Q1 2020 Earnings Call
Ladies and gentlemen, this is the operator today's conference is scheduled to begin momentarily until that time. Your launch will again be placed on musical. Thank you for your patience.
[music].
Good morning, everyone and welcome to encompass health first quarter 2020 earnings conference call.
At this time like some form all participants that there will be in listen only mode.
After the speaker's remarks, there will be a question and answer period.
If you would like to ask a question. During this time. Please press star one on your telephone keypad.
You will be limited to one question and one follow up question.
Today's conference call is being recorded if you have any objections you may disconnect at this time.
I'll now turn the call over to Crissy Carlisle encompass health Chief Investor Relations Officer. Please go ahead.
Thank you operator, and good morning, everyone. Thank you for joining encompass health first quarter 2020 earnings call.
With me on the call today are marked car president and Chief Executive Officer.
Cole, our Chief Financial Officer.
Our Jacob Meier, President inpatient rehabilitation hospital.
Patrick Darby General Counsel in corporate Secretary and April Anthony Chief Executive Officer, encompass home health and Hawker.
Before we begin if you're not already have a copy the first quarter earnings release supplemental information and related form 8-K filed with the FTC are available on our website encompass help dot com.
Page two of the supplemental information you will find the safe Harbor statement, which are also set forth in greater detail on the last page of the earnings release.
During the call we will make forward looking statements, which are subject to risks and uncertainties many of which are beyond our control.
Certain risks and uncertainties like the magnitude of impact could not 10 pandemic that could cause actual results could differ materially from our projections estimates and expectations artists gotten the companys FCC filings, including the earnings release and related form 8-K form 10-K for the year ended December 30.
First 2019 in the form 10-Q for the quarter ended March 31st 2020, when filed we encourage you to read them.
You are cautioned not to place undue reliance on the estimates projections got it and other forward looking information presented which are based on current estimates of future events and speak only as that today.
Well, you're not undertake no duty to update these forward looking statement.
Our supplemental information in discussion on this call will include certain non-GAAP financial measures for such measures reconciliations to the most directly comparable GAAP measure is available at the end at the supplemental information at the earnings release and as part of the form 8-K filed yesterday with the FCC all of which are.
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Before I turn it over to Mark I would like to remind everyone that we really are here to the one question and one follow up question rule to allow everyone to submit a question. If you have additional question. Please feel free to put yourself back in the queue with that I'll turn the call over tomorrow.
Christie and good morning, everyone.
I hope that you and your family aren't.
Great and healthy.
We had a lot of momentum heading into 2020 in January and February strong start to the here.
Mid March we began experiencing significant impact from Mike Koban nine few pin debit.
Well, we will touch on our results from core I'll focus my comments on our response the pandemic.
Current operating environment.
Typically oh dressed patient and employee safety.
Supply chain management.
Hi observations.
Our business segments, and legislative and regulatory relief efforts by the federal government.
No well dressed jobs, we have taken to enhance our liquidity and ensure availability under our credit agreement.
Our healthcare workers are critical part.
Rational infrastructure and this battle against coated 19, and our employees are exhibiting ROIC actions during this unprecedented period.
I cannot emphasize enough how much we value and appreciate the efforts of our frontline chains, and providing excellent care to our patients and contributing to our nation's wellbeing.
In a recognition.
They're inspiring effort, we invested approximately $50 million.
For our front line workers and both of our segments through an award.
<unk> paid time off.
Sure teams in the field.
Thank you for your commitment to your profession and for contributing to our country safety and future.
The safety of our patients and employees.
Paramount importance to us at encompass help.
We have taken numerous steps to ensure their welding, including the creation of Cobot 19 task forces for each segment comprised the company leadership.
They brought in background.
Clinical and non clinical.
These past forces are working daily to stay up to speed on the latest information from state and federal resources.
Constantly evaluating and updating the measure place to help our patients.
Please stay safe.
The primary focus of the task forces.
Well I chain management and in particular, the availability of personal protective equipment.
Our patients and employee.
The increased utilization Pee Dee, resulting from Cobot 19 pandemic has created supply chain challenges all health care providers, and we have not been immune to the challenges.
We have experienced reduced allocations PB from primary suppliers.
I just find alternative suppliers.
Paying premium prices that are as much as 15 times, our normal pricing and managing through limited visibility into production schedules and ship status.
We believe production capacity, both domestically and internationally is increasing but we expect these supply challenges, including elevated cost per says well at least the next several weeks.
I need to pause here and thank the members of our supply chain teams, who are working around the clock to secure P.B. and other medical supplies for us.
Demonstrated resiliency in resourcefulness.
Thank you for your commitment to keeping our patients and employees safe.
In addition to our persistent efforts to secure PB other steps we've taken include limiting patient visitors.
And our hospitals to primary care givers, well required training in order to safely discharge a patient huh.
We implemented screening procedures for anyone entering our hospitals, including employees position and vendors.
We also are following the CDC, social dysentery recommendations and our therapy jams and performing therapy inpatient rooms as needed.
Our home based care, we implemented self screening protocols for all employees and are performing pretty busy telephone calls to assess risk factors within the huh.
Including the current health status of our patient and anyone else who is frequently in the home prior to sending our clinical step into the home for their visit.
In addition, most home office and non essential field personnel are working at home.
And we have hole to non essential trout.
No it shifted discussion to current operating trends and actions we've taken in response to them.
Prior to the explosive growth Cobot, 19 cases, United States over business lines were experiencing strong Boeing growth.
However, beginning in mid March we began experiencing decreased volumes in both segments.
And the lower volume trends, we saw in March have continued in April.
