Q1 2022 Encompass Health Corp Earnings Call
Okay.
Good morning, everyone and welcome to the encompass Health's first quarter 2022 earnings conference call. At this time I would like to inform all participants that their line will be in a listen only mode. After the Speakers' remarks, there will be a question and answer period. If you would like to ask a question. During this time.
Please press star one on your telephone keypad.
You'll be limited to one question and one follow up question.
Today's conference is being recorded if you have any objections you may disconnect. At this time I would now turn the call over to Mark Miller encompass Health's, Chief Investor Relations Officer.
Thank you operator, and good morning, everyone. Thank you for joining encompass health's first quarter 2022 earnings call with me on the call today are Mark Tarr, President and Chief Executive Officer, Doug Coltharp, Chief Financial Officer.
Barb Jacobs Mayer, Chief Executive Officer home Health, and Hospice, and Patrick Darby General Counsel and corporate Secretary.
Before we begin if you do not already have a copy the first quarter earnings release supplemental information and related form 8-K filed with the S. E. C are available on our website at encompass health Dot com.
On page two of the supplemental information you will find the safe Harbor statements, which are also set forth in greater detail on the last page of the earnings release.
During the call we will make forward looking statements, which are subject to risks and uncertainties many of which are beyond our control certain risks and uncertainties like those relating to our ongoing strategic review and its impact on our business on our business and stockholder value as well as the magnitude and Impac.
Of COVID-19 that could cause actual results to differ materially from our projections estimates and expectations are discussed in the company's SEC filings, including the earnings release and related form 8-K. The Form 10-K for year ended December 31, 2021 .
And the Form 10-Q for the quarter ended March 31, 2020, 215, we encourage you to read them.
You are cautioned not to place undue reliance on the estimates projections guidance and other forward looking information presented which are based on current estimates of future events and speak only as of today, we do not undertake a duty to update. These forward looking statements are supplemental information and discussion on this.
Call will include certain non-GAAP financial measures for such measures reconciliation to the most directly comparable GAAP measure is available at the end of the supplemental information at the end of the earnings release and as part of the form 8-K filed yesterday with the SEC all of which are in.
<unk> on our website I would like to remind everyone that we will adhere to the one question and one follow up question rule to allow everyone to submit a question. If you have additional questions. Please feel free to put yourself back in the queue.
With that I'll turn the call over to Mark talk Mark. Thank you and good morning, everyone.
Our Q1 results provide further evidence of the growing demand for the services we provide.
As the inpatient rehabilitation discharges increased seven 6% and home health admissions grew four 9%.
Like all health care providers, we were impacted by the omicron surge, particularly in the first half of the quarter and by continued staffing challenges.
The dedication of our team members allowed us to continue to make significant operational and strategic progress in spite of these challenges.
We remain confident in the future prospects of our businesses and continue to enhance the positioning of each to capitalize on the growth opportunities ahead.
On a consolidated basis for Q1, we generated eight 4% revenue growth.
This revenue growth was offset by higher staffing costs in the quarter, resulting in a two 3% decline in adjusted EBITDA.
And the Earth segment, the strong discharge growth combined with a two 2% increase in revenue per discharge to drive 10.4% revenue growth.
Average daily census increased to a new high of 7330.
These metrics and the balance between the same store and new store growth validate our de Novo embed edition strategies.
The continued strong demand for our services in a tight labor market for skilled clinicians necessitated an increase in utilization of agency staffing and sign on and ship bonuses.
Resulting in <unk> segment, adjusted EBITDA declined three 7%.
We believe the utilization and rate of the agency staffing has peaked.
And we expect gradual improvement in the second quarter as net new hires replace agency Ftes and those staffing contracts that are renewed are at lower negotiated rates.
We expect this improvement to accelerate in the second half of the year.
Our home health business generated solid admissions growth.
Total admissions grew four 9% in Q1, including <unk>, 9% on a same store basis.
Same store admissions grew three 2% sequentially.
As a point of comparison total home health admissions in the quarter exceeded our prior historical high point achieved in Q1 of 2020.
Hospice admissions declined in the quarter the decline of hospice admissions was driven primarily by capacity constraints at some of our larger branches with historically high average daily census.
Hi, staffing costs led to a one 4% decline in segment adjusted EBITDA.
On the home health and hospice staffing front.
Hiring started slowly in the quarter due the omicron surge, but accelerated as the quarter progressed.
We ended the quarter with a net increase of 30 full time nurses.
This is on top of the 133 net new Ftes in Q4 and 127 in Q3.
