Q4 2020 LHC Group Inc Earnings Call
Good day and welcome to the LHC group fourth quarter and year end 2020 earnings conference call. All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions to ask a question Press Star then one on a touchtone phone to withdraw your question. Please press Star then two please note. This event is being recorded.
I would now like to turn the conference over to Eric Elliott Senior Vice President of Finance. Please go ahead.
Thank you Tom and good morning, everyone I'd like to welcome you to LHC Group's earnings conference call for the fourth quarter ended December 31, 2020, we issued our earnings release last night and I would also like to highlight that we have posted some supplemental information on the quarter on the quarterly results section of our Investor Relations page for supplemental deck as well as a copy of the earnings release for <unk>.
K and ultimately a transcript of this call when available can be found on this page our supplemental deck includes our full year and first quarter 'twenty 'twenty, one guidance assumptions the impact of COVID-19 detail on the breakdown among sector performance a significant amount of detail on the monthly trends. We have also included schedules reconcile on the trailing five orders for same store revenue statistics.
Sure.
All of our non-GAAP reconciliations and breakdowns of adjustments are included as well we will reference this information in our remarks today, we expect today's prepared comments from Keith Myers, Chairman and Chief Executive Officer, Josh Proffitt, President and day, one macro Chief financial officer to run for approximately 20 minutes to allow time for Q&A before we.
I would like to point everyone's are forward looking statements on page two of our supplemental presentation and encourage you to read them carefully they apply to statements made on this call and our press release on our supplemental financial information now I'll turn the call over to Keith Myers.
Okay.
Thank you Eric and good morning, everyone on.
On behalf of all of US are unlike C group I want to acknowledge the hard work and dedication from our frontline employees as well on those as balance sheet reserves supporting world. It is.
As a privilege for me to work with all of you.
Thank you for your commitment to those interest in child care and for the extra work in all that we do at every level of organization.
This morning, I want to provide an update on legislative and regulatory activity impacting on our sector and touch on the increasingly important role of LHC group and our nation's health care delivery system, how it reinforces our value proposition.
And provide some specific examples on how our differentiated strategy is generating high quality growth.
Josh will provide an overview of our growth and operations strategies for 2021 and.
And then I will provide key metrics that tie to our growth and operational capex.
We view 2021 is a year of great opportunity in part due to the unprecedented flexibility for at home health in the wake of Covid.
In particular 2020 saw a series of significant Covid related waivers granted home health by CMS as well as ground breaking legislation benefiting our sector.
Innovative waiver from CMS regarding the homebound requirement flexibilities for most certification on our home care and legislative relief from the 2% sequestration cut first quarter, plus an asthma nurse practitioner legislation, allowing nurse practitioners to certify home care for the first time.
We're among the significant policy improvements last year, recognizing the advantages of homecare over more costly and potentially higher risk settings.
CMS is giving active consideration to making a number of these waivers department on reform.
We are equally pleased to see Congress include a significant number of positive positive references for homecare in its report on budget appropriations for 2021.
This language encouraging CMS to avoid payment system for at risk patient access for rural home health providers and calling for a study in this regard encouraging to rapidly expands on our in home services as alternative institutional care.
And urging CMS displace traditional Medicare on a level playing field with Medicare advantage in terms of access and coverage.
We have cash for more detailed summary of this language on the policy supplement for our earnings slide deck.
Even further we are encouraged by the emphasis for buying the administration has announced promoting more care in the home.
These proposals include over $450 million to expand and home health care services for Senior Inc.
Including fun for innovative care models.
We look forward to working with the administration and our contacts on the heels for advance and properly structured these initiatives.
Yeah.
2021 will also be a year in which we expect to advance choose home legislation, which we have begun to socialize with Congress.
This initiative is broadly supported by the industry, including the partnership for quality home healthcare and National Association for Homecare and hospice.
For the first time this important legislation will provide a time limited cost effective benefit which would include Medicare certified skilled home health services and personal care for.
We are pleased to be receiving positive feedback from Congress on this initiative and look forward to seeing it fall for consideration in 2021.
And so on 2021 is already shaping up to be a year in which lawmaker and CMS give unprecedented emphasis to health care services provided in the home for the higher risk.
Post acute setting.
We believe they are recognized on the many advantages and affords patient from families. While simultaneously proving out reductions for total cost of care with the delivery of high quality outcome.
The supporting energy, we're seeing on the hill lined up with how our patients partner referral sources and payers are valuing at home care.
That is for patient preferred clinically appropriate and cost effective benefit.
The day the backdrop this statement.
The new physician referral sources, we have been highlighting the last few quarters maintained their double digit pace to end the year with a 22% increase for the full year.
We continue to take on COVID-19 confirm that prospective patient with that number more than doubling in the fourth for in home health and up 70% on hospice.
Since the pandemic began we've treated 26600 for these patients.
Our institutional admissions have also increased sequentially during the same timeframe on.
Protein pre COVID-19 level, which is closer to the normal for us.
Another data point I would like to highlight is from the recent data on health care spending probably for the U S Bureau of economic analysis.