And our inpatient rehabilitation segment, we believe volumes are slowly beginning to recover all the remaining out lower than planned pre pandemic well.
We entered March with an average daily census of approximately 6800.
Exited March with an 80 see of approximately 5300.
The 80 see hit a low point Easter weekend.
Approximately 50 150.
Since that time, it has slowly and steadily recovered to its current level of 59 third.
And home Health, our Star <unk> episode, which includes starts with care and Recertifications dropped 5% in March compared to the January February average of approximately 28000.
They are expected to decline by additional 18% in April.
Recent weeks trends suggest a leveling off.
Right.
In Hospice agency has remained relatively stable going from an average 36 77 in January and February to an estimated 36 33 in April.
We believe in number of factors related to the Cobot 19 pandemic have contributed to the decrease in our volumes in both segments.
The deferral of elective surgeries have served a lower census levels at acute care hospitals.
This is not a large percentage of our overall inpatient rehabilitation volume, we do take care patients with multiple comorbidities that out elective surgeries and who need our level of post acute care for the medical management and therapy interventions.
Those patient volumes are significantly down and our hospitals in April.
The deferral of elective surgeries has impacted our home health business.
These patients have historically represented approximately 15% of our admissions.
Sheltered placed orders have reduced emergency department traffic and in turn lowered census levels at acute care hospitals.
Restricted visitation policies in place at acute care hospitals have severely limited access to patients and caregivers by our clinical rehabilitation liaison and care transition coordinators.
Assisted living facilities. That's also been all embarked down which has resulted in a decline in home health admissions and our ability to provide in personal care to existing Homo patients.
In addition.
The heightened anxiety among patients and their family members regarding the risk of exposure to covert 19 during acute care and post acute care treatment has meaningfully impacted our ability to admit new patients and continue to care for existing patients.
Message from the government and health officials has been consistent and clear to the public at large stay home.
We believe it's been so clear inconsistent that's some individuals having strokes heart attacks and other life threatening medical emergency said chosen and continue to choose not.
Not to call 911, or go to the acute care hospital for treatment due to fear of contracting bars.
This is served to further lower sensors that acute care hospitals and in turn has resulted in a decrease in our volumes.
Well, we cannot address patients fear of contracting the Byron swore receiving care and acute care hospital, we've taken steps to address these two years for patients in our care.
For example, and our inpatient rehabilitation segment, we're conducting more therapy individually in patient rooms, when possible and appropriate.
For home based services, we're conducting pre visit phone calls with patients and supporting our in person care with Telefonica is it's when possible.
We're in constant communication with our referral sources to ensure they know we are ready and willing to provide the care needs by patients.
During this time, we are conducting bedside virtually and using phone conversation to educate patients and their families on their risk associated with avoiding post acute care.
In addition to limiting overall volumes at our segments. The fear of exposure resulted in a decrease in the length of stay in our inpatient rehabilitation segment and a decrease in visits per episode in home health, which has resulted in an elevated proportion of loop obscured [laughter].
Summarize the Coca Nike pandemic is creating near term pressures on our operations.
It's impacting volumes.
Revenue per patient and expenses.
At a minimum we expect this choppiness to continue in the second quarter, but at this time, we cannot reasonably predict.
When it man.
As I mentioned earlier.
Although still well below our run rate for the first two month 2020.
We're beginning to see gradual increase in referrals and admissions in both segments.
For our inpatient rehabilitation hospitals, we believe some of this may be resulting from improvements in the turnaround Kobin 19 testing results.
We follow the CDC guidelines for many patients in our markets. The CDC strongly encourage is too negative cobot 19 chest before accepting a patient that was exposed or positive for the bars.
As carbonite chain spread across United States.
The results of tests were taking seven to 10 days to obtain.
In early April the timing of testing results began improving.
In most markets, we can obtain results in three to five days and in some markets, where we see results within 24 hours.
But we're now able to take patients more quickly from acute care hospitals.
We also believe our clinical liaison and care transition coordinators I'd now adapted to working remotely.
Normally are liaison hospitals communicating directly with referral sources patients and families.
They had to learn to work remotely and find ways to improve their communication and processes to stay in contact with acute care case managers and obtain patient information in order to complete pre screen procedures.
Finally, we are starting to hear that acute care hospitals and some other markets are resuming elective surgeries.
And we believe this trend will continue to expand over the next several weeks [laughter].
These are unprecedented times for our country and our encompass health family.
We must be good stewards of our resources in order to ensure we are here for a long term to care for the patients in our communities.
After a lengthy consideration to align staffing with current patient demand. We have developed plans to manage labor cost in response to lower volumes in both operating segments.
In our inpatient rehabilitation segment, we have implemented market specific furloughs.
And home health, we're considering changes to our compensation structure to create a greater level of variability in our cost structure to respond to significant declines and visit Boeing.
As described in the form 8-K, we filed on April 16, another important part of our companies and our nation's ability to combat.
<unk> 19 endemic is legislative and regulatory relief from the federal government.
We are appreciative of the decisive actions that have been taken by the White House <unk>.
Congress HHS and CMS.
Scale this really is unprecedented.
The cares act along with a series of waivers and guidelines issued by CMS includes efforts to help health care providers ensure patients continue to have adequate access to care throughout the pandemic.
Specifically the cares that temporarily suspend the automatic 2% reduction of Medicare program payments known as sequestration for the period from May 1st through December 31st 2020.
[noise] Cares Act also authorized the distribution of relief fund grants from the department of Health and human services to health care providers to support healthcare related expenses or lost revenue attributable to covert 19.
We began receiving payments on April 10, and today, we have received approximately $237 million.
