Q4 2021 LHC Group Inc Earnings Call

Sorry, Paul.

Greetings and welcome to LHC group's fourth quarter 2021 earnings conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.

Please note. This conference is being recorded I would now like to turn the conference over to your host Eric Elliott Senior Vice President Finance and Investor Relations. Thank you you may begin.

Thank you, Rob and good morning, everyone I'd like to welcome you to LHC Group's earnings conference call for the fourth quarter and year ended December 31, 2021 last night, we issued our earnings release and posted a copy of our prepared commentary and supplemental deck on the quarterly results section of our Investor Relations Page. In addition to the earnings release.

Supplemental information a copy of the 10-K and ultimately a transcript of this call when available can be found on this page.

That concludes our full year 2000, and feel like to guidance assumptions in detail on breakdown among sector performance all of our non-GAAP reconciliations and breakdowns of adjustments are included as well we will reference this information in our remarks today.

With the approach we began last quarter. The majority of our time on this morning's call will be devoted to Q&A with me today is Keith Myers, Chairman and Chief Executive Officer, Josh Proffitt, President and Chief operating Officer, and Biomedical Chief Financial Officer before we start 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 in this call and our press release and our prepared commentary and in our supplemental financial information I will now turn the call over to Keith.

Thank you, Eric and good morning, everyone.

Before we begin I'd like to take just a moment to thank our LHC group family of nurses and caregivers physician extender as Allied health professionals in administrative and support staff.

Work tirelessly on behalf of the growing number of patients families and communities we are privileged to serve.

And we just I just can't thank them enough for their commitment to those entrusted to our care.

And for their commitment to continued improvement and excellence in all we do so to everyone on the team. Thank.

Thank you didn't know that you are valued and appreciated.

I hope everyone had a chance to review the commentary and supplemental information we posted last night.

We received a positive response from this practice last water and trust will allow more time for Q&A today.

When I tried to summarize our year, what's ahead of us and the current state of the industry.

Few things that come to mind that I'd like to share in my brief opening comments.

The first.

Clear policy consensus that patients want to be treated in the safety and comfort of their home.

This is evidenced in part due to unprecedented regulatory flexibility afforded home health in the wake of Covid as.

As well as an important legislative initiatives from Congress.

Innovative waivers from CMS regarding the homebound requirement flexibilities for remote certification of homecare.

Telehealth.

And continued legislative relief from the 2% sequestration cut or actions of targeted relief and sustained policy for our sector.

During the current.

Alright, public health emergency and beyond.

Notably CMS has given consideration to making many of these waivers permanent reform.

Likewise, we saw the house passed and sent to the Senate the President's initiative to expand H CBS services via proposed $150 billion and we saw solid progress with our signature legislation choose home.

48 members of Congress from both chambers from both parties and from committed.

Jurisdiction, including committee chairs are now co sponsoring this groundbreaking legislation.

Every month.

Times of weekly, we see choose home and other homebase reforms, the subject of op Ed articles in newspapers across the country and social media and in discussion at National Congresses.

Congress Likewise is considering additional opportunities to expand telehealth benefits hospital at home program is gaining traction and CMS is poised to implement nationally value based purchasing in 2023.

Never before have we seen such a sustained and significant emphasis from Congress and from CMS.

Expanding in home health care services.

More importantly.

We can see this consensus also reflected in polling data.

Third party tolling data shows that 86% of adults and 94% of Medicare beneficiaries prefer to recover at home as a hospital stay.

While 85% of all adults and 90% of those over age 65.

Say that expanding home health care options should be a government priority.

You can also see it in the increasing demand for our services.

With new physician referrals and an all time high for us along with an increasing number of existing and potential partners, reaching out to manage their post acute programs.

Our challenge right now is certainly not demand.

And that leads me to my second point, which is.

The difficult challenges, we face in the recent past.

Have been short term in nature.

We saw a large spike in the percentage of our clinicians on quarantine in late Q4, and early Q1 due to COVID-19 variance compound compounded by lower availability of labor overall as the industry struggled to fill open positions.

We have a number of initiatives that.

Josh will talk to later underway that we've outlined and will review in more detail during Q&A.

And finally, my last point is that even the growth we experienced in 2021.

We expect another strong year in 2022, as we remain a long standing industry leader.

And quality patient satisfaction.

And employee retention.

And our proven ability to deliver on the multiple levers we have for organic growth in each segment.

And continued M&A activity.

So I'll stop there with our opening comments. Thanks again for joining US this morning, and now I'd like to open the call up for questions.

Josh Dave or myself.

At this time, we'll be conducting a question and answer session.

Like to ask a question. Please press star one on your telephone keypad and confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.

My first question comes from Scott Fidel with Stephens. Please proceed with your question.

Hi, Thanks, good morning.

First question just wanted to sort of think about long term adjusted EBITDA margin and if we look at the 2022 guidance that imbeds, an implied adjusted EBITDA margin.