We expect to see positive trends in nursing hires as a result of our recruiting strategies and the favorable impact on recruiting and retention stemming from the changes we have implemented over the past year compensation structure, including salary market adjustments and updating our mileage.
Reimbursement methodology.
Demand for homecare remained strong.
We will not accept a patient unless we are confident we can admit them timely and deliver the level of care they require base.
Based predominantly on required staff corn teams, we estimate that we lost 2150 home health admissions.
In Q1 of 2022.
Given the strong demand for our services. We have continued our capacity addition strategy.
We opened three de novo herbs in the quarter and added 29 beds to existing hospitals.
We anticipate opening an additional six de novo herbs, and adding an additional 89 beds to existing hospitals in 2022.
We opened for home health and hospice locations in the quarter two of these via acquisition and anticipate an additional eight de novo openings in 2022.
CMS recently issued the 2023 proposed Earth rule and the 2023 proposed hospice rule.
Earth CMS proposed a net market basket update of two 8%, which we estimate would result in a two 9% increase for our <unk> segment beginning October one 2022.
As a reminder, this expected increase does not include the impact of sequestration.
The final rule is expected to be released in late July or early August for hospice. The proposed net rate update is two 7%.
<unk>. This is prior to the impact of sequestration.
The hospice final rule is also expected in late July or early August .
While the rate updates and the Earth and hospice proposed rules are directionally positive they do not adequately compensate for the elevated staffing cost. We are hopeful that the final rules will provide greater relief.
We expect our home health 2023 proposed rule to be released in June or July .
Moving now to the spin off of our home health and hospice business into an independent publicly traded company under the new brand name and habit home health and hospice.
We are targeting the consummation of the spin off on July one 2022 subject to customary conditions, including receipt of a favorable ruling from the IRS and approval of the form 10 by the SEC.
The key assumptions related to the spin off are included on page five of our supplemental slides.
Have not changed from our previous disclosures other than that rebranding expenses had been revised downward.
We believe the establishment of inhabit home health and hospice as an independent company, we will provide a number of significant benefits.
<unk> enhanced management focus.
Separate capital structures and allocation of financial resources.
Better alignment of management incentives and the creation of independent equity currencies.
Moving now to guidance.
Our guidance for 2022 consolidated revenue adjusted.
EBITDA and adjusted EPS has not changed the key considerations underlying this guidance can be found on page 16 of the supplemental slides.
As a reminder, this guidance assumes the current structure of the business continues throughout 2022.
We anticipate providing 2022 guidance.
Encompass health and inhabit on a separated basis during the first half of June .
With that I'll turn it over to Doug.
Thank you Mark and good morning, everyone Q1 was a very solid quarter for our company in spite of the persistent industry wide challenges.
We generated consolidated Q1 revenues of approximately $1.334 billion and adjusted EBITDA of $245 million.
Our adjusted free cash flow was approximately $166 million in Q1 was very strong.
Key trends that we experienced in the fourth quarter of 2021 continued in the first quarter of 2022.
We saw good volume growth in both of our businesses inpatient rehabilitation discharges increased seven 6% with same store growth of three 8%.
Home health admissions increased four 9% with 0.9% same store growth.
As was the case in Q4, 'twenty, one staffing challenges did not limit volume growth in our business, but it did lead to substantially higher cost.
Also consistent with Q4, 'twenty, one staffing challenges impacted volume and it led to higher costs for our home health and hospice business.
In the <unk> segment revenue increased 10, 4% or approximately $100 million.
But that $100 million was largely absorbed by an increase in labor cost, including agency staffing costs and sign on and shipped bonuses.
First quarter 2022 agency staffing sign on and shipped bonuses totaled $63 million compared to $21 million in Q1, 21 and $51 million in Q4 'twenty one.
The $42 million year over year increase combined with annual wage increases for our existing internal clinical staff and the cost of staff hired at our new locations offset much of the incremental revenue in the quarter.
Salaries and benefits as a percent of revenue in our <unk> segment increased 320 basis points as compared to Q1 'twenty one from 52, 3% to 55, 5%.
As we indicated when we reported fourth quarter earnings staffing constraints and elevated cost are expected to continue in 2022 with improvements skewed towards the back half of the year.
We are seeing some early improvement in the reduction of agency Ftes. Our hospitals are using and then the ability to negotiate lower rates as agency contracts for David.
The circumstances vary substantially by market.
Our first priority remains providing access to our services for patients in need of inpatient rehabilitation treatment.