As we previously noted these funds are subject to terms and conditions, including restrictions on permitted use.
At this time and without further clarification from HHS, we cannot reasonably estimate what portion is any of these funds.
We will be able to keep and use.
We are holding these funds itemized and special accounts and are not spending or dispersing. These bonds, while we assessed the terms conditions and permitted use associated with them.
For inpatient rehabilitation segment other regulatory relief efforts include temporary suspension of the 60% rule and the requirement that patients must be able to tolerate and minimum three hours of therapy per day for five days per week.
For home health. The relief includes revisions to the definition of home bounce data during the period of the public health emergency.
The allowance of nurse practitioners and physician assistants practicing in accordance with state laws to certified patient eligibility and provide orders for home health care services and ability to accept so it does for purposes of the required face to face position encounter.
These regulatory actions have given our hospitals and agencies the types of enhanced flexibility they need care for patients and assist acute care hospitals in maintaining hospital capacity and the current environment.
We've also seen a constructive response from managed care organizations.
Which is particularly relevant for our Medicare advantage business.
Maybe managed care organizations have waved preauthorization requirements for post acute care and a few our permitting and paying for Homo televisions.
Lastly in regards to regulatory updates on April 16, CMS released its notice of proposed rulemaking for inpatient rehabilitation facilities for fiscal 2021.
The proposed rule includes a net market basket update of 2.5% comprised of a market basket update of 2.9% offset by productivity adjustment a 40 basis points.
As expected the proposal focused on routine updates and minor technical changes.
It does not include any new quality measures or amendments to existing quality measures.
Using our patients from October one 2019.
Through March 31st 2020, we currently believe the fiscal year 2021 proposed rule would result in an estimate of 2.4% increase in our Medicare reimbursement rates within our inpatient rehabilitation segment effective October Onest 2020.
[music].
Debris my prepared remarks to close I went to emphasize that our operating environment continues to change rapidly along the coast 19 pandemic and each markets response to it.
As noted in our 8-K filing on April 16.
With so much uncertainty we went through our 2020 guidance.
In addition, because 2020 served as a base year for our five year growth targets, we were drew those targets as well.
Throughout all of this one thing has not changed.
We remain confident in the prospects both of our business segments.
Based on the increasing demands for the services, we provide to an aging population.
This confidence is further supported by our strong financial foundation and the substantial investments we've made in our businesses.
We have a proven track record.
Working through difficult situations, and I believe and our ability to overcome current and future challenges.
Encompass health as a resilient organization, whose foundation is its people.
Whether you are frontline clinician, providing patient care or someone who serves and they support function and currently working from home.
I want to thank all of our employees for what they're doing this time of ultra routines and the countless changes in their daily lives.
As noted in our core values.
We are stronger together.
With that I'll turn over to Doug for more details on our financial results.
Thanks, Mark and good morning, everyone.
I'll start with some observations on Q1, and then I'll discuss liquidity and cash flow.
It bears repeating prior to the onset of the Cobot 19 pandemic, we were off to a really strong start this year.
As previously disclosed over the first two months of year Earth discharge growth was 7.7%, including 5.4% in same store.
Home health admissions were up 18.5%, including 5.8% in same store.
Hospice admissions increased 31.5%.
This momentum continued in the first part of March.
These trends service further validation of our strategy and business model.
For the Earth segment Q1 revenue per discharge was in line with our expectations, including our estimate of the impact of section Gigi, which is increasingly difficult to isolate.
<unk> expenses were negatively impacted by the sudden slow down in volume in March and the increased demands for pp in cleaning supplies.
The volume decline, we experienced in the air segment in the back end of March and extending into April cut across virtually all patient conditions and we believe it resulted from a number of factors.
For conditions like stroke in neurological that are appropriately viewed as non discretionary in nature.
We believe there may have been a modest impact for patients choosing not to seek care.
But the larger impact appears stem from these patients remaining in the acute care setting.
This was due both to the excess capacity created in many of the acute care hospitals in our markets as a steep performing elective surgeries, but did not experienced a surge of cobot 19 patients.
And patients choosing to forgo post acute inpatient care due to fear of Kobin 19 exposure.
Other patient conditions viewed as non discretionary and resulting from major trauma appeared to have declined as a result of a reduction in accidents as much of the country sheltered in place.
Finally.
Patient conditions, such as lower extremity joint replacement are highly correlated to elective surgery procedures.
We can see no reason why demand for these services will not returned to pre cobot 90 levels as the environment normalizes and the volume trends we have experienced in April support this piece.
We continue to see strong trends in Medicare advantage.
Our Q1, Medicare advantage discharges increased 21.3%, including 19% in same store growth.
This portion of our business has proven to be relatively more inelastic than Medicare fee for service likely owing the higher concentration of stroke patients.
For Q1, 36% of our Medicare advantage discharges, we're stroke patients.
Our Earth de Novo pipeline remains robust, including the significant opportunities within the state of Florida as we discussed at our Investor day in early March.
I'm pleased to say that our business development team has continued to make progress on many projects even in the midst of the current environment.
In the home Health Hospice segment, we continue to be very pleased with the integration of Alphacare, which was primarily responsible for the Q1 revenue growth.
We also made significant progress on the continued deployment of the metal logics care module, although the cobot 19 pandemic has caused us to pause the rollout of this initiative.
As Mark stated the effects of Pdgm had been greatly exacerbated by the cobot 19 pandemic.
Our Q1 revenue per episode, excluding the positive effect of the Z pick reversal.
Was not <unk> was minus 5.9%.
The largest impact within Pdgm has been a substantial increase in loop Apis and [noise].
For Q1, our business, perhaps so declined to 16.3 versus 17.7 in the prior year period.
