPI. There can be no assurance, however, that CMS will not further revise the payment system to reduce or eliminate these annual increases, or that any annual CPI increases will be material. Any increase in reimbursement rates as a result of CPI adjustments will partially offset the scheduled payment reductions in 2010 and 2011.
CMS is increasing its administrative audit efforts through the nationwide expansion of the recovery audit contractor, or RAC, program. RACs are private contractors that conduct post-payment reviews of providers and suppliers that bill Medicare to detect and correct improper payments for services. We could incur costs associated with appealing any alleged overpayments and be required to repay any alleged overpayments identified by these or other administrative audits.
We expect value-based purchasing programs, including programs that condition reimbursement on patient outcome measures, to become more common and involve a higher percentage of reimbursement amounts. Effective January 15, 2009, CMS promulgated three national coverage determinations that prevent Medicare from paying for certain serious, preventable medical errors performed in any healthcare facility, such as surgery performed on the wrong patient. Several commercial payors also do not reimburse providers for certain preventable adverse events. In addition, a 2006 federal law authorizes CMS to require ASCs to submit data on certain quality measures. ASCs that fail to submit the required data would face a two percentage point reduction in their annual reimbursement rate increase. CMS has not yet implemented the quality measure reporting requirement, but has announced that it expects to do so in a future rulemaking.
In addition to payment from governmental programs, ASCs derive a significant portion of their revenues from private healthcare insurance plans. These plans include both standard indemnity insurance programs as well as managed care programs, such as PPOs and HMOs.
Critical Accounting Policies
A summary of significant accounting policies is disclosed in our 2008 Annual Report on Form 10-K. Our critical accounting policies are further described under the caption "Critical Accounting Policies" in Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2008 Annual Report on Form 10-K. There have been no changes in the nature of our critical accounting policies or the application of those policies since December 31, 2008.
Results of Operations
Our revenues are directly related to the number of procedures performed at our surgery centers. Our overall growth in procedure volume is impacted directly by the increase in the number of surgery centers in operation and the growth in procedure volume at existing centers. We increase our number of surgery centers through both acquisitions and developments. Procedure growth at any existing center may result from additional contracts entered into with third-party payors, increased market share of our physician partners, additional physicians utilizing the center and/or scheduling and operating efficiencies gained at the surgery center. A significant measurement of how much our revenues grow from year to year for existing centers is our same-center revenue percentage. We define our same-center group each year as those centers that contain full year-to-date operations in both comparable reporting periods, including the expansion of the number of operating centers associated with a limited partnership or limited liability company. Our 2009 same-center group, comprised of 173 centers and constituting approximately 90% of our total number of centers, had 0% revenue growth during the three months ended March 31, 2009. We expect our same-center revenue growth to be flat in 2009. We have reduced our same-center revenue growth target for 2009 from our recent historical averages of 3% to 5% due to the economic outlook in 2009, which we believe will result in reduced patient visits and surgical procedures.
Expenses directly and indirectly related to procedures performed at our surgery centers include clinical and administrative salaries and benefits, supply cost and other operating expenses such as linen cost, repair and maintenance of equipment, billing fees and bad debt expense. The majority of our corporate salary and benefits cost is associated directly with the number of centers we own and manage and tends to grow in proportion to the growth of our centers in operation. Our centers and corporate offices also incur costs that are more fixed in nature, such as lease expense, legal fees, property taxes, utilities and depreciation and amortization.
Our interest expense results primarily from our borrowings used to fund acquisition and development activity, as well as interest incurred on capital leases.
Beginning in 2009, we adopted Statement of Financial Accounting Standards, or SFAS, No. 160, "Noncontrolling Interests in Consolidated Financial Statements, an Amendment of Accounting Research Bulletin No. 51." While the adoption of SFAS No. 160 did not have an impact on our net earnings or net earnings per diluted share, the presentation of the financial statements has been changed. Net earnings attributable to noncontrolling interests, previously referred to as minority interest, is now reported after net

