Q2 2020 Encompass Health Corp Earnings Call
Good morning, everyone and welcome to encompass helps second quarter 2020 earnings conference call.
At this time I would like to inform all participants that their lines will be any listen only mode.
After the speaker's remarks, there will be a question and answer period.
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You will be limited to one question and one follow up question.
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I'll now turn the call a richer crissy Carlisle encompass helps cheapened <unk> Investor Relations Officer. Please go ahead.
Thank you operator, and good morning, everyone. Thank you for joining encompass Hill second quarter 2020 earnings call with me on the call today are more car President and Chief Executive Officer.
Cole, our Chief Financial Officer.
Our Jacob Meier, President inpatient rehabilitation Hospital, Patrick Darby General counseling corporate Secretary in April Anthony Chief Executive Officer at encompass home health in hospice.
Before we begin if you do not already have a copy.
Second quarter earnings release supplemental information and related form 8-K filed with the FCC are available on our website encompass Hill Dot com.
On 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 it impacted the cobot 19 pandemic that could cause our actual results to differ materially from our projections estimates and expectations.
Discussed in the Companys FCC filings, including the earnings release in related for making a form 10-K for the year ended December 31st 2019 in the form 10-Q for the quarters ended March 31st 2020 in June Thirtyth 2020, when filed we encourage you to read them.
Our cautioned not to place undue reliance on the estimates projections guidance and other forward looking information presented which are based on current estimates of future events and speak only as of today.
We do not undertake no duty to update these forward looking statements.
Our supplemental information in discussions 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 of the supplemental information at the end of the earnings release and as part of the form 8-K filed yesterday with the FCC Oliver.
Our available on our website.
Before I turn it over to Mark I would like to remind everyone that we really did here to the one question. One follow up question rule to allow everyone to submit a question. If you have additional questions. Please feel free to put yourself back in the queue with that I'll turn the call over to Mark. Thank you, Chris and good morning, everyone.
The challenges presented by the ongoing cobot 19 pandemic happen it continued to be significant.
But thanks to the amazing efforts of our child food devoted team members throughout the organization. We believe we have implemented plans are across the organization that will allow us to continue to succeed the phase to the ongoing challenges.
Oh, let's first talk about are born.
Patient volumes in both business segments.
Substantially rebounded from the low point experienced a neighborhood.
At the end of June inpatient rehabilitation census had rebounded to 95% of pre pandemic levels and home health sports with care had rebounded to pre pandemic levels.
Positive volume trends have continued in July.
Volume disruptions caused by the pandemic vary by market.
Most of our markets has seen a meaningful level of recovery.
Factors that have impacted our volumes include the number of cobot 19 cases in a community.
The status of operations at acute care hospitals.
The number of exposed or positive staff in corn team.
Ladies and obtaining cobot 19 test results for patients and employees.
Pasadena limitations graded by semi private rooms, and some of our hospitals.
Well covered patients do not comprise a large percentage of our patients many of our hospitals home health agencies and hospice agencies treat patients recovering from the bars.
These patients.
Many of whom I've spent time on ventilators have endured extended stays at an acute care hospital.
They are extremely weak and require intense rehabilitation to regain both their strength and cognitive abilities.
Fortunately some facilities in the post acute space have face significant challenges cobot 19.
In contrast, our rehabilitation hospitals and home health agencies have been able to help recovering patients.
Turn to their independence and pre Kubas lives.
Resurgence of the pandemic in some markets that previously reopen such as Florida.
Texas in Arizona May temporarily inhibit further growth for.
However, these resurgent markets also or where we are seeing Medicare advantage plans once again relax preauthorization requirements.
When the Preauthorization requirements were relax in May we experienced a higher conversion rate of these patients.
Let's move now to pricing, where the Kobin Nike pandemic is impacting each of our segments differently.
Net revenue per discharges being positively impacted and our inpatient rehabilitation segment by a higher acuity patient mix, resulting from the pandemic and the suspension of sequestration that began may 1st.
The acuity of or patients increased in the second quarter of 2020 beat to the deferral of elective procedures and patient anxiety, causing only the most acute patients to seek medical treatment.
Well revenue per episode in our home Health business is also benefiting from the suspension of sequestration Cobot 19 pandemic exacerbating the expected negative effects.
Winning pdgm.
Lose remain higher than we'd like but they have significantly improved as of the end of the second quarter.
Some patients families and senior living facilities remain cautious about allowing our clinicians into their homes and buildings.
But the treatment refusals have decreased.
To further reduce patient anxiety, we have improved communication with patients and families regarding our infection control procedures and adapted our visits to ensure proper social distancing during periods, where hands on treatment is not required.
In addition, as acute care hospital centric declined and visitation restrictions were implemented our admissions source mix shifted from institutional two more community based which carries a lower reimbursement under PGGM.
Additionally, the declines in admissions coupled with the need to maintain proper cobot risk monitoring of patients and later stages of their care plan.
Altered in the patient mix shifting from early payment periods to late payment periods, which also carry a lower reimbursement level.
The cobot Nike pandemic related impact on patient volumes staff productivity and medical supplies also is increasing our operating expenses.
The safety of our patients and employees is of Paramount importance to us.
Making the availability of personal protective equipment, a priority for our supply chain management teams.
Increased utilization and increased unit cost has been a significant challenge to healthcare industry.
<unk> costs have increased eight times on average.
And our inpatient rehabilitation segment utilization of P. has increased approximately 12 times for mask and four times for downs.