For the second straight year. It has shown a greater share of annual healthcare spending is going to home health.
With the exception of prescription Joe expanding home health care was the only category that was up in 2020.
Home health was up by 2% with hospital care physician and clinical services and nursing home care, all down low to mid single digits.
What this demonstrates is that the pandemic has resulted in a shift in referral patterns with more patients families physicians and discharge planners choosing home health over more costly and potentially higher risk constant care settings.
You've heard us talk about this before so I won't cover much of that ground again, but I do want to quickly leave you with a specific example.
We began talking to Orlando Health system last April about a joint venture and completed the transition transaction on August one.
Orlando strategy centered on our ability to grow as the system exam.
Capacity length of stay on reduction and improvement in patient care through the continuum, where immediate areas of focus.
We have already initiated the skilled at home program and are increasing the acuity level of traditional home health placement to assist with their capacity constraints related to COVID-19.
In addition, we have strategies and action on to identify and underway to address length of stay and patient care improvement.
As a result, we've seen a 157% increase in census.
All of his first despite the challenges of Covid.
This is another good example of how we tailor our approach to meet the needs of specific hospital partners in each community we serve.
And with that I'll turn it over to Josh to provide some high level comments on growth on operations.
Thank you Keith and good morning, everyone. I would also like to begin my prepared comments by extending a word a sincere appreciation and acknowledgment of the incredible job our team members from across the country have done in Q4, and all of 2020 in the face of a historic pandemic.
He never wavered and your commitment to the health safety and high quality outcomes and service to our patients. It is a true privilege to serve you as you give so much of yourself serving others.
Picking up from Keith last comments I want to spend some time on our revenue and earnings growth and provide more specifics around how that is evolving how we are creating new opportunities for <unk>.
Quality of that growth and frame up our growth potential.
I want to begin with how our differentiated growth strategy is producing high quality growth. This.
This strategy is driving organic growth and margin improvement with our JV and wholly owned locations.
We are also seeing an underlying positive sequential trend on episodic admissions and rate improvement on non Medicare admissions for the.
The data we've outlined on slide 14, backed this up with census, admissions and institutional versus community admissions mix, all improving sequentially over the last three quarters.
Now I will share more of the details of these trends in our key metrics on a moment and build a bridge for you later that takes us from the Q4 results for the sequential progression in Q1 and how it carries forward into Q2.
There is one point I want to make about the sequential growth. We are experiencing as we continue to navigate the headwinds from the pandemic, including the latest spike in December and January.
Turning to slide 44 of the supplemental deck, you will see that we posted a sequential increase of four 6% and organic home health Medicare revenue in Q4, which was on top of a 10, 7% sequential increase in Q3.
We saw a strong sequential trend in organic census, as well.
In keeping with our conservative philosophy, we want to outline with as much transparency as we can the primary building block for modeling out our long term growth potential you.
You will see starting on slide 11, other supplemental deck that we put the different layers of growth in several categories.
Let's start with organic growth as Youll see from our full year guidance, we are expecting home health organic admissions to increase 8% to 10% and hospice organic admissions growth also to be 8% to 10%.
As we've outlined on our quarterly breakdown on organic growth across these two segments on slide 15. This would represent continued sequential acceleration in both businesses that we've built back through COVID-19, providing a very strong baseline for 2021 and beyond.
For three consecutive weeks at the end of January we had home health admissions, averaging over 8900 per week, which is our highest weekly admissions since January of last year.
With our operational strength in place, we're very confident in keeping our targeted ranges for the year.
We have also been able to drive growth by earning share from smaller competitors as evidenced by the leading quality scores and higher physician referrals, but also through leveraging the presence we already have in a given market.
On Slide 12, you will see that we've broken down the annual revenue for home health and hospice agencies as a stand alone and the potential incremental revenue that can be gained from co locating them.
When we add on HCV S as either a second or third service line offering is even more compelling.
With only 64% of our home health and hospice co located in only 38% of our HCV co located with home health. There is still a lot of room to grow this strategy.
Keith called out our differentiated strategy of joint ventures earlier, and I'll point to more evidence of how impactful. It can be on slide 10, we've shown that organic growth for JV locations has averaged 100 to 200 basis points higher than wholly owned locations over the past for years.
New JV as growth rates have also consistently been between 10 and 15% in years, two and three with them, reaching corporate EBITDA profile within the first 12 months to 18 months.
With an average of $65 million to $70 million a year on acquired joint venture revenue for the past four years, that's another thick layer of growth for us.
Still another form of inorganic growth, we continue to pursue outside of JV is through acquisitions.
Excluding our largest transaction in 2018 with almost family, we've acquired $369 million of annual revenue over the past for years.
What I want to highlight in particular from that acquired revenue is what we've been able to do with it after our ownership.
If we look at the data on slide 20, we've outlined on the total acquired revenue from 2017 to 2019 and compared it to the 2021 estimated revenue and contribution margin from those acquisitions.
One point underlying the growth, we can achieve and thats the increase in contribution margin from $13 5 million to an estimated $78 8 million in 2021.