At over 11%.

As we think about.

One scaling the margins on all of that acquired revenue in 2021 to 300 million that you acquired.

Then if we assume we can move.

The pandemic at some point here into a more of a normalized environment.

Could you talk about what you think is more of an octane and bold long term target margin for the business.

Yeah sure Scott This is Dale I'll I'll take that so.

Youre correct our guidance for 2022 is about 11, 1% EBIT.

As we think about kind of clearing 2022, and getting further removed from COVID-19 integrating our M&A business right, we've been very deliberate in that.

On about a 12 to 18 months.

Graham for institutionalizing, our M&A to the corporate standards, so we get out into 'twenty three.

2004 timeframe, we're still very much of the opinion that on a consolidated basis, we're looking at 13% to 15% EBIT in a range for the business.

Okay, perfect and then.

And my follow up question just interested if.

If you could talk a bit about what the operating cash flow expectations are for 2022.

And then how youre thinking about leverage it looks like you exited 2021 at just around two five times, obviously, I know that sort of what youre going to do with M&A is going to probably drive that but started out separate from M&A, whether you've got sort of that at year end leverage target.

For 2022, and that's it for me thanks.

Yes, absolutely Scott.

So if you think about cash flow for 2022.

Havent had a roughly a 64% conversion from EBITDA to cash so that puts us at about roughly $180 million of cash flow operating cash flow.

From there you have to remember, we're still kind of declaring ourselves.

Cares Act Medicare advanced payment recoveries and deferred payroll taxes. So I think it's worth mentioning that in 2021, we paid back about $212 million of the Medicare advance payments are they were recouped from us about $212 million and we paid.

Our first installment of a deferred payroll tax which is about $26 million. So a heavy year of of cares Act recovery. There as we look at 2022, we've got about $106 million of the Medicare advance payments to be recouped, yet from from CMS and one additional deferred payroll tax to be paid so.

We're in the low $130 million for kind of closing out the cares Act money. If you will so if you take that off the cash flow you're at about a $50 million cash flow.

We protect the roughly $20 million of Capex, so that leaves us about $30 million and then obviously as you mentioned depending on M&A. We'll go from there. So when you take all those components into consideration, we think it's a pretty benign debt year forest quite honestly, a pretty flat year over year.

Okay. Thank you.

Yeah.

Our next question comes from a J Rice with credit Suisse. Please proceed with your question.

Hi, everybody, maybe just to ask about the hospice business for a second I think the length of stay is.

Now in about 85 six days it looks like from the fourth quarter.

Is that in your mind, a normalized or do you still think there's further to go there and generally comment on the status of the hospice business relative to pre pandemic levels and I know you highlight also that you've made some leadership.

Realignment in the hospice business, maybe talk a little bit about what you guys have done there.

Yeah, Hey, Jay Good morning, This is Josh and good morning, everyone.

So as you think about our hospice business I'll try and hit it in the order that you just laid it out from a length of stay perspective being up in that mid eighties.

We've been tracking in the low <unk> for the past couple of quarters, which we've been really pleased with.

That got us back to what I'll call kind of pre pandemic levels. If you will and now that we're seeing that more in the 80 586 day range I think that's a very sustainable number one.

With our current patient mix and you know kind of side of care mix wouldn't see that changing much but you know our assumptions have that and you kind of hanging in there in those mid eighties.

And then kind of stepping back and looking at just hospice performance.

You mentioned our realignment. So you know obviously last year was was a huge year of acquisition and really kind of forming up and firming up our platform. If you will for hospice and we alluded to this kind of midway through the year as we were building through our acquisitions are in the.

Fourth quarter, we did do some realignment in both sales and operations.

And I believe on our last call I, even alluded to really.

Reorganizing some of the geography and looking at our real growth minded leadership, both operationally and from a sales perspective, so we executed all of those changes.

In the fourth quarter to be effective January one so there was some disruption in the quarter due to some of those changes as you might expect but a J I'm extremely pleased with the results that we're already starting to see from that change we're pacing to just over 10%.

Organic admission growth.

And the quarter right now for Q1 and that was over a Q1 of last year that was right around 8%. So we've got a decent hurdle for Q1 and have a lot of growth momentum going on in our hospice business right now organically.

And then you know from a sequential standpoint, where we're going to be way up in the high double double digits, you'll probably 18% or so of sequential growth in the quarter. So all in all really pleased with the.

The results, we're getting from that change.

Okay, Great and maybe just to follow up on the guidance for 'twenty two you've got a line item cost improvement initiatives to contribute about 25 million in EBITDA can you maybe expand on that and does that come in evenly over the course of the year or is that going to be backend loaded.

Yeah, a J.

Maybe I'll I'll I'll first take us back to some of our prepared remarks and what we described in November of last year. When we were setting the stage for 2022 preliminarily and we had talked in about a $10 million to $15 million cost initiative effort that we had scored at that time.