This type of PBT was not widely used historically in our home health and hospice segment. So these costs are predominately new for that segment.
We pick a number of actions to address ongoing P.P. issues. This includes identifying and contracting with secondary supply sources as well securing additional warehouse space and logistical support from our primary distributors. So we can have larger levels of inventory on hand.
We are confident we now have adequate inventories of PV and we have secured supply sources to meet our immediate foreseeable needs.
All these challenges remain in the near term they will eventually abate.
And as the population ages the demand for high quality care, we provide across our three service lines will increase.
Throughout this pandemic, we've continued to expand our national footprint.
We've opened three new hospitals in 2020, including two added in the second quarter in two states that are new for Us, Iowa in South Dakota.
And we expect to open a new 40 bed hospital in Toledo, Ohio in the fourth quarter.
In addition, we expect to add at least 120 beds to existing hospitals in 2020 with 53 of these beds already operational.
Recall that at our Investor Day earlier this year, we discussed a growth target of six to 10 de novos per year, starting in 2021.
For 2021, we've already announced plans to build eight new hospitals, and we've announced five new hospitals plan for 2022.
Specifically at our Investor Day, we announced we had identified 15 high potential de Novo markets in Florida.
As of today are expected 2021, and 2022 hospital openings include five new encompass health herbs in Florida, and we're not done in Florida or in other under bedded markets across the country you can expect more announcements in the coming months.
Oh, this demonstrates our commitment to and confidence in our future.
We also continue to seek opportunities to expand our national presence in home health in hospice.
Well, we continue to believe Pdgm will result in consolidation of the home health industry current M&A activity is minimal.
As even small agencies are focused solely on their response to covert 19 pandemic and are being supported by the PPP and cares Act funds.
Thus far in 2020, we've opened or acquired two new home health locations and one new hospice locations.
We remain diligent in assessing opportunities and keeping our ear to the ground in local markets.
We believe depressed volumes.
Ability to easily flex cost and expanding of all government support neighboring small agencies before front soon and we are hopeful. There are also will be opportunities upscale that will choose to come to market. Later this year for early next year.
Now no health care earnings call would be complete without a regulatory update.
In the second quarter CMS released the fiscal year 2021 proposed rule.
Patient rehabilitation facilities in calendar year, 2021 proposed rule for home health agencies.
Both rules were largely in line with our expectations and contain minimal changes to the 2020 rules.
The Earth proposed rule includes a net market basket update the 2.5%.
The home Health proposed rule includes a net market basket update of 2.7%.
For home Health and it's also important to note that CMS acknowledged in the proposal that it had insufficient information to determine if the negative 4.36 behavioral adjustment was an accurate assumption for 2020.
CMS indicated they will revisit it in future years.
Also on the regulatory front CMS announced plans to extend the RCD program into North Carolina, and Florida effective August 30, Onest 2020.
We and many in the industry will leave the timing of such a rollout is advise given the amount of added interaction RCD process requires with physicians and already taxed environments like Florida.
However, we have proven our ability to meet the standard in Texas, Ohio, and Illinois, and we are equally confident we can do so in Florida, and North Carolina if necessary.
In summary, our business fundamentals aren't changing.
And we believe the pandemic has created an even stronger awareness of the level, we provide and our hospitals and the value of our home care service lines.
Well, our operating environment continues to change rapidly along with the cobot 19 pandemic and each markets response to it.
We remain confident in the prospects of 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 have made in our businesses.
We have a proven track record of working through difficult situations.
And I believe in our ability to overcome current and future challenges.
With that I'll turn it over to Doug.
Thanks, Mark and good morning, everyone.
Im going to summarize some of the key metrics and trends for the quarter and then we'll move into the queue in AG.
As Mark stated volumes rebounded across all three service lines as a quarter progressed.
In the Air segment discharged declined 10.7% for the second quarter of 2020 as compared to the second quarter of 2019.
We experienced a steep drop at the outset of the pandemic, but rally to increase 1.3% for the month of June.
The recovery of discharge volume was bolstered by strong growth in Medicare advantage, which increased 66% in Q2 climbing to 20.1% of our payer mix as compared to 11.1% in the same period last year.
This shift in our payer mix impacted our year to date clinical collaboration rate.
Do you all payer clinical collaboration rate for the first half 2020, 33.9%.
Climbed to 150 basis points as compared to the first half 2019.
This decline was attributable to the accelerated growth in our Medicare advantage discharges on which we have a lower clinical collaboration rate than on Medicare fee for service.
Going a layer deeper reveals that our Medicare fee for service clinical collaboration rate for the first half of 2020 increased 110 basis points over the first half of 2019% to 43.9%.
And our Medicare advantage clinical collaboration rate increased 390 basis points over the first half 2019% to 16.7%.
We believe our clinical collaboration protocols continue to enhance our value proposition and serve as a competitive advantage.
Home health volumes, followed a similar trajectory to the Earth segment.
With admissions declining 7.9% in the second quarter as compared to the prior year period, but rising to an increase of 8.4% in June after had dropped 23.5% in April.
As a reminder, the anniversary of the Alphacare acquisition was July 1st.
Initial decline in hospice admissions was much less severe and recovered very quickly.
The effects of lower volumes were partially offset by better than expected pricing for both our Earth and home health service lines.
Revenue per discharge increased 6.2% in the second quarter, driven by higher acuity and the suspension of sequestration beginning may onest.
Home held revenue per episode decreased 1.3%.