We're also targeting $150 million to $200 million in acquired annual revenue in 2021, and our current M&A pipeline has over $420 million.
As we have discussed in the past our pipeline is multifaceted as we have the separate JV pipeline, but tuck in acquisitions and the larger more strategic opportunities.
Slide 12 breaks down the composition of the pipeline and Youll note there was a larger percentage than in years past for hospice.
We made our first hospice acquisition in 1998 for years after our founding we've.
We've intentionally executed on our hospice differentiation strategy for several years by putting in place for co location strategy, and making operational and leadership changes to improve the business.
Slide 13 highlights how much growth we have had in hospice since 2016 with compounded annual growth rate of 17% and revenue and locations, 13% on average daily census, and 23% and our co locations.
During 2018, we had EBITDA margins of 18, 1% in this segment and Thats improved to 13, 2% as you saw in Q4.
This strategy created a solid foundation that we can now layer on additional growth and pursue new hospice opportunities as a major priority.
If we go back to comments, we made on our call. This last February we envisioned a historic consolidation opportunity and home health brought by PJM and the rap elimination the influx of stimulus money may forestall that consolidation in 2020, but we are focused on capturing market share organically and we still believe the inevitable will.
Occur a smaller agencies will struggle with the continued transition to more value based care models.
Closing out the building blocks of our growth outlook, let me conclude with highlighting our value based strategy. We have unique assets and are in the right place to lead the continued transition to value based care. The goal is to improve overall value and quality of care through improved outcomes at a lower total cost we have the right mix of quality based program innovation and.
Rigorous quantico protocols to create care plans that deliver what payers need to reduce readmissions lower length of stay on episodes, while at the same time, improving the patient experience and outcomes.
We are also the only one of our peers with an ACO management business and the size of that experience brings in working with value based relationship to reduce total cost of care as evidenced by the $9 6 million Medicare shared savings payment the subsidiary earned in the third quarter.
We have the ability to bring all of our core services of Bayer to provide the access to the right level of care and to do so across our national footprint, our investments in technology with leading partners in our proprietary clinical decision support tools also facilitate data sharing and interoperability to drive provider engagement and actionable insights.
All of these components are necessary to work with payers to move to episodic care and successfully contract for utilization of all of our full capabilities.
If there ever was a time to look ahead and see more room to grow in a wealth of organic inorganic and strategic growth opportunities. It's today.
Our core mission of taking care of patients has made LHC group a leader in the industry. It will guide us to the right opportunities in 2021 and beyond.
Now I'll turn the call over to you to add additional color on our results on our guidance.
Thank you, Josh and good morning, everyone.
As is customary we provided a lot of detail on our earnings release and supplemental deck on the quarterly consolidated and segment results with corresponding explanations on the margin revenue drivers.
While I'm not going to revisit those details in my remarks, I would like to acknowledge that we are pleased with our Q4 and full year results, especially in light of the unprecedented challenge the pandemic presented throughout 2020.
But full year adjusted earnings per share of 501 per diluted share, which is up 12, 1% versus 2019 and full year adjusted EBITDA of $238 7 million, which is up 12, 5% versus 2019, we exceeded the high end of our original pre COVID-19 guidance reinforcing.
The growing importance of the home is a clinically appropriate patient preferred cost cost effective setting for health care.
Our earnings release, and supplemental also outlined key assumptions for our full year and first quarter 2021 guidance.
During my prepared remarks. This morning, I will spend most of my time discussing our 2021 guidance.
But first I will highlight a.
Few important key metric trends that support our guidance on growth initiatives.
I will close out my comments by highlighting our current strong liquidity position.
I will point you to page 30 on the supplemental deck, where we broken out the key revenue factors for the home health business as Josh mentioned and you will see that we've made consistent sequential improvement in our revenue per episode revenue per Medicare episodes since the COVID-19 induced low point.
We've also seen our percentage of institutional add net start to climb back towards where they were pre pandemic.
While a LUPA percentage has maintained stability since may of 2020, and Theres a lot of is in line with our expectations of 8% to 9%.
Given all the pandemic related challenges experienced in 2020, we feel good about our exit point on these metrics heading into 2021.
Now turning to our guidance I'll start with the full year, we're at the midpoint, we're expecting an eight 1% year over year increase in net revenue.
A 15, 3% increase in adjusted EPS.
And a 14, 8% increase in adjusted EBITDA less Noncontrolling interest.
Based on a sequential organic admissions growth we have experienced since last April we are projecting strong growth in 2021 for both home health and hospice as mentioned by Josh We expect home health admission growth in the 8% to 10% range and hospice growth to also be in the 8% to 10% range.
From a reimbursement perspective, we built on a one 7% increase for home health Medicare rates and a two 4% increase for hospice Medicare rates.
We are projecting that sequestration is suspended only through March 31.
And although HHS has sent a letter to governors earlier this year, indicating that the public health emergency is likely to remain in place for the entirety of 2021.
We are assuming it wont be extended past its current exploration date set for April 20th Yes.