This decline was largely due to the heightened anxiety regarding coded 19 exposure of patients and their families resulting in declined visits.
Although we were able to substitute telehealth visits to support the needs of our patients for a portion of the decline in home visits.
Medicare does not reimburse us for telehealth visits and these digits do not count them a loop of determination.
Additionally, as acute care hospitals, [laughter] decline and visitation restrictions have been implemented.
Our referral source mix has shifted away from institutional into community, which under Pdgm carries a lower reimbursement.
Finally, as admissions have declined in Recertifications have stabilized and increased percentage of our 30 day payment periods are classified as late versus early again, resulting in a lower reimbursement under pdgm.
Our whole milk volumes have been negatively impacted by the substation elective surgeries by the acute care hospitals, evidenced by a significant decline and the muscular skeletal rehab category of our patient mix.
We believe this trend will improve with resumption of elective surgeries and an increasing number of our markets, but it's going to take time for this pipeline to rebuild.
[noise] for Q1.
Clinical collaboration rate was 35.9% essentially flat with Q1 2019.
However, as we've discussed on prior calls accelerating growth in our Earth Medicare advantage business weighs down the all pay or collaboration right.
As can be seen on page 19 of the supplemental slides in order to ILLUMENATE. This effect, we provided the collaboration rates for both Medicare fee for service and Medicare advantage in each demonstrates continued progress.
For Q1, the Medicare fee for service clinical collaboration rate increased to 43.8% from 43.4% in Q1 19.
In Medicare advantage increased to 16.3% from 13.5% in the prior year period.
I'll turn now to liquidity and cash flow.
Dealing with a global pandemic certainly was not a consideration when we engaged in proactive financings during the fall of 2019, but the actions. We took have provided substantial flexibility to deal with this unprecedented set of circumstances.
You may recall that last fall, we issued two tranches of senior unsecured notes totaling $1 billion split evenly between 2028 in 2030 maturities.
We utilize those proceeds to replenish capacity under our revolving credit facility and to retire a portion of our 2024 notes.
We also amended our senior credit facility, increasing the revolver commitment to a billion dollars and extending the maturity date 2024.
During Q1, we funded the final tranche.
Of the home health equity puts the exercise of the stars.
[noise], a total of approximately $263 million.
We ended the quarter with approximately $105 million unrestricted cash cash equivalents on hand.
$613 million available under the revolver and with our leverage at 3.5 times.
We have completed an amendment to our senior credit facility, providing for substantially increased financial covenant flexibility through 2021.
We believe the amendment helps to ensure access to the full amount of our revolving credit facility, even if the effects of the pandemic persist throughout the year.
I should note that this time, our plans do not contemplate any utilization of the care Act relief bonds, we have received or might receive in the future.
We continue to evaluate the terms and conditions governing the utilization of these funds.
Turning to cash flow there are a number of factors that will serve to at least partially mitigate the negative impact of lower revenues and higher expenses.
The Medicare sequestration holiday covering the period of maybe first through December 31st.
The deferral in payroll taxes.
A reduction of 100 $150 million in 2020 planned capital expenditures largely based on project pacing.
And the suspension of activity under our share repurchase program.
And now we'll open the lines for questions.
[noise]. Thank you as a reminder, ladies and gentlemen in order to ask a question. Please press star and the number one on your telephone keypad.
[noise] as a reminder, please limit yourself to one question and one follow up.
My first question comes from one of not really of William Blair.
Good morning map.
Hi, good morning, Thanks for taking my question.
I wanted to fall from some of your comments.
About sort of patient stratification.
Volume levels, just wondering if you could maybe help quantify a little bit.
What the patient category looked like in the back half of March again, focusing on things like stroke down to L.A.J.R.
And what sense of trying to like and in April and then how you factored into your outlook I'm sort of that return to procedures, starting potentially on my first some bigger markets and what you're hearing from FX real partners.
On prioritization of procedures.
Well that there's a there's a lot there let me try to start with the first part of that question. So I think very much like March what we're seeing transpire in April is a a tale of two different periods. So for March obviously, the volumes changed very much.
Dramatically from the first tab to the second half and an April seen kind of a reversal of that in the second half of April from a continuation of those trends into the March.
The first part part of March we were seeing trends looks such as <unk> logical additions down in excess of 35% stroke down more than 20% lower replacement joint down in excess of 40% and the declines were really across all patient categories.
The rebound that we've seen in volumes as Mark discussed in his comments.
Since really the the Easter weekend in April.
Ben predominantly in the non discretionary categories, but we are seeing a lift across all of those categories.
In terms of the resumption of elective procedures, it's really a market by market thing and we haven't had enough time to really see how the prioritization is taking place and how that book of business is building.
But I'll just add on this is mark having elective procedures start back up acute care hospitals will.
Clearly helped impact home health and they benefit a lot more from the elective procedures, but I think even though a lot of bar patients in our rehab hospitals aren't beyond electric procedures, just having the activity back in the acute care hospitals, where do you have the discharge planners and social workers and.
Potential referral sources for us to once again have one on one clinical conversations and have the ability to evaluate patients first hand versus having to do all that worked over the phone with our clinical liaison Sun care transition coordinators, we'll have a positive impact now.
Our regaining our volumes that we lost during this period.
Matt I think it's worth underscoring again, I know, we threw a lot actually during the prepared comments, but the DC comics and the trends that mark referenced in his portion of the script.
So to reiterate those we came into March running an 80 see in our inpatient rehabilitation segment of 6800.
We hit a low point on Easter weekend at 50 150.
And today, we sit within.
