Q4 2021 Chemed Corp Earnings Call
Thank you for standing by and welcome to the Chemed Corporation fourth quarter 2021 earnings conference call. At this time, all participants are in a listen only mode.
After the Speakers' presentation, there'll be a question and answer session.
Ask a question at that time. Please press Star then one when you touch tone telephone.
As a reminder, today's conference call is being recorded.
I would now like to turn the conference over to your host Ms. Holly Schmidt. Please begin.
Good morning, Our conference call. This morning will review the financial results for the fourth quarter of 2021 ended December 31, 2021 before we begin let me remind you that the safe Harbor provisions of the private Securities Litigation Reform Act of 1995 apply to this conference call.
During the course of this call the company will make various remarks concerning management's expectations predictions plans and prospects that constitute forward looking statements.
Actual results may differ materially from those projected by these forward looking statements as a result of a variety of factors, including those identified in the company's news release of February 24th and in various other filings with the SEC. You are cautioned that any forward looking statements reflect management's current view only and that the company undertakes no.
No obligation to revise or update such statements in the future.
In addition management May also discuss non-GAAP operating performance results during today's call, including earnings before interest taxes, depreciation and amortization or EBITDA and adjusted EBITDA are.
A reconciliation of these non-GAAP results is provided in the company's press release dated February 24th which is available on the company's website at Chemed Dot com.
I would now like to introduce our speakers for today, Kevin Mcnamara, President and Chief Executive Officer of Chemed Corporation, Dave Williams, Executive Vice President and Chief Financial Officer, and Nick Westfall.
Paul President and Chief Executive Officer, Ken Magic VITAS Healthcare Corporation subsidiary I will now turn the call over to Kevin Mcnamara.
Thank you Holly good morning, welcome to Chemed Corporation's fourth quarter 2021 conference call.
I will begin with the highlights for the quarter and David and Nick will follow up with additional operating detail.
We'll then open the call up for questions.
Our fourth quarter 2021 operating results released last night reflect very solid performance, particularly for VITAS.
VITAS continues to manage effectively in a challenging environment. They continue to face significant headwinds however from pandemic related issues, including health care labor shortages disruption senior housing and rising inflation.
I would like to share with you some of the macro issues, we are dealing with as we enter the third year of the pandemic.
For VITAS. The most important issue we are managing as labor staffing of licensed professionals has been exceptionally challenging to ensure an adequate mix of licensed health care workers.
By market basis.
Been an exodus of qualified workers industrywide VITAS has not been spared the effects of the labor market dynamics affecting the broader health services industry.
Turnover within our licensed staff remains well above our pre pandemic rates VITAS continues to expand hiring and retention initiatives in all markets.
The decline in supply of health care workers continues to increase pressure on salaries and wages to date, we have manage these pressures with a combination of targeted increases in wage rates as well as increased time paid time off or P. T. O. We view it is inevitable that health care wages will continue to be elevated for as long as.
There is a nationwide and systemic imbalance in supply and demand for licensed health care professionals.
Fortunately for VITAS and the hospice industry, there is a natural hedge against inflationary pressures on cost specifically labor.
The annual increase in the Medicare and Medicaid fastest reimbursement rates.
Just on the hospital wage index basket as measured by the Federal Government's Bureau of Labor Statistics, plus you a measure of inflation for other goods generally P. P. I R. C P I.
Typically the annual inflation measured as of March 31 is used to determine the following the October one.
Reimbursement increase this normally gives the hospice industry reasonable stability in operating margins. However, the timing of our latest adjustment, which was calculated in March 2021 for an October one 2021 effective date was immediately prior to our historic rate of increase in inflation.
Of course, we expect this to be partially remedies in future adjustments, but during high inflationary periods. This initial timeline causes temporary downward pressure on margins.
The second critical challenge for VITAS is a continued disruption to senior housing occupancy and real latest hospitals referrals. Our recent admission data suggests senior housing is in the process of stabilization and recovery pre.
Pre pandemic nursing home based patient was represented 18% of our total average daily census, or ADC.
The nursing home ADC ratio hit a low of 14, 3% in the first quarter of 2021, and the second quarter of 2020 , one nursing home based patients increased 60 basis points to 14, 9%.
In both the third and fourth quarter of 2021, our nursing home based patients represented 15, 6% of our total a b C.
Our updated 2022 guidance anticipates slow improvement in the first half of 2022 with them.
The acceleration in senior housing and missions anticipated in the second half of 2020 two.
For Roto Rooter, the most significant challenge has been to increase the number of available productive technicians, we've expanded technician count by 7% in 2021.
However, based upon current demand levels, we continue to remain understaffed and some of our markets.
Technician compensation plays a crucial role in recruiting new employees as well as retention of our existing employee base. Our average 2021 technician and field Salesforce competition is over $81000 per year. Most of our technicians are paid commissions based on revenue generated.