The negative impact of Pdgm, the effects of which had been exacerbated by the pandemic were partially offset by the sequestration suspension as well as the increase in episode starts late in the quarter.
Our operating expenses in both segments were elevated by our response to the pandemic.
Labor productivity was adversely impacted by revise clinical protocols and operating procedures required for infectious disease management.
Along with all other healthcare providers, we incurred higher cost related to increased utilization and pricing of PPD and cleaning supplies.
In addition, we elected to reward our frontline employees with extra peasquito, resulting in a $43 million incremental expense in the second quarter.
Our labor productivity metrics improved over the course of the quarter as volumes rebounded.
But we expect to continuing impact from the pandemic for at least the balance of this year.
Similarly, we assume that utilization and pricing to PPV and cleaning supplies will remain elevated.
Putting this all together our consolidated adjusted EBITDA for the second quarter of $162.2 million declined to 35.7% from the prior year period.
Accepting the 43 million dollar extra Pts benefit the decline would have been 18.6% with the trend line improving throughout the quarter.
As a further reminder, we returned 100% of the cares accurately bonds. We received from HHS. So our adjusted EBITDA does not include any benefit related to those distributions.
Our free cash flow generation for the first half 2020 remain strong as the decline in adjusted EBITDA was largely offset by a decrease in working capital and a reduction in cash taxes.
Adjusted free cash flow for the first six months was $242.8 million.
We took additional steps to bolster our liquidity in Q2.
We amended our $1 billion revolving credit facility to provide financial covenant relief to the end of 2021 in order to accommodate the effects of the pandemic and issued $600 million of new senior notes as add ons split equally between our 2028 in 2013.
Purities.
A portion of the proceeds from these notes offerings, we're used to repay the outstanding principal under our revolving credit facility.
As a result of these actions and with our free cash flow generation. We ended the quarter with approximately $419 million of cash on hand, and $964 million available under our revolving credit facility.
Given the strength of our liquidity and cash flow and the confidence we have in our business model and strategy. We have continued to vigorously pursue our business development opportunities and to augment the returns we generate from our operating investments with a quarterly cash dividend on our common stock.
And now operator, we'll open the line for questions.
Thank you the floor is now open for questions to ask a question at this time Press Star then the number one on your telephone keypad.
That's a reminder, we ask that you please limit yourself to one question and one follow up.
And your first question is for Whit Mayo that'd be this.
Morning, what morning Whit.
Hey, Thanks, Good morning, guys by my math it looks like you were able to offset perhaps 70% of the revenue shortfall versus what I would guess you had in your original plan give or take a few percent can you maybe elaborate and talk about some of the cost and productivity initiatives that she will implement it to align your clinical site.
Perhaps with the reduction in volume and just how sustainable you think that is the volume begins to up to build back.
Yeah.
Let me just make couple of comments, both both operating segments looked at their provision of the clinical teams. When you factor in the a pandemic you had a number of things that concerns you about staffing one is the modest that that we had quarantined in any given time you had other staff in Japan.
Dennis first started that were concerned about three these patients to begin with then you had the whole pp issue that required a fair amount of education.
Just in terms of how to where it and.
Just being able to treat patients in this is different environment. So the home health sector looked at the additional productivity opportunities in the structure of their.
Compensation package and I'll ask a April to give additional details on that and then barb and her team also looked at how to offset.
Those vacancies that were.
Created by the corn TV staff that needed to be out there, particularly as we.
Starting to see volumes come back so with that let me turn it over to April 1st to talk about her productivity.
Hi, with what are the things that we did was as you can imagine why the areas that we saw one of them a significant declines in volume listen the physical therapy as disciplined as elective surgeries ended as assisted living facilities.
It is started locking people out of the building they would often let our nurses and therapists that we found ourselves in a situation, where we had a significant excess a therapist capacity relative to our needs and so in early may we made a shift in our reimbursement structure for therapeutics lowering each therapists base.
Hey by 20% and then turn lowering their productivity expectations for the pay period and by the same 20% factor and that proves to be a really successful strategy for us both in the near term and I think ultimately in the long term, we gave our employees the ability to earn back as their their extra work it.
They could actually completed at their region wasn't heavily affected by paying them over productivity points than we found that as a result, if you look at the periods as March and April compared to what happened since that may 2nd change we've seen about a 20 dollar per visit improvement in our cost per visit now obviously in April and may be.
We're kind of right in the sick of Covidien that was a high cost periods, but that structure allowed us to really lower our cost per visit but it also gave us the opportunity to maintain 100% of our therapy staff. We did not suffer low anyone with that approach, we're able to keep them benefit eligible and keep them available to us and allow them to use flex capacity.
To get back to their full compensation and so it's really proven to be a good strategy and we have announced that we intend to maintain that with our physical therapy team.
For the foreseeable future that we don't intend to get back to 100% pay and that that was probably the biggest single structure change with.
We also made changes in the hospitals to relative to just staying on top of this every down last bar just give a couple of comments on that right. So as you're aware.
Pretty data rich and have a daily information that our leaders in the field look at as they manage their labor.
Historically, when there's been any sort of volume impact that's been handled by flexing, but what we did we started haven't daily calls with our operators in the field to look at what markets, where the flexing not gonna help us have hit our labor target. So in in late March early April about half of our markets I needed to implement a fairly volatile.
Line or staffing with their volumes.
Basically all those furloughed employees are now back to work with with our volume recovery.
