Q2 2021 Encompass Health Corp Earnings Call
[music].
Good morning, everyone and welcome to encompass health second quarter 2021 earnings conference.
Hi.
At this time I would like to inform all participants that their lines will be in a listen only mode. After.
After the Speakers' remarks, there will be a question and answer period, if he would like to ask a question. During this time. Please press star 1 on your telephone keypad you will be.
Limited to 1 question and 1 follow up question.
Today's conference call is being recorded if you have any objections you may disconnect at this time.
I will now turn the call over to Crissy Carlisle encompass health Chief Investor Relations Officer. Please go.
Called.
Thank you operator, and good morning, everyone. Thank you for joining encompass health second quarter 2021 earnings call with me on the call today are Mark Tarr, President and Chief Executive Officer.
Doug Coltharp, Chief Financial Officer.
Our Jacobs Mayer Chief Executive.
Go ahead of encompass home health and hospice and Patrick Darby General Counsel and corporate Secretary before.
Before we begin if you do not already have a copy the second quarter earnings release supplemental information and related form 8-K filed with the SEC are available on our website at encompass health Dot com.
On page 2 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 those relating to our ongoing strategic review and its impact on our business and stockholder value as well as the magnitude of impact of COVID-19 that could cause actual results to differ materially from our projections estimates and expectations are discussed in the company's SEC filings, including the earnings release and related form.
K the form 10-K for the year ended December 31, 2020, and the form 10-Q for the quarters ended March 31, 2021 and June 32021, when filed we encourage you to read them.
You are cautioned not to place undue reliance on the estimates projections guidance and other forward looking.
For me. It makes you presented which are based on current estimates of future events and speak only as of today, we do not undertake a duty to update these forward looking statements.
Our supplemental information and discussion on this call will include certain non-GAAP financial measures for such measures reconciliation 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 SEC all of which are available on our website.
We'd like to remind everyone that we will adhere to the 1 question and 1 follow up question rule to allow everyone to submit a question.
If you have additional.
<unk>, please feel free to put yourself back in the queue with that I'll turn the call over to Marc Griffin. Thank you and good morning, everyone.
Business momentum accelerated in the second quarter of 2021.
Strong revenue and adjusted EBITDA growth in both segments over Q2.2000.
Question on them in Q2.2000 on too.
Our second quarter performance reflects the resiliency and sustainable.
Sustainability of our business model.
As a result of our strong operating trends and year to day performance. We are again, raising our full year 2000.
Even 'twenty 1 guidance.
Our clinical teams remained focused on the patient experience.
It's their commitment to our patients that truly drive the results of our business and I. Thank them for the outstanding work they do.
In our inpatient rehabilitation business revenue increased 21.
<unk>, 5% due to charges were up 18, 7%.
Adjusted EBITDA increased 49%.
We have successfully positioned encompass health inpatient rehabilitation hospitals.
The trusted choice for patients providers and payers.
As the trusted national leader and rehabilitative care.
We have developed and continuously enhance clinical programs and protocols that have proven to be highly effective in treating patients requiring care inpatient rehabilitation hospital.
We continue to improve care through advanced.
<unk> technology, and innovative treatments that maximize recovery for our patients and prevent costly readmissions to acute care hospitals.
Let me give you examples of these post acute solutions.
First we completed the rollout of our readmission prevention model in October 2000.
20.
While it's too early to draw any conclusions regarding the complete rollout I'll remind you that our pilot program for this model resulted in a 280 basis point decrease in readmission rates, we expect to see similar results from the complete rollout.
Second.
We began piloting our fall prevention program and the low end of our hospitals in May.
Throughout this pilot we are focused on determining the effectiveness of the model and our existing fall prevention precautions.
Identifying additional fall mitigation practices and making refinements to.
Based on our learnings.
We expect to begin enterprise wide rollout of this model in the fourth quarter of this year or early in the first quarter of 2022.
In addition, we began piloting <unk> virtual patient observer platform in May and 2 of our hospitals.
Model platform is there a remote patient monitoring system that allows a trained technician to monitor multiple patient rooms from a central monitoring station.
We believe it can improve patient safety by reducing patient falls and lowering cost by reducing adverse events.
Our expertise in treating stroke patients continues to contribute to our growth in.
In May of this year, we announced an extension through 2024 of our strategic sponsorship with the American stroke Association for its national together to end stroke campaign.