And for Pag is extended through December 31, we would expect a positive incremental impact of approximately $13 million on revenue and $5 million on EBITDA for our <unk> service line.
For full year gross margin assumption reflects a range of 41, 5% to 42 five percentage of net revenue.
And G&A reflects a range of 28, 5% to 29, 5% net revenue.
Looking at first quarter guidance compared with the reported fourth quarter results I will point you to page 38 in our supplemental as we have provided a bridge from Q4 2020 to Q1 2021, followed by a progressive bridge for Q2 2021.
I will point out that the biggest differences are first the seasonality, we typically experience around the holidays and the slower starts for the year we have in January.
You can see this reflected on page 40 on the supplemental we've broken down the weekly home health trends for the fourth quarter and to date in the first quarter.
We've also track the percentage of our clinicians on corn team you can see from the same slide the recent post holiday wave of Covid had a real impact on admissions and census.
Clinicians on corn team had averaged approximately 1% for Q.
Q2, and Q3 of 2020, but that accelerated through the holidays and into January to a high of four 1% further exacerbating the seasonality impact.
Net we experienced over 200 agency closures due to severe winter weather in February with the majority occurring during the week of February 15th.
The closures affect revenue associated with new admissions managed care per visit activity and home and community based service billable hours.
On a positive note home health average daily census is now back above 86000 from the low point of 80000 in early January and the percentage of clinicians on quarantine has trended back down to two 4%.
Two other variables on the Q1 assumption that come up every year and are unique to the first quarter for.
First we have the higher payroll taxes compared with Q4. This year is expected to be $6 million higher than Q4 second we have a lower effective tax rate due to the excess tax benefit from the vesting of restricted stock.
We are forecasting an effective tax rate of 23% to 23, 5% for the first quarter.
The last comment I will make with respect to our 2021 guidance is related to Covid expenses.
We will treat these expenses consistent with how we did in 2020 and adjust them out of our numbers for 2021, and we are currently estimating full year COVID-19 related costs of 20 to 25 million of which 8 million to $12 million is expected to be incurred in the first quarter.
Again, all pertinent details relating to our 2021 guidance are covered on pages 36 through 39 of our supplement.
Lastly, I wanted to highlight our balance sheet.
We have nearly $530 million on total liquidity and Thats net of the Medicare advanced payment and provider relief fund the ladder for which we previously announced we intend to return to the federal government.
We also made great strides in improving our day sales outstanding as they're down to 52 days in Q4.
Compared to 62 days in the first quarter of 2020, and 54 days in the third quarter of 2020.
This has led to continued improvement in our adjusted free cash flow, which was a strong $64 million in the fourth quarter compared with $46 million in the third quarter.
Our liquidity position strong free cash flow and virtually no debt positions us well to pursue an active M&A pipeline in 2021 as well as continue to execute on the co location strategies, Josh mentioned earlier, we look forward to reporting on that activity as the year progresses.
That concludes our prepared remarks, operator, we are ready to open the floor for questions. Thank you.
We will now begin the question and answer session.
Ask a question you May press Star then one on your Touchtone zone.
If youre using a speakerphone please pick up your handset before pressing the keys Keith.
Anytime your question has been addressed and you would like to withdraw your question. Please press Star then two.
In the interest of time, please limit yourself to one question and one follow up at.
At this time, we will pause momentarily to assemble our roster.
Yes.
And the first question comes from Scott Fidel with Stephens. Please go ahead.
Hi, Thanks, and good morning.
First question just interested in I appreciate all the color you gave in the slide deck, there's a lot on there.
Maybe just flesh out for us your thinking around trends in business and cost per visit.
For 2021 day, and maybe if you could also help us think about the sequencing in terms of.
How you are thinking about that embedded in the <unk> 'twenty, One guide and then how that progresses over the course of the year.
Great.
Thanks, Scott This is Josh.
Start at a high level or just kind of trends in visits and I'll hand, it off the day all to get into the details on kind of the cost per visit trending and what we're seeing there.
As you can see throughout the year.
When you look at our visits per episode as we projected going through the PDGF transition, we're very pleased with where we've kind of landed and concluded with that there is.
Still could be a little bit of variation.
Covid because you see our missed visits due to COVID-19 ramping up in Q4, so our VP ended up just under 13.
But I would highlight and we've really emphasized this throughout our PDGF planning and execution phase that we've also added approximately three virtual visits per episode as well so our.
Our total VP combined with an person on virtual is running around 16, which is down from 17 or so prior year. So I feel like we're in a really good place from just a visit perspective I'll also just add before I hand, it off the day I'll to talk about the cost per visit as you all know we monitor.
We're on track.
Free closely kind of a quality outcomes and the performance and just like the model predicted when our clinical team put our care pathways in place. We continue to see very strong performance on the quality and outcomes side connected to that progression Dale yeah. Thanks Scott.
I would add and reinforce in terms of as we look to look for 2021.
We.
As Josh mentioned, we've assumed that our vps are very sustainable and good place. So we continue to carry that assumption into 2021 throughout 2021 from a cost per visit perspective.
I'll highlight a few things one is I think we've assumed for.