I see that daily information as it relates to labor productivity ramp really helps our team flex appropriately so that their staffing matched the need for the hospital census, each day with those David investments that we've made a night to that produce the manage and reports of which you've seen some of these that we used in managing labor in a new.
Normal course of business.
We're even more important during the pandemic in terms of us just being able to make sure that we knew were staffing was given the volume levels and provide our management teams on local level an opportunity to use that data the bar of alluded to to make the necessary adjustments and when mainly to pull some of US together to how you might think about the bad.
Back half of the year as you suggested in your question. We don't anticipate that we'll have another item like 43 million dollar PEO, but beyond that even as we are very pleased with the improvements that we made and later labor productivity both business segments through the end of the second quarter continuing into July.
And even as we are now better position and then we were at the outset of the pandemic to flex our our labor cost volume.
Fluctuations, we do not anticipate returning to pre coded 19 labor productivity standards in the second half of year, the incremental protocols and procedures that we've had to put in place to deal with an infectious population are going to remain in place.
I want to remind you that from a margin perspective, we benefited significantly in the second quarter from higher pricing in the ARP segment than we had anticipated much of that due to the acuity that Mark discussed and we just don't know with that patient mix is going to look like on a more stabilized basis. So some portion at least of that pricing increase.
I may not be sustainable in the second half.
It's also the case the during the first half we benefited from lower self insurance costs in all three of our programs medical in GP NL and in Workers' comp.
Many of them in the group medical program to the extent things begin to open up again, we would expect that there's some pent up demand and so this expense will be higher in the second half.
And then finally, we said in a couple times Mark mentioned in his script I mentioned that mine, but we have every anticipation that the increased utilization increased costs.
PE and.
I'm going to be witness at least for the balance of this year.
Okay, maybe just one quick follow up does just to follow up on your comment about the composition of the volume in the inability to roughly forecast that I'd just be curious to see what change as you saw in the quarter of in a presumed stroke ortho still down a good bit and patient rehab for home health and not sure how things are that different I think April mentioned teeth.
He's done a good bit so just any color around.
The trends that you saw in the composition of the volume thanks.
We were actually pretty pleased that into higher acuity care categories like stroke, and you would expect this because those are by nature less discretionary in nature, our volumes hung in there really pretty well it was across the ortho categories that we saw our largest decrease and that's likely to persist into the second half.
I'll, let April comment on any changes that we saw on the patient mix within home health.
Yeah, we definitely saw kind of a strong pull back in the therapy related diagnoses joint replacements in particular during the April may timeframe late March as well, but we began to see those really recover kind of late may and June actually got up to us.
Many similar levels to our pre cobot experience I would say, we've kind of popped out now at about 90% to 95% of that preclude that level as we see different markets sort of come in and out of different stages of co bid. For example, Florida has remained hot side and as a result, we have not seen a recovery of our volumes.
In Florida, Texas recovered at now its drawn back a little bit as it turns into a hot spot.
Other markets are actually well above their pre code that level of Idaho is pretty significant market for us has been performing above its pretended level. So it's really regionally.
Focus and I think at this point, we see our balance to patients kind of being back for the most part at a pretty close at level as far as the mix. So it's a little bit behind them and that's rehab.
Great and hospitals, one of the things that drove up the acuity was the continued growth or stroke program. If you look at it just in terms of percentage of discharges. We had 19.4 of our total cases.
We're stroke and that was the highest we've seen a going back for three years. So that also helped drive a case mix index just fits us acuity in perspective for yeah. We've been running 1.37 on a case mix index now very consistently for the past two and half three years, we were at 1.44 this last quarter. So.
That's a pretty Steve jump in acuity and largest driven with the increase in stroke and more complicated cases, and then the hospitals that reduction in any of the lower acuity cases like the elective procedures with joint replacement. So both of those were pretty major factors on.
Pushing that acuity.
The risk of piling on because I know, we use for very long winded response to your question follow up I think we're keeping an eye on within Europe segment is that we did see an increase in our average length of stay in the second quarter. Some of that is attendant to the increase in acuity as you would expect we can see longer length of stay with more key patient.
The other thing that we're seeing and it's too early to call. It. The trend is for those patients that moves that portion of our patients that came to us from either a skilled nursing facility assisted living facility and our getting ready for discharge.
Back into that environment, sometimes the testing requirements and the trial on time on the testing required for patients where they can return to their homes is causing us to delay the discharge the patient.
Which had a number of repercussions force in many cases that doesn't result in a higher reimbursement force, but we continue to have the cost of servicing that patients.
Time that facility again.
Too early to call a trend around that one but that is something that adds to a little bit of the uncertainty that we have regarding trends.
Thank you. Your next question is from Kevin Fischbeck of Bank of America.
Kevin Kevin.
But just a little bit of the another question on the payer mix here. So you know you're talking about the I may mix being up in the quarter on the upside, but kinda as an offset softer for service.
Moving to coming down as a percentage would you say that that's kind of a sign that you might be seeing some increase in the fee for service patient coming back in the back after the end what kind of a pent up by injection.
We definitely saw that in June so for the quarter, our EMEA discharge rose, 66% fee for service were down a little over 26%.
But then and that had a lot to do with the suspension of the Medicare advantage Preauthorization requirements, beginning the second half of April and extending through May those preauthorization requirements.
Our kids were reinstated towards the end of May and yet we saw in aggregate.
1.3% discharge volume increase in Europe segment for the month of June so that happened on the basis of significant rebound in fee for service as we move into July and more hotspot developed in markets like Florida, and Texas, we've seen the.