Primary.
Third we campaign, which is also an essential part of encompass health longstanding mission is to transition more patients back to their communities with greater functional recovery.
Developed evidenced based tools to inspire hope in stroke community.
And reduce stroke mortality across the U S.
During both 2019 and 2020, our rehabilitation hospitals served more than 34000 stroke patients.
That number is expected to grow to over 36000 in 2021.
The strength of our value proposition to payers is also evidenced via our.
Our continued success with Medicare advantage plans.
Approximately 50% of new Medicare beneficiaries, and our markets are choosing to enroll in Medicare advantage plans over traditional Medicare.
Compared to the second quarter of 2019, our same store Medicare advantage discharges.
Increased 41, 3%.
We will continue to focus on capturing the growth in this payer.
We also continue to benefit from new store growth and have very robust development pipeline intact during.
During the second quarter of 2021, we added 41 beds to existing.
<unk> hospitals and opened 2 new inpatient rehabilitation hospitals, 1 in north Tampa, Florida, and the other income in Georgia.
That brings our opening in 2021 to 3 new hospitals, and we expect to open an additional 5 in the back half of the year.
Specific.
We plan to open hospitals in Waco, Texas.
Greenville, South Carolina.
<unk> Port Louisiana.
In Pensacola, Florida during the third quarter.
In addition, we expect to open 12, new hospitals in 2022, and we already have 9 hospital slated.
To open in 2023.
Last week, we announced our first hospitals scheduled to open in 2024.
That represents over 3500, new beds from 2021 through 2024 and debt before we add 100 to 150 beds.
On to existing hospitals in each of those years.
Turning now to our home health and hospice business.
Revenue increased 14, 6%.
Total admissions increased 14, 7%.
Total starts of care were up 10, 9%.
And adjusted.
EBITDA increased 311, 3%.
Operationally, we continue to execute against a solid backdrop debt includes aging demographics, and the fact that 75% of patients seeking care would prefer to receive it in the comfort of their home.
<unk> is focused on the overall quality of our payer mix, which prioritizes those payers that recognize our value proposition.
Value based contracts are growing focus for us and an increasing portion of our Medicare advantage emissions are being tied to a value based payment model.
As.
We remain emphasized reimbursement models driven by value. We believe they will continue to seek out leading clinical outcomes and cost efficient services.
We're also collaborating with to homecare organizations that provide personal care to support a sniff at home program in order to.
Payers growing need for these services in our markets.
Early results from these efforts are encouraging and we have more potential providers in the queue.
Additionally, we've rolled out a virtual visit platform with a national payers Capitate program the.
The virtual platform App allows.
Patients to participate in a secure video call V. A personal device such as a smartphone tablet or computer with their physician nurse care manager or other medical staff.
We continue to assess the effectiveness of these interventions and identify opportunities to drive.
<unk> better outcomes through their appropriate use.
We're also pleased with the progress we're making in regard to our care planning approach associated with the use of Metalogic care module.
Our business per episode were $17, 1 in 2019 and $16.4 and.
7 point.
For the second quarter of 2021.
Visits per episode were $15.6.
And throughout this period <unk> visits per episode has been depleting low hospitalization rates with no degradation in our quality.
We believe.
The measured approach.
We are taking to care planning and adoption of <unk>.
The best price.
Approach per hour patients and our company.
Our teams are also focused on the integration on the assets of frontier home health.
2000, <unk>, which added 9 home health and our portfolio in June.
I also want to express my excitement about the appointment of Bob Jacob Meier, as CEO and Crissy Carlisle as CFO to our home health and hospice business.
<unk> business.
<unk> is a proven leader with extensive health care operating experience. We are confident she is the right person to lead this business going forward.
Christie's extensive financial expertise and familiarity with our business make her ideally suited to take on the CFO role.
I work closely.
Closely with both Barb and Christy for many years and know they will do an excellent job.
Next in regards to regulatory updates on June 28, CMS released its notice of proposed rulemaking for home health agencies for calendar year 2022.
The proposed.
So it includes a 1.7% net rate update and includes a proposal to expand Cmi's home health value based purchasing demonstration nationwide <unk>.
<unk> also provided his preliminary analysis of the first year of PDGF.
<unk> rule as we look ahead to 2021 guidance based on results to date and strong operating.