50, 930, so the low point, we were off from that trend at the beginning of March almost exactly 25% and we have now regain half of that back as we sit today within ups sloping curve.
Got it. Thanks, that's helpful and then just as a follow up.
You know Mark you alluded to that sort of a number.
The legislative changes I, just wondered maybe barbin April will be able to chime in on.
Whether those have actually impacted your ability to or.
What do you have actually taken additional patient as a result personal changes and then others will change is what you think might monkey, most impactful or at the most staying power thinking about sort of post helping.
I will start first with a bar Winona last April to comment.
Some impact maybe coming from the waiver that particularly the 60% rule and the three our role its a little early to tell 'em exactly what's coming from that we focused a lot communication of these waivers to the recycling person with so many folks looking remote both on our side any acute care side. This communication on.
Understanding of the waivers takes a little bit more time than usual, but I will say I'm. The one that probably has the greatest benefit is that three hour rule waiver because there are patients historically that may have been able to come to earth that had the medical necessity needed the medical oversight, but maybe could not tolerate three hours is there.
And today, we'll be able to admit those patients and I think that's going to be a big support to the acute care hospital.
On home Health side, Matt I would say you know the biggest kind of long term value for us is the ability for MPS npis to be able to sign orders prospectively I think that's gonna give us a much easier flows communication when we have larger practices, where they have been piece in D.A. and in our rural markets, where many of the patients to be.
Served primarily by those Mpvs and P.A. Gonna open up a whole new Avenue, a referral source for us.
I would say to date that that's had a relatively minimal impact, but I think there is overtime as that new provision stabilizes and his long term that's going to create opportunity for us in the future big in the near term and probably the biggest value. We've seen is the ability to virtually have a presumptive homebound that is obviously in this.
Environment, our high risk seniors are advised to stay home. So the ability to document that homebound data and rely on the physician recommendations wasn't to be homebound has been helpful. Probably in more administratively than anything but it's certainly a you know it held during the course of the P 80.
Okay. Thank you.
Our next question comes from one of Kevin Fischbeck of Bank of America.
Well Kevin Kevin.
Hi, how are you actually have a bride bowers on for Kevin today. Thanks for taking my question, So home health side of the business.
Episodes were down more than in mission that normal fluctuation. There is that a result, the co bait or is that because you're not counting a you know some of the telehealth visits a than you might not understand.
Getting reimbursed what.
<unk>.
Well not not sure completely following your your question, but certainly as we see admissions decline that has a pull through a impact on episodes that because episodes are still 60 days nature, even though broken down into 30 day payment period.
We're not really seeing that slowdown admissions that happened in the second half of March were really start to have an impact on ended episode is more as we move into the late May and June timeframe. It does that start kinda fading out don't think that weve necessarily you'd have seen anything specifically indicative in our ending episode.
PGM, Mississippi nature of the waterfall, so I don't think there's anything there.
Okay. That's helpful. And then just as a quick follow up to that is there anyway that you could quantify.
Impact from the loop bars that the majority of the decline in the pricing.
So we still count those patients as episodes, even when they are receiving a low utilization payment. So I would say the impact of the lupus is more reflected in the revenue per episode that it isn't a decline in at the said because they are still considered an episode even if there at least.
And and we're looking at the decline in the decline in revenue per episode related to live because in the back half of a marks that were accelerated because a pill that being about seven tenths of a percent on the rate.
Okay got it that's that's very helpful. Thank you.
Our next question comes from the line as Matthew Gilmore of Baird.
Turning back.
Well that act.
Here are you.
Hey, I'm, sorry, good morning, I need to myself, sorry about that I'm sorry.
In a lot I was hoping you could you talk about the that carries grant just just a little bit you know I know you're seeking clarity on some terms can you talk about sort of the clarity or looking for and then just where do you stand in the process are you still waiting for HHS to come back to you.
Well this market, although I'll ask Doug delaying too I think that as we said we'd park given a specific accounts of which.
We have no anticipation of using those funds or moving them out until we get additional clarification, there's a lot of language.
Around the terms and conditions.
That we'd like to get additional clarification on if you think back about how other similar types of government funding has been done in the past a there's not a lot of information relative to the definition of a lost revenues or language around.
Appropriate ways to use this for expenses so.
We would just Oh, we're taking a very cautious stance on it a we know it's not free money, a and we're being very diligent in our review of the circumstances and language around these funds.
Hi, Matt Let me try to give you just a couple examples of why we at least got a sense of caution as we approach is a first the current form of the attestation is open ended and it seems clear that additional terms and conditions can and will be added after the fact.
We don't know what those might be or how owners as might be.
Second example is the funds will require extensive reporting and auditing and those requirements are likely to increase with time.
Those requirements could also proved to be somewhat own risk and as an example, we received funds at 209 separate legal entities and it remains unclear at this point as to whether or not we'll be able to aggregate those funds for utilization for reporting purposes.
Got it fair enough. That's that's really helpful. And then is that as a follow up on some of the labor cost initiatives that seemed a.
A little bit new with this press release is there way to quantify sort of what what you've already implemented versus what you're thinking going forward and then on the on the home health side of it sounded like there's a plan to move to a per visit comp model can you give us a sense for kind of how you're approaching that hum.
Matt Hey, this is mark I'll.
If you pointed to the NASSCO Barb and and I pulled away again, just a reminder, as we went into this.
Hello, Good period, we were very much working with our primary referring acute care hospitals, which were all gearing up using various models to anticipate a surge in these patients coming through there do you care side. So we wanted to make sure that says that we're there are there to service.
Our acute care a partners.
And so we were very careful not to eliminate a lot of staff that would've been needed.