Preauthorization suspension come back in for M&A plans, we're now seeing much more moderation between the volume impacts on fee for service and Medicare advantage I think some of the increase in Medicare advantage. Fortunately because we've been writing this trend line, even pre togut is here to stay and that's a good thing.
[laughter] selling our value proposition to those plans, but there are still good growth opportunities and fee for service as well.
Got it and then as a quick follow up here. So is there any talk of these.
Hi, Rob changes kind of.
Changing for the long term or is this the type of thing that you think will be coming in and out as markets go in and out of being a copy.
I think it's the latter.
Okay got it appreciate the color. Thank you.
Thank you. Your next question is from Mt Laurel of William Blair.
Hi, Matt Matt.
Hi, Good morning, Doug on the first quarter call.
You alluded to the potential for the 21 2021 outlook not be materially different than when you entered the year and that was capriati with all the answer to the timing obviously a lot of that uncertainty has continued but you know Mark you also mentioned today the progress you've made towards her to noble goals for next year as well the progress to expand the bed count this year so Doug.
Maybe again, there may be a number caveats, but just some some thoughts on the 2021 outlook at this point given your launch and copper ourselves he remains very strong.
Matt I think it really depends on the stats the pandemic during the first half of 2021 and around the development of vaccines and therapeutics to the extent that I think the more optimistic timeframes. We're seeing out there is the availability of development in the availability of a vaccine bye.
Sure.
Able to change the trajectory the pandemic first.
I've got pushed back on a footing that would've resembled our original 2020 plan much sooner I would certainly expect not later than the second half 2021, we're back to business at normal and that optimistically could be sooner than that and our confidence in that being.
The case is evidenced in the steps that we've been continuing to make and the development pipeline.
But the fact that our volumes rebounded.
As the initial phase of the pandemic.
Kind of flattened out and the growth and we saw that come back and it is testament to the resiliency.
Of the services that we provide and the ongoing demand that's out there so.
To the point of our future development and opportunities, we see going forward, we're very confident that and feel that this pandemic and the the fluctuations have only proven.
Our case as we move forward.
I think it's not a question of do we get back to that.
Just a matter plan and the wildcard remains around the status.
Yes.
Yes.
It makes sense and then if I wanted to follow up on your comments about the mix of institutional first community.
And if it gets and for how that trended throughout the quarter for you and where you're at today and then I think in the past you've mentioned the elective procedures were about 20% develop health business depends when they get central what that mix looks like in the second quarter.
At whether you've now started to see sort of a recovery on the collective side.
We've definitely seen a recovery on the Olympics thought I don't have that exact.
Sensage that we are presented in the Investor day handy for the second quarter, but it obviously.
Dropped down dramatically in late March three mid May timeframe, and then began recovering as markets began to reopen and alternate in surgery centers came back online and so we began to see ads b that because we're kind of in that mid may timeframe.
We also as it relates to kind of the early late situation as you saw the volumes declined significantly in that April timeframe that it created is sort of an out of balance a situation. If you remember in home health early episodes are only the first 30 days of care and and so as we thought.
Missions decline and patients continuing into the second 30 day periods in some of those patients that in turn recertifying. It obviously at kill said the balance of patient tease the Lake segment and in turn similarly, as we saw admissions decline those were primarily institutional this charges that we were no longer getting during that.
April in mid May through mid May timeframe, and so we also saw the proportion shift from institutional to community. We're beginning to see recovery in all those things Vicki remember as you think about a 60 day at the same period any get recertification wading into that as well, we're gonna have to get it stay at that new run rate for at least to 16.
90 day period before we'll actually see a complete rebalancing of our patient mix effect critical level.
Thank you.
Thank you. Your next question is from Peto Chicory of Deutsche Bank.
You know.
Good morning, guys. Thanks for taking my questions, Let's say he is at a pretty incredible job managing through this quarter April going back to two which question on home health historically run a much higher percentage of salary employees versus per visit <unk> payments like many of your peers.
But the success you seem to change of therapists comp in the quarter are there any other changes the you're considering your non therapists.
And can you remind us what percent of it visits are therapist versus nurses a into Q. It does that change as we think about the back half the here.
And so we're not looking at any further changes at this point in time at the same time that we made the change to the therapy. We did change our weekly productivity goals for our order in personnel from an average of about 28, we had some employees at 30. Some at 27, we move them all to the 30 per.
Range for their productivity goals and so we have seen some ability to add to elevate production for our salaried staff on the are in this one but we don't intend to make that said that same adjustment that we made to therapist to the nursing staff one because of the available.
Supply and demand dynamics, but also just because the relative base salaries between therapists in nursing are pretty materially different we still feel like that strategy is doing that 80% plan for the nurses would be a workable strategy for us our arent that.
Okay, and then obviously the market sorry go ahead.
Hello, because it relative to the to the ratios I don't have those percentages right in front of me.
I would tell you the as we moved into June we began to see a return to the normal balances split and remain just slightly ever so slightly behind with therapy compared to others that are therapy volume facts about 94% of its pre 'cause it level as far as our therapy visit volume. So we're just about back to back too.
Normal balance.
Okay, and then for follow up either for marker for Doug Obviously, the markets were extremely dynamic.
Nothing an understatement during two Q.
We've heard that good operators have won market share is able to deal with the volatility.
Because of Leverages your IP systems and processes, you think that the success of managing through co bit turnkey Q has gained market share from their hospitals over the last few months.