Operating trends.
Our full year 2021 guidance now includes the following.
Consolidated net operating revenues.
On a 5.1% to $525 billion.
Consolidated adjusted EBITDA.
Of $1.05 billion to $1.07 billion.
And adjusted earnings per share of.
A $4.32 to $4.47.
Before I turn it over Doug I want to touch on the strategic alternatives review of our home health and Hospice segment.
As we mentioned in our earnings release based on the analysis of <unk>.
We will enhance the long.
In term success and value.
<unk> of the business.
The final form is still to be determined as we continue to pursue a separation transaction by either public or private meetings.
Many of the key preparatory actions required for separation have been completed.
Including but not limited to audited carve out financial statements for the home health and hospice business.
A confidential submission of a draft registration statement on form S..1 with the SEC and certain required regulatory filings.
While no assurance can be provided.
<unk>, we expect to announce a transaction in the second half of 2021.
We've continued to pursue a transaction we cannot comment further at this time.
With that I'll turn it over to Doug.
Thanks Mark.
Good morning, everyone. As Mark stated were very pleased with the strong performance from both of our business segments.
As compared to 2022nd quarter consolidated net operating revenues grew 19, 9% consolidated adjusted EBITDA increased 71, 9%.
And adjusted EPS increased 277, 4%.
We also generated significant growth over Q2.2019.
Consolidated adjusted EBITDA of 10, 6% <unk> adjusted EBITDA up 8 points EBITDA up 25.
And good 9%.
We continue to generate high levels of free cash flow with adjusted free cash flow increased 28, 9% year over.
Per year for the first 6 months of 2021, and our net leverage ratio down to 3.
1 times.
In our inpatient rehabilitation segment revenue increased 21, 5% and adjusted EBITDA.
It was driven by both volume and price.
Pacing.
Total discharges increased 18, 7% in Q2.
2 including same store growth of 16, 9%.
Compared to Q2 thousand 19 same store volumes increased 1.6%.
Our average daily census improved sequentially from.
1 as volumes continue to recover.
Electric procedures are steadily returning.
We treated approximately 5000, orthopedic and lower extremity joint replacement patients in the second quarter of 2021.
That's approximately 4500 more than we.
From the second quarter of 2020, and approximately 650 fewer than we treated in the second quarter of 2019.
We believe elective surgeries for our patients elderly patients with complex medical conditions will continue to improve in the back half of the year.
Pension of sequestration.
Improvements in discharge destination.
Prior period cost report adjustments, partially offset by the timing of discharges between quarters.
1.
4.3.
As compared to 144.
In Q2, 'twenty and 138 in Q2 thousand 19.
Continue to expect acuity to moderate in the back half of the year is electric.
<unk> procedures accelerate.
The rollout of the vaccine and on site Covid tests and capabilities continue to help us lower our patients average length of stay.
Our average length of stay decreased thousand 21 to 12.7.
Days in the second.
Growth in adjusted EBITDA.
In the quarter, primarily resulted from improved revenue and labor protocol devotee.
Employees per occupied bed in Q2, 'twenty, 1 was 331 as compared to 3.
4.5 in the prior year quarter.
In addition, please recall that SW b in Q2 'twenty included approximately $29 million of additional paid time off award frontline employees.
We did see a kick up in salaries and wages per FTE.
The year over year due to employee furloughs during Q2, 'twenty and the ramp up of new stores in 2021.
Medical supply costs.
From moderating, but they continue to be higher than pre COVID-19 levels.
<unk> point in our home health and hospice segment.
Net revenue increased 14, 6% and adjusted EBITDA increased 311, 3% to $61.7 million.
The revenue increase was driven by both.
Volume and pricing.
Total home health admissions increased 14, 7% year over year.
Compared to Q2, 19 total admissions increased 10%.
We are experiencing staffing challenges in certain markets.
Primarily around nursing.
Elective procedures.
Have returned to historic levels.
And we have been adding new referral source.
Verses at a pace of approximately 3000 per quarter.
But.
Both <unk>, 6% increase in revenue per episode resulted from an 8.
Within our hospice service.
This line total admissions increased 3.4% primarily due to the acquisition of frontier in June of this year.
Same store admissions decreased 1.9% due in part to lower Occupancies at skilled nursing and senior living facilities.
Cost of services continues to benefit from effective productivity management.