Back then the majority of those savings were I would say in three categories.

First was some of our strategic sourcing efforts things like pharmacy call things like med supply costs.

Second would be.

Reduce dependency on contract labor utilization and we've already seen a slight improvement there in Q4 over Q3 and feel pretty good with no lessening of quarantined employees of how that's continuing to trend here in the first quarter and then the third area of cost improvement that we described back then was you know.

Moving more of our extender utilization L. P M P T A's and so forth.

I'd say from then till now we've also taken a deep look at our non clinical G&A and I'd say, that's where the other $10 million to $15 million comes from.

When you have as much acquisition activity is we've had really not just last year, but over the last three years, you know coming into this year looking at the higher cost for direct labor you know us being very disciplined from a G&A perspective, we looked at areas that we could be more efficient and makes them.

No very targeted savings opportunities in the non clinical G&A area. So by doing that that's also going to help us as we grow our revenue this year better leverage our G&A. When you look at how we've got it to our G&A as a percent of revenue kind of in that 28% to 29% range.

And then I think you asked how it smoothes out over the year and our supplemental deck, we broke down all three components of Covid spend incremental acquisition improvement and at least on the contract labor utilization and how we expect that to smooth over the year. Some of these other ones that we did execute in Q4, and we're going to get.

Some benefit in Q1, and some of the G&A, where we're continuing to execute here in the first quarter.

Okay.

Jay.

Hey, Jay this is Dave I'll, just add a little more color onto that.

If you looked at and I think as you probably go back in time in 2017. The company was 1 billion in revenue and now in 2022, we're looking at two and a half million so to Josh as point, Yeah, It's really a fresh a deep look at over that period of time in that growth.

Really really digging into our admin costs right. So we have we have good opportunities there.

But when you look at the cost savings that Josh has mentioned in the bridge.

Page 40 of our supplemental deck, you'll see that in Q1, we got about $4 9 million in there. So that would suggest a run rate of 'twenty. So there's a little bit of back end, a little bit backend loaded not a lot of back second half loading in and that would really probably be more toward day.

What I would call the med supplies.

Section because right now supply chains are tight so the better the benefit from that supply is going to probably come more in the second half.

Okay, that's great. Thanks, a lot.

Our next question comes from Justin Bowers with Deutsche Bank. Please proceed with your question.

Hey, good morning, everyone.

Just in terms can you.

Characterize kind of labor environment, and some of the ways that you're winning with regards to rooting in recruiting and retention you hired a ton of staff last year, but.

Also just trying to better understand some of the dynamics, where maybe maybe where you're you're sourcing some of your new hires and if youre seeing any differences in terms of your ability to hire across the different.

Categories, whether it's like Orange L P N therapists, etc.

Sure Justin Good morning. This is Josh I'll start out with that one and I'll I'll break it really into the two key areas are you you alluded to both there's recruiting.

And then there is a retention of staff you have.

And if you look on our supplemental deck I'm extremely pleased with our on the full time clinical staff perspective, the net hiring momentum that we experienced all throughout 2021, even in a very tough labor market. So the net hiring that we track really balances the skills of both recruiting and retention on just the.

Routing front, we've now had five consecutive quarters of the highest numbers of hires we've experienced in our company's history.

And when we're doing a lot of very specific things there I'll touch on just a few before I'll pivot over to retention.

On recruiting first Ive mentioned this last quarter and we've seen even more of an increase here and that's you know the growth in our talent acquisition team.

We've described in the past we have a centralized talent acquisition model, but they are deployed in many ways out into the local markets that we serve because recruiting is very localized along with your branding and in other areas. So we've we've grown that from 34, when we entered last year to 62.

Two when we exited so we've had an 80% increase in our dedicated staff just for recruiting efforts.

Couple of other things we've done we did rollout last year in January our employee referral program that I've talked about on the last call as well we closed out the year right around 2000 hires from that program alone.

We've also made some some real good process improvements in our velocity of hiring we've got very specific performance metrics.

Not only for our recruiting team our talent acquisition team, but we got very specific metrics for our hiring managers on time from application to get the candidate on speed to provide feedback and scheduled to interview and all of those types of process measures.

And I've I've watched and continue to see really good sequential improvement every quarter in those areas.

And then the last one I'll mention on the recruiting that I may even dovetail on uses as my lead in for retention is really all of our areas and the Eni under diversity equity and inclusion.

Have a chief diversity officer that leads that effort for us, but she is very engaged in an integrated into all of our recruiting efforts.

And even at a local market level a lot of those you know local targeted talent acquisition team members are also armed with and targeting to make sure from a D. E N. A perspective that we're the employer of choice in those local markets.

All of our team members.

And then shifting gears to retention.

I am pleased that we continue from.

From all the data that we have access to not only for the industry, but across our peers.