I think that will play out in the longer term statistics, but I'll tell you I'm very proud away. Our teams have managed through this I do think that is superior to lot of the providers that are in our marketplaces and it has provided us an opportunity to show.
The outcomes and the quality that we provide we're carrying for a number these koby patients that other post acute providers would not accept and and getting great outcomes for them. So.
To answer your question I am going to be surprised if we don't see this as having longer term opportunities to gain market share for us and it certainly.
Provided our reputation in the communities as an outstanding post acute providers there just to echo what Mark said I think we have embellished our reputation with two key constituencies based on how we've responded to the pandemic and those are the acute care providers, who are such an important referral source for us and then the Medicare advantage.
Plants, and there will certainly be some stickiness to both of those.
Thank you. Your next question is some Frank Morgan of RBC capital.
But frankly more Frank good morning.
Just one maybe a little bit difficult to answer its own home health care and trying to isolate pdgm from the effects of co bit obviously, that's a complicating factor, but that's the other at a very high level.
If you could do that if you could exclude the impact of cobot, how would you characterize.
PDG relative to what you had expected and.
What is your sense that how other operators, so maybe smaller operators or handling that out in the marketplace.
Any thoughts around you know when we may actually see the M&A activity that a lot of trade before.
Sure. So it is a very muddled picture a little bit as you try to break down the pdgm implications and try to call out whats pdgm versus what is code that related and I would tell you that we've been on balance in spite of some of the noise in the quarter with the percentages being up and the.
Early late being out of balance in the institutional burst communities all being out of balance we feel like in spite of those things we're pretty encouraged with what we're seeing on a revenue per period basis, we feel like that's actually come in pretty close to our estimation, even with all of that noise in the quarter and so we think as those things.
Again to settle out as we get back to a normal ratio of institutional admissions and normal volume of new admissions and we see our lead the percentage is coming down which has continued to happen since they sort of hit their peak in the 14% to 15% range in mid April all those things leads to believe that when we get fully through this coping period.
That are pdgm revenue will actually be at or above our initial expectation and you really being able to get back to some of our strategies a lot of than strategies that we had for mitigation mitigation of the remaining.
Revenue implications with Pdgm had been pretty hard to implement during this time. For example, you know realizing some of what Medicare believed would be the it seemed behavior changes, particularly difficult and one of those things as an example was the lupus percentage. They believes we would lower leases, but as you know we've seen leases expand drew.
Medically during this coven period, so it's it's noisy, but I feel like I'm pretty encouraged and I feel like things are feeling pretty well as we look out at some of our smaller competitors. We view I feel like they have really been bolstered by some of the federal programs that PPP loans as well as the cares act funds for those smaller providers.
Have really.
The realities of Pdgm for them and so we believe that as those dollars began to be fully extended and their left kinda to their own accord that it will take some very long to realize that they're in a bit of a pit bull relative to their financial situation and so we're hopeful that so that acquisition opportunity pick.
Really in the mid and small end of the market will return as we move into the fall a that they will that extend it all of those dollars and and come to the reality is like PD Jan will mean to them. So we're hopeful that the late third an early fourth quarter will return to some normal level of M&A activity for the small to mid sized transaction.
And just to clarify you said that.
That you like to be at or above.
Kind of what you'd initially thought of is that predicated just on the decline in the lupus or is there anything else that might be driving that it is that.
Alignment to get at or above what you had expected or is there any other factor there.
Hi, I'm not sure fully following your question. We had we had a number of mitigation strategies that were going to help us offset some of our pgms implications and managing productivity optimizing the use of LTM all those things have been particularly difficult and it cobot market were employees are quarantine been so.
There's there's just again a lot of noise not only on the revenue side, but also in our cost mitigation side, there's been a lot of noise as the result, because it up but but as we get volumes back in place. We're seeing some of that noise is beginning to a base and we were able to really get back to submit strategies that we were planning to put in place in the early part of here.
'cause it hit.
Thank you. Your next question is from Matthew Gilmore of Baird.
Hey, what I'm asking the question Hey, good morning, everybody.
Hey, Mark had mentioned that the higher cobot cases, and in certain markets, Florida, Texas, and Arizona May inhibit growth and April provided some commentary on the home health side in terms of the impacts you are saying I was curious a marker bar could give us a sense for what you're seeing in those markets with the rising cobot cases.
On the ERV side.
Well, let me take a stab at the broader answer not the bar ban on some more details, but if you look at a Texas, Arizona and Florida.
I, just I'll start with Texas, Texas has been extremely resilient, we've not seen in spite of clearly the Q cares been full of koby cases, and their eyes to use we've not seen much of an impact if at all on our hospitals instead of Texas State of Florida is a very.
Market specific ER and they're up you start thinking about south, Florida, which has certainly.
And identified as a hotspot probably seem a little bit more of an impact there, but as I've put my comments. It has the vary market by market driven situation. So it's tough to look at an entire state and say, okay. It's a hot state so to speak but there's certainly some markets that have been impacted disproportionately.
More than others.
I got to go to spend a little bit into we've done that there's there's several things that impact us when you have markets like Florida first when you look back really towards the end of May markets. We're starting to open elective surgeries are starting back up they were allowing our clinical liaison back into the hospital.
As some of the surgeons have occurred in some of these markets. Those things have started to go back to the way. They were in March and April elective surgeries are now back on hold our liaisons are not now back allowed in the hospital. So those impact us in each market I would say the other impact on this is more at a hospital level and we don't have a.