Home health cost per visit decreased 1.
Per visit compared to Q1, 'twenty, 1 and visits per episode decreased from $15.8 in Q1, 'twenty 1 to $15.6 in Q2.
As we head into the back half of the year, we will anniversary the compensation structure changes we made in May 2000.
And in 'twenty.
Cost per visit May increase sequentially as we address staffing challenges in certain markets.
And we will seek further reductions in visits per episode as we continue to refine our care planning approach and the use of metal logics.
Our continued strong free cash flow and well balanced capital structure support the investments we are making in our growth.
During the second quarter, we funded our development activities, including the $99 million acquisition of frontier.
We also redeemed $200 million of our.
<unk> 5 <unk>, 5% senior notes due 2023, drawing minimally on our revolving credit facility.
I want to make just 1 comment on guidance before I conclude.
Based primarily on the pacing of our de Novo startup costs and the impact.
Pricing from the 2021 rule we.
We expect the year over year improvement in revenue and EBITDA to be greater in Q3 than in Q4.
And with that we'll open the lines for questions.
At this time, if you would like to.
To ask an audio question. Please press star 1 on your touched on phones. Once again that is star 1 to ask an audio question.
Your first question comes from the line of Stephen Fishbeck with Bank of America.
Good morning, Kevin.
Yeah glad you caught that.
On.
Alright, a couple of questions first question being on labor cost.
I guess it seems like Youre seeing from some pressure there it looks like your guidance assumes.
Welcome to higher wage and a little bit higher benefit costs and it seems like its backend loaded should we expect that number to be even.
Even higher I guess as we think about 2022 and.
You mentioned that.
You haven't labor issues geographically, but you don't expect it to be a headwind to growth we have seen some other companies talk about.
Centrally impacting growth I guess.
Why why aren't you concerned about that.
Kevin.
I'll make a couple comments and then perhaps Doug and Barb on a per churn as well, but I think what we saw on the second quarter was a continuation of trends that we saw developing in the first quarter, where certainly the nursing market in both of our segments.
Had a developing pressure.
It's if.
If you think about nursing theres been a lot of pressure on on nursing.
Levels for a number of years, but it certainly exacerbated.
2020, and as it came out from Covid.
I'll say as it continues to be a market by market.
Driven issue with some market.
<unk> certainly have a higher degree than others.
It seems to be primarily limited to nursing, we've seen more pressure in home health than we have with the hospitals.
The hospitals have had to go back in and make a number of market adjustments to some other support staff.
And housekeeping and dietary.
With regards to nursing and home health has certainly been an early priority for Barb Jacobs Meyer in her new role.
I'm going to ask her to comment on just on some of the details there.
Sure. So I think first on the part of staffing it is certainly market by market I think the good.
Good news, though is that we achieved our highest total nursing hires in quarter 2 since they had back in 2019. So we.
We do feel good about where we're headed as it relates to our end LPN hires.
Based on that we do have dashboards that show us, where we're having staffing challenges versus where we are sufficiently.
Staff and so it's really about that blocking and tackling and knowing where we have the staffing challenges and focus on talent acquisition in those markets and then the markets, where we do have the amount of staff, we need and we're focused with the sales force and making sure that we have the right number of sales team members. So that we can continue to increase those referral sources and the referrals.
Coming from our current sources so.
So it's both things we think we're going to continue to see the growth as we focus on the talent acquisition, but we're already focused on the markets that have good staffing in place.
Kevin its Doug we.
We do not feel like it's served as any kind of limitation on growth.
In the second quarter in the Earth's segment, nor do we anticipate it will serve to limit growth for the balance of the year.
Specific example were not having any great degree of difficulty staffing our de novo's as we bring those online.
It has been a limitation in certain of our home health locations.
On a year to date basis, we do believe that we're taking appropriate steps to address that and we don't anticipate it to be a limitation on growth moving forward.
That's helpful and I guess, the common back half of the year.
Seasonality and I guess, the timing of the normals.
And the headwind that Korea can you just remind us I guess for the year, what the total de Novo startup losses are expected to be this year and maybe with more than a low the opening next year, how should we think about that kind of drag year over year into next year.
Yeah. So we stated that we anticipated at the.
Startup and ramp up costs associated with the go lives. This year would be an impact of somewhere between 15 and $20 million on EBITDA.