Be the leader in the industry when it comes to the voluntary turnover for our frontline staff. Although it has been up a little bit throughout the pandemic. It seems to have stabilized and we're continuing to perform well layer on.

The efforts around retention I would point to our D. Eni efforts. There also have a retention element.

I would I would point you to our culture.

We've recently been recognized as best company to work for for women as well as best company to work for from a company culture perspective, and then two specific areas I would highlight for retention one is all things employee engagement.

We have a program internal and third party external partner on our employee engagement efforts internally, we call them engagement conversations, but we've embedded this into the process with all of our managers throughout the organization and last year, we completed over 40000 engagement sessions with our <unk>.

Lloyds and had an overall engagement score of four and a half out of five which is which is extremely solid. If you look at that across you know other kind of reporting sources from an employment perspective, and then we've also engaged a third party engagement partner, where we're doing consistent pulse surveys for employee satisfaction and engagement.

There so I feel really good about the efforts on that front and then lastly from a frontline perspective, I think anything you can do to streamline and improve your workflow processes, you're scheduling practices to find ways to automate and make things more efficient for your frontline workforce and <unk>.

Today's.

Environment of employees are really comparing a lot where they want to work I think is another big leg up for us that we've put a lot of effort into.

So I know that was a long winded answer but I know this is such an important point right now in our industry and I just wanted to say kudos to all of our operations team members that are out there are leading this charge because they're doing they're doing a great job.

Yeah I appreciate all the detail and then maybe just a high level one.

Where there are some concerns about a potential cut.

And for 2023 or PDGF and I was just curious kind of what the conversations are in D. C kind of what some of the partnership initiatives are and how we should be thinking about handicapping that.

You know as the year progresses.

Yes, so a good question.

Take that one.

We certainly hear about.

Internationally, where.

Where we're pushing back on on that.

With with data to support our arguments, but but but other provider groups are are facing the same the same thing I know the hospital Association.

Yeah. It was very active in that.

As well on their own issues, so, but I mean as it relates to home health.

In hospice.

But we're obviously very very engaged in that and.

And I don't see what's being proposed as being something.

That will we will ultimately get in the hand.

Worst case, we negotiate something.

That's.

That's lower than what's proposed.

And.

S cases.

We our arguments are strong enough to have to have note.

No cuts.

And that's the way it works out most of the time. The first the first thing that's proposed Ah is very egregious.

We have a long track record of a beat.

Being able to mitigate that to some degree.

Understood appreciate it and the new format and all the detail in the supplemental deck. Thank you.

Our next question comes from Joanna <unk> with Bank of America. Please proceed with your question.

Hi, good morning, Thanks for taking the question. So just a couple of follow ups on this latest topic.

On labor and recruiting so clearly.

Positive trends, there I mean, you're talking about.

The high end producer for 20% more new hires compared to any other year. So that's a pretty.

Pretty strong number there, but just to keep things in perspective can you can you can.

Give us a sense of that net new hires that you disclosed.

Coupled with the 120.

For the year 2021.

Is that to your base and also just talking about you know what the shortages I know.

The nurses so should we assume these are marquee nurses and I guess when you think about.

That type.

Type of.

Oh, you know what does this number represent in terms of.

The increase in the overall pool you yeah.

Sure Joanna this is Josh.

722 home held 53 hospice so call. It just shy of 800, I'd say, that's about 5% increase in our full time clinical staff. Because this is a full time metric, we're not talking about PRN staff.

So if you look at our full time clinicians across those two service lines, that's about a 5% year over year increase which is stronger than what we had been kind of running years previously.

The other kind of point to capacity and in this you know lends itself to growth potential.

And really taking advantage of a lot of the demand that we're seeing come our direction. So if we can continue a 5% or greater net increase in employee workforce. While also maintaining our current very low level of employees on corn pain to go from six north of 6% of employ.

He is on corn team bounce around a half a percent that's another 5% influx of workforce and capacity for growth that we've experienced in the last month alone.

If you correlate that to what we've seen in census.

Our census on January 15th was roughly 83000 and earlier. This week, we eclipsed 89 300, so we've had over a 7% increase in our census growth in home health.

In a five week period due to this increased employee capacity.

So you can imagine our top priority right now is continuing that momentum in net hires so that we can take on all this growth.

Oh definitely I forget that it's good to hear I get to 5%.

A good number to think about I think here and I guess, just another follow up on that topic.

In the past.

Alright.

Third quarter could you talk about labor cost kind of Oh, well growing three 5% for the year.

I understand a ballpark when you when you think about that this year.

Yes.

This is Dave I'll take that yeah. So you know going.

Going back to that we referred to historically, we were seeing two to three and we felt like we were in environment, where three to five was more of the norm. We still feel three to five is that range I think we're anchoring ourselves now in 2022, as we've got three or four more months of that.