A lot of them, but we do have some hospitals that because of community exposure, we have employees out on corn team and in a few of our hospitals that has impacted the capacity at those hospitals, because that's a certain point, if we have nurses and therapists a in a large numbers out on quarantine it creates a cap for how high.
Our senses can go so when you're looking at markets like Florida. Those are some of the impact that we're feeling this go around.
You know the testing has been.
And influence your two relative to corn chain staff in our ability to get staff backend, it's taking longer to get the test results than what it was even 60 days ago. So as we see that start to improve I think that will improve some of the staffing challenges that both air Berlin Barb appointed.
Now.
One thing that's going to actually help on the staffing front is that the CDC did come out with new recommendations at moving away from a tax strategy.
To a time strategy of win eight employee or patient could come off of transmission for caution.
They are saying CDC thing that some people can test positive for up to three months and so actually that's been a good thing for us that they've moved to this time strategy I'm, it's allowing us to bring some of these employees back sooner than what maybe we were able to bring back before they change their recommendation. So we do think that we'll have a positive impact on getting employees back.
And removing some of these census cap.
Got it let me try one follow up on it is are these.
Influence as an impact you're calling out is that enough to.
Interrupt.
The momentum in the recovery as seen on the ER volumes or.
You know these or are these small enough where it doesn't impact the whole portfolio and they tend to positive momentum you've seen that impact the impact depended more kind of you know you've seen things up we had great rebound and then things have been kind of flatten a little bit and that's because market by market. We're feeling that so I don't think it's something that's going to impact as a whole, but it does.
I think prevent it's getting to that next level right now because it's one that market recovers, we're seeing that this occur in another market and that it's very temporary too I mean, you may have two weeks to that.
Become a challenge in the marketplace and then it kind of goes up your radar screen the volumes come back and some other market Pops up on your radar screen, but overall from a portfolio standpoint, I don't think it's got impacts for long term.
We have definitely plateaued here recently for volume gains in both the Earth segment and in home health.
And we would expect that may be an issue thats with us for the next couple of months with on your side with a portfolio of 135 plus hospitals. Unfortunately, we're playing a little bit of game of whack, a mole, which is as soon as we get staffing or other issues resolved in one particular market. It pops up in another market and it just feels like.
Based on the course of the pandemic, that's going to be with us for awhile, So, whereas we don't necessarily believe that we'll see a reduction in volumes like we saw in April gaining that mix split up over the next couple of months, maybe a challenge.
Thank you. Your next question is from Brian talked a bit of Jefferies.
Hey, good morning.
I guess I'll go back one of the earlier question so.
I know I get the lack of visibility into so the.
Oh, good stuff, but if we think about the de novos that you've already lined up right.
Is there any sort of growth goal I mean, you already announced almost like 5% embedded growth for next year and then another three and half the separate 2022. So is that's where the right level to be thinking about your kind of like the M&A. The part of this goal or is that this development neutral at 5% to 6% that adds and then I guess too.
Layer on to that how should we should we be favorite a track record of your de Novo bad over the last two years in terms of getting it up to capacity.
Think about filling the beds that you're adding.
So I think as Mark stated during his comments, we remain committed to the goals that we put out at the Investor day regarding the number of new herbs to be open on an annual basis and certainly we've got a very solid number was eight new hospitals lined up for 2021.
In already commitments to five and this is pretty early on we're going to add more to it for 2022. So from a capacity addition perspective.
We feel very good about that and the track record one of the reasons that we're accelerating the development of these because our track record on building census, and achieving very favorable financial returns on de Novo's is really solid not just the last two years, but really for the last 10 years, which then.
In terms of growth percentages in terms of growth percentage you need a base.
We don't know the bases right now.
Right, Okay Gotcha, they got shifting gears a whole melt my fault for April.
Obviously, we're hearing a lot of anecdotal discussions about how the sniffs are losing share where they're turning patients away where patients not going there. What are you seeing and what are those discussions with hospitals in terms of their referral slogan and I guess I can ask thus far this last quarter you guys talked about how are the optical they're keeping their patients.
Instead of discharging them, yes, so what are we seeing theres, a discharged patterns and how sustainable especially into home health side do you think this is post coated.
Well I think we you know it's hard to say we are overall volume is down whether or not you know we just have trade going on a that are kind of getting us back to our pre cobot levels, but when we look at some of the statistic either specifically, we see as a pretty significant does decline in patients coming.
He was from assisted living independent living and sniff environments and yet.
Even though that's only recovered to about 70% of its free cobot level in the last few weeks, we actually are getting back to about 98% of our free cobot level, what Medicare admissions and other areas and so we think that that inherently suggest that there's a new cohu cohort of patients.
That are coming our way the area, where we've seen a growth over a breakeven levels, but in our physician base peripherals and in our you know short term acute care hospitals as we've now gotten those kinda back on line those are actually growing above their historic level. So all of that would lead us to believe that we're getting some smith patients that we wouldn't otherwise.
Got it particularly directly from physician.
But as you know, it's a hard thing to prove what could have might have should have happened or would've happened in the prior world. So it's hard for us to really nail it down specifically, but we do feel encouraged that even with a significant drop in our ale Aylwin Smith discharge based volumes that we're seeing and we're seeing overall return default.
But we think that's because of displacement.
And we certainly hurt on the on Earth side, I would say referral sources of acute care hospitals are kinda dealt with.
The the patients that they could get home as April just alluded to and then there are the patients that are they need a facility level, a and yet they found that many of the skilled facilities in the markets were hesitant to take them, especially if they.