That that range remains appropriate.
That the quarters that are we know that the quarters that are going to be most significantly impacted our Q2 and Q3 and Q3 is the heavier.
Total mall.
You know as we go into Q as we start thinking about 2022, and obviously, we haven't put any guidance out there around it.
As a proxy you can kind of use the same aggregate cost that we're seeing this year divided by the number of de novo's and recognize.
Recognize that we've now announced 12 locations that will open up in 2022, that's a proxy some of it is really going to depend on the specific opening dates.
Right the earlier in the year. They open the more there is an opportunity for a new location.
To be generating at least break.
<unk> EBITDA by the back end of the year.
But we will provide more color on that as we move into the first quarter of next year.
Your next question.
And I was going to say partially offsetting the.
On the ramp up cost next year will be that will start to see a positive.
Breakeven fusion from the 8 that were opened up this year as we move into the back half of 2022.
Okay.
Our next question comes from the line of Brian <unk> with Jefferies.
Good morning, Brian Hey, Good morning, guys. Good morning.
Doug Thanks for all those comments I guess.
Just to go back first to the labor questions right that and maybe this is for both you and Barbara <unk>.
We think about that.
<unk> on an LPN mix is that an opportunity that youre seeing and then maybe drilling further down into accounts staffing metrics. So in the markets, where you are saying that their challenges is it more of a turnover.
Issue or is it just in terms of adding new clinicians to drive it to fuel the growth going forward.
Yes, I would say, it's a combination of both of those obviously, we've always been focused on retention, we're going to continue that focus.
And also as the focus on finding the hires that recruitment that's why we've added some flex.
Our ability around a part time in PRN. In addition to our full time position I think what nurses are looking for today is a lot more flexibility is there still some questions on what things look like in the future with school.
I think that's also why we're seeing from success in our recruitment is because we are offering increased flexibility.
Brian I will say.
<unk>, we've had and this goes for both segments of added resources around talent acquisition people, whose sole job is recruitment.
And we're starting to see a return on that investment.
First started.
Heavily in the second half of 2020 for the hospitals, particularly.
New day knows and then.
Barb has addressed that issue with home health.
No. It's awesome and then I guess marches on have you.
<unk> already announced 9 openings through 2023 year to date, and obviously, we're kind of like halfway through the year. So just wondering are you seeing more opportunities pop up.
Are those more than what you probably would have expected. When you gave your long term guidance ranges for de Novo openings because it seems like it has accelerated with all the announcements in the past few weeks.
Well, Brian we're certainly very positive about the pipeline we have we.
We talked about the Florida.
Markets, where that was an area that we see.
Faith that we had a long term.
Legacy of hospitals area of 12 hospitals, we knew all along that if the Coa on in that state were ever to be a.
<unk> debt, when and exactly what markets, where you'd want to move in as well as what markets.
So you'd want to add beds to existing hospitals. So the state of Florida has been a big opportunity for US and then we've been very pleasantly surprised and as we have moved into either new states or certain markets and states, where we didn't have such a density of.
Facilities and so yes, we're very positive.
On the long term outlook and the demographic tailwind that continues to drive the need for our services and Brian just to add to that.
In those long term targets for the <unk> segment, we had anticipated that we would add between 6 and 10 day novo's per year over that 5 year period.
And obviously based.
Positive as you just cited with 12 coming on board.
Next year 9 already identified for 2023, we're running at or above the top end of that range and feel good about our ability to do so for the next 4 to 5 years at a minimum.
Your next question comes from the line of a J rice with credit Suisse.
Good morning, AJ offering AJ.
Hey, how are you guys.
Good.
Maybe just 2.
2 quick things here 1.
<unk> got on your slide deck.
Thank you face that admissions headwind versus 2019.
On.
And the home health business, because there's a snip in senior housing depressed occupancy you picked up all these additional referral sources do you think youre getting those patients in another way or do you take that 30.
200 admission headwind.
Is still out there to be had as incremental to the current baseline and then also on your slide deck, you have a payer mix shifts it looks like in the Earth business, where Medicare fee for service was up pretty significantly.
But Medicare advantage.
<unk> was down I just wondered if you drill is that just the pandemic or is there anything to.
To account for about a 400.500 basis points swing in payer mix between those 2 sources.
I'm going to let Barb address the first question.
<unk> home health, yes.