To help manage that surge and patient flow through the Q cares and to post acute non most of our markets that never came to be I think through social distancing and other measures taken.
Hopefully a we saw a a flattening of the curve so to speak and did not see that big surge of patients coming through but if you would have looked at how we've managed our labor outside of a pandemic setting.
We would have taken a quicker action to it but we wanted to make sure we were being responsible in our marketplace has to be part of the answer for the acute care and this anticipated surge. So I'll ask a bar to talk about the furloughs first and then go on April relative to the.
Compensation change.
So first before we started evaluating for the Furloughs you know we were flexing staff, but I think it's important to note that as we flex data that was not see what you would consider our prior labor metrics and that is mainly because of the decrease in productivity that has been occurring during the current 19 time that includes things like the bed side there.
Our fees, that's the time that it takes to die and off the personal protective equipment. So we've had to look really hospital by hospital, if we'd love to manage other labor metrics I. When it came time to really make the decisions on the furloughs. The furloughs are affecting about half of our hospital market approximately a thousand F T E.
It is difficult to associate a dollar savings at this time as there are folks that we'll be using a they're paid time off initially and then also as mark alluded to in his opening comments. The volume is starting to recover and in some markets. We maybe pulling back from Berlin earlier than anticipated, but obviously that would be good news.
In home health market, we have a as you know from our prior discussions at a pretty high percentage of our visit historically right around 80% has been performed by our full time salaried and fulltime hourly staff and so when you see a rapid decline like we did beginning in mid March continuing through into.
April it's hard to make that quick of of course correction as Mark said, we wanted to be very cautious but to ensure that we had that's available to support the surge. If it were to come but also take care of our value staff members along the way and so we have been a is taking our time and making that decision trying to make.
Agents and good use of our sources, we actually see the percentage of our visits that are being completed by this full time staff since the middle of March have continued increase week over week as we offload per visit that a staff and begin to allow align more of the visits with our full time staff members that being said as we move into the eight week of this.
At this pandemic I think we definitely recognize that we're gonna have to make some alteration.
I don't think we're going to go all the way to what you suggested which is to move our staff fully to a per visit model. We think we've had a lot of benefits over the years from having a dedicated full time staff that focuses on a on the quality of care that supports the mission of our organization that make sure that our patients are getting the very best outcome and that our our call.
Sure. It's supported so we think that we can find a way to do both to retain or fulltime data that those employees and yet create a little bit more variability in the cost structure. So we have to be announcing some adjustment that will create some of that flexibility and yet still honor our full time staff members.
Great. Thanks for the detail.
Our next question comes from the line.
Now a view yes.
Well with more way.
Hey, thanks.
I was hoping you could just elaborate a little bit more on the reprioritization of capital spend.
What you're deferring what your just canceling out outright and Doug I know it Super early but how do you think about your 2021 plan at this point it might just be helpful to hear how your.
You know thinking about the puts and takes that might go into your your three year plan at this point.
So with regard to the capital spending again, we believe that we'll be taking 100 $150 million out of our original planned capex and the bulk of that is project pacing related to both de Novo activity and then also to a lesser extend to some of the major remodels we.
Have and some of that frankly is not driven by choice. It happens to be a favorable consequence, but just given the overall environment work has slowed on any number of projects because of things like the availability of licensing and permitting personnel and even zoning.
Bearings requirements, and so forth, where you can't get administrative personnel at the state local level because that are on work at home status or did not working at all.
It's not going to materially change what the pipeline looks like.
In terms of 2021 and beyond although you see the syndicated and supplemental slides there is the possibility that some projects could.
Could could shift from one year to another.
But overall, that's that's where the bulk of it is we we also have that $50 million to $100 million allocated for home health hospice spend we do think that they're going to be additional consolidation opportunities that emerge out of this environment.
But that has not that it's not manifested itself. So far if we're getting further along here.
In terms of 2021.
You know, there's a reason that we pulled our guidance for this year ends because we're dealing with an unprecedented some circumstances and we don't know how longer severe the impact of coded 19 is going to be out again, we are very optimistic by the trends that we've seen in both business segments, but particularly on the Earth.
Outside in the back end of April I ended that trend continues to make was in position, where we can be looking into 2021 that has not materially different from the expectations that we had coming into the beginning of this year.
If there is a resurgence of koby 29, which many in the medical community anticipate to some extent in the fall or winter of next year. That's obviously going to have an impact on our business. Although we think we'll be going into that better prepared to deal with the response and I believe that will be the case for the entire medical community.
Well remain very committed to our long term growth prospects as as Doug mentioned start in 2021, we're very I'm pleased to be bring on four hospitals. A this year. We already have opened up our Marietta, California Hospital in February we have two coming on in June and then we'll have Toledo coming on top.
The ended year than Weve acquired one new home Health agency in Fredericksburg, Virginia. So we're very excited actually Lewisburg, Virginia, but we're very excited about our growth prospects for long term.
But as I mentioned in my comments one of the things I'm very pleased about is our business development team has continued to make progress on adding projects to the pipeline, even as most individuals and business development both.
Our organization and on the acute care hospital side.
Moved to work at home stats.
Okay No that's super helpful. Thanks, Scott Krasik Im good thanks.
Our next question comes from one of Brian Tanquilut of Jefferies.
Hey, Good morning, guys. Good morning Hope you guys are all doing well save.
I guess my first question is.
As we look past so that assuming we normalize you know we're facing the possibility of the recession high unemployment I think mark during your prepared remarks, you talked about the resiliency your business and how you've done well are you done okay in the past in tough environment. So he was walking through how you're thinking about that and the track record.
You guys had been recessionary environments, especially given the kinds of services will you provide.