Ensuring high quality care once admitted.
Although the timing and trajectory remain uncertain. We continue to believe the staffing challenges will begin to dissipate as a result of both our initiatives and general improvement in the demand supply imbalance.
While our home health and Hospice segment does not utilize much agency staffing. It was also impacted by clinical staffing challenges.
We estimate we lost 2150 home health admissions in the first quarter of 2022 due to staffing constraints and that translates to approximately $7 million in lost revenue.
Higher staffing costs led to a seven 8% increase in home health cost per visit and a six 4% increase in hospice cost per day.
Yeah.
As was the case for much of 2021, the home health admissions growth. We generated in Q1 came predominantly under our Medicare advantage and managed care contracts.
A significant percentage of these contracts pay on a non episodic basis and at a substantial discount to Medicare fee for service.
Our cost per visit does not vary based on payment source.
A central part of our mission is providing patients access to our high quality care, regardless of the payer source.
Many of these Medicare and managed care plans are not providing adequate compensation for the clinical services their members are receiving.
The continuation of this payment differential is difficult to understand in light of the rate increase is Medicare advantage plans have received from CMS.
Our relative cost effectiveness and quality in home care and increasing patient preference to receive care at home.
We will be devoting substantial time and resources further discussions with these plans, which we anticipate will lead to more value based arrangements.
As Mark mentioned, we are reaffirming the 2022 net operating revenue adjusted EBITDA and adjusted EPS guidance.
Given our year to date experience with in our reaffirmed 2022 guidance. We have increased the range of expected staffing cost increases for the full year by 100 basis points for our <unk> business.
The 2022 guidance considerations can be found on page 16 of the slides accompanying our earnings release.
I would also like to point out that we now expect 2022, adjusted free cash flow of $405 million to $555 million.
That's an increase of $40 million to $45 million from our prior guidance and that is due primarily to the application of 2021 income tax overpayments to our 2022 income taxes.
And now we'll open the line for questions.
Thank you at this time, if you would like to ask a question. Please press star one on your Touchtone phone you may remove yourself from the queue at any time by pressing the pound key.
As a reminder, you'll be limited to one question and one follow up question.
Again that is star one to ask a question, we'll pause for a moment to allow questions to queue.
Thank you our first question will come from Kevin Fischbeck with Bank of America.
Okay. Thanks.
No.
I wanted to.
Dig into the labor a little bit helpful to get that hiring number in Macquarie 30 in the quarter.
Can you put that into context, I mean, how many nurses do you need to hire each quarter in order for you to not be talking about staffing.
Staffing shortages holding back volume growth in the business and.
Kind of to get that temporary staffing back to where it where it has been historically.
So Kevin you're speaking specifically to the 30 on the home health and hospice side.
Yes, yes, I guess.
In particular, but then I guess.
So kind of rounded out to the <unk> side as well.
Okay.
Once you start with home health and then I'll fill in the blanks on the Europe side sure. So for home health I mean quarter. One was certainly a combination of the staffing constraints as it relates to open positions.
One was also very much impacted by quarantines in the first half.
At one point, we hit a peak of over 1300 quarantine employees that was the highest that we saw throughout the entire pandemic. So the good news. There is we are down to 20 as of this morning. So much progress there on the hiring front, we do need to have some strong quarters like we had in third and fourth quarter are with adding.
That 100, plus a net new full time a quarter. One we were at the 30 plus the good news is here in April we're feeling confident we're going to end the month with higher net new hires than we had in the whole first quarter.
Again, if we can reach peak quarter, three and quarter four as far as the number of net new hires will be in a really good place.
But in terms of open nursing positions right now yeah open positions. We have 650 open nursing positions Ah you know that's you know.
Only probably about 100, 150 above where we kind of consistently run because we're always looking to staff up for even increased growth even historically.
And then Kevin switching over to the Europe side.
We hit a peak of 750 contract labor Ftes in the month of March.
So we expect that to decline on a monthly basis moving forward. It will not go to zero in a more normalized year looking back say to 2019 pre pre pandemic, we would expect at any given point in time to have about 200 to 250.
Contract Labor Ftes and the reason for that is you're always going to have some openings and there is some degree of efficiency in terms of filling fluctuations in volume with contract labor.
So with that I'd say, we've got about 500, ftes that we need to cut into to get back to an ideal run rate. So.
Kevin It's Mark it's I think it's worth noting we have added substantial resources to our talent acquisition team, particularly here in.
In Birmingham relative to the centralized recruitment functions, where we now have over 60 Ftes. That's all they do is recruiting and they have shown themselves to be quite confident.