As a result pricing for our services is a critical component increasing technician wages, we pass through an initial round of price increases at the beginning of 2022 and we'll monitor inflation pressures on a market by market basis stood interpretive further increases are warranted during the year.
Demand for plumbing, and drain cleaning and excavation and water restoration services remain at record levels I wanted to give additional color.
The depth and breadth of this increase in demand, let's compare Q4 2021 revenue.
Q4 2019.
H S. W was acquired in September 2019. So this comparison includes H S. W revenue for both periods.
Residential services have experienced incredible growth in aggregate residential residential branch increase revenue increased 33, 9% over this two year period.
And our service segment basis residential plumbing revenue increased 32, 2% drain cleaning expanded 29, 1% excavation increased 46, 8% and water restoration increased 28, 1%.
Commercial revenue has experienced a significant recovery since the 40% decline in commercial demand noted in April 'twenty 'twenty.
Overall commercial revenue declined two 3% over this two year period.
On an individual service segment basis commercial plumbing service revenue declined six 2% drain cleaning declined one 4% excavation increased three 4% and water restoration increased eight tenths of 1%.
We anticipate continued strengthening and commercial demand throughout 2020 two.
Over the past 20 years the country has faced.
911.
The great recession, and now a global pandemic and each of these crises roto Rooter remained operating in.
Materially increased market share revenue and operating margin.
Just as important post crisis Roto rooter held on to these increases in revenue market share and margins.
Roto Rooter is well positioned post pandemic and we anticipate continued expansion of market share by pricing our core competitive advantages in terms of brand awareness customer response time 24, seven call centers and Internet presence with that I would like to turn this teleconference over to David.
Thanks, Kevin VITAS.
VITAS net revenue was $316 million in the fourth quarter of 2021, which is a decline of four 8% when compared to the prior year period.
This revenue decline is priced primarily about 4.2% decline in our days of care, partially offset by a geographically weighted average Medicare reimbursement rate increase of approximately one 1%.
Acuity mix shift had a net impact of reducing revenue approximately $7 $1 million or two 1% in the quarter when compared to the prior year revenue and love at a level of care mix.
The combination of Medicare cap and other Contra revenue changes did offset a portion of the revenue decline by approximately 40 basis points.
VITAS accrued $3 million in Medicare cap billing limitations in the quarter. This compares to a $2 5 million dollar Medicare cap billing limitation in the fourth quarter of 2020.
Our VITAS has 30 Medicare provider numbers 25 of these provider numbers currently have a Medicare cap cushion of 10% or greater two of the provider numbers have a Medicare cap cushion between 5% and 10% one provider has a Medicare cap cushion between zero and 5% in two of our provider numbers currently have an estimated.
In fiscal 2022, Medicare cap billing limitation liability.
VITAS is fourth quarter gross margin, excluding Medicare cap and cost directly related to the pandemic was 28, 5%. This is a 109 basis point margin decline when we compare it to the fourth quarter of 2020.
Adjusted EBITDA margin in the quarter, excluding Medicare cap was 21, 7% a decrease of 179 basis points compared to the fourth quarter of 2021.
The declines in both gross margin and EBITDA margin were caused primarily by the impact of inflation and their reimbursement lag effect as previously mentioned by Kevin.
Additionally, our self insured medical expenses for VITAS were approximately $3 $8 million higher than anticipated in the fourth quarter of 2021.
These higher costs were the result of inflation passed on by health care providers and insurance companies combined with higher employee health care utilization in the fourth quarter of 2021.
We believe this higher utilization rate experience is mainly the result of employees delaying health care visits during the pandemic for as long as possible until the end of this plan year.
Do not anticipate this spike to be continue in 2022.
Roto Rooter generated quarterly revenue of $225 million in the fourth quarter of 2021, an increase of $23 $8 million or 11, 8% when compared to the prior year quarter.
Roto Rooter branch residential revenue in the quarter totaled at a HUD told the total to $152 million, an increase of $15 $3 million or 11, 2% over the prior year period.
This aggregate residential revenue growth consisted of drain cleaning, increasing 10, 6% plumbing, expanding 13, 5% excavation increasing 12% water restoration, increasing nine 2% or said directly the growth Roto Rooter has experienced on the residential side is across all <unk>.
This segments.
Roto Rooter branch commercial revenue in the quarter totaled $53 $9 million, an increase of $6 $9 million or 14, 8% over the prior year period.
This aggregate commercial revenue growth consisted of drain cleaning revenue, increasing 17% plumbing, increasing 18% and excavation expanding 10, 5%.
Water restoration, which is very modest and the commercial sector increased four 5%.
Roto Rooters gross margin in the quarter, excluding the impact from Covid was 52, 7%, which is a 77 basis point increase from the fourth quarter of 2020.
Adjusted EBITDA margin for Roto Rooter in the border was 27, 7%, which is a 58 basis point improvement when compared to the prior year.