Yes, so on home health, you're right, we have increased our referral sources over the last several quarters to about 3000, new referral sources per quarter I think it's a little bit of a blend on what that is helping us from a recovery and new growth. So for example, when you saw that our elected they are actually back up a pre COVID-19 level some of.
That is about increasing the number of referral sources that are direct orthopedic physicians and so we've been able to market directly to them. So that as they're doing some of these surgeries and particularly ambulatory surgery centers that have helped increase those types of referrals, but we're also seeing new referral sources that are.
We're hoping that some of the other diagnoses mixes. So I think it's a combination but certainly you know increasing that number over stuffed referral sources is helping us with that headwind of the sniff and senior living.
Longer term, we do think that the Smith from senior living.
Volumes will come back it's just that they have been.
Slower to respond post pandemic.
Then other referral sources.
Anecdotal evidence tells us they are still running on average about 15% below their pre pandemic occupancy levels.
Right.
Hey, David This is Doug on the Medicare advantage side.
There's no doubt that the pandemic has caused some fluctuations in our payer mix and those fluctuations are more pronounced in Q2.
Than any other quarter, because we were kind of the height of the impact of the pandemic in Q2, and then also it was for Q2 last year that the preorders.
Dacian requirements by virtually all of the MA plans were waived and then those were re implemented in July of last year, but just to give you some sense.
In context around the numbers recall that in Q2 of last year, our MA discharges in your segment were up 66%.
In Q2 of this year on a same store basis, Theyre down 13, 2%.
But we're still up 5.6% on a year to date basis.
And perhaps as importantly, if you compare year to date 21 to 19.
Up 41.3.
3%.
With regard to sustainability, and where we see the payer mix going what we can say is that if you look at M&A as a portion of our patient mix in Q2 'twenty..1 it was 15, 3% in the same quarter last year it was 21%.
<unk> go all the way back to Q2 of 19, it was 11% so it's still.
Elevated over that level in the last 8 quarters on a blended basis. It's about 14, 5%. So we do expect debt now that we've kind of moving past the second quarter, we will continue to see.
<unk> growth in the back half of the year and I would expect it to be probably modestly higher than what we see in fee per service. So that would suggest that from that.
Current level of about 15% in the payer mix, we're probably going to continue to hover pretty close to that area was it maybe inching up just a day.
Net.
Okay interesting thanks a lot.
Sure.
Your next question comes from the line of Matt Larew with William Blair.
Well, Matt good morning.
Hey, good morning, just curious you've obviously commented on elective procedures, returning and just more broadly.
Clients are turning just curious how things have looked in July with the Delta variant apathy.
Moving out I presume at this point your SaaS more vaccinated you have people in place.
Patient care algorithms around vaccines are bit more established obviously than they were in recent searches, but I'm just curious what you've seen.
Cause any changes at the momentum that you picked up during Q2.
No Matt we're not seeing any changes on the momentum that we've picked up we will certainly.
In the marketplaces, we're seeing evidence that there is increased.
The COVID-19 patient population in acute care hospitals.
<unk>.
We've had less than a handful of our own hospitals or agencies that has seen an increase from the COVID-19 patients being treated.
We have seen an uptick in a number of our own staff that may be in quarantine at this point due to either.
Their exposure outside of work.
During the workplace, but as you noted we have great amount of confidence on our teams they are well prepared with PPE.
On the protocols that they've put in place last year and have been working from since then all of our hospitals have the.
Abbott rapid.
But seeing equipment in house that allows us to test <unk>.
Visuals within 15 minutes so.
We're prepared for what for what lies ahead, but at this point, we've not seen any direct impact on our business and Matt I would add to that recall that for the types of patients that we're treating in the <unk> setting.
<unk>.
Elective procedures are only elected in the short term ultimately what they are is deferred procedures that need to be done.
And when you combine that with the fact that.
Look at the average age of the patients that we're treating and the focus of the vaccination programs on prioritizing senior popular.
Setting, we don't expect that we're going to see the progress that we're making in elective surgeries receive.
Yes, that's a complex than volume.
On the hospice side.
Can you maybe help us.
I understand what youre seeing on the ground, obviously, there were some ADC issues earlier.
Earlier near the industry wide, but.
In terms of the negative net growth year over year was that isolated to certain geographies at that also related to staffing.