Here in terms of abaca and flow as well as converting from an appetite to a hired staff and very quick form as you may expect a first to market on these available nurses wins every time so.
We are we are doing everything we can from a resource standpoint to make sure.
That we're efficiently capturing opportunities and working and generating the applicants for nursing positions.
Alright, Great and then maybe just a second question Yeah. As you mentioned you raised the outlook for wages on the Earth side, but it looks like you didn't raise it.
For the home health side of our for the combined company overall.
Just wondering why it's it's showing up more on the earth than it is elsewhere overall thanks.
It's really that increased use of contract labor the the rates for contract labor at remained elevated north of $240000 annualized per FTE versus an internal cost $96000. So when we saw that higher level in the first quarter.
It causes to change that assumption.
Yeah.
Thank you. Our next question will come from a J rice with credit Suisse.
Good morning Ajay.
How are you.
First to pick.
Pick up on your comments about the differential in payments between the with managed care is paying you once you get it for Medicare fee for service in the home Health Arena.
Can you I know you said, it's a substantial differential has that gap widened over recently or has it narrowed and in an environment, where you're having to turn away admissions because.
Because of the labor constraints.
Do you have I mean wouldn't that be something that naturally would put some give you some leverage vis vis managed care to say hey, we were going to take more of the fee for service.
Ah patients or is that just not available to you to make that kind of pushback.
Yes, so a J I'll address the first part regarding the differential and then Barb will hit the second part with regards to how we allocate our clinical resources. So.
With regard to the discount it's at about 40%.
And it has been roughly stable for the last several quarters its impact on our P&L, though has increased and that is because we are seeing more growth in these non episodic payments and a substantial portion of that is attributable to the United Health National contract.
The initiation of which we just anniversaried at the end of February 2022.
Yeah, So I'm going to touch on first to give you a little bit of a backdrop. When we look within the markets, where we have our agencies. When we look at quarter four of 2019, the corner to 2021 based on market data the Medicare fee for service enrollees in our markets decreased six 4%, but the M.
Enrollees increased 19, 1%. So we know we need to have a focus on this as you mentioned, though one of the things that we do do though is look at each individual location how are we handling our our labor and.
How we assign that our conversion rates have remained at historical levels for episodic versus non episodic, where historically about 73% to 75% conversion for episodic and about a 42% to 44% on non episodic that has remained stable, but we're just seeing those referrals increasing from the non epic.
Got it so what we've done recently is we've restructured certain aspects of our M&A team to focus more on strategic relationships.
And we are.
A proven leader that has spent a lot of her time with the Dce's acos really selling our value proposition. We have moved her over our entire team and we're talking about payer innovation. So that she can reengage with these providers to really sell on the value side of what we bring.
Or that we can improve our rates are with these plans.
Okay, maybe just as my follow up.
Increased as it was mentioned before your assumption about labor growth in the rehab hospital or business from three three to four to 4% to 5%.
I'm, assuming that doesn't reflect the increased pressure in the therapist area, which is still I think a big component of your labor. There. So does that suggest that maybe the increase for the nurses is higher or have you started to see some pressure in the therapist arena as well.
Hey, guys Mark I mean, we've.
There's always consideration meat side, but the pressure has been much more significant on the nursing aspect than it has been on the therapist and where we are trying to make sure that in all of our markets, we are paying competitive rates.
There is competition for our therapist is as well, but it's a it's.
Heavily skewed towards nursing right now, it's nursing and its nursing within contract labor.
Yeah.
Thank you. Our next question will come from Sarah James with Barclays.
Sarah Good morning, Sarah.
Good morning.
It's really helpful. You guys spiked out the different buckets of changes and some of them sound like they could be more.
Enduring trends like the teams to mileage reimbursement.
Maybe even gas prices and the hourly rates is there a way for you to break out those structural upticks in the 'twenty two guide what you're assuming there.
Says 20 ones just so we can understand what is temporary versus what.
What is more structural.
The mileage reimbursements worth about $5 million to $6 million in EBITDA for 2022.
So it wasn't so much attributable to higher gas prices, although that was the impetus for us initially looking at that there are a lot of things that go into determining the mileage reimbursement and actually when you look at the composition.
Gasses in there, but it's not the most significant piece of things like vehicle depreciation and maintenance and so forth. When we looked at our mileage reimbursement policy in the context of overall compensation structure in a tight labor market, we determined that it needed to be more competitive and so we made that adjustment.