Roto Rooter also experienced higher than normal costs related to self insured medical claims and casualty for similar reasons as mentioned.
For VITAS.
These increased costs were approximately $1 $9 million in the fourth quarter of 2021 and.
In addition, there was approximately $1 $2 million of increased cost due to E marketing and accelerated repairs and maintenance and payroll fridges related to outstanding.
Outstanding performance by Roto Rooter for their bonus program that was incurred in the quarter and is not expected to recur.
The most significant E marketing is an initiative by Roto rooter to expand brand awareness to a younger audience to the placement of advertisements and content and various social media platforms, including Facebook Instagram and Youtube.
Combined this spike in fourth quarter expenses negatively impacted roto rooter fourth quarter, adjusted EBITDA margin by approximately 138 basis points.
Now, let's look at came out on a consolidated basis.
During the quarter. The company purchased 495005 hundred 29 shares of Chemed stock for $246 million and this equates to a cost per share of $496 65.
As of December 31, 2021, there was approximately $202 million of remaining share repurchase authorization under this plan.
As a reminder, chemed restarted the share repurchase program in 2007 since that time chemed has repurchased.
Approximately $15 7 million shares.
Aggregate approximately $2 billion ever at an average share cost of $125 and 14th.
Including dividends for this period Chemed has returned approximately $2 $2 billion to shareholders.
Our full year 2022 earnings guidance is as follows.
<unk> 2022 revenue prior to Medicare cap is estimated to decline one 5% to two 5% when compared to 2021.
A portion of the estimated revenue reduction of approximately $15 million is the result of the phase out of sequestration relief over the first half of 'twenty 2022, compared to a full year of sequestration relief in 2021.
Average daily census for VITAS is estimated to decline between 1% and one 5% and full year adjusted EBITDA margin prior to Medicare cap is estimated to be 15, 5% to 16%.
And we are currently estimating $12 million for Medicare cap billing limitations in calendar year 2022.
Roto Rooter is forecast to achieve full year 2022 revenue growth of between 8% and nine 5% and write orders adjusted EBITDA margin for 2022 is expected to be in the range of 28.5% to 29, 5%.
Based upon this discussion our full year 2022 earnings per diluted share excluding noncash expense for stock options tax benefits from stock option exercises cost related to litigation and other discreet items is estimated to be in the range of $19.10 to $19 50.
Yeah.
This 2022 guidance assumes an effective corporate tax rate on adjusted earnings of 25, 1% and a diluted share count of $15 two 5 million shares.
<unk> 2021 reported adjusted earnings per diluted share was $19.33.
Now I'll turn this call over to Nick Westfall, President and Chief Executive Officer of VITAS.
Thanks, Dave.
In the fourth quarter, our average daily census was 17935 patients a decline of four 2% over the prior year and a 50 basis point decline over the third quarter of 2021.
The year over year decline in average daily census is a direct result of pandemic related disruptions across the entire health care system since March of 2020.
In the fourth quarter of 2021, VITAS total admissions were 16250.
This is a nine 5% decline when compared to the fourth quarter of 2020 that's.
Seven 6% sequential decrease when compared to the third quarter of 2021.
Admissions declined in all of our reported preeminent locations during the fourth quarter of 2021.
The most evident admissions decline was 14, 4% from hospitals.
We experienced a more moderate declines of three 9% from home based admissions.
Three 1% decline in nursing homes, and a 14, 1% decline in assisted living facilities compared to the same period of 2021.
The surge in Covid cases experienced across the country due to the omicron Varian has once again disrupted the flow of patients throughout the entire health care system.
Our estimate for 2022 contemplates continued disruption in the system during the first half of the year with improvement during the second half of the year.
Our average length of stay in the quarter was 97 nine days. This compares to 97 two days in the fourth quarter of 2020, and 96 days in the third quarter of 2021.
Our median length of stay was 15 days in the quarter and compares favorably to both the 14 days median like to say in the fourth quarter of 2020, and a 13 day median length of stay in the third quarter of 2021, we anticipate continued favorable growth of our median length of stay throughout 2022.
With particular improvement in the second half with the senior housing recovery.
Before I turn the call back over to Kevin I want to thank our VITAS team members for their daily commitment to improving the two primary areas of focus Kevin mentioned in his opening remarks, increasing available clinical staff and navigating the disruption of the health care system across the country with that I'd like to turn this call back over to Kevin. Thank you Nick.
I will now open this teleconference to questions.
Thank you.
Again, ladies and gentlemen, if you like to ask a question. Please press Star then one when you touch tone telephone again to ask a question. Please press Star then one.
One moment please.
Yeah.
Our first question comes from Joanna.
Bank of America. Your line is open.
Yes. Good morning. Thank you so much John I catch up here. So in terms of Uh Huh that's cool.
First.
First in terms of that the admission declines that you just referred to and the impact of Oh.