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations - (continued)
earnings. Surgery center profits are allocated to our noncontrolling partners in proportion to their individual ownership percentages and reflected in the aggregate as total net earnings attributable to noncontrolling interests. The noncontrolling partners of our surgery center limited partnerships and limited liability companies typically are organized as general partnerships, limited partnerships or limited liability companies that are not subject to federal income tax. Each noncontrolling partner shares in the pre-tax earnings of the surgery center of which it is a partner. Accordingly, earnings attributable to the noncontrolling interests in each of our surgery center limited partnerships and limited liability companies are generally determined on a pre-tax basis. The most significant impact of this presentation is on the determination of pre-tax earnings, which is presented before net earnings attributable to noncontrolling interests has been subtracted. Accordingly, the effective tax rate on pre-tax earnings as presented will be reduced to approximately 16%. However, the effective tax rate based on pre-tax earnings attributable to AmSurg Corp. common shareholders will remain near the historical range of 39.6%. We file a consolidated federal income tax return and numerous state income tax returns with varying tax rates. Our income tax expense reflects the blending of these rates.
Net earnings from continuing operations attributable to AmSurg Corp. common shareholders is supplementally disclosed on the statement of net earnings. The following table shows certain statement of earnings items expressed as a

percentage of revenues for the three months ended
March 31, 2009 and 2008:

                                                                       Three Months Ended
                                                                            March 31,
                                                                      2009             2008

Revenues                                                              100.0 %          100.0 %

Operating expenses:
Salaries and benefits                                                  30.0             29.1
Supply cost                                                            12.1             11.6
Other operating expenses                                               20.9             20.7
Depreciation and amortization                                           3.5              3.5


Total operating expenses                                               66.5             64.9


Operating income                                                       33.5             35.1

Interest expense, net of interest income                                1.2              2.0


Earnings from continuing operations before income taxes                32.3             33.1

Income tax expense                                                      5.2              5.4


Net earnings from continuing operations, net of income tax
expense                                                                27.1             27.7

Discontinued operations:
Earnings from operations of discontinued interests in
surgery centers, net of income tax expense                                -              0.2


Net earnings                                                           27.1             27.9

Less net earnings attributable to noncontrolling interests:
Net earnings attributable to AmSurg Corp.                              19.4             19.7
Discontinued operations                                                   -              0.2


Total net earnings attributable to noncontrolling interests            19.4             19.9


Net earnings attributable to AmSurg Corp.                               7.7 %            8.0 %


Amounts attributable to AmSurg Corp. common shareholders:
Earnings from continuing operations, net of tax                         7.7 %            8.0 %
Discontinued operations, net of tax                                       -                -


Net earnings                                                            7.7 %            8.0 %

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations - (continued)
Revenues increased $17.8 million, or 12%, to $163.5 million in the three months ended March 31, 2009 from $145.7 million in the comparable 2008 period. Our procedures increased by 35,699, or 13%, to 303,347 in the three months ended March 31, 2009 from 267,649 in the comparable 2008 period. The additional revenues resulted primarily from:
• centers acquired or opened in 2008, which contributed $16.6 million of additional revenues due to having a full period of operations in 2009; and

• centers acquired and opened in 2009, which generated $1.2 million in revenues.

Staff at newly acquired and developed centers, as well as the additional staffing required at existing centers due to increased volume, resulted in a 13% increase in salaries and benefits at our surgery centers in the three months ended March 31, 2009. We experienced a 31% increase in salaries and benefits at our corporate offices during the three months ended March 31, 2009 over the comparable 2008 period. The increase in corporate office salaries and benefits was primarily due to year over year salary increases, additional employees, primarily in our information technology area, and higher bonus expense incurred during the period. Salaries and benefits increased in total by 16% to $49.0 million in the three months ended March 31, 2009 from $42.4 million in the comparable 2008 period. Salaries and benefits as a percentage of revenues increased in the three months ended March 31, 2009 compared to the comparable 2008 period primarily due to a reduction in revenues recognized by our 2009 same center group.
Supply cost was $19.9 million in the three months ended March 31, 2009, an increase of $3.0 million, or 17%, over supply cost in the comparable 2008 period. This increase was primarily the result of additional procedure volume. Our average supply cost per procedure in the three months ended March 31, 2009 increased by approximately $2. This increase is primarily related to higher utilization of disposable supplies at our gastroenterology centers and inflationary increases in medical supply costs.
Other operating expenses increased $4.0 million, or 13%, to $34.1 million in the three months ended March 31, 2009 from $30.1 million in the comparable 2008 period. The additional expense in the 2009 period resulted primarily from:
• centers acquired or opened during 2008, which resulted in an increase of $3.1 million in other operating expenses;

• an increase of $450,000 in other operating expenses at our 2009 same-center group resulting primarily from additional procedure volume and general inflationary cost increases; and

• centers acquired and opened during 2009, which resulted in an increase of $230,000 in other operating expenses.