Empirical data around the labor market, we're anchoring ourselves to the higher end of that 5% range. Obviously that includes bonuses right. So it's a inclusive based wage adjustments as well as bonuses. So I think we're still we're still very much of the opinion that work towards the higher end of that.

3% to 5% range.

And to that point, how should we think about this that you know.

Feature would this be a number to think about going forward or whether there's a way to think about it that he knows it.

Moderate down maybe towards.

The lower end of that three to five.

Yeah, No I think we very much feel that theres moderation to come right. The further we can clear ourselves that's COVID-19 right I think that there's a very direct correlation obviously between COVID-19 the variance of Covid and in labor supply and demand and availability and cost. So the further we can remove from COVID-19 .

You know the more normal way, we can get back to that 2% to 3% range. Obviously, we feel so you know we're planning on 2022 like many others still being a year of disruption around that kind of getting into 'twenty. Three moving forward, we feel that there should be some normal stability coming back in and getting back to more normalized.

Wages.

Joanna This is Josh maybe a couple of Nuggets that would add to that we talked about it earlier and our cost initiatives, but everything Dell just described on the cost front of labor in general if you. If you just isolate our contract labor utilization every 100 basis points weekend reduce our dependency there gets us.

About one 5 million of savings per quarter.

Then as we shift to more LPN and PTA utilization, but there's also some really strong savings so to tie that back to what I. Just described on quarantine now with all of our workforce kind of back and not in corn team. We can reduce our dependency we can better leverage L. P M.

And start realizing some of those savings so long firm after Covid Bill I think some of those savings are much more sticky.

Right.

Yeah, that's a that's a great calling you finally get squeezed out.

Lastly, I know you.

Can you talk about the PDGF, but I get something out there and there's also the choose home proposal.

Yeah, you know a lot of support a b C. D. C is busy with other things, but any updates there in terms of the timeline for seeing some movement. She was home. Thank you.

Yeah drive us Keith.

I'd be hesitant to try to.

To put a timeline on it because there's.

There's so much uncertainty.

In Washington, right now I mean, what we know is what we know is that.

We know of the strong support that.

Shared in my opening comments.

We know that.

Bill is now being scored by C b O and that scores expected.

In a matter of days.

And that was.

That was at.

At the direction of a request of Senator Wyden.

So.

So those are all positive, but then you know then it won't be about choosing it'll be about what vehicle that choose home legislation would attached to.

Great. Thank you.

Our next question comes from Andrew <unk> with UBS. Please proceed with your question.

Hi, Good morning, your slides indicate that contract utilization will decrease in each Q2 and Q3 of 2022 first what's the normalized level of contract labor utilization in the back half back half of 2022, if you deliver on that improvement and second what level of full time net additions do you need.

To realize that improvement do you have the capacity and staff to execute on that today.

So Andrew this is Dave I'll take the first half of that so.

And what we're referring to there specifically is the nursing contract nursing utilization and so we were at 4% in Q3 and home health utilization three eight that you mentioned about a 20 basis point improvement in Q4 and to your point further improvements in Q2, and Q3 of about 1% each quarter right. So that gets us.

Down to.

Hi ones, 182% utilization of our normal do you think about pre pandemic normal utilization was probably in the one and a half one one and a half per cent range, so starting to get closer to that normalized.

Utilization pattern as we as we get to the back half of the year.

Okay.

What was the second part of your question.

What level of full net additions do you need to realize that do you have the capacity to do that today that simply just a function of quarantine rates coming down or do you need to hire more to execute on that.

It's primarily a function of quarantine rates stabilizing.

And then you know with the increase in the net hires.

It won't be overly bullish here, but unveiling I've done a lot of modeling around this area and we feel really confident in that 1% Q2 to Q3 with the run rate, we're on and honestly Andrew that there could be some betterment in upside there that will just lend itself to more growth if.

If we can keep the hiring velocity going.

Got it that's helpful and just a follow up.

Visits per episode ticked up almost half a point sequentially to 13 in <unk> 'twenty, one what drove that sequential increase and what are the expectations for <unk> in 2022.

Yeah, I would say you know this is Josh our expectations for V. P. Still remain in that 12, five to 13 range, which they've been in.

You know pretty consistently.

A lot of uptick in Q4, but nothing I guess it was like <unk> four visits or what have you I would I would emphasize as we continue this journey of higher acuity care in the home.

Youre likely going to see continued uptick.

To a certain extent, but with that will come higher reimbursement and higher revenue offset any costs that go with it.

So I continue to feel throughout all of PDGF and even through the pandemic very confident and our V. P E consistency and the quality results that there that its yielding.

Great. Thanks for all the color.

Yep.

Our next question is from Matt <unk> with William Blair. Please proceed with your question.

Hi, Good morning, just one more question around labor.

Labor.

Which is it sounds like your perspective is that with your employees largely not vaccinated in case counts coming down that shortages really aren't related to quarantine and obviously theres been some discussion more broadly about the demographics of the nursing workforce and whether there might be longer term shortages that have been pulled forward.