Disruption to help because he can probably speaking do you also see.
See you know limitation from just the labor shortages.
So you know are you able to take all that patients that are coming your way or are you, saying that there's just that you know if you want our patients being discharged to hum to hospice.
Joe do you want to I'd say this is Nick.
It's not a demand issue across the across the board. However, when you see health care system disruption for example, inside the omicron surge with it you see a significant.
With the change of more acute hospital discharges as compared to non hospital discharges with it but with that overall it is an ongoing balance of ensuring we have available clinical staff to respond across the board on a market by market basis, and you know as we continue to prioritize where.
We're deploying our available resources to respond to those referrals.
And this is Kevin Matt Ryan just to give you a capsule capsule comment.
VITAS had a recent months where we.
Referrals were up 11% as you mean referrals were up 8%.
And ER admits were down 11.
And you might take.
Well, that's encouraging on the referrals standpoint.
You know what's happened well what's happened towards assets in that month, well when your heavier you can't send it admitting nurse out just.
Because you know who.
You're down in the nurses.
And or you've had clinical shortages, so embedded nurses that had to go out on the in the field the serve patients which is the highest priority to us.
It's it tells you that you know things are out of whack.
From my perspective, we say.
You know, it's when not if.
Hum that staffing will return.
And as I said, we've seen good on the referral side of things we've seen some good developments are good gradual developments.
Which you know.
Fortify our effort, let's put it that way so.
Yeah, we're just fighting it daily and Oh.
As Nick has alluded earlier theres two parts of that labor problem.
It continues to do a good job of hiring and we hire them harder to get a much faster rate than ever in the history of VITAS, we now have to do.
A much better job retention and that's what that's what companies are facing.
And.
We keep turning over the pancake on that issue and.
We're just looking for a gradual improvement and it's been we've been stuck in a trough for.
Oh yeah.
Many months and.
We're just starting to see light at the end of the table I think but be that survey, but Nick anything do you agree with that yes, just a couple on I'm sure do a follow up comment or question that would would come is as Kevin has alluded to laser focus on both the recruiting and retention aspect of it.
Some of our peer group that came out and commented specifically tool, we don't release numbers on those metrics, but from a recruiting perspective, but we can always make improvements in both regards the recruiting performance for us is greater than some of what our peer group and referred to so we're bringing our clinicians into the door. So we have to.
Continue to do a much better job of focused on the on boarding process other aspects to get them into the organization as well as you know manage their expectations and support them to continue to want to be with the organization on a go forward basis.
Yeah.
It goes without saying I know this has been discussed.
But here it is we're focusing on hiring and retention.
We are a.
You know we are a supplier that gets a price increase calculated in March of the previous year to go in effect October .
During that during that lagged period.
Inflation was up a solid five percentage points just during that period that was not reflected in the increase and.
It's all in my mind, it's we're fighting that labor hiring and retention issue with one hand tied behind our back okay. So.
Do you know the amorphous issue of when will people come back to work when will <unk>.
Health care workers.
Feel safe to go back into the water.
It's also tied to catching up on that reimbursement.
Which I think.
You know come October 1st we'll make some good strides in that regard unless unless something unforeseen happens so.
I'd also add on a macro basis.
Yeah.
Everyone, who has commented on our conservative balance sheet and you've heard Kevin in my response to that is when you're in health care you can't be highly levered, because inevitably major disruptions happened, where the economics get out of hand before the reimbursement played catch up and obviously no one anticipated a pandemic, but quite frankly.
Frankly, we think our strong balance sheet, well positioned us to ride this out.
And bluntly take advantage of other may be well positioned hospices are under financial stress, we weren't as conservative in managing the balance sheet. So we think this has been a great opportunity potentially do I start, adding additional licensed health care workers throughout this year as well as for the first time in a long time youre going to hear us talking about there is.
The potential for us to pick.
Well position hospices to acquire them would be my optimistic hope that the margins may be poor because of the lag in the reimbursement to the increased inflationary cost of providing appropriate care, but we are well positioned to be opportunistic as these things are presented to us. So we have absolute confidence that.
It's gonna be a hell of a ride in 2022 as health care REIT sizes itself as the Labor force right sizes itself, but we are well positioned to take advantage of this.
Yeah, let him comment that I'm talking about that if I can before we talk about that the last point about the first but until I get that that was actually my follow up question.
Well there you know you're willing to quantify the pace of your recruiting you know ideally talk about kind of you know.
By how much percentage wise you increased your entire labor force. So would you be able to quantify that for us.
We don't we don't release those numbers just a directional commentary on the.
The peer group's stated recruiting component on as a percent basis, we're outperforming but as you hear what I'm referencing we need to continue to improve not only that aspect, but also our ability to continue to retain.
Our workforce.
With the organization and joining the organization at record rates.
Yeah, and I guess to that point.
In terms of retention.