Depreciation and amortization expense increased $524,000, or 10%, in the three months ended March 31, 2009 from the comparable 2008 period, primarily as a result of centers acquired since 2008 and newly developed surgery centers in operation, which have an initially higher level of depreciation expense due to their construction costs.
We anticipate further increases in operating expenses in 2009, primarily due to additional acquired centers and additional start-up centers expected to be placed in operation. Typically, a start-up center will incur start-up losses while under development and during its initial months of operation and will experience lower revenues and operating margins than an established center. This typically continues until the procedure volume at the center grows to a more normal operating level, which generally is expected to occur within 12 months after the center opens. At March 31, 2009, we had three centers under development and two centers that had been open for less than one year. Interest expense decreased $765,000, or 27%, to $2.0 million in the three months ended March 31, 2009 from the comparable 2008 period, primarily due to a reduced average interest rate in 2009. See "- Liquidity and Capital Resources." We recognized income tax expense from continuing operations of $8.5 million in the three months ended March 31, 2009, compared to $7.9 million in the comparable 2008 period. Effective January 1, 2009, we adopted SFAS No. 160. Our effective tax rate in the three months ended March 31, 2009 and 2008 was 16.2% and 16.4%, respectively, of earnings from continuing operations before income taxes. This differs from the federal statutory income tax rate of 35.0%, primarily due to the exclusion of the noncontrolling interest share of pre-tax earnings and the impact of state income taxes. Because we deduct goodwill amortization for tax purposes only, our deferred tax liability continues to increase, which would only be due in part or in whole upon the disposition of a portion or all of our surgery centers.
Noncontrolling interests in net earnings in the three months ended March 31, 2009 increased $2.7 million, or 9%, from the comparable 2008 period, primarily as a result of noncontrolling interests in earnings at surgery centers recently added to operations. As a percentage of revenues, noncontrolling interests decreased to 19.4% in the 2009 period from 19.9% in the 2008 period, as a result of reduced center profit margins caused by lower same-center revenue growth. We have one center classified as held for sale at March 31, 2009 and we do not anticipate that a loss will be incurred upon the completion of the sale. In 2008, we sold our interests in three surgery centers, closed three surgery centers and classified a surgery center as held for sale. Discontinued centers' results of operations have been classified as discontinued operations in all periods presented, and their net earnings were $34,000 and $320,000 during the three months ended March 31, 2009 and 2008, respectively.

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations - (continued)
Liquidity and Capital Resources
At March 31, 2009, we had working capital of $84.8 million compared to $85.5 million at December 31, 2008. Operating activities for the three months ended March 31, 2009 generated $29.4 million in cash flow from operations compared to $21.5 million in the three months ended March 31, 2008. The increase in operating cash flow resulted primarily from higher net earnings in the 2009 period and reduced days outstanding in our accounts receivable. Cash and cash equivalents at March 31, 2009 and 2008 were $31.4 million and $24.1 million, respectively.
The principal source of our operating cash flow is the collection of accounts receivable from governmental payors, commercial payors and individuals. Each of our surgery centers bills for services as delivered, usually within several days following the date of the procedure. Generally, unpaid amounts that are 30 days past due are rebilled based on a standard set of procedures. If amounts remain uncollected after 60 days, our surgery centers proceed with a series of late-notice notifications until amounts are either collected, contractually written off in accordance with contracted rates or determined to be uncollectible, typically after 90 to 120 days. Receivables determined to be uncollectible are written off and such amounts are applied to our estimate of allowance for bad debts as previously established in accordance with our policy for allowance for bad debt expense. The amount of actual write-offs of account balances for each of our surgery centers is continuously compared to established allowances for bad debt to ensure that such allowances are adequate. At March 31, 2009 and 2008, our accounts receivable represented 37 and 40 days of revenue outstanding, respectively.
During the three months ended March 31, 2009, we had total capital expenditures of $23.7 million, which included:
• $16.3 million for acquisitions of interests in ASCs;

• $6.3 million for new or replacement property at existing surgery centers; and

• $1.1 million for surgery centers under development.

At March 31, 2009, we had unfunded construction and equipment purchase . . .