On a normalized low single digit Inc.
Increase year over year around normal things like salaries and benefit increases when we look at the impact of <unk>.
Contract Labor, if you will because thats been a pretty big topic around.
Our industry with the Covid panic.
Pandemic throughout 2020, I would say that.
Does that impact is mainly isolated.
And our material science and on <unk> unit, and I'll come back and tell you about that and from our home health and hospice and we've managed really well around the contract labor impacts and I think we've changed last year with PDGF, we changed our model.
Where we brought our therapists on fault rather than a per visit we brought them on a full time salaries because a lot of our contract labor was going into therapy and that was getting quite costly.
So we've been able to manage the contract labor component really well and the impact on our home health Hospice business has not been material in 2020, we don't expect it to be material in 2021.
Where are the biggest impact it comes as an L pack.
The hardest place to find skilled nursing and Thats, where we are being impacted we saw contract labor rates, there impact us by about 33% year over year increases in those rates.
And it impacts us to the tune of about half a million dollars per quarter or $2 million annually in terms of our cost structure. So we've assumed that that essentially continues at least into the first half of 2021.
And we expect that to temper in the back half of 2021.
Okay got it thanks for all that detail.
And just as my follow up question.
Interested in all of the disclosures you gave us about the M&A pipeline targeted.
Targeted annual on.
Revenues from acquisitions that you laid out.
One thing I was just intrigued about with just around the M&A pipeline, how weighted that is in the slide towards hospice at around 84 percentage.
So it would be helpful. Maybe if you just wanted to flesh that out in terms of.
You know sort of does that.
Represent just how much M&A activity has been playing out in hospice.
Just interested in maybe we think about that 150 million to chew on your billing at our annual grant that you're targeting would it be that weighted towards hospice or do you think ultimately it will be more balance between hospice and home health.
Yes, Scott this is Josh.
So.
Clearly, we have a high volume of hospice opportunities that's in our active pipeline that we are either.
And discussions are in diligence on.
I'll also just tell you in Q4.
Diligence a couple fairly sizable hospice opportunities and have really been active in that market. We've been talking now for quite some time about wanting to further grow out our hospice platform.
You see some good staff and information in our supplemental deck and I even commented on some of them in my prepared comments on just the trajectory that we've already had within our hospice segment.
I would tell you as of right now, it's 84% hospice.
I wouldn't expect that to be necessarily the mix that you see closed throughout the year that shows the current composition of the $420 million or so in the pipeline I would think you might see more of a balanced mix, but if you think about our mix.
Mix of our company at 70% home health on 11, or so percent hospice. If we can have a more balanced approach to M&A youll see that.
That mix of our service lines come closer together over time, and we're really pleased with the learnings and what we've been able to develop on our co location strategy. So in addition to some larger deals that we're looking at we're also really focused on bringing in some tuck in on hospice deals like we did in the back half of last year.
Okay got it thank you.
Thanks Scott.
The next question comes from Brian <unk> with Jefferies. Please go ahead.
Hey, good morning, guys.
Josh I'll ask about admission trends right. So on.
Obviously negative 6% Medicare in Q4 negative or positive 2% for the for the quarter is there anything there that youre seeing that impact from the business and I guess as a related to guidance.
Looking at current admission trends currently in the $8500 per week level.
It seems like you need to give it up to like 9200 to hit that.
8% to 10% range. So can you walk us through the plan or the strategy to get that admission number up to that level.
Yes, Brian.
Thanks.
So I guess I'll just start with what have we been saying in the admissions trend in general and we've been very transparent on over the whole life of the pandemic and saying where are the emissions have really for the most part even throughout Q4 vibrated between 8300.
<unk> 80 507.
Several weeks throughout Q4, and then as we moved into Q1, we really started getting back up to that almost 9000, a week run rate in those three weeks in January.
8900 per week, and we had been signaling all along that if we could get back up near the non thousand a week mark that would be really strong and really fuel our growth.
As it relates to kind of Medicare.
And kind of some other growth that we've experienced one thing I'm incredibly proud of what the team is kind of the sequential improvement in Medicare revenue period over period is one measure of success that we've been watching closely because as I've been saying a lot of it's real hard in 2020.
And then even into 2021 to look at organic comps and interpret too much out of those so.
I would tell you that from a sequential standpoint, we're really pleased with what we're seeing there and continuing to see kind of period over period improvement from Q2 to three and then Q3 to for the <unk>.
Other areas very.
Free pleased with is the ability to grow at a rate we've never done before our non Medicare episodic business.
See in our deck some bullets on.
Almost 30% growth in non Medicare episodic that group that pays and Medicare equivalency, So as theres been somewhat of a contraction of Medicare through Covid for all kinds of Covid induced reasons. Our team has done a great job of focusing on not only contracting and getting better contracts.
Then pointing our sales force and the direction of going and secure on those which from an overall mix standpoint are episodic mix is still hanging in right, where we expected it to be and then lastly, I would just point to kind of the.