You know I guess that implies down how do you pay so can you talk about that.
In terms of what cost inflation, you've experienced and what do you assume for the year and also how do you expect that to progress through the year. So most of the companies seem to be going to expecting to labor pressures would be the worst thing in first quarter, and then kind of moderate I think it goes down and so to kind of do you like me with that and what are you assuming.
Guidance.
So from a cost perspective, you have two drivers inside of that I think the first one just to state is with the pricing increase and merit cycle increases that come inside of it you naturally have you know them.
Mechanisms in which you have certain quarters, where you have outsized comparable so our merit increase for the full workforce goes in you know and as of June 1st at VITAS. So it creates you know comparatives against the prior year in the first two quarters of 2020 to.
Getting into the meat of the question related to what we anticipate from an overall.
Cost.
Per visit and from a salary and wage perspective. It is built into our guidance for those investments in which we have made.
Anticipate that continued investment with it which allows us to continue to grow our net clinical staff, which will lift the tide as it relates to anticipated days of care trajectory growth in the second half as well as the ability to respond to.
Respond to admissions. So it's built into its built into our guidance and I think it's very achievable and that team has proven gosh over the last 10 years since took over operations. We will continue to respond and improve do all these dynamic dynamic challenges.
But Joanna I'd have to say your question, though would be whats the inflation that we have say among our licensed health care workers, that's only relevant if all other things held constant quite frankly, we are paying our people more we ended up passing through where it brings me to wage increases and in 2021.
That will continue on into next year, but our health care workers are covering more patients today than they were pre pandemic. So we're getting more utilization out of the higher wage staff that we do have so as the interplay between the two that we're dealing with and then.
Some of them you mentioned during the call.
These workers got increased P T O.
And increases in Greece P T O.
Was substantial I mean, it was two weeks extra.
The first year would choose.
<unk>, 4% with a 10 million dollar impact.
21, you have only one that's correct that's correct John I think the other dynamic that built into your question I think others have commented and agree with that from a peer group perspective is the macro healthcare environment that from a wage perspective.
Whether it's a hospital, whether it's a home care provider et cetera that gets dramatically impacted by travel nurse.
<unk> and extreme price gouging that then has a ripple effect through the rest of the health care system, we do anticipate that slowing down.
As the pandemic hopefully gets in the rearview pending other variance and that will have a positive impact on people returning to the workforce as well as returning to organizations from us stability of knowing you're going to you know where for a high quality company and you know where you're going to live what youre going to do on a day in day out.
So we anticipate that as a positive trend for all of health care you know throughout 2022.
Yeah, Thanks for that color and I guess on the flip side of the.
Roto business, obviously doing pretty well there and you mentioned you pass on price increases so could you frame for us kind of the market get off of those increases.
I alluded to in my actually are.
Expect to pass more probably think of it this year, so kind of any color you can give there would be helpful.
Yeah. So we again, it's market by market service segment, but we are effective January 1st we past mid to high single digit increases in our pricing.
That by all appearances has stick, we still have more demand than we have technicians to utilize.
But frankly the price increase we put January 1st was really just playing catch up to the inflation thats already occurred over the 12 months period, we fully anticipate looking at pricing throughout 2022, and I would be surprised if we don't have some interim price increases in a number of our markets if not the majority of our markets if there.
If inflation continues to nag through the United States and during the year and end demand as well and remember our technicians are experiencing this higher inflationary costs in their personal budget.
Every day every week every month, the only way the majority of our technicians get an increases is by passing through price increases. So we take it very seriously as a way to return retain technicians and expand the technician workforce just on a lag basis, the average compensation of our technician and sales field field.
Sales force was a little over $81000 and I fully expect that number decline.
During 2022, so price increases are serious they're necessary and in real dollars. It's frankly, just keeping things roughly flat, but the key to roto rooter growth long term is.
Expanding our workforce and what was the expansion of the workforce, 7%, 7% and we that is our focus.
Throughout 2022 and price increases are critical reticle strategic component of expanding that work for us. So we're not gonna be bashful about it.
So I guess on expanding that what Christian mentioned this E marketing campaigns. It sounds like that that was also part of that strategy right trying to reach out to you.
New potential candidates to attract them to this business.
And it was a bit of a flyer that we havent really measured results, yet, but we're keeping an eye on it but when you're in this dynamic environment and you have the profitability of Roto Rooter dies, you can play with a little experimentation in terms of customer awareness and frankly, when you're advertising of customers, you're also advertising to potential future employees in that one.
Does the focus and would be negligent, we don't want to give too much color on what's going on in 2022, but I can say with eight weeks of results for Roto Rooter. We certainly are encouraged that our guidance is exceptionally reasonable just based upon that revenue growth redwood or branches have experienced.
Over the past eight weeks frankly, it's a little above what we experienced in the fourth quarter of 2021 for Roto Rooter, but again eight weeks doesn't make a quarter or a year, but we do not see any abatement in the demand for roto rooter services across all regions and across all service segments.