Okay, and just to clarify on Kevin's question. So you talked about meeting about 500.
Ftes to be fully staffed and adding.
There would be this quarter.
So how should we think about.
You know a reasonable timeframe in which you can.
Bridge to that 500.
If you were currently adding 30 a corner.
And I would not use 30, a quarter as our run rate for two reasons. One is our hiring was extremely difficult for everybody in the first quarter largely due to the omicron Serge.
There was no there was no available supply and we're already seeing that improve and if you put that together with the comments that mark made about the substantially increased number of resources, we have for recruitment and some of the things that we're doing to improve retention, we would expect the rate of new hires to accelerate.
And so we're hoping that by the time, we exit this year.
We're gonna be down to somewhere in that kind of 250 contract labor FTE range. It is.
Not unusual for the first quarter to be the lowest quarter in terms of <unk>.
New applicants and new hiring youre coming off the holiday period, where people typically arent looking for jobs and so that puts you into almost February before you start seeing a lot of activity and we saw a lot of activity, but it just started later in the quarter, but that is typical of the seasonality of hiring.
Thank you. Our next question will come from Matt <unk> with William Blair.
Hey, good morning, Matt.
Hey, good morning, everyone.
Thanks for taking the questions. The first is a follow up to a J.
Oh, the MA versus fee for service, that's obviously that gap has persisted for a while I know a thought it then maybe moving to episodic what would be a way to bridge that gap.
So a couple of questions here first.
It sounds like from a negotiating standpoint, you feel perhaps more confident because of the rate payers are getting do you feel like you have more leverage.
Then in the past I guess, what gives you confidence on the go negotiate inside a b piece, one and then the second you referenced.
The piece that's been taken some risk so how would you envision that being structured in terms of upside or upside downside.
Yeah. So I'll take the first part and then I'm going to pass it over to Barb, we definitely feel like we have increased leverage and that is because ah clinical.
Labor is in short supply and we have it and it's also been proven that our home health care is extremely cost efficient.
So if the.
If these plants are predominantly driven.
Im trying to get members and keep their medical loss ratios as low as is.
As is possible, they're going to have to compete in a tight market for limited resources and again, we have those resources and the quality of care that we're consistently producing for those patients is high.
Yeah, so to add to that.
So our focus is we we would like more contracts that are on at the episodic payment, but if not then certainly we weren't those value based components, we have industry, leading low re hospitalization rate that's critical to the that MA plans and as I mentioned, we moved our a leader into the payer innovation because she has historically done a good job selling that as it.
The Acos, where we have received those value based components as well as D. C ease and so we're going to use that same information to go to the M. A players and so I think it's just going to have a really important role with that going forward, but as Doug mentioned you know the other talking point, we have as you know we don't want to de prioritize their members, but theyre going to fall.
Ours is to if we're not being paid the fair rates that we need to to turnaround and pay to our clinicians.
Okay that makes a lot of sense and then just you obviously have spoken a lot about recruiting today, obviously the other piece of this is retention and I know you gave.
It increases Doug you just alluded to some of the increased reimbursement around mileage just curious what else you're doing to improve retention and then I guess more broadly.
It is workforce turnover and workforce stability is something that it is today in Boston executive compensation or might it be something where given the strategic nature of it that becomes a bigger piece of that in the future.
Are you talking specifically about the home health segment at this point or.
Well no I'd just sort of the both segments are thinking more about nursing are more broadly.
Yeah, So and then on the nursing side for home Health I will say that we certainly made some good progress as it relates to the retention of our home health nurses a lot of that has been around you know the market adjustment that we did as well as this mileage piece, but in addition, we're adding things like leadership development, we see individuals coming in wanting to know what opportunities they have for growth.
And so focusing a lot on leadership development as it relates to our nurses and our therapists and that you know we think that's going to have a big piece as it relates to the retention we've not seen that same progress on retention on the hospice side, we are piloting some new staffing models and a few of our markets.
And our early signs are these are gonna be received well and if so we will look to make some changes in how we model our staffing as it relates to hospice that I think will drive improved retention and many of those same strategies work in the hospitals are nurses of.
Of course, they want to be paid a marketable rate and we want to make sure that our that we compensated accordingly.
They're also very focused on additional clinical education, they're interested in the ability to get certifications such as the C. R. R and for our nurses and want to learn about additional programming, where they can get more specific knowledge into whether it's a neuro.
Neuro patient or a stroke patient or orthopedics, so clinical education means a lot for these.
Clinicians and so we make sure that we have a robust agenda.