One other things that we've got in our plan for this year that gives us extreme confidence in hitting that eight to 10 and Brian you know with kind of how 2020, even the eight to 10 is going to be vary through the year with Q1 being soft Q2, probably be in high double digits, and then Q3 and for being high single to low double.
<unk> to kind of blend to that eight to 10 because of the comps from last year, but we have really put an emphasis on growing our feet on the street.
On right now in Q1, we set a goal of increasing feet on the street by 10% and we've already increased it by 5%.
At this point in February and the other 5% are in the process at some stage of either being interviewed are on boarded with open requisitions. So we're on track to hit our 10% growth in this quarter and we've already scheduled out an additional 10% incremental growth and feed on a steady for Q2 to really give more fuel.
To that back in.
No I appreciate that very helpful. Keith I guess my question for you seeing that HCA is coming into the.
Home nursing space with the acquisition of Brookdale asset, obviously very heavy in Florida, I mean, how are you seeing that.
How is your how are you looking at that moved from a strategic perspective, and what does it mean either to the home nursing industry or do you guys, who are going to be competing with HCA on the ground in Florida and Texas.
Well.
Thanks, Brian for that question and as you might.
Might imagine youre not the first person asking that question.
Alright.
We have a very close working relationship with HCA is.
Work with them on a lot of markets, including a lot in Florida that.
47 hospitals select business there, but.
I can't I can't think of a <unk>.
Better validation for our <unk>.
Hospital joint venture strategy.
And I've said that for some of the trends.
And on.
On November of 1998, when we did the first hospital joint venture with a pretty lonely place.
So we've come we've come a long way.
No.
I view it I view it as a.
As a positive.
Where we do a lot of business with HCA for that.
Just like every other hospital that we do partners that we've partnered with <unk>.
Whether through a joint venture or partner.
A discharge option.
We have to earn the business every day and we do that through quality scores re hospitalization rate patient satisfaction with customer service.
Just blocking and tackling.
So on.
We really view it as a positive I'm a glass half full guidance.
I think that will help drive acceleration in our hospital joint venture strategy.
A few of the calls we receive all already validate that.
Awesome. Thank you Keith.
Okay.
The next question comes from a J Rice with credit Suisse. Please go ahead.
Hey, guys. This is Rob moving on for <unk>. Thanks for taking my question.
Hi, I just was wondering I know you said you haven't seen a lot of cost pressure from contract labor. We've also been hearing in the market that volumes have been pressured from a limit on staffing and some of them had to use contract labor to improve the staffing to help attract some of those volume have you.
Have you seen any volume pressure just because you didn't have the staff to fill the positions over the last couple of months.
Yes. This is Josh I will definitely take that one.
So the.
The short answer is yes part of what you even see in the dip in census.
For the end of December and early January that created a headwind in the beginning of the fourth and the first quarter rather.
Does.
We went from about a run rate of 1% to 2% of our employees.
Frontline employees on quarantine up to hitting the high point of 4%.
So that also added to the staffing pressures if you will.
Very pleased to see that trend be back down to two 4% last week and week over week continuing to trend down partly with vaccination is rolling out and partly just getting past the post holiday surge of Covid that just impacted the entire country.
The other thing I would point you to is just all of the efforts that we have been putting into staffing in general.
We have been talking about this market share gain opportunity on consolidation in front of us and it's not only about increasing your feet on the street from our sales infrastructure standpoint, but you've also got to be adding clinical workforce.
On that volume and to take that additional growth. So in Q4, we saw our TARP voluntary turnover and home health went back down to 17%.
Which we're extremely pleased with the progression there decreased about one percentage point in Q4 back down to 17% and then in Q4, we hired we had an increase of 19, 5% of new hires of clinical staff.
Our home Health service line.
In January alone, we had our single largest higher month in the company's history for.
For new hires of clinicians so I think I'll tip, my cap to our recruiting and our talent acquisition departments and really all of our operators to be forward thinking in adding staff in the face of upcoming Grove.
But.
The last thing I'll say is with the pandemic as future spikes occur or <unk>.
<unk> of staffing.
Staffing pressures is real across the industry.
Rob This is Dave I would add on to that in my previous comments as you know.
We were really able to manage.
Contract labor well in 2020, because we had pretty low.
On our clinicians on quarantine right as Josh referenced and we referenced in the prepared remarks around 1% clearly when you have.
The period of time, where that goes quadruples to for Europe than relying on contract labor until some of those gaps. So we do see small pockets when it does pressure, but we don't.
We don't see extended periods right once now that we're back down to $2 for.
We're able to manage much better with our SaaS. So.
It's not that there is not cost pressures there from the contract labor, we've been able to manage it and contain it to small periods of time.
Great. Thanks, guys that was thorough.
Just one more for me.
When I look at the guidance and I take kind of the $70 million adjusted EBITDA rate in Q2, and I back out the MSP payments expected in Q3.
It looks like.
On a assuming EBIT will be flat in that back half from that $70 million rate ex.
<unk> payments.
Is there any chance we have COVID-19 subside more than expected I guess in Europe in that back half is there some upside or conservatism there.
Yes.
I think.