And the only thing I was going to add on this.
Saddam Lemon.
The latest issue about destroying our documents, saying the <unk> jingle now.
We've probably born after the last time, we advertise that but good to hear that that's.
E marketing and whatnot is still reaching out to that next generation the aided and unaided brand awareness is in the resiliency of it is just amazing to me.
Yeah, no definitely we'd be seeing does that caused you to answer for him on board.
So I guess the very last question I guess, you're just talking about the price increases you're pushing Android or Oh. That's the thing you wanted we're talking about as he does obviously.
You mentioned that there is a clear delay and invite reflecting that.
Medicare rates for correcting that labor cost inflation.
Curious to everybody is experiencing is or.
How long will it take really two to them to reflect what's going on in the labor market and how I guess inflationary.
Environment. Thank you.
While they're there if you think about it that they they substantially utilized information accumulated by the Bureau of Labor Statistics that runs from eight April 1st through March 31, and then those results doesn't get dialed into the reimbursement increase six months later on October one.
But just from a measurement standpoint, you'd go 12 to 18 months of inflation before that finally plays catch up if it's a one and done so inflation nib truly turned out to be transitory. It. It would be 12 to 18 months of kind of depressed margins and everything's fixed the real unknown Joanna is whats the go.
Forward inflation rate, we know go two or three years of above average inflation and then we'll continue with this lag and then finally you get it all makeup.
That would be but I think this is the one time the lag would not be ameliorated until you return to normal, but it's not an additional amount or is that cumulative it just when do you get the one time lag back at some point when inflation comes down to a reasonable levels on the historical rates of 2% and then you'd finally get that last seven.
5% increase in reimbursement, yes. Finally played catch up is that an 18 month time periods that are two years at three years, Yeah. That's out of our wheelhouse of knowing what inflation will be in hospital wages healthcare licensed health care workers.
But that is just the dynamic of the current reimbursement unless the government steps in and provides provides relief to healthcare plays that are exceptionally labor intensive with licensed health care workers, but this is going to be a drag on every post acute health care provider that doesn't have a strong.
Balance sheet. This is going to be problematic for those folks and for us it's going to be depressed margins for a period of time through because it's out of our control, but it does create opportunity Joanna whether that opportunity realizes and acquisitions, we can't say or increased health care workers as we poach, but without a doubt that is <unk>.
One of our strategic initiatives over the this year and probably next year.
Great. Thanks for the call I guess I'll go back to the queue.
Joanna I. Please please keep going.
You have another question.
Oh sure yes. Thank you I wasn't quite sure if there's somebody else waiting to ask question I don't want to dominate.
But.
So yes, so we I guess to start talking about that the the Medicare rate updates you know at some point I wanted to chat about it might take time and you mentioned that it's going to create a bigger pressure for others and that and so yeah. Because my my my thought process was that he does it create an opportunity for you to high and why it isn't there some thought I guess sounds like you are.
She might be open to acquire existing assets, which is a change from prior year.
Kind of tone from the company are so is it is it a matter of just a the multiples of finding the right asset that you would be now.
Now open to actually do a you know acquisition.
It's lower multiples as well as some of these entities that can be solved financially distressed theyre, probably not going to have a choice.
And it's also targeted strategic locations that we think fit very well into our service delivery model.
We can go into markets and go deep as opposed to many of our competitors that go into markets and you'll go wide and shallow basically from a size perspective, but Joanna I don't want a blue sky. This but the last several years you've heard me specifically state that probability that we do any acquisitions on the health care arena are exceptional.
Low based upon valuations and know that landscape is shifting and shifting rapidly and it will create opportunity again, whether that resulted in us doing any acquisitions is going to be dependent on those opportunities, but the first time in a long time I think it's realistic to say the potential is there.
And if we don't acquire assets, we're going to look to acquire people yes.
Right exactly.
And then.
Uh huh.
As you think about.
This kind of mismatch so to speak right before the Medicare I've laid out they've got to catch up with the Oh, what a concentration you know they had a question I'm thinking about the split previously why when we talk about when we talk about.
That the disruption that COVID-19 is creating in our initiative without sequestration going away and I guess your previous you talk about margins for Vida, you know, let's call. It after the pandemic to kind of be into 17.5% to 18% range. So are those still achievable at some point or just the labor cost you know is struck.
Showing up higher going forward. It might you might have to witness that that margin any any thought on that.
So one that's contingent upon you know reimbursement finally, catching up to those higher wages, but the match.
The magic of the lack of the magic of that 75% to 18% was quite frankly, that's what VITAS posted as overall margin running about four to four 5% high acuity care as our days of care that was the last margin before the pandemic disrupted everything so we're utilizing that as a benchmark to the lab.