Now a couple of years into the pandemic would just be curious whether youre seeing the pressures you think on a go forward basis strictly tied to coring teens or whether there is a broader.

Shortage issue.

It can be a problem for the industry.

Yeah, Matt This is Josh great Great question I would say.

The the notion of nursing shortages isn't new and it doesn't you know arrives just because of the pandemic I think the pandemic exasperated it and you know really shined a light on it when you then start having large portions of your workforce that are unavailable because they're in quarantine.

So I think that's a headwind that the overall health care ecosystem has been faced with for a while for US, though I do think you know in home health care have so much.

Momentum.

And even in the workforce in general due to the flexibility due to you know a lot of positive.

Attributes of being part of that particular.

No segment of health care, if you will so I think for us over the next you know 235 years.

We've got a real good path to sustainable employment growth.

As long as you know the corn team stays sustained which to.

To your point I think you alluded to kind of the vaccination percentages.

We're in really good spot.

When it comes to you know employee workforce, that's both vaccinated as well you know we track how many you've had harsh no second dose boosted.

So I really think it's just the macro environment at this point, which I really like our chances in competing in that world.

Okay, and then the second one.

A couple of different parts to it but that 22 is the first year that at least like on that.

Matthew had more non Medicare home health admissions.

He cared Michigan.

Non Medicare business now has doubled over the last three years, but your segment margins have continued to improve so just curious.

First of all what's driving this growth as it Dennis penetrated narrow or preferred networks would be piece. One and then the second piece is hugging margins compare between Medicare and non Medicare home health business today versus perhaps three or four years ago.

Yeah, Matt This is Josh I'll start there and they'll you know definitely feel free to jump in and provide any additional color.

I would say you know, yes, there is growth and MAA and NDA penetration, we're all seeing that across the industry, but we've been talking about this for a handful of years Matt.

And you know you've been so close with us along that journey.

We've talked a lot about our continued effort on the non Medicare business to move more and more of that business to vehicles that reimburse.

A mechanism outside of just per visit.

That can be more episodic that can be a case rate that can be value based.

So you know at a at a high level the growth we have experienced in our non Medicare episodic admissions I want to say it was around 18% in Q4.

And you know it was north of 20% year over year 'twenty one over 'twenty.

That's fueling a lot of that growth.

So you know you think about quality of your payer arrangements and quality of the admission you're taking in and balancing that in a prudent way across the kind of how you manage your referral sources and whatnot.

For keeping a good healthy mix of of those types of you know.

Reimbursement vehicles and and in that regard I'd tell you, we're very kind of focused in two areas. One is just our sales efforts.

All the way to how we identify and target certain referral sources.

Up through how do we incentivize on certain of that activity and then secondly, as our contract discussions and new arrangements are we we've been you know over the past few years, you know at the table and having more and more productive conversations with Payors and.

And here recently, we're sitting at the table, having you know even more fruitful conversations around kind of the future of how we get reimbursed.

So so I would point to that at all.

Kind of high level, and then I would tell you like when you boil it down to margins and rates.

All in when you take all of our non Medicare we've increased the reimbursement by almost 17% over the last five years, which is really contributing to how we're able to balance the margin growth of the overall business and we've not seen any margin compression with that growth in non Medicare business.

Yeah, Josh I think you've covered it well and then just looking at it I mean, you have to look at it holistically too around how efficient do we operate in a consolidated basis at an agency level with all the volume together right. So there's clearly there's clearly operating leverage around all of that volume combined together, but when you look at our.

Our non Medicare episodic, it's running at about 97% of our Medicare part D. D. G M right right. So I mean back to Josh as points all of the efforts that have been going on around you know.

Focus on increasing rates folks on alternate reimbursement method driving more value based and risk sharing componentry and dynamics into the arrangements with greater focus on the non Medicare episodic space. Its all at margins very stable.

Okay I appreciate all the detail. Thank you.

Our next question is from Whit Mayo with SBB. Please proceed with your question.

Hey, Thanks, good morning.

As we think about the public health emergency when this ultimately goes away, which is it could be extended I'm wondering how you guys are thinking about the impact from the relaxation on things like face to face in the homebound status all of the the.

The telehealth rules I mean, it's just going to be an issue for you guys. I mean, I think that some of the <unk> changes around patient criteria could be a little bit of a challenge, but I guess I'm just trying to make sure I I think through what the implications are sort of internally how you prepare for this or maybe it's really really going to be just a non event.

Yeah, let me start with that and.

You guys can jump in so.

So what what I mean, what what you.

Here's how I would think about it I think that.

A number of these initiatives I mean like the Flexibilities around town.

Telehealth for example.

I think a number of these are likely to be permanent.

At some level you.

You know maybe.

Maybe some risk.

Restrictions.