We believe there is probably some upside there I think as we look at this guidance we feel it appropriate we feel it's good guidance appropriate guidance given the amount of uncertainty that has persisted around COVID-19 right with it we used to refer to the hydrocodone in March and April and now we actually had a higher emergence of COVID-19 in.
December and January rates. So I think it reflects some of just that uncertainty and clearly the more back to normality we can get.
The more.
Opportunity there is so I believe your perspective on that is correct that there could be some upside.
Great. Thanks, guys I appreciate the time.
Thanks.
Yeah.
The next question comes from Andrew Mok with Barclays. Please go ahead.
Hi, Good morning wanted to follow up on the monthly home health volume trends on slide 15.
It's somewhat surprising because it looks like December volumes were the strongest at the same time that Covid cases, Serge can you provide a bit more context for that dynamic in Q4 and early into Q1.
Yes, so I mean again.
I hate to keep beating the drum on.
Looking at the organic comps can be a little skewed.
So we had a little bit of a lower hurdle to jump from December of 19, we had a strong overall quarter and 19, but that helped.
With our December.
But I really think most of the the spike activity started to impact admissions more so and January and kind of coming into February.
<unk>.
We started dipping down in census, and then in the end of January it picked back up so the phenomenon was really kind of late December through kind of early January if you will.
And then you've got the winter effect that occurred in February, but hopefully that helps kind of makes some sense of it.
But you can see.
If you look at slide 40.
That really gives you the weekly admit.
On a progression you see Christmas week, obviously was down to $61 66, and then the first week of January was down under 6000. So early December was still 8500 8300, and then it dipped hard in the last couple of weeks of December which is both holiday as well as Covid and then it started climbing back up and.
January.
Okay, great. Thanks for the color.
Okay.
The next question comes from Justin Bowers with Deutsche Bank. Please go ahead.
Hi, good morning, everyone.
Welcome aboard Gail.
So.
Just on.
Just kind of taken a step back you guys have grown EBITDA for compound your EBITDA north of 20% over the last three years.
Yeah.
Looking at the organic tailwind kind of your historic.
Historic above average market growth and then.
The cash at the business throws off is there any reason why.
You can't continue to grow.
And in the mid to high teens over the next three plus years.
Is that.
Net.
That's our expectation and I think Thats, a fair assessment and I think it goes back to again some of the information we shared with you around the robustness of our our inorganic.
Strategy, whether it would be JV are wholly owned.
And what we're able to do with the business when we integrated into our our home health or home health and hospice models and so.
Yes, yes, absolutely I feel if we think we're I think Josh said in his prepared remarks, there's probably not a better a better time of opportunity for us as a company.
To continue with that kind of robust growth, yes, Jonathan This is Josh I mean, absolutely. If you look at the midpoint of our guide this year.
As an additional almost 15% growth.
And adjusted EBITDA and that doesn't even assuming any inorganic so theres no additional incremental acquisitions in that so if we continue to.
To be a market consolidator and really execute upon our inorganic targets.
I would tell you that is sustainable for years to come as we continue to grow the business and I would point you I won't spend a lot of time. So we can get other questions out, but I would definitely point you to slide 20 and on.
Our deck that shows the improvement experience we've had over the last for years and the acquired revenue and if you just extrapolate that and apply that even to the 55 million that we bought last year. There's some further upside that you could see growing in addition to the inorganic opportunities that we're going to close on this year.
Got it and just one quick one before I hop offline, but can you just provide us with an update on on the life.
On kind of like point relationship JV.
How much Greenfield is left and all of that I know a day, obviously they've had their hands for.
Along with the rest of the world but.
It hasn't been talked about in a while but I think I think theres still some some opportunity there.
Mkay adjusted I'm.
That is a welcome question I wasn't expecting to get that on what I'm. So glad you asked it I've got to tell you from the time we.
Consummated, our joint venture with Lotte point back in 2017 until now.
They are definitely on the short list of.
Most engaged and not just in kind of the day to day week to week month to month execution of the joint venture, but engaged in growing with us.
And it's partly because of the size on the footprint and the Greenfield space that was in front of us.
Got.
I can circle back with you on exactly where we are because I don't have that in front of me.
But I do know and our most recent board meeting with our JV Board with lot point.
We had multiple opportunities and markets that we had on the board that we were going out together to source, both home health and hospice within and continue to be working to grow that out so.
Excited to report back to you on that one adjusted but it's got a lot of opportunity still left in it.
Thanks ill hop back in queue.
As a reminder, if you have a question. Please press star then one to be joined in the queue.
The next question comes from Joanna <unk> with Bank of America. Please go ahead.
Yes. Thank you so much for taking the question. So first on my follow up question.
Talking about the non Medicare episodic revenue very strong world 30%.
Can you talk about what exactly is happening there in terms of their Medicare advantage contracting.
Are you winning more volumes under your existing episodic contracts or are you really.
Negotiating these contracts.
From per visit that does that.
Ravi on Mexico.
Can you just talk about where you are on.
On those fronts with our with the MAA contracting on you know how much they're still still from two to grow day.