One thing we did pre pandemic, but frankly, if this goes on long enough, we will have to revisit that because the landscape might change materially either to the positive or the negative but 17, 5% to 18% was the margin we were enjoying before VITAS was disrupted from the pandemic.
And I guess to that and those margins down.
Let's call them, you know target margins, what that what does that assume for your say top line growth or volume growth because obviously put this year, you're still talking about you know 80.
A D C is declining so.
How do you think about.
The industry, you know long term in terms of that opportunity.
I would default to what it was pre pandemic because I don't have any other data point to go to.
But without a doubt the terminally ill arent going away the need for hospice isn't going away. So we certainly would expect from admissions in patients cared for for the industry to actually return to pre pandemic levels, if anything there'll be a fair amount of catch up over a year or two because without a doubt we're seeing patients who are terminal.
Ill are trapped and curative care right now or for a variety of reasons and one of which is they're not identified quickly enough or loss of senior housing distraction of other health care providers not identifying terminal patients, but I think we just have to just at this point pumped that question and say I fully expect to see.
<unk> are roughly.
<unk>, 4% to 5% census growth and realistically, probably a 7% overall revenue growth for the industry once things return to normal and it just is.
And a very macro sense I don't know if you've seen the numbers, but the percentage of patients.
That have at least one day with hospice prior to the death.
And this is all ages.
<unk> is down about between five and 6%. So there's a lot of reasons for that.
But.
That is.
But obviously a.
A clear its an unbroken.
On line with a slope upward.
Oh for about a 12 year period and then.
The first months of the pandemic.
That immediately decline that immediate decline is observable. So I mean again, we're very comfortable in saying guess there our pandemic effects to the industry as seen by the number of patients who enter it.
And you know that'll be ameliorated in our minds, just a matter of time.
Last macro comment John and it related to the one silver lining from the pandemic that I think is absolute.
As the pandemic created an environment, where the country recognized that high quality care can be provided in the whole period, whether that's hospice, whether that's home care and the government has also seen that total cost of care for those patients is reduced compared to alternatives.
Earnings those are positive trends for post acute homebase providers on a go forward basis.
Okay.
Yeah definitely I agree with that view clearly we'd be seeing it in a lot of different settings.
Okay everybody.
Uh huh.
I think the issue around that just the shortage of flavor about it seems like you know there is some expectation it sounds like maybe you know what does that mean.
Like some of this improvement and maybe even some nurses will come back to the workforce that that could help but I guess switching gears back to the broader where its supposed to be talk about the VITAS margins because all that water side, obviously, a topline continues to outperform but it was some margins even the guidance for next year.
Close for improvement so kind of how do you think about that and you know what gives you the confidence in achieving those margins and how do you think about how should we think about that are the margins going forward for that business.
One I think theres, an opportunity for margin increase which of course, we guided for.
We are watching inflation in our actual costs, but it really is because I think the margin expansion will be predicated upon the success of our passing through price increases.
To our customers and remember the commissions for the technicians are largely a variable cost.
But we do have a chunk of fixed costs in our roto rooter business. So we do expect margin expansion over the long term how it flows through in 2022 is going to be contingent upon how quickly we can pass through price increases and how our customers specifically commercial customers, except those increases to the extent that we have more demand.
Then supply I think will be very successful that should hopefully make our overall guided EBITDA margin for roto rooter, a tad conservative, but we have to wait and see again like you've heard me say a couple of times, we're going to be so much smarter in the next pandemic, how this impacts our businesses.
Great. Thank you so much that's all for me for now thank you okay. Thank you.
Thank you. Our next question comes from Ben Hendrix of RBC capital markets. Your line is open.
Yes. Thank you very much for taking me on here I just wanted to see if you could provide any additional color or detail on kind of quarterly cadence.
You've already mentioned that you think senior housing.
<unk> will start to normalize in the second half a lot of your peers, though have talked about a lot at a lot of omicron headwinds impacting first quarter I imagine for your business makes you may not see quite the same level of first quarter impact, but I just wanted to get your thoughts on the puts and takes of cadence throughout the quarter.
Throughout the year excuse me.
So a lot of the omicron impact becomes heavily dependent of course on a market by market basis, but on a macro level not only from a referral and disruption perspective, but an elevated spike starting at the middle of December through the first two two and a half weeks of January that others commented too.
In terms of individuals that were you know unexpectedly.
Thirdly impacted and.
Our employees I mean, they were out of the workforce that impacted.
The ability to respond that definitely was was the cases no different than everybody else. What I will say you know with our safety protocols and everything else in which we've worked through you know we've been able to immediately respond in and we do not see that disruption as we sit here today on a go forward basis, but it very much was a <unk>.
Four to five week disruption no different than other providers in the rest of the country experienced through the second half of December into the first half of July .
The vaccination.
Eligibility.
That's right and we successfully converted as you guys would expect with.
You know.