Moving to be helpful to get an update there.
Yes, so mainly was due to the again the lower occupancies that were seeing.
<unk> debt the senior living facilities, but there were some key markets, where we had some staffing challenges and again those were also mostly nursing, we're seeing those those agencies get hired up as far as their nursing staff.
So I.
I would say that the other pieces in the length of stay we thought kind of the decrease in the length of stay.
On the Covid impact of the Covid patients, but we're kind of seeing that come back on normal return more to a normal pre COVID-19 length of stay and pre COVID-19 diagnosis mix.
Your next question comes from the line of Frank Morgan with RBC.
Low frac, 1 and Frank.
I'll have to go in.
Okay.
I guess I'll say it on that last question in the last commentary going back to <unk>. Because I think you said I think length of stay and hospice was reaching any sort of pre pandemic levels.
Just curious about any.
In terms of the momentum across the months of the quarter.
Quarter.
In terms of emissions.
I want to give specific numbers, but.
Could you just describe what the movement was across the months of the second quarter and really kind of how you exited the quarter in terms of admission trends and the hospice business.
And also in the home health care business.
Yeah.
I don't have the actually on me the specific trends as it was month by month.
You got to be careful about that particularly in the second quarter as well because of the holidays in the summer season, you know generally speaking, we don't see any of the any of the limitations within hospice or home health.
As being more permanent issues.
Got you.
I think when you talked about labor or as you mentioned some specific reasons and I think that was enough the hospice business.
Any particular regions you could call out any explanation because it might be market specific.
No go.
Actually I would say that that changes we've had some really nice increase in our hires over the second quarter. So I think what I would potentially call out today is there any changing so I don't know that theres anything in particular that we have major concerns over but frankly I would also about the same for the hospitals.
Really no.
Trends to see in terms of geography.
<unk> is really a market by market phenomenon.
Your next question comes from the line of Peter Chickering with Deutsche Bank.
Good morning, Peter Hey, Tito.
Guys. Thanks for taking my questions here I know you guys don't want.
No about the strategic review, but let me see if I can ask a question is that you are able to answer can you walk us through the process of the confidential S..1 filing.
Why you made the public announcements Barbara Crissy.
CEO CFO in order to net 1.
Chris's announcement on June 28, as a rough proxy proxy.
Proxy 1 was submitted and finally, if you decided to do the spin now you filed the S..1 how fast can we do so.
Yeah, Peter that's Peter.
That's the detail that we're.
But we're not in position to provide at this point.
Couldnt you to provide the simple answer.
You filed the S..1.
I was wrong, you decided to go how fast could that be transacted.
That's not completely within our control.
Yeah.
Your next question comes from the line of John Ransom with Raymond James.
Good morning, John I got through John.
Yes, I'll, let Scott answer ask a question you got from actually answer.
So.
Just on value base.
Sure.
That means a lot of things.
If we look at the business.
For example.
Approximately what percentage.
Paces are now on a value based arrangement and what does that look like if it's deeper service with a kicker you've taken 2 sided risk are you.
Contracting downstream.
And then you know it is.
This.
My impression is this is all developing a lot slower than we might have thought 5 years ago is there any reason to think that it won't continue just to kind of inch long or do you.
We might be at a point, where this might pick up a little bit of momentum minutes, though is that a good guy bad guy or kind of a neutral to us.
So virtually everything that we're doing with regard to value based care contracts is in the home health segment and is within the MA book of business.
You are correct that it's a relatively.
Really small, but it is a growing portion of our business I think the reason that it's in home health versus on the air side is because of the complexity associated with it.
And it's just something that the the MA companies are not set up to tackle on the air side, yet, even though we expressed a willingness.
To try to address that.
I think it's definitely versus the expectations, we had around that as recently as 3 or 5 years ago. I think it's definitely developing more slowly than we would have anticipated. We do think it is going to continue to move forward, but we don't see any kind of catalyst for it to be a sudden jump.
It's going to be kind of slow and steady and we will continue to be a participant in those models, where they make economic sense for us and we'll continue to refine our learning through that participation.
We do think it will work on our in our favor.
Just based upon our quality that we have we think we have a lot of.
Value to providers.
We think of our value proposition in both of our segments clearly as we worked with our trade associations.
As you noted this has gone at a snail's pace I will see what the new administration.