From from how flex from the Flexibilities, we had during COVID-19 .

There were a lot of learnings.

During COVID-19 .

That we routinely hear that though these are these are good ideas and that we.

They should go forward they have to be reimbursed appropriately they have to be measured in.

You know in regulated appropriately of course, but.

But I do feel like a lot of that.

That'll stay in.

A lot of that will stay in sort of in place to some degree.

Was there another part of your question that I would just want to make sure I got that yeah. No I'm just trying to think operationally in the field and it take take something like the face to face right like if we go back to the physical in person documentation getting all the support documentation you now in the hands of the Cliff.

<unk> submitted back to you I mean is this is this operationally going to be a challenge to sort of pivot didn't get the physicians to go.

Go back to their to their normal workflow or is this something that you don't believe we'll be I'm, just trying to make sure I'm checking the box of all the things that that we should be thinking about.

Right well, so yeah perfect.

Let me give you a really good example of that so you know prior to Covid. We know that there are a lot of things we did during COVID-19 to adjust to the challenges that we'd never thought of before Covid. One of those is was around face to face with nurses.

Going into a patient's home and connect and scheduling an appointment with the physician at the same time.

And when a home health nurses in the home the physician joined.

By Telehealth.

So patient.

Nurse and physician.

Have a three way conversation and that's become.

Hey, norm now you know for us operationally.

Because of the value is it provides so.

So.

I think that capability is just good policy and I don't know why anyone would.

But.

Those that.

Okay.

That's helpful and maybe just not exactly a follow up but that's sort of an extension of that question is.

The audit contractors were kind of put on hold for a period of time and we hear from calls.

With operators that we're seeing some activity.

Hum.

You know today more so than than prior quarter. This isn't really a reserve or compliance question, but just can you maybe comment on the level of activity that youre seeing with some of the audit contractors as this more prevalent in home health or hospice, just any any themes or things that you can share would be helpful. Thanks.

Yeah, Joshua Yeah, where this Josh.

Good morning, I would say you know we've seen it.

Pick back up a little bit in both home health and hospice nothing unusual or outside the norm in either of those kind of service lines and what we're saying you just say you know the activity picking back up.

And I know you said you didn't want this to be kind of a compliance.

Auto type question or reserve question. So I won't go there, but that you did before me an opportunity to at least acknowledge and recognize.

Kind of our industry, leading compliance program efforts here and all of the governmental audit activity, whether it's 80 yards rack Z picks really kind of follow through that portion of our organization and we've got some very experienced.

Our home health and hospice clinicians that engage on all of those and our success rate continues to be really stellar so other than just having to kind of manage through more volume.

Really no concerns there on our end.

Okay. Thanks, guys.

Our next question is from Sarah James with Barclays. Please proceed with your question.

Thank you I appreciate all the progress you guys are making on the skilled labor side for nurses and clinicians, but one area of weakness Hum.

On the personal care business staffing and I'm just wondering.

How you think about that affecting the timeline for smiths diversion or skilled nursing at home opportunities.

Yeah. This Josh I'll I'll start there.

I almost want to say where are you in our <unk> two weeks ago, when we had monthly operations reviews.

Because that is the number one focus area for us as it relates to our H C. B S business line.

We definitely have pent up.

Demand and opportunity to grow our billable hours and.

And that service line and through the course of the pandemic. It has been maybe even more impacted honestly on a scale perspective, its not as large but you know when you look at the underlying metrics.

That workforce has been even more difficult throughout the pandemic. So so we've done some real specific things with our leadership all the way down through the local leadership and pairing them with some of these talent acquisition team members as well to get more innovative in how we solve for this in.

The local market.

So you know I'm confident youre going to see us have some good results to report and discuss throughout the course of this year and then the piece to your question about how that ties to sniff diversion at higher acuity in the home you're absolutely right and in some of the markets, where we're going to be doing more of the high.

Acuity.

Work. This workforce is going to be very important to driving that total cost of care savings. So it impacts not only our H C. B S service line, but.

For us to get some of that growth momentum and that employee workforce will also benefit our acute care in the home efforts.

And Sarah this is Dale I may just add under Josh his comments there is that.

We've also committed.

Some dedicated recruiters, specifically to home care or to our personal care business and as you know personal care is a very much a state by state business raised some states are better than the other states and so I think where we're deliberately focusing those recruiting efforts are where it makes sense to do so where the rate environment supports the labor.

<unk> environment, because there are some states, where the where the reimbursement environment does not support the rate environment. So we've been very deliberate about where we focus that.

Okay, that's very helpful.

Follow up on on rate as you think about just the mechanics of how home health rate are put together by CMS and the look back that they have for forecasting wage inflation, how do you think about.

How many years.

In an inflationary environment to get that fully baked into the.

The rates that CMS provides.

So this is key.

You know that is a.

That is one of three.

Three top priorities.

That we are that we're working on in the partnership.