Every covering kobin or what we call it a patient under investigation, meaning that some sort of exposure to kind of it so our ability to take those patients and our outcomes have been really strong with those patients has been something I think it's been are huge help to the acute care referral sources, so that they could get those patients out of other high.
So in Dod facility.
Thank you. Your next question is from A. J Rice of credit Suisse.
Hi, James Hey, Heres, how are you guys, but first of all obviously a lot of discussion around.
Medicine, and the opportunities maybe to fly that in home health I would first that's.
What do you guys seeing are you taking advantage of all the opportunities or some of that's still to come and is there anything in particular, you are advocating to CMS to try to get.
As a clarification or change related to tell medicine and whole bell.
Yes, so I would say for us in home health and the main thing we've seen is the ability for physicians to complete their face to face requirements using Philadelphia, certainly we're leaning into that.
As we gather documentation from physicians to support that face to face when it comes to our ability to actually used tele health as you know in home health, even with the waivers we still are not being paid and does it start being recognized as billable visits that are being done via tele health. So we are utilizing and some telephone.
Like visits and even some two ways audio video communication based visits with patients who has the capacity both technologically.
And fundamentals that needs to do that but we were finding that there'll be a fairly small percentage. We think there remains a lot of opportunity there, but until Medicare really three those as billable services and then feel we moved to kind of a point in time, where our.
Advanced stage patients are capable of managing successfully with two way communication, we think it will remain a fairly small percentage.
Jay said, it's Andrew impact so far, but we are keeping an eye on it and like we've done and other areas of technology, if we see.
'cause, it's going to be around it CMS is.
Has a big push for tell medicine as you know so we'll be very committed to it and making necessary investments in it wants it's clear in terms what platform is needed and either bar segments, because our earth. They dip their toe in the water in this last quarter as well.
Okay, maybe follow up would be another sort of emerging area.
In the cares act on the IR upside it allow for certification by non positioning practitioners.
And now I guess in the proposed rule for 2021, they talked about making that permitted.
How significant is that for you guys and are you positioned to.
Meaningful use of.
NPS and PPA basis.
During the certifications.
Does that moved the needle a margin or anything else.
Yes go barbed weighing on that Asia, Yeah. So we certainly already have a NPS and T that support our physician.
Actually at this point actually prefer that it remain like it is now because we feel it does I'm really differentiate us from a a skilled level when we have the regular physician oversight of our patients. So we actually we continue to prefer that the NPS and that he supports assist physicians as they have been doing.
Oh, you know for a long time.
Thank you. Your final question is coming from John Ransom of Raymond James.
Hey, good morning.
Yeah, we saw.
Now the healthcare traded again and they've expanded to 20 markets.
And then you have the probability maybe of a biden presidency in a revival of some of the.
Some of the post acute management strategies and Bip CNC J.R.
Just at a high level.
You know you being kind of a relatively high cost, but effective post acute providers, how do you navigate.
The pencil pushes on the other side trying to push volume into the lowest cost plus.
Yeah, John as we've talked about so relative just our value proposition you have to look beyond the.
The cost per day and looked at it from a longer term perspective than including an episode and what we have the opportunity to do is to move a patient between our first in the home setting and they offered the opportunity to.
Worked with the IP investments that we've made have the clinical collaboration and we've proven that we can get the more patients back home to the home setting and few fewer readmissions back the acute care, which increases cost so I guess I would.
Counter the the implications.
So that we are high cost provider, obviously, we're actually a high value provider. When you look at it more from a longer term perspective.
John specifically those initiatives that you're talking about the series from a post acute perspective.
The patients that were treating in our really cannot go directly home.
They require an inpatient state so those patients it becomes a choice between an urban Smith in almost all cases and I would ask you for your opinion as to how the skilled nursing facilities of distinguish themselves during this pandemic.
[noise], that's a pretty easy one and.
My follow up would be if we look at.
A year down the road two years down the road.
What permanent changes do you think will be the result of this pandemic and what ways of you change workflows gotten smarter become more efficient I mean, we've talked about the market share gains, which I I don't think there'll be any doubt about that but what other kind of permanent changes do you think would that would have not happened otherwise.
I think a longer term impact John just going to be market by market, where we have developed a willingness rather willing to take these cobot patients other words, we exercised our.
Skills at taking the higher acuity patient in both our home health as well as our hospitals.
We have put ourselves and even more enviable position with our relationship with acute care hospitals, I think thats going to have long term implications for us moving forward versus other post acute providers.
That are have tried or were unwilling to participate.
Productive manner during this pandemic episode.
So you're going to see a real formalization of either column contingency plans for operational plans for dealing with another breakout of an infectious disease and so I think it's going to be the identification of critical care beds out of market and all kinds of facilities are well defined and documented protocol.
As for.
How caregivers are going to.
Don and off Pp, I think you're going to see a real shifted you're already seeing shift in supply sources for critical.
A quick.
You asked and I think there's going to be real.
Great.
Sure.
Well.
There are lot of things differently.
[noise] that are going to be normalized anniversary.
Henshall.
That you will see some regulatory changes designed to make more efficient flows for patients from study setting and any kind of that happens we generally believed in our favor.
And thank you with that I'll turn the floor back over to Crissy Carlisle for any additional or closing remarks.
Anyone has additional questions. Please call me it to 0597 zero <unk> 860.
And again for joining today's call.
Thank you everyone. This does conclude today's conference call you may now disconnect.
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