Warming in compliance with the CMS backs mandate, we were prepared ready to go with that and I'm happy to say had minimal disruption because of our preparation in advance of of being prepared to move forward and really minimizing our internal disruption towards our employee base and that's based upon 12 to 18 months of activity.
Prior of getting a getting everybody educated prepared comfortable and ensuring we were a you know fully safe and available workforce out in the communities.
Then we don't give quarterly guidance and we're going to try to avoid that with a passion.
Roto Rooter, I really expect to see strengthening margin and profitability throughout the year quarter over quarter fourth quarter being again typically the best margin quarter for Roto Rooter VITAS is a different animal if you think about it we're going to have inflation nagging at us a little bit in terms of our margins as we go out through for the first.
Three quarters of 2021, but then we fully expect to see a spike in profitability as we get our October 1st reimbursement increase so that kind of that's a long winded way of saying.
I I expect to see be relatively flattish and certainly maybe even slightly down in Q3 is inflation erodes and then a nice spike in profitability as we enjoy that full increase October one.
Roto Rooter continued strength and strong performance quarter over quarter VITAS is strained a little bit inflation Nags us we play catch up on October one.
That's great color guys. Thanks, a lot for that just one final one.
With the with senior housing.
Referrals potentially normalizing in the second half.
And that included in your guidance.
Hum.
How close to normal will that take median.
Link stay by the end of the year.
Oh.
We think it should be.
Completely normalized by the end of the year Okay.
Great. That's all I had thanks a lot.
Thanks Pam.
Thank you. Our next question comes from Craig Bonnie M. D. Fast your line is open.
Hi, good morning.
A question for each of the.
Each of the two businesses on Roto Rooter.
To nine 5% revenue guidance is similar to pre pre pandemic growth rate do you expect the year to be relatively balanced between the commercial and the residential businesses and then on VITAS.
The percent of clinicians who are on quarantine.
Dropped significantly from the end of this.
January just today does your margin guidance take this big improvement into consideration. Thanks.
Let me start by Roto Rooter and say.
<unk>.
Yeah.
A little tuck in that the residential business has been so strong.
It's you know when you're preparing for the commercial business.
Okay.
It's tough to say when that will flip I think that the residential business will continue very strong and has continued very strong.
Just from a mathematical point of view.
Commercial has more room to go to return.
First to where it was pre pandemic and then to take advantage of the.
Called the placement and success the Roto Rooter marketing.
As shown on the residential side so.
With the on the when the commercial customers are at.
At full strength, which were approaching.
We see a lot of growth.
That's there for the taking as long as we have the service.
People to provide it so.
I guess I'm I'm vaguely, saying that.
At some point during the year I mean, the residential so strong.
It may be it may be a few months before the commercial eclipse it but.
A betting person would say it's easier to grow the commercial from a low base.
For the rest of it from a high base and we saw that in the fourth quarter of 2021 in terms of that strengthening commercial it doesn't show up at the two year look back yet, but we saw that strengthening.
Frankly, what what holds us a little bit back on our guidance for revenue growth on Roto Rooter is really primarily in the excavation and water restoration water restoration pricing somewhat out of our control because that's actually kind of set by an industry standard called exact domain, but excavation played a very nice roll on the residential side of our group.
And we haven't seen any signs of that abating.
But we're probably a tad conservative in that regard regarding those large big ticket excavation.
Excavation jobs that run from about four to $8000.
We might turn out to be conservative on Roto Rooter is growth, but we think it's very rational in this environment to come up with the guidance we did.
And Craig this is Nick on the VITAS side to answer your question. The short answer is yes. It is assumed into our guidance with you know individuals are current clinicians.
And available to work embedded in the guidance as well as us continuing to build our net clinical capacity to meet demand and <unk>.
Achieve our growth trajectory, particularly in the second half of the year. The other comment which may be a slightly different than our peer group that is more heavily home health and hospice is you know some of those disruptions for them elevated contract staff and workforce and inside of the hospice benefit specifically there's limitations.
Around when contracted staff can be utilized so elevated or marginal compression due to third party utilization really doesn't impact our model on a macro basis.
Alright, thank you.
Thank you I'm showing no further questions at this time I'd like to turn the call back over to Kevin Mcnamara for any closing remarks.
Thank you.
I guess my comments were that we were.
Everyone of course, everyone who's looking forward to 2022, but.
Before I close the chapter on 2021, I would just say that we were very gratified with the operating companies.
Companies we.
Increased our guidance twice during the year and ultimately exceeded it.
So again that was gratifying.
We've made.
You know what I think is.
Some bracing.
<unk> guidance for next year.
And we're prepared to.
Hopefully deliver on that but I want to thank everyone for their attention and.
For Us I guess, it's back to the grindstone. Thank you very much.
Thank you ladies and gentlemen, this does conclude today's conference. Thank you all participating you may now disconnect have a great day.
[music].
Okay.
Okay.
Okay.
Okay.