Wants to do relative to the use of CMI and moving forward programs either.
<unk> perrier or mandated.
But yes. It has moved at a very slow pace up to this point.
Specifically when you look at home health and get into the M&A book of business..1 of the things we struggled with before is that the MA plans have historically not differentiated between providers based on quality.
Volunteer for they've just gone on to the lowest common denominator from a rate perspective, we believe that our quality shines through and so if we can get into arrangements that have a stipend that is based at least in part on the quality of care, we think that inure to our benefit.
Is.
And so as a quick follow up I mean, 1 of your competitor quality.
But speaking to bypass.
Hospital admissions altogether for about 150, <unk> and do you like this 3 day insensitive homecare model with post acute.
Sure.
What's your I am sure you got to look at that.
Yes.
You talked about stepping that up.
But if you looked out 2 or 3 or 4 years do you think we're gonna have models that sort of obviate the need for both a step in the hospital and just kind of go kind of start on begin at the home with some tech enabled capabilities.
Well, we certainly think from a.
Snip in home setting there have been.
On a number of.
Different types of diagnostic backgrounds that historically have gone to skilled nursing facilities given the advancements.
Home health a number of those could be done in the home setting and that's what we're that's what we are preparing to meet the demand for I think hospital home has a long.
A long way to go.
Certainly the patients that are in our hospitals.
Our non discretionary.
They need a high intensity of care.
And it would be it would be.
Hard to imagine that that can be provided in a home setting in a more efficient manner than.
What we're providing foreign hospital he tried to push that kind of acuity into the home you lose all of the benefits of scale.
You'd have to go to essentially 1 on 1 staffing in the home as opposed to being able to run as the kind of ratios on the kind of Epo.
We do on our hospitals.
Once again, if you would like to ask an audio question. Please press star 1.
Your next question comes from the line of Matthew Borsch with BMO capital markets.
Good morning, Matt Good morning, Matt.
Good morning, actually had been filling in for Matt.
Thank you for taking my question.
Okay. So when does that when assessing the results screen patient rehab, we've seen some nice strength in discharges in EBITDA as well as debt de novo opportunities that you've previously mentioned my.
My question is around growth expectations and when do you think your business will benefit in a sustained manner beyond the pandemic concerns about patient utilization share.
Question.
Well, obviously, we remain very bullish about the growth there evidenced the amount of capital we're deploying towards both the de novo's on the catheter capacity expansions on the bed side as we said for quite a few years. The demographics are definitely in our favor.
The age cohort that.
Yes.
Through our inpatient rehabilitation hospitals is the fastest growing cohort of the U S population at a multiple of the overall population growth that is expected to continue for the foreseeable future.
And to that the supply of licensed FERC beds in the U.
We address is simply not kept up with the increase in demand in the aging of the population and we don't see the risk of any kind of technological obsolescence as high as well. So we remain very optimistic about the about the aerospace. We've also said, even though the dialogue around moving towards some kind.
You add on.
Site neutral post acute inpatient setting is really kind of died down over the last several years. If ultimately we begin to head in that direction. We believe that Irving investing in the aerospace is an even better bank and that is because youre going to continue to have.
Have a need for post acute inpatient services. It may address the spectrum of what is currently provided from an El tack through an earth to Smith and if you had to have a single box, but from a physical standpoint, and a staffing standpoint had to flex to be able to address that broader acuity.
You'd want to do it with your starting point being an Earth vs and <unk> Smith.
And when you move to that kind of model if in fact that ever gets here. The total addressable market for our services will have been expanded exponentially.
We think last year was an opportunity for us to show the level of quality that.
We can provide for our patients that have a high acuity.
And Covid certainly exposed certain areas of post acute.
On that.
Could not handle a higher acuity patient.
Others proved themselves such as the Earth's sector, and we think that encompass health came through in various.
Very strong fashion.
We think some of that reputation will impact that we've had that we've developed last year.
Ari over into future years, with the reputation of the ability to handle a higher acuity patient and get them back on to high functional level. So.
<unk>.
We are very bullish on the continued demand for <unk> services.
Excellent I appreciate the commentary.
This concludes today's Q&A session I'll now turn the call back to Crissy Carlisle for closing remarks.
If anyone has additional questions.
Please call me at 205970586 DRAM. Thank you again for joining today's call.
This concludes today's conference call you may now disconnect.
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