Hey, Joanne and good morning.
So it's both and then I wanted to tag Dalian.
With his background and experience he is already bringing even more.
Innovative thought to how we engage with our payer partners going forward, but we're in the growth that you've seen us experience from 2019 to 2020.
We have done a good job we secured.
A handful or so new episodic contracts and a few that had quite a bit of volume within them. So converting them from per visit to episodic and then we've done a better job of kind of pointing and focusing on growing the share within the ones that we already had so I think it is kind of multi pronged if you will.
On how we've experienced that level of growth.
And you know I would tell you at a high level the engagement and the conversations we're having with a lot of our payer partners right now on payment innovation is in the forms of everything ranging from episodic and episodic now might even be.
Easier for them to kind of move toward now that even PD GM has a 30 day payment period. So instead of a 60 day payment period now for 30 day payment period.
And then you've got.
Per member per month for discussions that are going on you've got more case rate discussions that are going on based on certain diagnosis groups.
So really excited about the progress there Darryl white.
Yeah, I think Josh covered it really well Joanna, but I would say a couple of things reinforce what Josh said, absolutely. The growth is coming from both its a mix of new contracts as well as gaining share on your existing.
Payer contracts and.
And so we think we have a lot of runway there to go obviously, so we're excited about that as we look forward.
Really exciting conversations going on around as Josh mentioned.
More episodic.
The variance of it rate case rates.
And a case rate kinds of opportunities.
<unk> opportunity is right what the models that we're interested in that the payers are receptive to is where we take on day home health continuum of care right, we want that whole home health continuum of care and.
So that puts the responsibility and accountability and the risk on us, which we're comfortable with and we performed very well under those situations as well as it creates administrative efficiencies to do business together and so.
You start to get away from things like we become a gold standard and there is no free off required in some in some cases, so we're able to we've got a number of these conversations going on with a lot of excitement that.
Our beneficial to both parties and that's how you win when it's a win win for both parties.
That's very helpful.
Close that loop sales.
Can you talk about what kind of average I guess and day rate per episode.
We used to talk about big discounts so how far along are you on.
No on average for closing that gap.
Yeah.
I think we said we've made about an 8% improvement year over year, 12% over the last three years. So we continue to work on that.
When you look at the episodic business as we said, it's very Medicare equivalent. So we're very happy there the per visit areas. We had actually a sequential improvement Q3 to Q4 for one 5%. So some of that is contracting some of that's mix of payer, but we continue to work on that but honestly.
Our real focus there is while we work on that is converting that per visit to a different form of reimbursement.
Okay.
Yes, I think that makes sense and if I may just ask on I guess, it's a follow up maybe on your topic.
We introduced day, you mentioned I know legislation that could be introduced.
Congrats on I guess, you do it you're doing some work already with one of the hospital systems.
It seems like that like for Smiths medical type. So can you talk about the choose at home proposal.
It seems to me I think that the larger price would be better equipped and flow.
I wanted to actually do something like that so but with that.
How LHC ge's positions to participating in programs like that would you have to add more personal care capabilities in your markets any other.
No other ground business.
Great.
Yes. Thanks for that question drivers, it's Keith I'll take that one.
Yeah.
Our.
For quite a while now you all have heard us speak about sniff at home and sniff conversion.
Some of you may recall, we first started that.
Years ago, with Oscar Health system, you on it.
I'll, let to reduce SNP utilization.
In many ways that choose home legislation.
Is the foundation of it is that work that we did.
Way back then added added to that though.
Back then we didn't have a time limit on it necessarily the.
Choose home legislation.
As a 30 day episode, that's proposed and it would be reserved for patients who are eligible eligible for sniff placement asset discharged from acute care hospital, that's how they qualify for.
But it would be a 30 day episode and that would include in addition to scale home health services personal care food transportation.
And home supplies and remote monitoring.
That's for fly.
And it has a guaranteed savings built into it.
So we feel we feel very good good about it.
<unk>.
I think.
It's work that we've been doing that adding the personal care.
And the other food and transportation to the benefit is huge because the social determinants, where one of the challenges we face.
Back in the early days initiated.
Awesome.
I'm sorry, let me you asked about personal care and what does what day.
Yeah, what do you what are you actually need to have Joe are you thinking like you have enough coverage to be able to participate yes.
I'm, sorry, I missed I'm, sorry for not following on on that yes. The short answer is yes.
We're big on two co located strategies.
And the personal care has been challenging for us because.
<unk> home health hospice, which.
Largely either Medicare reverse reimburse on national contracts.
Much of the personal care businesses built on state by state Medicaid contracts. So.
This benefit would drive more personal care expansion for us on co located in markets with home health.
Alright, thank you so much but it sounds like.
Quite a party consideration when you talk about that 100 to 200.
No.
On incremental revenue that you expect to add every year. Okay. Thank you for that color.
Thanks Joanne.
This concludes our question and answer session.
I'd now like to turn the conference back over to Keith Myers for any closing remarks.
Thank you operator.
As always thanks, everyone for dialing in for our call and.
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Okay.
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