And opportunities for them to gain that education. So certainly compensation is a big part of it but there are the other noncore.
Non compensation categories that play a big role in retention.
Thank you. Our next question will come from Andrew Mok with UBS.
Hi, good morning.
Just wanted to follow up on that 100 basis point increase in cost per FTE assumption in the guide that seems like a pretty big assumption to change and hold guidance. So can you take us through the impact of that increase in any offsetting assumptions to consider here. Thanks.
Yeah. So first of all you may recall at the outset of the year.
We issued guidance with wider ranges than we historically have and that was somewhat a function of the fact that our company has been growing larger but it was also because when we decided this and our Q4 call. There was a greater uncertainty regarding some of the assumptions in the primary assumption.
It was around the increase in labor costs. So there was some capacity built into that guidance sport. It's also as you know there are there are trade offs up the P&L from that predominantly around volume and price increases and we clearly saw favorable results. There in Q1. So you put all of that into the mix.
And we were comfortable reaffirming the guidance ranges that we have out there and.
And those do accommodate this change in the assumption regarding her if labor cost increases.
Got it that's helpful. And then just a follow up on the discussion around home health and mix, if we try to isolate the impact of United converting its national contract to per visit reimbursement is there a number that you can share that helps us understand how the core fee for service episodic admissions growth has been shredded.
Over the past year, or so and what percentage of your MA revenue is now episodic versus per visit thanks.
So I'll answer the second one first because I've got it at my disposal will have to think about the first one the percentage of our MAA in managed care business that is episodic is 30% and that does come at a much more narrow discount than does the non episodic.
<unk> episodic.
Non Medicare fee for service business is that about an 8% discount to the non episodic in terms of the trends on the episodic.
What I can tell you is that we saw sequential growth in our episodic admissions growth from Q4 to Q1. So the trend line. There is positive and in March we actually had our strongest episodic admission.
Months since March of 2021 .
When you do look at that move that contract, which is anniversarying now this first quarter in quarter. One 500 of what historically would have been episodic admissions under the UHT are converted to non episodic this quarter.
Thank you. Our next question will come from Brian Tim Quillin with Jefferies.
Ryan Good morning, Brian .
Hey, good morning, Arun its Jackson on for Brian apologies for the <unk> to.
Point.
So it's an upgrade.
Thank you.
So I wanted to touch a little more on the volume side, a lot of a lot of conversation around labor and I don't want to belabor. The point I think you have a great data point, so when we look at the Earth's business specifically.
Can you give us a sense of of what mix is looking like right now and specifically I'm thinking about as elective procedures get on we look at maybe orthopedics I know that mix had gone down a little bit in 2020 for you all.
How should we be reading mix and how that trends to sort of same store discharge is in the RF business for the rest of the year.
I think the best way to think about it if you.
Recall, we placed a big emphasis on our stroke program and we saw that come.
Come back nicely the first quarter, we had 18, 8% of our discharges were stroke.
The we had over 22% were neuro relative to elective procedures. We did start to see a few more orthopedic patients and their recall that it's still fairly small part of our overall mix, but we did start to see some drawing placements come back in.
Those that have a high degree of Comorbidities that go with it so we.
We were pleased across the board in terms of the ongoing demand. We saw clearly some of the acute care hospital systems start to run into a more normalized pattern as the number of Covid cases dropped in and they resumed a normal course of of our both our planned surge.
Trees as well as what we saw on the higher acuity patients.
And so our overall acuity was relatively constant in Q1 in terms of what we ran for most of 2021, which is a positive thing and again it was that strong growth in stroke in neuro that Mark mentioned, you know from a payor mix perspective.
So really nice growth in the quarter in our fee for service book of business that was up nine 5% on a year over year basis, Medicare advantage actually declined in the quarter by three 7%, but remember that's up against a 34% increase that occurred in Q1 of last year I actually think what this.
As evidence of is that we had suggested previously that there would be a stickiness to.
The accelerated MAA volume that we had recognized from 2020 through 2021, and we're seeing that so we're seeing a more normalization in the payer mix, but with an elevated level of Medicare advantage and the success that we've had demonstrating our value proposition to the MA plans on the Earth side has led to a <unk>.
<unk> narrowing of the payment differential there are more than 80% of our Medicare advantage revenues on the <unk> side are paid on an episodic basis and the discount is right at 5%.
And then as far as for home health.
Our admission that patients that underwent elective procedures have actually recovered from the pandemic and actually are now above our 2019 level we saw a.