For quality home health, which is.

A subset of the larger home health providers, but if we keep doing that in coordination with the National Association because it affects everyone.

But what we're what we're providing is third party data.

So that's real time and current.

So we collect.

Data from providers.

And it's collected.

You know by our the law, but the law firm that we use for the industry.

And then they provide it to.

Actuary that does the work and then we provide that to CMS. So.

And we have a.

You know it takes a long track record of.

Being accurate and data that we provide in that way.

So we are having those conversations about that lag and the lag as you know has always been problematic, but you know given what we've experienced the last two years and then finding out where this new norm is going to be.

It's going to be very important.

For us to for home health would be reimbursed adequately.

And again the feedback from from CMS is that.

They welcome the data and it is helpful to them and those things and.

And we don't have an adversarial relationship with CMS.

As an industry now.

It's it's you know it's.

Very it's more like a partnership and I would say 20 years ago. It was adversarial.

You know through along with a steady drumbeat of third party data that proves out to be reliable you know over.

Over 10 years, you know has changed that dynamic.

So I know, that's a lot but but.

That's what I think about it and more importantly, why why.

Why I have the confidence I have.

And I think he said, we'd all say to us we're optimistic on that front as well as because we solve them reflect some of the inflationary pressures in the current year increase rate. So that was a quick reaction on their part we believe theres more to be recognized but at least they reacted quickly to that.

That's helpful. Thank you.

Our next question comes from Bill Sutherland with Benchmark Company. Please proceed with your question.

Hey, everybody.

Just following up on <unk> question about the personal care staffing challenges can you give us an update on how the program with F. C. P is growing.

Yeah, Bill it's Josh.

It's quite well honestly, you know us we're not going to get out there and you know.

Have a whole lot of public fanfare around it until we've really started rolling out some of the programs and they have some tangible results to give you, but I'll tell you a lot of the work we're doing.

We've got our teams from our clinical executive team and you know revenue cycle management leadership that engages with them on a weekly basis. We've got this kind of work stream, that's putting all of this together.

And you know, we're very active in our I'll call. It Dev efforts around that and in some ways are having to moderate that because the the volume a number of our JV partners that are asking us to help with those efforts continues to grow.

So all in all I'm real pleased with the momentum we've got there are in some ways. Some of that was the pace of it may have been moderated some due to the pandemic again and you know when you've got some spikes whether it was delta and omicron. Some of our hospital partners were really kind of focused there as they should have been.

But our real pleased with how we're improving that partnership and some of the plans we have kind of going into kind of Q2 into the back half of this year to start growing that.

So you're going to.

Stay kind of in stealth mode for the time being and that we won't have announcements.

In the intermediate future.

I'd say, probably Q2 is where you would see.

If I'm sitting here looking at where we're at and some of the development of them with a few key JV partners I'd say you'd see that start in Q2.

Okay.

And then.

Just wondered if we could dig a little bit into the organic growth assumption that you have in your 'twenty two guidance.

Lay out.

Just a just a little color on what goes into that thanks.

Yeah, So I mean, you're saying, we've got a 5% to 7% for home health in a 6% to 8% for hospice.

And.

What I would point to when you say what goes into that.

Obviously, we look at our current momentum.

As we were exiting the year, we try and you know kind of factor in all the things around the quarantine in the pandemic and you project out where we're going to be but if anything builders, there's potential upside to that when you look at the demand on our growth in new referral sources has eclipsed 20% each year the past two years.

Years, So we've got a lot more specifically.

Specifically in the area of physician referral sources that continues to grow for US and then the demand for our services I'll just stick with home health for a moment, where we've got the 5% to 7% growth assumption of the referral demand was up 12% in 'twenty, one over 'twenty 'twenty and that's on top of non percent in 'twenty.

'twenty over 2019, so you definitely see more momentum and shifts in the demand for our services. So as long I don't want to rehash everything I said earlier on the labor front, but as long as we moderate corn thing keep that consistent and continue with the net hires I think you've got some upside to the growth and what we're modeling.

So that's kind of what I was getting at in mind.

It's sort of backend way of doing so.

You're limiting your growth expectations based on simply the supply issue the clinical.

Absolutely.

Yeah.

Alright, Thanks, guys appreciate it.

Thanks.

Our next question comes from Brian <unk> with Jefferies. Please proceed with your question.

Hey, good morning, guys. Thanks for squeezing me in I just have one question. So you saw the buyback activity during the quarter and as I think about just the level of M&A that you did in 2021, how should we be thinking about your focus this year in capital deployment and kind of like the integration efforts that you need to put it in for.

A lot of the deals that you did last year.

Maybe maybe Josh and I can tag team that maybe.

Maybe you can take the integration.

Let me, let me just start by saying you know.

It's a great question and I appreciate it.

Where our focus is right now.

So.

So, let's start with with home health.

With home health, where now.

Uh huh.