Yeah, So prime given the nature of our a patients and the fact is the senior population that we just not seen any impact in the historically from from recessions just as if anything it's been a recession proof.
The impact our business to grow the deal so as I've said, we see.
Clearly near term impact from its pandemic will give the through this and and there'll be some sense of normalcy. We continue to believe that demand for services will grow as I said earlier, we're committed to the long term growth prospects and both of our segments.
We believe that there'll be significant opportunities on the home health front, a once things settle down pandemic.
We have outlined a number of the attractive markets that we believe that we'll have growth opportunities on the earth cyber business. So we're very.
Confident in the underlying drivers of the continued need for our services and our opportunity to grow.
Yeah I appreciate it I guess my second question you just for Barb.
You know Medicare advantage has been growing quite well for you guys.
Is there anything that we should be thinking about in terms of like rate differentials or any thoughts on what's driving m-.
Growing faster than the rest of the books.
I think it's helping on the gross side, it's really been about them understanding the value proposition I mean, we don't have their data, but we have Medicare claims data silicon weekend. When we can bring on information to show, how we compare particularly to the skilled nursing facilities in our markets and much less readmission rate that obviously because of the costs.
To the end they providers. So when we can really have them understand the value proposition I think that's been the piece that's been a what's helped us convert so many of the certifications are being allowing the admission, particularly on the strep sites to our hospital.
Over the years, it's got to talk about the path, we've really moved away from those premiums on the M&A side I to really CMG level like we are with Medicare. So we've made great progress there.
Our payment differential between Medicare fee for service to Medicare advantage them first quarter was down 6%.
In his barb suggested that relates in large part the fact that we move.
An increasing percentage of our Medicare advantage book of business to a case rate, but it also has to do with patient mix as I mentioned for the first quarter, 36% of our patient makes a Medicare advantage was in stroke and that carries a higher revenue per discharge.
Our next question comes from one of A. J Rice of credit Suisse.
Hi, Jay wondering.
Hi, everybody.
I guess, what do you guys talked about the dip in volumes you see the whole bells sound like you might add three main drivers behind that.
The lack of a post acute referrals coming out of the acute care setting logged downs in the assisted living and Oh area and then I think there was also the mentioned of.
People just worried about the risk of Ah taking on the.
Taking on hold melt it visited in their home when there are locked down anyway. It's because obviously, we can track each one of those separately I think or get a sense of how their evolving can we it did you say how much are roughly each of those this is driving the softness versus a one of the others.
But you know, it's a little bit difficult depend them down totally but you know we think the elective surgery component and that has historically made up the at mid teen a to high teens level of our total referral. So weve seen those virtually dry up all the orthopedic procedures for hips and.
Joint shoulders, those components have been pretty significant they're not they're not the road to some of those are still happening at the result of the break or fracture, but seemed a significant decline a in those component.
When we look at the risk of patients kind of rejecting here, we've seen a little less seven I haven't seen as much of a decline in our conversion from referral to admission that dropped by about three basis point, but we mostly are seeing that patient dark that's sort of accepting the initial admission but then there.
Leaning down the visits to the point that we're seeing our LUPA rate.
Jumped from sort of the 8% level prieto that up to about a 14% level. At this current time, so that was really a little bit less than the conversion to admission more says once they get here. They they want us fairly slim a number of interactions and we're doing a lot of the support of those patients with one visit.
At the at Telephonic intervention, which as Mark mentioned are not yet billable a in home care space, We certainly hope Medicare will revisit that at some point, but at this stage, we can support patients that way, but we can't count that as a visit the ideal aisle component I would say as well a little bit less substantive as it relates to the admission.
And more impactful as it relates to the Lipa right because we like we just see that patients were serving in those communities, we're having left access and they might let our nurses and but not a therapist and so we've just seen more lupus being created in that market as well as opposed to pure volume's I'd say most of our volumes.
Fine.
Ben as the result of low hospital census, and elective procedures not occurring at the moment.
Okay, and then maybe just a follow up on a PDG. Obviously, we're watching how that played out there's clearly a lot of noise now given everything else is going on but have you been able to offer assessment of how is that tracking as you thought it was better worse and I guess.
Well. This is about the time you guys said that you thought Pdgm would drive some.
Inquiries from some of the smaller home helps them.
Agencies I know, it's hard to completed deal when you can't be with people face to face but are you.
I'm seeing batteries the crisis sort of mitigating the need somehow for people to go given that they made here more willing to take the federal money that's available or something.
Yes. So me a first sort of address your question about Pdgm I think you have going into kind of the mid March timeframe. We were actually feeling like Pdgm was coming out you know slightly better than we had hoped that it would from a rate per episode basis, a that took us a pretty hard turn in the back half of Martinez.
Lupus expanded we found the transition to be a little bit more as you know costly moving from the P.S. wind down and Pdgm Ah, but as far as a recurring basis I think we were feeling pretty good about effectiveness with which we were managing through the pdgm process and that the rate impact was definitely within the realm of our.
Patients we painted in the fourth quarter, what we think we're seeing on the acquisition side is obviously, that's or are not having necessarily time to enter into pro active discussions about acquisition and the combination of the advanced payments by Medicare the PPP loans to small providers.
And then the pro rata share. These cares act dollars all of those have created a bridge for those small agencies, who are struggling from pdgm perspective to kinda live through it.
And and so we haven't seen Oh, a wide scale the interest level and in a in talking about transactions right now that we think those three federal support programs is the reason that things that sort of slowed down on that front.
Okay. Thanks.
Our next question comes from one of Tito such a thing I was Dutch bank.