20, 20% increase quarter over quarter quarter, one of last year to quarter one of this year in the elective.
But while they have recovered there has been a shift on those referral sources of those elective you probably remember us talking about spending more time in ambulatory surgery centers as we saw elected moving to those centers. So what we've seen is because of that shift and where those referrals are coming from it's good to see electives coming back, but they elected that have come.
<unk> are coming at a 50 50 mix of an a versus Medicare and a lot of that we feel is because of the referral sources.
As far as our E L F and ILS patients back in 2019, 22% of our Medicare patients resided in these facilities that percentage has declined to 13% in quarter. One of this year access is back to pretty normal at these facilities and their census are beginning to increase so we're back piloting the <unk>.
D care program that was so strong for us prior to the pandemic and are seeing some initial positive trends in those pilot markets. So we'll be expanding that further into and in each of the subsequent quarters.
Okay got it really helpful color and then for my follow up is for Barb two quick metrics on when I touch on and inhabit business one.
As per episode continues to track above peers, I should we be thinking about that as an opportunity going forward given the challenging labor environment and things like sequestration rolling off throughout this year or that this is great fishing.
Forgiveness, and then the second one being length of stay in the hospice business, how did that track towards the end of the quarter and how is it looking early in Q2.
Sure. So on visits per episode, but it's an area that we continually put focus on particularly with our use of Metalogic. What I will say is when you look at the patients that come to us from our facilities, there very therapy and nursing.
Focused and so anytime you have a strong combination of that therapy need in nursing need you're going to have more visits per episode as we've seen our electives grow that also increases a little bit on that visit per episode because it tends to be again that combo of nursing and therapy intensity. So we continue to focus with using Metalogic then.
What we've seen is that we continue to manage well and we're managing below what the Metalogic recommendation is but a lot of it does have to do with the mix of the patients.
And then your second question I'm, sorry next hospice like Oh. This length of stay that's been pretty consistent for us what I would say is it is an area that you know when you compare.
Quarter four our length of stay was 106 quarter. One. It was 108, we continue to look to diversify our referral sources. We've historically I received a lot of referrals from the ILS L. F Smith and from home health, we're spending more time in the acute care hospitals are that's where you tend to get some of the patients that have more of that.
Shorter length of stay and so we are continuing to focus on diversifying that referral source.
Thank you. Our next question comes from John Ransom with Raymond James.
Hello, Josh Good morning, John Hey, good morning.
This one is for Barb you know a while ago there was a big public fight with April and she was approaching some of your people. If you were to look at say your top.
You know, maybe six or seven key executives in the home health how many of those have you had to replace and has the rate of poaching settled down since since you called that lawsuit.
Well at the executive level I've not had to replace any of the key executives, we added a chief human resource officer, but my key executives over sales and operations are.
That had been there for a long time, so they are well committed in doing a great job. We also were able to get commitment for the next level of senior executives that manage ops and sales in the field. So I think we're in a good place both as it relates to senior level and executive management.
Barb you had been adding to your team in anticipation of the spin off So for instance, recently hiring a chief information Officer correct.
Great.
My follow up is when.
When we think about these deals with <unk>.
Managed care and home health and two way deals I know re hospitalization is obviously, a big one but.
Let's say, it's a fee per visit with a kicker what are some of the other things that you would get rewarded for that or these kind of upside downside deals or are these kind of fee for service with outside Kickers. If you can jump over a couple of hurdles.
Yeah. It would be both I mean, obviously, we're looking always for any sort of value based ER positive impact I would say in addition to a hospitalization rates as you know so you have a hospitalization rates that is for patients that came to us from a physician so they've never even been in the hospital. So youre looking at ER visits hospitalization rates readmission rates.
Timely initiation of care, because we know that's really connected to the overall patient satisfaction as well as quality outcomes.
So those are the main ones that we would focus on.
Okay.
And metalogic as having a tool in the tool coming out that's kind of in.
In episode.
The ability to make enough and episodes adjustments do you think that's you know it could be meaningful.
Is that in fact get rolled out or is this kind of a nice nice to have feature.
No I think it will be meaningful in fact, we're piloting that new tool called Metalogic pulse is very similar to news and that has been well accepted by our hospice clinicians because of that it looks at the current status of the patient and any changes in their status versus just a snapshot. So we think that this will be even.
More well received by our clinicians and it also does help us because some patients progressed quicker than others. Some decline and I think this will be helpful for us to know where and when do we need to apply those visits and make it appropriate to the current status of the patient versus that initial snapshot at the start of care. So we're excited early into the pilot, but I'm excited about.