Hey, good morning, guys. Thanks for taking my questions I'm going back to the Earth for second I look into stroke in the neuro patients I understand from the script. There's some patients are not seeking care, but I believe you said that the larger impact was a patient staying in the hospital are those patients staying in an urban setting in the hospital or just longer length of stays.
Within the hospital, then being discharged directly into the home as one make sure I know were these patients are going.
Yeah, I think it's actually bulk yeah. We did you do have hospitals that have they're missing part units and in those situations because they don't have the elective surgeries in those other things those are the patients that they are keeping so we're not seeing that overflow calm, but I also we didn't feel the impact in those hospitals that do not have the distinct heart units.
Same point that it with those patients were seeing a lot longer initially, particularly in March in early April was taking so long to get because the 19 passed back that are linked to stays 13 days and there were times of patients were 10 days leading for result, that's test the results are coming back much quicker now and so we're able to.
New those patients out of the acute care hospitals into or a much bigger now we get to that the back half of April.
I think it's important to it's important that when the when acute care hospital started really winding down in and making sure. They had open capacity for these cobot patients. They also said all their discharge planners and case managers are a lot of them.
To work from home and and on the phone and that that gave us that took away all of our visibility.
And the wise acute care hospitals relative to what types of patients they had or what types of patients would be suitable for for our care thinking also was very distracting relative to just the overall flow patients through the continuum from acute to post acute so like I said I think.
Very important to note that with the increased an elective procedures there'll be a more normal pattern with onsite discharge planners that we'll have the ability to have access to know we'll know a lot more about what's going on to care hospitals.
Focusing on that nobody is it.
It took more time than I think most folks would have anticipated for the regulatory relief that Barb described in one of her earlier responses in April as well. We're speaking now the ERV side and for the benefits of the elimination of the Preauthorization.
Within the Medicare advantage plans and within the the MCR is in general it took a longer period of time for those to make their way down to the market by market level.
Okay second application of specific guidelines that had to be disseminated all the way down before they become actionable and have any impact on volume. We believe we're just now starting to see the benefit of.
Those items on our volumes.
Okay that makes a ton of states and then for April or on the tell a bit to see if you tell medicine I understand like a reimbursement and the margin Petrus coming from that but can ask how effective are you seeing a total visits at this point if many Christmas reimburse reimburse it could just be a merchant game changer Ah for home health It did.
Permanent.
You know I think we have certainly seen that if done well and thoroughly that the television can be a valuable interaction. There is no replacement for the nurse, putting her eyes on the patient taking their vital sign communicating directly observing their health status and so we don't think.
It's an equivalent trade, we do think that it could be a supportive to a hands on care, but we would never see it is something that we think would be a significant replacement of hands on interaction that perhaps just I'm. An addition, and a potential small volume substitution for my visit.
Great.
What's got.
[laughter], ladies and gentlemen, we have time for one more question. Our final question will come from the line of Sarah James of Piper Semis.
Thanks Sara.
Hi, Good morning, Thanks for squeezing me in.
So wanted to just follow back on the comments you made earlier about consumers choosing to.
Instead of waiting their home health does it.
I'm wondering what's in April if you saw a difference from the beginning of the mines to the end of the month on that as consumers, where does get used to the new normal that they might be living with this contagion out there it's true 21 or until a vaccine is it's created.
They open opening up towards the end of April any different than you saw the beginning of the month of one has.
Some help us it.
We are actually seeing a return to that and I think it's it's multifold I think particularly we're seeing some of the Lf I left communities a realized that if you you know were again into that kind of eight week of this pandemic. The besides can't go without care for that extended period of time and so as proper pp.
He became more readily available as we could come in I'm, you know fully donned NPP the risk for both our caregiver and for the patient in the community went down dramatically said, we've seen some of those facilities open back up to us under those guidelines of 50 P.. We've also seen that with patients and.
Our individual home kind of the same reality not only of just the duration of death, but you know you may be able to get a week or two without your therapy and not notice it but you get three and four weeks into it it starts to really affect your quality of life your risk of falling a combination of factors and so I think as patients have come to the realization that this is ray.
Really not an elective choice I really need this I might be able to postpone it short term, but long term. It's gonna have a negative help impact we've been able to have conversations with patients and bring that back and so we have seen a flight recovery, we certainly hope that our LIBOR rate that I mentioned.
Sort of hit a high pointed about 14% begins to I begins to come down now as we move into the May timeframe, and we're seeing little little bit of but hopeful signs in that direction.
Great and last question is.
Earlier in the call you guys mentioned, a mix shift to community referrals away from institutional.
And that the community referrals pay less can you help us understand a the difference in the payments, it's community versus institutional or thrills, and then are you starting to see in April.
Any reversal of that trend.
But yeah and though in the last two weeks of April we've seen a little bit of progress in our overall referral trend than it is being driven by a institutional referrals, we believe and so that that's an encouraging sign and hope that as elective procedures begin to come back online and in a number of state that will slowly.
Ah you know see the at the trickle increased to a steady flow of opportunity of the reimbursement differential I don't have that statistic right in front of me, but there is in fact of reimbursement did differential between episodes that are early institutional versus early community and so oh, we can get pulled that day.
<unk> Christy can provide that he more specifically after the call, but there there is definitely a just a structural difference in that reimbursement within the Pdgm system.
Okay. Thank you.
Ladies and gentleman that was our final question Oh, no like to turn the floor back over to Crissy Carlisle for any additional closing remarks.
Thank you again for joining todays call. If you have additional questions. Please call me at 2059 705 860.
Thank you ladies and gentlemen, this does conclude today's encompass health first quarter 2020, <unk> earnings Conference call. You may now disconnect and have a wonderful day.
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