Where it's moving.
Thank you. Our next question will come from Matthew Borsch with BMO capital markets.
Hey, good morning, Matt.
Thanks.
Hi.
My first question was you talked about the amount of unmet demand.
But you had to turn away an in home health.
Can you can you talk to where that you think that went.
Yeah.
You know, it's kind of hard to say, where it went I think you know when you look at you know a lot of folks in the market had been dealing with some of the same challenges from a staffing perspective, and so you know we have seen though that theres some of our competitors in the local markets that well, except the referrals, but potentially not be able to provide.
That timely initiation of care, it's something we have consistently said to our team that the reason we have great quality metrics, particularly as it relates to that hospitalization readmission rate is because we provide the timely initiation of care. So we we won't accept a referral unless we can do that I will also mention that.
You know certainly we have you some agency dollars to help with that we can know because agency cost us about $107 more per visit than our own staff. We will only use agency where it is that short term solution. So either we have somebody out for a period of time and we've hired in their orientation.
So that we can keep those referrals coming but if we're in a market where we don't see that light quickly at the end of the tunnel, we just can't afford to use those resources, even though they're available and that you know historically.
About somewhere between 20, and 25% of patients who are referred to home health agency wide actually wound up wind up not receiving that care for various reasons, including just a lack of certain companies to whom they are referred to initiate staffing my guess is that in recent periods that.
Number has been elevated and where you're seeing it show up is increased length of stay in inpatient settings and that is substantially more costly and so I think that's all going to contribute to some of these discussions that we'll be having with MAA in managed care plans.
Well, taking just my follow up picking right up on that.
You touched on the possibility of us.
Maybe needing to turn away some of the M&A volume.
Selectively if he can.
Make headway on the reimbursement front I guess I'm, just curious why you're not doing that already given.
The amount of demand that you are facing and the reimbursement differentials.
Yeah.
You mentioned the consistent conversion rates. So that's something we watch what I will say it is market by market because the markets, where we have a full staff in place you know we're accepting those referrals. Both from you know we wouldn't be turning away any episodic first we would certainly be accepting all the episodic initially at the other thing that.
We're watching is to make sure that the referral sources that are sending us that non episodic business are doing it with episodic as what we've heard from our sales team is there are truly referral sources that actually kind of closed their door over the years to us because they thought I cant just give you one type of patient. So we were happy to see that when we looked last year at the full year of 'twenty.
One those referral sources that census that non episodic sent us an additional 4500 Medicare admission we looked at that again here in quarter. One those referral sources that are sending us non episodic sent us an additional 1400 Medicare. So we're following that very closely.
Thank you. Our next question will come from Scott Fidel with Stephens.
Good morning, Scott and Scott.
Hi, good morning. Thanks.
First question just wanted to go back to the.
Proposed or if rates that you had talked about and you had mentioned the EAC specific estimate of two 9%.
In the proposed rule CMS had predicted a two 8% for the industry and then that partially offset by an 80 basis point reduction in the outlier thresholds just interested whether do you have any similar impact from the reduction in the outlier thresholds or is that two 9% estimate.
That proposal.
Okay.
We have such little exposure and the high cost outlier that it rarely.
It is impactful and that was the same way. It was on this particular proposed rule so that affects other providers to a much greater extent than it does us just simply because we have such a low percentage yeah that 2.9% is all inclusive and it's because of the phenomenon that Mark just mentioned, we have less than one half of one <unk>.
Were sent in the way of outlier payments.
Got it and then just as my follow up and I guess I'll return to the.
The ongoing discussion around the DNA discounts versus fee for service and maybe if we just tried to use 2023 bidders and exercise on that since the MA plans are just in the right book alone are going to be getting around a 5.25%.
Right Bom, that's even before some more benefits still get from from normalization of risk adjustment and if we look at the Earth and hospice proposals and assume H H relatively similar we're sort of in that high twos to 3%. So I guess my question is would you be assuming that for your.
Two segments that you're MAA.
Our business rate updates would be more in line with the 2.5% to 3% or do you really see any more opportunity to close the gap with that much healthier rate increase at the plants themselves will be got it.
It's the latter.
Okay.
Thank you.
I am showing no further questions at this time I would now like to turn the program back over to our presenters for any additional or closing remarks.
If anyone has any additional questions. Please call me at 2059705860. Thank you again for joining today's call.
Thank you ladies and gentlemen. This concludes today's event you may now disconnect.
Yeah.
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Okay.
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